O'Connor v. O'Connor, A21-1313

CourtCourt of Appeals of Minnesota
Writing for the CourtJESSON, JUDGE
PartiesWayne O'Connor, Appellant (A21-1313), Respondent (A21-1320), v. Byron O'Connor, Respondent (A21-1313), Appellant (A21-1320).
Decision Date13 June 2022
Docket NumberA21-1313,A21-1320

Wayne O'Connor, Appellant (A21-1313), Respondent (A21-1320),
v.

Byron O'Connor, Respondent (A21-1313), Appellant (A21-1320).

Nos. A21-1313, A21-1320

Court of Appeals of Minnesota

June 13, 2022


This opinion is nonprecedential except as provided by Minn. R. Civ. App. P. 136.01, subd. 1(c).

Rice County District Court File No. 66-CV-18-2742

Bryan R. Freeman, Peter C. Hennigan, Maslon LLP, Minneapolis, Minnesota (for appellant/cross-respondent)

Heidi J. Bassett, Katherine A. Herman, Hellmuth & Johnson, Edina Minnesota (for respondent/cross-appellant)

Considered and decided by Wheelock, Presiding Judge; Jesson, Judge; and Bryan, Judge.

JESSON, JUDGE

After farming together as partners for forty years, brothers Wayne and Byron O'Connor tasked the district court with dissolving their partnership. On appeal, they

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challenge the court's division of their partnership's property. Wayne[1] argues that the court did not award him enough money, while Byron contends that the court improperly confirmed a third-party neutral's award and abused its discretion by finding that he acted in bad faith. Because we conclude that the district court equitably divided the partnership's property, and the record supports the district court's bad-faith-conduct finding, we affirm.

FACTS

Taking over their father's land, Wayne, appellant and cross-respondent, and Byron, respondent and cross-appellant, began farming grain and raising hogs together in 1975. Generally, Wayne handled the grain farming while Byron oversaw the hogs, but at times they worked together. The brothers did not have a written agreement but operated as a general partnership called O'Connor Brothers, which acquired many parcels of land over the years. In 1991, Wayne and Byron's younger brother began to farm alongside them but did not join the partnership. And in 2012, Wayne and Byron formed two offshoot limited liability corporations (LLCs), one that sold seeds and another that sprayed seeds to increase yields.[2]

In 2017, the brothers' business relationship began to unravel. Their younger brother decided to separate his farming operation that year. And in 2018, Byron approached Wayne about dissolving the partnership. At this time, the partnership owned real estate worth approximately $11, 000, 000 and equipment worth about $1, 500, 000. Wayne and

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Byron attempted to divide the partnership's assets through mediation, but these efforts failed. Wayne then petitioned the district court for an order dividing the partnership's assets and liabilities.[3]

In November 2019, the matter proceeded to a court trial. But because the 2019 farming season was ongoing, the trial only addressed the partnership's assets and liabilities through the end of 2018. The district court appointed a senior judge as a third-party neutral to divide the remaining assets and liabilities incurred after the trial.

Trial Order

The task before the district court was to fairly divide the partnership property between the two brothers. To do so, the court had to satisfy the partnership's debt and then split the remaining assets. Finally, the court had to resolve the brothers' claims of entitlement to further compensation. We begin with the district court's undisputed division of property and then turn to its disposition of the brothers' various claims.

The district court started with the partnership's debt. The court found that the total amount owed by the partnership was approximately $1, 200, 000. And the total value of the equipment owned by the partnership was $1, 489, 650. Accordingly, the court ordered the brothers to sell the partnership's equipment by auction to satisfy the debt.[4]

After accounting for the partnership's debt, the district court turned to its real estate. The court divided the real estate into two parcels. Byron received land worth $5, 855, 458,

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and Wayne received land worth $5, 135, 386. As part of this division, because the brothers did not produce sufficient evidence concerning the value of their respective homesteads, the district court ruled that each homestead was a "wash" that did not further factor into its division of real property. And because the total land awarded to Byron possessed a higher value, the district court concluded that Wayne was entitled to $360, 036, half of the difference in value between the two parcels. After making additional adjustments uncontested here, the court awarded Wayne $141, 740.[5]

On appeal, the brothers do not directly challenge the approximately $11 million award dividing the land and equipment. But each brother asserts that the other owes him more. At trial, Wayne claimed that Byron used $819, 764.64 more of partnership funds to pay for personal expenses than he did and claimed to be entitled to half of those "personal draws." Wayne also argued that the district court should award him one half of the revenue earned from selling hogs that Byron had deposited into a personal account over the years. In response, Byron contended that Wayne had improperly classified payments to Byron's children for partnership labor as personal draws attributable to Byron. To contextualize these remaining claims, we begin with some of the partnership's general practices as explained in uncontested trial testimony and then consider the court's resolution of the claims.

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Over the life of the partnership, the brothers funded their partnership and personal activities through a shared checking account and operating line of credit. Each could draw freely from the partnership account without consent from the other, although they conferred at the end of each year about their respective personal draws. Wayne handled the bookkeeping and produced records from 1999 through 2018.[6]

The partnership's bookkeeping was largely an after-the-fact process of compiling the profits and expenses at the end of each year. Each brother reported expenses, some personal and others related to partnership business, but they did not verify how the other classified each expense. From this information, Wayne compiled a profit-and-loss sheet each year detailing the partnership's finances. As part of that process, Wayne generated a balance sheet that tracked the brothers' personal draws from partnership funds for personal expenses. Wayne provided these records to Byron each year.

Once Wayne had prepared the profit-and-loss sheets and the balance sheet, he would give them to the partnership's accountant.[7] The accountant testified that after he received the records from Wayne, they would discuss the preferred amount of income to be reported for the partnership for that year.[8] After adjusting the partnership income to an agreed-upon level, the accountant would receive information from the brothers (who filed individual tax

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returns, instead of a return for the partnership) concerning their personal expenses and income. Then he allocated most partnership profits and expenses between the brothers to keep them below certain income levels for tax advantages.

But the former partnership assets that were now owned by the LLCs were treated differently. The revenues and expenses for one of those businesses were reported on Wayne's return, but Wayne would assign Byron varying amounts of the profits each year. The accountant testified that the amount of profit assigned to Byron "varied to get the tax returns into the most beneficial position with the IRS." And the depreciation in value of a bulk seed system used for one of the LLCs-and the corresponding tax benefit-was allocated entirely to Wayne, although the accountant could not explain why.

With this accounting backdrop in mind, we return to the disputed claims. Although both brothers could draw from the partnership account at will, they were supposed to do so only for partnership expenses, and to repay any partnership funds that were used for personal expenses. Based on the financial records, Wayne argued that he was entitled to $409, 882, half of what he alleged that Byron drew from the partnership from 1999 to 2018 to pay for personal expenses. Byron disputed Wayne's calculation of his personal draws. Byron called a forensic accountant as an expert witness, who testified that Wayne's calculation of the personal draws needed to be adjusted. The forensic accountant identified personal expenses by Wayne that Wayne had characterized as partnership expenses, including personal vehicles, travel, meal expenses, and Wayne's use of partnership funds to build a new garage. Finally, the forensic accountant identified payments made by Byron

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to his children for labor performed on behalf of the partnership that Wayne had classified as personal draws by Byron.

Separately, Wayne claimed that Byron had diverted $185, 224.71 in hog-sale revenue from 1992 to 2016.[9] Byron asserted that he deposited those funds into his personal checking account to pay his children for labor performed on behalf of the partnership. Byron claimed that he paid his children a total of $356, 084 to compensate them for working for the partnership over the years. He asserted that $134, 418.42 of this sum came from the past hog checks and the remaining $221, 667.58 came from his personal funds.

The district court did not directly resolve the personal-draw, hog-check, and labor-compensation claims. The court explained that all of these claims implicated the accounting methods that the parties apparently agreed to use over the life of the partnership. In particular, the court found that Byron's children worked for the partnership, for which they deserved compensation, but determined that how the children were customarily paid was "totally unclear." Because the brothers "appeared to play fast and loose for tax purposes" with their accounting, the court declined to reach any claim that would require it to "go back and re-do the books." Accordingly, the district court declined to further...

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