Opinion
No. A05-1435.
Filed July 11, 2006.
Appeal from the District Court, Hennepin County, File No. Ct 03-19940.
Ralph V. Mitchell, Jr., Lapp, Libra, Thomson, Stoebner Pusch, (for respondent)
Marshall H. Tanick, Stephen H. Parsons, Mansfield, Tanick Cohen, P.A., (for appellant)
Considered and decided by Halbrooks, Presiding Judge; Minge, Judge; and Dietzen, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant challenges the district court's (1) dissolution and winding up of his partnership; (2) determination of accord and satisfaction; and (3) limitation on the length of the trial. Although we conclude that respondent gave notice of dissociation from the partnership, the district court did not err in ordering a judicial dissolution and winding up or in finding accord and satisfaction. We further conclude that the district court's limits on the trial were not an abuse of discretion or a violation of appellant's right to procedural due process. We affirm.
FACTS
Appellant Charles Eschweiler (Chad) challenges the district court's order dissolving E D Partnership in which he and respondent Alex Eschweiler, his half-brother, were equal partners. Chad lived near Minneapolis and Alex lived in Texas. The partnership rents apartments in two properties in Minneapolis. The partnership was formed in February 1986 by Alex, Chad, and Jack Davis and is governed by a written partnership agreement.
By the terms of the partnership agreement, Davis was the managing agent of the partnership and received ten percent of the gross rents as compensation. In 1988, Davis sold his share of the partnership to Alex and Chad, and resigned as managing agent. A replacement managing agent was not designated; Eschweilers attempted to divide management duties. Alex prepared financial information, and Chad oversaw maintenance of the buildings and dealt with tenants. Management of the properties and the partnership was a source of ongoing conflict between the parties. Alex asserted that Chad failed to keep organized records or supply financial information on a timely basis and that Chad used partnership funds for personal expenses. Chad requested that he be compensated as the managing agent; Alex refused. The partnership agreement provided that a replacement managing agent could be designated by majority vote and that disagreements could be settled by majority vote. As Chad and Alex had equal shares, there was no majority to resolve differences.
After several years of wrangling, Alex believed that he and Chad had reached a verbal understanding in January 2003. Alex attempted to summarize the agreement in an email, that among other items stated that Chad was to receive a $3,000 lump sum payment for prior management services and a $240 monthly fee starting January 2003. Chad wrote himself several checks consistent with these terms. However, the parties never formalized their agreement and their relationship deteriorated. During 2003, repairs required by the insurer of the properties were not made and the insurance was not renewed. The insurance company initially sent letters to Chad, informing him of its requirements. Alex did not become aware of the problems until several months later.
On October 11 and 13, 2003, Alex sent Chad a fax and an email indicating his deep frustrations with Chad and his determination to terminate or withdraw from the partnership by the end of the year. Chad did not respond. On October 23, 2003, Alex's attorney sent Chad a letter summarizing the situation, stating that Alex wished to end the partnership, and stating that unless Chad notified him within five days that he was willing to negotiate a resolution to the situation, legal proceedings to dissolve the partnership would be brought. On December 3, 2003, Chad sent Alex a letter stating that he intended to buy Alex's partnership share pursuant to the partnership agreement.
On December 9, 2003 (46 days after his attorney's letter), Alex brought suit complaining of deadlock, mismanagement, failure to pay taxes and insurance, improper handling of funds and requesting an accounting, judicial dissolution of the partnership, and, by an amended complaint, damages for breach of the partnership agreement. Chad answered that Alex could not seek judicial dissolution because Alex had withdrawn from the partnership by his October communications and was therefore bound by the withdrawal procedures in the partnership agreement. Chad also filed a counterclaim for management fees. Following a bench trial, the district court concluded that Alex had not withdrawn from the partnership, that the parties had reached an accord and satisfaction on the management fees owed to Chad, and that the economic purpose of the partnership was unreasonably frustrated, making it impracticable to carry on the partnership business. The district court ordered the partnership dissolved and appointed a receiver to liquidate the partnership's assets and distribute the proceeds. Chad appeals.
DECISION I.
The first issue is whether the district court erred in judicially dissolving the partnership, appointing a receiver, and ordering liquidation. Minnesota partnership law recognizes that a partner may dissociate from a partnership at will at any time by expressing his decision to withdraw. Minn. Stat. § 323A.6-01(1) (2002). In circumstances defined in Minn. Stat. § 323A.8-01 (2002), dissociation by one partner results in dissolution and winding up of the partnership business under article 8 of the Uniform Partnership Act (U.P.A.). Minn. Stat. § 323A.6-03(a) (2002).
Minnesota partnership law is based on the 1994 version of the Uniform Partnership Act, codified in 1997 as Chapter 323A of the Minnesota statutes. See Minn. Stat. § 323A.12-01 (2002); 1997 Minn. Laws ch. 174, art. 12, § 62 at 1162. As a result of continuing revisions, the most recent edition of this uniform act is 1997. See Unif. P'ship Act, 6 U.L.A. 2 (2001). Minnesota law provides that, after January 1, 2002, Chapter 323A applies to all partnerships. Minn. Stat. § 323A.12-02(b) (2002). Beginning in 2004, the Minnesota Reviser of Statutes changed the numbering format for codified sections of the act. In this opinion, the 2002 statutes and format are used. This is the same format used by Westlaw.
The uniform act uses the term "dissociation" rather than "withdrawal" for a partner's departure from the partnership. See, e.g., Minn. Stat. § 323A.6-01 (2002). These terms are used interchangeably in this opinion.
This section of the uniform act is referred to as a switching provision. See Unif. P'ship Act § 603 cmt. 1, 6 U.L.A. 172 (2001). Either the interest of the dissociating partner can be purchased pursuant to the partnership agreement and article 7 provisions, or winding up of the partnership business occurs under article 8. Compare Minn. Stat. § 323A.7-01 (2002), with Minn. Stat. § 323A.8-01.
One of the circumstances described in article 8 triggering the dissolution and winding up of a partnership business is an application by a partner and a judicial determination that
(i) the economic purpose of the partnership is likely to be unreasonably frustrated;
(ii) another partner has engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with that partner; or
(iii) it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement
Minn. Stat. § 323A.8-01(5). In general, the partnership agreement governs the partnership. Minn. Stat. § 323A.1-03(a) (2002). But the agreement cannot alter the right to dissociate or the right to a judicial dissolution if the foregoing statutory criteria are met. Minn. Stat. § 323A.1-03(b)(6), (8) (2002).
The E D partnership agreement provides for withdrawal, buyout, and dissolution of the partnership as follows:
9.2 Withdrawal. Any partner may elect to withdraw from the partnership upon giving each of the other partners six months' prior written notice. Upon the partner's withdrawal, the remaining partners may, at their option, purchase the withdrawing partner's interest for its value as determined under paragraph 9.5. Otherwise, the remaining partners shall dissolve and liquidate the partnership.
. . . .
9.5 Valuation. The value of a partner's interest is equal to the partner's partnership share times the net worth of the partnership. . . . If there is a dispute over the gross value of real or personal property owned by the partnership, [or] the value of partnership assets, a qualified appraiser or appraisers shall be selected by agreement of a withdrawing partner and the remaining partner, or in the case of a deceased or bankrupt partner, by the remaining partners. Appraisers' fees shall be paid out of partnership funds as an operating expense.
(Emphasis added.) These provisions allow for the orderly departure of a partner. However, they are dependent upon the partners agreeing on value or an appraiser to establish value, and they are subject to the statutory right of one partner to dissociate and to require a winding up. Cf. Minn. Stat. § 323A.8-01. In this case, the relationship between the partners had collapsed. The modest partnership provisions are not adequate to overcome these difficulties.
The district court found that, due to Alex and Chad's "incredible difficulty communicating with each other" and constant opposition to each other, the standards for judicial dissolution were met. Chad does not challenge this conclusion. Instead, Chad argues that dissolution and winding up was improper because Alex had withdrawn from the partnership before requesting that remedy and that Alex was obliged to proceed with the withdrawal process in the partnership agreement.
A. Withdrawal and dissociation
We first consider the district court's factual finding that Alex had not withdrawn from the partnership. "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Minn. R. Civ. P. 52.01.
In a fax dated October 11, 2003, Alex described several of his concerns about Chad's participation in the partnership and stated, "Therefore, I am formally informing you that I intend to withdraw from E D partnership." Alex then identified three options for dealing with the deteriorating relationship. In conclusion, Alex wrote, "I plan on aggressively removing myself from this situation, with my desire to be removed by December 31, 2003." On October 13, 2003, Alex sent Chad an email stating his concerns about the properties being uninsured and the partnership's financial shortcomings. In the email, Alex stated, "I am formally informing you that I am withdrawing from the partnership," and stated that he would "take any and all actions necessary to protect my investment" if Chad did not respond to his concerns within 72 hours. Finally, Alex's attorney sent Chad a letter dated October 23, 2003. The letter states that Alex had notified Chad of his intention to withdraw, and had also identified "alternative[s] to withdrawal." The letter restates these alternatives, requests that Chad respond within five days indicating his "willingness to enter into a negotiated resolution," and states that absent such a response Alex would seek judicial dissolution.
Chad responded to these communications 40 days later (on December 3), indicating his intent to purchase Alex's share of the partnership pursuant to the partnership agreement and his willingness to negotiate for a qualified neutral real estate appraiser. Alex brought this suit on December 9.
The district court found that these communications, "when read in their entirety and appropriate context, merely amount to intentions or proposals to withdraw and list various options for disposing of [Alex's] interest in ED." The meaning of these letters and emails in the context of the parties' larger relationship is a factual issue and we accord the district court's factual findings great deference. See Minn. R. Civ. P. 52.01. However, on their face, these letters and emails clearly express Alex's decision to end his involvement with Chad in this venture by December 31, 2003, if not in October. Cf. Minn. Stat. § 323A.1-02 (2002) (defining generally the notice provisions of the U.P.A.). Although the communications leave open all alternatives for dissociation, they constitute notice by Alex of his dissociation from the partnership, subject to prompt agreement on the terms of the dissociation from the partnership. Based on the language used, we conclude that it was clearly erroneous for the district court to determine that Alex's communications did not convey a decision to dissociate from the partnership by the end of 2003.
B. Election of remedies
Chad argues that by dissociating from the partnership without demanding judicial dissolution and winding up, Alex made an election of remedies. Chad argues that under the partnership agreement and the U.P.A., Alex's withdrawal permitted Chad to acquire Alex's interest in the partnership valued as of October 2003 and precluded Alex from seeking judicial dissolution. Whether there has been an election of remedies is a question of law, which we review de novo. Christensen v. Eggen, 577 N.W.2d 221, 224 (Minn. 1998).
Under the doctrine of election of remedies, a party must choose one of two or more inconsistent remedies that the law permits based on the same set of facts. Id. The purpose of the doctrine is to prevent double recovery for one act of wrongdoing. Id. But "if inconsistent remedies are sought and it is doubtful which one will bring relief, a party may claim either or both alternatively until one affords a remedy and the claimant is not bound by his election until one remedy is pursued to a determinative conclusion." Nw. State Bank, Osseo v. Foss, 293 Minn. 171, 177, 197 N.W.2d 662, 666 (1972).
Chad presents no legal precedent for the assertion that a partner who has given notice of dissolution cannot subsequently demand judicial dissolution and winding up. Here there is ambiguity over whether Alex was dissociating as of the end of the year 2003 or in October and there is uncertainty over the mechanics and conditions of his withdrawal. Regardless, Chad did not respond until after Alex's attorney wrote about the withdrawal demanding a prompt response or threatening legal action. Legal action included judicial dissolution. Chad responded late. Failing to obtain a prompt response and concluding that his protracted attempts to resolve his differences with Chad had failed, Alex sought judicial dissolution and winding up. This suit was filed before the end of 2003; the same timeframe as the effective date of dissociation. Such action was not inconsistent with the notice of dissociation which Alex gave Chad.
At most, Alex took the risk that the district court would find that there were not adequate grounds for judicial dissolution. If that result obtained, Alex might be obliged to withdraw in the framework of article 7 of the U.P.A. and allow Chad the option to purchase with the timetable and process described in the partnership agreement. See Minn. Stat. § 323A.1-03(a) (providing that the partnership agreement governs the partnership). However, the district court decided that an adequate basis existed for a judicial dissolution and winding up. Chad does not dispute and we conclude that the record supports this determination.
In sum, we conclude Alex was not precluded by the doctrine of election of remedies from seeking judicial dissolution and that the district court did not err in judicially dissolving the partnership, appointing a receiver to handle the dissolution, and winding up of the partnership.
Chad also questions the date as of which Alex's share is valued. Having determined that judicial dissolution is proper, we conclude that the date of Alex's dissociation from the partnership and the date of dissolution do not determine or freeze the value of Alex's interest. He is entitled to his share upon ultimate liquidation pursuant to Minn. Stat. § 323A.8-07 (2002).
II.
The second issue is whether the district court clearly erred in finding an accord and satisfaction for Chad's claim for management fees. Whether parties reached an accord and satisfaction is a question of fact. Webb Bus. Promotions, Inc. v. Am. Elecs. Entertainment Corp., 617 N.W.2d 67, 73 (Minn. 2000). Factual findings on accord and satisfaction "will not be reversed on appeal unless they are `manifestly and palpably' contrary to the evidence." Id. (quoting Butch Levy Plumbing Heating, Inc. v. Sallblad, 267 Minn. 283, 293, 126 N.W.2d 380, 387 (1964)).
An enforceable accord and satisfaction arises where a party, against whom a breach of contract is claimed, proves the following:
(1) the party, in good faith, tendered an instrument to the claimant as full satisfaction of the claim; (2) the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim; (3) the amount of the claim was unliquidated or subject to a bona fide dispute; and (4) the claimant obtained payment of the instrument.Webb, 617 N.W.2d at 73 (citing Minn. Stat. § 336.3-311(a), (b) (2004)). Mutual agreement of the parties to enter into an accord and satisfaction is also required, but if the four elements are present, that requisite intent is presumed as a matter of law. Id. at 76. The party denying the existence of an accord and satisfaction must rebut the presumption by showing, for example, that ambiguity precluded mutual agreement. Id.
Chad argues that the district court improperly cited Webb, 617 N.W.2d at 67, because it is based on the elements of accord and satisfaction set forth in the Uniform Commercial Code, codified at Minn. Stat. § 336.3-311. Chad argues that the U.C.C. does not apply to his claim. Even if this is accurate, Chad's argument is not persuasive because the U.C.C. codified the common law elements of accord and satisfaction. See Webb, 617 N.W.2d at 73 n. 4.
Here, Chad and Alex discussed the terms of a new partnership agreement in January 2003. Alex claims to have summarized the agreed upon terms in an email on January 22, 2003. According to the email, Chad would receive a "one time lump sum" of $3,000 "for all prior work, efforts, and savings" that he had put into the properties from their purchase until December 31, 2002. Chad would also assume the title of property manager and would receive $240 per month for performing these duties. Alex proposed the $240 figure by deducting the external accountant's fees from the ten percent management fee previously paid to Davis.
Chad wrote an E D check on April 16, 2003, made payable to himself, for $960. On the check's memo line, Chad wrote "Jan. — Apr. '03 mgmt 240 × 4 = 960." On May 12, 2003, Chad left a telephone message with Alex announcing his intention to write a check to himself for $3,000. In response, on May 13, 2003, Alex forwarded a copy of the January 22, 2003 email for Chad's review, and wrote that the parties had additional issues to address. Chad wrote two E D checks, both dated May 13, made payable to himself in the amounts of $240 and $3,000. In the note sections of these checks, Chad wrote "mgmt-May '03" and "mgmt per agreement," respectively. Chad wrote another E D check to himself for "mgmt," in the amount of $240, on July 30, 2003.
The district court concluded that Alex tendered an agreement to Chad for full satisfaction of the claim for past management fees, that the amount of the claim was in dispute, and that Chad obtained payment consistent with the offer. The district court therefore found that the $3,000 check constituted an accord and satisfaction for management fees through December 31, 2002, and that the monthly checks for $240 constituted an accord and satisfaction for management fees for the first half of 2003.
Chad argues that he never intended the checks to constitute full settlement of his past and present claims for management fees. But Chad appeared to subscribe to the arrangement proposed by Alex when Chad announced his intent to write a check for management fees for exactly the amount proposed by the emails and identified the checks as fees for "mgmt" and "mgmt per agreement." Chad testified at trial that these checks were only intended to satisfy a portion of the fee he was owed, and explained that the check amounts matched the amounts in the agreement only by coincidence. But the district court found this explanation not to be credible.
Chad claims he is entitled to ten percent of gross rents from the time Davis left the partnership in 1988. Since the gross rents for the 15-year period were estimated at $500,000, Chad claims he is owed over $50,000 plus substantial interest and that it is unrealistic to conclude that he would accept $3,000 for such a large claim. But Chad was never formally appointed as the managing agent of the partnership, did not perform all of the duties that Davis was to perform, and was in a protracted struggle with Alex over what, if any, payment he should receive. He faced the risk of no payment under Minn. Stat. § 323A.4-01(h) (2002). Under the circumstances, Chad's argument that no reasonable person would accept such a small percentage of the amount claimed is not compelling. We conclude that the district court reasonably found that the Webb requirements were satisfied. Chad wrote himself checks for amounts that Alex intended to be full satisfaction of Chad's claim. In the context in which Chad made out the checks, including the amounts and the check memos, Chad understood or should have understood that the checks were intended to be full satisfaction of the claim. The claim was a matter of a bona fide dispute. In cashing the checks, Chad obtained payment. In sum, we conclude the district court's determination of an accord and satisfaction was not clearly erroneous.
III.
The third issue is whether Chad was denied due process when the district court restricted the amount of evidence he was able to present. Claims of denial of due process are reviewed de novo. Zellman ex rel. M.Z. v. Indep. Sch. Dist. No. 2758, 594 N.W.2d 216, 220 (Minn.App. 1999), review denied (Minn. July 28, 1999).
Due process guarantees a party "reasonable notice, a timely opportunity for a hearing, the right to be represented by counsel, an opportunity to present evidence and argument, the right to an impartial decisionmaker, and the right to a reasonable decision based solely on the record." Humenansky v. Minn. Bd. of Med. Exam'rs, 525 N.W.2d 559, 565 (Minn.App. 1994), review denied (Minn. Feb. 14, 1995). At the same time, the "mode, manner, and method of receiving testimony is a matter resting almost wholly in the discretion of the trial court." Manion v. Tweedy, 257 Minn. 59, 67-68, 100 N.W.2d 124, 130 (1959). Further, without violating the right of procedural due process, a court may exclude evidence based on "considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Minn. R. Evid. 403. The existence of any prejudice is "difficult to assess without an offer of proof" of a witness's probable testimony. In re Estate of Olsen, 357 N.W.2d 407, 413 (Minn.App. 1984), review denied (Minn. Feb. 27, 1985).
The district court gave notice to both parties that they would have to complete the trial on March 11, 2005. On that day, Chad's counsel indicated his concern that he might be unable to call all of his witnesses by the end of the day, specifically identifying Gary Lundgren and Geneva Eschweiler, and direct examination of Chad. The district court stated that it would not allow an additional day of trial because Chad's attorney's questioning had been "very, very slow" and because Chad had been given "plenty of opportunity to question."
Before the trial concluded, Chad's counsel called and examined Geneva Eschweiler. Chad's counsel was also able to resume direct examination of Chad. The only witness whom Chad indicated that he wished to call but did not was Gary Lundgren. Lundgren was to testify about the labor he performed on the partnership properties. Chad does not explain why this testimony would have altered the result of the trial. Given the direct examination of witnesses that Chad was able to conduct, his extensive opportunity to cross-examine Alex's witnesses, and his failure to make an offer of proof regarding the testimony he would have presented or show that the district court's limitation prejudiced the presentation of his case; we conclude Chad's due process rights were not violated.