Opinion ID: 1117163
Heading Depth: 1
Heading Rank: 6

Heading: K.S.A. 56a-906(e)

Text: The plaintiffs next contend that they are dissociated partners under K.S.A. 56a-906(e), regarding the effect of a merger, which provides: A partner of a party to a merger who does not become a partner of the surviving partnership or limited partnership is dissociated from the entity, of which that partner was a partner, as of the date the merger takes effect. The surviving entity shall cause the partner's interest in the entity to be purchased under K.S.A. 56a-701 or another statute specifically applicable to that partner's interest with respect to a merger. The surviving entity is bound under K.S.A. 56a-702 by an act of a general partner dissociated under this subsection, and the partner is liable under K.S.A. 56a-703 for transactions entered into by the surviving entity after the merger takes effect. The RUPA Official Comment to § 906 provides in relevant part: Section 906 states the effect of a merger on the partnerships that are parties to the merger and on the individual partners. . . . . Subsection (e) provides for the disassociation of a partner of a party to the merger who does not become a partner in the surviving entity. The surviving entity must buy out that partner's interest in the partnership under Section 701 or other specifically applicable statute. If the state limited partnership act has a dissenter's rights provision providing a different method of determining the amount due a disassociating limited partner, it would apply, rather than Section 701, since the two statutes should be read in pari materia. RUPA § 906, cmt. 6 (Pt. 1) U.L.A. at 227. The defendants counter that K.S.A. 56a-906 is not applicable to this case for essentially three reasons: (1) K.S.A. 56a-601 sets forth the exclusive list of dissociating events under KUPA; (2) rights under K.S.A. 56a-906(e) are dependent upon claims under K.S.A. 56a-905 which were not raised by the plaintiffs in this case; and (3) K.S.A. 56a-905 only provides for mergers between general partnerships and other general or limited partnerships. These arguments will each be considered in turn. In arguing that K.S.A. 56a-601 sets forth the exclusive list of dissociating events under KUPA, the defendants rely primarily upon the following relevant portion of the RUPA Official Comment to § 601: RUPA dramatically changes the law governing partnership breakups and dissolution. An entirely new concept, `dissociation,' is used in lieu of the UPA term `dissolution' to denote the change in the relationship caused by a partner's ceasing to be associated in the carrying on of the business. . . . The entity theory of partnership provides a conceptual basis for continuing the firm itself despite a partner's withdrawal from the firm. . . . . Section 601 enumerates all of the events that cause a partner's dissociation. Section 601 is similar in approach to RULPA Section 402, which lists the events resulting in a general partner's withdrawal from a limited partnership. (Emphasis added.) RUPA § 601, cmt. 1, 6 (Pt. 1) U.L.A. at 164. The plaintiffs argue that despite the language of this Comment, the express language of K.S.A. 56a-906(e) and K.S.A. 56a-601 provides otherwise. They contend K.S.A. 56a-906(e) clearly provides that dissociation occurs in a merger where a partner of a party to the merger does not become a partner of the surviving partnership or limited partnership. Additionally, they point out that the statutory language of K.S.A. 56a-601 does not describe the causes of a partner's dissociation as all of the events or the only events so as to be considered the exclusive list of events. Examination of these provisions of RUPA provides support for both arguments. K.S.A. 56a-601, events causing partner's dissociation, fall under Article 6 of RUPA, which is specifically titled Partner's Dissociation. 6 (Pt. 1) U.L.A. at 163. In contrast, the dissociation authority the plaintiffs are seeking to apply under K.S.A. 56a-906(e) falls under Article 9 of RUPA, titled Conversions and Mergers. 6 (Pt. 1) U.L.A. at 213. It makes sense, as set forth by the plain language of Official Comment to § 601, that all of the events causing a partner's dissociation under RUPA would be found under Article 6 of RUPA. While acknowledging the persuasiveness of the defendants' argument, we note that Kansas has not specifically adopted the Official Comment to § 601, and as the plaintiffs point out, the statutory language of K.S.A. 56a-601 does not expressly set forth that these are the exclusive events causing a partner's dissociation. See K.S.A. 56a-601 (A partner is dissociated from a partnership upon the occurrence of any of the following events.). As dissociation by merger is at least contemplated by K.S.A. 56a-906(e) but not addressed by K.S.A. 56a-601, we will consider whether K.S.A. 56a-906(e) is applicable to the facts of this case. The defendants argue that the applicability to a case of the effect of merger statute, K.S.A. 56a-906(e), is dependent upon the applicability of the preceding statute, K.S.A. 56a-905, merger of partnerships, which provides: Pursuant to a plan of merger approved as provided in subsection (c), a partnership may be merged with one or more partnerships or limited partnerships. The statute sets forth what the plan of merger must set forth, how the plan of merger must be approved, the opportunities for amendment and abandonment of the plan, and the effective date of the merger. See K.S.A. 56a-905(a). As this case involves the merger of a limited partnership with a limited liability company and the plaintiffs did not assert any rights under K.S.A. 56a-905, the defendants argue that the plaintiffs' may not claim any dissociation rights under K.S.A. 56a-906(e). The plaintiffs counter that K.S.A. 56a-906(e) is not, strictly speaking, limited to partnership mergers, but rather the explicit language of the statute deals with [a] partner of a party to a merger who does not become a partner of the surviving partnership or limited partnership. They continue that irrespective of whether K.S.A. 56a-906(e) is applicable only to mergers involving a partnership and one or more partnerships or limited partnerships, the policy of treating partners who do not become partners of the surviving partnership or limited partnership as dissociated and entitled to the remedies provided under K.S.A. 56a-701 is clearly stated. In resolving this argument, we apply the following rules of statutory construction: The fundamental rule of statutory construction, to which all other rules are subordinate, is that the intent of the legislature governs. An appellate court must consider all of the provisions of a statute in pari materia rather than in isolation, and these provisions must be reconciled, if possible, to make them consistent and harmonious. As a general rule, statutes should be interpreted to avoid unreasonable results. State v. Legero, 278 Kan. 109, Syl. ¶¶ 3, 4, 91 P.3d 1216 (2004). Application of the above rules support the defendants' position. Although a limited partner could technically be considered a partner of a party to a merger, the plaintiffs' argument would require this court to take K.S.A. 56a-906(e) out of context in order to establish an independent basis for dissociation. Article 9 of RUPA deals explicitly with conversions and mergers of partnerships : K.S.A. 56a-901 defines the terms general partner, limited partner, limited partnership, and partner; K.S.A. 56a-902 deals with the conversion of a partnership to a limited partnership; K.S.A. 56a-903 deals with the conversion of a limited partnership to a partnership; and K.S.A. 56a-905 involves the merger of partnerships with one or more partnerships or limited partnerships. It logically follows that K.S.A. 56a-906, dealing with the effect of merger, would be applicable to the merger of a general partnership with another form of partnership set forth in K.S.A. 56a-905 and not to the merger of a limited partnership with a limited liability company as occurred in this case. This conclusion is further supported by K.S.A. 56a-908, which provides: This article is not exclusive. Partnerships or limited partnerships may be converted or merged in any other manner provided by law. As discussed previously, the authority for the merger in this case came exclusively from the Mixed Entity Merger statutes, K.S.A. 2005 Supp. 17-7701(d) and K.S.A. 17-7703. As the plaintiffs did not and could not argue that the merger in this case occurred under the authority of K.S.A. 56a-905, which deals exclusively with the merger of partnerships, it cannot take advantage of the effect of merger statute, K.S.A. 56a-906(e). As such, they are not entitled to the buyout rights set forth in K.S.A. 56a-701(b). Additionally, we acknowledge that even if K.S.A. 56a-906(e) was applicable to mergers between a limited partnership and a limited liability company, it is still questionable whether subsection (e) actually provides an independent basis for dissociation upon a merger. Subsection (e) is more concerned with setting the date of dissociation for calculation of buyout benefits under K.S.A. 56a-701(b) rather than establishing a cause for dissociation. See K.S.A. 56a-906(e) (A partner of a party to a merger who does not become a partner of the surviving partnership or limited partnership is dissociated from the entity, of which that partner was a partner, as of the date the merger takes effect.).