Smith, Keller & Associates v. Dorr & Associates

• Decision Date: 09 June 1994
• Docket Number: 93-157,Nos. 93-130,s. 93-130
• Citation: 875 P.2d 1258
• Parties: SMITH, KELLER & ASSOCIATES, a Wyoming general partnership, Appellants (Plaintiffs), v. DORR & ASSOCIATES, a partnership; Dorr, Bentley & Pecha, a partnership; Dorr, Bentley & Pecha, Certified Public Accountants, a Limited Liability Company; Bill Dorr; Dorr Investments; First Interstate Bank of Commerce; Steven K. Bentley; Steven K. Bentley, P.C.; Mark Dorr; Dorr, Bentley & Pecha, P.C.; Dorr, Bentley & Pecha, a CPA Network; Barbara Elizabeth Dorr; and Stephen H. Pecha, Appellees (Defendants). DORR, BENTLEY & PECHA, P.C.; Steven K. Bentley, P.C.; Mark Dorr; Barbara Elizabeth Dorr; and Stephen H. Pecha, Appellants (Defendants), v. SMITH, KELLER & ASSOCIATES, a Wyoming general partnership, Appellee (Plaintiff).
• Court: Wyoming Supreme Court

Page 1258

875 P.2d 1258

SMITH, KELLER & ASSOCIATES, a Wyoming general partnership, Appellants (Plaintiffs), v. DORR & ASSOCIATES, a partnership; Dorr, Bentley & Pecha, a partnership; Dorr, Bentley & Pecha, Certified Public Accountants, a Limited Liability Company; Bill Dorr; Dorr Investments; First Interstate Bank of Commerce; Steven K. Bentley; Steven K. Bentley, P.C.; Mark Dorr; Dorr, Bentley & Pecha, P.C.; Dorr, Bentley & Pecha, a CPA Network; Barbara Elizabeth Dorr; and Stephen H. Pecha, Appellees (Defendants).

DORR, BENTLEY & PECHA, P.C.; Steven K. Bentley, P.C.; Mark Dorr; Barbara Elizabeth Dorr; and Stephen H. Pecha, Appellants (Defendants), v. SMITH, KELLER & ASSOCIATES, a Wyoming general partnership, Appellee (Plaintiff).

Nos. 93-130, 93-157.

Supreme Court of Wyoming.

June 9, 1994.

Don W. Riske of Riske & Arnold, P.C., Cheyenne, Wyoming; Patrick Vellone of Vinton, Waller, Slivka & Panasci, Denver, CO, for appellant in Case No. 93-130 and appellee in Case No. 93-157.

Greg L. Goddard of Goddard, Perry & Vogel, Buffalo, James Edwards of Stephens, Edwards & Hallock, Gillette, for appellees in Case No. 93-130.

Ernest W. Halle, Cheyenne, for Dorr & Associates.

Greg L. Goddard of Goddard, Perry & Vogel, Buffalo, for appellants in Case No. 93-157.

Before THOMAS, CARDINE and GOLDEN, JJ., BROWN and ROONEY, JJ. (Retired).

BROWN, Justice (Retired).

The parties to this appeal, partners in two existing accounting firms, formed a third partnership styled Dorr, Keller, Bentley & Pecha (DKBP). The DKBP partnership dissolved in May, 1989, and since then the parties have been engaged in continuous litigation. In this instance, the district court granted a partial summary judgment in favor of the individuals who formed former partner Dorr and Associates (D & A). The district court determined that D & A had not breached any fiduciary duties owed to former partner Smith, Keller and Associates (SK & A) and denied a second post-dissolution accounting of the partnership assets. In another ruling, the district court granted partial summary judgment in favor of SK & A. The district court ruled that some assets of the DKBP partnership had been fraudulently conveyed to business entities associated with the individuals who formed D & A (collectively the Dorr faction). After the district court certified that there was no just cause for delay, all parties filed separate appeals.

We reverse and remand.

I. ISSUES

The two appeals were consolidated for oral argument and disposition. In case No. 93-130, appellants, SK & A, specify the issues to be:

1. Did the district court have jurisdiction to interpret the meaning of a confirmed arbitration award in order to deny the Appellants the right to an accounting during the winding up period of a partnership?

2. Did the district court commit reversible error by determining that a partner who fraudulently conveyed the partnership assets it held in trust during the winding up period of a partnership, has not breached the fiduciary duties it owes to its co-partners and the partnership?

3. Did the district court commit reversible error in determining that in winding up a partnership, the relief and procedures set forth in the Wyoming Uniform Fraudulent Conveyances Act are identical to the relief and procedure set forth in the Wyoming Uniform Partnership Act?

4. Where a partnership is a partner in a second partnership, are the individual partners of the first partnership responsible for the duties and obligations owed by the first partnership to the second partnership?

In case No. 93-157, appellants, the Dorr faction, designate the issues as:

1. Did the trial court correctly rule that assets of Dorr, Keller, Bentley & Pecha were fraudulently conveyed?

2. Was the July 30, 1990, stipulated arbitration order--set aside by Judge Kalokathis--correctly confirmed by the trial court?

3. Is goodwill or client base an asset that can be fraudulently conveyed?

4. Is goodwill subject to creditor's claims?

II. FACTS

The parties were in partnership for sixteen months, January 1, 1988 to May 4, 1989, and have been in litigation for fifty-seven months. The DKBP accounting partnership was established by the joinder of two existing accounting partnerships, D & A and SK & A. According to the DKBP partnership agreement, D & A contributed $750 in capital to the DKBP partnership, and SK & A contributed $250 in capital. Each partner was then entitled to a corresponding share of the profits. D & A also brought an established client base from its Gillette, Wyoming office into the partnership. SK & A brought a client base from its Cheyenne, Wyoming office into the partnership.

The DKBP partnership agreement provided a specific procedure in the event of dissolution "within 24 months of the formation of this partnership[.]" Under the DKBP partnership agreement, D & A or SK & A could dissolve the partnership without the consent of the other by providing notice thirty days in advance of dissolution. If dissolution occurred by this procedure, the DKBP partnership agreement provided: "In this case only, each party shall take back those assets and/or liabilities it brought to the partnership." SK & A dissolved the DKBP partnership by notice effective May 4, 1989. In accord with the terms of the partnership agreement, the disputes that followed were first submitted to arbitration.

This is the second time the parties have visited this court. Dorr, Keller, Bentley & Pecha, et. al. v. Dorr, Bentley & Pecha, 841 P.2d 811 (Wyo.1992) (Dorr I ). In Dorr I, we held inter alia that full effect had not been given to the arbitration awards dated August 24, 1989, and October 1, 1989 (nunc pro tunc order) (collectively first arbitration award). Following the publication of the decision in Dorr I, the district court confirmed another arbitration award dated July 30, 1990 (second arbitration award). No party chose to challenge by appeal the confirmation of these arbitration awards.

In February, 1990, before the confirmation by the district court of the first arbitration award, D & A filed for a Chapter 11 bankruptcy which was later converted to a Chapter 7 bankruptcy. The estate of D & A has been placed in the hands of a Chapter 7 trustee. Dorr I, 841 P.2d at 815. Since the dissolution of DKBP partnership on May 4, 1989, and until the present, SK & A has attempted to regain DKBP assets alleged to have been fraudulently conveyed by the Dorr faction. SK & A has also attempted to obtain DKBP business records and other assets so that the affairs of DKBP may be wound up and that partnership terminated. It is not entirely clear what happened to DKBP property after dissolution. ¹

In the first arbitration award, the panel found that SK & A contributed the following assets to DKBP as of January 1, 1988:

Cheyenne client base, certain equipment, Cheyenne office space and Cheyenne telephone numbers. Prior to entering into the Partnership Agreement, the parties had the understanding that Mr. Keller desired to reduce the amount of time he spent on "mainstream" accounting activities such as tax work, preparation of financial statements and bookkeeping, and to devote more time to "special projects" within the accounting practice, such as litigation support, arranging of financing and buying and selling of businesses, and also to devote more time to his outside business activities which included a stock brokerage firm. Consistent with that understanding, Mr. Keller made efforts to introduce his clients to Dorr partners and arranged to have his clients' work done by them.

The first arbitration award resulted from an accounting of DKBP at the time of dissolution. However, following dissolution, some of the tangible property SK & A contributed to the partnership may have been foreclosed upon. Some may have been appropriated by the Dorr faction or their subsequent business entities, the LLC and PC.

SK & A is most concerned about the intangible property of DKBP, especially the client base of the Cheyenne and Gillette offices of the DKBP partnership. In the first arbitration order dated August 24, 1989, the majority of the arbitration panel concluded that, as a matter of law, D & A should have returned "the client base of the Cheyenne office" to SK & A. As a result of this breach of the DKBP partnership agreement by D & A and the failure to pay earned compensation, damages of $105,163.78 were awarded by the first arbitration panel to SK & A.

It was not clear to those involved in the proceedings after the first arbitration award whether termination had been accomplished and what, if anything, further should have been done. After some jousting in the district court, SK & A went back to the arbitration panel for further enlightenment. ² In this proceeding, the second arbitration panel determined, in pertinent part:

2. The issues presented must be resolved by reference to the Wyoming Uniform Partnership Act (W.S. 17-13-101 et seq) and Wyoming case law.

3. Under such authority, a partnership cannot be terminated unless and until its affairs have been settled and fully wound up. The Dorr, Keller, Bentley & Pecha partnership has not completed a settlement of its affairs and is, therefore, not terminated.

4. Pursuant to W.S. 17-13-609, Smith, Keller & Associates has the right to wind up the affairs of the Dorr, Keller, Bentley & Pecha partnership.

The arbitration panel answered specific issues presented to it as follows:

a. Whether the Dorr Keller Bentley & Pecha partnership was terminated as of May 4, 1989.

RESPONSE: No.

b. Whether the Dorr Keller Bentley & Pecha partnership was terminated as of August 24, 1989, the date that the Arbitration Panel issued its Findings of Fact, Conclusions of Law and Award.

RESPONSE: No.

C. Whether the Dorr Keller Bentley & Pecha partnership can be terminated prior to the winding-up of its affairs including the marshalling of all assets of the partnership, the payments of debts and distribution of remaining assets...