Casey Ranch Ltd. Partnership v. Casey

• Decision Date: 23 September 2009
• Docket Number: No. 25026.,25026.
• Citation: 773 N.W.2d 816,2009 SD 88
• Parties: CASEY RANCH LIMITED PARTNERSHIP (CRLP), Milliron Bison Company, LLC (MBC), Kevin Casey, as CRLP General and Limited Partner and MBC Member, Brendan Casey, as MBC Managing Member and CRLP Limited Partner, Dennis Casey, as CRLP Limited Partner and MBC Member, and Sean Casey, as CRLP Limited Partner and MBC Member, Plaintiffs and Appellants, v. Pauline CASEY, Defendant and Appellee, and Mike Casey, Intervener and Appellee.
• Court: South Dakota Supreme Court

773 N.W.2d 816

2009 SD 88

CASEY RANCH LIMITED PARTNERSHIP (CRLP), Milliron Bison Company, LLC (MBC), Kevin Casey, as CRLP General and Limited Partner and MBC Member, Brendan Casey, as MBC Managing Member and CRLP Limited Partner, Dennis Casey, as CRLP Limited Partner and MBC Member, and Sean Casey, as CRLP Limited Partner and MBC Member, Plaintiffs and Appellants, v. Pauline CASEY, Defendant and Appellee, and Mike Casey, Intervener and Appellee.

No. 25026.

Supreme Court of South Dakota.

Considered on Briefs August 24, 2009.

Decided September 23, 2009.

Michael C. Loos, Courtney R. Clayborne of Clayborne, Loos, Strommen & Sabers, LLP, Rapid City, South Dakota, Attorneys for plaintiffs and appellants.

Lon J. Kouri, David A. Pfeifle of May & Johnson, P.C., Sioux Falls, South Dakota, Attorneys for appellee, Pauline Casey.

Gary D. Jensen of Beardsley, Jensen and Von Wald, LLP, Rapid City, South Dakota, Attorneys for appellee, Mike Casey.

ZINTER, Justice.

[¶ 1.] Casey Ranch Limited Partnership (CRLP) and Milliron Bison Company, LLP (MBC) commenced this breach of contract action against Pauline Casey. The suit was based on oral agreements under which Pauline leased CRLP's and MBC's real property and agreed to pay for certain expenses associated with her use of the property to graze her cattle. The circuit court dismissed. With respect to MBC, the court concluded that the suit was outside the ordinary course of partnership business; that actions outside the ordinary course of business required unanimous consent of the partners; and, not all partners had consented to the suit. With respect to CRLP, the court concluded that the partnership agreement required a majority of the general partners to act and one of the two general partners had not consented to the suit. CRLP and MBC appeal. We reverse.

Facts and Procedural History

[¶ 2.] This dispute involves the Casey family children, partners in CRLP and MBC, and their mother Pauline Casey. In 1959, Dennis P. "Doc" Casey married Pauline. They had seven children: Kevin, Dennis, Brendan, Sean, Shannon, Mike, and John. In 1972, Doc and Pauline started Bear Country USA, Inc. (Bear Country), a drive-through wildlife park in Rapid City, South Dakota. Doc Casey operated this business until his death in 2000. Doc and Pauline's children were also involved in the ownership and operation of Bear Country. Before the filing of this suit, a conflict had apparently developed among the Casey children and a declaratory judgment action was initiated regarding the corporate governance of Bear Country. Although the outcome of that action has no legal significance in this litigation, it appears that the family split evidenced in that action has carried over into this litigation.

[¶ 3.] This suit involves two ranches owned by the Casey children. In 1998, the seven Casey children formed MBC, a limited liability partnership that owns real estate for ranching purposes. In 1999, CRLP, a limited liability limited partnership, was formed. Its principal asset is a 5,200 acre ranch. CRLP was owned and operated by two general partners (Doc and Pauline Casey) and seven limited partners (the seven Casey children). Upon Doc's death, Kevin Casey succeeded Doc as a general partner.

[¶ 4.] This suit arose out of oral cattle grazing leases between Pauline and these two partnerships. The complaint alleges that Pauline failed to pay amounts due for cattle expenses and lease payments relating to the ranch properties owned by CRLP and MBC. Pauline and Mike Casey (as an intervenor) moved to dismiss under SDCL 15-6-12(b)(5). They argued that MBC lacked authority to initiate suit because the suit to collect the debt was outside the ordinary course of business of the partnership, unanimous consent was necessary for extraordinary business, and unanimous consent for the suit had not been obtained. With respect to CRLP, they argued that Mike Casey was one of two general partners. They contended that CRLP lacked authority to sue because, under the partnership agreement, a majority of the general partners were necessary to act and Mike did not consent to the suit. After considering affidavits and other matters outside the pleadings, the circuit court agreed and dismissed.

Issues

1. Whether the circuit court erred in concluding that MBC's suit to collect a partnership debt was outside the ordinary course of business thereby requiring unanimous consent of the partners.

2. Whether the circuit court erred in determining that Mike Casey was a general partner of CRLP, and therefore, his consent was required for the partnership to sue.

Standard of Review

[¶ 5.] Although the circuit court proceedings began on Mike's and Pauline's motions to dismiss, the circuit court considered matters outside the pleadings in rendering its decision.¹ However, no party objected to the circuit court's consideration of those matters. Further, in response to the circuit court's expressed skepticism about the procedural posture of the case, the parties assured the court that the case was correctly postured for disposition by summary judgment. Therefore:

In determining our standard of review, we observe that although this matter is before us on a motion to dismiss, both parties submitted matters outside the pleadings, and the [circuit court] did not explicitly exclude them. However, we also observe that neither party objected to the [circuit court's] consideration of those matters and neither party raised the issue on appeal. Therefore, we review the [circuit court's] ruling as a motion for summary judgment. Tibke v. McDougall, 479 N.W.2d 898, 903-04 (S.D.1992) (stating that when the record indicates that matters outside of the pleadings were considered by the trial court, motions to dismiss are reviewed and disposed of as motions for summary judgment).

Flandreau Pub. Sch. Dist. No. 50-3 v. G.A. Johnson Const., Inc., 2005 SD 87, ¶ 6, 701 N.W.2d 430, 433-34.

[¶ 6.] In reviewing a summary judgment, "we `restrict our review to determining whether the record before us discloses any genuine issues of material fact and, if not, whether the . . . court committed any errors of law.'" Johnson Const., 2005 SD 87, ¶ 7, 701 N.W.2d at 434 (quoting Switlik v. Hardwicke Co., 651 F.2d 852, 857-58 (3d Cir.1981)). Legal questions concerning interpretation of partnership agreements are reviewed de novo. In re Dissolution of Midnight Star Enters., 2006 SD 98, ¶ 7, 724 N.W.2d 334, 336 (citing Liechty v. Liechty, 231 N.W.2d 729, 731 (N.D.1975)) (noting the agreement is the "law of the partnership").²

Analysis

1. Authorization for the MBC Suit

[¶ 7.] The circuit court concluded that initiation of this litigation was outside the ordinary course of partnership business, and therefore, it could only be undertaken upon consent of all partners. The circuit court reasoned that the partnership agreement was not controlling and that because the "initiation of this litigation [was] outside the ordinary course of business of the partnership, it [was] . . . subject to unanimous consent requirements under SDCL 48-7A-401(j)." That statute provides:

A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.

SDCL 48-7A-401(j).

[¶ 8.] On appeal, MBC contends that the circuit court erred because consent to all business, whether ordinary or extraordinary, is controlled by the partnership agreement rather than SDCL 48-7A-401(j), and that under the agreement, a mere majority of the partners' interests were necessary to conduct any business. Alternatively, MBC contends that the suit was initiated in the ordinary course of MBC business, and therefore, a majority was all that was required under either the partnership agreement or SDCL 48-7A-401(j).

[¶ 9.] To resolve these contentions, we first consider MBC's argument that the partnership agreement controls because it authorized both ordinary and extraordinary business to be conducted by a simple majority. We consider MBC's alternative ordinary course of business argument as two questions. First, was the underlying lease, which gave rise to the debt, made in the ordinary course of MBC business? If it was, we then determine whether initiation of suit to collect that debt was also in the ordinary course of business. If commencing suit to collect the debt was within the ordinary course of business, then both the partnership agreement and SDCL 48-7A-401(j) only required a majority to act.

Section 6.1 of the MBC Partnership Agreement

[¶ 10.] MBC first claims we need not determine whether the lease or filing suit to collect debt under the lease is within the ordinary course of business because all business decisions, whether ordinary or extraordinary, are governed by section 6.1 of the partnership agreement and section 6.1 only requires a majority to act. Section 6.1 provides:

Each partner shall have a voice in the management of the Partnership business. Except as otherwise provide[d] in this Agreement, all decisions relating to the Partnership business shall be made by a vote of the partners who own a majority in amount of the total capital accounts of all partners.

(Emphasis added.) MBC asserts that if this partnership provision governs all decisions, whether ordinary or extraordinary, the agreement supplants the default rule in SDCL 48-7A-401(j). See SDCL 48-7A-103(a) ("[R]elations among the partners and between the partners and the partnership are governed by the partnership agreement.").

[¶ 11.] In interpreting partnership agreements, we have stated:

The partnership agreement is a contract between the partners and effect will be given to the plain meaning of its words. Liechty, 231 N.W.2d at 731; see also Pauley v. Simonson, 2006 SD 73, ¶ 8, 720 N.W.2d 665, 668 (noting the...