Kuznik v. Bees Ferry Associates

• Decision Date: 25 September 2000
• Docket Number: No. 3242.,3242.
• Citation: 342 S.C. 579,538 S.E.2d 15
• Court: South Carolina Court of Appeals
• Parties: Henry KUZNIK, Plaintiff, v. BEES FERRY ASSOCIATES, A South Carolina Partnership and Howard E. Hoffman, Defendants. Howard E. Hoffman, Third-Party Plaintiff, v. Bees Ferry Associates, A South Carolina Partnership, Hilton Head Equity Management Co., Inc., Greenbax Enterprises, Inc., G. Harris Thaxton, David Rawle, Edward L. Henning, Frances R. Finch, L. Joseph Land, Evan D. Jones, and Brumley/McKinney/Meyer, Third-Party Defendants, of whom Bees Ferry Associates, A South Carolina Partnership, Hilton Head Equity Management Co., Inc., Greenbax Enterprises, Inc., G. Harris Thaxton, David Rawle, Edward L. Henning, Frances R. Finch, L. Joseph Land, Evan D. Jones, and Brumley/McKinney/Meyer are, Appellants-Respondents, and Howard E. Hoffman is, Respondent-Appellant.

342 S.C. 579

538 S.E.2d 15

Henry KUZNIK, Plaintiff, v. BEES FERRY ASSOCIATES, A South Carolina Partnership and Howard E. Hoffman, Defendants.

Howard E. Hoffman, Third-Party Plaintiff, v. Bees Ferry Associates, A South Carolina Partnership, Hilton Head Equity Management Co., Inc., Greenbax Enterprises, Inc., G. Harris Thaxton, David Rawle, Edward L. Henning, Frances R. Finch, L. Joseph Land, Evan D. Jones, and Brumley/McKinney/Meyer, Third-Party Defendants, of whom Bees Ferry Associates, A South Carolina Partnership, Hilton Head Equity Management Co., Inc., Greenbax Enterprises, Inc., G. Harris Thaxton, David Rawle, Edward L. Henning, Frances R. Finch, L. Joseph Land, Evan D. Jones, and Brumley/McKinney/Meyer are, Appellants-Respondents, and Howard E. Hoffman is, Respondent-Appellant.

No. 3242.

Court of Appeals of South Carolina.

Heard August 30, 2000.

Decided September 25, 2000.

Rehearing Denied December 16, 2000.

G. Dana Sinkler and Andrea H. Duenas, both of Warren & Sinkler; Michael A. Scardato, of McNair Law Firm, all of Charleston; and Robert L. Widener, of McNair Law Firm, of Columbia, for appellants/respondents.

Harold A. Oberman and Marvin I. Oberman, both of Oberman & Oberman; and A. Arthur Rosenblum, all of Charleston, for respondent/appellant.

ANDERSON, Judge:

Bees Ferry Associates, a general partnership, appeals from the Master's finding that it breached its fiduciary duty to Hoffman and breached the partnership agreement. Howard Hoffman cross appeals from the Master's order dismissing his causes of action under the Uniform Limited Partnership Act, S.C.Code Ann. §§ 33-42-10 to -2040 (1990 & Supp.1999) and for civil conspiracy. We affirm in part and reverse in part.

FACTUAL/PROCEDURAL BACKGROUND

In 1987, Eric Meyer, a real estate broker with the Brumley Company,¹ approached Henry Kuznik about the possibility of purchasing a tract of land owned by Kuznik located along Bees Ferry Road in Charleston County. Meyer represented Howard Hoffman. Kuznik agreed to sell the land for $50,000 per acre and Hoffman decided to purchase the property.

Meyer and the Brumley Company helped negotiate the terms of the purchase. During negotiations, Meyer asked Hoffman if he would be willing to allow a real estate partnership to participate in the purchase. Hoffman agreed and the purchase was structured to permit Hoffman to assign the property to a general partnership Meyer helped form. In exchange for the assignable option, Hoffman agreed to remain personally liable to Kuznik for the mortgage and note, which were needed to finance the purchase, should the Partnership default. The Partnership became known as Bees Ferry Associates ("the Partnership").² Hoffman obtained a 12.5 percent interest in the Partnership in consideration of the assignment of the contract for the sale of the property and his personal guaranty of the purchase money note to Kuznik.

The purpose of the Partnership was to develop and eventually lease or sell the property. On November 11, 1988, the land was purchased in the Partnership's name. The Brumley Company earned an $80,000 commission from the sale.

The Partnership executed a seven-year purchase money mortgage and note for one million nine-hundred eighty-thousand five-hundred dollars ($1,980,500) to Kuznik. It additionally signed a mortgage and note to South Carolina National Bank for eight-hundred twenty-five thousand dollars ($825,000) under the contract.

Frank Brumley, Patrick McKinney, and Meyer did not contribute any capital. They became managing partners. The other partners with the exception of Hoffman became "capital partners." Every year a "capital call" went out to the "capital partners" advising them of their percentage payment due to cover their portion of the note and mortgage.

In 1993, the Partnership mistakenly believed the Kuznik note was due and drew up a modification agreement to extend it. Brumley, McKinney, and Meyer signed the proposed modification agreement on behalf of the Partnership. The Partnership subsequently discovered the note was for seven years rather than five years.

The Partnership made payments on the note through October 1996. However, at that time, the partners became increasingly dissatisfied with the Bees Ferry property. "They had hoped that greater development would have occurred at that end of town." Meyer testified at trial the property wasn't appreciating as desired and it was no longer to the Partnership's benefit to continue making payments.

At the October 1996 meeting, a majority of the partners decided to cease payments on the note and mortgage. Hoffman was not present at the meeting.

Kuznik sent a right to cure letter offering to let the Partnership pay interest only and delay payment of the balance if it continued to make payments. The Partnership did not accept this offer. Consequently, Kuznik filed suit against Hoffman individually and against the Partnership. In the action, Kuznik sought foreclosure of the Bees Ferry mortgage and a personal deficiency judgment against Hoffman on the note. The Partnership currently owns sixteen acres of land (Tract I) and has no debt. The land is valued at approximately one million four hundred thousand dollars ($1,400,000).

The Partnership answered admitting Kuznik had the right to foreclose on the mortgage. Hoffman counterclaimed against Kuznik and filed third party complaints against the Partnership and each partner individually. In the complaints, Hoffman alleged breach of contract, breach of fiduciary duty, fraud, civil conspiracy, and violation of the South Carolina Uniform Limited Partnership Act. By way of relief, Hoffman sought indemnity and an accounting. Hoffman subsequently dropped his counterclaim against Kuznik and proceeded against the Partnership and individual partners. The case was referred to a Master on May 30, 1997.

The Master granted Kuznik a deficiency judgment against Hoffman and ordered a foreclosure sale of the property. The Master additionally dismissed Hoffman's fraud and Uniform Limited Partnership Act causes of action and determined Hoffman did not establish a cause of action for civil conspiracy. He did, however, rule the partners and the Partnership: (1) breached the partnership agreement; (2) breached their fiduciary duty owed to Hoffman; and (3) must indemnify Hoffman.

The Partnership and the partners appeal the Master's findings regarding breach of the partnership agreement and breach of the fiduciary duty owed Hoffman. Hoffman cross appeals the Master's rulings on his causes of action for civil conspiracy and violation of the South Carolina Uniform Limited Partnership Act.

ISSUES

I. Did the Master err in ruling the debt was an obligation of the Partnership?

II. Did the Master err in finding the partners did not have the authority to discontinue payments under the partnership agreement?

III. Did the Master err in finding the partners liable for breach of contract for failing to continue to make payments on the promissory note according to the partnership agreement?

IV. Did the Master err in determining the partners breached their fiduciary duty to Hoffman by discontinuing the payments on the promissory note?

V. Was the decision by the partners to discontinue payment on the promissory note protected by the business judgment rule?

VI. Was Hoffman entitled to contractual indemnity under the partnership agreement for the loss he will sustain in fulfilling the deficiency judgment?

VII. Was Hoffman entitled to recovery under equitable subrogation as a guarantor?

VIII. Did the Master err in dismissing Hoffman's claim for civil conspiracy?

IX. Was Hoffman entitled to punitive damages as a result of the partners' actions?

STANDARD OF REVIEW

A case with legal and equitable issues presents a divided scope of review. Perry v. Heirs at Law and Distributees of Gadsden, 313 S.C. 296, 437 S.E.2d 174 (Ct.App.1993). When legal and equitable actions are maintained in one suit, each retains its own identity as legal or equitable for purposes of the applicable standard of review on appeal. Corley v. Ott, 326 S.C. 89, 485 S.E.2d 97 (1997).

"An action for breach of fiduciary duty is an action at law and the trial judge's findings of fact will be upheld unless without evidentiary support." Id.; Future Group, II v. Nationsbank, 324 S.C. 89, 478 S.E.2d 45 (1996). An action seeking damages for breach of contract is also an action at law and the trial judge's findings of fact will be upheld unless without support. Brown v. Allstate Ins. Co., 337 S.C. 499, 523 S.E.2d 807 (Ct.App.1999).

"Indemnity is that form of compensation in which a first party is liable to pay a second party for a loss or damage the second party incurs to a third party. A right to indemnity may arise by contract (express or implied) or by operation of law as a matter of equity between the first and second party." Town of Winnsboro v. Wiedeman-Singleton, Inc. (Winnsboro I), 303 S.C. 52, 56, 398 S.E.2d 500, 502 (Ct.App.1990), aff'd 307 S.C. 128, 414 S.E.2d 118 (1992) (Winnsboro II) (citation omitted).

"In an action at law, on appeal of a case tried without a jury, the findings of fact of the judge will not be disturbed upon appeal unless found to be without evidence which reasonably supports the judge's findings. The rule is the same whether the judge's findings are made with or without, a reference. The judge's findings are equivalent to a jury's findings in a law action. Chapman v. Allstate Ins. Co., 263 S.C. 565, 211 S.E.2d 876 (1975)." Townes Assocs. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976) (emphasis added).

Subrogation can arise by statute, by contract, or through equity. Dailey v. Secura Ins. Co., 164 Wis.2d 624, 476 N.W.2d 299 (Ct.App. 1991). Conventional subrogation arises by contract and is specifically bargained for by the parties. In contrast, equitable (or legal) subrogation is implied subrogation that arises under the common law. Shumpert v. Time Ins. Co., 329 S.C. 605, 496...