Durham v. SOUTHWEST DEVELOPERS

• Decision Date: 03 December 1999
• Docket Number: No. 860., No. 19, No. 651
• Citation: 996 P.2d 911,128 N.M. 648
• Parties: Paul C. DURHAM and Gary L. Peterson, Partners of Southwest Developers Joint Venture, Plaintiffs-Appellants, v. SOUTHWEST DEVELOPERS JOINT VENTURE, and Jack McLaughlin, Managing Partner of Southwest Developers Joint Venture, Defendants-Appellees. Paul C. Durham and Gary L. Peterson, Individually and as Partners of Southwest Developers Joint Venture, and as Shareholders of Motel Mania, Inc., a New Mexico Corporation, Plaintiffs-Appellants, v. Southwest Developers Joint Venture, a New Mexico Partnership General; and Motel Mania, Inc., a New Mexico Corporation; and Claire McLaughlin, Individually and as Officer and Director of Motel Mania, Inc.; and H. John Underwood; and Richard M. Mounds; and Richard Arlaud, Individually and as Officer and Director of Motel Mania, Inc. and of Southwest Developers Joint Venture, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

996 P.2d 911

128 N.M. 648

Paul C. DURHAM and Gary L. Peterson, Partners of Southwest DevelopersJoint Venture, Plaintiffs-Appellants, v.SOUTHWEST DEVELOPERS JOINT VENTURE, and Jack McLaughlin, Managing Partner of Southwest Developers Joint Venture, Defendants-Appellees.

Paul C. Durham and Gary L. Peterson, Individually and as Partners of Southwest DevelopersJoint Venture, and as Shareholders of Motel Mania, Inc., a New Mexico Corporation, Plaintiffs-Appellants, v.Southwest Developers Joint Venture, a New Mexico PartnershipGeneral; and Motel Mania, Inc., a New Mexico Corporation; and Claire McLaughlin, Individually and as Officer and Director of Motel Mania, Inc.; and H. John Underwood; and Richard M. Mounds; and Richard Arlaud, Individually and as Officer and Director of Motel Mania, Inc. and of Southwest Developers Joint Venture, Defendants-Appellees.

Nos. 19,651, 19,860.

Court of Appeals of New Mexico.

December 3, 1999.

Jo Anne Holland, The Holland Law Office, John V. Nilan, John V. Nilan, P.C., Albuquerque, for Appellants.

Mel B. O'Reilly, Mel B. O'Reilly Law Offices, Albuquerque, for AppelleesJack McLaughlin, Southwest Developers Joint Venture, Claire McLaughlin, Richard Arlaud, and Motel Mania, Inc.

S. Thomas Overstreet, Overstreet & Associates, P.C., Alamogordo, for AppelleeH. John Underwood.

Gerald G. Dixon, Sharp, Jarmie, Dixon, Scholl & Bailey, P.A., Albuquerque, for AppelleeRichard M. Mounds.

OPINION

DONNELLY, Judge.

{1}PlaintiffsPaul C. Durham and Gary L. Peterson appeal from orders dismissing two lawsuits brought by them arising out of a joint venture to build and operate a motel.Because the factual predicate for the two actions arose out of related matters, the two appeals were consolidated by this Court.Plaintiffs raise numerous issues on appeal, which we combine and discuss as follows: (1) whether the trial courts erred in ruling that Plaintiffs' claims were barred by the statute of limitations, and (2) whether the trial court in the second lawsuit erred in awarding summary judgment.For the reasons discussed herein, we affirm in part and reverse in part.

FACTS AND PROCEDURAL POSTURE

{2} On February 28, 1983, Plaintiffs, together with Jack McLaughlin and Brad Wentworth, entered into an agreement to form a joint venture, denominated Southwest Developers Joint Venture, in order to acquire land and to construct and operate a motel in Ruidoso, New Mexico.The terms and provisions of the joint venture agreement were detailed in a sixteen-page instrument.The agreement provided, among other things, that any default on the part of any partner would allow any other partner, who held at least a 50% interest in the joint venture, the right to terminate the interest of the defaulting partner.It also provided that if the default was not cured, the remaining partners could elect to purchase, on a pro-rata basis, the interest of the defaulting venturer.A filing of a petition under any section of the National Bankruptcy Act was expressly declared to be an event causing a default on the part of a partner.

{3} On November 23, 1983, the written agreement was modified to designate McLaughlin as the managing partner.In March 1984the parties again amended the joint venture agreement to provide that McLaughlin would replace Wentworth as the managing partner, that McLaughlin would have a 51% interest in the partnership, and that each of the other partners would own a 16 1/3% interest in the partnership.The joint venture agreement was also amended so as to delete, among other things, a provision that the joint venture would be dissolved upon the "[a]djudication of a Venturer as a bankrupt or insolvent in proceedings filed against the Venturer under any section or chapter of the National Bankruptcy Act, as amended ...."

{4} The partners secured land upon which to build the motel and obtained an interim construction loan from Pioneer Savings and Trust.The loan was secured by a note and mortgage in the amount of $1,000,000.Plaintiffs, together with McLaughlin, each signed the Pioneer Savings and Trust notes.Durham made an initial capital contribution to the partnership in the amount of $55,000.Both Durham and Peterson also contributed labor and skill in constructing the motel.

{5} On December 17, 1984, Durham filed for bankruptcy under Chapter 11.The bankruptcy proceedings which ensued were protracted and complex.The initial petition was converted to a Chapter 7 proceeding by an order of conversion filed June 30, 1986.The list of assets contained in Durham's bankruptcy petition included his partnership interest in the motel.Following the appointment of a trustee, an order of dismissal in the bankruptcy proceedings was filed on August 6, 1986.An order setting aside the dismissal was entered October 30, 1989, and Durham was ultimately discharged in bankruptcy on July 9, 1993.

{6} Meanwhile, on May 27, 1988, the partners formed Motel Mania, Inc., a New Mexico corporation.The assets of the partnership were transferred to the corporation and each of the partners was issued shares of stock in the corporation.Peterson was divorced on March 22, 1989, in Denton County, Texas.Under the terms of the final decree of divorce, Peterson's ex-wife was awarded 164 shares of the common stock of Motel Mania, Inc.

{7} On June 26, 1991, DefendantH. John Underwood, acting as counsel for the newly formed corporation, wrote to McLaughlin, Peterson, and Durham, the corporate shareholders, and informed them that "capital payments... were due from each of the shareholders...[and that][t]o date the only amount received has been $31,417.63 from Jack McLaughlin."The letter stated, in part, that the following amounts were due from the shareholders: "Jack McLaughlin $8,536.14; Paul Durham $43,522.70; [and]Gary Peterson $37,570.36," and that "[t]he above amounts must be paid in full to the corporation on or before July 31, 1991 or your stock will be forfeited for nonpayment."

{8}Plaintiffs did not pay the requested amounts and were subsequently notified that their interests in the corporation had been forfeited.McLaughlin and Claire McLaughlin, his wife, subsequently assumed the sole management of the corporation.Through the efforts of McLaughlin, the corporation obtained permanent refinancing from the First National Bank of Ruidoso.

{9} On November 15, 1993, Durham filed a lawsuit in the District Court of Lincoln County, CauseNo. CV-93-182(first lawsuit), seeking an accounting against Southwest Developers Joint Venture and McLaughlin.Peterson subsequently joined with Durham, as a plaintiff, in an amended complaint against the joint venture and McLaughlin, as managing partner.The amended complaint also sought an accounting and asserted a separate count alleging that McLaughlin breached the fiduciary duty he owed to Plaintiffs and committed fraud.The first lawsuit was assigned to District Judge Frank K. Wilson.Defendants denied the allegations of the amended complaint and McLaughlin filed a motion to dismiss Durham's claims.Plaintiffs also filed a motion for partial summary judgment requesting that the trial court order McLaughlin to recognize Plaintiffs' ownership rights, to furnish information, and to share any past and future profits.

{10} On February 7, 1996, the trial court dismissed Plaintiffs' request for an accounting, but reserved ruling on the other claims.Plaintiffs filed a second amended complaint and sought to add additional parties as defendants.Defendants filed a motion to dismiss and a motion for summary judgment.The motions to dismiss and for summary judgment asserted, among other things, that Plaintiffs' claims were barred by the statute of limitations.

{11} Thereafter, on February 2, 1998, while claims were still pending in the first lawsuit, Plaintiffs filed a new action (second lawsuit) in the District Court of Lincoln County, CauseNo. CV-98-22, against Southwest Developers Joint Venture; Motel Mania, Inc.; Claire McLaughlin: H. John Underwood, the attorney for the corporation; Richard Mounds, a certified public accountant for the corporation; and Richard Arlaud, a director of Motel Mania, Inc.The second lawsuit was assigned to District Judge Karen L. Parsons.The second lawsuit sought an accounting and damages resulting from an alleged breach of contract, breach of fiduciary duty, violation of the New Mexico Partnership Act, constructive trust, and fraud.Thereafter, Defendants moved to dismiss the second lawsuit.

{12} On July 21, 1998, Judge Wilson granted Defendants' motion for summary judgment on Plaintiffs' second amended complaint in the first lawsuit.The trial court found that "Durham's claims for an accounting accrued ... when he filed Chapter 11 bankruptcy, and no later than 1986, when it was converted to Chapter 7," and that the other relief sought by Durham "is derivative from his claim for accounting and is barred by the Statute of Limitations, Sections 37-1-3 NMSA 1978 Comp."

{13}The trial court further held that "[t]here is no genuine issue of material fact as to ... Peterson's claims," that his transfer of stock in Motel Mania, Inc., "was a prohibited transfer under the Joint Venture Agreement and gave rise to Defendant McLaughlin's right to repurchase Peterson's interest at book value."Additionally, the trial court determined that Peterson's interest in the partnership "on the date of divorce was less than zero" because he owed money to the joint venture.

{14} On September 23, 1998, Judge Parsons granted Defendants' motion for summary judgment, thus dismissing the second lawsuit.The trial court held that each of Plaintiffs' causes of action were barred by the running of the statute of limitations, which expired on January 14, 1998, and that Plaintiffs knew of the alleged accounting irregularities and the facts which may have supported their allegations of conspiracy, fraud, breach of fiduciary duty, and constructive trust.

{15}Plaintiffs...