Pankratz Farms, Inc. v. Pankratz

• Decision Date: 13 July 2004
• Docket Number: No. 02-707,02-707
• Citation: 2004 MT 180,322 Mont. 133,95 P.3d 671
• Parties: PANKRATZ FARMS, INC., Plaintiff, Counter-Defendant, Respondent and Cross-Appellant, v. MARVIN PANKRATZ, Defendant, Counter-Claimant, and Appellant. MARVIN PANKRATZ, Plaintiff and Appellant, v. PANKRATZ BROTHERS, a Montana Partnership; PANKRATZ GRAIN, a Montana Partnership; PANKRATZ TRUCKING, a Montana Partnership; PANKRATZ FARMS, INC., a Montana Corporation; DAVID PANKRATZ; DONALD PANKRATZ; KENNETH PANKRATZ; and JAMES PANKRATZ, Defendants, Respondents and Cross-Appellants.
• Court: Montana Supreme Court

2004 MT 180

322 Mont. 133

95 P.3d 671

PANKRATZ FARMS, INC., Plaintiff, Counter-Defendant, Respondent and Cross-Appellant, v. MARVIN PANKRATZ, Defendant, Counter-Claimant, and Appellant.

MARVIN PANKRATZ, Plaintiff and Appellant, v. PANKRATZ BROTHERS, a Montana Partnership; PANKRATZ GRAIN, a Montana Partnership; PANKRATZ TRUCKING, a Montana Partnership; PANKRATZ FARMS, INC., a Montana Corporation; DAVID PANKRATZ; DONALD PANKRATZ; KENNETH PANKRATZ; and JAMES PANKRATZ, Defendants, Respondents and Cross-Appellants.

No. 02-707

Supreme Court of Montana.

Submitted on Briefs: June 26, 2003

Decided: July 13, 2004

For Appellant: John J. Oitzinger, Attorney at Law; Helena, Montana; Peter O. Maltese, Attorney at Law, Sidney, Montana

For Respondents: K. Dale Schwanke, Jardine, Stephenson, Blewitt & Weaver, Great Falls, Montana

Justice JIM RICE delivered the Opinion of the Court.

¶1 This case concerns a dispute between the partners and shareholders in a family farming and ranching operation conducted under the names of Pankratz Farms, Inc. (the "Corporation"), Pankratz Brothers (the "Partnership"), and Pankratz Grain ("Grain").

¶2 On May 15, 1998, the Corporation initiated an action against Marvin Pankratz ("Marvin"), seeking possession of a farm house that Marvin had occupied as an employee of the Corporation and Partnership. Marvin counterclaimed for wrongful discharge and oppression by the Corporation.

¶3 Marvin subsequently filed a separate cause of action in District Court against the Corporation, the Partnership, Grain, Pankratz Trucking, and the other partners, David Pankratz ("David"), Donald Pankratz ("Donald"), Kenneth Pankratz ("Kenneth"), and James Pankratz ("James") (collectively, "the Majority Partners") for breach of the partnership agreement, breach of fiduciary duty and the duty of good faith and fair dealing, conversion, and fraud. Marvin additionally sought judicial dissolution and winding up of the Corporation and Partnership and dissociation of the Majority Partners. He also requested a final accounting and imposition of a constructive trust. On May 7, 1999, Marvin's cause of action was consolidated with the Corporation's previously filed lawsuit.

¶4 A bench trial, with an advisory jury of five members, was held in March and April 2000. After extensive fact gathering, the District Court concluded that David, Donald, Kenneth, and James had breached the partnership agreement as well as their duties of loyalty and good faith and fair dealing, and ruled that the Partnership should be dissolved and its business wound up. To assist in this task, the court ordered the appointment of a special master. However, Marvin's claims for wrongful discharge, fraud, conversion, oppression and judicial dissociation of the Majority Partners of the Partnership were denied and dismissed with prejudice.

¶5 On May 8, 2001, the District Court's Findings of Fact, Conclusions of Law, and Judgment and Decree ("Initial Findings") were amended. Among other changes, the Amended Findings of Fact, Conclusions of Law, and Decree ("Amended Findings") reflected the District Court's conclusion that Marvin had induced the Majority Partners to form Grain— and thereby breach their duties of loyalty and good faith and fair dealing—and was accordingly estopped from asserting damages as a result of the formation of the new partnership. The District Court additionally appointed Duane Smith ("Smith"), CPA, as special master, and stayed its decision on dissolution of the Partnership pending receipt of Smith's report.

¶6 Following completion of a limited accounting, the District Court issued Supplemental Findings of Fact, Conclusions of Law, and Order ("Final Order"), finding that although grounds existed for the dissolution of the Partnership, liquidation of the Partnership was not in the best interests of the individual partners, and therefore ordered Marvin to sell his interest back to the Partnership for $135,566, payable in annual amortized installments over fifteen years. Marvin appeals from the District Court's Initial Findings, Amended Findings, and Final Order, and the Corporation and Partnership cross-appeal from the court's failure to award attorney fees and costs. We affirm in part, reverse in part, and remand for further proceedings.

¶7 The following issues are raised on appeal:

¶8 1. Did the District Court err in failing to order the Partnership be dissolved and its business wound up?

¶9 2. Did the District Court properly determine the value of Marvin's Partnership interest?

¶10 3. Did the District Court err in concluding that Marvin was estopped to complain about the formation of Grain?

¶11 4. Did the District Court err in dismissing Marvin's claim for wrongful discharge?

¶12 5. Did the District Court err in dismissing Marvin's claim for oppression of a shareholder?

¶13 6. Did the District Court err in its appointment of the special master?

¶14 7. Did the District Court err in limiting Attorney Archambeault's testimony on cross-examination?

¶15 8. Did the District Court improperly exclude testimony concerning the disposition of stock owned by Walter and Elizabeth Pankratz?

¶16 9. Did the District Court err in failing to award the Partnership and Corporation attorney fees and costs?

FACTUAL BACKGROUND

¶17 Walter Pankratz ("Walter") and his brother, Londo Pankratz ("Londo"), began a small grain farming and cattle ranching enterprise in the 1950s, and owned land and farmed together in Valley County and Daniels County. The brothers separated their operations in the 1960s, but continued to cooperate in their respective farming operations.

¶18 With help from his wife, Elizabeth, and six sons, Marvin, David, Donald, Kenneth, James, and Larry Pankratz ("Larry"), Walter continued farming and ranching in Lustre, Montana, and established a successful business there. In 1975, he incorporated Pankratz Farms, primarily for estate planning purposes, and invited his eldest son, Marvin, to return home to work for the family business. Marvin accepted his father's invitation, and signed an employment agreement obligating him to perform "customary and usual work and services connected with the farming and ranching business." In return, the farm would provide room and board and pay a small monthly salary. Employees of the farm additionally received benefits such as medical insurance, transportation, and reimbursement for expenses incurred.

¶19 Shortly thereafter, Walter acquired a substantial farming and ranching operation approximately 60 miles northwest of Lustre, near Opheim, Montana. With the Corporation expanding its operation, all the brothers became active in the business. Marvin, Larry, and James lived and worked in Opheim, while David, Donald, and Kenneth lived and worked at the farm in Lustre. The six brothers began operating together as an informal partnership engaged in farming.

¶20 In 1978, the brothers entered a written partnership agreement in order to formalize their operations and thereby become eligible for funds available through the federal Agricultural Stabilization and Conservation Service, the predecessor to the Farm Service Agency ("FSA"). Among other things, the partnership agreement provided for equal sharing of profits and losses, and required unanimous agreement on all actions or decisions affecting the Partnership, including decisions to pledge or transfer any interest or equity in the Partnership, or to endorse a note.

¶21 Initially, the Partnership leased land owned by the Corporation on a crop-share basis. Over time, the Partnership acquired its own real estate, livestock, and machinery; however, the Partnership and Corporation continued to collaborate in many areas of the business, and often shared equipment and supplies.

¶22 Dissension among the brothers began to surface in the mid to late 1980s, and they became noticeably divided. Around 1985, David, Donald, Kenneth, and James, formed a separate partnership known as Pankratz Trucking ("Trucking"), which provided transportation services for the Corporation and the Partnership at fees consistent with those being charged in the open market. At about the same time, David, Donald, and Kenneth began leasing lands from Londo. David, Donald, and James also leased lands owned by their father. Meanwhile, Larry acquired leased properties of his own.

¶23 The brothers' differences made operating the Partnership through unanimous agreement difficult. In 1991, the Partnership Agreement was amended to provide for actions and decision-making by a 2/3 vote of those interested in the Partnership. However, the provisions of the 1978 agreement forbidding a partner from borrowing money in the Partnership's name, or leasing, mortgaging, or transferring interests in the Partnership without the prior written consent of the other partners were left unchanged.

¶24 Walter remained active in the Corporation until his retirement in 1993. When Walter had incorporated the family farm in 1975, he was the majority stockholder with 645 shares. Over the years that followed, Walter had gifted stock in the Corporation to each of his sons. As a result of this gifting, by 1994 each of the six sons owned 87 shares of stock, and Walter and Elizabeth held only 75 shares of stock each.

¶25 In June of 1995, James replaced Larry as the president of the Corporation, due in part to Larry's alleged failure to cooperate in obtaining operating funds. Discussions to terminate Marvin and Larry's employment with the Corporation began shortly thereafter. Meanwhile, Marvin's relationship with his brothers continued to deteriorate.

¶26 The next two years involved a series of negotiations for the purchase of Marvin's and Larry's interests in the Partnership and Corporation. With the help of Tim Christensen ("Christensen") and Dudley Shy, financial consultants, the Majority Partners made the first of several offers to purchase Marvin's interest on December 12, 1996. The Majority Partners proposed...