Shopf v. Marina Del Ray Partnership

• Decision Date: 12 September 1989
• Docket Number: No. 89-C-0152,89-C-0152
• Citation: 549 So.2d 833
• Parties: Richard Jere SHOPF v. MARINA DEL RAY PARTNERSHIP.
• Court: Louisiana Supreme Court

Page 833

549 So.2d 833

Richard Jere SHOPF v. MARINA DEL RAY PARTNERSHIP.

No. 89-C-0152.

Supreme Court of Louisiana.

Sept. 12, 1989.

Robert E. Leake, Jr., Leake & Anderson, for applicant.

Thomas D. Fazio, McCollister, McCleary & Fazio, for respondent.

LEMMON, Justice.

This case involves the determination of the amount to which plaintiff is entitled under La.C.C. art. 2823 from the Marina Del Ray Partnership (the Partnership) as the value of plaintiff's twelve percent partnership share after he withdrew from the Partnership in accordance with La.C.C. art. 2822. ¹

Facts

In 1983 Louis Ray began a venture in which he intended to develop a marina and a commercial and residential complex on the Tchefuncta River and LA. Highway 22 in St. Tammany Parish. The development was to be called Marina Del Ray. Later that year Robert Claitor purchased from Ray a fifty percent interest in the project for $150,000. Claitor subsequently transferred this interest to R.G. Claitor Realty Company and to various trusts set up for his four children.

Ray and Claitor Realty, as partners of Marina Del Ray Partnership, thereafter entered into an employment contract with plaintiff, whereby plaintiff was employed as general manager of the Partnership for a period of one year, beginning December 1, 1983. The contract provided for a specified monthly salary, as well as for additional compensation as follows:

As an incentive Shopf will receive a Twelve (12%) per cent partnership interest in the Partnership at a cost of ONE AND NO/100 ($1.00) DOLLAR paid to the Partnership.... The Twelve (12%) per cent partnership interest to be initially acquired will reduce the partnership interest of Louis F. Ray.

In March, 1984, Ray, Claitor Realty and the trustees of the Claitor trusts executed articles of partnership, which were subsequently filed with the Secretary of State. ² The articles provided for an ordinary partnership for the following purposes:

[T]o acquire, own, develop, lease, sell and manage real and personal property to be used for apartment projects, commercial offices, marinas, condominiums, shopping centers and other commercial and residential real estate developments located within and without the State of Louisiana; to furnish service to the tenants or occupants of such properties; to finance by mortgage or otherwise the acquisition, improvement and/or maintenance of such property; and to lease or acquire and finance real, personal or mixed property appurtenant thereto or used in connection therewith.

In April of 1984 Claitor Realty purchased thirty-two percent of Ray's partnership interest for $135,000. At the same time Ray donated the remaining six percent of his interest to Claitor. ³

In July, 1984, the Partnership obtained a $2,500,000 loan commitment for long-term financing to complete the first phase of the development. The lender made a $300,000 advance to the Partnership, and Claitor and plaintiff both signed a continuing guaranty for the remainder of the $2,500,000 loan. In response to a request by the lender, the articles of partnership were amended to reflect the twelve percent interest owned by plaintiff, the withdrawal of Ray as a partner, the increase in the partnership interest of Claitor Realty to seventy-seven percent, and the six percent interest owned by Claitor. ⁴

On July 11, 1984, the same day the continuing guaranty was signed, Claitor (who was then managing partner of the Partnership) notified plaintiff that his employment as general manager would not be continued when the employment contract expired in November. Claitor further stated that he was assuming managerial authority for the development. At the same time Claitor offered either to sell plaintiff 6.194% of Claitor Realty's interest and 1.161% of Claitor's interest for $3,552.63 per point, plus thirteen percent interest from the date Claitor obtained these interests from Ray, or to purchase plaintiff's twelve percent interest for the same price per point. Plaintiff declined to accept either offer.

Having learned shortly after signing the continuing guaranty that his employment with the Partnership as general manager would not be continued, plaintiff immediately returned to the lender $200,000 of the $300,000 advance, stating his intent to cancel his continuing guaranty. Claitor then fired plaintiff as general manager, effective immediately, on the grounds that plaintiff had breached his fiduciary duty to the Partnership by returning the funds. Plaintiff responded by filing suit for damages for breach of the employment contract.

On October 24, 1984, plaintiff formally withdrew as a partnership member by sending a "Notice of Withdrawal as Partner" to the Partnership and filing a copy with the Secretary of State. The remaining partners apparently elected to continue the partnership entity in existence.

When plaintiff and the remaining partners could not agree as to the value of plaintiff's share, plaintiff instituted the present action by filing a "Petition to Determine and Compel Payment of Partnership Interest". He demanded a judicial determination of the sum due him for the value of his twelve percent share pursuant to La.C.C. arts. 2823-2825. ⁵

In both suits the Partnership filed a reconventional demand for damages for plaintiff's violation of his fiduciary duties and pleaded set-off and compensation against any sums awarded plaintiff.

The two suits were consolidated for trial. As to plaintiff's claim for payment of his share, the trial court held that plaintiff's twelve percent share had no value on the date of his withdrawal. ⁶ The trial court noted:

Testimony at trial indicated that due to a failing economy, the venture as of the time of the termination of Shopf had a negative book value. Plaintiff contends that value should be based on future development of the Marina. However, the court finds that placing a value on the future development of the project is so speculative, as to be of no value in determining partnership worth.

Plaintiff's demand in this respect was therefore dismissed with prejudice.

Both plaintiff and the Partnership appealed. The court of appeal affirmed, holding that there was no manifest error in the trial court's acceptance of the testimony of the Partnership's experts that the partnership entity had a negative book value at the time plaintiff withdrew. 539 So.2d 1320.

We granted plaintiff's application for certiorari to determine the correctness of the ruling that plaintiff's partnership share had zero value on October 24, 1984, the date of his withdrawal. ⁷ 541 So.2d 835.

Applicable Civil Code Provisions

The codal articles on partnership were revised in 1980. The new articles provide that when a partnership has been constituted without a specific term, a partner may withdraw at any time without the consent of his partners, provided he gives reasonable notice in good faith at a time that is not unfavorable to the partnership. ⁸ La.C.C. art. 2822. The withdrawal does not automatically terminate the partnership, but merely causes the cessation of the membership of the withdrawing partner. See La.C.C. art. 2818, Revision Comment (a).

Although the partnership does not automatically terminate upon withdrawal of a partner, the remaining partners may, by unanimous consent, terminate the partnership. La.C.C. art. 2826. In the event of termination of the partnership, the partnership assets are divided according to La.C.C. arts. 2833-2834.

Once a partner has withdrawn from the partnership which continues to exist, he is not entitled to an interest in the assets of the partnership, because the assets belong to the partnership entity. See La.C.C. art. 2823, Revision Comment (a). However, the Code recognizes the former partner's entitlement to "an amount equal to the value that the share of the former partner had at the time membership ceased", and the value of the share must be paid in money, unless otherwise agreed, together with legal interest from the time membership ceases. ⁹ La.C.C. art. 2823-2824. When there is no agreement on the amount to be paid, any interested party may apply for a judicial determination of the value of the share and for a judgment ordering its payment. ¹⁰ La.C.C. art. 2825.

Thus, it is only in the event that the partnership continues in existence after withdrawal of a partner and only in the absence of any agreement between the partners that the court is called upon to determine the value of the partnership interest.

In the present case the articles of partnership did not provide for a specific term, and plaintiff exercised his right of withdrawal under Article 2822. The partners did not agree in advance on the method of determining the value of a withdrawing partner's share. Once plaintiff withdrew, the remaining partners elected to continue the partnership, but plaintiff and the remaining partners could not amicably agree on a value to be assigned to plaintiff's interest. ¹¹ The court was therefore called upon to determine the value of plaintiff's share and to render a judgment ordering payment.

Valuation

The Code does not contain a definition of the word "value" in Article 2825 which authorizes a request for a judicial determination of the value of the share. It is therefore up to the courts to determine the method of valuation.

The trial court determined that plaintiff's twelve percent interest had no value on October 24, 1984, at least in part because the partnership had a negative book value. Plaintiff argues that book value is not the proper test for determining the value of plaintiff's share in this case and that fair market value, as used in evaluating property in expropriation cases, is the more appropriate standard, in the absence of an agreement to use book value or some other standard. In this regard plaintiff cites Anderson v. Wadena Silo Co., 310 Minn. 288, 246 N.W.2d 45 (1976), in which the court, construing the Minnesota statute (patterned after the Model...