Opinion ID: 1175395
Heading Depth: 1
Heading Rank: 3

Heading: Other Business Organizations Involved in the Case

Text: On December 21, 1983, Anderson and others formed another company named Puma Petroleum Company II (Puma II) and registered it as a limited partnership in the state of Colorado. Puma II was organized as an exploration company with a lifespan of two years ending December 31, 1985. Puma I and Puma II had the same general and limited partners, but Puma II had no employees. On January 1, 1984, Anderson, Johnson, and others also reorganized a Wyoming corporation named Puma Operating Corporation (POC) [1] to operate the properties of Puma I and Puma II. The partnership agreement for Puma II, like the partnership agreement for Puma I, contained provisions for the payment of 6.25% of the overriding royalty interests acquired by Puma II. These royalties were payable alternatively to Anderson as general partner or to POC, if a management contract between Puma II and POC was then in effect. Such a management agreement was in effect during 1984 and 1985 providing that the overriding royalties would be paid to POC. Johnson stipulated in open court that he signed the corporate minutes adopting a POC resolution that ratified and approved the management agreement between POC and Puma II. Sometime before January 1, 1984, the employees of Puma I, including Anderson, were orally informed that, as of that date, they would become employees of POC. Apparently, this change did not affect the substance of the work Johnson was doing for Anderson. Johnson did not have any written agreement concerning his employment with POC or any right to receive a share of overriding royalties. Similarly, Anderson had no written agreement with POC under which he could share in any royalty interests acquired by POC. Johnson, however, received an increased annual cash salary of $120,000 per year from POC. In early 1984, the treasurer of POC informed Anderson that the transfer of overriding royalties to POC under the Puma II partnership agreement and the POC management agreement would create an excess of passive income that might endanger POC's subchapter S election for federal income tax purposes. Based on this information, Anderson decided to resume the old scheme under which the overrides were assigned to Anderson and Johnson. In December 1985, the Board of Directors of POC voted to reduce the salaries of the officers of the corporation, including those received by Johnson and Anderson, to $84,000. Johnson did not agree with this reduction and resigned effective December 1985. Puma I, Puma II, and POC continued to do business as three distinct entities until January 1, 1986, when Puma II conveyed all its assets to Puma I and cancelled its Colorado Limited Partnership Certificate.