Case Title: Waikoloa Ltd. Partnership v. Arkwright

Citation: 

Docket Number: 031909

State: virginia

Court: Virginia Supreme Court

Date: 2004-06-10T00:00:00Z

Document:
PRESENT:  All the Justices 
 
WAIKOLOA LIMITED PARTNERSHIP 
 
v.  Record No. 031909   OPINION BY JUSTICE BARBARA MILANO KEENAN 
 
 
                          June 10, 2004 
GEORGE A. ARKWRIGHT, ET AL. 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Gaylord L. Finch, Jr., Judge 
 
 
In this appeal involving the dissolution of two limited 
partnerships, we consider whether the chancellor erred in 
requiring one limited partner to purchase the partnership 
interests of certain other limited partners. 
 
The following facts are relevant to this appeal.  In 
December 1969, four Virginia limited partnerships, Eiwa Waikoloa 
Investment Syndicate (Eiwa), Ehiku Waikoloa Investment Syndicate 
(Ehiku), Ewalu Waikoloa Investment Syndicate (Ewalu), and Eono 
Waikoloa Investment Syndicate (Eono), purchased about 891 acres 
of undeveloped land in Waikoloa, Hawaii.  Each of the four 
partnerships owned an undivided percentage interest in the whole 
of the property.  Eiwa owned a 10 percent interest in the 
property, and Ehiku owned a 25 percent interest.  Ewalu and Eono 
owned respective interests of 15 percent and 50 percent. 
 
Joseph D. and Jane A. Coker, husband and wife, served as 
general partners for each of the four partnerships.  Joseph was 
the “managing general partner” responsible for conducting 
partnership operations and was the “real estate expert” on whose 
 
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expertise the limited partners relied.  Jane was primarily 
responsible for maintaining the business records for each of the 
partnerships. 
George A. Arkwright, Robert Faust, and Chalmers A. 
Loughridge, Trustee of the Ruth Loughridge Trust (collectively, 
the minority partners), are limited partners in the Eiwa and 
Ehiku partnerships.  Arkwright and Faust each own a 5 percent 
interest in the Eiwa partnership.  Loughridge owns a 12 percent 
interest in the Ehiku partnership. 
This appeal concerns the partnership agreements of Eiwa and 
Ehiku, each of which provided for automatic dissolution of the 
partnership on the “retirement, adjudication of insanity or 
bankruptcy, or death of a general partner.”  Paragraph 19 of 
each agreement further provided, in relevant part: 
Upon dissolution of the partnership, the general 
partners, or if the dissolution be caused by 
retirement, insanity, bankruptcy, or death of one 
general partner, then the remaining or surviving 
general partners, shall proceed with dispatch to sell 
or liquidate the assets of the partnership and, after 
paying all liabilities to creditors of the 
partnership, distribute the net proceeds among the 
partners in proportion to their interests. . . .  In 
the event partners assuming a majority of at least 
sixty (60%) per cent of the total partnership 
interests shall determine that they wish to purchase 
the assets of the dissolved partnership, such majority 
partners shall have the absolute option and right to 
purchase the interests of the minority partners in 
such assets. . . .  Within sixty (60) days after all 
. . . written [appraisals] have been rendered, the 
majority partners shall notify the minority partners 
in writing of their decision whether to exercise the 
 
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option. . . .  Settlement shall be completed within 
thirty (30) days after notice of the exercise of the 
option. 
 
 
In November 1987, Joseph Coker required emergency surgery 
to remove a blood clot from his brain.  Before this operation, 
Joseph executed a general power of attorney appointing Jane as 
his “agent and attorney-in-fact.”  Joseph never fully recovered 
from the surgery and, as a result, he could no longer manage the 
partnerships’ business affairs. 
 
In February 1988, Jane, individually and as Joseph’s 
attorney-in-fact, entered into a memorandum agreement with Myron 
D. Bruns.  The memorandum agreement stated that Bruns would be 
“responsible for [the] complete management” of each of the four 
partnerships, and further provided for transfer of management 
duties back to Joseph should he, “by judgement of professionals, 
be able to resume management of the investments.” 
 
Thereafter, Jane notified all the limited partners in the 
four partnerships that Joseph was “no longer able to continue 
the management of the investments.”  She informed the partners 
that Bruns had assumed these management responsibilities, and 
that she and Joseph would “remain as general partners/directors” 
and “retain all the responsibilities” outlined in the 
partnership agreements. 
 
In October 1991, Bruns obtained a real estate appraisal 
(the 1991 appraisal) that fixed the market value of the property 
 
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at $8,700,000.  In 1994, Bruns formed Waikoloa Limited 
Partnership (Waikoloa), a Virginia limited partnership, for the 
purpose of restructuring the interests of the limited partners 
in the four original partnerships.  Jane sent a letter to all 
the limited partners informing them that Waikoloa had been 
created, among other reasons, to “combine the four syndicates 
into one new partnership” and to “clarify and protect the 
interest of all [p]artners should dissolution be triggered by 
[Joseph’s] condition.” 
Under the Waikoloa partnership agreement, Waikoloa 
Properties, Inc., was named as the corporate general partner of 
the new partnership.  The limited partners of Eiwa, Ehiku, 
Ewalu, and Eono were informed that they could become limited 
partners in Waikoloa by assigning their interests in the four 
original partnerships to Waikoloa. 
Ultimately, all the limited partners of the four original 
partnerships, except for the minority partners, assigned their 
partnership interests to Waikoloa.  By these assignments, 
Waikoloa acquired 100 percent of the partnership interests in 
Ewalu and Eono, and became the majority limited partner in Eiwa 
and Ehiku, acquiring respective interests of 90 percent and 88 
percent in those partnerships. 
After Jane Coker died in April 1998, Waikoloa sought to 
exercise the “buyout provision” detailed in Paragraph 19 of both 
 
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the Eiwa and Ehiku partnership agreements.  In April 1999, 
Waikoloa obtained an appraisal (the 1999 appraisal) that placed 
the “gross undiscounted market value” of the property at 
$3,655,000.  Waikoloa sought to purchase the minority partners’ 
interests based on the 1999 appraisal.  The minority partners 
declined Waikoloa’s request. 
Waikoloa filed an amended bill of complaint against the 
minority partners in the circuit court asking the chancellor, 
among other things, to affirm Waikoloa’s “right to purchase, 
subject to its exercise of the Purchase Option, the minority 
interests” of the minority partners, and to require the minority 
partners to “promptly sell” their interests to Waikoloa.1  In 
response, the minority partners filed a cross-bill in which they 
asked the chancellor to declare that the four original 
partnerships were dissolved upon Joseph Coker’s “de facto 
retirement” in 1988, and that Waikoloa must pay the minority 
partners for their respective interests in an amount based on 
the value of the property at that time. 
 
The chancellor referred the case to a commissioner in 
chancery, directing the commissioner to receive evidence and to 
report his findings to the court.  After conducting an 
                     
 
1 The original complainants in the amended bill of complaint 
included Waikoloa, Eiwa, Ehiku, Waikoloa Properties, Inc., and 
the liquidating trustee, Coker Properties, LC.  However, 
Waikoloa is the only complainant before this Court on appeal. 
 
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evidentiary hearing, the commissioner submitted a report in 
which he found in favor of the minority partners. 
In his report, the commissioner stated that “there [was] no 
question” that Joseph Coker effectively retired as a general 
partner of Eiwa and Ehiku in February 1988.  The commissioner 
found that under the terms of Paragraph 19 of the partnership 
agreements, all four original partnerships were dissolved at 
that time.  The commissioner further found, in relevant part: 
[I]n accordance with [P]aragraph 19 . . . it was the 
duty of Jane A. Coker as the remaining general partner 
to proceed with dispatch to sell or liquidate the 
assets of the partnership and, after paying all 
liabilities to creditors of the partnership, 
distribute the net proceeds among the partners in 
proportion to their interests. 
 
 
Based on the 1991 appraisal, the commissioner valued the 
property at $8,700,000.  After making discounts from that amount 
for the “bulk sale” of the property and the real estate 
commissions that would be incurred, the commissioner found that 
Loughridge should be paid $208,800 for his partnership interest, 
and that Arkwright and Faust each should receive $34,800 for 
their partnership interests.  The commissioner also concluded 
that the minority partners should be paid interest on their 
judgment amounts from December 1992 “at the judgment rate until 
paid.”  However, the commissioner did not specify who should be 
responsible for paying these amounts to the minority partners. 
 
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Waikoloa filed various exceptions to the commissioner’s 
report.  Waikoloa asserted that if the commissioner’s finding 
that Joseph Coker effectively retired in February 1988 was 
correct, then “the only ruling that can be supported by the 
evidence is that . . . all of the assets of all [four] 
partnerships should be promptly sold . . . and all . . . of the 
limited partners should share on a pro-rata basis in the net 
proceeds of the sale.”  Waikoloa also contended that a monetary 
judgment could not be imposed against it because the 
commissioner did not find that Waikoloa had engaged in any 
“wrongdoing.” 
 
The chancellor overruled Waikoloa’s exceptions and adopted 
the commissioner’s findings “in their entirety.”  The chancellor 
additionally held that Waikoloa “must perform its duties under 
the partnership agreement[s]” and “pay the [minority partners] 
for their interests in the original partnerships in the amounts 
[set] by the [c]ommissioner.” 
 
Waikoloa filed a motion for reconsideration on the ground 
that the chancellor’s ruling imposed on Waikoloa “the duties, 
obligations and liabilities of a general partner.”  The 
chancellor denied Waikoloa’s motion.  Waikoloa appeals. 
 
Waikoloa argues that the chancellor’s holding contradicts 
both the plain language of the partnership agreements and the 
commissioner’s finding that “it was the duty of Jane A. Coker as 
 
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the remaining general partner to proceed with dispatch to sell 
or liquidate” the partnerships’ assets.  Waikoloa asserts that 
because the majority partners did not exercise their buyout 
option in 1988, the general partner was required to sell and 
distribute the partnerships’ assets.  Waikoloa also contends 
that Jane Coker’s failure to liquidate and sell the 
partnerships’ assets cannot transform Waikoloa’s desire to 
acquire the minority partners’ interests under the 1999 
appraisal into an obligation to purchase those interests. 
 
In response, the minority partners contend that because 
Waikoloa asked the chancellor to require the minority partners 
to sell their interests to Waikoloa, this appeal merely reflects 
Waikoloa’s dissatisfaction with the buyout price fixed by the 
chancellor.  The minority partners also argue that the 
chancellor did not impose liability on Waikoloa for Jane Coker’s 
breach of duty but properly used the 1991 appraisal to fix the 
buyout prices based on the uncontested finding that the 
partnerships dissolved in 1988.  We disagree with the minority 
partners’ arguments. 
 
We begin our analysis by examining the language of the 
partnership agreements, which establishes the parties’ 
contractual rights.  When the terms of the parties’ contracts 
are unambiguous, the interpretation of those terms presents a 
question of law.  Musselman v. The Glass Works, L.L.C., 260 Va. 
 
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342, 346, 533 S.E.2d 919, 921 (2000); Pollard & Bagby, Inc. v. 
Pierce Arrow, L.L.C., III, 258 Va. 524, 528, 521 S.E.2d 761, 763 
(1999); Gordonsville Energy, L.P. v. Virginia Elec. & Power Co., 
257 Va. 344, 352-53, 512 S.E.2d 811, 816 (1999). 
We conclude that the language of Paragraph 19 is plain and 
unambiguous.  Therefore, we will construe the contractual terms 
in accordance with their plain meaning.  See Standard Banner 
Coal Corp. v. Rapoca Energy Co., LP, 265 Va. 320, 325, 576 
S.E.2d 435, 437 (2003); Shepherd v. Davis, 265 Va. 108, 118, 574 
S.E.2d 514, 520 (2003); Pocahontas Mining Ltd. Liab. Co. v. 
Jewell Ridge Coal Corp., 263 Va. 169, 173, 556 S.E.2d 769, 771 
(2002).  Because our interpretation of the contracts presents a 
question of law, we are not bound by the chancellor’s 
construction of the contractual terms but we independently 
consider the language contained within the four corners of the 
parties’ agreements.  Standard Banner Coal Corp., 265 Va. at 
324-25, 576 S.E.2d at 437; Eure v. Norfolk Shipbuilding & 
Drydock Corp., 263 Va. 624, 631, 561 S.E.2d 663, 667 (2002); TM 
Delmarva Power, L.L.C. v. NCP of Va., L.L.C., 263 Va. 116, 119, 
557 S.E.2d 199, 200 (2002); Wilson v. Holyfield, 227 Va. 184, 
187-88, 313 S.E.2d 396, 398 (1984). 
A chancellor’s function is to construe the contracts made 
by the parties, not to make new contracts for them.  Standard 
Banner Coal Corp., 265 Va. at 325, 576 S.E.2d at 437; Cave Hill 
 
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Corp. v. Hiers, 264 Va. 640, 646, 570 S.E.2d 790, 793 (2002); 
Wilson, 227 Va. at 187, 313 S.E.2d at 398.  In the present case, 
however, the chancellor deviated from these basic principles and 
imposed a result that effectively created new partnership 
agreements for the parties. 
The plain language of Paragraph 19 provides that on 
dissolution, the general partner “shall proceed with dispatch to 
sell or liquidate the assets of the partnership.”  Thus, when 
the partnerships dissolved in 1988 upon Joseph Coker’s effective 
retirement, Jane Coker, as the remaining general partner, became 
obligated to sell or liquidate the assets of the partnerships. 
Jane’s failure to take this action did not provide a basis 
for the chancellor’s imposition of a duty on Waikoloa to 
purchase the minority partners’ interests in accordance with the 
1991 appraisal of the property.  Waikoloa was not a party to the 
original partnership agreements and was not even in existence at 
the time the dissolutions occurred in 1988.  Since its creation 
in 1994, Waikoloa was merely a limited partner in Eiwa and 
Ehiku. 
In addition, Waikoloa never assumed the duties of a general 
partner for any of the dissolved partnerships.  Waikoloa’s 
members simply transferred to Waikoloa their interests as 
limited partners in those original partnerships.  Thus, Waikoloa 
was a successor in interest to certain limited partners of Eiwa 
 
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and Ehiku, but was not a successor in interest to the 
partnerships themselves or to the partnerships’ general 
partners. 
Because Waikoloa did not assume or acquire the duties of a 
general partner of the dissolved Eiwa and Ehiku partnerships, 
Waikoloa had no obligation or authority to act under the terms 
of Paragraph 19 of those partnership agreements.  Thus, we 
conclude that the chancellor erred in holding that Waikoloa had 
“duties under the partnership agreement[s]” to “pay the 
[minority partners] for their interests in the original 
partnerships.” 
Our conclusion is not altered by the minority partners’ 
argument that Waikoloa imposed a duty of purchase on itself by 
pleading that it was willing and able to purchase the minority 
partners’ interests at a purchase price based on the 1999 
appraisal.  Waikoloa’s willingness to purchase the minority 
partners’ interests at the lower prices supported by the 1999 
appraisal did not create a legal obligation to act under 
Paragraph 19 of the Eiwa and Ehiku partnership agreements. 
We likewise disagree with the minority partners’ contention 
that the chancellor acted properly because he merely ordered the 
accomplishment of that which “Jane Coker should have done,” 
thereby ensuring that the minority partners would receive the 
sums to which they would have been entitled under the 1991 
 
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appraisal.  A chancellor must have a cognizable basis for 
granting equitable relief and is not authorized to take a 
particular course of action simply because he thinks that such 
action is just and appropriate.  See Tiller v. Owen, 243 Va. 
176, 179, 413 S.E.2d 51, 53 (1992).  Here, the chancellor had no 
cognizable basis under the partnership agreements, partnership 
law, or otherwise, for imposing a duty of purchase on Waikoloa.  
Thus, it was error for him to require that Waikoloa pay the 
amounts fixed by the commissioner under the 1991 appraisal as 
compensation for the minority partners’ interests. 
For these reasons, we will affirm that portion of the 
chancellor’s judgment holding that dissolution of the original 
four partnerships occurred in 1988, and that it was Jane Coker’s 
duty, as the remaining general partner, to sell or liquidate the 
assets of the partnerships.  We will reverse the remainder of 
the chancellor’s judgment, and enter final judgment in favor of 
Waikoloa.2 
Affirmed in part, 
reversed in part, 
  and final judgment. 
                     
 
2 Because neither party in its brief in this appeal 
requested that we remand the case to the chancellor to conduct 
dissolution proceedings, we do not consider such relief.