U.S. v. Sohn, Civil No.97-868-JO.

• Decision Date: 05 August 1997
• Docket Number: Civil No.97-868-JO.
• Citation: 971 F.Supp. 488
• Parties: UNITED STATES of America, Plaintiff, v. Edward SOHN; et al., Defendants.
• Court: U.S. District Court — District of Oregon

Page 488

971 F.Supp. 488

UNITED STATES of America, Plaintiff, v. Edward SOHN; et al., Defendants.

Civil No.97-868-JO.

United States District Court, D. Oregon.

August 5, 1997.

Neil J. Evans, Asst. U.S. Atty., Dist. of Oregon, U.S. Attorney's Office, Portland, OR, John W. Showalter, Gerald M. Alexander, Dept. of Justice, Civil Div. Commercial Litigation Branch, Washington, DC, for Plaintiff.

John P. Bledsoe, Lane, Powell, Spears, & Lubersky, Portland, OR, for Defendants.

OPINION AND ORDER

ROBERT E. JONES, District Judge:

Defendants Edward Sohn, Gerard Sohn, Howard Sohn, Mark Sohn and Richard Sohn are general partners of Suntip Company, an Oregon general partnership. This court entered judgment of $32,582,717.00 against Suntip in October 1996 in connection with Suntip's default on nine timber contracts it had entered into with the United States. United States v. Suntip Co., No. CV 93-681-JO, Order dated October 7, 1993.

After collecting $2,973,448.16 from Suntip's surety and then determining that Suntip is unable to satisfy the remaining balance, the United States commenced this suit to collect the remaining debt from Suntip's individual partners and to undo plaintiffs' voluntary transfers of assets to relatives in 1991 and 1992. Defendants dispute the United States' right to collect against them and have filed a motion (# 8) to dismiss for failure to state a claim. For the reasons stated in this opinion, I DENY defendants' motion to dismiss.

FACTS

Suntip Company is an Oregon general partnership. Defendants admit in their motion that they are general partners in the company.

In the late 1970s and 1980s, Suntip Company entered into numerous contracts to cut timber on United States land in southern Oregon. When Suntip failed to perform under nine of those contracts, the government pursued administrative and then judicial remedies for breach of contract.¹ On September 3, 1996, this court entered a judgment for $32,582,717.00 against Suntip on behalf of the United States. United States v. Suntip Co., No. CV 93-681-JO.

On October 3, 1996, the United States collected $2,973,448.16 from Suntip's surety. On November 20, 1996, the United States sent a written demand to Suntip for the unpaid balance of the judgment. On November 26, Suntip responded that it has no assets with which to satisfy the judgment.

On June 10, 1997, the United States filed this suit, seeking, inter alia, a judgment against Edward Sohn, Gerard Sohn, Howard Sohn, Mark Sohn and Richard Sohn jointly as partners of Suntip for Suntip's remaining debt (Count 1). The United States' second through sixth counts allege that Edward, Gerard, Howard, Mark and Richard Sohn, respectively, voluntarily transferred personal assets subject to claim by the United States in violation of the Federal Priority Statute. See 31 U.S.C. § 3713.

Defendants assert, with respect to Count 1, that because they were not named or summoned in the original action against Suntip, they may not be held liable for Suntip's unsatisfied debt. Moreover, with respect to Counts 2 through 6, they argue that their voluntary transfers of personal assets, as pled, did not violate the Federal Priority Statute. Id.

DISCUSSION

A. Standard For Motion To Dismiss

A court should not grant Rule 12(b)(6) motion to dismiss for failure to state a claim unless it appears beyond doubt that the plaintiff can prove "no set of facts in support of his claim which would entitle him to relief." Gilligan v. Jamco Development Corp., 108 F.3d 246, 248 (9th Cir.1997)(quoting Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995)); see also Mountain High Knitting, Inc. v. Reno, 51 F.3d 216, 218 (9th Cir.1995). The court must treat all facts alleged in the complaint as true. Parks School of Business, 51 F.3d at 1484. Moreover, all doubts are resolved in favor of the nonmoving party. Keams v. Tempe Technical Inst., Inc., 39 F.3d 222, 224 (9th Cir.1994).

B. Defendant's Motion to Dismiss

1. Dismissal as to Count 1

a. Partners Liable In Subsequent Collection Suit For Unpaid Debts Of The Partnership

Defendants argue that the United States can no longer pursue them individually for the partnership's breach of contract debt/judgment. The exact question they present is whether, when a creditor seeks and obtains judgment against a partnership without naming the partners as individual defendants, the creditor may, after exhausting the partnership's assets, seek satisfaction of the remaining debt against the individual partners. The most on-point interpretations of the partnership law that Oregon² has adopted indicate that the answer must be "yes" — the creditor can pursue the individual partners.

Plaintiff's claim against defendants arises from an Oregon statute that makes all partners, except limited liability partners, jointly liable for debts and obligations of the partnership. ORS 68.270(1)(b). When deciding an issue of state law, federal courts follow the precedent established by that state's highest court. Concordia Ins. Co. of Milwaukee v. School Dist. No. 98 of Payne County, Okl., 282 U.S. 545, 551, 51 S.Ct. 275, 276, 75 L.Ed. 528 (1931). Where no state statute or case applies directly, the federal court should ascertain and apply the rule of law that the state would have applied had it addressed the issue. Washington Public Power Supply Sys. v. Pacific Northwest Power Co., 217 F.Supp. 481, 491 (D.Or.1963).

Neither the Oregon courts nor the Ninth Circuit have directly addressed the question now before us. Thus, neither plaintiff nor defendants have presented this court with binding authority. However, Oregon has adopted the Uniform Partnership Act (UPA), and state and federal cases addressing this issue under that Act have uniformly allowed a second suit against the partners when the creditor follows proper procedures for serving the partners and obtaining a judgment against them. By contrast, defendants cite only cases where the process used against the individual partners was somehow deficient.³

In Dayco Corp. v. Roberts and Co., 192 Conn. 497, 472 A.2d 780 (1984), plaintiff obtained a judgment against a partnership, but was unable to satisfy the judgment with partnership assets. Plaintiff then commenced a separate suit, naming each partner as an individual defendant, and served each of them with process. The Connecticut Supreme Court affirmed the individual liability of each of the partners under Connecticut's partnership laws.

What these statutes [the UPA] reveal is axiomatic: in an action against a partnership, in which only the partnership is named as a defendant and the result is a judgment against the partnership, a plaintiff cannot attach the individual property of their partners or levy upon their individual property. This does not prevent a plaintiff, when it finds the partnership without assets and its judgment debt unsatisfied, from instituting suit against the individual partners to hold them liable for that debt.

Dayco Corp., 472 A.2d at 784.

Similarly, in 14th RMA Partners, L.P. v. Reale, 100 F.3d 278 (2d Cir.1996), the Second Circuit held that a partner need not participate in the case against the partnership in order to be personally liable for the partnership's debt in a subsequent suit. The court followed the Connecticut Supreme Court's holding in Dayco:

The Connecticut Supreme Court has ruled that a judgment creditor of the partnership may institute a suit against an individual partner to hold him liable if the judgment cannot be satisfied out of partnership assets. Dayco Corp. v. Fred T. Roberts & Co., 192 Conn. 497, 504, 472 A.2d 780 (1984). There is no rule exempting a plaintiff from the requirement of either naming the partner in the original suit against the partnership, or initiating a subsequent suit against the partner. If there is a subsequent suit, however, it is only for the purpose of affording the partner the opportunity to contest the limited issue of whether or not the defendant is in fact the general partner of the partnership. Id. The validity of the judgment against the partnership cannot be relitigated. Id. The general partner's liability is derived from having been properly served in the subsequent proceeding, and does not stem from his participation, if any, in the earlier action against the partnership itself. Id. at 505, 472 A.2d 780.

14th RMA Partners, 100 F.3d at 280-81.

The Connecticut statute these courts interpreted is nearly identical to Oregon's statute on individual liability for partnership debts.⁴ Therefore, if the Oregon Supreme Court were to decide the question at issue here, it would probably adopt the Connecticut Supreme Court's analysis. Accordingly, under ORS 68.270, a partner may be held personally liable for the unsatisfied debts of the partnership in a subsequent court action, regardless of whether the partner was named as an individual defendant in the original complaint.

Here, a creditor obtained a judgment against a partnership in excess of the partnership's total assets. Like the creditors in Dayco and 14th RMA Partners, plaintiff, having properly served defendants, now brings a separate action against the individual partners for the unsatisfied portion of the partnership debt. Therefore, this suit is proper.

b. Merger Doctrine Not Applicable

Defendants also argue, unpersuasively, that under the common-law doctrine of merger, when plaintiff obtained the first judgment against the Suntip Company, its previously viable claim against the Sohn brothers merged into that judgment.⁵ Defendants do not cite to, nor is this court aware of, any case where a court has held that the merger doctrine works to merge a claim against general partners with a judgment against the partnership.⁶ More generally, defendants' argument is inconsistent with ORS 68.270, which provides that all partners are liable "jointly for all other debts and obligations of the partnership." ORS 68.270(1)(b). Because the defendant's...