Krautscheid v. Klaustermeyer
| Decision Date | 23 September 2021 |
| Docket Number | 37541-2-III |
| Court | Washington Court of Appeals |
| Parties | SAMUEL KRAUTSCHEID, and GREEN 8 LEAF AG, L.L.C., Appellants, v. JAMES [A.] E. KLAUSTERMEYER, SR., JAMES E. KLAUSTERMEYER, JR., KEN WISER, SHANNON ZINK, HOLLINGSWORTH PRODUCE, LLC, COLUMBIA RIVER GREENS, LLC, ROAD 13.6, LLC, and ROYAL GREENS PRODUCE, LLC, Respondents. |
UNPUBLISHED OPINION
The parties in this case are farmers. They set out to explore the feasibility of growing and harvesting spinach in the Columbia Basin. In the process, they created numerous limited liability companies. When the defendants indicated that they no longer wanted to work with Samuel Krautscheid, he sued alleging the formation of a partnership, and seeking partnership distributions, profits, and losses. Following a bench trial, the judge found the existence of an unnamed limited partnership between Hollingsworth, LLC and Green Leaf AG, LLC, but otherwise entered a decision primarily in favor of the defendants. On appeal, Krautscheid raises several issues but does not challenge the partnership's existence or parameters. Instead, he contends that the trial court erred by finding that these partners were not equal, and Green Leaf was not entitled to an equalization payment. Second, Krautscheid contends that he contributed funds to a limited liability company (LLC) that paid expenses for real property owned by another LLC, and he is therefore entitled to payment for the appreciated value of the property. Third Krautscheid argues that he is entitled to payment for the value of goodwill appropriated by the defendants after the partnership dissolved. After a thorough review of the evidence and relevant authority, we are satisfied that sufficient evidence supports the trial court's findings and affirm the trial court's conclusions of law.
The following facts are taken mainly from the trial court's memorandum decision.
In 2014, Jim Klaustermeyer, Sr. planted a test plot of spinach on his property. Ken Wiser heard about the test plot and visited the property with a friend. At the time, Wiser was an employee of a franchise owned by the plaintiff, Samuel Krautscheid. Wiser suggested to Krautscheid that they look into the feasibility of growing spinach as a commercial crop.
The following year, in 2015, Wiser formed Columbia River Greens LLC (CRG). That same year Wiser and Krautscheid attempted to grow spinach on land owned by Krautscheid but could not produce a commercial crop.
Meanwhile the Klaustermeyer group (consisting of Jim Klaustermeyer, Sr., Jim Klaustermeyer, Jr., and Shannon Zinc) grew and sold a crop of spinach on their property. Wiser and Krautscheid provided the Klaustermeyer group with the harvester for this crop, and CRG LLC, owned by Wiser, procured a rented vacuum cooler. Sam Krautscheid was present for part of the 2015 spinach harvest and assisted with the labor. The parties agreed to share the expenses and profits from the 2015 spinach crop harvested from Klaustermeyer's property.
In 2016, Klaustermeyer and Krautscheid each decided to plant spinach on their respective properties. The Klaustermeyer group formed Hollingsworth, LLC to farm the Klaustermeyer spinach. Wiser and Krautscheid formed Green Leaf AG, LLC (GLA) for harvesting Krautscheid's spinach crop.
In early 2016, the parties (Klaustermeyer group, Wiser, and Krautscheid) talked about entering into a partnership to grow and market spinach. Wiser suggested they use his limited liability company, CRG. In January 2016, the parties met at an attorney's office to review a proposed amendment to CRG's limited liability agreement to make Krautscheid's LLC, Green Leaf, and Klaustermeyer's LLC, Hollingsworth, co-owners in CRG. However, each party expressed concerns about ownership interest and control in CRG.
By April 2016, it was evident that the parties would not be able to reach an agreement. Nevertheless, they both had spinach in the ground that needed to be harvested. Spinach must be harvested within 21 to 45 days of planting and then requires immediate cooling. It is a sensitive crop with high risk. Because Hollingsworth and GLA were the only spinach farmers in the Columbia Basin, they banded together out of necessity to create the infrastructure to grow and harvest spinach in 2016. This agricultural infrastructure included equipment, marketing, buyers, packaging, storing, and transportation.
In April 2016, the parties loaned CRG money to implement the marketing, sales, packaging, storage, and transportation of the spinach crop. Wiser arranged for the sale of the spinach and set planting schedules to control production, maximize sales, and avoid equipment use conflict. During the 2016 growing season, neither party had any control over the other's farming practices and expenses. Nor did the parties discuss whether or how to divide the proceeds from their spinach sales. In fact, there was very little communication between the parties during this time. The trial court found that each party agreed to accept CRG's offer of $0.44 per pound of spinach in 2016. Krautscheid assigns error to this finding and argues that the $0.44 per pound was an advance, not the final price. Nevertheless, the trial court noted that with so little communication between the parties, the best indicator of the parties' agreement was their conduct, and each party accepted $0.44 per pound of spinach without reservation.
Based on this price, CRG paid GLA $348, 823.20 and paid Hollingsworth $414, 936.28. CRG sold the spinach crop on the "open market" to individual customers without a sales contract. When CRG was dissolved in January 2017, there were insufficient funds to repay the various loans provided by the parties.
At trial, Krautscheid asserted that he was entitled to the appreciated value of real property held by a limited liability company called Road 13.6 LLC.
In early 2016, while Wiser was putting together the infrastructure for the upcoming spinach harvest, and the parties discussed a proposal for working together, Jim Klaustermeyer, Sr. loaned $175, 000 to CRG (owned by Ken Wiser). In turn, CRG loaned the money to a newly created LLC called Road 13.6, an entity formed by Ken Wiser in January 2016. In February, Road 13.6, LLC used these funds to purchase land on Road 13.6 to store a cooler. The land was located approximately equal distance between fields being farmed by GLA and Hollingsworth.
As noted above, in early 2016, there were ongoing discussions about forming partnerships and companies to work together and develop a spinach crop in the Columbia Basin. One of the proposals was to add GLA and Hollingsworth as members of Road 13.6, LLC. A proposed LLC agreement was admitted at trial, showing GLA, LLC, and Hollingsworth, LLC as members of Road 13.6, LLC, but there are no signatures on the agreement.
At trial, Krautscheid introduced an initial secretary of state report for Leafy Greens Harvesting, LLC. Ken Wiser's attorney prepared the report. It had no signatures on it. The members are listed as "Krautzcheid (sic) Entity," "Klaustermeyer/Zink entity," and Ken Wiser. The report states that it was submitted on January 14, 2016. Leafy Greens Harvesting, LLC was renamed to Road 13.6, LLC on February 22, 2016.
At trial, this document was the sole basis for Krautscheid's claim to membership in Road 13.6, LLC. However, there was no additional evidence in the record to clarify the identity of the "entities" or the existence of any other Road 13.6, LLC members beyond Wiser. Wiser denied that Krautscheid was a member of Road 13.6, LLC. RP at 95. Krautscheid admitted that he made no contribution to Road 13.6, LLC (aka Leafy Greens) or signed any agreements or paperwork. The parties ambiguously testify that he was "voted out" in January 2017. Meanwhile, all of the expenses related to the property on Road 13.6, LLC were paid by CRG, Wiser's LLC. CRG paid interest on the loan from Klaustermeyer, Sr., paid for improvements to the property, and paid the property taxes. Shortly before trial, the Road 13.6 property had an assessed value of $252, 395.
At trial, Krautscheid also claimed that the unnamed partnership developed goodwill, customer relations, and contracts that became the partnership's property. Krautscheid alleged that Wiser's notice that the partnership was terminating was too late for Krautscheid to develop his own contracts. Krautscheid also contends that after the partnership dissolved in late 2016, Ken Wiser and the Klaustermeyer group continued farming spinach under a different name, using the partnership's goodwill, contracts, and customers. Krautscheid claimed he was entitled to his share of the 2017 gross earnings received by Royal Greens Produce, LLC, the company created by Wiser and the Klaustermeyers in 2017.[1]
The defendants disputed this claim and argued that there was no partnership. To the extent that there was a partnership, it was dissolved in 2016, and all assets were distributed. At trial, Wiser testified that in June 2016, he notified Krautscheid that the Klaustermeyers were unhappy with the GLA product and that he did not want to farm together as GLA anymore because "we just farm differently." Jim Klaustermeyer, Jr. testified they did not want to farm with Krautscheid because they had different farming philosophies. Meanwhile, Krautscheid continued to act as if the parties would be farming together. Not feeling heard, Wiser followed up with a July text message indicating "we're not farming anymore" meaning GLA. Wiser and Krautscheid disagreed on whether they communicated further about this issue. However, both testified to a November 21, 2016 meeting where Wiser tried to convince...
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