STEPHAN, J.
Jacobs Cattle Company is a family partnership which owns agricultural land in Valley County, Nebraska. Four of its six partners sought dissolution and liquidation of the partnership. One of the other two partners then sought a judicial dissociation of those four partners. The district court refused to dissolve and liquidate the partnership, but it dissociated the four partners and ordered that the partnership buy out their interests in the partnership. In this appeal, the four partners (collectively appellants) contend the district court erred in not dissolving the partnership and further erred in determining the proper buyout price. The other two partners and the partnership cross-appeal, contending the court erred in determining the date of asset valuation. We conclude that dissociation was proper, but reverse, and remand for recalculation of the buyout price and imposition of the proper rate of interest.
Jacobs Cattle Company is a family partnership that was formally organized on January 1, 1979. The original partners were Leonard Jacobs and his wife, Ardith Jacobs; their children Dennis Jacobs, Duane Jacobs, and Patricia Robertson; and the respective spouses of those children, Debbie Jacobs, Carolyn Sue Jacobs, and James E. Robertson. At some point, Debbie withdrew from the partnership and Dennis acquired her interest.
The operative partnership agreement became effective on June 19, 1997. The partners were identified as Ardith, in her capacity as trustee of the Leonard Jacobs Family Trust and in her capacity as trustee of the Ardith Jacobs Living Revocable Trust; Duane; Carolyn; Patricia; James; and Dennis.
Pertinent provisions of the agreement include the following:
The net profits and net losses of the Partnership shall be distributable or chargeable, as the case may be, to each of the Partners in proportion to the votes they have herein as set forth in paragraph 7. The term "net profits" and "net losses" shall mean the net profits and net losses of the Partnership as determined by generally accepted accounting principles....
The partnership owns approximately 1,525 acres of land in Valley County. The land is mostly farmland and pasture and is unencumbered. A real estate appraiser valued the land as of January 1, 2011, at $4,545,000, and as of September 20, 2011, at $5,135,000. The $590,000 increase in appraisal value represented a 12.98 percent increase, which when annualized amounted to an 18.02 percent increase.
The partnership rented its land to others. Patricia and James, Dennis, and Duane and Carolyn all rented land from the partnership, although James did not sign a lease. At least some of the land was rented for less than its fair rental value.
Since June 19, 1997, the partnership has not returned a profit and there have been no distributions of net profits to the partners. Since Leonard's death, no partner
In July 2004, the attorney for the partnership sent a letter to the partners informing them that none of the tenants had paid their rent for 2004. There were no partnership meetings after January 2005. In late 2004 or early 2005, Ardith terminated the services of Robert D. Stowell as the attorney for the partnership. In April 2005, Ardith retained a new attorney for the partnership. In 2005, Ardith terminated the services of Mick Puckett as the accountant for the partnership and hired a new accountant. Puckett was the last certified public accountant agreeable to all of the partners, and Stowell was the last attorney agreeable to all partners.
In March 2005, Dennis and Patricia were involved in a physical altercation. As a result, Dennis pled no contest to criminal assault charges. On April 28, Patricia and James were served with a notice to quit the leased premises for nonpayment of rent. Around the same time, Duane was also notified that he needed to quit the premises he was leasing due to nonpayment of rent. Duane eventually paid his rent, but on May 4, the partnership sued Patricia and James for rents due for the years 2003 and 2004. Ardith alone made the decision to file the lawsuit. On August 11, a court entered judgment against Patricia for unpaid rent. The court did not enter judgment against James because his name was not on the lease. The land which the partnership had leased to Patricia was later rented to Dennis.
In July 2007, appellants filed the operative amended complaint for dissolution of the partnership against the partnership, Ardith, and Dennis (collectively appellees). The complaint sought a dissolution and winding up of the partnership under the Uniform Partnership Act of 1998
After conducting a bench trial, the district court entered an order on September 20, 2011. The court concluded that appellants did not prove the occurrence of events authorizing dissolution under § 67-439(5) because (1) nothing had occurred to interfere with the partnership's ability to buy, own, and rent land; (2) no partners took steps to override decisions made by Ardith and "[j]ust because a partner does not like the decision of the managing partner does not make it impracticable to continue the partnership with that partner"; and (3) Ardith had not acted beyond the partner restrictions specified in the partnership agreement. The court reasoned that nothing had occurred to make the partnership agreement difficult or impossible with which to comply, and it dismissed appellants' dissolution claims.
However, the court found that appellants' failure to pay rent in a timely manner supported appellees' request that appellants be dissociated from the partnership under § 67-431(5)(a) and (c). The court reasoned that because the primary purpose of the partnership was to rent land, appellants' delinquency in paying rent materially and adversely affected the partnership business and made it
On November 4, 2011, the partnership filed a buyout proposal with the district court. The proposal set out the value of the partnership based on its assets and liabilities, including the value of the appreciated land, and then proposed that each appellant be paid $275,941.96. Although the proposal did not contain mathematical calculations, it stated that this sum represented each appellant's "equal partnership fractional interest." This mathematically equates to each appellant's 5.33 percent capital account ownership.
Appellants filed written objections to the proposed buyout on December 5, 2011. One objection was that the proposed buyout did not "contain either (a) an analysis or calculation of the profits that would result from the liquidation of the Partnership's assets on September 20, 2011, or (b) how such profits would be allocated to each of the partners in the Partnership." Another objection was that the buyout proposal did not "provide for the distribution to [appellants] of their respective portions of the profits of the Partnership to which [they] would be entitled under §§ 67-434 and 67-445." Appellants submitted an alternative buyout proposal which included the analysis and calculation they argued was missing from the partnership's proposal. The alternative proposal did not include mathematical calculations, but it generally calculated the buyout price based on the provision in paragraph 11 of the partnership agreement allocating profit percentages to the partners' income accounts. The alternative buyout proposal generally requested that each appellant receive 12.5 percent of the partnership's liquidation value.
In a January 4, 2012, journal entry, the district court found it would "not consider" the objections raised by appellants. The court granted appellants leave to submit written offers of proof in support of their objections, but ruled appellants could not present testimony on the objections. A formal hearing on the amount of the buyout was held on March 6.
At that hearing, appellants offered exhibit 118 as an offer of proof in support of their objections. The exhibit stated that if allowed to, Patricia would testify that she is a certified public accountant who is familiar with the meanings of the terms "net profits" and "net losses" as determined by generally accepted accounting principles. It further noted that Patricia had prepared a written statement of the book basis of the capital accounts of the partnership based upon a liquidation of assets on September 20, 2011, and attached her calculations. According to Patricia's calculations, the proper allocation of each partner's interest in the partnership was approximately 12.5 percent of the total value. This percentage was calculated after considering how profits from the hypothetical sale of the land required by §§ 67-434(2) and 67-445(2) would be allocated under the partnership agreement.
The partnership submitted a written objection to this offer of proof, but the district court did not rule on the objection on the record. In its final order, however, the court noted that all "[o]bjections [had been either] taken under advisement
The district court ultimately approved the partnership's proposed buyout, with minor alterations not related to appellants' stated objections. In computing the amount appellants were entitled to as a result of the required buyout, the district court arrived at a liquidation value for the partnership by subtracting the partnership's liabilities from its assets. The assets included the appreciated value of the partnership's land. The court then distributed the liquidation value to each partner based on his or her capital account, so appellants each received 5.33 percent of the total liquidation value. The court stated that if the sums were not paid by the 30th day, interest would accrue at the judgment interest rate of 2.056 percent.
Appellants assign, restated and summarized, that the district court erred in (1) failing to dissolve the partnership under § 67-439(5); (2) determining that James, Duane, and Carolyn failed to pay rent to the partnership and that all appellants engaged in wrongful conduct and should be dissociated from the partnership under § 67-431(5); (3) determining the amount of the buyouts of appellants and failing to include in the buyout amount of each appellant one-eighth of the net profits which would have resulted from capital gains arising from the liquidation of the partnership's assets; (4) failing to determine that interest on all buyouts payable to appellants commenced accruing on September 20, 2011; and (5) determining that the interest rate to be paid to appellants on their respective buyouts was the judgment rate rather than a market rate of interest.
On cross-appeal, appellees assign that the district court erred in (1) holding the date of dissociation was September 20, 2011, rather than May 2005, when appellants failed to pay their rents, and (2) determining the value of the partnership assets as of September 2011 instead of May 2005.
An action for a partnership dissolution and accounting between partners is one in equity and is reviewed de novo on the record.
Statutory interpretation presents a question of law.
The legal framework for our analysis is the 1998 UPA, which is Nebraska's counterpart to the model act known as the Revised Uniform Partnership Act
The 1998 UPA replaced the original Uniform Partnership Act
RUPA, as embodied by our 1998 UPA, provides gap-filling rules that control only when a question is not resolved by the parties' express provisions in an agreement.
The parties are in general agreement that they cannot continue in partnership with each other. They differ as to the appropriate remedy to be employed in ending their relationship. Appellants contend that the partnership should have been dissolved. Appellees argue that the district court correctly dissociated appellants from the partnership because this allows the partnership itself to continue with Ardith and Dennis as its remaining partners.
The statutory provisions governing dissociation and dissolution are similar but not identical. Dissolution of a partnership is governed by § 67-439, which provides that "[a] partnership is dissolved, and its business must be wound up, only upon the occurrence of any of the following events," which include
The district court concluded that none of these circumstances existed because (1) nothing had occurred which would frustrate the partnership's ability to buy, sell, or own land, and (2) Ardith, as managing partner, had authority on behalf of the partnership to take the actions with which appellants disagreed.
Dissociation is a new concept introduced by RUPA "to denote the change in the relationship caused by a partner's ceasing to be associated in the carrying on of the business."
In this case, the district court concluded that the grounds for dissociation stated in § 67-431(5)(a) and (c) were met by the failure of appellants to pay timely rent for the land leased from the partnership.
With these principles in mind, we first consider appellants' argument that the district court erred in determining that there were grounds to dissociate them from the partnership. Given that the sole business of the partnership was to own farmland which it leased to others, we have no difficulty concluding that the failure of appellants who executed leases to pay timely rents constituted wrongful conduct that adversely and materially affected the partnership business and made it not reasonably practical to carry on the partnership business with the existing partners. And we are not persuaded by the argument that James bore no responsibility for the nonpayment of rent because he had not signed a lease. Patricia initially testified that she and James had rented land from the partnership from 1997 through 2004. Later in her testimony, when shown a copy of the lease and asked if James had "ever been a tenant under a lease with Jacobs Cattle Company," she responded, "Not according to the lease agreements." But James testified that he owed money to the partnership prior to 2010. There is a reasonable inference that James knew that rent had not been paid to the partnership of which he and Patricia were both partners. Thus, regardless of whether he was legally obligated on the lease, James engaged in conduct which satisfied the grounds for dissociation stated in § 67-431(5)(a) and (c) to the same extent as the other appellants.
Next, we consider whether the district court erred in concluding that appellants failed to establish grounds for dissolution of the partnership. Appellees argue the
Under the RUPA model upon which our statutes are based, the dissociation of a partner does not necessarily cause a dissolution and winding up of the partnership's business.
We have found no authority on this precise point. But the decision of the Supreme Court of Connecticut in Brennan v. Brennan Associates
We perceive no good reason to apply a different rule where the conduct of multiple partners makes it "not reasonably practicable to carry on the business in
We conclude that dissociation by judicial expulsion of appellants is an appropriate remedy under the facts of this case. Individually and in trust, Ardith and Dennis have a capital interest in the partnership of approximately 78 percent. Pursuant to the partnership agreement, Ardith has general management authority to conduct the day-to-day business on behalf of the partnership. We agree with the finding of the district court that there is no apparent reason why the partnership cannot continue to exist and function in accordance with the partnership agreement with Ardith and Dennis as its sole partners. Accordingly, we conclude that the first and second assignments of error as restated above are without merit.
The remaining issues pertain to the district court's calculation of the buyout price which the dissociated partners are to receive for their interests in the partnership. This price is governed by § 67-434(2), which provides:
Section 67-445(2) provides in pertinent part:
The district court determined the date of dissociation was September 20, 2011, the date it entered its order that appellants were dissociated by judicial expulsion pursuant to § 67-431(5). In their cross-appeal, appellees contend that the court should have found the date of dissociation
Appellees urge us to adopt the reasoning of two pre-RUPA partnership dissolution cases from other jurisdictions, King v. Evans
The language of a statute is to be given its plain and ordinary meaning, and an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous.
The land owned by the partnership is a capital asset. Under the operative partnership agreement, the partners each had a capital account. The value of the capital account was "directly proportionate to [each partner's] original Capital contributions as later adjusted for draws taken from the Partnership." At the time of dissociation, the capital account of each appellant was approximately 5.33 percent of the total capital in the partnership.
Each partner also had an income account under the partnership agreement. Net profits and net losses of the partnership were to be "credited or debited to the individual income accounts [of each partner] as soon as practicable after the close of each fiscal year." The agreement provided that the "term[s] `net profits' and
The district court expressly found that appellants' "interests in the partnership shall be purchased by the partnership as required by Neb.Rev.Stat.Sec. 67-434." In its ruling, the district court considered the value of the partnership's assets, including the appreciated value of the land, less the partnership's liabilities, and arrived at a liquidation value for the partnership. It then accepted appellees' argument that the proper buyout price was calculated by applying each partner's capital account percentage to the partnership's total liquidation value.
On appeal, appellants agree the buyout was to be calculated pursuant to § 67-434 and agree with the district court's liquidation value of the partnership. But they argue the district court erred in calculating the buyout price because it did not consider how the hypothetical capital gain realized from treating the land as though it had been sold on the date of dissociation would flow to each partner based on the partnership agreement's allocation of net profits and losses. Appellants contend the proper calculation results in each of them receiving a buyout equal to 12.5 percent of the liquidation value of the partnership.
Appellants' argument rests on two premises: (1) that a capital gain would be realized upon a hypothetical selling of the partnership land pursuant to § 67-434(2), which would constitute "profits" within the meaning of § 67-445(2), and (2) that the hypothetical profit would constitute "net profits" within the meaning of paragraph 11 of the partnership agreement. Section 67-434(2) provides that the buyout price of a dissociated partner's interest is to be based on the amount that "would have been distributable to the dissociating partner" under § 67-445(2) "if, on the date of dissociation, the assets of the partnership were sold at ... liquidation value ... and the partnership were wound up as of that date." Section 67-445(2) then provides that "profits and losses that result from [such] liquidation of the partnership assets must be credited and charged to the partners' accounts."
It is clear from the plain language of § 67-434(2) that the proper calculation must be based upon the assumption that the partnership assets, here the land, were sold on the date of dissociation, even though no actual sale occurs. Here, the initial question is whether selling the partnership land on the date of dissociation would result in a capital gain and "profits" in the context of § 67-445(2). We consider this to be a question of statutory interpretation.
The term "capital gain" means "profit realized when a capital asset is sold or exchanged."
The remaining question is how those "profits" should be "credited and charged to the partners' accounts"
The district court determined that the amounts due appellants for their partnership interests should be paid within 30 days of the final order entered April 18, 2012, and that if not paid within that period, interest would accrue at the judgment rate. Appellants argue that the interest actually began to accrue on September 20, 2011, the date the court determined that appellants were dissociated from the partnership. We agree. Section 67-434(2) specifically provides that interest on the buyout price of a dissociated partner's interest "must be paid from the date of dissociation to the date of payment." As we have noted, the "date of dissociation" was September 20, 2011. Appellants are entitled to interest on the buyout price from that date until the date of payment.
Appellants also contend that the district court erred in ordering that interest should be computed at the "judgment interest rate." They contend that they are instead entitled to interest at the higher "market rate."
Neb.Rev.Stat. § 45-103 (Reissue 2010) is the source of the district court's "judgment interest rate." It specifies the interest rate to be paid on judgments for the payment of money. However, § 45-103 provides that its rate shall not apply to "(1) [a]n action in which the interest rate is specifically provided by law." Here, § 67-434 specifically provides that interest is to
Based upon our de novo review and for the reasons discussed, we conclude that the district court did not err in dissociating appellants from the partnership by judicial expulsion as of September 20, 2011. We also conclude that the district court did not err in declining to dissolve the partnership. However, we conclude the district court erred in failing to allow appellants to introduce evidence on the proper calculation of the buyout price and further erred in its determination with respect to interest. We modify the judgment to provide that interest on the amounts due appellants should accrue at 14 percent per annum from September 20, 2011, until paid, and we reverse the judgment and remand the cause for further proceedings on the proper calculation of the buyout price.
AFFIRMED IN PART AS MODIFIED, AND IN PART REVERSED AND REMANDED FOR FURTHER PROCEEDINGS.
HEAVICAN, C.J., and MILLER-LERMAN, J., participating on briefs.
WRIGHT, J., not participating.
