Facts

Plaintiffs Everest Properties II LLC (EP) and Everest Management LLC (EM) became a five percent limited partner in Prometheus Income Partners (PIP), a California limited partnership called. EP was a Pasadena-based real estate investment company. The other additional limited partners in PIP assigned their claims to EP.

Defendant Sanford Diller, a San Francisco-area lawyer and real estate developer, created PIP to own and operate two apartment buildings in Santa Clara. PIP's general partner was defendant Prometheus Development Company (PDC), a California corporation wholly-owned by DNS Trust (DNS), Diller's family trust. PIP had 18,955 shares of limited partnership interest held by approximately 920 limited partners.

In May 2002, PDC offered that an affiliated entity, PIP Partners-General (PIPPG) acquire PIP shares through a merger transaction. PIPPG was 99 percent owned by DNS and 1 percent owned by Diller's daughter. PIP's limited partners approved the transaction in July 2002. The transaction's details were sent to the limited partners in a proxy statement prior to the consummation of the transaction.

EP and EM filed suit on behalf of all the limited partners for breach of fiduciary duty.

PLAINTIFFS' CONTENTIONS:
The plaintiffs contended that defendants issued a proxy statement with deliberate and material misstatements as well as omissions, which led the limited partners to agree to unfairly low compensation for their PIP shares.

DEFENDANTS' CONTENTIONS:
The defendants contended that they provided the required information for the transaction and did not breach their fiduciary duty to the limited partners.

Result

The court found in favor of the plaintiffs for $3,609,453. $774,579 plus $158,373 in prejudgment interest was awarded to EM while $2,834,874 plus $579,626 in prejudgment interest was awarded to EP. The court also found that PDC improperly withheld $10,800,000 from the limited partners in net settlement proceeds from a construction defect claim.