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Parties Involved:
Susanna Johnson
Appellant
Joseph Yelencsics
Appellee

Document Text:

,.. ' 

FI LED 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

United States C.ourc of Appeals 

Tenth Cirroit 

JUN 2 8 1990 

SUSANNA JOHNSON, ) 

) 

Plaintiff-Appellant, ) 

) 

V • ) 

) 

JOSEPH YELENCSICS, the unnamed ) 

legal representative for the ) 

Estate of Joseph Yelencsics, ) 

now deceased, ) 

) 

Defendant-Appellee. ) 

ROBERT L. HOECKER 

Clerk 

No. 89-5096 

(D.C. No. 87-572-B) 

(N. Dist. of Oklahoma) 

ORDER AND JUDGMENT* 

Before McKAY, ANDERSON, and BROWN,** Circuit Judges. 

This action for an accounting of partnership interests 

between Susanna Johnson ("Johnson 11 )

1 and Joseph Yelencsics 

("Yelencsics'1 ) 2 was removed to the district court by the defendant 

* 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. 

** Honorable Wesley E. Brown, United States District Judge for the 

District of Kansas, sitting by designation. 

1 The facts surrounding the partnership involve both Susanna 

Johnson and her husband, James E. Johnson. Because Susanna 

Johnson was at all times the owner of the partnership interest 

involved, "Johnson" as used herein refers to her, and not to her 

husband. 

2 Joseph Yelencsics died shortly after this action was commenced 

in state court. Yelencsics' son, the executor of Yelencsics' 

estate, was substituted as the defendant. "Yelencsics" as used 

herein refers to the deceased or his estate. 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 1 
Yelencsics from the District Court for Delaware County, Oklahoma. 

Johnson appeals the district court's findings of fact and 

conclusions of law as they pertain to her claims arising out of 

three partnership transactions. We affirm the court's 

determination that one of these transactions was complete and that 

no partnership liability exists in relation thereto. However, as 

discussed below, the district court failed to consider fully 

Johnson's claims pertaining to the two other partnership 

transactions, and we therefore reverse and remand for further 

proceedings. 

Background 

For a period of time prior to the early 1970's Johnson's 

husband, James E. Johnson, operated a cattle ranching business in 

Florida known as the Rip Van Winkle Farms. For a variety of 

reasons, including health concerns and collection efforts stemming 

from a judgment against him, James Johnson transferred all his 

assets to his wife and children. As part of this divestiture, 

James transferred his interest in the Florida operation to his 

wife, Susanna, and his interest in another cattle operation, 

Johnson Farms of Mississippi, to his daughter, Priscilla Oughton, 

and her husband. James Johnson continued to run and control the 

businesses and made all the operating decisions. 3 

3 As the district court noted, there was no contention at trial 

"that James Johnson was the principal of the Johnson business 

interests or that Susanna Johnson or Priscilla Oughton ... were 

his alter ego." Second Amended Findings of Fact and Conclusions 

of Law, R. Vol. I, Tab 83 at p.5. 

2 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 2 
In 1972, Johnson and Yelencsics entered into an oral 

partnership agreement and began to operate the Florida cattle 

operation as equal partners. In September 1975, they signed a 

written partnership agreement and began to operate another cattle 

ranch under the name of Honey Creek Ranch in Delaware County, 

Oklahoma. The partnership continued to operate both cattle 

ranches until Yelencsics' death in September 1987, dissolving the 

partnership. 

Johnson originally brought an action for a partnership 

accounting limited to a single purchase of cattle by the 

partnership. Under an oral agreement reached sometime in 1973 or 

1974, the partnership allegedly purchased 1100 head of Charolais 

cattle and 900 head of mixed cattle from Johnson Farms of 

Mississippi. According to Johnson, the partnership never paid for 

the cattle because of a dispute between the partners as to the 

proper value of the cattle, a relatively small number of which 

were infected with Bang's disease. Johnson asserts that these 

cattle were either directly contributed to the partnership by 

herself, or alternatively, that she assumed and satisfied the 

partnership debt personally when she executed and performed on a 

$5 million note payable to her daughter as owner of Johnson 

Farms. 4 

4 There was evidence at trial that the amount of the note and 

payment to Johnson Farms, $5 million, was an arbitrary figure 

computed by James Johnson for investment tax credit purposes. The 

precise value of the cattle actually transferred was a matter of 

continuing dispute between Johnson and Yelencsics, and was never 

settled. 

3 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 3 
Three months after Johnson filed her action, Yelencsics died. 

Johnson thereafter amended her original complaint, seeking a 

complete partnership accounting. After a trial and a further 

evidentiary hearing, the district court entered its judgment. The 

court specifically found that any claim which Johnson sought to 

assert by reason of the 1973- 74 purchase raised in her original 

complaint was barred by laches. The court also found, with 

respect to two additional partnership transactions involving 

Johnson Farms of Mississippi, that one of the transactions was 

complete and properly accounted for, and that another should not 

be considered in this action because Johnson Farms, the alleged 

creditor in the transaction, is not a party. Johnson appeals 

these three determinations. 

I . 

Discussion 

The Completed Sale of Cattle to Johnson Farms 

The district court found that one of Johnson's 

assertionsarising from an alleged deficiency of $397,000 worth of 

cattle sold but not delivered to Johnson Farms in 1972 lacked 

merit because the cattle had in fact been delivered and the 

transaction completed. Although the evidence of delivery was 

disputed, we conclude that the district court's factual 

determination is not clearly erroneous. See Moore v. Subaru of 

Arn., 891 F.2d 1445, 1448 (10th Cir. 1989). We therefore affirm 

the district court's judgment that no partnership liability exists 

as to this transaction. 

4 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 4 
II. The Purchase of 2000 Head of Cattle in 1973 or 1974 

The district court concluded that Johnson's claim relating to 

the partnership's cattle purchase in 1973 or 1974 was barred by 

laches. Yelencsics did not raise this affirmative defense in his 

amended answer, 5 and the district court did not specifically state 

why the doctrine applied in this case. In response to Johnson's 

argument that laches does not apply, Yelencsics now contends that 

Johnson's failure to bring suit against him for damages arising 

from the alleged purchase price of the cattle constitutes laches. 

'"Laches consists of two elements: (1) inexcusable delay in 

instituting a suit; and (2) resulting prejudice to defendant from 

such delay. 111 In re Centric Corp., Nos. 89-1080, 89-1081, slip 

op. at 12 (10th Cir. Apr. 23, 1990) (quoting Brunswick Corp. v. 

Spinit Reel Co., 832 F.2d 513, 523 (10th Cir. 1987)). The 

application of laches as a defense is within the sound discretion 

of the district court, and we will not disturb the court's ruling 

unless it appears that the court abused its discretion. In re 

Centric, slip op. at 12. 

Although Johnson did not bring suit prior to this action, at 

the time of the purchase in 1973 or 1974 she had no standing to 

sue. The unpaid purchase price represented a partnership debt 

owed~ Johnson and Yelencsics to Johnson's daughter, the owner of 

5 Rule 8(c) requires that the affirmative defense of laches be 

raised in the answer to the complaint. Fed. R. Civ. P. 8(c). 

Although Yelencsics' failure to plead laches might ordinarily 

constitute a waiver, in this case the defense of laches was 

included in the pretrial order. "When an [affirmative defense] is 

set forth in a pretrial order, it is not necessary to amend 

previously filed pleadings." Expertise, Inc. v. Aetna Pin. Co., 

810 P.2d 968, 973 (10th Cir. 1987). 

5 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 5 
Johnson Farms. Johnson was not damaged by Yelencsics' refusal, if 

that is what it was, to pay for the cattle. The district court 

found that Johnson did not take any action on the unpaid debt 

until 1980, seven years after the transaction. Only then, when 

she undertook to personally satisfy the claim of Johnson Farms 

arising from the transaction, could Johnson even allege that she 

had suffered any damage. Any delay by Johnson in bringing suit 

must therefore be measured from 1980, the first time that Johnson 

could have conceivably brought such a suit at law. 

Ordinarily, "[a] partner cannot sue a copartner at law to 

recover contributions to the partnership capital unless there has 

been an accounting and settlement of the partnership affairs." 1 

Z. Cavitch, Business Organizations, § 20.03(1) (rev. ed. 1990); 

Ewing v. Owens, 441 P.2d 964 (Okla. 1968). Oklahoma recognizes an 

exception to the general rule, and provides that if "the 

respective partners in a partnership action can be adequately 

protected in an action at law, a copartner may proceed at law 

without the necessity of an accounting." Fulton v. Baxter, 596 

P.2d 540, 542 (Okla. 1979). Although this transaction may have 

been a straightforward proposition at its inception, Johnson did 

not become involved personally in a way that would give her 

standing to sue until much later well after the disputed 

transactions which eventually became part of this final accounting 

had taken place. Given the complexity of the partners' 

transactions up to that time, a lawsuit over the unpaid purchase 

price would probably not have been a reasonable alternative to an 

6 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 6 
action in equity for a partnership accounting which would fully 

adjudicate the partners' respective claims. 

Yelencsics contends that even if Johnson is not guilty of 

laches for her failure to bring a suit for damages, the district 

court's ruling is supportable by virtue of the delay between the 

time of the purchase and Johnson's commencement of this action for 

an accounting. 6 

There do not appear to be any facts in the record which would 

impose upon Johnson the duty of bringing an action for a 

predissolution accounting. The partnership continued to operate 

throughout the period from 1972 to 1987. Johnson neither sought 

to withdraw from the partnership nor did she absent herself in any 

significant way during that time. We have found no instance where 

6 Whether Johnson in fact could have brought an action for an 

accounting prior to the dissolution of the partnership is 

uncertain under Oklahoma law. The Oklahoma Uniform Partnership 

Act does provide that partners are entitled to a formal accounting 

''[w]henever •.. circumstances render it just and reasonable." 

Okla. Stat. tit. 54, § 222(d) (1984). However, this does not 

necessarily ensure the right to an accounting upon demand. The 

purpose of the ''just and reasonable" clause is that: 

[T]here frequently arise ... circumstances which impose 

on one or more of the partners the duty of rendering a 

formal account to the co-partner, as where one partner 

is traveling for a long period of time on partnership 

business, and the other partners are in possession of 

the partnership books .... In view of the wording of 

[this] clause, the total effect of this section is to 

emphasize the fact that a partner, the partnership not 

being dissolved, has not, necessarily the right to 

demand formal accounts, except at particular times and 

under particular circumstances. 

6 U.L.A. § 22 at 284 Official Comment (1969). Absent "particular 

circumstances,'' the general rule is that "a partner is entitled to 

a formal accounting only when there has been a dissolution of the 

partnership." 1 z. Cavitch, Business Organizations, at 

§ 20.06(l][a]. 

7 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 7 
the doctrine of !aches has applied to partially defeat the right 

to an accounting with respect to particular transactions, absent 

some unexcused delay between the cessation or deterioration of the 

partners' relationship and the action for an accounting. 7 The 

approach which has been consistently applied is that "as long as 

the partnership exists, failure to demand a partnership accounting 

does not amount to !aches." Brand v. Elledge, 419 P.2d 531, 540 

(Ariz. 1966) (citing Englestein v. Mackie, 182 N.E.2d 351 (Ill. 

App. Ct. 1962); Caveney v. Caveney, 291 N.W. 818 (Wis. 1940); 

Wiley v. Wiley, 81 A. 180 (Md. 1911)); see Einsweiler v. 

Einsweiler, 61 N.E.2d 377 (Ill. 1945); Harner v. Harner, 182 S.E. 

291 (W. Va. 1935); 59A Arn. Jur. 2d Partnership§ 1086 (1987); 68 

C.J.S. Partnership§ 414. 

Even were we to conclude that Johnson delayed in bringing 

this action, Yelencsics failed to demonstrate any specific 

prejudice which resulted from Johnson's inaction. See Brand v. 

Elledge, 419 P.2d at 540 ("The mere lapse of time does not 

constitute !aches[;] • it must appear the one interposing 

[laches] as a defense has suffered prejudice by virtue of the 

delay .... ") (citing,~, Hodge v. Kennedy, 94 S.E.2d 274 (Va. 

956)). Although Yelencsics himself died shortly after this action 

7 The ongoing relationship between partners has been cited as one 

reason for the general rule that !aches does not apply during the 

pendency of the partnership. See Brand v. Elledge, 419 P.2d at 

540 (citing Bankers' Trust Co. v. Riter, 206 P. 276 (Utah 1922). 

A partner should not have to risk an existing confidential 

relationship with other partners by seeking judicial intervention 

to clarify his or her partnership interest in order to preserve 

the right to assert a claim relating to the matter in question, 

especially where the dispute cannot be satisfactorily settled by a 

discrete action at law. 

8 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 8 
was commenced, his testimony has not been demonstrated to be 

crucial to the determination of Johnson's claim. Indeed, it seems 

logical that the death of one partner will often precede an action 

for partnership accounting. Furthermore, the record demonstrates 

that Yelencsics was fully cognizant of Johnson's continuing claims 

concerning the unpaid purchase price of the cattle, and that he 

knew Johnson would be asserting such a claim. Under these 

circumstances, Yelencsics has failed to sustain his burden of 

demonstrating prejudice. See Murphy v. Stevens, 645 P.2d 82, 91 

(Wyo. 1982) (burden is on partner who asserts laches to prove 

prejudice). 

We conclude that Johnson did not delay in bringing this 

action, and that from the facts appearing in the record before us, 

Yelencsics was not prejudiced by the mere passage of time since 

the transaction took place. We therefore remand this case to the 

district court for further proceedings as necessary to determine 

the validity of Johnson's claim and the value, if ascertainable, 

of her contribution. In this respect, we note that the passage of 

time and Yelencsics' death will very probably affect Johnson's 

ability to prove her claim; nevertheless, mere passage of time 

does not alter the ordinary burden of proof or any of the 

presumptions which arise in the course of a partnership 

accounting. 

III. The Account Payable to Johnson Farms 

The district court refused to consider Johnson's assertion 

that the partnership is indebted to Johnson Farms for the unpaid 

9 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 9 
balance of $650,000 on a separate purchase of $1 million worth of 

cattle in 1973. The court concluded that "Although invited to 

intervene by this Court, the Johnson Farms of Mississippi is not a 

party herein. Any alleged claim Johnson Farms of Mississippi has 

against the partnership must hereafter be brought against the 

partners individually." R. Vol. I, Tab 83 at p.8. 

The district court's legal conclusion that this alleged 

partnership liability is not properly part of this action for an 

accounting is incorrect. "Creditors are generally held not to be 

necessary or proper parties to a suit between partners for an 

accounting " 2 S. Rowley, Rowley on Partnership §47.7 

(1960). The district court itself correctly concluded that "both 

parties are entitled to a complete accounting of the assets and 

liabilities of the partnership." R. Vol. I, Tab 83 at 2 (emphasis 

added). To preclude consideration of this liability because the 

creditor did not choose to intervene is to effectively deny the 

existence of the liability without addressing Johnson's claim. If 

the debt of $650,000 actually exists against the partnership, it 

is a violation of Johnson's right to a full accounting to simply 

ignore it. See, ~ .. 9 ... !.-' Dowell v. Dowell, 316 P.2d 850 (Okla. 1957) 

("Where an action for accounting has been brought in a court of 

general equitable jurisdiction, it is the duty of such court, when 

it finds that an accounting is proper, to conduct the same and to 

try all of the issues involved and to administer full relief to 

the parties."); Casey v. Grantham, 79 S.E. 2d 735, 738 (N.C. 1954) 

("Each partner has the right to have the partnership property 

10 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 10 
applied to the payment or security of partnership debts in order 

to relieve him from personal liability."). 

The alleged liability is properly before the court in this 

equitable action for partnership accounting. 8 We reverse the 

district court's judgment inasmuch as it is not based on a full 

consideration of the merit, if any, of Johnson's claim pertaining 

to this asserted liability. The district court must address this 

issue to determine whether Johnson's assertion is true, and if so, 

how the liability should be accounted. 

Conclusion 

For the reasons stated, we affirm the district court's 

determination that no partnership liability exists as to the 1973 

sale of cattle to Johnson Farms because the cattle in question 

were actually delivered. We reve r se the court's judgment that 

laches bars Johnson's claim to a partnership contribution arising 

out of the purchase of 2000 head of cattle from Johnson Farms in 

1973 or 1974, and we also reverse the court's determination that 

Johnson Farms is a necessary party to adjudicate the existence of 

a partnership liability for the unpaid portion of the separate 

8 Our opinion extends only to the accounting of the partners' 

claims inter se; any action by Johnson Farms to collect on the 

partnership debt, if one exists, would constitute a separate 

lawsuit. We express no opinion as to the effect of this 

partnership accounting on such a subsequent action at law. 

11 

Appellate Case: 89-5096 Document: 010110037466 Date Filed: 06/28/1990 Page: 11 
1973 cattle purchase. 

further proceedings. 

Accordingly, the case is remanded for 

12 

ENTERED FOR THE COURT 

Stephen H. Anderson 

Circuit Judge 

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