Opinion
No. COA11–1220.
2012-04-3
EHP LAND CO., INC., Plaintiff, v. Virginia W. BOSHER, Christina Bosher Herz, Carolyn Bosher Maloney, Robert M. Bosher, Jr., Jennifer L. Bosher, John P. Dooley, Michael C. Dooley, Sarah E. Herz, Andrew T. Herz, Christina P. Maloney, Virginia M. Maloney, Clifton H.W. Maloney, Phil Upton, Cindy W. Bosher, individually and in her capacity as Executrix of the Estate of Robert M. Bosher, Arthur R. Robb, Jr. and Christine Bosher, as Co–Executors of the Estate of Ralph G. Bosher, Deceased, and HPB Enterprises, a North Carolina General Partnership, Defendants.
Ward and Smith, P.A., by A. Charles Ellis and E. Bradley Evans, for Plaintiff–Appellee. Graebe Hanna & Welborn PLLC, by Christopher T. Graebe and Mark R. Sigmon, for Defendants–Appellants.
Appeal by Defendants from order and judgment entered 14 June 2011 by Judge John R. Jolly, Jr. in Perquimans County Superior Court. Heard in the Court of Appeals 22 February 2012. Ward and Smith, P.A., by A. Charles Ellis and E. Bradley Evans, for Plaintiff–Appellee. Graebe Hanna & Welborn PLLC, by Christopher T. Graebe and Mark R. Sigmon, for Defendants–Appellants.
BEASLEY, Judge.
Virginia W. Bosher, Christina Bosher Herz, Carolyn Bosher Maloney, Robert M. Bosher, Jr., Jennifer L. Bosher, John P. Dooley, Michael C. Dooley, Sarah E. Herz, Andrew T. Herz, Christina P. Maloney, Virginia M. Maloney, Clifton H.W. Maloney, Phil Upton, Cindy W. Bosher, individually and as Executrix of the Estate of Robert M. Bosher, Arthur R. Robbs, Jr. and Christine Bosher, as Co–Executors of the Estate of Ralph G. Bosher, Deceased, and HPB Enterprises (collectively, HPB Defendants) appeal from a 14 June 2011 order granting summary judgment in favor of EHP Land Co., Inc. (Plaintiff), and entering judgment in favor of Plaintiff against Defendant Virginia W. Bosher and the Estate of Robert M. Bosher, Deceased, in the amount of $1,418,588.28 each. For the following reasons, we affirm.
This action arises from the acquisition, ownership, and development of land in Perquimans County, North Carolina, for a residential community called Albemarle Plantation. On or about 22 July 1987, HPB Enterprises (HPB) was formed as a North Carolina general partnership by execution of a written general partnership agreement (the agreement). Plaintiff was one of the partners of HPB. At the time the partnership was formed, HPB's primary asset was approximately 750 acres of undeveloped land in Perquimans County. This land was eventually developed into Albemarle Plantation. At all times material to this action, the property owned by HPB in Perquimans County was divided into two phases: Phase I, consisting of the property south of Holiday Island Road, including a golf course, pools, a marina, a fitness center, a sewer and utility plant, condominiums, and land developed and offered for sale as residential lots; and Phase II, consisting of undeveloped land north of Holiday Island Road, which was to be developed and offered for sale as residential lots. In the late 1990s, Plaintiff took over primary management of HPB and its interests in Albemarle Plantation.
On 25 October 2005, Plaintiff gave HPB notice of its intent to withdraw from the partnership effective 31 December 2005. By letter dated 27 October 2005, the remaining partners accepted Plaintiff's withdrawal and elected to purchase Plaintiff's interest in the partnership. Section 13 of the Partnership Agreement details how to value a withdrawing partner's interest.
The value of the interest of a withdrawing partner shall be the book value thereof, as it appears upon the books and records of the partnership as of the close of business on the effective date of withdrawal ... as adjusted by substituting the fair market value as of such date, in place of book value, of any inventory owned by the partnership.... In making the adjustment for the fair market value of inventory, the accountant shall rely on and use the written appraisal of an appraiser selected by the accountant for that purpose, with the approval of and at the expense of the partnership.... Such book value, as adjusted, as set out in the accountant's statement, shall constitute and be deemed to be the purchase price for the entire partnership interest of the withdrawing partner....
Plaintiff and the remaining partners disagreed as to the definition of “inventory” as used in Section 13, and this disagreement led to Plaintiff filing a complaint in this matter on 2 April 2007. Plaintiff settled its differences relative to this action with all remaining HPB partners except for Ginny Bosher and Bo Bosher (Defendants).
By order entered 5 October 2010, the trial court found that no genuine issues of material fact exist as to the definition of the word “inventory” in this case. Subsequently, the parties disagreed on the methodology to be used in calculating the book value of Plaintiff's interest in the partnership at the time of withdrawal. This disagreement resulted in a 24 February 2011 order where the trial court found that Defendants were indebted to Plaintiff in the amount of $2,758,294.08.
On 7 March 2011, Defendants filed a Motion for Relief from Judgment or Order pursuant to N.C. Gen.Stat. § 1A–1, Rule 60(b), or in the alternative a Motion to Alter or Amend Judgment pursuant to N .C. Gen.Stat. § 1A–1, Rule 59(e), in response to the 24 February 2011 order. The trial court entered an amended order on that motion on 14 June 2011 , finding that each Defendant, Virginia W. Bosher and the Estate of Robert M. Bosher, owed Plaintiff $1,418,588.28 plus interest thereon from 7 June 2011, at the legal rate of 8% per annum, until paid. From the aforementioned orders, Defendants now appeal.
The original order, filed 13 June 2011 contained an error as to the name of one of the Defendants. Aside from that correction, the 13 June order was unchanged.
I.
Defendants first argue that the trial court erred in defining “inventory” as it did in the 5 October 2010 order, or at the very least that there were genuine issues of material fact as to the scope of “inventory” as the term was used in the agreement. We disagree.
The trial court's order granted summary judgment to Plaintiff on this issue. A motion for summary judgment will be granted “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 any party is entitled to a judgment as a matter of law.” N.C. Gen.Stat. § 1A–1, Rule 56(c) (2011). During appellate review of a trial court's order, “findings of fact made by the trial judge are conclusive on appeal if supported by competent evidence, even if ... there is evidence to the contrary. Conclusions of law drawn by the trial court from its findings of fact are reviewable de novo on appeal .” Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 100–01, 655 S.E.2d 362, 369 (2008) (internal quotation marks and citations omitted).
We first address Defendant's argument that the trial court erred in defining “inventory” as it did. The trial court made several Findings of Fact in regard to the definition of “inventory,” including (i) Number 17 which states that the term “inventory” is not defined in the Partnership Agreement, (ii) Number 23 which states that the deposition testimony and affidavits of record establish that the respective partners did not reach a clear understanding of what “inventory” meant as used in the agreement when the agreement was signed, and (iii) Number 30 which states that when the agreement was drafted none of the partners gathered together to negotiate terms, and so the agreement was a “standard, cookie-cutter” agreement.
After determining that the term “inventory” was not defined in the agreement, nor was there a meeting of the minds as to the meaning of the word prior to the signing of the agreement, the trial court addressed the question of whether the language was too ambiguous to allow the provision to stand. This Court has recognized that “[w]hether or not the language of a contract is ambiguous or unambiguous is a question for the court to determine.” Piedmont Bank and Trust Co. v. Stevenson, 79 N.C.App. 236, 241, 339 S.E.2d 49, 52 (1986). In regard to construction of a contract or agreement,
[t]he goal of construction is to arrive at the intent of the parties when the contract was written. Where a contract defines a term, that definition is to be used. If no definition is given, non-technical words are to be given their meaning in ordinary speech, unless the context clearly indicates another meaning was intended.
Duke Energy Corp. v. Malcolm, 178 N.C.App. 62, 65, 630 S.E.3d 693, 695 (2006) (internal quotation marks, citations and brackets omitted). When evaluating the ordinary meaning of a word, this Court has looked to both legal and non-legal dictionaries for guidance. See Kroger Ltd. P'ship v. Guastello, 177 N.C.App. 386, 390–91, 628 S.E.2d 841, 844 (2006)(looking to Webster's Dictionary and Black's Law Dictionary to find the plain meaning of the term “building.”) The trial court followed that precedent, finding that Black's Law Dictionary defines “inventory” as “raw materials or goods in stock,” and that Webster's Third International Dictionary defines “inventory” as “raw materials, supplies, work in process, and finished goods on hand as of a given date,” and as “goods or materials accumulated against future needs .” The trial court also turned to the North Carolina Uniform Commercial Code, finding that it defines inventory in G.S. 25–9–102(48)(b) and (d) as goods which “are held ... for sale,” and “consist of raw materials, work in process, or materials used or consumed in a business.”
Finally, in Finding of Fact Number 53, the trial court noted it is undisputed that (i) HPB holds the unsold, developed units in Phase I for future sale, and (ii) HPB holds the undeveloped land in Phase II for future development and sale. Based on this finding, along with the aforementioned findings, the trial court concluded that both unsold developed lots and condominiums in Phase I and the undeveloped land in Phase II of Albemarle Plantation constitute “inventory” as the term is used in the agreement.
Defendants contend that this conclusion was in error, because in their view the plain meaning of the agreement establishes that “inventory” refers to that which has been classified as such on the books by the regular accountant using the accounting practices regularly followed by the partnership. This argument is unavailing. Section 13 does contain a formula for valuing partnership assets, as Defendants assert, but that method does not provide an explanation of what assets constitute “inventory.” Thus, the trial court properly found that the term was not defined by the agreement. After that finding, the trial court followed established precedent, determined the ordinary meaning of the word “inventory,” and then applied that meaning to the agreement in order to determine which of HPB's assets were part of its inventory. The trial court did not err in defining the scope of inventory as it did.
As an alternative argument, Defendants assert that there was, at a minimum, a genuine issue of material fact as to the meaning of the term “inventory” in the agreement. This argument is similarly unpersuasive. Defendants seem to base this contention on the fact that the land in Phase II was not developed for sale, and HPB had no evident immediate plans to develop and sell the land. However, the trial court found as fact—and Defendants do not directly challenge—that “HPB holds the undeveloped land in Phase II for future development and sale.” Thus, the land in Phase II would properly be considered “inventory” under the definition adopted by the trial court, and endorsed by this Court, as it would constitute “goods or materials accumulated against future needs,” “goods which are held ... for sale,” or “raw materials, work in process, or materials used or consumed in a business.” Accordingly, the trial court did not err in granting summary judgment to Plaintiff on this issue, as there was no genuine issue of material fact as to which assets were properly classified as “inventory.”
II.
After the trial court defined “inventory” as used in the agreement, Plaintiff moved for summary judgment on the amount owed by Defendants on 10 November 2010. The trial court granted Plaintiff's motion on 24 February 2011, and concluded that Defendants were indebted to Plaintiff in the total amount of $2,758,294.08. This calculation was based on the book value of HPB's assets as included in the 2005 balance sheet prepared by HPB's regularly employed accountant Art Robb (Robb), the appraisal prepared by F. Bruce Sauter of the value of HPB's real property as of the effective date of Plaintiff's withdrawal, and the formula for calculating a withdrawing partner's interest as provided in Section 13 of the agreement. The trial court issued an order on 13 June 2011 which amended the total amount Defendants owed Plaintiff, to correct an error in Sauter's appraisal. The amended order declared that each Defendant was in debt to Plaintiff for $1,418,588.28 plus interest.
Defendants argue that this calculation was in error, because under Section 13 of the agreement, Robb was required to calculate the actual amount owed to Plaintiffs and here he only produced a balance sheet for 31 December 2005. We disagree.
It is uncontroverted that Section 13 of the agreement provides instruction on how a withdrawing partner's interest should be valued. The value shall be the book value of the interest as of the effective date of withdrawal, adjusted by substituting the fair market value in place of book value of any inventory owned by the partnership. The book value “shall be computed by the certified public accountant regularly employed by the partnership,” and “[i]n making the adjustment for the fair market value of inventory, the accountant shall rely on and use the written appraisal of an appraiser selected ... for that purpose.”
In response to Defendants' contention that Robb did not actually perform the valuation of Plaintiff's interest, Plaintiff submitted the 30 December 2010 affidavit of Robb along with its motion for summary judgment, which stated that all of the information necessary to determine the value of Plaintiff's interest in the partnership is incorporated into the 2005 balance sheet, and Robb could not complete the valuation in 2006 was because of the dispute over the meaning of the term “inventory.” Robb then stated that based on the trial court's definition of “inventory,” the value of Plaintiff's interest in HPB is properly valued at $6,971,249.45. This is the same amount that J. Marion Crisp, CPA (Crisp), an accountant retained by Plaintiff, came to after applying the formula in Section 13 using the 2005 balance sheet (including Sauter's appraisals) and the definition of “inventory” in the 5 October 2010 trial court order.
Because Defendants are not the only partners of HPB buying Plaintiff out, together they are only responsible for paying Plaintiff approximately half of the amount of its partnership interest.
Based on the affidavits of Robb and Crisp, along with the 2005 balance sheet with Sauter's appraisals incorporated in it, the trial court found that Plaintiff submitted sufficient evidence to show that no genuine issue of material fact existed as to the value of its partnership interest. We agree, and conclude that Plaintiff's evidence also sufficiently counters Defendants' argument that Robb did not perform the actual valuation, as the valuation was performed by Robb after the 5 October 2010 order defining “inventory,” and the same value was reached by Crisp using the 2005 balance sheet prepared by Robb.
Finally, Defendants attack Robb's affidavit, stating that his methodologies are flawed. Section 13 provides that the book value of a partnership interest, a key figure for the total valuation, “shall include and reflect the withdrawing partner's capital account as at the end of the last accounting year as shown on the partnership books” with that capital account value corrected for profits or losses and contributions or withdrawals during the beginning of the accounting year the withdrawal is effective until the actual date the withdrawal is effective.
The language of Section 13 that Defendants fail to acknowledge is that the book value, as adjusted in accordance with the section, “shall constitute and be deemed to be the purchase price for the entire partnership interest of the withdrawing partner, binding upon all parties hereto, unless and until changed by written agreement of the parties.” (emphasis added). As this Court has previously stated,
Where the value of a closely held corporation is determined by the use of its balance sheet as directed by a “buy-out” agreement, and is calculated by the accounting firm normally servicing that corporation in accordance with the terms of the “buy-out” agreement, we hold that the value determined by that accounting firm is presumptively correct, in the absence of mathematical error, evidence of fraud (such as the willful concealment of assets), or evidence of a failure to follow generally accepted accounting practices.
Crowder Constr. Co. v. Kiser, 134 N.C.App. 190, 204–05, 517 S .E.2d 178, 189 (1999). Robb testified at the 5 May 2011 hearing that the distributions made to partners of HPB in 2005 were proportional to ownership. In its 13 June 2011 order, the trial court found that both Robb's live testimony and his affidavit state that his calculations are based upon the accounting practices regularly followed by HPB, and in cases not covered by such practices, in accordance with standard accounting principles. This finding is supported by the substance of Robb's testimony. As such, it is binding on this Court, regardless of any evidence Defendants offer to the contrary. Therefore, the trial court's conclusion that Robb's calculations were performed in accordance with Section 13 and that Defendants are bound by these calculations is affirmed.
Affirmed. Judges BRYANT and HUNTER, JR. concur.
Report per Rule 30(e).