Court Opinion

ID: 9495005
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:52:28.047212+00
Date Added: 2024-06-11T17:56:45.836998
License: Public Domain

BEAM, Circuit Judge,
dissenting.
Because I believe the anti-assignment provision of the option agreement controls *1068the outcome here, I dissent. I adopt the facts set forth in the court’s opinion with one clarification. The option agreement “placed no restrictions ... on KUCC’s ability to transfer the interest after the option was exercised,” ante at 1062, only because once the option was exercised, the Tenaska Frontier Partners, Ltd. (“TFP”) partnership agreement controlled the party’s rights regarding post-exercise transfers, not the option agreement. So, there was no need for the option agreement to be concerned with these future requirements. I additionally note that at all times, I refer to KUCC as LG & E for practical purposes in this dissent.
LG & E violated the anti-assignment provision of the option agreement when it attempted to exercise the option and carry out its duties under the option agreement as a strawman for the real party in interest, Illinova. LG & E did not merely transfer its economic interest in TFP to Illinova, but rather purported to transfer its entire partnership interest whereby Il-linova would be substituted for LG & E as partner, thus increasing Illinova’s stake in TFP. The decisions of the district court as well as this court permit this transfer without limitation and I disagree. The court partially refutes Tenaska’s claim of fraudulent concealment by determining that LG & E had no duty to disclose the reason for requesting an extension of the option deadline. However, we need not reach this issue because LG & E’s purported exercise of the option was a breach of contract and ineffective.
First, Tenaska is not estopped from contending LG & E breached the option’s anti-assignment provision, contrary to the court’s conclusion. In a claim of contract fraud, “ ‘acts in affirmance of the contract amount to a waiver of the fraud only where they are done with full knowledge of the fraud and of all material facts and with the intention clearly manifested of abiding by the contract and waiving all right to recover for the deception.’ ” Nathan v. McKeman, 170 Neb. 1, 101 N.W.2d 756, 768 (1960) (quoting Dargue v. Chaput, 166 Neb. 69, 88 N.W.2d 148, 158 (1958) (quoting 24 Am.Jur. Fraud and Deceit § 214)).4 Thus, in its claim of fraudulent concealment, Tenaska is estopped from contending LG & E breached the option agreement only if the facts are undisputed regarding Tenaska’s knowledge of the Memorandum of Agreement (“MOA”) between LG & E and Illinova, and that when Tenaska proceeded with the closing of the Grimes project in spite of that alleged knowledge, it did so with the intent to waive all right to object to LG & E’s deception.5 These facts are clearly in *1069dispute, and summary judgment cannot be supported as a matter of law on this issue.
Second, the court asserts that even if the LG & E/Ilhnova transaction constituted an assignment of the option, LG & E did not breach the anti-assignment provision because Illinova could presumably meet LG & E’s obligations in the TFP partnership. I wholly disagree that “Te-naska can hardly complain that its right to choose with whom it contracts is hindered, since Illinova is already an existing partner in the limited partnership.” Ante at 1065. Undoubtedly, parties have the right to freely contract.6 Tenaska certainly had the right to control with whom and at what time it chose to offer a percentage of its own partnership interest. The difference between Illinova’s existing ten percent partnership interest and the increase to a twenty percent interest by way of the agreement with LG & E is significant, make no mistake. Any speculation to the contrary only diminishes long-standing contract and partnership principles. Whether Illinova could presumably fulfill LG & E’s obligations is irrelevant.
Likening this situation to one that involves the sale of land is misplaced. See Panwitz v. Miller Farm-Home Oil Serv., Inc., 228 Neb. 220, 422 N.W.2d 63, 66 (1988) (holding that in a vendor/vendee relationship, the majority view is that if the assignee offers and is able to complete performance, a contract provision requiring a seller’s consent has limited application). A land-sale contract is wholly different than an interest in a partnership, which carries with it ongoing obligations, liabilities and duties. Thus, it is not for a court to determine that since Illinova is an existing partner of TFP, Tenaska necessarily would have sold Illinova this addi*1070tional ten percent interest in TFP; a sort of “no harm, no foul” argument.
The district court also adopted the “no harm, no foul” approach when it held that neither the option agreement nor the TFP partnership agreement restrict the transfer of the interest once the option is exercised, thus presuming that the transfer of partnership interests is freely permissible. Once LG & E exercises its option and gains an interest in the TFP partnership, it is subject to the transfer restrictions set forth in the partnership agreement, and the option agreement is inapplicable. Under the partnership agreement, LG & E’s ability to transfer its interest is subject to limitations. One such limitation is that no partnership interest may be transferred under the TFP partnership agreement under any circumstance if such transfer would adversely affect the financial and operating integrity of the partnership, any individual partner, parent or affiliate thereof. TFP Limited Partnership Agreement, § 14.3(iii), App. 0882. Further, even if the partnership approves of a transfer, LG & E is not released from its obligations under the agreement unless the executive review committee (“ERC”) of the partnership votes affirmatively to do so. Id. at § 14.1.1, App. 0881. Even the MOA contemplates that the transfer of LG & E’s partnership interest to Illinova is limited by the affirmative vote of the ERC. Memorandum of Agreement, § 2.2.
Section 14.3(iii) of the partnership agreement, which must be satisfied before any transfer pursuant to section 14.1 may be considered, and which restricts transfers that adversely affect the financial and operating integrity of any partner or the partnership, clearly implies that the trans-feror partner must give notice to the partnership and the remaining partners prior to a transfer of the transferor’s interest.7 In fact, it is a basic tenet of partnership law that a transfer of more than a partner’s economic rights in the partnership requires partner and partnership consent, unless the partnership agreement provides otherwise.8 Tex.Rev.Civ.Stat.Ann. 6132b-*10714.01; Aztec Petroleum Corp. v. MHM Co., 703 S.W.2d 290, 293 (Tex.App.1985). Anything less than this limitation on alienability creates a risk that the organization will be treated as a corporation for tax purposes due to the freely transferable partnership interests. See MCA Inc. v. United States, 685 F.2d 1099, 1101 (9th Cir.1982) (citing the free transferability of interests as one characteristic of a corporation for tax purposes); Outlaw v. United States, 204 Ct.Cl. 152, 494 F.2d 1376, 1380 (1974) (same). Thus, under the partnership agreement, in order for LG & E’s transfer of its partnership interest to Illi-nova to occur, the partners and the partnership must agree that such transfer upholds the financial and operating integrity of the partners and the partnership. The only way the partners and the partnership could make this determination is if they had notice of the transfer. Then, and only then, can the additional limitation conditions set forth elsewhere in section 14.1 (and in part specifically referenced by LG & E and Illinova in section 2.2 of the MOA) be implemented. This notice requirement is further evidenced by the Texas Revised Partnership Act, which requires notice in order for the partnership to give effect to a transfer of a partnership interest. Tex.Rev.Civ.Stat.Ann. 6132b-5.03 (“Until receipt of notice of a transfer, a partnership does not have a duty to give effect to a transferee’s rights under this section.”).
When LG & E entered into the MOA with Illinova, and subsequently exercised its option with Tenaska, LG & E did not provide TFP or Tenaska with notice of the transfer of LG & E’s interest to Illinova. As a result, neither TFP nor Tenaska had an opportunity to determine whether the transfer would adversely affect the financial and operating integrity of the partners or partnership. LG & E’s disclosure just prior to financial closing is of no consequence, as the transaction between LG & E and Illinova had already occurred at that time. We may not assume that even if LG & E validly exercised its option and gained its ten percent interest in TFP, TFP would necessarily have favored this particular transfer to Illinova.
To specifically address the basis of this dissent, I note that the MOA between LG & E and Illinova, executed before LG & E exercised its option with Tenaska, unquestionably violates the anti-assignment provision of the option agreement between Te-naska and LG & E. First, it is certain that LG & E would not have exercised the option without the guarantee from Illinova that it would, in fact, purchase LG & E’s interest and perform all of LG & E’s partnership obligations. Thus, the acceptance of the MOA by Illinova immediately divested LG & E of its option and partnership duties and liabilities. Second, section 3 of the MOA obligates Illinova to pay a purchase price for the option as well as assume all of LG & E’s liabilities and obligations under the TFP partnership agreement upon transfer of the partnership interest to LG & E. Illinova further agreed to reimburse and/or indemnify LG & E with respect to all of LG & E’s funding obligations required upon the exercise of LG & E’s option, and in fact did fund LG & E’s obligations. The option funding obligations under the MOA are incurred prior to the transfer of the partnership interest, thus Illinova was obligated for all financial burdens associated with the option interest before LG & E even became a partner of TFP.
*1072It is unduly simplistic to contend that because the MOA states that LG & E grants to Illinova the option to purchase LG & E’s partnership interest after the transfer of such partnership interest, it is not a present assignment of LG & E’s option. Ante at 1066. Indeed, to do so exalts form over substance. Illinova paid a purchase price for the contractually unassignable option and immediately assumed all of LG & E’s financial and legal obligations. The final transfer of the interest from LG & E to Illinova, then, was merely a formality, a formality that violated both the option agreement and the partnership agreement. It appears from the plain language of the MOA that the only uncertainty was whether LG & E would exercise its option at all with Tenas-ka. Once LG & E moved to exercise the option, Illinova instantly assumed total partnership financial and legal burdens and the terms of the MOA constituted LG & E’s improper transfer of the partnership interest to Illinova without either the contractually or statutorily required notice. LG & E failed .in its attempt to satisfy the letter .of the option agreement pro forma. To hold that LG & E surreptitiously and successfully drafted its way around the option agreement rewards behavior I am not willing to sanction, especially given the mandates of well-established partnership law.
Stated simply, LG & E’s attempted exercise of the option agreement is inextricably and improperly intertwined with the immediate transfer of LG & E’s partnership interest to Illinova. As a result of the MOA, Illinova became the true holder of the interest in the TFP partnership. This transfer not only violates both the terms and spirit of the anti-assignment section of the option agreement, but also the limitation on transfers at section 14.3(iii) of the limited partnership agreement.
For these reasons, I would reverse the judgment of the district court granting summary judgment in favor of LG & E.

. The court cites Baye v. Airlite Plastics Co., 260 Neb. 385, 618 N.W.2d 145, 150 (2000) for the proposition that "[t]he acceptance of any benefit from a transaction or contract, with knowledge or notice of the facts and rights, will create an estoppel.” In Baye, however, the party was challenging the validity of the contract under which the defendant had accepted money annually. The Nebraska Supreme Court essentially held that an assertion of invalidity is nullified by the acceptance of the benefits. Id. at 150-51. Baye does not, however, deal with a claim of fraudulent concealment in the performance of a contract as we have here. In this case, Tenaska is not arguing that the option agreement is invalid, but that LG & E engaged in fraudulent concealment in relation to the exercise of LG & E’s option, which concealment resulted in a breach of the option contract. Thus, Nathan, not Baye, is on point legally and factually and, as such, Nathan presents the apposite precedent. Estoppel in this instance requires proof of knowledge and intent, both of which are issues of fact more appropriately left for the fact finder in this instance.

. The court states that contrary to my suggestion in dissent “it is undisputed that Tenaska accepted benefits ... with full knowledge of the material terms of the 'Memorandum of Agreement.' ” Ante at 1065. I respectfully suggest that this argument both ignores other material facts and substantively misses the *1069point. The MOA between LG & E and Illino-va was signed on June 30, 1998. LG & E purported to exercise the option on July 6, 1998, and Tenaska was informed of the MOA transaction on August 18, 1998, eight days before the scheduled closing with the lenders financing the construction of the power plant on August 26, 1998. The record discloses that TFP and Tenaska were concerned that a full blown dispute with LG & E at this late date would jeopardize the financial arrangements. From this "between a rock and a hard place” position, the TFP partners proceeded with the closing. However, Tenaska by letter to LG & E dated August 24, 1998, concerning the closing, stated "[w]e can straighten out all of the disarray after financial closing.” This, of course, is hardly the stuff of knowing and intentional waiver of the claim of fraudulent deception intertwined with breach of contract. Indeed, under precedent established by Nathan, the court’s contention clearly fails to pass muster under Nebraska law.

. The court contends that the fundamental right of a partner to limit, by contract, its right to associate with whomever it pleases and to whatever degree is undercut by Tenas-ka’s purported negotiations with Illinova for a 7.5 percent interest if LG & E failed to exercise its option for 10 percent. The court's argument, I respectfully suggest, misstates the record. The purported option agreement referred to by the court appears as Exhibit 35 at App. 503 of the record on appeal and is neither the option agreement at issue in this case nor a proposed option representing negotiations between Tenaska and Illinova. Exhibit 35 (App.501-507) .appears to have provided the basis for a pre-formation discussion with Illinova concerning a potential initial TFP partnership interest. On the other hand, the option at issue here is not an option granted for an initial stake in the limited partnership but rather an option by partner Tenaska granting LG & E a right to acquire a portion of Tenaska's partnership share obtained as part of the original formation of the TFP partnership. Rather than undercutting the existence of Tenaska’s fundamental contract rights, these negotiations simply highlight the fact that every partner and partnership, absent partnership agreement language to the contrary, has the right to pick and choose the identity, timing and amount of partnership interest that it may wish another to acquire.

. The court takes me to task for seeing a “notice” requirement in section 14.3(iii) of the partnership agreement saying, in part, “[t]hus, the dissent’s suggestion that Texas law and the limited partnership agreement imposed a pre-transfer notice obligation upon LG & E is simply unfounded.” Ante at 1067. I again, respectfully suggest that it is the court’s contract and statutory analysis that is unfounded. What the court apparently fails to notice is that the partnership agreement states at the beginning of section 14.1 (containing thereafter section 14.1.1) the following: "[e]xcept as provided in Section 14.3, nothing herein after shall prevent: [a transfer under the limitations set forth in section 14.1.1].” Section 14.3(iii) then states: “Notwithstanding any other provision of this Agreement, no Partnership Interest may be transferred by sale, transfer, or otherwise if: such transfer would adversely affect the financial and operating integrity of the Partnership, any individual Partner, Parent, or Affiliate thereof.” (Emphasis added). Thus, section 14.3 clearly contains requirements and approvals that must be met before the terms of section 14.1 may, in the first instance, be implemented. Indeed, section 14.3 merely recites, in contract terms, the usual partnership law requirements of notice prior to a transfer that results in substitution of one individual or entity for an already existing partner, here, purportedly, the substitution of Illinova for LG & E. Thus, before a transfer with additional limitations described in sections 14.1.1, 14.1.2 and 14.1.3 can proceed, if at all, the overriding requirements of section 14.3(iii) must be met. The court does not indicate how this can possibly be done without giving the partnership and all existing partners notice before this transfer occurs. Under the court’s apparent scheme, a transfer, without notice, would occur only to be unraveled if the requirements of section 14.3(iii) and section 14.1.1. are not ultimately met. I find no statutory or case law in support of this approach and it seems totally at odds with a reasonable reading of the partnership agreement and usual partnership concepts.

. TFP is a Texas limited partnership, and we apply Texas law as the TFP partnership agree*1071ment so provides. TFP Limited Partnership Agreement, § 17.4.3. In contrast, the option agreement between Tenaska and LG & E provides for the application of Nebraska law under the terms of the contract. Option and Agreement, § 6.5.