Case Title: WARNICK v. WARNICK

Citation: 

Docket Number: 02-131

State: wyoming

Court: Wyoming Supreme Court

Date: 2003-09-11T00:00:00Z

Document:
WARNICK v. WARNICK2003 WY 113203 P.3d 316Case Number: 02-131, 02-155Decided: 09/11/2003
APRIL 
TERM, A.D. 2003

 

                                                                                                            

 

WILBUR 
K. WARNICK; DEE J. WARNICK;

and 
WARNICK RANCHES,

 

Appellants(Defendants),

 

v.

 

RANDALL 
M. WARNICK,

 

Appellee(Plaintiff).

 

 

RANDALL 
M. WARNICK,

 

Appellant(Plaintiff),

 

v.

 

WILBUR 
K. WARNICK, DEE J. WARNICK,

and 
WARNICK RANCHES,

 

Appellees(Defendants).

 

 

Appeal 
from the District Court of  Sheridan 
County

 

Representing 
Appellant:

Dennis 
M. Kirven of Kirven and Kirven, P.C., Buffalo, Wyoming

 

Representing 
Appellee:

Timothy 
C. Kingston of Graves, Miller & Kingston, P.C., Cheyenne, Wyoming; Charles 
E. Graves, Sheridan, Wyoming

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 

 

GOLDEN, 
Justice.

 

[¶1]           
A 
general partner in a family ranch business sued the partnership and the other 
two partners on various contract, quasi-contract and partnership theories, 
seeking recovery of his partnership interest.  On cross motions for summary judgment, 
the district court granted Plaintiff's motion, found that dissociation and 
buyout of the Plaintiff was the appropriate remedy and entered judgment in the 
amount of $230,819.14 for his share of the ranch's value.  Defendants appealed; Plaintiff 
cross-appealed the calculation of his partnership share.  Finding that the district court erred in 
its calculation of the buyout price of the dissociated partner's interest, we 
reverse in part and remand with instructions.

 

 

ISSUES

 

[¶2]           
Wilbur 
and Dee Warnick, along with Warnick Ranches, state the issues as 
follows:

 

A. 
Did the District Court err in failing to accrue interest on additional cash 
contributions made by each of the partners to Warnick Ranches in accordance with 
W.S. § 17-21-401(e) when calculating the buyout of a disassociated 
partner?

 

B. 
Were guaranteed payments attributed to Wilbur Warnick and left in the Warnick 
Ranch Partnership (unpaid) additional cash contributions as either capital or 
loans?

 

C. 
If additional cash contributions were not loans under W.S. § 17-21-401(d), did 
the District Court err in granting summary judgment when genuine issues of 
material fact exist concerning the capital accounts in the Warnick Ranch 
Partnership?

 

Randall 
Warnick re-frames the issues:

 

1.      
Did 
cash payments made by the Appellants constitute interest-bearing 
loans?

 

2.      
Is 
there a genuine issue of material fact regarding the parties' respective 
ownership interests or financial stakes in the 
partnership?

 

3.      
Should 
several guaranteed payments to one of the partners be considered cash 
contributions or loans to the partnership?

 

4. 
Did the District Court incorrectly exercise its "equitable discretion" when it 
reduced the amount that the Appellee was entitled to from the total value of the 
partnership?

 

 

FACTS

 

[¶3]           
In 
August 1978, Wilbur and Dee Warnick and their son Randall Warnick contracted to 
purchase a ranch in Sheridan County for an agreed price of $335,000, with 
$90,000 down plus $245,000 in installments over ten years at 8% interest.   In April 1979, they formed Warnick 
Ranches general partnership to operate the ranch and complete the installment 
purchase agreement.  The partnership 
agreement recited that the initial capital contributions of the partners totaled 
$60,000, paid 36% by Wilbur, 30% by Dee, and 34% by Randall. 

 

[¶4]           
The 
partnership leased out the ranch property for the first two years.  Wilbur and Dee Warnick then moved onto 
the ranch in 1981, living there and working the ranch up to the present 
time.  Randall lived and worked on 
the ranch during the 1981 and 1982 summer haying seasons and again from 1991 to 
1998. 

 

[¶5]           
The 
partners over the years each contributed additional funds to the operation of 
the ranch and received cash distributions from the partnership. After 1983, 
Randall contributed very little new money and almost all of the additional funds 
to pay off the mortgage came from Wilbur and Dee Warnick.  Wilbur also left in the partnership 
account two $12,000 cash distributions that were otherwise payable to him. The 
net cash contributions of the partners through 1999, considering the initial 
contributions, payments to or on behalf of the partnership, draws not taken and 
distributions from the partnership were:

 

                        
Wilbur             
$170,112.60 (51%)

                        
Dee                 
  138,834.63 
(41%)

                        
Randall           
    25,406.28 
(8%)

 

[¶6]           
In 
1998, Randall Warnick began having discussions with his brother about the 
possibility of selling his interest in Warnick Ranches. When Randall mentioned 
this to his father, a dispute arose between them concerning the percentage of 
the partnership that Randall owned. Finally, on April 14, 1999, Randall's 
attorney sent a letter to Warnick Ranches which stated:

 

I 
have been asked to contact you regarding [Randall's] desire to either sell his 
interest in the ranch to a third party, to the partnership, or to liquidate the 
partnership under Paragraph 12 of the partnership agreement.  

 

* 
* * *  [I]t would appear that it 
would be in the best interests of all to amicably agree to a selling price of 
his interest either to a third party or to the partnership as provided in the 
partnership agreement. 

 

[¶7]           
On 
August 11, 1999, Warnick Ranches responded in writing, treating the letter from 
Randall's attorney as the expressed will of a partner to dissociate.  The partnership's response included 
a tender offer for Randall's share, as provided under Wyo. Stat. Ann. § 
17-21-701(e) and (g) in the case of a dissociating partner.  Randall in turn exercised his right 
under § 17-21-701(j) to reject the tender and bring an action against the 
partnership to determine his interest in the partnership, including a buyout 
price if he is determined to be dissociated from the 
partnership.

 

[¶8]           
The 
case was submitted to the district court on cross motions for summary 
judgment.  The parties stipulated to 
facts regarding the cash flows into and out of the partnership accounts, as well 
as the partnership tax returns for each year from 1979 through 1999.  They also submitted affidavits, 
depositions, interrogatories and requests for admission in support of their 
respective motions.

 

[¶9]           
The 
district court, in granting Randall Warnick's motion for summary judgment, found 
that dissociation of Randall as a partner was the appropriate remedy and that 
the schedule of ownership recited in the partnership agreement, absent evidence 
of any other written agreement, controls the partners' percentage upon 
dissolution or dissociation.  The 
court awarded judgment to Randall Warnick for the amount of his cash 
contributions, plus 34% of the partnership assets' increase in value above all 
partners' cash contributions.  As a 
result of that calculation, $230,819.14, or 25.24%, of the undisputed value of 
the partnership was awarded to Randall, without provision of interest for any 
partner in the calculation.

            
 

DISCUSSION

 

Standard 
of Review

 

[¶10]      
We 
recently reiterated our "well-settled" standard of review for considering the 
grant of a summary judgment.

 

When 
a motion for summary judgment is before the supreme court, we have exactly the 
same duty as the district judge; and, if there is a complete record before us, 
we have exactly the same material as did he.  We must follow the same standards.  The propriety of granting a motion for 
summary judgment depends upon the correctness of a court's dual findings that 
there is no genuine issue as to any material fact and that the prevailing party 
is entitled to judgment as a matter of law.  This court looks at the record from the 
viewpoint most favorable to the party opposing the motion, giving to him all 
favorable inferences to be drawn from the facts contained in affidavits, 
depositions and other proper material appearing in the record.  We separate the formal and pretended 
from the genuine and substantial so only the latter may be considered in 
eliminating the burden of a formal trial if only questions of law are left to 
decide; there must be no issue of material fact to decide.  Weaver v. Blue Cross-Blue Shield, 
Wyo., 609 P.2d 984, 986-987 (1980).  
A material fact, expressed in various ways, is one having legal 
significance which would in a given case control the legal relations of the 
parties; one upon which the outcome of the litigation depends in whole or in 
part; one on which the controversy may be determined; one which will affect the 
result or outcome of the case depending upon its resolution; or one which 
constitutes a part of the plaintiff's cause of action or the defendant's 
defense.  Johnson v. Soulis, 
Wyo., 542 P.2d 867 (1975).  Summary 
judgment affords an opportunity for prompt disposition of a lawsuit in its early 
stages, permitting an end to unfounded claims and avoiding the expense of a 
full-fledged trial to both litigants and the state's judicial machinery.  Bluejacket v. Carney, Wyo., 550 P.2d 494 (1976).

 

McLean 
v. Hyland Enterprises, Inc., 
2001 WY 111, ¶14, 34 P.3d 1262, ¶14 (Wyo. 2001) (quoting Reno Livestock Corp. 
v. Sun Oil Co. (Delaware), 638 P.2d 147, 150-51 (Wyo. 
1981)).

 

[¶11]      
We 
also discussed in McLean the general rule that the denial of a summary 
judgment motion is not an appealable final order.  However, "when the district court grants 
one party's motion for a summary judgment and denies the opposing party's motion 
for a summary judgment and the district court's decision completely resolves the 
case, both the grant and the denial of the motions for a summary judgment are 
subject to appeal."  McLean, 
¶17 (quoting Lieberman v. Wyoming.com LLC, 11 P.3d 353, 356 (Wyo. 
2000)).  We will therefore review 
the entire case, including the denial of the defendants' summary judgment 
motion.

 

Statutory 
Provisions

 

[¶12]      
Resolution 
of this matter relies almost entirely on application of the Wyoming Revised 
Uniform Partnership Act ("RUPA"), Wyo. Stat. Ann. §§ 17-21-101 et seq. 
(LexisNexis 2003), which the Wyoming legislature adopted in 1994 as a 
replacement for the Uniform Partnership Act.  1993 Wyo. Sess. Laws ch. 194.  RUPA is applicable in this case because 
by its terms it applies "to all partnerships in existence on January 1, 1994, 
that were formed under the Wyoming Partnership Act or any predecessor law 
providing for the formation, operation and liquidation of partnerships."  § 17-21-1003(a).  RUPA states in pertinent 
part:

 

[A] 
partnership agreement governs relations among the partners and between the 
partners and the partnership.  To 
the extent the partnership agreement does not otherwise provide, this chapter 
governs relations among the partners and between the partners and the 
partnership.

 

§ 
17-21-103(a).  "The Revised Act is, 
therefore, largely a series of default rules' that govern the relations among 
partners in situations they have not addressed in a partnership agreement."  Uniform Partnership Act, Pref. Note, 6 
U.L.A. 6-7 (1997).  See also, B 
& R Builders v. Beilgard, 915 P.2d 1195, 1197 (Wyo. 
1996).

 

[¶13]      
During 
the existence of the partnership, each partner has authority to act on behalf of 
the partnership, §§ 17-21-301, 401(f), and "[a]ll partners are liable jointly 
and severally for all obligations of the partnership unless otherwise agreed by 
the claimant or provided by law."  § 
17-21-306(a). "A partner may lend money to and transact other business with the 
partnership," § 17-21-404(f), and "[a] partnership shall repay a partner who, in 
aid of the partnership, makes a payment or advance beyond the amount of capital 
the partner agreed to contribute." § 17-21-401(d).  Such a payment or advance by a partner 
constitutes a loan to the partnership which accrues interest from the date of 
the payment or advance. § 17-21-401(e).

 

[¶14]      
The 
provisions of the Warnick Ranches Partnership Agreement addressing the above 
subjects are paragraphs six and nine, which state:

 

6.  CAPITAL CONTRIBUTION.  The parties hereto hereby agree to 
contribute the personal property listed on Exhibit "A" attached hereto to the 
Partnership to be used in the Partnership business.  By unanimous agreement of all Partners, 
additional contributions may be made to, or withdrawals may be made from, the 
capital of the Partnership.

 

* 
* * *

 

9.  ACCOUNTING.  On December 31 of each year, the 
accounts of the Partnership business will be closed for the year.  As of that date, the Partnership income 
and expenses will be totaled and the difference shall be divided among the 
Partners on any basis which is mutually agreed upon by all Partners, giving due 
consideration to services rendered during the year by each Partner, drawings 
during the year by each Partner and the amount of capital invested by each 
Partner during such year.

 

The 
partnership agreement is entirely silent as to how cash advances or payments on 
behalf of the business are to be treated.  
The partners knew that additional cash would be needed to make the 
mortgage payments on the ranch, and perhaps assumed that paragraph six of their 
agreement would cover the additional funds when they would unanimously agree to 
adjust the capital accounts when a partner paid more money into the operation. 

 

[¶15]      It 
is, however, undisputed that the partners never entered into a unanimous 
agreement to amend their partnership agreement or to reflect additional capital 
contributions.  It is also 
undisputed that the advances by the partners were not anywhere documented as a 
loan to the partnership rather than capital contributions.  The district court found these facts 
dispositive in granting Randall Warnick's summary judgment motion. The court 
specifically found that there was no documentation to support a conclusion that 
the payments by the elder Warnicks were a loan, so they could not be treated as 
a loan.

 

[¶16]      
The 
district court's decision, however, misapplies the clear provisions of the 
Revised Uniform Partnership Act.  
RUPA operates automatically if a partnership agreement does not have 
contrary provisions; it is not necessary for an agreement to adopt the statutory 
partnership provisions.  In this 
sense, RUPA operates like the Uniform Probate Code, which fills in the blanks of 
an estate plan for those who die intestate or with a will that does not address 
a contingency that has occurred.

 

[¶17]      
The 
district court's calculations in this case treat the mortgage payments as 
neither capital contributions nor advances, but as something else not 
contemplated by RUPA.  The 
partnership agreement at paragraph ten and RUPA at § 17-21-401(k) are consistent 
in requiring that the partners must unanimously consent to any amendments of the 
partnership agreement.  Advances are 
not addressed in the agreement, so we must turn to RUPA's default provisions in 
that regard.  B & R 
Builders, 915 P.2d  at 1199.  
Nothing in RUPA requires advances to the partnership or payment of 
partnership debts by partners to be memorialized in writing as a loan.  In fact, the act addresses payments and 
advances in several places without requiring a writing or unanimous partner 
approval:

 

·        
§ 
17-21-401(c) requires the partnership to reimburse a partner for payments made 
by the partner in the ordinary and proper conduct of the business of the 
partnership or for the preservation of its business or 
property;

 

·        
§ 
17-21-401(d) requires the partnership to reimburse a partner for a payment or 
advance to the partnership beyond the amount of capital the partner agreed to 
contribute;

 

·        
§ 
17-21-401(e) provides that a partner's cash payment on behalf of the partnership 
automatically constitutes a loan which accrues interest from the date of the 
payment;

 

Read 
in pari materia, these provisions of the act evidence a presumption that 
additional amounts paid by a partner, over and above the capital contributions 
recited in the partnership agreement or agreed to, are presumed to be loans to 
the partnership, with interest payable from the date of the advance.  RUPA is unequivocal on this point.  The drafters' comment to § 401(d) 
states: "Subsection (d) is based on UPA Section 18(c).  It makes explicit that the partnership 
must reimburse a partner for an advance of funds beyond the amount of the 
partner's agreed capital contribution, thereby treating the advance as a 
loan."  Uniform Partnership Act § 
401, cmt. 5, 6 U.L.A. 135 (1997).    

 

[¶18]      
Warnick 
Ranches partnership was formed "for the purpose of managing and operating a 
farming and ranching business" on property that was subject to a mortgage at the 
time the partnership was formed.  It 
was entirely foreseeable that additional cash would be needed to meet the 
mortgage payments, as in fact happened.  
The California Court of Appeals ruled recently that partners have no duty 
to make capital contributions beyond the partnership agreement, even to prevent 
foreclosure of the partnership property.  
Jones v. Wagner, 108 Cal. Rptr. 2d 669, 674 (Cal. App. 4 Dist. 
2001). The silence of the partnership agreement on this point, combined with the 
statutory presumption in favor of advances over capital contributions, leads 
necessarily to the conclusion that a partner's payment of the Warnick Ranch 
mortgage, without the unanimous consent required for additional capital 
contributions, would be an advance and a loan to the 
partnership.

 

[¶19]      
In 
his brief, Randall Warnick argues a policy reason for the opposite position, 
i.e., that treating an advance as a loan would allow a partner to 
unilaterally dilute the other partners' shares.  That argument is one for the 
legislature, which could not have stated more clearly that a partner's capital 
share is measurable only after all partnership's liabilities, including those 
arising from partner advances, are satisfied.

 

[¶20]      
We 
turn then to the consequences of this dispute.  RUPA, with the goal of avoiding 
unnecessary dissolutions of partnerships, contains a significant change from 
prior partnership law.  Again in the 
words of the drafters:

 

RUPA 
dramatically changes the law governing partnership breakups and dissolution. An 
entirely new concept, "dissociation," is used in lieu of the UPA term 
"dissolution" to denote the change in the relationship caused by a partner's 
ceasing to be associated in the carrying on of the business. . . 
.

 

Under 
RUPA, unlike the UPA, the dissociation of a partner does not necessarily cause a 
dissolution and winding up of the business of the partnership.   Section 801 identifies the 
situations in which the dissociation of a partner causes a winding up of the 
business.  Section 701 provides that 
in all other situations there is a buyout of the partner's interest in the 
partnership, rather than a windup of the partnership business.  In those other situations, the 
partnership entity continues, unaffected by the partner's 
dissociation.

 

Uniform 
Partnership Act §601, cmt. 1, 6 U.L.A. 164 (1997).

 

[¶21]      
The 
Warnick Ranch Partnership Agreement is again silent as to dissociation, 
addressing only liquidation.  RUPA 
states that a partner has the power to dissociate at any time by express will, § 
17-21-602(a), and that:

 

(a)  A partner is dissociated from a 
partnership upon:

            
(i)  Receipt by the 
partnership of notice of the partner's express will to withdraw as a partner or 
upon any later date specified in the notice;

            
                        
* * * *

            
(v) On application by the partnership or another partner, the partner's 
expulsion by judicial decree because: 

                                    
* * * *

            
(C)  The partner engaged in 
conduct relating to the partnership business which makes it not reasonably 
practicable to carry on the business in partnership with that partner. 

 

§ 
17-21-601.

 

[¶22]      
The 
District Court, without specifying any of the above reasons, concluded that 
"[d]issociation of Plaintiff from the Partnership is the appropriate remedy at 
this time."   We cannot 
disagree.  The partners held 
discussions in 1983 and again in 1998 regarding the possibility of Randall's 
selling his partnership interest to his parents or to his brother.  The 1998 discussion devolved into a 
heated dispute, and eventually this litigation, between Randall and his parents 
about Randall's percentage of ownership.  
The record even includes allegations of physical disputes between Randall 
and his father, and of Randall Warnick's paying personal expenses out of the 
partnership checking account. Randall conceded in his deposition that 
reconciliation among the partners was not a realistic possibility. 

 

[¶23]      
Under 
these circumstances, the record supports the district court's conclusion that 
there was no genuine issue as to the material fact that a dissociation 
occurred.  Considering the April 
1999 letter from Randall's attorney to the partnership, in the context of 
deposition testimony regarding allegations of physical violence and 
misappropriation of partnership funds, we determine that the date of the letter 
is the date of dissociation.

 

[¶24]      
However, 
the court erred in its calculation of the judgment.  RUPA states that a dissociated partner's 
interest in the partnership shall be purchased by the partnership for a buyout 
price. §§ 17-21-603(a), 701(a), (b).  
The buyout price is equal to the amount that would have been 
distributable to the dissociating partner under § 17-21-808(b) if, on the date 
of the dissociation, the partnership's assets had been sold.  § 17-21-701(b).  However, § 808(a) provides that 
partnership assets must first be applied to discharge partnership liabilities to 
creditors, including partners who are creditors.  As noted above, as each partner advanced 
funds to pay the mortgage or other partnership expenses, that partner became a 
creditor of the partnership for the amount advanced, and is entitled to interest 
on each amount from the date of the advance.  In calculating Randall's buyout price, 
it is therefore necessary to first calculate the amount that the partnership 
owes to each partner for advances to the partnership, with interest accrued from 
the date of each advance at the rate specified in § 
17-21-104(b).

 

[¶25]      
Next, 
there is the matter of two $12,000 draws, or "guaranteed payments," that Wilbur 
Warnick was entitled to in 1998 and 1999, but actually left in the partnership 
account and did not receive.  The 
guaranteed payment arrangement was at Randall's request and agreed among the 
partners in order to provide Randall an income and to avoid the partnership 
showing a taxable profit.  Randall 
received his draw as agreed in 1998 and 1999 but Wilbur did not, even though he 
reported it as personal income and paid taxes on it.  At the time he became entitled to the 
"guaranteed payment," the $12,000 was Wilbur's personal money and his leaving it 
with the partnership was the functional equivalent of another advance to the 
partnership.  § 17-21-401(d); 
see, Hamilton Airport Advertising, Inc. v. Hamilton, 462 N.E.2d. 228, 238 
(Ind. App. 4 Dist. 1984).  Upon 
remand, therefore, in calculating the buyout price for Randall Warnick's share, 
it is necessary to first calculate the amount the partnership owes Wilbur 
Warnick for the two $12,000 draws he left with the partnership, with interest 
from the date he was entitled to the payments.

 

[¶26]      
Finally, 
we agree with the district court's denial of Randall Warnick's other claims for 
relief.  As discussed above, a 
partnership disagreement is controlled by the terms of the partnership 
agreement.  To the extent the 
agreement is silent, RUPA provides the default provisions.  Just as the parol evidence rule operates 
to prevent extrinsic evidence from being used to contradict, subtract from, add 
to, or vary the terms of an unambiguous contract, Collins v. Finnell, 
2001 WY 74, ¶10, 29 P.3d 93, ¶10 (Wyo. 2001), it also operates to prevent 
extrinsic evidence from being used to avoid RUPA's default provisions when the 
agreement is silent or ambiguous.  
Randall Warnick on his cross appeal complains that the court improperly 
fashioned an equitable remedy.  RUPA 
itself preserves equitable considerations, § 17-21-104(a), and we are in any 
event directing that the dissociation buyout remedy is to be calculated in 
accord with statutory standards.  

 

 

CONCLUSION

 

[¶27]      
A 
partnership agreement governs relations among general partners and between 
partners and their partnership.  To 
the extent the agreement is silent or ambiguous, the Revised Uniform Partnership 
Act provisions apply.  Review of the 
entire record leads us to conclude that there is no genuine issue regarding the 
fact that a partner dissociation occurred, and that the Plaintiff is entitled to 
a judgment as a matter of law for the buyout price of his interest.  However, the district court's 
calculation of the dissociated partner's buyout price is reversed and the case 
remanded for a calculation of that price after repayment of partner advances as 
loans, in accord with the statute and this decision.