Obert v. Environmental Research and Development Corp.
| Decision Date | 13 April 1989 |
| Docket Number | No. 55351-3,55351-3 |
| Citation | 771 P.2d 340,112 Wn.2d 323 |
| Parties | Doug OBERT and Donna Obert, husband and wife; Gerald Smith and Lucela Smith, husband and wife; Jovan Milutinovich and Mary Milutinovich, husband and wife; Tom Kegley and Lynn Kegley, husband and wife; Stephen Klos and Lois Klos, husband and wife; R.P. Obert and Judith Obert, husband and wife; Obert Investment; Harold Hansen and Millie Hansen, husband and wife; Wendell Alexander and Jeanne Alexander, husband and wife; Ralph Ruppert and Bess Ruppert, husband and wife; John E. Lotshaw and Jane Doe Lotshaw, husband and wife; Edward Wittman and Jane Doe Wittman, husband and wife; John Paquet and Shirley Paquet, husband and wife; Karen Yeh and John Doe Yeh, wife and husband; David Shih and Eva Shih, husband and wife; Fred Denman and Jean Denman, husband and wife; Linda Caron and John Doe Caron, wife and husband; Frank Brozovich and Darlene Brozovich, husband and wife; James Loveridge, Jr. and Mary Loveridge, husband and wife; Dr. Eugene Halar and Olga Halar, husband and wife; Paul Metzdorf and Eunice Metzdorf, husband and wife; Lakeview Radiology Ass'n Profit Sharing Fund; Robert T. Woodworth and Jane Doe Woodworth, husband and wife; Dr. Wayne Lowe and Carol Lowe, husband and wife; Jans Partnership; Frank Hacker and Zoa Hacker, husband and wife; Jack R. Venrick and Jane Doe Venrick, husband and wife; and Daniel Cochrane and Paulette Cochrane, husband and wife, Petitioners, v. ENVIRONMENTAL RESEARCH AND DEVELOPMENT CORPORATION; and Patrick T. Easter and Jane Doe Easter, husband and wife, Respondents. |
| Court | Washington Supreme Court |
Edwards & Barbieri, Charles K. Wiggins, Seattle, for petitioners.
Lasher & Johnson, Earl P. Lasher, Margo T. Keller, Seattle, for respondents.
This case presents the following issues:
(1) Did the Court of Appeals err in ordering the dissolution of the limited partnership?
(2) Is a general partner that breached its fiduciary duty to the limited partners entitled to receive specific performance of the limited partnership agreement and thereby collect a 25 percent share in the profits of the limited partnership?
(3) May limited partners validly remove the general partner without holding a meeting, without notifying the general partner, and without notifying all limited partners?
(4) Where the Court of Appeals has reversed a trial court decision, may parties continue to act in reliance on the trial court decision pending receipt of the mandate?
Plaintiffs are approximately 50 entities and individuals all of whom are limited partners of the Campus Park Associates Limited Partnership (Campus Park LP), a Washington limited partnership. The defendant, ERADCO, is a Washington corporation whose stock is owned entirely by Patrick and Rosemary Easter.
The primary asset of the Campus Park LP is an 83-acre parcel of rural land located in Federal Way, Washington which was purchased for $2,472,333 in December 1978. In 1978, ERADCO sold limited partnership units of the Campus Park LP to the plaintiffs through the use of a private placement memorandum. At the time of the purchase of the partnership units, each of the Campus Park LP limited partners and ERADCO entered into a limited partnership agreement.
ERADCO acted as the general partner of Campus Park LP from its inception in 1978 until May 5, 1984. In May 1984, 74.4 percent of the ownership of Campus Park LP amended the limited partnership agreement and voted by proxy to remove ERADCO as general partner, electing the Pace Corporation (Pace), a Washington corporation, as successor general partner. On or about May 5, 1984, an amended certificate of limited partnership was filed with the State of Washington amending the limited partnership agreement and replacing ERADCO with Pace as the new general partner. A King County Superior Court Judge confirmed the replacement of ERADCO by Pace on November 27, 1984. A later amendment to the certificate of limited partnership was made, naming Robert Gerend as an additional co-general partner of the Campus Park LP.
At the bench trial, the court found that prior to its removal, ERADCO had breached several fiduciary duties owed to the Campus Park LP limited partners, specifically:
(a) ERADCO failed to provide audited financial statements as required by the Limited Partnership Agreement. Some financial statements were eventually produced, but they were not timely....
(b) ERADCO failed to pay real estate taxes on the Campus Park property for the years 1979, 1980, 1981 and 1982 until late 1982. This was contrary to the terms of the Deed of Trust, placing the limited partnership in default of its deed to its seller.
(c) Defendants failed to keep a reserve account as set forth in the Limited Partnership Agreement for the payment of taxes and assessments.
(d) Defendants failed to keep adequate land management time records for the "actual time" it alleges it spent in managing the limited partnership property. This timekeeping requirement was provided for in the Limited Partnership Agreement and represented in the Private Placement Memorandum.... Finally, some of the entries were fictitious, leaving an overall lack of confidence in ERADCO's attention to this fiduciary duty.
(e) Defendants borrowed monies from the limited partnership's bank, Westside Federal Savings and Loan, for its own purposes and pledged as collateral the separate limited partnership savings accounts of Campus Park. Also used as collateral to secure their borrowings were the Limited Partnership accounts of other limited partnerships. Also as part of the collateral agreement with the bank, ERADCO and Easter agreed to restrict the use of those limited partner accounts for the duration of its loans. The monies were kept in a five and one-half percent (5 1/2) interest bearing account rather than being placed in an account earning interest at the current market rate of at least twelve percent (12%) or more. This practice started in May 1981 with the Campus Park account and terminated May 1982 at the request of the Campus Park limited partners. ERADCO continues to use other limited partnership savings accounts as collateral for its separate borrowings. The State Securities Division asked ERADCO and Easter to stop this practice but it has continued the loans against the limited partnership savings accounts. [The trial court found that the amount of damage to the limited partners in lost interest as a result of these actions was $2,100.]
(f) In December 1983 ERADCO commingled the separate monies of the Campus Park limited partnership with its own monies in its corporate account at the First Interstate Bank. One Hundred Fifty-five Thousand Dollars ($155,000) of limited partnership funds were transferred from the Campus Park savings account at Westside Federal Savings and Loan into an ERADCO corporate checking and savings account, which account had approximately One Hundred Fifty Dollars ($150) of other funds in it. ERADCO commingled Campus Park limited partnership funds with its own with the clear purpose of inflating ERADCO's own financial statement In addition, the trial court found that ERADCO was unable to substantiate approximately 75 percent of its land management fees that the limited partners had already paid ERADCO, an amount totalling $127,181.32.
for its own borrowings. This commingling was not disclosed to the limited partners at the time and was not reflected in any audited or unaudited financial statements of either ERADCO or Campus Park. It also subjected those funds to unlimited risk as ERADCO had not paid its withholding taxes to the IRS, which had begun action to collect the overdue taxes
Despite these breaches, ERADCO did make capital contributions to the Campus Park LP in the amount of $24,076.83, a portion of the amount required under the limited partnership agreement. Accordingly, the trial court found that ERADCO was entitled to recover its capital contribution, plus interest in the amount of $4,700.50. In further compliance with the limited partnership agreement, ERADCO performed "program management activities" and "land management activities", and also attempted to market the Campus Park LP real property. The trial court found that in performing its management duties, ERADCO advanced $169,790 in expenses on behalf of the Campus Park LP that are recoverable from the Campus Park limited partners under paragraph 9 of the limited partnership agreement. Finally, the trial court confirmed a total of $1,800 in terms against ERADCO awarded throughout the litigation.
The trial court concluded as a matter of law that the Campus Park general partner could be removed for cause upon a 66 percent vote, and thus confirmed the previous court order confirming ERADCO's removal and Pace's replacement as general partner. Further, the trial court held that as a result of ERADCO's fiduciary breaches it was not entitled to specific performance of the limited partnership agreement. Specifically, the trial court refused to enforce paragraphs 8 and 14 of the limited...
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...O'Brien v. Larson, 11 Wn. App. 52, 521 P.2d 228 (1974): 17.2(2)(b) Obert v. Env'tl Research & Dev. Corp., 112 Wn.2d 323, 771 P.2d 340 (1989): 18.5(1) Olson v. King County, 71 Wn.2d 279, 428 P.2d 562 (1967): 3.2(4)(b)(i) P_____________________________________________________________________ ......
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...Obert v. Envtl. Research & Dev. Corp., 51 Wn. App. 83, 752 P.2d 924 (1988), aff'd in part, rev'd in part, 112 Wn.2d 323, 771 P.2d 340 (1989): 20.3(1)(c) P____________________________________________________________________ Pac. Nw. Group A. v. Pizza Blends, Inc., 90 Wn. App. 273, 951 P.2d 8......
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...Co., 42 Wn. App. 543, 712 P.2d 861 (1986): 8.11(5) O____________________________________________ Obert v. Envtl. Research & Dev. Corp., 112 Wn.2d 323, 771 P.2d 340 (1989): 8.24, 20.8(1) Ochsner, In re Marriage of, 47 Wn. App. 520, 736 P.2d 292, review denied, 108 Wn.2d 1027 (1987): 9.2(2) O......
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§ 20.8 Effect of Mandate On Trial Court
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