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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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, .. 

VTL -~' D J.' . - . J.:.., l 

United States Cq~rt ~f Ap~~ 3 

Tenth C1rcuL 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

OCT 2 9 i991 

ROBERT L. HOECKER 

Clerk 

ZIONS FIRST NATIONAL BANK, ) 

N.A., as INDENTURE TRUSTEE FOR ) 

NOTEHOLDERS OF CFS FOX RIVER, ) 

LTD., ) 

) 

Plaintiff-Appellee, ) 

) 

V • ) 

) 

CARL M. FISHER, D.O.; RACHEL ) 

C. FISHER; GEOFFREY O. ) 

HARTZLER; ROBERT W. MILEY; ) 

W. MICHAEL PRYOR; ELVIN L. ) 

SHELTON, ) 

) 

Defendants-Appellants, ) 

) 

and ) 

) 

RICHARD L. KOLP, JAMES A. ) 

MURRAY, ) 

) 

Defendants. ) 

No. 90-4172 

(D.C. No. 89-C-153-W) 

(D. Utah) 

ORDER AND JUDGMENT* 

Before MCKAY, Chief Judge, LOGAN and MOORE, Circuit Judges. 

This is an appeal by certain investors in a bankrupt limited 

partnership from a judgment of the district court which held the 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 90-4172 Document: 010110092948 Date Filed: 10/29/1991 Page: 1 
investors liable for the payment of a note pledged by the 

partnership as security for loans to the partnership. As a group, 

the investors raised several defenses which the district court 

held unavailing. In Zions First Nat'l Bank v. Bailey, No. 

90-4087, (Keegan's Glen), we held the district court did not err 

in rejecting the claims of the Keegan's Glen defendants based on 

alleged security violations, failure of consideration, frustration 

of partnership purpose, and breach of fiduciary duty, among 

others. Because the common defenses claimed by the defendants in 

this case raise the same questions of law presented in Keegan's 

Glen, we affirm the district court's decision relating to these 

defenses in this case. 

However, in addition to the defenses common to all the 

investors, Dr. W. Michael Pryor claimed he was no longer liable on 

the note because he had sold his interest to a third party. To 

allow the case to be joined on appeal with Keegan's Glen, the 

district court granted plaintiff's motion for summary judgment on 

this claim as well. Although the district court recognized Dr. 

Pryer's "novation" defense was not addressed in Keegan's Glen, it 

found Dr. Pryer's arguments without merit. 

In 1984, Dr. Pryor became a limited partner in CFS Fox River, 

Ltd., a Utah limited partnership formed to acquire and operate an 

existing apartment complex located in Marietta, Georgia. Under 

the terms of the CFS Fox River Subscription Agreement and the 

Amended and Restated Limited Partnership Agreement of CFS Fox 

River, Ltd., Dr. Pryor purchased his limited partnership interest 

in Fox River by paying partially in cash and partially in a 

promissory note payable to Fox River. 

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Appellate Case: 90-4172 Document: 010110092948 Date Filed: 10/29/1991 Page: 2 
His promissory note (Investor's Note and Security Agreement) 

obligated him to pay the balance of his capital contribution in 

installments due on February 15, 1985, and February 15, 1986. Dr. 

Pryor made his February 1985 payment, and in 1986 he sold his 

partnership interest to Mr. Dean Price, a CFS sales 

representative. By the terms of the sale, Dr. Pryor conveyed to 

Mr. Price all his "right, title and interest." 

Meanwhile, Fox River borrowed money from twenty-two investors 

(Noteholders) in exchange for which Fox River executed indenture 

notes secured, in part, by Dr. Pryer's Investor's Note. Fox River 

and appellee, Zions First National Bank, then executed an 

indenture agreement by which Zions agreed to serve as indenture 

trustee for the Noteholders. 

Subsequent to the sale of Dr. Pryer's interest to Mr. Price, 

Fox River defaulted on its payments to its Noteholders, and the 

apartment complex was lost through foreclosure. Zions, in its 

representative capacity as Indenture Trustee for the Noteholders, 

commenced efforts to collect the limited partners' unpaid capital 

contributions due under their Investor's Notes which had been 

pledged to the Noteholders as collateral. 

Believing his obligation to pay the 1986 installment was 

terminated by the sale to Mr. Price, Dr. Pryor declined to pay. 

The district court held on cross-motions for summary judgment that 

Dr. Pryor was liable for the 1986 installment. 

Both the Investor's Note and the investor-partnership 

Security Agreement which Dr. Pryor signed are silent regarding 

transferability. The Subscription Agreement mandates that any 

transfer of partnership units can be made only in accordance with 

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Appellate Case: 90-4172 Document: 010110092948 Date Filed: 10/29/1991 Page: 3 
the Partnership Agreement. 1 The Partnership Agreement contains 

elaborate requirements for both the transfer of partnership 

interests2 as well as for substitution of a limited partner. 3 

1The exact language is as follows: 

7. Transferability. The undersigned agrees not to 

transfer or assign this Agreement, or any of his 

interest herein, and further agrees that the assignment 

and transferability of the Units acquired pursuant 

hereto shall be made only in accordance with the 

Partnership Agreement. 

2The Partnership Agreement provides as follows: 

13. Transfer of Limited Partnership Interests. 

(a) Reauirements for Transfer Subject to any 

restrictions on transferability required by law or 

contained in this Agreement, each Limited partner shall 

have the right to transfer (but not to substitute the 

assignee as a substitute Partner in his place, except in 

accordance with Paragraph 13(c) hereof), by a written 

instrument, to a person approved by the Corporate 

General Partner, the whole or any part of his Limited 

Partnership Interest, provided that (i) the transferee 

is a citizen and resident of the United States, (ii) 

the transferor delivers to the Corporate General Partner 

an unqualified opinion of counsel in form and substance 

satisfactory to counsel designated by the Corporate 

General Partner that neither the transfer nor any 

offering in connection therewith (a) violates any 

provision of any Federal or state securities law. 

(iii) the transferee executes a statement that he is 

acquiring such Limited Partnership Interest ... for 

his own account for investment and not with a view to 

distribution, fractionalization, or resale thereof, (iv) 

the transferee delivers to the Corporate General Partner 

an instrument in form and substance satisfactory to the 

Corporate General Partner in which the transferee sets 

forth his direct and indirect ... ownership of stock 

of the Corporate General Partner or any corporate 

affiliate. (vi) the Corporate General Partner 

consents to such transfer, ... 

R. II, pl. 93, II-27-II-28. Fox River's offering circular, the 

Private Placement Memorandum (PPM), also contains a summary of 

these conditions. 

3The Partnership Agreement provides as follows: 

(Continued to next page.) 

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Appellate Case: 90-4172 Document: 010110092948 Date Filed: 10/29/1991 Page: 4 
Under the terms of the Partnership Agreement, for Dr. Pryor 

to substitute Mr. Price as a limited partner, Dr. Pryor would have 

had to comply with the five conditions specified in section 13(c) 

of the Partnership Agreement. Dr. Pryor presented no evidence 

whatsoever that he had made any attempt to comply with those 

requirements. The only evidence offered on behalf of Dr. Pryor 

(Continued from prior page.) 

13. Transfer of Limited Partnership Interests. 

(c) Requirements for Substitution - No transferee of 

the whole or a portion of a Limited Partner's Limited 

Partnership Interest shall have the right to become a 

substituted Partner in place of his assignor unless and 

until all of the following conditions are satisfied: 

(i) A duly executed and acknowledged written 

instrument of transfer approved by the Corporate General 

Partner has been filed with the Partnership setting 

forth the intention of the transferor that the 

transferee become a substituted Partner in his place. 

(ii) The transferor and transferee execute 

and acknowledge such other instruments as the Corporate 

General Partner may reasonably deem necessary or 

desirable to effect such substitution, including the 

written acceptance and adoption by the transferee of the 

provisions of this Agreement, and the execution, 

acknowledgment and delivery by the transferee of a power 

of attorney containing the powers provided for in 

Paragraph 10 of the Subscription Agreement, the form of 

which is an exhibit to the Memorandum, which, interalia, 

shall provide for the assumption of all the obligations 

under the Notes of the transferor which shall become due 

and payable after the date of such transfer. 

(iii) The written consent of the Corporate 

General Partner to such substitution .. 

(iv) A reasonable transfer fee has been paid 

to the Partnership .... 

(v) An appropriate amendment of the 

Certificate has been duly filed and recorded •. 

R. II, pl. 93, at II-28-II-29. Fox River's offering circular, the 

Private Placement Memorandum (PPM), also contained a summary of 

these requirements. 

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Appellate Case: 90-4172 Document: 010110092948 Date Filed: 10/29/1991 Page: 5 
was that subsequent lists and minutes of partnership meetings 

contained Mr. Price's name instead of Dr. Pryer's. This evidence 

is at best ambiguous because of Dr. Pryer's failure to prove 

compliance with section 13(c). Moreover, it proves no more than 

Fox River's recognition that Dr. Pryor had transferred his 

partnership interest. It is not, as Dr. Pryor would have us 

conclude, evidence that Fox River recognized Mr. Price as a 

substituted Partner. This is a fatal deficiency in proof. Having 

failed to establish his satisfaction of the contractual conditions 

for an effective substitution of his partnership interests and 

responsibilities, Dr. Pryor remains obligated by the terms of the 

agreements and note he executed. 

AFFIRMED. 

Entered for the Court 

John P. Moore 

Circuit Judge 

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