In re Keytronics
| Citation | 274 Neb. 936,744 N.W.2d 425 |
| Decision Date | 01 February 2008 |
| Docket Number | No. S-06-690.,S-06-690. |
| Parties | In re Dissolution and Winding Up of KEYTRONICS, formerly known as Secure Data Systems, a Nebraska general partnership. Scott Willson, Appellant, v. Don King, Appellee. |
| Court | Supreme Court of Nebraska |
Mitchel L. Greenwall, of Yeagley, Swanson & Murray, L.L.C., Kearney, for appellant.
Bradley D. Holbrook, of Jacobsen, Orr, Nelson, Wright & Lindstrom, P.C., Kearney, for appellee.
The issue in this case is whether a business partnership was formed between Don King and Scott Willson and, if so, what business activities were part of that partnership. The Uniform Partnership Act of 1998 (the Act),1 at § 67-410(1), states that "the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership." Willson brought an action for the winding up and an accounting, alleging formation of a partnership, and King counter-claimed for wrongfully withholding property, denying the partnership. The district court found that King and Willson had "pooled resources, money and labor," but found no partnership existed because there was no "specific agreement." Alternatively, the court found that because King did not commit his preexisting business to any specifically formed partnership, the scope of the partnership did not encompass any activity-garnering profits. Willson appealed the district court's order. We reverse, and remand for further proceedings.
King and Willson first met sometime in 1999 when Willson, an electronics technician and computer programmer, was working at a computer store. King was doing business at that time under the name of "Washco," as a sole proprietorship, and King contracted with the store for a computer repair. Washco sold and installed carwash systems and accessories. It also serviced existing carwash systems and the systems it sold. Washco later became Wash Systems, Incorporated.
One of the products King offered to his customers was the "QuikPay" system. QuikPay is a cashless vending system for carwashes. Customers use a memory chip key that can be placed on their key chain and used with a controller at the carwash. Either a cash value can be placed on the key, or an account can be established through which carwash usage recorded on the key is billed monthly.
Washco purchased QuikPay systems for resale from Datakey Electronics Inc. (Datakey). Datakey's main line of business was the manufacture and sale of keys with reprogrammable memory and their corresponding. "Keyceptacles" for a variety of applications. The QuikPay carwash system was only one such application, and it was becoming unprofitable for Datakey.
Part of the reason that the QuikPay system was unprofitable was that the keys for QuikPay could only be obtained from an attendant. If the key was set up for cash, when the credit ran out, the key could only be recharged through an attendant. Glen Jennings, president of Datakey, explained that since most carwashes are unattended, this reliance on the presence of the carwash owner or employee was limiting the product's market. The system needed some "peripherals" to make it self-service. Datakey had decided, however, not to dedicate its limited engineering resources to the design or manufacture of such "peripherals." It was looking into the possibility of working with an outside source as the original equipment manufacturer of such items.
As QuikPay's largest distributor, King was aware that QuikPay's limitations made the product unattractive to many of his customers. King was also having other problems with the system. In the spring of 2002, Willson was working at a new company as a computer programmer. King contacted Willson privately to see if Willson could develop a combined "key dispenser" and "revalue station" for the QuikPay system that would make the system self-service. King also asked Willson if he would design and install an interface between the QuikPay system and the carwash of one of King's customers. King explained that although most carwashes already contained a third-party interface that would easily connect with the QuikPay system, a few did not. Without such an interface, King was unable to sell QuikPay to these customers. Designing such an interface was beyond King's technical expertise.
There is little evidence in the record as to what sort of business arrangement was made with regard to Willson's services in designing the interface. King states only that compensation "was never discussed," and, in fact, Willson was never paid for his work. It is undisputed that Willson individually designed and installed at least four specific customer interfaces that allowed King to sell the QuikPay system to those customers.
As to the development of the key dispenser-revalue station, King testified there was an oral agreement among himself, Willson, and Scott Gardeen. Gardeen was an employee of Datakey who was an original designer of QuikPay and was King's main contact with Datakey. According to King, they agreed they would form a corporation whenever Willson developed the key dispenser-revalue station. Gardeen also recalled discussing their business as a future corporation because they were concerned about personal liability issues inherent to partnerships. Willson, on the other hand, had no memory of specifically discussing the formalities of their business relationship. He was sure that they had agreed they would all "be a part of it" and that they "each had a piece of the pie."
The three parties met in Des Moines, Iowa, in the spring of 2002 to discuss the venture in which they would design and build the key dispenser-revalue station and sell it to Datakey. It was agreed that Wilson would write the software and do the firmware, hardware, and any other electrical or software work; Gardeen would contribute his knowledge of the system and his contact with Datakey; and King would contribute financial resources and his experience and contacts as QuikPay's largest distributor.
Together, Willson, King, and Gardeen came up with the name "Secure Data Systems" for their business. They discussed the fact that the entity's initials, "SDS," were also the initials of their first names, Scott, Don, and Scott. By the summer, Willson had built a hand-held revalue station for a meeting with Jennings. Jennings indicated that if a final, marketable key dispenser-revalue station were developed, Datakey would be interested in a business relationship with Secure Data Systems.
In the meantime, King was becoming increasingly frustrated with maintenance of the QuikPay system for his customers. In September 2002, King sent a letter to Gardeen complaining about various issues with the system. The main complaint was that controllers were not operating properly. Although Datakey provided King with replacement controllers, King had to drive long distances to his customers' sites to manually implement the replacement or make other repairs he had not anticipated. In the letter, King stated:
I can not [sic] continue to expose my self [sic] to the expense of keeping this stuff running. Besides the expense I don't have the time. I don't see that I have any other choice but to back away from selling additional clients. At least until the current problems are stable or we have a new controller. I don't feel like I can honestly charge or pass expense's [sic] on to my customer when this product continues [to] have problems.
King then proposed:
Because of [Willson's] future interests, I believe he would be more motivated to address issues with the current controller than a programmer with no interest in the system. [Willson] has mentioned that programming cost can exceed one hundred dollars an hour. If ... Willson were to work on the current system I believe he should be compensated for his work. I would have to discuss it with ... Willson, but I don't believe he would demand those kind[s] of fees.
King suggested that Datakey allow Willson access to its proprietary software.
King continued to involve Wilson in dealing with other technical issues relating to King's QuikPay customers. Willson explained: It became King's regular practice to copy Wilson into his email correspondence with Datakey concerning QuikPay system maintenance. According to Willson, King and Wilson communicated regularly about both the development of the key dispenser-revalue station and QuikPay maintenance. Willson testified that he did not demand or receive payment for these services, but believed they were part of his contribution to the partnership.
Around October 2002, Datakey decided to discontinue its QuikPay line. Its minimal sales of QuikPay were outweighed by Datakey's costs in addressing support issues for the product. To each of its customers, Datakey sent one controller for every two they had ever purchased, and informed them that Datakey would no longer be supporting their product.
Datakey referred all of its customers to King at Washco for continued support of the system. Datakey's customer base consisted of approximately 20 or 30 customers with a total of at least 200 QuikPay controllers in use. It is unclear how many QuikPay customers King had had prior to this time. Datakey also gave to King, without charge, all of the parts and equipment relating to QuikPay that Datakey had in stock. This inventory had an original procurement cost of approximately $200,000. Datakey had already given King and Willson access to its software source codes. Jennings explained, "[W]e were happy to have somebody who would give [QuikPay customers] best-efforts...
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