G & S Investments v. Belman, 2

• Decision Date: 30 November 1984
• Docket Number: CA-CIV,No. 2,2
• Citation: 145 Ariz. 258,700 P.2d 1358
• Parties: G & S INVESTMENTS, an Arizona general partnership; Oliver A. Jones, Jr.; Dr. Ross Chapin and Bette M. Chapin, husband and wife, Plaintiffs/Appellees/Cross-Appellants, v. Fred N. BELMAN, as the Personal Representative of the Estate of Thomas N. Nordale, deceased, Defendant/Appellant/Cross-Appellee. 4997.
• Court: Arizona Court of Appeals

Page 1358

700 P.2d 1358

145 Ariz. 258

G & S INVESTMENTS, an Arizona general partnership; Oliver A. Jones, Jr.; Dr. Ross Chapin and Bette M. Chapin, husband and wife, Plaintiffs/Appellees/Cross-Appellants, v. Fred N. BELMAN, as the Personal Representative of the Estate of Thomas N. Nordale, deceased, Defendant/Appellant/Cross-Appellee.

No. 2 CA-CIV 4997.

Court of Appeals of Arizona Division 2.

Nov. 30, 1984.

Review Denied April 11, 1985.

Miller & Pitt, P.C. by Robert A. Fortuno, Tucson, for plaintiffs/appellees/cross-appellants

Molloy, Jones, Donahue, Trachta, Childers & Mallamo, P.C. by Michael J. Meehan and David A. McEvoy, Tucson, for defendant/appellant/cross-appellee.

OPINION

HOWARD, Judge.

This case involves a partnership dispute arising out of the misconduct and subsequent death of Thomas N. Nordale. There are two principal issues in this case: whether the surviving general partner, G & S Investments, is entitled to continue the partnership after the death of Nordale, and how the value of Nordale's interest in partnership property is to be computed. The trial court, after making findings of fact and conclusions of law, entered judgment in favor of G & S Investments, finding that it had the right to continue the partnership and that the estate was owed $4,867.57. However, the trial court, without stating any reasons, failed to award G & S Investments the attorney's fees it requested pursuant to A.R.S. § 12-341.01. This failure is the subject of the cross-appeal filed by G & S Investments.

The record, including the findings of fact, disclosed the following. Century Park, Ltd., is a limited partnership which was formed to receive ownership of a 62-unit apartment complex in Tucson. In 1982 the general partners were G & S Investments (51 per cent) and Nordale (25.5 per cent). The remaining partnership interest was owned by the limited partners, Jones and Chapin.

In 1979 Nordale began using cocaine, which caused a personality change. He became suspicious of his partners and other people, and he could not communicate with other people. He stopped going to work and stopped keeping normal business hours. He stopped returning phone calls and became hyperactive, agitated and angry toward people for no reason. Commencing in 1980 he made threats to some of the other partners, stating that he was going to get them and fix them.

Nordale lived in the apartment complex. This led to several problems. He sexually solicited an underage female tenant of the complex. Despite repeated demands, he refused to give up possession or pay rent on an apartment that the partnership had allowed him to use temporarily during his divorce. His lifestyle in the apartment complex created a great deal of tension and disturbance and frightened the tenants. At least one tenant was lost because of the disturbances.

Fundamental business and management disputes also arose. Nordale irrationally insisted upon converting the apartment complex into condominiums despite adverse tax consequences and mortgage interest rates that were at an all-time high. He also insisted on raising the rents despite the fact that recent attempts to do so had resulted in mass vacancies which had a devastating economic effect on the partnership enterprise.

By 1981 Gary Gibson and Steven Smith (G & S Investments) had come to the conclusion that Nordale was incapable of making rational business decisions and that they should seek a dissolution of the partnership which would allow them to carry on the business and buy out Nordale's interest.

The original complaint, filed on September 11, 1981, sought a judicial dissolution and the right to carry on the business and buy out Nordale's interest as permitted by A.R.S. § 29-238. The key allegations of the complaint were as follows:

"5. Defendant has become incapable of performing his part of Century Park's Articles of Limited Partnership ('the articles'), has been guilty of such conduct as tends to affect prejudicially the carrying on of Century Park's business, has willfully or persistently committed breaches of Century Park's articles and breaches of his fiduciary duties to Century Park and its partners, and otherwise has so conducted himself in matters relating to Century Park's business that it is not reasonably practicable to carry on the business in partnership with him.

6. Defendant wrongfully has caused a dissolution of Century Park in contravention of Century Park's articles and has acted with wreckless [sic] disregard of the rights of Century Park and its partners.

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8. Other circumstances render a dissolution of Century Park equitable including, but not limited to, the fact that plaintiffs cannot agree with defendant on the management of Century Park's business and the disposition of Century Park's assets."

The key provisions of the prayer for relief were as follows:

"1. Declaring that defendant wrongfully has caused the dissolution of Century Park in contravention of Century Park's articles and that Century Park has been dissolved or, alternatively, declaring a dissolution of Century Park.

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3. Declaring that plaintiffs may carry on Century Park's business without and to the exclusion of defendant, possess Century Park's property for that purpose, and for the purpose of buying out his interest and pay to defendant the value of his interest in Century Park."

After the filing of the complaint, on February 16, 1982, Nordale died. On June 28 1982, appellees filed a supplemental complaint invoking their right to continue the partnership and acquire Nordale's interest under article 19 of the partnership's Articles of Limited Partnership. The key provisions of article 19 are as follows:

"(a) In the interest of a continuity of the partnership it is agreed that upon the death, retirement, insanity or resignation of one of the general partners ... that the surviving or remaining general partners may continue the partnership business....

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(e) Rules as to resignation or retirement [which under Article 19(d) includes death].

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(2) In the event the surviving or remaining general partner shall desire to continue the partnership business, he shall purchase the interest of the retiring or resigning general partner...." (Emphasis added)

Such other facts will be set forth as are necessary to the issues presented by the parties.

THE FILING OF THE ORIGINAL COMPLAINT

Appellant contends that the mere filing of the complaint acted as a dissolution of the partnership, requiring the liquidation of the assets and distribution of the net proceeds to the partners. He takes this position because he believes the estate will receive more money under this theory than if the other partners are allowed to carry on the business upon payment of the amount which was due to Nordale under the partnership agreement. Appellees contend that the filing of the complaint did not cause a dissolution but that the wrongful conduct of Nordale, in contravention of the partnership agreement, gave the court the power to dissolve the partnership and allow them to carry on the business by themselves. See A.R.S. § 29-238. We agree with appellees.

Contrary to appellant's contention, Nordale's conduct was in contravention of the partnership agreement. Nordale's conduct affected the carrying on of the business and made it impracticable to continue in partnership with him. His conduct was wrongful and was in contravention of the partnership agreement, thus allowing the court to permit appellees to carry on the business. See Crane on Partnership § 75, p. 430 (1968); Zeibak v. Nasser, 12 Cal.2d 1, 82 P.2d 375 (1938) (holding that a partner who had been guilty of such conduct as tended to affect prejudicially the carrying on of the business and which made it not reasonably practical for the remaining partners to carry on the business with him had wrongfully caused the dissolution of the partnership, and further holding that although the actual dissolution was effected by the decree of the court, nevertheless such dissolution was caused by the wrongful conduct of the plaintiff in contravention of the partnership agreement). See also Drashner v. Sorenson, 75 S.D. 247, 63 N.W.2d 255 (1954) and Vangel v. Vangel, 116 Cal.App.2d 615, 254 P.2d 919 (1953), aff'd in part, rev. in part and remanded, 45 Cal.2d 804, 291 P.2d 25 (1955). A.R.S. § 29-232(A) authorizes the court to dissolve a partnership when:

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(2) A partner becomes in any other way incapable of performing his part of the partnership contract.

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business.

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him...."

In the case of Cooper v. Isaacs, 448 F.2d 1202 (D.C.Cir.1971) the court was met with the same contention made here, to-wit, that the mere filing of the complaint acted as a dissolution. The court rejected this contention. To paraphrase the reasoning of the court in Cooper v. Isaacs, supra, because the Uniform Partnership Act provides for dissolution for cause by decree of court and appellees have alleged facts which would entitle them to a dissolution on this ground if proven, their filing of the complaint cannot be said to effect a dissolution, wrongful or otherwise, under the act; dissolution would occur only when decreed by the court or when brought about by other acts.

ARTICLE 19 OF THE ARTICLES OF PARTNERSHIP

Article 19 of the Articles of Partnership provides that upon the death, retirement, insanity or resignation of one of the general partners the surviving or remaining general partners may continue the partnership business. It further provides that should the surviving or remaining general partners desire to continue...