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Wyller v. Madsen (5/9/2003) sp-5689
Wyller v. Madsen (5/9/2003) sp-5689
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
CHRISTIAN F. WYLLER, )
) Supreme Court No. S-10224
Appellant, )
) Superior Court No. 1JU-91-1772
CI
v. )
) O P I N I O N
DONALD MADSEN, HENRY )
WILDE, ANITA WILDE, and JAMES ) [No. 5689 - May 9, 2003]
CUMMINGS, )
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, First Judicial District, Juneau,
Walter L. Carpeneti and Patricia A. Collins,
Judges.
Appearances: Philip M. Pallenberg,
Batchelor, Pallenberg & Associates, Juneau,
for Appellant. Bernd C. Guetschow, Bernd C.
Guetschow, A Professional Corporation,
Anchorage, for Appellees.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, and Bryner, Justices. [Carpeneti,
Justice, not participating.]
EASTAUGH, Justice.
I. INTRODUCTION
Alaska Statute 32.05.330(b) permits a partner who has
not wrongfully caused dissolution of a partnership to recover
damages from each partner who has wrongfully caused the
partnership to dissolve. Christian Wyller was a partner in a
partnership which owned an office building in Juneau. He sought
damages from other partners following the partnership's
dissolution. The superior court, holding that Wyller's own
wrongful acts had contributed to the dissolution, denied Wyller's
claim for damages. We affirm, because we conclude that the
superior court did not clearly err in finding that Wyller's acts
contributed to the dissolution.
II. FACTS AND PROCEEDINGS
Christian Wyller was a partner in the Wildmeadow
Village partnership. The partnership was formed in 1984 to
manage Wildmeadow Village, a three-story office building in
Juneau. As of 1984 the partnership consisted of Anita and Henry
Wilde, Donald Madsen, Christian Wyller, and James Cummings.1 The
Wildes, Madsen, Wyller, and Cummings each owned a twenty-five
percent interest in the partnership. The voting interests were
aligned with the ownership interests, and the Wildes jointly held
a single vote for management purposes. Madsen, Wyller, and
Cummings were each entitled to a single vote.
Under difficult economic circumstances the partnership
received an Invitation to Bid (ITB) from the State of Alaska in
January 1991 to lease approximately 7,000 square feet of office
space for five years. Madsen and Henry Wilde submitted a bid on
the state ITB without procuring a majority vote of the
partnership, and in violation of the partnership agreement. The
state subsequently advised the partnership that it was the low
bidder on the ITB.
The partners held a partnership meeting on February 10,
1991 to discuss the state ITB. At that meeting the partners
approved the state lease and various improvements necessary to
meet the bid specifications.2
The partnership's bid involved only portions of the
second and third floors of its building. Madsen reported at the
February 10 meeting that improvements of roughly $120,000 were
necessary to meet the state bid - $70,000 for heating,
ventilation, and air conditioning (HVAC) repairs, and some
$50,000 for other tenant improvements.3 Madsen explained that he
prepared a loan package request for $120,000 to submit to the
National Bank of Alaska (NBA) to finance the improvements. All
four partners approved submission of the loan application. The
application anticipated personal guarantees by the partners.
After the February 10 meeting, additional improvements
beyond those required by the state lease were discussed by the
Wildes, Madsen, and Wyller, but not approved. Time constraints
prevented the partnership from finalizing the loan application
before contracting for the work necessary to meet the state's bid
specifications. Madsen retained a contractor, Holaday-Parks,
Inc., to perform repairs on the building, and Madsen and Henry
Wilde authorized work to the entire building, including repairs
not necessary for the state lease and not properly approved by
the partnership.4 The total cost of repairs and improvements
actually made to the building was $257,000. This significantly
exceeded the estimated expenses discussed at the February 10
meeting, and the $120,000 loan package presented to the bank.
In mid-April 1991 NBA notified the partnership that NBA
would not lend $120,000 to the partnership under the terms of the
loan application. The bank refused to allow the partnership to
borrow the money, and requested that the partners either
individually or jointly provide collateral independent of the
partnership. The partners did not contemplate a loan with the
requirement of personal collateral when they approved and
submitted the loan application.
In a meeting that began May 6, 1991 and continued on
May 8 and May 23, 1991, the four partners discussed financing
options in light of the bank's loan refusal. Wyller expressed
reluctance to pledge cash or personal collateral for a loan,
objected to substantial expenditures made without authorization,
and said that he was at the limit of his resources.
The partnership meeting degenerated, and Wyller
repeatedly voiced the opinion that the partnership was not
authorized to pay the construction costs. On May 23 Wyller asked
that management not "indulge[] in any excessive costs for
anything on the building above the normal month-to-month
expenses, the utilities and what have you." On appeal Wyller
acknowledges that during the May meetings both he and Cummings
"stated that they did not consider themselves responsible for the
construction costs, since they had been incurred without
authorization."
Madsen informed the partners that the bills needed to
be paid, and told Wyller and Cummings that they were putting him
in an "untenable position" by denying authorization to pay the
construction costs. The construction bills were not paid, and
Holaday-Parks brought suit against Wildmeadow Village
partnership, its individual partners, and various lienholders on
the Wildmeadow Village building. The complaint spawned counter-
and cross-claims by all four partners. The underlying claim by
Holaday-Parks was settled shortly before trial, and the case was
tried only on the cross-claims among the partners. After a bench
trial in December 1992, then-Superior Court Judge Walter L.
Carpeneti entered Findings of Fact, Conclusions of Law, and
Orders dated August 13, 1993. Judge Carpeneti ruled on the
various cross-claims, and ordered an accounting and winding up of
the partnership. With minor exceptions, Judge Carpeneti denied
motions for reconsideration from Wyller and Cummings on February
6, 1995.
The winding up process took some time, and the case was
ultimately transferred to Superior Court Judge Patricia A.
Collins. The partnership's only asset, the office building in
Juneau, was eventually sold. Notwithstanding the extended and
contentious litigation, Judge Collins found that after the sale
there was, "remarkably, approximately $410,000 to be distributed
to the partners, less their capital contributions."
Judge Collins entered an order regarding the
distribution of partnership funds on December 14, 2000 and
reconsidered certain factual issues related to the post-trial
findings of Judge Carpeneti. Judge Collins then entered a final
judgment May 5, 2001 from which Wyller now appeals.
The issues Wyller presents on appeal stem from Judge
Carpeneti's 1993 findings of fact and conclusions of law. At
trial Wyller argued that he was entitled to damages under AS
32.05.330(b)(1)(B), which gives partners who have not wrongfully
caused dissolution of a partnership a cause of action for damages
against each partner who has wrongfully caused dissolution.5
Judge Carpeneti found Wyller "partially at fault for causing the
dissolution of the partnership," and therefore concluded that
Wyller was "not entitled to damages under the statute."
Wyller now appeals Judge Carpeneti's finding on the AS
32.05.330(b) claim, and asks that we remand for determination of
his damages. Wyller also appeals Judge Carpeneti's determination
that no party was the prevailing party for the purposes of
awarding attorney's fees under Alaska Civil Rule 82.
III. DISCUSSION
A. Standard of Review
Alaska Civil Rule 52(a) provides that "[f]indings of
fact shall not be set aside unless clearly erroneous." "A
finding is clearly erroneous if it leaves this court with a
definite and firm conviction on the entire record that a mistake
has been made."6 We apply a clearly erroneous standard of review
to factual findings relating to the cause or causes of
partnership dissolution under AS 32.05.330(b),7 and take the view
of the evidence most favorable to the prevailing party at trial.8
To the extent Wyller's appeal involves mixed questions of law and
fact, we will evaluate the legal questions separately, and apply
our independent judgment adopting the rule of law that is most
persuasive in light of precedent, reason, and policy.9
B. The Superior Court Did Not Clearly Err in Finding
Wyller Partially at Fault for Dissolution of the
Partnership.
In its August 13, 1993 conclusions of law the
superior court stated that "[b]ecause the court has
previously found that Cummings and Wyller were
partially at fault for causing the dissolution of the
partnership, they are not entitled to damages under [AS
32.05.330(b)]." The record suggests that the court's
reference to its "previous findings" referred to
findings of fact Nos. 18 and 19 issued that same day.
In Finding No. 18 the court observed that shortly
following the bank's loan refusal, "Cummings and Wyller
informed Madsen and Wilde that they did not consider
themselves bound to provide financing for any of the
improvements which by that time had been made to the
property." In Finding No. 19 the court noted that
"Cummings and Wyller refused to proceed with the loan
application despite their approval of the state as a
tenant, and despite their approval of submission of a
loan package." The court continued in Finding No. 19,
adding that "[t]heir later claims that the entire
contract with Holaday-Parks was entered into without
permission, or that the bank's financing requirements
were somehow Madsen's fault, are not supported by the
evidence."
In response to Wyller's allegation that the
court did not explain why he was partially at fault for
dissolution of the partnership, the court's December 8,
1994 order on reconsideration referred back to the
substance of Findings Nos. 18 and 19. The court
reiterated Finding No. 18, adding that Wyller and
Cummings told Madsen and the Wildes that they did not
consider themselves bound to provide financing for any
of the improvements "without justification." The court
also reiterated Finding No. 19, and stated that
"Cummings and Wyller had refused to complete the loan
application process despite having previously approved
the State of Alaska as a tenant and the submission of
the loan application."
On appeal Wyller selectively construes the
court's findings. He suggests that the court found him
partially responsible for dissolution, "based on the
fact that [he] declined to put up his personal assets
as collateral for a proposed loan." Proceeding from
this characterization, Wyller urges the court to hold
as a matter of law that a partner is not obligated to
pledge personal collateral to pay for partnership
expenses.
Wyller's characterization of the court's
findings is incomplete. It ignores the rationale set
out in Finding No. 18 - that he wrongfully denied
responsibility for financing any of the improvements
which by that time had been made to the building.
Wyller does not deny that he disclaimed responsibility
for the construction costs. In Wyller's own rendition
of the facts on appeal he acknowledges that "[a]t the
May 23, 1991 meeting, both [he and Cummings] stated
that they did not consider themselves responsible for
the construction costs, since they had been incurred
without authorization." Wyller did not want the
partnership to pay for any of the construction costs;
he did not limit his objection to costs related to the
unapproved improvements. This is clear from his
expressed desire at that meeting that management not
"indulge[] in any excessive costs for anything on the
building above the normal month-to-month expenses, the
utilities and what have you." In Wyller's pretrial
memorandum he explained that in the May 1991 meetings
both he and Cummings "demanded that no further
partnership funds be spent on the [Holaday-Parks]
debt[]."
Wyller was not justified in preventing the
partnership from paying for any of the improvements.
Nor was he justified in denying personal or partnership
responsibility for these costs. Madsen and Wilde may
have bid on the state ITB in breach of the partnership
agreement, but the superior court found that the
partnership, including Wyller, subsequently ratified
submission of the bid and the state lease, approved up
to $120,000 in necessary improvements, approved
submission of a loan application, and approved Holaday-
Parks as a contractor. These approvals are not
disputed on appeal. And given these approvals, Wyller
could not then deny responsibility for the $120,000 in
necessary improvements he authorized.
Wyller acknowledges on appeal that he
authorized $120,000 in improvements, and that he later
told the partnership he did not consider himself
responsible for any construction costs. The fact that
unauthorized improvements beyond those he approved were
made to the building did not excuse him from
responsibility for the improvements he did approve.
The necessary improvements discussed in the February
10, 1991 meeting were properly approved and benefitted
the partnership. Wyller had no reason to disclaim
responsibility for them.
As Wyller observes on appeal, "[i]t is well
established that, under the Uniform Partnership Act,
partners are jointly liable for partnership
obligations."10 Wyller implies that he would be
personally liable for his portion of the $120,000 only
if the partners actually agreed to borrow $120,000
instead of simply filing a loan application. Under AS
32.05.100(a)(2), however, partners are liable for both
the "debts and obligations" of the partnership.
Wyller's argument seems to presume that "obligations"
under AS 32.05.100 are restricted to actual bank loans.
Wyller advances no argument that he was not liable for
the obligations the partnership incurred in contracting
to perform the approved repairs to the building.
Once the partnership authorized contracting
with Holaday-Parks for the necessary improvements,
neither the bank's subsequent loan refusal nor any
subsequent breach by the partners excused Wyller from
his obligations regarding his share of the $120,000.
Wyller may have been excused from obligations stemming
from the unauthorized portion of the repairs, but it is
unnecessary for us to address that issue because Wyller
disclaimed responsibility for the construction costs
generally - not simply the unauthorized costs. Wyller
fails to provide a justification for disclaiming
responsibility for any of the partnership's
construction costs, or for preventing the partnership
from making payment on any of the construction bills.
The superior court found that Wyller's
unjustified denial of responsibility for construction
costs wrongfully contributed to the dissolution of the
partnership. Wyller wrongfully denied responsibility
for any of the construction costs, and his denial of
authorization to pay construction costs contributed to
the course of events that precipitated the dissolution.
Failure to pay construction costs brought about the
Holaday-Parks suit, and that suit resulted in
dissolution of the partnership. Determining the causes
of dissolution is a factual inquiry, and Wyller does
not establish that the superior court clearly erred in
finding that his actions partially caused dissolution.
Finding No. 18 justifies the court's conclusion that
Wyller was ineligible for damages under AS
32.05.330(b).
Wyller indirectly suggests two possible
theories under which his denial should have been
excused. Neither is persuasive. First, Wyller
contends that if he did have a duty to pursue financing
through the bank after it rejected the terms of the
loan application, his duty was excused by Madsen's
breach in authorizing unapproved improvements to the
building. This argument is unpersuasive because
Madsen's breach in authorizing the unapproved work took
place after Wyller and the partnership ratified the
state lease and authorized $120,000 of necessary
improvements. Madsen's breach may have excused Wyller
from liability for the unauthorized portion of the
repairs, but it was not a prior breach with respect to
the improvements Wyller had previously authorized. Any
breach by Madsen in authorizing unapproved repairs
would not excuse Wyller from obligations flowing from
the partnership's contract with Holaday-Parks to
perform approved repairs.
Wyller's second potential justification for
denying responsibility for the $120,000 in authorized
repairs is implied in his contention that the only
reason the partnership needed a loan was to pay the
unauthorized portion of the expenses. Wyller claims
that the partnership paid for $106,000 in tenant
improvements from its own resources without partner
contributions, and argues that without Madsen's breach
in authorizing unapproved repairs, the partnership
would have either required a very small loan or no loan
at all.
As discussed above, though, Wyller and the
partnership approved $120,000 in improvements before
Wyller wrongfully denied responsibility for any of the
construction costs. The availability of $106,000 in
partnership resources to pay construction costs is
immaterial to Wyller's wrongful conduct. He did not
merely refuse to pursue financing, he denied the
partnership authority to pay the construction bills.
And furthermore, whether that wrongful conduct
contributed to the dissolution of the partnership is a
factual inquiry reviewed under a clearly erroneous
standard. Wyller fails to show that his conduct was
not wrongful, or that it did not contribute to the
dissolution of the partnership. Viewing the evidence
in the light most favorable to the prevailing parties
at trial, we conclude that the court did not clearly
err in finding that Wyller's wrongful conduct
contributed to the dissolution of the partnership.
Wyller's claims regarding available
partnership resources are unpersuasive. Cash reserves
sufficient to cover the cost of the approved repairs,
assuming they were available, would not preclude a
conclusion that Wyller's conduct from wrongfully
contributing to dissolution of the partnership. Wyller
wrongfully prevented the partnership from paying the
construction costs - irrespective of its available cash
flow - and not paying construction costs spawned the
Holaday-Parks suit and ultimately led to dissolution.11
The record of the May 1991 partnership meeting
demonstrates that it was Wyller's wrongful behavior
that led Madsen and the Wildes to seek dissolution.12
The trial court therefore did not clearly err in
finding Wyller ineligible for damages under AS
32.05.330(b).13
Wyller spends the bulk of his appeal arguing
as if the trial court found him ineligible for damages
under AS 32.05.330(b) because he refused to pledge
personal collateral for a partnership loan. He claims
that his decision not to pledge personal collateral was
a protected business judgment, and urges this court to
hold that partners are not obligated to pledge personal
collateral for partnership loans.
Wyller misreads the trial court's decision.
The trial court did not find against him for failing to
pledge personal collateral. The trial court did note
in Finding No. 19, and then later on reconsideration,
that Wyller refused to complete the loan application
process despite his prior approval of the state lease
and necessary repairs. The court also acknowledged
that the partners did not contemplate the requirement
of personal collateral in their loan application, and
that the variance between the loan application and the
bank's requirement of personal collateral was material.
Nevertheless, these observations should not be viewed
in isolation. We view Wyller's failure to cooperate in
the financing process in the context already discussed
- one in which he approved the state lease and the
contract for the necessary repairs but declined
responsibility for any of the construction costs. The
court's observation regarding Wyller's refusal to
participate in the financing process was shorthand for
describing Wyller's denial of responsibility for any of
the construction costs despite his prior approvals, and
his refusal to allow the partnership to pay its bills.
It is not clear to us that the trial court
actually presumed that Wyller had a duty to pledge
personal collateral for a partnership loan,14 but we
need not speculate about the extent of Wyller's
obligation to pursue financing. Finding No. 18 and the
fact that Wyller denied responsibility for any of the
construction costs in the May 1991 meeting are
sufficient to prevent recovery under AS 32.05.330(b).
C. Wyller Is Not Entitled to Rule 82 Attorney's
Fees.
Because the superior court did not reversibly
err in finding Wyller ineligible for damages under AS
32.05.330(b), he was not the prevailing party at trial
and therefore is not entitled to attorney's fees under
Alaska Civil Rule 82.
IV. CONCLUSION
We therefore AFFIRM the judgment below.
_______________________________
1 The partnership formed in 1984 replaced a partnership that
included each of these partners except Wyller.
2 The superior court concluded that Wyller and Cummings had
ratified submission of the bid and approved the improvements
necessary to meet the bid specifications after it found that
neither Wyller nor Cummings objected "in any way" to the State of
Alaska as a tenant, or "expressed any objection" to pursuing the
financing necessary to pay for the improvements. On appeal
Wyller does not dispute his approval of the bid, or of the
improvements necessary for the state lease.
3 The amounts of Madsen's cost estimates to the partnership
were disputed at trial. Wyller argues on appeal that Madsen told
the partnership that Madsen estimated there would be $120,000 in
necessary improvements - $70,000 for HVAC repairs and $50,000 for
other work. Following the February 10, 1991 meeting Madsen
estimated the total cost of improvements in a loan application as
$157,000; at trial he suggested that his estimate to the
partnership was greater than $140,000 ($70,000 for HVAC repairs
and $71,000 for other improvements). The trial court could not
"verify the accuracy" of Wyller's claim that Madsen estimated
$50,000 in non-HVAC improvements, but used this figure to
conclude that Madsen's estimate to the partners was at least that
much. The court found that Wyller agreed to the expenditure "of
up to $120,000 for the improvements necessary to secure the state
contract." We accept this finding because Wyller does not
dispute on appeal that he authorized at least $120,000 in
improvements necessary for the state lease.
4 The superior court found that Wyller approved the selection
of Holaday-Parks as contractor either by telephone or by
ratification because he knew of Holaday-Parks's proposal and did
not object. Cummings was not involved in the decision to
contract with Holaday-Parks, but the superior court found that
once the partners gave unanimous approval to borrowing money for
the necessary repairs, contracting for the work was a "management
decision" under the partnership agreement, and could therefore be
approved by a majority vote of the partners. We accept the
superior court's finding that three of the four partners approved
contracting with Holaday-Parks for the necessary repairs, which
was sufficient under the partnership agreement at paragraph 19.
Paragraph 19 of the partnership agreement provided that "[a]
majority vote of the partners will be sufficient for approval"
with respect to "[a]ll decisions affecting the partnership and
its policies of management."
5 AS 32.05.330(b)(1)(B) provides:
(b) When dissolution is caused in
contravention of the partnership agreement
the rights of the partners are as follows:
(1) each partner who has not caused
dissolution wrongfully has
. . . .
(B) the right, as against each partner who
has caused the dissolution wrongfully, to
damages for breach of the agreement.
6 City of Hydaburg v. Hydaburg Coop. Ass'n, 858 P.2d 1131,
1135 (Alaska 1993) (quotation omitted).
7 Schymanski v. Conventz, 674 P.2d 281, 287 (Alaska 1983);
Geczy v. LaChappelle, 636 P.2d 604, 606-07 (Alaska 1981).
8 Geczy, 636 P.2d at 606.
9 Cockerham v. State, 933 P.2d 537, 539 n.9 (Alaska 1997)
(citing Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979)).
10 See AS 32.05.100 (establishing that all partners are jointly
liable for contractual debts and obligations of a partnership).
See also 1 William Meade Fletcher et al., Fletcher Cyclopedia of
the Law of Private Corporations 20 (perm. ed., rev. vol. 1999)
(observing that partners in a partnership are liable for the full
extent of the indebtedness of the partnership, and that partners
are individually entitled to the rights, and individually liable
for the obligations, under contracts entered into by the
partnership); 59A Am. Jur. 2d Partnership 639 (2002) (partners
are jointly liable for all debts and obligation of partnership
not arising from tort or breach of trust).
11 Contrary to Wyller's supposition, the availability of cash
reserves sufficient to cover a large portion of the approved
repairs actually seems to reinforce the wrongfulness of his
denial of partnership authority to pay Holaday-Parks in the May
1991 meeting.
12 At the May 1991 meeting Madsen told Wyller and Cummings, "I
would have to say that what you two fellas are doing is putting
me in an untenable position . . . . [T]he bills need to be paid,
and if you're putting me in that untenable position of where the
bills are not going to now be paid, it's probably time that we
got the judge and the jury involved and got it resolved once and
for all, and I'll move for dissolutionment of the partnership and
I'll so proceed legally to do that." Madsen and the Wildes
ultimately sought legal dissolution of the partnership.
13 Madsen and the Wildes each paid $68,000 and Wyller paid
$10,000 to Holaday-Parks to settle the contractor's claims
against the partnership. The fact that Wyller paid $10,000 in
the settlement does not affect our analysis. Even if Wyller's
$10,000 payment covered his share of the balance between payments
made to Holaday-Parks from partnership resources and the $120,000
the partners authorized for improvements, the settlement payment
was made subsequent to Wyller's wrongful conduct, the filing of
the Holaday-Parks suit, and the chain of events that the trial
court found led to dissolution. The settlement payment therefore
need not bear on whether Wyller contributed to the dissolution of
the partnership.
14 After observing that the variance between the partnership's
loan application and the bank's requirement for personal
collateral was material, the court noted that "the failure of
Madsen to obtain the most favorable terms from the bank did not
excuse Cummings and Wyller from their obligation to cooperate
with the partnership efforts to locate financing for the
project." We agree with the court's assessment, and believe it
falls short of finding Wyller had a duty to pledge personal
collateral for a partnership loan.
