Case Title: Golden Tee, Inc. v. Venture Golf Schools, Inc. and Cooper Communities, Inc.

Citation: 

Docket Number: 

State: arkansas

Court: Arkansas Supreme Court

Date: 1998-05-14T00:00:00Z

Document:
GOLDEN TEE, INC. v. VENTURE GOLF SCHOOLS,
INC., and Cooper Communities, Inc.

97-878                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered May 14, 1998


1.   Judgment -- summary judgment -- standard of review. -- The remedy of summary
     judgment should only be granted if there exists no genuine
     issue of material fact and the party moving for summary
     judgment is entitled to judgment as a matter of law; the issue
     is viewed in the light most favorable to the party opposing
     the judgment, and the court resolves all inferences and doubts
     against the moving party; if the party moving for summary
     judgment makes a prima facie showing that no issues of fact
     exist, and the nonmoving party fails to show that such issues
     do exist, then the court must affirm the trial court's grant
     of a summary judgment.

2.   Judgment -- summary judgment -- response and supporting material must show genuine
     issue of fact. -- With respect to a summary-judgment motion, the
     response and supporting material must set forth specific facts
     showing that there is a genuine issue of fact for trial; the
     trial court may only consider "pleadings, depositions, answers
     to interrogatories and admissions on file, together with the
     affidavits, if any" for purposes of summary judgment.  [Ark.
     R. Civ. P. 56(c).]

3.   Partnership -- derivative or individual action by limited partner -- criteria. -- A
     derivative suit may be instituted by a limited partner in
     certain circumstances; for a plaintiff to bring an individual
     action, he must be injured directly or independently of the
     corporation; when the individual limited partner alleges
     wrongs to the partnership that indirectly damage him by
     rendering his contribution or interest in the limited
     partnership valueless, the limited partner is required to
     bring his claim derivatively on behalf of the partnership.


4.   Corporations -- derivative and individual actions -- distinction. -- In the
     corporate context, the real distinction between a derivative
     and an individual action is whether it is the corporation that
     has been injured by the action complained of or whether it is
     only the individual shareholder who has suffered harm; the
     primary purpose of the derivative action is to allow one or
     more shareholders to bring a suit on behalf of the
     corporation; if the alleged wrong is one primarily against the
     corporation, the action should be brought in a derivative
     capacity.

5.   Corporations -- direct action by shareholder -- when appropriate. -- Individual
     stockholders have no standing to sue in their individual
     capacities for injuries allegedly suffered primarily by the
     corporation and its shareholders; direct suits are appropriate
     only where a shareholder asserts a direct injury to the
     shareholder distinct and separate from harm caused to the
     corporation.

6.   Partnership -- action for breach of partnership agreement -- may be brought as
     individual or partnership action. -- Actions for breach of a partnership
     agreement may be brought as individual actions or partnership
     actions, depending on which entity or party is primarily
     injured; if the injuries alleged were those for which relief
     should have been granted to the partnership and not to an
     individual partner, then derivative action should be the
     appropriate route for relief.

7.   Partnership -- action for breach of partnership agreement -- limited partner should
     have asserted claims in derivative suit -- summary judgment affirmed. -- The
     supreme court concluded that the allegations for breach of the
     partnership agreement complained directly of injuries to the
     partnership, while appellant limited partner was injured only
     to the extent of its proportionate interest therein; the court
     affirmed the trial court's grant of summary judgment on this
     point because appellant should have asserted its claims in a
     derivative suit.

8.   Partnership -- fiduciary obligation of partners. -- A general partner owes a
     fiduciary duty to the limited partners; an individual or a
     derivative claim may be required, depending on whether the
     duty is deemed owed to the partners as individuals or to the
     partnership.

9.   Partnership -- statutory fiduciary duty. -- The Arkansas Revised Limited
     Partnership Act provides that a general partner of a limited
     partnership has the rights and powers and is subject to the
     restrictions of a partner in a partnership without limited
     partners [Ark. Code Ann.  4-43-403(a)]; the Arkansas Uniform
     Partnership Act provides that every partner must account to
     the partnership for any benefit and hold as trustee for it any
     profits derived by him 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
     him of its property; a breach of this fiduciary obligation
     entitles the injured partner to an accounting [Ark. Code Ann.
      4-42-405 (Repl. 1996)].

10.  Partnership -- fiduciary duty owed by general partners to partnership -- derivative
     action required. -- The supreme court determined that the general
     partners clearly owed a fiduciary duty to the partnership;
     where, however, the injuries that appellant limited partner
     alleged were injuries to the partnership, a derivative action
     for damages to the partnership was required.

11.  Fraud -- elements of. -- The tort of fraud consists of five elements
     that the plaintiff must prove by a preponderance of the
     evidence: (1) a false representation of a material fact; (2)
     knowledge that the representation is false or that there is
     insufficient evidence upon which to make the representation;
     (3) intent to induce action or inaction in reliance upon the
     representation; (4) justifiable reliance on the
     representation; and (5) damage suffered as a result of the
     reliance.

12.  Fraud -- failure to prove essential element -- summary judgment appropriate. --
     Further, if a respondent to a motion for summary judgment
     cannot present proof on an essential element of the claim, the
     movant is entitled to summary judgment as a matter of law.

13.  Partnership -- action for fraud may be brought as individual or derivative suit. --
     Fraud is a cause of action that may be brought individually or
     as a derivative suit, depending on the allegations; if the
     plaintiff alleges fraud in the inducement to enter into the
     partnership agreement, the claim is generally individual in
     nature; if, however, the plaintiff alleges fraudulent actions
     that primarily harm the partnership, then the action must be
     plead as a derivative suit.

14.  Fraud -- future events or conduct may not form basis of claim -- Projections of
     future events or a promise of future conduct may not form the
     basis of a fraud claim; a misrepresentation sufficient to form
     the basis of a deceit action may be made by one prospective
     party to another and must relate to a past event or a present
     circumstance, but not a future event; an assertion limited to
     a future event may be a promise that imposes liability for
     breach of contract or a mere prediction that does not, but it
     is not a misrepresentation of that event.

15.  Words & phrases -- "pro forma statement" defined. -- A pro forma statement
     is a financial statement showing the forecast, or projected,
     operating results or impact of a particular transaction.

16.  Fraud -- appellant did not meet burden of proving misrepresentations -- trial court
     did not err in granting summary judgment. -- Where the pro formas at issue
     were projections of future operating expenses, which could not
     sustain a fraud charge; appellant limited partner did not meet
     its burden of proving that appellees made any
     misrepresentations that would give rise to a cause of action
     for fraud; the supreme court could not say that the trial
     court erred in granting summary judgment on the claim. 

17.  Fraud -- appellant's allegations concerning charging of future lease payments against
     partnership should have been pursued in derivative suit. -- Where the claimed
     injury, which entailed appellant's allegations concerning
     appellees fraudulently charging future lease payments against
     the partnership, was primarily against the partnership rather
     than against the individual limited partners, the limited
     partner should have pursued the cause of action in a
     derivative suit.

18.  Partnership -- when limited partner may bring action in right of limited partnership. -
     - A limited partner may bring an action in the right of a
     limited partnership to recover a judgment in its favor if
     general partners with authority to do so have refused to bring
     the action or if an effort to cause those general partners to
     bring the action is not likely to succeed.  [Ark. Code Ann. 
     4-43-1001 (Repl. 1996).]

19.  Partnership -- derivative actions -- policy considerations. -- The procedural
     requirements for derivative suits differ from those required
     in individual or class actions; the interests of the
     individual limited partners may not be the same as the
     interests of the partnership entity; if less than all limited
     partners were allowed to sue to enforce rights belonging to
     the partnership, the general partners would be exposed to
     future liability for the same claims; the monetary damages in
     a derivative suit belong to the partnership to be distributed
     to the limited partners, instead of belonging to those
     individual partners who bring the suit.


     Appeal from Garland Circuit Court; Walter G. Wright, Judge;
affirmed.
     Timothy O. Dudley; Arnold, Grobmyer & Haley, by: Lee
Thalheimer; and Gary Lax, for appellant.
     Rose Law Firm, by: David C. Williams and Grant E. Fortson, for
appellees.

     Ray Thornton, Justice.
     Appellant Golden Tee, Inc. (Golden Tee), a limited partner in
Hot Springs Village Golf School Limited Partnership (Golf
Partnership), filed this action for fraud, breach of contract, and
breach of fiduciary duty against another limited partner, Cooper
Communities, Inc. (Cooper), and against the general partner,
Venture Golf Schools, Inc. (Venture).  The action was filed as an
individual action directed against appellees Venture and Cooper,
and was not brought as a derivative action asserting rights on
behalf of the Golf Partnership for recovery of alleged damages to
the Golf Partnership.  The trial court found that Golden Tee could
not present proof to show a genuine dispute of material fact
required to support essential elements of its claims for fraud, and
that Golden Tee lacked standing to bring an action for injuries to
the Golf Partnership except as a derivative action, and granted
appellees' motion for summary judgment.  Golden Tee appeals,
asserting that the trial court erred because issues of material
fact remained.  We find no error and affirm.
     Mr. Roger C. Kluska, who later became President of Golden Tee,
was a golf professional who began a dialogue with Mr. Randy
Brucker, his next-door neighbor, in early 1992 about the
development of a golf school in Hot Springs Village.  Mr. Kluska
submitted a design for a three-hole golf school, driving range,
putting green, clubhouse, and other facilities to Mr. Brucker, who
later became President of Venture.  Mr. Brucker was a
representative of Cooper, and in May, Mr. Kluska was invited to
Bella Vista to show his plans for a golf school to the corporate
management of Cooper.  In late September, Cooper expressed an
interest in the project and indicated that if Mr. Kluska would come
up with $200,000, for a 25% share in the project, Cooper would put
up $800,000 for a 75% share.  Mr. Kluska persuaded three other golf
professionals to join with him, and in November, informed Cooper
that they were ready to go forward with the project.  The four golf
professionals formed Golden Tee.  Venture was also incorporated,
and Cooper joined in the formation of the limited Golf Partnership
on November 19.  In addition to the general partner, Venture, and
Golden Tee and Cooper as limited partners, the agreement forming
the limited Golf Partnership was signed by the four golf
professionals who owned all the shares of stock in Golden Tee.
     The Golf Partnership was formed pursuant to the Arkansas
Revised Limited Partnership Act of 1991, Ark. Code Ann.   4-43-
101 to -1206, and specifically provided that all the parties to the
agreement consented and agreed to employment agreements between the
general partner, Venture, and the four golf professionals; as well
as to the leasing and use of Cooper's property for the Golf
Partnership's business.  It was further provided that upon the
termination and dissolution of the Golf Partnership, properties
leased from Cooper and all leasehold improvements should revert to
Cooper.  All parties agreed that in the event there should be a
negative cash flow produced from operations of Golf Partnership
exceeding a cumulative loss of $200,000, Venture had authority to
terminate and dissolve the Golf Partnership.  The golf school
opened for business in the summer of 1993.
     Cooper had planned for the contingency that the project might
fail by developing an exit strategy involving the donation of the
improvements to the Hot Springs Village Property Owners'
Association (POA), and it did not disclose this plan to Golden Tee. 
Cooper had also prepared some pro forma projections of operations
over a ten-year period, with estimates of a monthly management fee
of $400 and the depreciation of improvements at $10,000 per year. 
Mr. Kluska had seen these pro forma projections at about the time
the Golf Partnership was formed.
     By October of 1994, the Golf Partnership had sustained a
negative cash flow of more than $500,000, and even if the
management fees that were charged by Cooper and objected to by
Golden Tee are entirely eliminated as an expense, the negative cash
flow was $438,582.  Mr. Kluska stated that he knew that the Golf
Partnership had experienced a negative cash flow in excess of
$200,000.  Based upon the provisions of the agreement, Venture
terminated and dissolved the partnership, and the school closed in
November 1994.  The real estate and improvements reverted to
Cooper, who donated the property, together with other property to
the POA for development as a golf course. 
     After the school closed, Cooper charged the Golf Partnership
the present value of future lease payments left on the lease
agreement with the Golf Partnership.  The total amount due was
$376,000, with $94,000 of the liability charged to Golden Tee. 
This reduced the amount left in Golden Tee's capital account to
$587.
     Our standard for reviewing a grant of summary judgment is well
settled.  The remedy of summary judgment should only be granted if
there exists no genuine issue of material fact and the party moving
for summary judgment is entitled to judgment as a matter of law. 
Ark. R. Civ. P. 56; Smothers v. Clouette, 326 Ark. 1017, 1020, 934 S.W.2d 923, 925 (1996).  We view the issue in the light most
favorable to the party opposing the judgment, and the court
resolves all inferences and doubts against the moving party.  Id. 
If the party moving for summary judgment makes a prima facie
showing that no issues of fact exist, and the non-moving party
fails to show that such issues do exist, then the court must affirm
the trial court's grant of a summary judgment.  Pyle v. Robertson,
313 Ark. 692, 694,