Opinion ID: 2344727
Heading Depth: 2
Heading Rank: 1

Heading: The Limited Partnership

Text: The Limited Partnership had the following stated purpose: The purpose of the partnership is to enter into joint ventures and carry on the business of leasing real property and developing and operating shopping centers. Certificate of Limited Partnership, ¶ 2. The only general partners were Robert Miller and Lynwood Wiseman (General Partners). The limited partners were Harry Miller, Shirley Wiseman (now Lach) and Linda Poole Maggard. The Certificate of Limited Partnership provided that the partnership would not terminate upon the death, retirement or insanity of one General Partner (as provided by Kentucky statute) but rather the remaining General Partner would continue the business. Certificate of Limited Partnership, ¶ 13. The accompanying Limited Partnership Agreement had the following provisions relevant to the present dispute: 2. (b) Termination The Limited Partnership shall terminate upon the happening of any one of the following events: (i) agreement of both General Partners or [ii] August 1, 2036, whichever occurs first. 7. Management, Duties and Restrictions. During the continuance of this partnership, the rights and liabilities of the General Partners and Limited Partners respectively shall be as follows: (a) The General Partners shall manage the Partnership business in all aspects, which shall include, but shall not be limited to, the following rights and duties: . . .     9. To take such other action, execute and deliver such other documents, and perform such other acts as the General Partners may deem necessary, appropriate, or incidental to carrying out the business and affairs of the Partnership. (b) No Limited Partner shall have either the obligation or the right to participate in the management of the Partnership. . . . In early 1988, after a ten and one-half year marriage, Lach and Lynwood Wiseman divorced in a proceeding which she herself describes as hotly contested. From that point forward, Robert Miller was the liaison or go-between who communicated with Lach about partnership matters. Correspondence over the next fourteen years reveals Lach closely monitored Limited Partnership affairs, including asking that documents be forwarded to her attorney and accountants as early as 1993. In September, 2001, Lach asked that the partners' monthly distribution be raised, suggesting $15,000 to $18,000 per month, and she inquired about a $300,000 Advance to Wiseman Homes appearing on the financial reports. The latter inquiry ultimately led to the discovery in 2002 that Keith Cunningham, Lynwood's nephew who had been entrusted with management responsibilities in several of Wiseman's businesses, including the Limited Partnership, had stolen in excess of $250,000 from the Limited Partnership. Lynwood paid back all of the stolen funds with interest, making the Limited Partnership whole, and also stepped down as manager of the shopping center. [1] A professional management company was retained at that time and continues to provide day-to-day management of the shopping center. The year 2002 proved to be a watershed year for the Limited Partnership. Robert Miller died on August 18, 2002. A previously treated cancer had returned in March, 2002, and without any prospect of recovery, Miller, anticipating his imminent death, set about planning for the continuation of the Limited Partnership. As previously noted, the Certificate of Partnership allowed the Limited Partnership to continue under the direction of one General Partner but that one remaining partner was Lynwood Wiseman, an 81 year-old man with his own serious health problems. Also, Robert Miller knew that the acrimonious relationship between Wiseman and his ex-wife, Lach, would make conducting partnership affairs difficult and, more importantly, upon Lynwood's death, in the absence of another general partner, the Limited Partnership would dissolve as a matter of law. This would cause a domino effect in which MOW Place would then also dissolve as a matter of law because of the lack of a general partner (i.e. the Limited Partnership). This series of events could leave the Joint Venture without a lessee, Miller feared. The worst case scenario included a default on the Limited Partnership loan and serious tax consequences for all partners in the Limited Partnership. Robert Miller proposed avoiding this chain of events by substituting his brotherin-law, Jeff Mullens (who had been a limited partner since 1986) and his son, Jonathan Miller (who had been a limited partner since 1988) as general partners in his stead. This would result in three general partners, including the elderly Lynwood Wiseman. Lach was the only partner in the Limited Partnership who objected to this proposal and she countered with a proposal that her daughter, Sherri McVay (a lawyer who was not a Limited Partnership partner) be substituted for Mullens. All of the partners, except Lach, objected to this proposal. Thus 72.972% of the Limited Partnership interests favored Robert Miller's succession plan while 27.027% (Lach alone) favored Lach's plan. After Lach rejected Miller's proposal in early April 2002, a law firm retained by the Limited Partnership's management proposed a transaction which would avoid Miller's concerns about the continued viability of the Limited Partnership. The law firm proposed two scenarios with the goal of eliminating the ability of any one limited partner of the Limited Partnership to prevent any action of the Limited Partnership necessary to ensure it continues to be a going concern by voting against such action. All of the partners in the Limited Partnership, except Lach, agreed to a restructuring which was described by the law firm as follows: . . . the Limited Partnership would form a limited liability company (LLC) and transfer its interest as a general partner of M.O.W. Place, Ltd., a Kentucky limited partnership (General Partner Interest), to the LLC in exchange for an interest as a member of the LLC. Immediately thereafter, the general partners (Bob Miller and Lynwood Wiseman) of the Limited Partnership would terminate the Limited Partnership in accordance with Section 2(b) of the Limited Partnership Agreement and liquidate the Limited Partnership. In the first restructuring scenario, the Limited Partnership would liquidate by distributing the LLC membership interest pro rata to each of the partners of the Limited Partnership. The end result of this transaction would be a reconstitution of the Limited Partnership as a limited liability company. The limited partners' veto power would be eliminated, but the economic interests of the partners would remain unchanged. Also, there would be no tax consequences to the partners. The Operating Agreement of the LLC would appoint Jonathan Miller, Jeff Mullens and Lynwood Wiseman as the managers of the LLC and would provide that the managers may only act on behalf of the LLC in accordance with the decision of a majority of the managers. The managers would be able to take any and all action on behalf of the LLC except that the managers would not be able to (i) merge the LLC with another entity, (ii) file a bankruptcy petition on behalf of the LLC, (iii) dissolve the LLC, or (iv) amend the Operating Agreement or Articles of Organization without the consent of a majority-in-interest of the members (based upon their economic interests in the LLC). Any of the limited partners who refuse to sign the Operating Agreement would be treated as transferees of an interest in the LLC and would not be admitted as members of the LLC. As mere transferees, they would not have any voting rights with respect to the LLC, although they would have economic rights and be entitled to distributions from the LLC. The only way for a limited partner receiving an interest as a member of the LLC to receive voting rights with respect to the LLC would be to agree in writing to be bound by the provisions of the Operating Agreement. This restructuring was accomplished with the creation of Man O' War Management LLC (the Limited Liability Company) on May 16, 2002. Lach received the same ownership percentage in the Limited Liability Company that she held in the Limited Partnership. However, because she refused to sign the Assignment tendered to her, she has no voting rights, simply economic rights including distributions. The Limited Partnership remained in existence until May 31, 2002, when it was dissolved by the General Partners as provided for in paragraph 2(b) of the Limited Partnership Agreement.