In re PB&R
| Decision Date | 15 July 2016 |
| Docket Number | No. 112,580,112,580 |
| Court | Kansas Court of Appeals |
| Parties | In the Matter of PB&R, a Limited Liability Partnership. |
Marc A. Powell, of Powell Law Office, of Wichita, for appellant.
Elaine Reddick, of Reddick Law Office, of Wichita, for appellee.
Jeffery R. Brewer, of Jeffery R. Brewer, P.A., of Wichita, for appellee.
Before Gardner, P.J., Leben, J., and Hebert, S.J.
Leben
, J.
Marc A. Powell, Jeffery R. Brewer, and Elaine Reddick were law partners, but they weren't able to agree on how to wind up their business affairs after two of the three decided to leave. Powell asked the district court to supervise the dissolution; after a trial, the district court made orders that would dispose of all of the partnership's assets and debts. Powell has appealed nearly every aspect of the decision.
Powell argues that the court wrongly interpreted the partnership agreement and the Kansas Revised Uniform Partnership Act, leading to incorrect rulings about the partners' capital accounts, the amounts of money owed back to the partnership for advanced client expenses, the payments on a loan with Intrust Bank, other funds the partners owe back to the partnership, and the distribution of physical assets. Powell also challenges the court's appointment of Reddick as the partner in charge of wind-up. Finally, he argues that the court failed to independently analyze and consider each of his claims and should have granted him a new trial.
When supervising dissolution of a partnership, the district court acts as a court of equity, giving it the discretion to determine what is fair and equitable under the circumstances. We find no error here in the district court's interpretation of the Kansas Revised Uniform Partnership Act or the parties' partnership agreement. Nor do we find that the district court exceeded its discretion in determining a fair and equitable resolution of the disputes between the partners. We therefore affirm the district court's judgment.
Powell and Brewer started their limited-liability partnership in 1997. Reddick became a partner in 2000. A few other partners have come and gone, but since 2002, Powell, Brewer, and Reddick have been the only partners. The partnership's name has changed some over the years, but loan documents relevant to this appeal show it as Powell, Brewer, Reddick, L.L.P.; all parties have referred to it as PB&R in the briefing to our court.
Based on their original capital contributions—the money they initially paid into the partnership—Powell and Brewer each own 38.5% of the partnership capital, and Reddick owns 23%. The controlling partnership agreement is dated December 31, 2001.
The agreement states that the partners will determine by majority vote the monthly overhead costs for themselves and any of-counsel attorneys (lawyers who associated with PB&R but had no ownership interest).
In practice, according to trial testimony, Powell, as the managing partner, was primarily in charge of determining the total overhead budget and each person's monthly share. The agreement defines “monthly overhead” to include the cost of a receptionist, a bookkeeper, and an accountant, as well as phone service, computer services, postage, and legal research.
The partnership agreement also describes a loan from Intrust Bank that Powell is individually responsible for. The agreement says that Powell can use the partnership's overhead revenue to repay the loan, but if that revenue isn't adequate, Powell has to pay back the loan personally. The agreement also includes some terms about the partners' capital accounts and provides that partners are personally responsible for advancing client expenses.
According to the agreement and the trial testimony, the partnership followed an “eat what you kill” compensation plan—the partners didn't share profits. So compensation for Brewer and Reddick was straightforward: they always received 100% of their earned fees minus their expenses (which included overhead calculated under the agreement). Their monthly “draw sheets” listed the fees they had earned that month and subtracted their overhead and expenses; the remainder was their monthly take-home pay.
According to trial testimony, Powell's compensation was less straightforward—he was not guaranteed 100% of his earned fees minus expenses. After Brewer and Reddick received their paychecks, Powell received whatever was left over. Sometimes that amount was more than Powell's earnings minus expenses, and sometimes it was less. Practically speaking, this arrangement meant that if Powell hadn't set the amount others paid for overhead at a sufficient level, then Powell absorbed the partnership's losses. It also meant that if the partnership had any excess income (presumably because overhead payments exceeded actual overhead expenses), Powell would receive that. But when Powell personally absorbed a partnership loss, his partnership capital account reflected the benefit to PB&R as a whole—his capital account (reflecting his contributions to the firm) increased by the amount of the loss.
In March 2012, Reddick and Brewer gave notice that they wanted to leave the partnership, and the partnership dissolved on June 30, 2012. In October 2012, Powell filed a petition for judicial supervision of dissolution. At a 4–day trial in April 2014, Reddick and Brewer both testified, as did PB&R's bookkeeper, Dawn Powell, and its accountant, Tom DeBerry. Reddick also presented expert testimony from an accounting professor, Dr. Jeffery Quirin, who provided a sample wind-up plan and explained the accounting process for winding up a partnership under the Kansas Revised Uniform Partnership Act. Powell did not testify.
After the parties presented their evidence, the district court made some preliminary rulings and asked each of the parties to propose a wind-up plan. On June 2, 2014, Powell and Reddick each argued for their proposed plan, and Brewer supported Reddick's proposal. The district court chose Reddick's plan, with minor modifications, and appointed her to oversee PB&R's wind-up.
Powell has appealed to this court.
When a court supervises the dissolution of a partnership, it acts as a court of equity. Peterson v. Peterson , 186 Kan. 234, Syl. ¶ 1, 349 P.2d 870 (1960)
; see Eaton v. Johnston , 235 Kan. 323, 328, 681 P.2d 606 (1984) ; Snodgrass v. Bloomcamp , 225 Kan. 65, 68, 587 P.2d 316 (1978) (citing Peterson ); see also K.S.A. 56a–104(a) (). A court sitting in equity has the discretion to determine what is fair and equitable under the circumstances. Eaton , 235 Kan. at 329, 681 P.2d 606. So except where an issue is specifically addressed by statute or the partnership agreement, the district court has a great deal of discretion.
As such, we review the district court's actions for an abuse of discretion. Eaton , 235 Kan. at 329, 681 P.2d 606
; Scarrow v. Johnson , No. 100262, 2009 WL 5206230, at *4–5 (Kan. App. 2009) (unpublished opinion); see Mangus v. Stump , 45 Kan.App.2d 987, 999, 260 P.3d 1210 (2011), rev. denied 293 Kan. 1107 (2012) (); see also Gillespie v. Seymour , 250 Kan. 123, 143, 823 P.2d 782 (1991) (); Maras v. Stilinovich , 268 N.W.2d 541, 544 (Minn. 1978) (). A district court abuses its discretion if its action is based on an error of law or fact or is otherwise arbitrary or unreasonable.
Northern Natural Gas Co. v. ONEOK Field Services Co. , 296 Kan. 906, 935, 296 P.3d 1106 (2013)
; Scarrow , 2009 WL 5206230, at *4.
In reviewing the district court's legal conclusions to determine whether its ruling was based on a legal error, we independently interpret statutes and contracts without deference to the district court's conclusions. Neighbor v. Westar Energy, Inc. , 301 Kan. 916, 918, 349 P.3d 469 (2015)
(statutes); Prairie Land Elec. Co
–
op v. Kansas Elec. Power Co
–
op , 299 Kan. 360, 366, 323 P.3d 1270 (2014) (contracts). In reviewing the district court's findings of fact, we ask whether they are supported by substantial evidence—evidence that a reasonable person might accept as sufficient to support a conclusion. Gannon v. State , 298 Kan. 1107, 1175, 319 P.3d 1196 (2014). In reviewing the district court's exercise of discretion, where no factual or legal error has been made, we look to the reasonableness of the district court's decision and reverse only if no reasonable person would agree with the decision. Cresto v. Cresto , 302 Kan. 820, 848–49, 358 P.3d 831 (2015).
With these legal standards in mind, we turn to Powell's specific contentions. Because the issues in this case are not easily separated and each party organized his or her brief differently, we have reorganized the issues.
The parties agree that the December 31, 2001, partnership agreement controls. But where the partnership agreement is silent on a particular issue, the Kansas Revised Uniform Partnership Act governs: “To the extent the partnership agreement does not otherwise provide, this act governs relations...
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