This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C9-00-1667

 

David A. Byfield, et al.,

Appellants,

 

vs.

 

Twin City Engineering, etc.,

Defendant,

 

Kevin Spreng, etc.,

Respondent,

 

Noel P. Rahn, et al.,

Respondents.

 

Filed May 1, 2001

Reversed and Remanded

Kalitowski, Judge

 

Hennepin County District Court

File No. EM9714035

 

Jill Clark, Jill Clark, P.A., 2005 Aquila Avenue North, Golden Valley, MN 55427; and

 

Jill Waite, Waite, Ltd., 2856 Humboldt Avenue South, #3, Minneapolis, MN 55408 (for appellants)

 

Bradley M. Jones, Meagher & Geer, PLLP, 4200 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402 (for respondent Kevin Spreng)

 

Michael Berens, Barbara P. Berens, Maret R. Moreland, Kelly & Berens, P.A., 3720 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondents Noel P. Rahn, et al.)

            Considered and decided by Kalitowski, Presiding Judge, Willis, Judge, and Foley, Judge.*

U N P U B L I S H E D   O P I N I O N

KALITOWSKI, Judge

            Seeking to recover unpaid wages, pension contributions, and other damages, appellants David Byfield, Kelly Brown, Paula Crowley, Eric Hansen, Walter Koenst, David Little, John Matlock as an individual and assignee for Jeanne Matlock, Mark Oppen, Ronald Schaffer, Eric Simonson, James Stephan, and Michael Swanson (Employees) sued respondent Twin City Engineering, Limited Partnership (TCELP), respondent Kevin Spreng, respondent Ernie Fisher, and respondents Noel Rahn, Kip Knelman, R. David Spreng, Paul Joas, John Moore, Victor Greenstein, Stanford Baratz, Neil Lapidus, and William Joas (Investors). 

The district court initially granted summary judgment in favor of K. Spreng, Fisher, and six of nine Investors, and later granted summary judgment in favor of the remaining three Investors and granted default judgment against TCELP.  The district court subsequently awarded Employees a total of $719,830.57 in damages for the default judgment against TCELP, but later vacated that award, replacing it with an award to Employees of a total of $16,035.68 in damages for default judgment against TCELP.  Employees now appeal from adverse summary judgment and the amount of the default judgment award.  Because there are genuine issues of material fact that preclude summary judgment, we reverse and remand on both issues.

D E C I S I O N

I.

On appeal from summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990); see Minn. R. Civ. P. 56.03 (setting forth standard for summary judgment).  This court “must view the evidence in the light most favorable to the party against whom judgment was granted.”  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).  “Any doubt as to whether issues of material fact exist [must be] resolved in favor of the party against whom summary judgment was granted.”  Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995) (citation omitted).

This case arises from an environmental consulting business formed by Emerson Carr in order to compete for government contracts awarded to minority-owned businesses.  Carr incorporated the business in January 1994, and sought financial backers.  In July 1994, Carr filed a certificate of limited partnership with the secretary of state, identifying his corporation as its sole general partner.  Under a partnership agreement, Investors provided capital contributions and secured loans to the business as limited partners.  The business experienced financial difficulties.  In the summer of 1996, the corporation filed for bankruptcy.  Employees, who had worked for the business, filed this action.

Summary Judgment for Investors

            The district court awarded summary judgment in favor of Investors, ruling that as limited partners they are not liable for obligations of the partnership.  Minnesota has adopted the Uniform Limited Partnership Act, which provides that

a limited partner is not liable for the obligations of a limited partnership unless that partner is also a general partner or takes part in the control of the business in addition to the exercise of a limited partner’s rights and powers.  However, if the limited partner participates in the control of the business, that limited partner is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner’s conduct, that the limited partner is a general partner.

 

Minn. Stat. § 322A.26(a) (2000).  Employees argue that the district court erred in determining they had failed to present sufficient evidence to raise genuine issues of material fact concerning whether Investors participated in “the control of the business” so as to be potentially liable for partnership obligations under section 322A.26(a).  We agree.

Initially we note that the question of whether limited partners have taken part in control of partnership business is one of fact.  Gateway Potato Sales v. G.B. Inv. Co., 822 P.2d 490, 497 (Ariz. Ct. App. 1991).  Therefore, because appellants presented evidence primarily in the form of memorandum and letters to and from various Investors, there are genuine issues of material fact regarding control of the business that make summary judgment inappropriate.  For example, evidence was submitted that Investors became aware of the financial problems of the business, informed Carr they were not happy with his management skills, and arranged to install their person, Ernie Fisher, as chief operating officer, with Carr eventually taking a leave of absence at Fisher’s request.  In addition, five investors attended an April 5, 1995, meeting during which one Investor reported on the management structure and day-to-day business at the TCELP office, where he had “been spending a fair amount of time.”  A memorandum from another Investor at this meeting concluded

that none of the equity investors felt comfortable with how the firm was being run and that we needed to insert a chief operating officer that could run the firm on a day-to-day basis.

 

Also, there was evidence indicating that one Investor did accounting on behalf of the partnership and/or the general partner, and another Investor helped the business negotiate the terms of the company’s lease.  This evidence raises material issues of fact as to whether Investors were involved with the day-to-day decisions of the business.

            In addition to presenting evidence of control, respondents contend appellants also must establish that they reasonably believed, based on Investors’ conduct, that Investors were general partners.  Again we conclude that appellants presented sufficient evidence to raise a genuine issue of material fact as to their reasonable beliefs regarding the role of Investors.  Affidavits of Employees were submitted indicating they were not aware that the business enterprise was structured as a limited partnership, had never heard of the general partner-corporation until it filed for bankruptcy, and believed Investors were liable for company debts.  Moreover, evidence concerning the business name on letterhead, paychecks, and business cards provides additional support for appellants’ contention that they were unaware of the business structure.

            We must view the evidence in the light most favorable to Employees.  Fabio, 504 N.W.2d at 761.  Based on our limited review on appeal, we conclude that whether Investors’ participation in the business went beyond the role of limited partners so as to lose limited liability under section 322A.26(a) involves disputed questions of material fact.  We note that our decision does not go to the underlying merits of the case, but is limited to the conclusion that Employees have presented sufficient evidence to preclude summary judgment.

Finally, respondents contend that their actions fall under Minn. Stat. § 322A.26(b), which lists specific activities that do not constitute participation in the control of the business.  But this issue was not addressed by the district court and similarly involves factual issues inappropriate for summary judgment.  We therefore reverse summary judgment on the issue of the limited liability of Investors.

Summary Judgment for Other Theories

            Employees also argue that the district court erred in granting summary judgment in favor of defendants Ernest Fisher and Kevin Spreng and in dismissing Employees’ other theories.  Employees contend that Fisher and Spreng are liable as agents of Investors.  Among Employees’ other theories is that (a) the partnership was a sham, (b) the partnership was improperly formed, (c) the partnership lost its limited status upon the general partner’s withdrawal, and (d) Investors knew they were acting as general partners.  Having granted summary judgment in favor of all Investors, the district court failed to address the merits of Employees’ theories.  Therefore, on this record we must reverse summary judgment and remand to the district court to address Employees’ alternative theories.  Further, with regard to Fisher and Spreng, we conclude it is appropriate for the district court to revisit its summary judgment order in light of our decision to reverse and remand Employees’ claims against Investors.

II.

            “A default judgment may be entered against a party who fails to plead or otherwise defend a claim within the time allowed by the law.”  Doe v. Legacy Broadcasting of Minn., Inc., 504 N.W.2d 527, 528 (Minn. App. 1993) (citing Minn. R. Civ. P. 55.01).  “The entry of a default judgment is equivalent to an admission by the defaulting party to properly pleaded claims and allegations.”  State by Humphrey v. Ri-Mel, Inc., 417 N.W.2d 102, 110 (Minn. App. 1987) (citation omitted).  The district court’s decision to open or vacate a default judgment will not be reversed absent an abuse of discretion, viewing the record in the light most favorable to the district court’s order.  Imperial Premium Finance, Inc. v. GK Cab Co., Inc., 603 N.W.2d 853, 856-57 (Minn. App. 2000).

            In this case, the default judgment against TCELP was granted by the district court after TCELP failed to appear and answer Employees’ claims and the court later awarded Employees the approximately $719,830 in damages claimed against TCELP.  However, although TCELP had still not appeared, upon a motion by Investors, the district court vacated the initial award and entered a subsequent order for $16,035.68 in damages.  The difference in awards reflects the district court’s belief that it had earlier found that Employees were not in fact employees of TCELP but rather were employees of the general partner-corporation.

Employees contend the district court abused its discretion in vacating the initial default judgment award against TCELP and by refusing to vacate the second default judgment award against TCELP.  Employees’ theory that there was in fact only one company, or that they were employees of both the general partner-corporation and TCELP, was not addressed by the district court.  Nor did the district court address the issue of whether TCELP could be nonetheless liable for the debts of the general partner-corporation.

            Because we have reversed and remanded the issue of respondents’ liability, it is appropriate that we reverse both default judgment awards.  Where there are multiple defendants against whom plaintiff alleges joint liability, some of whom default, it is generally premature to award an amount against a defaulting party before determining the potential liability of the defendants who in fact appear.  See 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2690, at 73 (3d ed. 1998) (stating general rule is that “when one of several defendants who is alleged to be jointly liable defaults, judgment should not be entered against that defendant until the matter has been adjudicated with regard to all defendants, or all defendants have defaulted”).  The leading Supreme Court decision on the subject is Frow v. De La Vega, 82 U.S. (15 Wall.) 552, 554 (1872), where the court stated:

[I]f the suit should be decided against the complainant on the merits, the bill will be dismissed as to all the defendants alike--the defaulter as well as the others.  If it be decided in the complainant’s favor, he will then be entitled to a final decree against all.  But a final decree on the merits against the defaulting defendant alone, pending the continuance of the cause, would be incongruous and illegal.

 

Cf. Roinestad v. McCarthy, 249 Minn. 396, 402, 82 N.W.2d 697, 701 (Minn. 1957) (judgment entered against defaulting garnishee prior to entry of judgment against defendant in main action was premature). 

            We therefore reverse the award of damages against TCELP pending a final resolution of the action against the nondefaulting defendants.

            Reversed and remanded.

 



*  Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.