Crest Const. Co. v. Insurance Co. of North America

• Decision Date: 07 May 1976
• Docket Number: Civ. No. 75-0697-D.
• Citation: 417 F. Supp. 564
• Parties: CREST CONSTRUCTION COMPANY, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, a Foreign Corporation, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

417 F. Supp. 564

CREST CONSTRUCTION COMPANY, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, a Foreign Corporation, Defendant.

Civ. No. 75-0697-D.

United States District Court, W. D. Oklahoma.

May 7, 1976.

COPYRIGHT MATERIAL OMITTED

Robert E. Manchester, Oklahoma City, Okl., for plaintiff.

Edgar Fenton, Robert Petrick, Oklahoma City, Okl., for defendant.

MEMORANDUM OPINION

DAUGHERTY, District Judge.

In this diversity action Plaintiff Crest Construction Company (Crest) seeks recovery on a "Comprehensive Crime Policy" of insurance issued to it by Defendant Insurance Company of North America (I.N.A.). Plaintiff filed this action in the District Court of Oklahoma County, State of Oklahoma. Defendant removed the action to this Court.

The Petition alleged that Defendant issued to Plaintiff a "Comprehensive Crime Policy" No. TDD 12 73 which was effective from January 3, 1973 to January 6, 1976; that this policy insured Plaintiff against the fraudulent or dishonest acts of its employees; that between January 15, 1973 and August 2, 1973 Plaintiff was a contractor on an apartment project; that during this same period Roy Cribbs (Cribbs) was an employee of Plaintiff working on this project; that during this time Cribbs took from Plaintiff tools and materials worth more than $20,000; and that Plaintiff has demanded that Defendant pay its losses but Defendant has refused to pay. Defendant denies both liability and the amount of Plaintiff's claim. At the Pretrial Conference the issues of liability (or coverage) and loss were separated. The first issue has been submitted to the Court on a Stipulation of Facts of the parties.

The question before the Court on the liability issue is whether, at the time of the alleged thefts, Cribbs was an employee of Crest as claimed by Plaintiff or a joint adventurer or partner with Crest's President and 100% owner, Dale Smith (Smith), and Crest's Controller, David C. Gallion (Gallion) as claimed by Defendant. The parties agree that if at the time of the alleged thefts Cribbs was an employee of Crest any losses occasioned by his defalcations would be covered by the policy but that if Cribbs was a partner or joint adventurer with Smith and Gallion such losses would not be covered by the policy.

The materials submitted to the Court on the parties' Stipulation include: the deposition of Smith and attached exhibits; the deposition of Gallion and attached exhibits; and business records from Crest. In the Pretrial Conference Order the parties agreed that the insurance policy attached to the Petition was issued by Defendant to Plaintiff.

The depositions of Smith and Gallion show that at some time before January 15, 1973 Crest entered into a series of sub-contracts for the performance of construction work on the Buena Vista Apartments in Alva, Oklahoma. Two or three weeks after January 15, 1973 Smith, Cribbs, and Gallion executed an agreement relating to various functions to be performed by the parties with respect to the construction of the apartments. This agreement was prepared by Gallion on January 15, 1973 and bears that date. This agreement is as follows:

"MEMORANDUM

To: Dale Smith Roy Cribbs From: David Gallion Re: General Agreement Date: January 15, 1973

`This memo is to reduce to writing some of the areas covered in prior conversations, that are applicable to the association of Smith, Cribbs, and Gallion.

RESPONSIBILITY:

Smith (Crest): To provide financial stability in the initial stages of operations, until such time as undertakings can.

To provide a vehicle that will give an (illegible) for purchasability and transacting business that is established and going.

To provide overall control in all areas.

To advise and counsel in the making of decisions, and to have the responsibility to make a final decision, if necessary.

Cribbs: Responsible for on-site supervision, which would include all areas in the running of a job.

To estimate prospective work, and/or to assist in the estimating of jobs.

To devote full time of his experties in any area that will inhance (sic) the progress of the association of Smith, Cribbs and Gallion. (sic)

To follow any and all procedures that are (illegible) may be established for effective control association.

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Gallion: Responsible for the installation and the administration of any and all procedures that are and that may be established.

To devote such time as is necessary in all areas to insure that all necessary documentation is being accumulated for effective control.

To follow any and all procedures that are and that may be established.

REMUNERATION:

Smith (Crest): To participate in any net profit at rate of 52.50%.

To be reimbursed for any and all expenses that are applicable to any work of this association.'

Cribbs: Salary to be $300.00 per week until such time that monies due Cribbs for prior work done on Haujntolla Nursing Home are received, then salary will be $275.00 per week.

To be advanced a `petty cash' in the amount of $50.00 for expenses that are directly applicable to job cost. This amount to be maintained by a weekly reimbursement of expenses, as reported (illegible) report.

A place of lodging will be provided at the expense of the particular job in situations (illegible) is a second place of lodging.

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Cribbs—continued: to be furnished a pickup for use in the carring-on of and the pursueing of work that involves this association. (sic)

To participate in any net profit at the rate of 23.75%.

Gallion: Salary to be $1,250.00 per month, payment to be made from Crest Construction `Special' account which has been opened primarily for the (illegible) of the above mentioned associations' business. (sic) Whenever possible an allocation, for reimbursement to the `Special' account, will be made in any time applicable to work that is not a part of this particular association.

To be reimbursed for all out of pocket expenses on the date of each pay period.

Expenses of operating and maintaining an automobile, that is primarily used for company business, to be paid by the association.

To participate in any net profit at the rate of 23.75%.

We understand that the areas here-to-fore mentioned in this memorandum, are not all inclusive but are the basic agreements as this association starts operation, and that additions and/or deletions can be made as need be.

We the undersigned agree in general (illegible) all items included in this memorandum, and furthermore we agree that at the completion of

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the two jobs, these being Buena Vista and Huajntolla Nursing Home, or by January 15, 1974, that this memorandum will be revised and adjustments made as agreeded by Smith, Cribbs and Gallion. (sic)'"

The parties entered into performance under this agreement. Thereafter dissension arose among the parties in that Cribbs was excessively absent from the job. Smith considered terminating Cribbs but did not. After a conversation with Smith, Cribbs' job performance improved. Smith then was informed that Cribbs was taking materials from the job to build a personal home. At this point Smith either fired Cribbs or terminated their agreement.

The crux of this case is the January 15, 1973 agreement. It is Defendant's position that this agreement creates a partnership or joint adventure between Smith, Cribbs, and Gallion, and, therefore, its policy provides no coverage for Cribbs' defalcations. It is Plaintiff's position that this agreement does not create a partnership or joint adventure; that Cribbs was a Crest employee, and, therefore, it is entitled to recover under the policy.

A partnership is an association of two or more persons to carry on as co-owners a business for profit. 54 Oklahoma Statutes § 206. A joint adventure is a special combination of two or more persons, whether corporate, individual, or otherwise which seeks a joint profit in a specific venture. Parks v. Riverside Insurance Company of America, 308 F.2d 175 (Tenth Cir. 1962); United States Fidelity & Guar. Co. v. Dawson Produce Co., 200 Okl. 540, 197 P.2d 978 (1948). Partnerships and joint adventures are separate legal relationships although they are generally governed by the same rules of law. The principal difference between the two relationships is that a joint adventure is usually limited to a single transaction while a partnership encompasses a continuing course of business. 48 C.J.S. Joint Adventures § 1(6). The essential elements of a partnership are: (1) an intent by the parties to form a partnership, (2) participation by all parties in both profits and losses, and (3) such a community of interest as far as third persons are concerned as enables each partner to make contracts, manage the business and dispose of partnership property. Dowdy v. Clausewitz, 361 P.2d 288 (Okl.1961). The essential elements of a joint adventure are: (1) a joint interest in the property by the parties sought to be held as partners; (2) agreement, express or implied, among the parties to share in the profits and losses of the venture; and (3) actions or conduct showing cooperation in the project. Hancock v. Stradley, 482 P.2d 580 (Okl.1971); King-Stevenson Gas & Oil Co. v. Texam Oil Corp., 466 P.2d 950 (Okl.1970).

With regard to the first element of partnership, intent of the parties to form a partnership, the issue is whether the January 15, 1973 agreement shows an intent by Smith, Cribbs and Gallion to carry on a business as co-owners for profit. It is clear that the parties intended to carry on a business for profit because the agreement provides for the division of profit after the completion of the subject job(s). However, the agreement is not clear on the question of ownership. Smith was to provide all necessary funds. Cribbs and Gallion were to provide the labor....