Opinion
No. C8-95-2597.
Filed May 21, 1996.
Appeal from the District Court, Hennepin County, File No. 951057.
Scott G. Knudson, Kathleen Erickson DiGiorno, Paul C. Thissen, Briggs and Morgan, (for Appellant).
G. Patrick Murray, Ramier, Murray Michenfelder, (for Appellant).
Luther M. Amundson, Mary Jo O'Dea, Maser Amundson, P.A., (for Respondent 2300 Plaza Associates).
John R. Schulz, Sarah J. Batzli, Collins, Buckley, Sauntry Haugh, (for Respondents 2300 Partnership, et al.).
Considered and decided by Huspeni, Presiding Judge, Crippen, Judge, and Schumacher, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1994).
UNPUBLISHED OPINION
James Lang, a limited partner, appeals from summary judgment granted to respondents 2300 Plaza Associates (limited partnership), 2300 Partnership (partnership), Kenneth V. Nordling, Wayne P. Rixmann, and David C. McGuire. On appeal, Lang claims that the general partners owed him a fiduciary duty to disclose profits they derived from their sale of an apartment complex to the limited partnership. Because the sale occurred before Lang became a limited partner, we conclude the general partners owed him no fiduciary duty and affirm.
FACTS
On December 28, 1982, McGuire and Rixmann purchased a 182-unit apartment complex in Minneapolis for approximately $4,300,000. The same day they formed a general partnership with Nordling and Darwin DeRosier and conveyed their interest in the apartment complex to the partnership by quitclaim deed. The partnership mortgaged the apartment complex for $3,900,000 on May 31, 1984.
A limited partnership was formed on January 31, 1984, for the stated purpose of "acquiring, holding, operating and ultimately disposing of" the apartment complex. The limited partnership agreement was amended and restated on July 29, 1984.
On July 1, 1984, the partnership sold the apartment complex to the limited partnership for $6,750,000 at 12% interest. Under the terms of a contract for deed, the limited partners were to pay for the apartment complex over a 20-year term. The partnership projected that the apartment complex would generate enough cash to pay for operating expenses and half of the interest payments on the contract for deed. The other half of the interest payments was to be paid in annual installment payments made to the partnership by the limited partners.
On July 30, 1984, Lang executed a limited partnership subscription agreement, purchasing 25 of 299 units of the apartment complex that the partnership offered as vendor. In December 1984, Lang paid his first installment of $52,125 and deducted $103,567 on his income taxes for that year. The deductions were based only on his interest in the limited partnership.
At the time he became a limited partner, Lang neither asked about nor did the general partners disclose the general partnership's prior transactions involving the apartment complex. Lang claimed that he did not discover these facts until 1994.
Beginning in 1990, both partnerships experienced financial problems when certain limited partners began defaulting on their installment payments and the apartment complex failed to generate enough income to cover its portion of the contract for deed interest payments. After the partnership unsuccessfully attempted a workout, the limited partnership commenced dissolution proceedings. In the fall of 1994, 25 of 28 limited partners settled with the partnership, and the dissolution proceedings were dismissed. The limited partnership then sold the apartment complex to a limited liability company formed by Rixmann and Nordling for approximately $4,000,000.
On November 8, 1994, Lang initiated an action against both partnerships, Nordling, Rixmann, and McGuire, asserting breach of fiduciary duty, violation of the certificate of limited partnership, and misappropriation of funds. Lang requested relief that included a formal accounting and dissolution of the partnership, damages for conversion, return of his investment, rescission of the 1984 sale of the apartment complex, imposition of a constructive trust, and attorney fees.
The partnership, limited partnership, Nordling, Rixmann, and McGuire moved for summary judgment. The district court granted the motion, concluding that the partnership and its individual partners had no duty to disclose to Lang any profits made from the sale of the apartment complex to the limited partnership because the general partners were not in a fiduciary relationship with Lang at the time of the sale. The district court also concluded that Lang's claims were barred by the statute of limitations. This appeal followed.
DECISION
On appeal from summary judgment, this court reviews the record to determine whether issues of material fact exist and whether the district court erred in applying the law. State by Cooper v. French , 460 N.W.2d 2, 4 (Minn. 1990). When reviewing summary judgment, the evidence is viewed in the light most favorable to the party against whom summary judgment was granted. Grondahl v. Bulluck , 318 N.W.2d 240, 242 (Minn. 1982). This court reviews questions of law de novo. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n , 358 N.W.2d 639, 642 (Minn. 1984).
Lang contends the district court erred as a matter of law in determining that the partners did not owe Lang a fiduciary duty to disclose to him the profits they made from selling the apartment complex to the limited partnership.
Under the Uniform Partnership Act as adopted in Minnesota, [e]very partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by that partner without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by that partner of its property.
Minn. Stat. § 323.20 (1994). General partners of a limited partnership are also accountable as fiduciaries to each other. Appletree Square I v. Investmark, Inc. , 494 N.W.2d 889, 892 (Minn.App. 1993) ("The relationship of partners is fiduciary and partners are held to high standards of integrity in their dealings with each other."), review denied (Minn. Mar. 16, 1993). Further, "[w]here a fiduciary relationship exists, silence may constitute fraud." Id. But, "[a] fiduciary's duty must be defined with reference to the experience and intelligence of the person to whom the duty is owed." Midland Nat'l Bank v. Perranoski , 299 N.W.2d 404, 413 (Minn. 1980).
Relying on Minn. Stat. § 323.20, Lang contends that even during the time that he was contemplating whether to join the limited partnership the partners owed him a fiduciary duty to disclose the earlier profits they made by selling the apartment complex to the limited partnership. We decline to adopt so broad an interpretation of Minn. Stat. § 323.20. In our view, the requirement that partners account to other partners for profits applies only to those who, at the time of partnership formation, actively contemplate becoming partners. See id.
While there is no case law on this precise point, this interpretation finds support in the statutory language itself, which applies to "every partner." See id. Further, a party must be a "copartner" in order to demand an accounting for non-disclosed profits. Minn. Stat. § 323.21(1) (1994). Even though Minn. Stat. § 323.20 applies to profits derived during partnership formation, the language clearly applies only to those who could "consent" to the actions of the other potential partners, not to those who join the partnership after its formation.
Because Lang did not become a limited partner until six months after formation of the limited partnership and all transactions involving the sale of the apartment complex occurred before he decided to become a limited partner, the other partners had no fiduciary duty to disclose to Lang any profits they derived from the sale of the apartment complex. As noted by the district court, at the time Lang was deciding whether to invest in the limited partnership, all of the information Lang claimed the partners should have disclosed was of public record. Lang specifically denies that the partners committed fraud in their dealings with him.
Lang primarily relies on two cases from other jurisdictions that have adopted the Uniform Partnership Act. See Tobias v. First City Nat'l Bank Trust Co. , 709 F. Supp. 1266, 1278 (S.D.N.Y. 1989) (applying New York law to breach of fiduciary duty claim); Waite v. Sylvester , 560 A.2d 619, 625 (N.H. 1989). These cases stand for the proposition that parties who are negotiating to become partners may act as fiduciaries to each other. Tobias , 709 F. Supp. at 1278; Waite , 560 A.2d at 625. While we do not dispute the general holdings of these cases, they are factually distinguishable from this case for two reasons. First, both cases involved negotiations among persons contemplating forming a partnership, not a person contemplating joining an existing partnership. Tobias , 709 F. Supp. at 1278; Waite , 560 A.2d at 625. Second, both cases included allegations of fraud, an allegation which is not present in this case. Tobias , 709 F. Supp. at 1278; Waite , 560 A.2d at 624-25.
Because we conclude that the general partners owed Lang no fiduciary duty to disclose profits they made both before formation of the limited partnership and before Lang became a limited partner, we find no error in the district court's grant of summary judgment. Affirmed.
The partnership, limited partnership, Nordling, Rixmann, and McGuire also contend that the six-year statute of limitations for breach of fiduciary duty claims bars Lang from bringing this action. See Minn. Stat. § 541.05, subd. 1 (1990). Because we hold that the general partners owed no fiduciary duty to Lang, we decline to reach this issue.