Title: The Investor Associates v. Copeland
Citation: N/A
Docket Number: 001919
State: Virginia
Issuer: Virginia Supreme Court
Date: June 8, 2001

PRESENT:  Carrico, C.J., Lacy, Hassell, Koontz, Kinser, and 
Lemons, JJ., and Compton, S.J. 
 
THE INVESTOR ASSOCIATES,  
ET AL.  
   
       OPINION BY 
SENIOR JUSTICE A. CHRISTIAN COMPTON 
v.  Record No. 001919 
 
June 8, 2001 
 
ROBERT O. COPELAND, ET AL. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
A. Bonwill Shockley, Judge 
 
 
In this chancery suit involving controversy among partners 
of a Virginia general partnership, the central issues, driven by 
application of the proper statute of limitations, deal with who 
is indebted to whom and which of the partners have the right to 
wind up the partnership affairs under former Code § 50-37. 
 
The former Uniform Partnership Act, Code §§ 50-1 through -
43.12, which was repealed effective January 1, 2000 (Acts 1996, 
ch. 292), applies in this suit.  Thus, we shall refer only to 
the former statutes. 
 
In August 1994, the following plaintiffs filed this suit:  
The Investor Associates (hereinafter Investors); Herbert L. 
Kramer, individually and as assignee of all rights, title and 
interest of Benjamin J. Levy in Investors; Jeffrey L. Kramer; 
Richard G. Kramer; and Edward A. Kramer.  Named as defendants in 
the bill of complaint were Robert O. Copeland, Herbert J. 
Zukerman, and Property Investments Associates, also known as 
Property Investments of America, Inc. (hereinafter PIA). 
 
The plaintiffs alleged that by an October 1983 agreement 
among the individual plaintiffs and defendants and PIA, 
Investors, a Virginia general partnership, was formed.  The 
plaintiffs asserted that the partnership had been dissolved by 
operation of law, citing various Code sections. 
 
In the bill of complaint, the plaintiffs sought the 
following relief:  An accounting of partnership affairs under 
Code § 50-22; dissolution of the partnership by the court under 
Code § 50-32, if it had not already been dissolved by operation 
of law; contribution from the defendant copartners under Code 
§ 50-34; an order granting plaintiffs the right to wind up the 
partnership affairs under Code § 50-37; an order under Code 
§ 50-38 for application of the partnership's property to 
discharge its liabilities and for appropriate distribution of 
the surplus, if any; and, an order under Code § 50-40 settling 
the accounts among copartners after dissolution. 
 
The plaintiffs further requested, relying on the terms of 
the October 1983 agreement, that if it were determined "there is 
a cash loss of over the initial capitalization of The Investor 
Associates," the loss be assessed against the copartners in the 
same proportions as their percentages of ownership in the 
partnership, and that a judgment be entered against each of the 
copartners as their liability may appear. 
 
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In an answer, Copeland and Zukerman (hereinafter 
defendants) joined in the bill of complaint and asked for a 
formal accounting.  They asserted "it is not clear" that the 
partnership had been dissolved by operation of law, but "in any 
event" joined plaintiffs' motion to dissolve and to wind up the 
partnership affairs. 
 
Further, defendants asserted that plaintiffs have spent 
funds in violation of the partnership agreement and, thus, 
defendants owed no funds.  Additionally, defendants asserted 
that they are the proper partners to wind up the partnership 
affairs and that the plaintiffs should not be allowed to wind 
up.  However, defendants joined in the plaintiffs' request for 
settlement of the accounts, distribution of the proceeds, and 
liquidation of the partnership assets. 
 
Defendants affirmatively asserted "that laches and the 
statute of limitations bar any claim against them from any of 
their partners."  Additionally, defendants alleged that 
plaintiffs "do not come into equity with clean hands and as a 
consequence are barred from any contribution from their partners 
. . . and are further barred from the right to wind up the 
partnership or otherwise deal on behalf of the partners or the 
partnership." 
 
In a counterclaim, defendants sought judgment against 
plaintiffs, alleging that plaintiffs created unnecessary losses 
 
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by violating the terms of the partnership agreement and that 
"the Plaintiffs breached their fiduciary duties against the 
Defendants." 
 
In a May 1996 order, the chancellor referred the matter to 
a commissioner in chancery.  In a December 1996 order, the court 
amended the style of the suit because plaintiff Herbert L. 
Kramer had died while the suit was pending.  The other Kramer 
plaintiffs as "co-personal representatives of the Estate of 
Herbert L. Kramer" were substituted for the deceased, their 
father, as parties plaintiff. 
 
The commissioner held hearings during six days from May to 
October 1997, during which he heard testimony ore tenus and 
received voluminous documentary evidence.  Following receipt of 
arguments and briefs of counsel, as well as proposed findings of 
fact and conclusions of law, the commissioner submitted a report 
in September 1999.  The commissioner recommended that the court 
rule against the plaintiffs and grant the defendants' request 
for relief contained in the answer. 
 
The chancellor considered the record, the commissioner's 
report, exceptions to the report, and argument and briefing by 
counsel.  In a May 2000 decree, incorporating a letter opinion 
and rulings from the bench that adjudicated the principles of 
the cause, the chancellor confirmed the commissioner's report, 
 
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the counterclaim having been nonsuited in March 2000.  The 
plaintiffs appeal. 
 
The plaintiffs agree on appeal that the factual findings of 
the commissioner, approved by the chancellor, are correct.  
Therefore, we will summarize those findings that are pertinent 
to the issues we shall address. 
 
In the October 1983 agreement, the Kramers, Benjamin J. 
Levy, PIA, and the defendants formed Investors, capitalized for 
the total sum of $200,000.  Levy, as well as Herbert L. Kramer, 
was deceased at the time of the commissioner's report.  The 
deceased individuals comprising Investors, and the surviving 
partners, were intelligent and sophisticated businessmen, 
knowledgeable about construction, law, finance, and tax matters. 
 
The apparent purpose of the partnership was to place 
various real estate investment entities owned by the various 
partners under one management, and to share in the overall 
profits and losses. 
 
On January 1, 1984, Herbert L. Kramer, Benjamin Levy, and 
the Kramer brothers (Jeffrey L., Richard G., and Edward A.) 
formed another general partnership known as Kramer/Levy 
Associates (KLA), not a party to this suit.  The Kramers and 
Levy used KLA to loan money to various other partnerships in 
which they had interests. 
 
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Numerous loans, advances, and other payments were made by 
the plaintiffs through KLA to Investors over the years that this 
arrangement continued.  None of the loans was evidenced by any 
promissory note.  Checks written to and by KLA are the only 
evidence of the loans. 
 
At the commencement of the commissioner's hearings in May 
1997, the parties stipulated that Investors had no assets, and 
that Levy and all the Kramers had filed for bankruptcy 
protection.  The parties further stipulated that Investors was 
dissolved by operation of Code § 50-31(5) (the bankruptcy of any 
partner). 
 
Code § 50-30 provided that a partnership is not terminated 
upon dissolution "but continues until the winding up of 
partnership affairs is completed."  Code § 50-37 provided that 
partners, "not bankrupt, have the right to wind up the 
partnership affairs;" but that any partner "upon cause shown, 
may obtain winding up by the court." 
 
The commissioner noted that all the surviving plaintiff 
partners of Investors were bankrupt.  He then found that 
"[a]lthough there is substantial evidence of an acrimonious 
relationship between parties Plaintiff and Defendant, no 
evidence has been introduced to indicate that the Defendants are 
not proper persons to wind up any remaining business of the 
partnership."  Thus, the commissioner recommended that the court 
 
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adjudicate Investors had been dissolved, but not terminated; 
and, that the defendants be entrusted to wind up the partnership 
affairs. 
 
Crucial to the winding up and settlement of the accounts 
will be the determination of who is indebted to whom.  On 
appeal, as below, the plaintiffs take the position that the KLA 
partnership was a mere "conduit" for the plaintiffs to make 
loans or other advances to Investors.  Under this theory, the 
plaintiffs say that Investors is liable to them for the funds 
loaned or advanced.  The defendants take the position that the 
Kramers and Levy loaned money to KLA, which, in turn, loaned the 
money to Investors and others.  The commissioner stated:  "The 
issue here boils down to determining the identity of the lender 
who made the loans and/or advances to Investors, the real party 
in interest.  Is the real lender to Investors the Kramer family 
and/or Levy; or, is KLA the real lender to Investors?" 
 
The significance of this issue relates to the statute of 
limitations.  According to defendants, the plaintiffs developed 
the "conduit theory" in an attempt to avoid the statute of 
limitations of either Code § 8.01-246(4) (three years-unwritten 
contract) or Code § 8.01-246(2) (five years-written contract). 
The plaintiffs, defendants point out, seek to bring their claim 
within the limitations set forth in Code § 8.01-246(3), which 
provides:  "In actions by a partner against another for 
 
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settlement of the partnership account . . . within five years 
from the cessation of the dealings in which they are interested 
together."  The plaintiffs realize, the defendants say, that in 
order to advance their argument that § 8.01-246(3) governs, they 
must convert the loans from KLA, which clearly was not a 
partner, to loans from a partner.  Hence, the Kramers created 
their conduit theory. 
 
In order to determine the identity of Investors' lender, 
the commissioner reviewed the evidence.  He focused upon 
bankruptcy schedules filed by the Kramers under penalties of 
perjury.  The commissioner reported that the schedules "do 
reflect adversely on their credibility in this proceeding as do 
the Plaintiffs' (including the deceased Mr. Kramer's) income tax 
returns, financial statements, the estate tax return for the 
deceased Mr. Kramer, the books of Investors, the books of KLA, 
and their attempts to explain them away." 
 
The commissioner said:  "In short, all of the records of 
Investors and KLA, including KLA's tax returns, show that the 
money went from the Kramers to KLA . . . to Investors.  In all 
of these documents, the Kramers treated the money as a loan from 
them to KLA and not as a loan to Investors.  Further, the 
Kramers treated the money as a loan from KLA to Investors, as 
did KLA." 
 
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The commissioner further found that the Kramers, KLA, and 
Investors "are or were (at all pertinent times) distinct legal 
entities."  He said that assertions on financial statements, 
estate tax returns, income tax returns, books of account, and 
other business records "all mean something."  The commissioner 
observed:  "We cannot simply disregard the Plaintiffs' course of 
conduct over the many years that Investors and KLA operated, nor 
can we disregard same based on the Plaintiffs' testimony that 
the use of KLA was a convenience." 
 
In concluding that the debt of Investors was in favor of 
KLA, not the plaintiffs, the commissioner stated that "the over-
riding factor appears to me to be the way in which the 
Plaintiffs have changed their perception of what has occurred in 
the past, a past fully documented by the Plaintiffs' records and 
other records not technically theirs but records of business 
entities under their control." 
 
Among other issues reported upon, the commissioner made no 
finding or recommendation relative to the statute of limitations 
question, but observed that the three-year limitation found in 
Code § 8.01-246(4) controls both the KLA and Copeland loans to 
Investors. 
 
In her February 2000 letter opinion confirming the 
commissioner's report, the chancellor ruled that the partnership 
was dissolved upon the Kramers filing bankruptcy, that 
 
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defendants are entitled to wind up the partnership affairs, and 
that the Investors' debt is owed to KLA, not the Kramers.  While 
the commissioner found that the clean hands doctrine had been 
violated by the plaintiffs, the chancellor saw no "need to 
reach" that question, or others raised by the parties. 
 
During a March 2000 hearing, the trial court considered the 
statute of limitations issue.  Following argument of counsel, 
the court ruled from the bench that the three-year limitation 
period governing oral contracts controlled, and that the 
partners responsible for winding up the affairs of the 
partnership are entitled to invoke that defense on behalf of 
Investors. 
 
All the foregoing rulings were incorporated in the May 2000 
order appealed from, including the decision that, in winding up 
the affairs of Investors, the defendants "do not have to pay the 
debts due Kramer/Levy Associates or Robert Copeland, because the 
debts are barred by the three year statute of limitations." 
 
On appeal, the plaintiffs first contend the trial court 
erred when it ruled that Investors' debt is owed to KLA, and not 
to the Kramers individually.  There is no error in this ruling. 
 
"When a report of a commissioner in chancery who heard 
evidence ore tenus has been fully approved by the trial court, 
the decree of the court confirming the report is presumed to be 
correct and will not be reversed on appeal unless plainly 
 
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wrong."  Ward v. Harper, 234 Va. 68, 70, 360 S.E.2d 179, 181 
(1987).  Upon review of such a decree, the appellate court's 
duty is to determine whether the conclusions of the 
commissioner, approved by the chancellor, are supported by 
credible evidence.  Id.
 
A further discussion of the evidence is unnecessary to 
demonstrate the obvious, that is, the factual findings upon the 
foregoing issue are fully supported by the evidence.  Agreeing 
that the commissioner "made the factual finding, consistent with 
the undisputed evidence, that all loans and advances to 
[Investors] were made by the Kramers funneling money through 
[KLA]," the plaintiffs nevertheless persist to advance the 
theory that KLA performed mere "conduit" functions.  Without 
citing any law directly supporting their idea, the plaintiffs 
argue that KLA "was the Kramers' agent, created for the purpose 
of administering the Kramers' contractually required loans made 
to or for the benefit of [Investors] and any other investments 
in which the Kramers and Levy were jointly interested."  This 
argument is no more than an attack upon the factual findings 
below, which are supported by credible evidence. 
 
Second, plaintiffs contend the trial court erred in ruling 
that defendants should wind up Investors' affairs.  They argue 
that they have shown "cause" under Code § 50-37 to be entitled 
to wind up because defendants will plead the statute of 
 
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limitations eliminating their individual liability for their 
debt to Investors, and the plaintiffs will not.  There is no 
merit in this contention. 
 
As we have said, Code § 50-37 provided that partners who 
are not bankrupt have the right to wind up the partnership 
affairs, but the court may allow any partner, "upon cause 
shown," to wind up.  The phrase, "upon cause shown," does not 
mean just any cause.  The statute vests the court with the 
discretion to select which partners will wind up, giving 
preference to partners who are not bankrupt. 
 
Here, the defendants are the only nonbankrupt partners.  
The fact that they will perform their fiduciary duty to plead 
available defenses eliminating liability to Investors, including 
their own, does not disqualify them from serving, nor does it 
justify a finding that the trial court abused its discretion. 
 
Finally, plaintiffs contend the trial court erred in ruling 
that defendants are entitled to raise on behalf of Investors "a 
defense that a three year oral contract statute of limitation 
bars [KLA's] claim against [Investors] on the debt."  In the 
same vein, plaintiffs contend the trial court erred by ruling 
that defendants, in winding up, do not have to pay their share 
of Investors' debt because the debt is barred by the three-year 
statute of limitations.  We disagree with these contentions. 
 
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As we already have indicated, partners owe each other a 
fiduciary duty in winding up the partnership affairs.  Code 
§ 50-21(1) expressly provided that one partner is accountable to 
the others as a fiduciary for "any transaction connected with 
the . . . liquidation of the partnership."  Thus, the trial 
court correctly ruled defendants may raise the statute of 
limitations defense on behalf of Investors. 
 
Moreover, the trial court correctly decided that the three-
year statute of limitations for oral contracts set forth in Code 
§ 8.01-246(4) governs, and bars KLA's claims.  At issue is the 
recovery of debts to be included in the accounting and the 
statute of limitations against a creditor, of which KLA is one.  
The sums paid by KLA were demand loans made by checks premised 
on an oral contract, the right of action accruing and the 
statute of limitations commencing to run on the date of the 
checks without any formal demand.  See Guth v. Hamlet Assoc., 
230 Va. 64, 72, 334 S.E.2d 558, 563-64 (1985) (demand note 
matures and is payable at once, and interest and statute of 
limitations commence to run on that date); former Code § 8.3-
104(2)(b).  Accord Bell v. Alexander, 62 Va. (21 Gratt.) 1, 6 
(1871) (check is obligation payable on demand). 
 
In summary, we hold that the trial court committed no error 
in deciding the foregoing issues.  And, we have considered the 
 
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remaining arguments made by plaintiffs, and have determined they 
are without merit. 
 
Consequently, we will affirm the order appealed from and 
will remand the cause to the trial court for such further 
proceedings as may be necessary to wind up the partnership 
affairs. 
Affirmed and remanded. 
 
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