Court Opinion

ID: 156462
Source: CourtListenerOpinion
Date Created: 2010-08-14 04:39:38+00
Date Added: 2024-06-11T17:24:31.750506
License: Public Domain

F I L E D
                                                    United States Court of Appeals
                                                            Tenth Circuit
                                  PUBLISH
                                                           JUN 17 1998
               UNITED STATES COURT OF APPEALS
                                                      PATRICK FISHER
                                                                Clerk
                            TENTH CIRCUIT

In re: VILLA WEST ASSOCIATES,

          Debtor.

DARCY D. WILLIAMSON, Trustee,

          Plaintiff - Appellee,
     v.                                     Nos. 96-3133
                                             and 96-3425
FRED C. KAY,

          Defendant - Third-Party-
          Plaintiff - Appellant,

     v.

THOMAS W. VANDYKE; LESLIE M.
BURNES; KIRK W. CARPENTER;
PAUL R. VIRDEN; BERNARD
HAINEN; E. JEROME HANSON, M.D.;
C. THOMAS HITCHCOCK, M.D.;
JERRY WARDEN; JAMES C.
BRENNEMAN; STEVEN R. DUVALL;
JUDE NALLY; H. ELVIN KNIGHT, JR.;
L. KENNETH HUBBELL; JOHN A.
ALHOLM; DON C. FREBURG,

          Third-Party-Defendants -
          Appellees,
DOUGLAS KAY and ANN KAY,

          Third-Party-Defendants -
          Appellants,

MN ASSOCIATES,

          Claimant - Appellee.

In re: VILLA WEST ASSOCIATES,

          Debtor.

DARCY D. WILLIAMSON, Trustee,

          Plaintiff - Appellee,
     v.                                    No. 96-3135

FRED C. KAY,

          Third-Party-Plaintiff -
          Appellant,

     v.

JOHN A. ALHOLM; L. KENNETH
HUBBELL; THOMAS W. VANDYKE;
DON C. FREBURG; BERNARD
HAINEN; C. THOMAS HITCHCOCK;
KIRK W. CARPENTER; H. ELVIN
KNIGHT, JR.; PAUL VIRDEN; JAMES
C. BRENNEMAN; E. JEROME
HANSON; LESLIE M. BURNS; JERRY
WARDEN; JAMES L. GLASSER; MN

                                     -2-
 ASSOCIATES; GLENDA HAINEN;
 DONNA NALLY; JAMES C. GLASSER,

             Third-Party-Defendants -
             Appellees,

 DOUGLAS KAY and ANN KAY,

             Third-Party-Defendants -
             Appellants.

        APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF KANSAS
              (D.C. NOS. 91-4044-SAC and 95-4089-RDR)

Cynthia L. Reams, Weisenfels & Vaughan, Kansas City, Missouri (Jan Hamilton,
Hamilton, Peterson, Tipton & Keeshan, Topeka, Kansas, with her on the briefs),
for Defendant - Third-Party-Plaintiff - Appellant and Third-Party-Defendants -
Cross-Claimants - Appellants.

Robert J. Bjerg, Seigfreid, Bingham, Levy, Selzer & Gee, P.C., Kansas City,
Missouri, for Third-Party- Defendants - Appellees.

Patricia A. Reeder, Woner, Glenn, Reeder & Girard, Topeka, Kansas, for
Plaintiff - Appellee.

Before ANDERSON, EBEL, and KELLY, Circuit Judges.

ANDERSON, Circuit Judge.

                                        -3-
      This consolidated appeal arises from an adversary proceeding brought in

the bankruptcy of Villa West Associates, a Kansas limited partnership. (“Villa

West” or “Partnership”). The first issue we must determine is whether the

provision in the Villa West limited partnership agreement that governs calls for

additional capital contributions allows the general partner, on behalf of the

Partnership, to bring a suit for money damages against a limited partner who fails

to contribute when a call is made. The bankruptcy court found that, because the

obligation to contribute is mandatory, any limited partner who fails to contribute

is liable for money damages. Appellants’ App., Tab 10 at 106-12. The district

court reversed, finding, inter alia, that the limited partnership agreement set forth

the agreed-upon remedies in the event of a default, and that a money damages suit

was not one of the listed remedies. Id., Tab 16 at 422. For the reasons set forth

below, we agree with the district court. The second issue we address is whether,

under Kansas law, the limited partners owed a fiduciary duty to one another in the

circumstances of this case. The bankruptcy court found that such a duty existed,

and that the appellees had breached that duty. The district court reversed. Again,

we agree with the district court. Finally on the third issue, whether the district

court erred in assessing $2,612.50 in attorneys fees as sanctions against the

                                          -4-
appellants for filing a second premature appeal, we conclude that there is no

reversible error.

                                    BACKGROUND

       Both the bankruptcy court and the district court have exhaustively set forth

the undisputed facts surrounding this nearly nine-year-old litigation. We

summarize as follows. The Partnership was formed in 1983 to purchase and

operate a shopping center in Topeka, Kansas. It was designed as a tax shelter,

which, under then-existing tax laws, would permit an individual limited partner to

claim against his or her individual income a share of the Partnership losses, up to

the amount the respective limited partner was “at risk.” Appellants’ Br. at 13, 15;

Appellees’ Br. at 2; see I.R.C. §§ 465, 752. 1 The general partner was Fred C. Kay

(“F. Kay”), who also held a limited partnership interest. Ultimately, there were

eighteen limited partners, including F. Kay, and his parents, Doug and Ann Kay

(“D. & A. Kay”). The limited partners’ interests varied, depending upon the

number of partnership units purchased.

       At the time of investment, each limited partner signed both a subscription

agreement for a specified share of the Partnership and a combined signature page

       1
        Unless otherwise specified, all citations to the Internal Revenue Code refer to the
provisions which were in effect at the time the partnership was created.

                                            -5-
and participation agreement. These were delivered to F. Kay, together with the

limited partner’s check in half payment of the initial capital contribution and an

executed recourse promissory note for the subscription balance. At the same

time, each limited partner also executed a continuing guarantee, capped at 125%

of the limited partner’s interest in the Partnership, in favor of Metro North State

Bank (“Metro Bank”) as security for two promissory notes made by the

Partnership and payable to Metro Bank (the “Notes”), in the respective amounts

of $300,000.00 and $225,000.00. Both Notes were recourse notes as to the

Partnership and were signed by F. Kay as general partner. Appellants’ Br. at 14.

      The limited partnership agreement authorized F. Kay to demand additional

capital contributions from the limited partners under certain conditions.

Appellees’ Br. at 16, 32. In particular, Paragraph 9 of the partnership agreement

addressed the partners’ ability to deduct Partnership losses by referencing a “risk”

for Partnership debts through conditional provisions for Additional Capital

Contributions to the Partnership to fund operating deficits. Appellants’ Br. at 15;

Appellees’ Br. at 2; see I.R.C. §§ 465, 752.

      By 1987, the partnership was in serious financial straits. Pursuant to

paragraph 9, on November 9, 1987, F. Kay wrote to the limited partners

demanding additional capital contributions totaling $150,000 to cover an existing

operating deficit. None of the limited partners honored the call, and, apparently,

                                         -6-
F. Kay did nothing. Appellants’ Br. at 16; Appellants’ App., Tab 49 at 1050-59.

On March 17, 1988, F. Kay again wrote the limited partners, advising that

additional substantial capital contributions would be necessary to avoid

foreclosure. Again, no partner contributed; F. Kay apparently did nothing.

Finally, unable to raise the needed funds, F. Kay, sought bankruptcy protection

for the Partnership under Chapter 11. Eventually, the mortgagee of the shopping

center foreclosed on its nonrecourse loan. Additionally, the two Notes given by

the Partnership to Metro Bank, and guaranteed by the limited partners, went into

default, and Metro Bank demanded payment in full.

      At that time, unbeknown to F. Kay and D. & A. Kay, all the other limited

partner/Note guarantors formed a separate partnership, MN Associates (the “Note

partnership” or “Note partners”), which purchased the Notes from Metro Bank for

$541,669.18. As assignee of the Notes, they then demanded full payment from F.

Kay as general partner, and from D. & A. Kay, to the extent of their guarantees,

and they also filed a proof of claim against the Partnership in the bankruptcy

court. After receiving the Note partners’ demand, on March 24, 1989, F. Kay

again called upon all limited partners for an additional capital contribution, this

time to cover that demand. None of the limited partners honored the call. The

bankruptcy was converted to Chapter 7, a Trustee was appointed, and this

adversary proceeding ensued.

                                          -7-
      The issues in this case present an all or nothing approach by the parties.

According to F. Kay’s reading of the partnership agreement, he would never be

subjected to any general partner liability for the Notes so long as the limited

partners had any money, because he could simply call for additional capital from

the limited partners to pay the Partnership’s obligation on the Notes. On the other

hand, under the limited partners’ approach, their guarantees on the Notes are

meaningless so long as either the partnership or the general partner had any

money. They could either buy the Notes outright, or, as guarantors, subrogate

with respect to any demand by the bank on their guarantees. Either tactic would

allow them to seek full payment from the primary obligor, the partnership, and in

turn the general partner, and under the terms of the partnership agreement escape

liability to the Partnership or the general partner.

                                    DISCUSSION

      On appeal from a district court’s decision in its capacity as bankruptcy

appellate court, we independently review the bankruptcy court's decision,

applying a “clearly erroneous” standard to bankruptcy court's findings of fact and

a “de novo” standard to its conclusions of law. Phillips v. White (In re White), 25
F.3d 931, 933 (10th Cir. 1994).

                                          -8-
       A. Relevant Provisions of the Partnership Agreement

       A limited partnership agreement constitutes a contract between the parties.

See Beverly v. McCullick, 505 P.2d 624, 632 (Kan. 1973). If a contract is

unambiguous, its construction and interpretation presents a question of law which

we review de novo. Milk 'N' More, Inc. v. Beavert, 963 F.2d 1342, 1345 (10th

Cir. 1992); see Sunflower Park Apartments v. Johnson, 937 P.2d 21, 23 (Kan. Ct.

App. 1997). In this case, although the parties interpret its provisions differently,

they both argue that the partnership agreement is unambiguous, and they generally

base their legal positions upon Paragraphs 9 and 14(c). 2

       Paragraph 9, which F. Kay invoked when he made the calls for additional

capital contributions, provides as follows:

              Additional Capital Contributions. In any year in which the
       Partnership incurs operating deficits, 3 and funds for the payment
       thereof are not available and cannot be borrowed on terms acceptable
       to the General Partner, then each partner, general or limited, shall be
       required to contribute his proportionate share of such deficit as an
       additional capital contribution (determined in accordance with the
       percentages for the division of profits and losses provided in
       Paragraph 8 hereof, as subsequently modified by any other provisions

       2
        The Note partners also contend that Paragraph 10 applies. Inasmuch as we
determine that the limited partner’s have no personal liability for additional capital calls
on the bases of Paragraphs 9 and 14, we neither set out Paragraph 10 nor discuss our
conclusion that the paragraph is inapplicable to this case.
       3
        Despite the Note partners’ belated and persuasive argument respecting this term,
our thorough review of the record before the bankruptcy court convinces us that the Note
partners did not timely raise any argument as to the meaning of the term operating deficit
as used in this paragraph.

                                             -9-
      in this Agreement) in an amount not to exceed his proportionate
      share of the excess of operating expenses and mortgage payments
      over gross revenues from the property. In the event any partner fails
      to make any such required contribution within thirty (30) days
      following the receipt of written notice of the requirement to make
      such a contribution, such partner shall be deemed in default and the
      remaining Limited Partners shall have the right to make such
      additional capital contribution pro rata and thereby increase their
      percentage interests in the capital of the partnership. In the event all
      Limited Partners have declined to provide all or any portion of such
      additional capital, then notwithstanding anything to the contrary
      herein contained, the General Partner is authorized to admit
      additional Limited Partners as necessary to raise the additional
      capital. The percentage interests in the capital and profits and losses
      of the Partnership shall be adjusted to reflect such additional cash
      capital contributions of the existing Partners and the admission and
      cash capital contributions of any Limited Partners to be added.

Appellants’ App., Tab 50 at 1165 (emphasis added).

      Additionally, paragraph 14(c) provides as follows:

             Management, Duties and Restrictions.
             (c) Limited Partners. No Limited Partner shall participate in
      the management of the partnership business. No Limited Partner or
      General Partner shall have the right to withdraw his capital
      contribution. Except as otherwise provided in Paragraph 22 hereof,
      no Limited Partner shall have the right to demand or receive property
      other than cash in return for his interest in the Partnership. No
      Limited Partner shall have priority over any other Limited Partner.
      No Limited Partner shall be personally liable for any of the debts of
      the Limited Partnership or any of the losses thereof beyond the
      amount committed by him to the capital of the Limited Partnership
      and his share of undistributed profits of the Limited Partnership.

Id. at 1169 (emphasis added).

                                        -10-
      B. Limited Partnership Agreements and Liability for Additional
Contributions

       The Kays argue that the district court erred in finding that the partnership

agreement provided an exclusive remedy of dilution or forfeiture in the event that

a limited partner failed to make a capital contribution when required to do so

under Paragraph 9 of the limited partnership agreement. The Note partners

respond that any reading of the limited partnership agreement which would

subject them to suit for failure to make additional contributions is inconsistent

with the concept of being a limited partner. 4

       “The cardinal rule of contract interpretation is that the court must ascertain

the parties’ intention and give effect to that intention when legal principles so

allow.” Ryco Packaging Corp. v. Chapelle Int’l, Ltd., 926 P.2d 669, 674 (Kan.

Ct. App. 1996) (citing Hollenbeck v. Household Bank, 829 P.2d 903, 906 (Kan.

1992)). Where two or more instruments are executed by the same parties at or

near the same time in the course of the same transaction and concern the same

subject matter, they will be read and construed together to determine the intent,

rights, and interests of the parties. Akandas, Inc. v. Klippel, 827 P.2d 37, 51

(Kan. 1992). “Reasonable rather than unreasonable interpretations of contracts

       4
         In their reply brief, the Kays further contend that the Note partners have conceded
their liability on pages 16 and 32 of their Appellees’ Brief. However, we interpret the
Note partners’ statements to concede only the general partner’s authority to make calls;
nowhere do they concede their personal liability upon failure to honor the calls.

                                            -11-
are favored,” and “‘[r]esults which vitiate the purpose or reduce the terms of a

contract to an absurdity should be avoided.’” Kansas State Bank & Trust Co. v.

DeLorean, 640 P.2d 343, 349 (Kan. Ct. App. 1982) (quoting Weiner v. Wilshire

Oil Co., 389 P.2d 803, 808 (Kan. 1964)). “Kansas follows the traditional rule that

parties who are mentally competent may contract on their own terms unless the

contract is illegal, contrary to public policy, or obtained by fraud, mistake,

overreaching, or duress.” Hartford v. Tanner, 910 P.2d 872, 878 (Kan. Ct. App.

1996). A party who has voluntarily entered into a contract is bound by its terms,

even though the contract may prove to be unwise or disadvantageous to him.

Corral v. Rollins Protective Servs. Co., 732 P.2d 1260, 1263 (Kan. 1987).

            1. Specific Statutory Authorization as to Limited Partner’s Liability
      for Agreements to Make Future Contributions and Villa West’s Tax Shelter
      Design

      The Kays contend that Paragraph 9 of the partnership agreement constitutes

a promise to make additional contributions which is enforceable under Kansas

law. In support they cite Kan. Stat. Ann. § 56-1a302 which provides that a

limited partner is obligated to the partnership for his written promises to

contribute as follows:

            Liability for contributions. (a) No promise by a limited partner
      to contribute to the limited partnership is enforceable unless set out
      in a writing signed by the limited partner.

            (b) Except as provided in the partnership agreement, a partner is
      obligated to the limited partnership to perform any enforceable promise to

                                         -12-
      contribute cash or property or to perform services, even if the partner is
      unable to perform because of death, disability or any other reason. . . .

             (c) Unless otherwise provided in the partnership agreement, the
      obligation of a partner to make a contribution . . . may be compromised
      only by consent of all the partners. Notwithstanding the compromise, a
      creditor of a limited partnership who extends credit to the partnership may
      enforce the original obligation if the creditor extends credit . . . after the
      filing of the certificate of limited partnership . . . which . . . reflects the
      obligation, and before [any] amendment . . . reflect[ing] the compromise.

Id. (emphasis added). Thus, the Kays argue that Kansas law specifically

contemplates agreements which obligate limited partners to make future

contributions and also permits the partnership to sue a limited partner who fails to

make those promised contributions. We agree. However, the cited provision of

Kansas law also makes it clear that the language of the particular partnership

agreement will determine whether such an obligation and remedy are in fact

created.

      In this case, the Kays argue that the language is clear, but they further

contend that the Partnership’s tax sheltering purpose informs the partnership

provisions and unequivocally establishes the Note partners’ personal liability for

calls related to the Notes. The Kays are correct in their assertion that, in order to

qualify for a pass-through deduction at the time that the Partnership was formed,

the relevant tax laws required a limited partner to be “at risk”, i.e., the limited

partner had to assume personal and ultimate liability for certain debts. See

Pritchett v. Commissioner, 827 F.2d 644, 646-47 (9th Cir. 1987) (finding that

                                          -13-
limited partner’s obligation to make additional capital contributions under the

partnership agreement satisfied the “at risk” requirement of I.R.C. § 465); Gefen

v. Commissioner, 87 T.C. 1471, 1499-1502 (1986) (same, both under I.R.C. § 465

and under § 752); cf. Goatcher v. United States, 944 F.2d 747, 750 (10th Cir.

1991) (finding that taxpayers, subchapter S shareholders, as mere guarantors of

debt to corporation, were not “at risk,” and therefore not entitled to deductions). 5

       In fact, in the context of tax shelters, there are abundant examples of

limited partnership agreements which contain additional assessment clauses that

have been held to be enforceable. See, e.g., Dayton Sec. Assoc. v. Securities

Group 1980 (In re Sec. Group 1980), 74 F.3d 1103, 1105-06 (11th Cir. 1996)

(allowing bankruptcy trustee to sue limited partners in tax shelter based upon

provision for additional contributions to cover specified recourse indebtedness up

       5
        In a slightly different context, Goatcher concerned the “at risk” requirements of
I.R.C. § 465, and we observe that, when the Villa West Partnership was formed, the § 465
“at risk” rules did not apply to nonrecourse debt involved in real estate activities. See
former I.R.C. § 465(c)(3)(D) (deleted by the Tax Reform Act of 1986, Pub. L. 99-514).
Significantly, however, the Notes represent recourse, rather than nonrecourse debt.
Therefore, pass-through deductibility of the liability is governed by I.R.C. § 752, which
had requirements similar to § 465 respecting ultimate personal liability. See Gefen v
Commissioner, 87 T.C. 1471, 1499 (1986); Abramson v. Commissioner, 86 T.C. 360, 374
(1986); see also Arthur Kalish & Jeffrey J. Rosen, The Risky Basis for Partnership
Allocations, 38 Tax Law. 119, 128, 131 (1984) (noting that Treasury Reg. § 1.752-1(e)
“treat[s] a limited partner like a general partner to the extent that he too can be obligated
to use his personal assets to satisfy a partnership liability,” and that “the key to a limited
partner’s share of recourse liabilities is his obligation to make additional contributions to
the capital of the partnership”).

                                            -14-
to three times limited partner’s original investment); Federal Deposit Ins. Corp. v.

Nanula, 898 F.2d 545, 551-52 n.10 (7th Cir. 1990) (allowing creditor to recover

from limited partner in tax shelter based on provision to make additional

contributions to cover obligations of specified notes and assumption agreements);

Continental Illinois Nat’l Bank & Trust Co. v. Allen, 811 P.2d 168, 172-73 (Utah

1991) (allowing creditor to enforce limited partner’s obligation to contribute

additional capital to satisfy specifically referenced guarantee); Coventry Manor

Phase II Assoc., L.P. v. Hainen, 904 S.W.2d 279, 282-83 (Mo. Ct. App. W.D.

1995) (interpreting language identical to Villa West agreement, and holding that

obligation to contribute was mandatory upon general partner’s call); Contraband

Cove v. Daly, 527 So. 2d 534, 535, 537 (La. Ct. App. 3d Cir. 1988) (construing

obligation to pay installments on initial subscription, noting that agreement

specifically provided that general partner would have no obligation to make up

any deficiency, and finding paragraph setting forth penalties both as to

subscription installments and additional contributions to be nonexclusive).

      Faced with such examples, we conclude that certain business and tax

considerations may induce a limited partner to enter into agreements which

expand his or her otherwise limited liability. Significantly, however, all of the

examples we discovered, except Coventry Manor, involve provisions which

expressly specified the amount to be contributed, or which set caps on the

                                        -15-
contribution requirements, or which specified the particular partnership debt for

which the limited partner assumed liability. Nonetheless, we accept the Kays’

contention that in order to be “at risk,” so as to qualify for the related pass-

through deductions which they claimed, the Villa West limited partners needed to

unconditionally obligate themselves to make additional capital contributions to

cover their proportionate share of losses and expenses associated with the Notes.

             2. Interpretation of Villa West Partnership Agreement

      Having concluded that a limited partner’s agreement to make additional

capital contributions to cover certain indebtedness is entirely consistent with

Kansas law and policy, as well as then-existing tax considerations, we now

determine whether the Villa West partnership agreement did in fact include an

unconditional promise that the limited partners would make additional

contributions.

                    a. Paragraph 9. According to Paragraph 9, “[i]n any year in

which the Partnership incurs operating deficits,” each limited partner “shall be

required to contribute his proportionate share of such deficit,” and if “any partner

fails to make any such required contribution . . . such partner shall be deemed in

default.” Appellants’ App., Tab 50 at 1165 (emphasis added). The remainder of

the paragraph grants the other limited partners the right to make pro rata

additional contributions due from the defaulting partner(s), which contributions

                                          -16-
will increase the interests of those partners who step in. If the limited partners

decline to step in for the defaulting partner’s obligation, the general partner is

authorized to admit additional limited partners. Id.

      We agree with the bankruptcy court’s implicit conclusion that a contract

need not expressly set forth common law remedies for default, and we also agree

with its finding that Paragraph 9 created a mandatory duty to contribute.

However, we disagree that, in this case, a default triggered liabilities or penalties

beyond those expressly listed in the paragraph itself. To the contrary, we read

Paragraph 9 as a single, integrated unit which plainly sets out the consequences of

a limited partner’s default of his mandatory duty to contribute. That is, the

paragraph specifies the agreed-upon penalty—the limited partner faces dilution of

his partnership interest if he chooses not to make additional contributions in the

face of increasing capital costs. The fact that an action at law for money damages

is a standard breach of contract remedy does not compel us to interpolate it here.

Rather, Paragraph 9 is complete as written, and an action for money damages

would be inconsistent with its express provisions. In this case, such a reading

                                         -17-
comports with the clear language of the paragraph 6 and is also consistent with our

reading of Paragraph 14(c).

                     b. Paragraph 14(c). Paragraph 14(c) states that “[n]o Limited

Partner shall be personally liable for any of the debts of the Limited Partnership

or any of the losses thereof beyond the amount committed by him to the capital of

the Limited Partnership.” Appellants’ App., Tab 50 at 1170 (emphasis added).

According to the Kays, that limitation takes into account and includes all the

indeterminate amounts which the limited partners agreed to contribute under

Paragraph 9. 7 We disagree.

       6
         In a different context, we might be inclined to find the contract ambiguous.
However, in this case as we have mentioned above, the parties have stipulated that the
contract is unambiguous and have argued that it must be interpreted according to its clear
language. Although the language could be clearer, we have no problem finding that, even
if the parties may have had other intentions, the contract as written simply does not
provide for the open-ended liability which F. Kay asserts against the limited partners. See
discussion of Paragraph 14(c) infra. Moreover, under Kansas law, if there were any
doubtful terms, they would have to be construed against the Partnership as drafter of the
document. Metropolitan Life Ins. Co. v. Strnad, 876 P.2d 1362, 1366 (Kan. 1994).
Likewise, if any ambiguity existed, the maxim expressio unius est exclusio alterius—the
mention or inclusion of one thing implies the exclusion of another, would dictate the
same result we reach by interpreting the contract’s plain language. Id.
       7
        The Kays attempt to discredit the limited partners’ argument that such a reading
essentially converts the limited partners into general partners. Thus, the Kays note that in
any event, the limited partners are not liable to third party creditors. Appellants’ Br. at
38. We disagree. As noted previously, Kan. Stat. Ann. § 56-1a302(c) expressly permits a
creditor to enforce a limited partners’ promise to contribute. See quoted statute and cases
cited, supra, discussion section B.1.

                                           -18-
       The phrase “amount committed” suggests a finite, quantifiable sum, and, in

any event, the Kays’ contrary argument makes the sentence either absurd or

meaningless. That is, the Kays’ argument bootstraps the “amount committed”

limitation in Paragraph 14(c) to their contention that Paragraph 9 makes the

limited partners liable for any negative cash flow which the general partner

cannot finance. See Appellants’ Br. at 28. Thus, according to the Kays, the

paragraphs must be read in conjunction—even though Paragraph 14(c) clearly

purports to express a limitation of liability, it actually means that the limited

partners shall be personally liable for their share of all unpaid debts and losses

which the Partnership could not pay under Paragraph 9. In other words,

Paragraph 14(c) sets no limit on liability. As previously noted, Kansas law favors

reasonable rather than unreasonable interpretations of contracts, and it avoids

results which reduce the terms of a contract to an absurdity. DeLorean, 640 P.2d

at 349. Thus, we decline to construe Paragraph 14(c) so as to render it

meaningless or absurd.

       Accordingly, we conclude that Paragraph 14(c) limits personal liability to

the amount of the original subscription, and this limitation necessarily informs

and buttresses our interpretation of Paragraph 9. 8

       8
        Consequently, despite the limited partners’ desire to qualify for certain tax
benefits respecting the Notes, the form they chose may be problematic on that point. See
                                                                                (continued...)

                                            -19-
       C. Fiduciary Duty

       D. & A. Kay contend that the district court erred in finding that the Villa

West limited partners who formed the Note partnership did not owe them a

fiduciary duty. Essentially, D. & A. Kay argue that the principles by which

general partners are held to a fiduciary duty should also apply to limited partners,

and they also cite cases which have found certain limited partners to have owed a

fiduciary duty to the other partners. The Note partners concede that a general

partner owes a fiduciary duty to the partnership and his partners. However, they

dispute that the same principles apply to limited partners. Additionally, they

distinguish the cases cited by D. & A. Kay on the basis that those cases involve

instances in which the limited partner 1) exercised control over the partnership;

2) had an otherwise confidential relationship (such as attorney); or 3) acted in

concert with the general partner.

       Whether a fiduciary duty exists is a question of law which we review de

novo. See Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373 (10th Cir.

1996). Kansas courts have not directly addressed the issue of whether a limited

partner owes fellow limited partners a fiduciary duty. However, the cases have

clearly set forth what criteria must exist in order to establish a fiduciary

       8
        (...continued)
Goatcher, 944 F.2d at 752 (refusing to disregard the form of the transaction so as to allow
the desired tax benefit).

                                           -20-
relationship. Gillespie v. Seymour, 796 P.2d 1060 (Kan. Ct. App. 1990), rev’d in

part on other grounds, 823 P.2d 782 (Kan. 1991), recites the necessary elements:

      “It has been recognized that a fiduciary relationship between parties
      does not depend upon some technical relation created by, or defined
      in, law. It exists in cases where there has been a special confidence
      reposed in one who, in equity and good conscience, is bound to act in
      good faith and with due regard for the interests of the one reposing
      the confidence. [Citations omitted.]

      “Fiduciary relationships recognized and enforceable in equity do not
      depend upon nomenclature; nor are they necessarily the product of
      any particular legal relationship. [Citations omitted.] They may
      arise out of conduct of the parties evidencing an agreement to engage
      in a joint enterprise for the mutual benefit of the parties. [Citations
      omitted.] But they necessarily spring from an attitude of trust and
      confidence and are based upon some form of agreement, either
      expressed or implied, from which it can be said the minds have met
      in a manner to create mutual obligations. [Citations omitted.]

      “For the plainest of reasons, agreements establishing fiduciary
      relationships, if not in writing, must be clear and convincing.
      Because of the acuteness of the equitable remedies, courts will not
      reach out to establish legal relationships from which enforceable
      equitable rights may flow. A confidential relationship is never
      presumed, and the burden of proof is upon the party asserting it.
      [Citation omitted.]

      “Mere concert of action, without more, does not establish a fiduciary
      relationship. [Citations omitted.] Undoubtedly, parties may deal at
      arm’s length for their mutual profit. It is only when, by their
      concerted action, they willingly and knowingly act for one another
      in a manner to impose mutual trust and confidence that a fiduciary
      relationship arises.”

Id. at 1063 (quoting Paul v. Smith, 380 P.2d 421, 426 (1963)).

                                        -21-
       Summarizing the relevant considerations, the Gillespie court concluded that

a “fiduciary relationship requires confidence of one in another and a certain

inequity or dependence arising from weakness of age, mental strength, business

intelligence, knowledge of facts involved, or other conditions which give one an

advantage over the other.” Id.

       In this case, D. & A. Kay neither alleged nor presented facts which support

a conclusion that they were in a position of inequity or dependence vis à vis the

Note partners. 9 Furthermore, D. & A. Kay failed to present facts sufficient to

support a finding that the Note partners, either individually, or acting as a

dominant group, held a position of confidence with, 10 or exercised control over,

the Partnership at any relevant time. Cf. Southern Pac. Co. v. Bogert, 250 U.S.
483, 491 (1919) (finding that when majority stockholders act so as to exercise

       9
        Neither party has favored us with any explanation, either as to any disadvantages
that D. & A Kay faced by reason of the Note partners’ tactic, or as to any advantages the
Note partners sought to gain by excluding them. In any event, the Note partners have had
to expend funds to cover the portion of the Notes that represent the obligation of D. & A.
Kay under the guarantees, and D. & A. Kay will have rights of subrogation against F.
Kay.
       10
          At trial, F. Kay stated that one of the Note partners had been the attorney for the
Partnership when it was formed and had drafted the partnership documents. However,
nothing in the record suggests that the attorney-client relationship continued beyond the
initial formation. See Appellants’ App., Tab 52 at 1300, 1379. Also, F. Kay testified that
another of the Note partners was the real estate broker who initially brought the Villa
West shopping center to his attention, provided an economic analysis of the property, and
assisted in obtaining the original financing. Id. at 1299-1300, 1329. However, nothing in
the record suggests that the broker continued to act for the Partnership in any confidential
or agent/principal capacity.

                                            -22-
control over the corporation, they stand in a fiduciary relationship with the

corporation and the minority shareholders).

      Under the circumstances, D. & A. Kay’s bare allegation that a fiduciary

duty exists fails. Accordingly, we agree with the district court’s conclusion that

the bankruptcy court erred in holding that the Note partners owed a fiduciary duty

to D. & A. Kay.

      D. Appellate Sanctions

      As their final claim of error, the Kays contend that the district court lacked

jurisdiction to determine sanctions pursuant to our remand following the Kays’

second appeal. Alternatively, the Kays contend that the imposition of sanctions is

contrary to Tenth Circuit law. We disagree.

      In relevant part Tenth Circuit Rule 46.5 provides that this court “may

impose . . . an appropriate sanction” upon parties who make improper filings. In

connection with the Kays’ first appeal, we issued a detailed order which fully

explained our reasons for finding that we lacked jurisdiction. Appellants’ App.,

Tab 20. Although nothing had occurred to change the conclusion based upon that

reasoning, the Kays filed a second appeal prior to the time that the matters had

been fully adjudicated below. Moreover, almost contemporaneously with their

appeal, the Kays filed a motion to dismiss their own appeal, noting that

“Appellants do not, in their best judgment, and on review of the applicable law,

                                         -23-
believe this Court to have jurisdiction at this time over their Appeal.”

Appellants’ App., Tab 32 at 516. Following our order for briefing, the Kays

further stated that “[i]t seems elementary that since the remanded matters now

determined by the Bankruptcy Court have themselves result[ed] in an appeal to

the District Court, th[e]n the Judgment is still not ripe for appeal to the 10th

Circuit.” Id., Tab 34 at 531.

      Filings which are not warranted by existing law or a good faith argument

for the extension or modification of such law waste the resources both of this

court and the parties. Accordingly, in response to the Note partners’ motion for

costs, including reasonable attorney fees under Tenth Circuit Rule 46.5, we

dismissed the appeal and remanded to the district court “for a determination of

whether and in what amount attorney fees should be granted.” Appellants’ App.,

Tab 36.

      While our order might have been clearer, certainly we did not intend to

delegate to the district court the threshold decision of whether the requesting

party had a right to sanctions in the first instance. Rather, having ourselves

concluded that imposition of a sanction to pay attorney fees was warranted, we

remanded to the district court to determine whether there were mitigating

circumstances not apparent in the record before us, and whether any amounts

claimed were reasonable in light of all factors. “[T]he determination of the right

                                         -24-
to sanctions . . . for conduct during an appeal is reserved to the appellate court,

although it may allow the trial court to fix the amount of the fees and costs.”

Morris by Rector v. Peterson, 871 F.2d 948, 951 (10th Cir. 1989) (citation

omitted).

      Following full briefing on remand, the district court found that the Note

Partners were entitled to its reasonable attorney fees in the amount of $2,612.50.

We find no error in the district court’s determination.

                                   CONCLUSION

      Therefore, for the reasons stated, we AFFIRM the district court’s judgment.

                                         -25-