Frame v. PricewaterhouseCoopers 11/28/05 CA1/5

SUPREME COURT CASES

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: A106383

Case Date: 03/22/2006

Preview:Filed 11/28/05

CERTIFIED FOR PARTIAL PUBLICATION* IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE TOM FRAME et al., Plaintiffs and Appellants, v. PRICEWATERHOUSECOOPERS LLP, Defendant and Respondent. Appellants Tom Frame, Bruce Miller, and Ronald G. VandenBerghe (for themselves and as representatives of a class) and Six Sigma LLC (by its trustee in bankruptcy), maintain the trial court erred in granting respondent PricewaterhouseCoopers LLP (PwC) summary judgment on claims based on theories of conspiracy, aiding and abetting, and third party beneficiary law. In the published portion of our opinion, we conclude that a triable issue of material fact as to appellants' aiding and abetting claim precludes summary judgment, but that summary adjudication was properly granted with respect to appellants' conspiracy claim. In the unpublished portion of the opinion, we determine that appellants have no cause of action under a third party beneficiary theory as a matter of law. Because the court erred in regard to appellants' aiding and abetting claim, we reverse the judgment. (Alameda County Super. Ct. No. 2002056106) A106383

Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of part D. 1

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I. FACTS AND PROCEDURAL HISTORY A. FACTUAL SUMMARY For background purposes, we summarize the relevant events according to the parties' statements of material facts and evidence in the trial court. 1. The Partnerships' Investments in PinnFund Grafton Partners, LP (Grafton) and Allied Capital Partners (Allied) were limited partnerships. Certain individuals who invested in Grafton and Allied are referred to as appellant "Investors." Appellant Six Sigma LLC (Six Sigma) was formed after Grafton and Allied. The general partner of Grafton and Allied, and the managing member of Six Sigma, was Peregrine Funding, Inc. (Peregrine). Peregrine was owned and managed by James Hillman. Hillman created and promoted Grafton, Allied, and Six Sigma as vehicles for investing in loans issued by PinnFund USA, Inc. (PinnFund), a mortgage company owned and operated by Michael Fanghella. Pursuant to a Spot Loan Funding Agreement (SLFA), the funds provided to PinnFund were for the purpose of creating mortgages; when not so invested, the funds were to be held in a trust account with PinnFund as trustee. The SLFA also provided for annual audits of each Funding Entity (e.g., Grafton and Allied) and entitled each Funding Entity access to PinnFund's audited financial statements. As it turned out, Fanghella was misappropriating the money invested in PinnFund. Appellants contend that Peregrine/Hillman, who had known Fanghella for 20 years and directed the limited partnerships' investments into PinnFund, were participants in the PinnFund/Fanghella fraudulent scheme. 2. Peregrine Hires PwC To Audit Grafton and Allied (March 1999) In March 1999, Peregrine/Hillman hired PwC to audit the financial statements of Grafton and Allied for the year ended December 31, 1998. The audit engagement letter, dated March 11, 1999, was addressed to Peregrine's Chief Financial Officer, Peter Kodzis. It read in part: "The purpose of this letter is to confirm our understanding of the 2

terms of our engagement as independent accountants of Grafton Partners and Allied Capital Partners (the `Partnerships'). [

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