Court Opinion

ID: 2718240
Source: CourtListenerOpinion
Date Created: 2014-08-15 14:03:28.929759+00
Date Added: 2024-06-11T13:26:45.826737
License: Public Domain

Nebraska Advance Sheets
846	288 NEBRASKA REPORTS

the jury, and more particularly, there was sufficient evidence
from which a reasonable jury could find that the contemplated
act would be illegal on the day upon which it would have
been performed.
   For the foregoing reasons, although my analysis of the
interpretation of § 28-320.02 differs from the majority,
I concur.

              James E. Robertson et al., appellants, v.
               Jacobs Cattle Company, a partnership,
                         et al., appellees.
                                   ___ N.W.2d ___

                       Filed August 15, 2014.    No. S-13-860.

 1.	 Partnerships: Accounting: Appeal and Error. An action for a partnership dis-
     solution and accounting between partners is one in equity and is reviewed de
     novo on the record.
 2.	 Equity: Appeal and Error. On appeal from an equity action, an appellate court
     resolves questions of law and fact independently of the trial court’s determina-
     tions. But when credible evidence is in conflict on material issues of fact, an
     appellate court considers and may give weight to the fact the trial court observed
     the witnesses and accepted one version of the facts over another.
 3.	 Statutes. Statutory interpretation presents a question of law.
 4.	 Partnerships. The interpretation of a partnership agreement presents a question
     of law.
 5.	 Appeal and Error. An appellate court reviews questions of law independently of
     the trial court’s decision.

  Appeal from the District Court for Valley County: Karin L.
Noakes, Judge. Reversed and remanded with direction.

  Patrick J. Nelson, of Law Office of Patrick J. Nelson,
L.L.C., for appellants.

  David A. Domina and Megan N. Mikolajczyk, of Domina
Law Group, P.C., L.L.O., and Gregory G. Jensen for appellees.

  Heavican, C.J., Connolly, Stephan, McCormack, Miller-
Lerman, and Cassel, JJ.
                       Nebraska Advance Sheets
	                     ROBERTSON v. JACOBS CATTLE CO.	847
	                           Cite as 288 Neb. 846

      Heavican, C.J.
                        INTRODUCTION
   Four of the partners in the Jacobs Cattle Company partner-
ship sought dissolution and liquidation of the partnership. The
remaining partners filed a cross-claim seeking judicial disso-
ciation of the four partners instead of dissolution. The distinc-
tion between dissolution and dissociation is discussed later in
this opinion. The district court dissociated the four partners and
ordered the partnership to buy out their interests.
   In a previous appeal,1 we held that judicial dissociation
was proper, but determined that the district court erred in
calculating the proper distributions to buy out the dissociated
partners. On remand, after an evidentiary hearing, the district
court determined that the profit from the hypothetical capital
gain should be credited to the partners’ capital accounts, rather
than their income accounts. Due to the account distributions
required under the partnership agreement, crediting the capi-
tal gain to the dissociated partners’ capital accounts results in
a lower buyout amount than crediting the capital gain to the
partners’ income accounts. The dissociated partners now appeal
the judgment on remand, arguing that the district court again
erred in determining what they are owed by the partnership.
We reverse, and remand with direction.
                 FACTUAL BACKGROUND
   Jacobs Cattle Company is a family-owned partnership in the
farming and livestock business. The partnership was formally
organized on January 1, 1979. Seven partners of the Jacobs
Cattle Company—Dennis Jacobs, Duane Jacobs, Carolyn
Sue Jacobs, James E. Robertson, Patricia Robertson, Ardith
Jacobs as trustee of the Leonard Jacobs Family Trust, and
Ardith Jacobs as trustee of the Ardith Jacobs Living Revocable
Trust—entered into the operative partnership agreement on
June 19, 1997.
   The partnership agreement provides that each partner shall
have an individual capital account and an individual income
account. The capital accounts are to be proportional to the

 1	
      Robertson v. Jacobs Cattle Co., 285 Neb. 859, 830 N.W.2d 191 (2013).
    Nebraska Advance Sheets
848	288 NEBRASKA REPORTS

partners’ contributions. Net profits and net losses are to be
distributed to the partners’ income accounts in proportion to
the partners’ managing votes. As per the partnership agree-
ment, Ardith and Dennis are each entitled to two votes, while
the other partners each have one vote. The partnership agree-
ment provides that the meaning of “net profits” and “net
losses” shall be determined by generally accepted account-
ing principles.

                      Underlying Lawsuit
   In July 2007, appellants—James, Patricia, Duane, and
Carolyn Sue—sought dissolution and liquidation of the part-
nership. Appellees—the partnership, Ardith, and Dennis—filed
an answer and counterclaim seeking dissociation of the four
partners/appellants. After a bench trial, the district court dis-
sociated the four partners and ordered the partnership to buy
out their interests. The court determined the liquidated value
of the partnership as of September 20, 2011, to be $5,212,015.
Appellees filed a buyout proposal suggesting that each of the
appellants be paid according to his or her capital account own-
ership, or 5.33 percent of the partnership’s liquidated value.
Appellants objected to appellees’ buyout proposal and submit-
ted an alternative buyout proposal requesting that each of the
appellants be paid according to his or her income accounts,
or 12.5 percent of the partnership’s liquidated value. The dis-
trict court refused to hear evidence on appellants’ objections
and ordered appellants to be paid 5.33 percent of the liqui-
dated value.

                        First Appeal
   As discussed in our previous opinion in this case,2 prior to
adoption of the Uniform Partnership Act of 1998,3 dissolu-
tion and winding up of an at-will partnership was required
upon any partner’s expressed will to dissolve the partnership.4

 2	
      See Robertson, supra note 1.
 3	
      Neb. Rev. Stat. §§ 67-401 to 67-467 (Reissue 2009).
 4	
      See, Neb. Rev. Stat. § 67-331 (Reissue 2003); Shoemaker v. Shoemaker,
      275 Neb. 112, 745 N.W.2d 299 (2008).
                       Nebraska Advance Sheets
	                     ROBERTSON v. JACOBS CATTLE CO.	849
	                           Cite as 288 Neb. 846

The Uniform Partnership Act of 1998, however, sought to
avoid mandatory dissolution, because the partnership was to
be viewed as an entity distinct from its partners.5 Under our
Uniform Partnership Act of 1998, a partner who ceases to do
business with the partnership may be dissociated while the
partnership continues.6
   In our previous opinion, we held that the district court did
not err in determining that dissociation of appellants, rather
than dissolution of the partnership, was the appropriate rem-
edy in this case. We concluded, however, that the district
court erred in its calculation of the buyout distributions in
connection with the dissociation. We determined that because
this was a dissociation, and not a dissolution, the buyout
of the dissociated partners was governed by §§ 67-434(2)
and 67-445(2).
   In our previous opinion, we stated that under § 67-434(2),
the buyout distributions were to be determined “based upon
the assumption that the partnership assets, here the land, were
sold on the date of dissociation, even though no actual sale
occurs.”7 We further determined that “the capital gain which
would be realized upon a hypothetical liquidation of the part-
nership’s land on the date of dissociation, (as required by
§ 67-434(2)) would constitute ‘profits’ within the meaning of
the phrase in § 67-445(2).”8 Section 67-445(2) requires that
“profits . . . that result from the liquidation of the partnership
assets must be credited . . . to the partners’ accounts.”
   We noted that there remained a question as to how such
“profits” should be credited to the partners’ accounts under
the partnership agreement. Appellants contended that the prof-
its should be distributed pursuant to paragraph 11 of the
partnership agreement, which states that “net profits . . . as
determined by generally accepted accounting principles” are
to be distributed to the partners in certain percentages. We

 5	
      Shoemaker, supra note 4.
 6	
      See §§ 67-431 to 67-433.
 7	
      Robertson, supra note 1, 285 Neb. at 877, 830 N.W.2d at 205.
 8	
      Id. at 877, 830 N.W.2d at 206.
    Nebraska Advance Sheets
850	288 NEBRASKA REPORTS

concluded that the district court erred in refusing to consider
evidence regarding whether capital gains from the hypothetical
sale of the land were “net profits . . . as determined by gener-
ally accepted accounting principles” and therefore distributable
to the partners based on paragraph 11 of the partnership agree-
ment. We therefore remanded the cause “with directions for
the court to reconsider the buyout calculations after receiving
appellants’ evidence on this issue.”9

                       Hearing on R emand
   On remand, the district court received evidence, including
expert testimony offered by both appellants and appellees. The
district court determined that the capital gain did not constitute
“net profits” under the partnership agreement and held that
the gain should therefore be credited to the partners’ accounts
in accordance with their capital percentages, rather than the
income percentages pursuant to paragraph 11 of the partnership
agreement. Because the dissociated partners’ capital percent-
ages were less than their income percentages—5.33 percent
as opposed to 12.5 percent—this resulted in a lower buyout
distribution to the dissociated partners.
   The district court based its decision on the testimony of
appellees’ experts, which the court stated it found to be more
rational. On direct examination, appellees’ first expert tes-
tified that under generally accepted accounting principles,
one “would not recognize any gain or income until an actual
event of a sale [of property],” and that therefore, the buyout
distributions should be determined based on the dissoci-
ated partners’ capital percentages. On cross-examination, the
expert reiterated that his analysis was based on the fact that
no actual sale of partnership property had occurred, and it
was his opinion that “until and unless there is an actual sale
there is no profit.” Appellees’ second expert testified that
he had listened to the testimony of the first expert and that
his answers to the questions would have been substantially
the same.

 9	
      Id. at 878, 830 N.W.2d at 206.
                      Nebraska Advance Sheets
	                    ROBERTSON v. JACOBS CATTLE CO.	851
	                          Cite as 288 Neb. 846

                 ASSIGNMENTS OF ERROR
   Appellants assert, restated and summarized, that the district
court erred in determining that the capital gain profit from a
hypothetical sale of the partnership’s land should be credited to
the partners’ capital accounts.

                   STANDARD OF REVIEW
   [1,2] An action for a partnership dissolution and account-
ing between partners is one in equity and is reviewed de novo
on the record.10 On appeal from an equity action, an appellate
court resolves questions of law and fact independently of the
trial court’s determinations.11 But when credible evidence is in
conflict on material issues of fact, we consider and may give
weight to the fact the trial court observed the witnesses and
accepted one version of the facts over another.12
   [3-5] Statutory interpretation presents a question of law.13
The interpretation of a partnership agreement presents a ques-
tion of law.14 An appellate court reviews questions of law inde-
pendently of the trial court’s decision.15

                           ANALYSIS
   Appellants assign eight errors of the district court, but they
can be summarized as asserting that the district court erred in
calculating the distributions required for the buyout.
   We conclude that the district court erred in finding that the
hypothetical capital gain did not constitute “net profits” under
the partnership agreement. The district court erred when it
relied on appellees’ experts’ testimony, because that testimony
was based on the fact that there was not an actual sale of the
partnership property. As set forth in our prior opinion, under
§ 67-434, the buyout amount was to be calculated by assuming

10	
      Robertson, supra note 1; Shoemaker, supra note 4.
11	
      Id.
12	
      Id.
13	
      Id.
14	
      Id.
15	
      McKinney v. Okoye, 282 Neb. 880, 806 N.W.2d 571 (2011).
    Nebraska Advance Sheets
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that the partnership assets were liquidated on the date of disso-
ciation and that the profits from such liquidation were credited
to the partners’ accounts.
   The question on remand in this case was whether, assuming
the land was sold on the date of dissociation, the capital gain
that would have resulted from such a sale was “net profit” as
determined by generally accepted accounting principles and
therefore would have been distributed in accordance with
paragraph 11 of the partnership agreement. Appellees’ experts’
testimony rejected this premise by stating that no gain or
income would have been recognized, because no actual sale
took place. Appellees’ experts reasoned that because there
was no actual sale, and therefore no income, the distribution
should be based on capital percentages rather than income
percentages. However, this conclusion was based on the erro-
neous premise that no actual sale occurred. Appellees’ experts’
analysis ignored the statutory requirement that the buyout
distributions be calculated based on the assumption that the
assets had been sold and the resulting profits distributed to
the partners.
   Because we conclude that the district court erred when it
relied on appellees’ experts’ testimony, we consider whether
appellants’ expert’s testimony provided a proper basis to cal-
culate the buyout distributions on remand. We conclude that
it does.
   Appellants’ expert witness testified that under generally
accepted accounting principles, the term “net profits” as used
in paragraph 11 of the partnership agreement would include
capital gain from the sale of land. Based on this evidence, we
find that capital gain from the hypothetical sale of land should
be distributed to the partners in accordance with paragraph 11
governing the distribution of “net profits.”
   We note that appellants’ expert also testified regarding con-
cepts such as “derecognition” and “full accrual” as they relate
to whether and when profit is recognized in full when real
estate is sold. Appellees and their experts criticized such tes-
timony in various respects, particularly on the basis that this
partnership uses the cash method of accounting rather than
the accrual method of accounting. However, the testimony
                       Nebraska Advance Sheets
	                     ROBERTSON v. JACOBS CATTLE CO.	853
	                           Cite as 288 Neb. 846

regarding whether and when profit from the sale of land was
to be recognized was not necessary to the determination of the
issue for which we remanded this cause.
   Based on our prior opinion and the governing partnership
statutes cited therein, the buyout distributions were to be cal-
culated based on the assumption that the partnership assets
had been liquidated and the profits from such liquidation were
credited to the partners. “Liquidated” in this sense generally
means converted into cash.16 Therefore, the premise upon
which the buyout amount was to be calculated assumed that
the sale had been completed and that the capital gain was to
be recognized and distributed on the date of dissociation. Thus,
for purposes of calculating the buyout distributions, there was
not a question as to whether the sale had been completed and
whether a capital gain was to be recognized.
   The only question on remand was how the capital gain was
to be distributed among the partners. Specifically, the question
was whether the capital gain was to be included in “net prof-
its” and distributed pursuant to paragraph 11. The testimony
regarding derecognition and full accrual was not necessary
to deciding that question and does not affect our determina-
tion that appellants’ expert’s testimony supported appellants’
contention that capital gain from the sale of land should have
been included in “net profits” distributable pursuant to para-
graph 11.
                         CONCLUSION
   For the foregoing reasons, we reverse the decision of the
district court and remand the cause with direction to enter an
order which calculates a buyout distribution by adding 121⁄2
percent of the profit received from a hypothetical sale of the
partnership’s assets on September 20, 2011, to the value of
each dissociated partner’s capital account.
                      R eversed and remanded with direction.
   Wright, J., not participating.

16	
      Black’s Law Dictionary 1072 (10th ed. 2014).