Prentiss v. Sheffel, 1

• Decision Date: 13 September 1973
• Docket Number: CA-CIV,No. 1,1
• Parties: Chris PRENTISS, Appellant, v. Donald J. SHEFFEL and Mortimer Iger; W. Miller Bennett, Receiver, Appellees. 1956.
• Court: Arizona Court of Appeals

Page 949

513 P.2d 949

20 Ariz.App. 411

Chris PRENTISS, Appellant, v. Donald J. SHEFFEL and Mortimer Iger; W. Miller Bennett, Receiver, Appellees.

No. 1 CA-CIV 1956.

Court of Appeals of Arizona, Division 1, Department B.

Sept. 13, 1973.

Rehearing Denied Oct. 22, 1973.

Review Denied Nov. 13, 1973.

Lewis & Roca, by John P. Frank, Joseph E. McGarry, Edward M. Lewis, and J. David Rich, Phoenix, for appellant

Philip T. Goldstein, Ltd., by Philip T. Goldstein, Phoenix, for appellees, Sheffel and Iger.

Duecy, Moore, Petsch & Robinson, by Charles M. Duecy, Scottsdale, for receiver Bennett.

OPINION

HAIRE, Judge.

The question presented by this appeal is whether two majority partners in a three-man partnership-at-will, who have excluded the third partner from partnership management and affairs, should be allowed to purchase the partnership assets at a judicially supervised dissolution sale. We hold that on the facts of this case, such a purchase is proper, and affirm the judgment entered by the trial court.

Suit was originally brought by plaintiffs-appellees seeking dissolution of a partnership they had formed with defendant-appellant. The partnership was created for the purpose of acquiring and operating the West Plaza Shopping Center located at Bethany Home Road and 35th Avenue in Phoenix, Arizona. (Hereinafter referred to as the Center).

As grounds for dissolution the plaintiffs contended that the defendant had in general been derelict in his partnership duties, and in particular that he had failed to contribute the balance of his proportionate share ($6,000) of the operating losses incurred by the Center. The plaintiffs also sought the trial court's permission to continue the partnership business both during the pendency of the suit and thereafter, and requested that a value be fixed on the defendant's interest in the partnership.

Defendant filed a counterclaim seeking a winding up of the partnership and the appointment of a receiver. He contended that his rights as a partner had been violated in that he had been wrongfully excluded from the partnership.

After an extended evidentiary hearing, the trial court made certain pertinent findings of fact which are here summarized:

1. That each of the plaintiffs owned a 42 1/2% Interest in the partnership, with an aggregate interest of 85%, while the defendant was the owner of a 15% Interest.

2. That no detailed partnership agreement as to how the business would be supervised, how management decisions would be made, or the term of the partnership's existence, was ever made or entered into at any time between the parties, although there were frequent attempts to arrive at such an agreement.

3. That numerous unresolved disputes arose between the parties, most notably as to how title to the partnership property was to be held, and how management decisions should be made.

4. That as a result of these disputes the relationship between the parties deteriorated, culminating with plaintiffs notifying defendant that any further dealings between them should be through their attorney.

5. That defendant had never been denied physical access to the Center; that he visted there from time to time; and that he also engaged in conversations with the resident manager of the Center.

6. That because of his poor financial condition, defendant had not made payments of all of his pro-rata share of the deficits incurred by the Center when called upon to do so.

7. That since its acquisition, the Center's losses from operations had been materially reduced, and certain more advantageous lease provisions had been secured; that there had been no showing of waste nor detriment to the Center as a result of management operations.

8. That there was a freeze-out or exclusion of the defendant from partnership management and affairs.

Based upon these and other findings of fact the trial court concluded that a partnership-at-will existed between the plaintiffs and the defendant which was dissolved as a result of a freeze-out or exclusion of the defendant from the management and affairs of the partnership. A receiver was appointed by the court until the partnership property could be sold and a partition and distribution of assets could be made. The trial court expressly refused the defendant's request that an order be entered forbidding the plaintiffs from bidding at the contemplated judicial sale.

The receiver and the trial court proceeded with the liquidation and sale of the Center. The plaintiffs were the high bidders at the sale which was held in open court. Subsequently, the court entered an order confirming the sale of the Center to them. It is from this order that the defendant appeals.

The principal contention urged by the defendant is that he was Wrongfully excluded from the management of the partnership, and therefore, because he would in some way be disadvantaged, the plaintiffs should not be allowed to purchase the partnership assets at a judicial sale. The record, however, does not support the defendant's position on two particulars. While the trial court did find that the defendant was excluded from the management of the partnership, there was no indication that such exclusion was done for the wrongful purpose of obtaining the partnership assets in bad faith rather than being merely the result of the inability of the partners to harmoniously function in a partnership relationship.

Moreover, the defendant has failed to demonstrate how he was injured by the participation of the plaintiffs in the judicial sale. To the contrary, from all the evidence it appears that if the plaintiffs had not participated, the sales price would have been considerably lower. Absent the plaintiffs' bid, there would have been only two qualified initial bids, which were $2,076,000 and $2,040,000 respectively. However, with the participation of plaintiffs, whose initial bid was $2,100,000, the final sales price was bid to $2,250,000. Thus it appears that defendant's 15% Interest in the partnership was considerably Enhanced by the plaintiffs' participation.

The cases the defendant relies upon to support his contention that the plaintiffs should not have been allowed to bid on the partnership assets all deal with instances where, unlike here, a partner has acted in bad faith, engaged in wrongful or fraudulent conduct, or has attempted to avoid paying an adequate consideration for the minority partner's interest. See Graham v. Street, 109 Utah 460, 166 P.2d 524 (1946); Von Au v. Magenheimer, 126 App.Div. 257, 110 N.Y.S. 629 (1908) and Theis v. Spokane Falls Gas Light Co., 34 Wash. 23, 74 P. 1004 (1904). The defendant characterizes the sale to plaintiffs as a forced sale of his partnership interest. However, defendant was not forced to sell his interest to the plaintiffs. He had the same...