Fischer v. Fischer

• Decision Date: 15 June 2006
• Docket Number: No. 2003-SC-000982-DG.,2003-SC-000982-DG.
• Citation: 197 S.W.3d 98
• Parties: Todd A. FISCHER, Appellant, v. Jacquelyn FISCHER, Individually and as Executrix of the Estate of Richard A. Fischer, Appellee.
• Court: United States State Supreme Court — District of Kentucky

197 S.W.3d 98

Todd A. FISCHER, Appellant, v. Jacquelyn FISCHER, Individually and as Executrix of the Estate of Richard A. Fischer, Appellee.

No. 2003-SC-000982-DG.

Supreme Court of Kentucky.

June 15, 2006.

Rehearing Denied August 24, 2006.

Gerald F. Dusing, Stacy L. Graus, Adams, Stepner, Woltermann & Dusing, P.L.L.C., Covington, Counsel for Appellant.

H. Lawson Walker II, Monica L. Dias, Frost Brown Todd LLC, Cincinnati, OH, Counsel for Appellee.

LAMBERT, Chief Justice.

Appellant, Todd A. Fischer, seeks reversal of the Court of Appeals' opinion, wherein it reversed a Boone Circuit Court summary judgment in favor of Appellant, that enforced a buy-sell provision in a partnership agreement. Appellee, Jacquelyn Fischer, argues that we should affirm the opinion of the Court of Appeals overturning the trial court. For the reasons herein stated, we now reverse the decision of the Court of Appeals and reinstate the judgment of the Boone Circuit Court.

Appellant is the son of Richard Fischer, now deceased, and the stepson of Appellee. On November 1, 1994, Richard and Appellant formed the partnership D & T Enterprises, executing a written agreement to govern the partnership. The partnership agreement stated that its purpose was "the purchasing, leasing, and selling of real estate at 8415 U.S. 42, Florence, Kentucky." One of the partnership lessees was DAL,¹ a closely held corporation owned wholly by Richard. Although Appellant had no ownership interest in DAL, he was involved in its management and operation as a corporate officer.

Article XI of the 1994 agreement included a provision whereby, at the end of each year, a partner could retire from the partnership, giving the other partner an option to purchase the retiring partner's interest or terminate and liquidate the partnership business. Article XII of the 1994 agreement also included a buy-sell clause stating that:

Upon the death of any Partner, the surviving Partners² may either purchase the decedent's interest in the Partnership or may terminate and liquidate the Partnership business. If the election is to purchase the decedent's interest, the surviving Partners shall serve notice in writing of the election, within three months after the death of the decedent. The notice to be served upon the executor or administrator of the decedent, or upon the known legal heirs of the decedent if no legal representative has been appointed at that time.

If the surviving Partners do not elect to purchase the interest of the decedent in the Partnership, they shall proceed with reasonable promptness to liquidate the business of the partnership. The decedent's estate shall not be liable for losses in excess of the decedent's interest in the Partnership at the time of his death. No compensation shall be paid to the surviving partners for their services and liquidation. The proceeds of the liquidation shall be distributed as realized, 50% to Richard Fischer and 50% to Todd A. Fischer.

On April 18, 1995, the property at 8415 U.S. 42, Florence, Kentucky, was conveyed to the partnership D & T Enterprises. On June 19, 1995, Appellant and Richard entered into an amended partnership agreement, modifying the previous buy-sell provision. In the amended agreement, the buy-sell provision stated that:

Upon the death of any Partner, the surviving Partners shall purchase the decedent's interest in the Partnership. The notice to be served upon the executor or administrator of the decedent, or upon the known legal heirs of the decedent if no legal representative has been appointed at that time. Said purchase price shall be $50,000.00 payable over five years with interest at the prime rate to a cap of 10%.

Both the original agreement and the amended agreement required changes of any of the terms or provisions of the agreement to be in writing and signed by each of the parties.

Several years after the partnership was formed, Richard learned that he was terminally ill. Thereafter, he communicated with Appellant, by counsel, on July 27, 2000, stating in relevant part as follows:

As Mr. Richard Fischer's attorney, I am putting you on notice that effective immediately Mr. Fischer is exercising his right pursuant to K.R.S. 362.300(1)(b) to dissolve the partnership since no definite term or particular undertaking has been specified.

The reason for this dissolution is that the buy-sell provision is grossly unfair to Mr. Richard Fischer. Article IX provides for a buy-out in the event of the death of Mr. Richard Fischer of his interest in the partnership property for $50,000.00. The current mortgage on the property is approximately $200,000.00 and the property is valued in excess of $600,000.00. The result of such a buy-out would be a loss to Mr. Richard Fischer's estate of approximately $150,000.00

Mr. Richard Fisher will certainly consider reforming a new partnership with his son upon more equitable terms.

For the time being, the parties will own the property as joint tenants and should continue filing tax returns as though a partnership exist [sic]. From this point, no formal partnership agreement exists due to the dissolution. Please let me know how your client wishes to proceed.

Thereafter, Richard executed a new will on March 13, 2001,³ leaving his entire estate to his second wife, Appellee, Jacquelyn Fischer. Appellee was also named as executrix. Richard named Chad Fischer, his minor son with Appellee, as the first contingent beneficiary. But in the event that both Appellee and Chad predeceased Richard, four of five of Richard's children from his first marriage were named secondary contingent beneficiaries. Appellant was left out.

Richard died on June 28, 2001. The property which D & T Enterprises purchased was titled in the name of D & T Enterprises and it so remains. Tax returns were filed for D & T Enterprises in 2000 and 2001 as a partnership, per Richard's request. Appellant contends that Richard did not wind up the partnership, but that both parties merely entered into negotiations to reach an agreement to work out their differences. Appellee contends that the wind up was initiated by the letter of dissolution from Richard's attorney to Appellant, and the winding up of the partnership's business was ongoing but not completed before Richard's death.

Appellee, individually and as executrix of Richard's estate, filed suit in the Boone Circuit Court. After a period of discovery, Appellant, the defendant at trial, moved for partial summary judgment seeking enforcement of the buy-sell provision of the partnership agreement. Appellant argued that despite Richard's letter, "no affirmative act was carried out by the Partners to wind up the affairs of the Partnership." There being no wind up, Appellant argues that the partnership continued in fact, and accordingly, the partnership agreement remained in effect governing the partnership. The trial court granted partial summary judgment, holding that the buy-sell agreement was enforceable. Appellant was ordered to pay to Richard's estate the sum of $50,000.00 for Richard's interest in the partnership, and to dissolve, wind-up, and terminate D & T Enterprises. Appellee was ordered to convey to Appellant, by general warranty deed, title to the property at 8415 U.S. 42, Florence, Kentucky.

The Court of Appeals reversed, holding that the letter of July 27, 2000, from Richard's attorney to Appellant's attorney dissolved the partnership; that the buy-sell provision was extinguished and became unenforceable on that date; and that nothing in the Kentucky Uniform Partnership Act required Richard and Appellant to complete the winding up of partnership affairs before Richard's death. We granted review, and oral argument was heard.

For clarity, a brief explanation of partnership dissolution is necessary. "The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business."⁴ "Dissolution is merely the commencement of the winding up process. The partnership continues for the limited purpose of winding up the business."⁵ "[D]issolution designates the point in time when the partners cease to carry on the business together; termination is the point in time when all the partnership affairs are wound up; winding up, the process of settling partnership affairs after dissolution."⁶ The right to dissolve is inseparably incident to every partnership, and there can be no indissoluble partnership.⁷

Appellant first argues that the Court of Appeals erred by failing to determine whether D & T Enterprises was a partnership for a particular undertaking pursuant to KRS 362.300. He contends that if the partnership was for a particular undertaking, then Richard would have been in contravention of the partnership agreement by attempting to dissolve the partnership, and subject to contractual liability. "[I]n the absence of some contrary showing a partnership is deemed to be at will and any partner may withdraw at any time without incurring liability, such a withdrawal is wrongful if it is in violation of an express or implied agreement that the relationship would continue for a definite term or until a particular undertaking is completed."⁸

Adopted verbatim from § 31 of the Uniform Partnership Act (UPA) of 1914, KRS 362.300 deals with causes of dissolution, and the relevant portions of the statute for this case are reprinted below:

Dissolution is caused:

(1) Without violation of the agreement between the partners:

. . .

(b) By the express will of any partner when no definite term or particular undertaking is specified,

. . .

(4) By the death of any partner[.]⁹

It is undisputed that the partnership was not for a definite term, as no time length was included in the amended partnership agreement. However, whether the partnership was for a particular undertaking has been in much dispute. If the partnership was for a particular...