Warren v. Chapman

• Decision Date: 09 December 1987
• Docket Number: No. 86-815.,86-815.
• Citation: 535 A.2d 856
• Parties: Walter E. WARREN, Appellant, v. Dudley H. CHAPMAN, Appellee.
• Court: D.C. Court of Appeals

Page 856

535 A.2d 856

Walter E. WARREN, Appellant, v. Dudley H. CHAPMAN, Appellee.

No. 86-815.

District of Columbia Court of Appeals.

Argued June 9, 1987.

Decided December 9, 1987.^*

John C. Hayes, Jr., with whom Walter E. Warren, Washington, D.C., was on the brief, for appellant.

Thomas G. Corcoran, Jr., with whom Dudley H. Chapman, Washington, D.C., was on the brief, for appellee.

Before MACK and ROGERS, Associate Judges, and NEBEKER, Associate Judge, Retired.^**

ROGERS, Associate Judge:

Two principal issues are raised in this appeal: first, whether a cause of action for an accounting brought almost four years after the dissolution of a partnership was barred by laches, and second, whether prejudgment interest is properly awarded on a partnership debt. We hold that because the partnership continued to wind up its affairs for at least two years, the cause of action for an accounting was not barred by laches. We also hold that the trial court, acting as a court of equity, properly awarded interest from the date on which appellee's settlement offer expired until judgment. Finding no merit, in view of the stipulation to the certified public accountant's report and testimony, to appellant's claim that there was insufficient evidence to find that the partnership's records were adequate for an accounting to be performed, we affirm.

I

According to the unchallenged findings of the trial judge, the three-person law firm of Chapman, Clearwaters,¹ and Warren commenced operations as a partnership in the District of Columbia on May 1, 1977. Pursuant to their oral agreement, Chapman was to act as managing partner, twenty percent of any income was to go to the partner producing the business, and all other expenses and profits were to be shared equally. The firm continued to operate as a partnership through December 31, 1978, at which time Warren resigned and the firm dissolved. Shortly thereafter, Joseph E. Godbout, who became the firm's accountant at Warren's instigation shortly after Warren joined the firm, was directed to prepare a final accounting from the partnership's financial records, but he did not submit his report until September, 1980. The parties exchanged some correspondence concerning the report and, on February 25, 1981, Chapman submitted the accounting to Warren for his review and comment. On October 15, 1981, Warren returned a letter proposing certain adjustments, which were based on a letter he received from Godbout on October 2, 1981. Chapman responded on November 12, 1981, with a proposal of additional adjustments, setting the final principal amount at $13,293.77, but expressing a willingness to accept the discounted amount of $10,000. Chapman requested a reply by December 31, 1981, but Warren made no further response. Chapman filed an action for an accounting on December 15, 1982.

At trial,² Warren contended that he owed Chapman nothing and that the court could order no payment because Chapman, who was the managing partner in charge of records, had failed to maintain adequate records. He further contended that because of delay and the consequent deficient state of the records, Chapman's claim was barred by laches. The trial judge ruled against Warren on each of these contentions and adopted Godbout's recommended adjusted figure of $9,247.77 as a fair and accurate statement of the principal amount, and also ordered Chapman to pay six percent interest dating from December 31, 1981. This appeal followed.

II

Warren contends that the claim for an accounting was barred by laches. He correctly argues that a partnership is dissolved upon the "change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business." D.C.CODE § 41-128 (1981). Because there was no demonstrated agreement to the contrary, the Chapman, Clearwaters and Warren partnership was "dissolved" on December 31, 1978. Thus Warren argues that because he disavowed any debt from the outset,³ the three-year limitations period commenced to run on the day he left the firm, December 31, 1978. Chapman did not file for an accounting until December 15, 1982, almost four years later. Warren further maintains that he had no influence on the delay and that it was the managing partner's responsibility to have a timely accounting performed. He cited the deficient state of the firm's records as an additional factor in favor of barring the claim.

A.

Warren's contention that Chapman's cause of action for an accounting accrued "upon the dissolution of the partnership," is based on the District of Columbia Uniform Partnership Act, D.C.CODE § 41-101 et seq. (the Act), which provides that the "right to an account of his interest shall accrue to any partner, or his legal representative, as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary." Id. § 41-142 (emphasis supplied). Because Chapman failed to demonstrate any basis for tolling the applicable statute of limitations at law, D.C.CODE § 12-301(8), Warren maintains that the cause of action is barred by laches. See Singer v. Friedman, 66 App.D.C. 191, 193, 85 F.2d 690, 692 (suit for property fraudulently withheld not brought for more than three years after execution of dissolution agreement), cert. denied, 299 U.S. 590, 57 S.Ct. 116, 81 L.Ed. 435 (1936).⁴ Chapman responds that the cause of action did not arise until the partnership business was concluded, which included the payment of all partnership debts, see Wright v. Armwood, supra note 4, 107 A.2d at 704, and that Warren failed to indicate unequivocally that he was unwilling to account until he did not respond to Chapman's letter of November 12, 1981 and further, that in any event, Warren has failed to show the circumstances necessary for laches to bar the suit.

Prior to the enactment of the D.C. Uniform Partnership Act, this court discussed when a partner's cause of action for an accounting accrues.

It has been said that the statute [of limitations] generally begins to run against the right of a partner to require an accounting, upon dissolution of the partnership. But it seems to be the rule that where one partner continues on in winding up the affairs of the partnership, collecting its assets or discharging its debts, the statute does not begin to run immediately upon dissolution but is deferred until after the business of the firm is concluded.

Wright v. Armwood, supra note 4, 107 A.2d at 704 (citing Riddle v. Whitehill, 135 U.S. 621, 10 S.Ct. 924, 34 L.Ed. 282 (1890) (circumstances of individual case)); see also 60 AM.JUR.2D Partnership § 275 (1972) (cause of action for accounting accrues after sufficient time for performance). The Act similarly provides that after dissolution "the partnership is not terminated, but continues until the winding up of the partnership affairs is completed." D.C.CODE § 41-129. Warren does not contest that Chapman, as managing partner, properly assumed principal responsibility for winding up the partnership. Nor does he contend that he had no responsibilities in that regard; indeed he continued to recognize his partnership obligations, even after he first claimed that as of December 31, 1978, their mutual debts and liabilities were "a wash," by paying off one of the bank loans in July or August of 1981. See id. § 41-135. Nor did he seek or claim he had "cause" to "obtain winding up by the court." Id. § 41-136.

Requiring Chapman to institute a protective lawsuit at dissolution, however, would encourage unnecessary, premature, and excessive litigation, cf. Gull Airborne Instruments v. Weinberger, 224 U.S.App.D.C. 272, 278, 694 F.2d 838, 844 (1982) (unjust to penalize for exhausting administrative remedies), by bringing the parties before the court prior to a clear indication that they are unable to wind up the partnership's affairs amicably. Any suit for an accounting filed by Chapman from the outset would have been unnecessary: Chapman had the ability to order the preparation of a financial report and had no indication that Warren would refuse to consider any reasonable claims based on a final accounting. Warren is under a subsequent obligation to deal in good faith. His initial disavowal of any debt can neither extinguish this duty nor unilaterally commence the tolling of any limitations period. See D.C.CODE §§ 41-120, -135.

Although the Act does not explicitly adopt the rule discussed in Wright v. Armwood, quoted supra, we do not interpret the Act to sanction Warren's approach. Section 41-142, on which he relies, only establishes the right to an immediate account of a partnership interest as against the winding up partner. The statutory scheme seems to contemplate that when the winding up partner seeks relief and is in complete control of the books and records, the cause of action does not accrue until after there has been a reasonably sufficient period of time in which to conduct an accounting. This result is consistent with § 41-142, which only applies to rights against the winding up partner, and it reflects the general rule, see Wright v. Armwood, supra note 4, 107 A.2d at 704; Hodge v. Kennedy, 198 Va. 416, 421-24, 94 S.E.2d 274, 279-80 (1956) (dealings performed after dissolution), that causes of action against a partner do not accrue, at least where an out-of-court accounting is possible, until after the accounting has been performed. See Stodd v. Goldberger, 73 Cal.App.3d 827, 837, 141 Cal.Rptr. 67, 73 (1977); Burris v. Burris, 140 Kan. 208, 216, 34 P.2d 127, 132 (1934); Mitchell Resort Enterprises v. C & S Builders, 570 S.W.2d 463, 465 (Tex.Civ.App. 1978); see also 60 AM.JUR.2D Partnership § 275 (1972); 96 A.L.R. 432, 441 (1935). Moreover, by simply accruing the right to receive an accounting, § 41-142 does not necessarily also define when a cause of action for an accounting...