Trust v. Physicians Office Bldg. Inc.

• Decision Date: 29 June 2011
• Docket Number: No. 25762.,25762.
• Parties: GAIL M. BENSON LIVING TRUST, Lenore G.L. Johnson Living Trust, Sanford Clinic, William Watson, M.D., Plaintiffs and Appellants,andJeffrey B. Hagen, M.D., Plaintiff,v.PHYSICIANS OFFICE BUILDING, INC., Jeremiah D. Murphy, Defendants and Appellees,andAlfred E. Hartmann, M.D., Radiologic Partners, Robert E. Vandemark, Jr., M.D. and Sisters of the Presentation of the Blessed Virgin Mary of Aberdeen, South Dakota, Defendants.
• Court: South Dakota Supreme Court

800 N.W.2d 340

2011 S.D. 30

GAIL M. BENSON LIVING TRUST, Lenore G.L. Johnson Living Trust, Sanford Clinic, William Watson, M.D., Plaintiffs and Appellants,andJeffrey B. Hagen, M.D., Plaintiff,

v.PHYSICIANS OFFICE BUILDING, INC., Jeremiah D. Murphy, Defendants and Appellees,andAlfred E. Hartmann, M.D., Radiologic Partners, Robert E. Vandemark, Jr., M.D. and Sisters of the Presentation of the Blessed Virgin Mary of Aberdeen, South Dakota, Defendants.

No. 25762.

Supreme Court of South Dakota.

Considered on Briefs on May 23, 2011.Decided June 29, 2011.

Kent R. Cutler, David L. Edwards, Kimberly R. Wassink of Cutler & Donahoe, LLP, Sioux Falls, South Dakota, Attorneys for plaintiffs and appellants.James E. McMahon, Rochelle R. Sweetman of Murphy, Goldammer & Prendergast, LLP, Sioux Falls, South Dakota, Attorneys for defendants and appellees.GILBERTSON, Chief Justice.

[¶ 1.] Limited partners brought suit against general partners seeking a declaratory judgment that the general partners' change in allocation of the limited partnership's profits and losses violated the partnership agreement. After considering cross-motions for summary judgment, the circuit court granted summary judgment in favor of the general partners. The limited partners appeal. We reverse and remand.

FACTS

[¶ 2.] A limited partnership, POB Associates, was formed in 1980 for the purpose of “constructing, owning, maintaining, and operating” an office building on the Avera McKennan Hospital campus in Sioux Falls, South Dakota. This building, known as the Physicians Office Building, is the primary asset of POB Associates.

[¶ 3.] The two general partners of POB Associates are attorney Jeremiah Murphy ¹ and a non-profit corporation, POB, Inc. (collectively “General Partners”). The president and director of POB, Inc. was Murphy. The beneficiary of POB, Inc. is Presentation Sisters, Inc., the former corporate name for Avera McKennan. Murphy worked for Avera McKennan for over 15 years as a lobbyist, served on its board, and represented it in other legal matters. Murphy and other lawyers in his firm drafted the POB Associates' Certificate and Limited Partnership Agreement (Partnership Agreement).

[¶ 4.] POB Associates was authorized to sell 32 limited partnership “units” for $15,000 each. It is undisputed that only 15 of the authorized units were sold. The nine Limited Partners owned all 15 of these units.² None of the General Partners have purchased any partnership units, have invested any money in the partnership, or paid any liabilities on the partnership's behalf. The General Partners had full, exclusive, and complete discretion in the management and control of POB Associates, including the sale of partnership units.

[¶ 5.] The allocation of POB Associates' profits and losses is governed by Article I, § 1.06(b) of the Partnership Agreement. It provides:

All such profits and losses in the years 1980, 1981, and 1982 shall be allocated to the [L]imited [P]artners prorata in accordance with the number of partnership units held by each. Commencing in 1983, all profits and losses will be allocated among the General Partners and Limited Partners in accordance with the number of partnership units held by each. In 1983 and in each year thereafter, each [L]imited [P]artner will be allocated 1/32 of 98% of the profits and losses for each partnership unit. The General Partners will be allocated in 1983 and each year thereafter all other profits and losses, except that General Partner Jeremiah Murphy will in no year receive more than 1% of the profits and losses. The percentage of profits and losses allocated to the General Partners will never be reduced below 2%.

[¶ 6.] From 1980 to 1982, the allocation followed the first sentence of § 1.06(b), as the distribution was apportioned “prorata in accordance with the number of partnership units held by each.” From 1983 to 2007, the General Partners annually allocated 98% of POB Associates' profits and losses to the Limited Partners in accordance with the number of units held by each. Because only 15 units had been sold, each unit was allocated 1/15th of 98% of the profits and losses from each year. This allocation followed the second sentence of § 1.06(b). Consistent with the fourth and fifth sentences, the General Partners were allocated the remaining 2%. The 17 unsold and unissued units were not considered in the allocation formula.

[¶ 7.] In 2008, the General Partners adopted a new allocation formula based on a new interpretation of § 1.06(b). Murphy stated in a letter that he believed the profits and losses had been improperly allocated since 1983. No explanation was provided other than an intention to rely on the third sentence of § 1.06(b). Under this new formula, 46% of POB Associates' profits and losses were allocated to the Limited Partners; the remaining 54% was allocated to the General Partners, although Murphy received no more than 1%. This decision reallocated 17/32 of 98% of the profits and losses to General Partner POB, Inc., thereby attributing ownership of the 17 unissued and unsold units to that partner. The Limited Partners' interests were reduced to 1/32 of 98% for each unit that a Limited Partner held. Murphy received 1% of the profits and losses regardless of how many units were sold.

[¶ 8.] Several Limited Partners sued the General Partners in March 2009. The Limited Partners alleged breach of contract, breach of fiduciary duty, and requested a declaratory judgment in their favor regarding the allocation under the Partnership Agreement. Both parties filed cross-motions for summary judgment regarding allocation under § 1.06(b). The circuit court granted summary judgment in favor of the General Partners. On appeal, the issue is whether the circuit court erred in granting summary judgment.

STANDARD OF REVIEW

[¶ 9.] Our standard of review for a motion for summary judgment is settled.

Summary judgment is authorized “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law.” We will affirm only when there are no genuine issues of material fact and the legal questions have been correctly decided. All reasonable inferences drawn from the facts must be viewed in favor of the non-moving party. The burden is on the moving party to clearly show an absence of any genuine issue of material fact and an entitlement to judgment as a matter of law.

W. Consol. Coop. v. Pew, 2011 S.D. 9, ¶ 19, 795 N.W.2d 390, 396 (quoting Discover Bank v. Stanley, 2008 S.D. 111, ¶ 16, 757 N.W.2d 756, 761–62).

ANALYSIS

[¶ 10.] The circuit court granted summary judgment in favor of the General Partners after concluding that § 1.06(b) was unambiguous. The circuit court explained that the second sentence of § 1.06(b), “[c]ommencing in 1983, all profits and losses will be allocated among the General Partners and Limited Partners in accordance with the number of partnership units held by each,” provides the “numerator for how profits and losses are supposed to be calculated.” The third sentence, “[i]n 1983 and in each year thereafter, each [L]imited [P]artner will be allocated 1/32 of 98% of the profits and losses for each partnership unit,” provides the “denominator for how partnership units are allocated.” The circuit court stated that:

the only way one can read Section 1.06(b) is how [the General Partners] read this section and therefore, the Partnership Agreement is unambiguous. When reading Section 1.06(b) in its entirety, it is unambiguous that the document is drafted in such a way that starting in 1983 the Limited Partners would receive 1/32 of 98% of the profits and losses for each partnership unit they own.... Although the parties offer different interpretations of the contract, the intent of the contract is nevertheless unambiguous.

The circuit court later clarified its decision, finding “that neither Murphy nor POB, Inc. has ever held one of [the partnership] units[;] however, the unsold units, while not owned by either the Limited Partners or the General Partners, were in essence in limbo and the General Partners were entitled to the profits and responsible for any losses while these units were unsold.”

[¶ 11.] This Court has previously stated that:

[a] contract is not rendered ambiguous simply because the parties do not agree on its proper construction or their intent upon executing the contract. Rather, a contract is ambiguous only when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement.

Pesicka v. Pesicka, 2000 S.D. 137, ¶ 10, 618 N.W.2d 725, 727 (quoting Singpiel v. Morris, 1998 S.D. 86, ¶ 16, 582 N.W.2d 715, 719). Consequently, we review § 1.06(b) to determine whether it is capable of more than one meaning when viewed by a reasonably intelligent person who has examined the entire agreement. We do so “according to the natural and obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending their operation.” Vollmer v. Akerson, 2004 S.D. 111, ¶ 6, 688 N.W.2d 225, 228 (quoting Citibank (S.D.), N.A. v. Hauff, 2003 S.D. 99, ¶ 12, 668 N.W.2d 528, 533).

[¶ 12.] In reviewing the second and third sentences of § 1.06(b) along with the undisputed fact that only 15 of the possible 32 units were...