This opinion will be unpublished and

may not be cited except as provided by

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






Robert O’Leary as trustee of Lakeland Printing Co., Inc.,

Profit Sharing Trust, et al.,





Carefree Living of America (Minnetonka), Inc., et al.,



Filed September 18, 2001

Affirmed; Motion Denied

Kalitowski, Judge


Hennepin County District Court

File No. 9613648


Paul R. Haik, Krebsbach and Haik, Ltd., 701 Fourth Avenue South #500, Minneapolis, MN 55415-1631 (for respondents)


Michael C. Mahoney, Havilah L. Solarz, Roshan N. Rajkumar, Mahoney & Hagberg, 109 Bushaway Road, Minneapolis, MN 55391 (for appellants)


            Considered and decided by Harten, Presiding Judge, Kalitowski, Judge, and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N


In this action, respondents successfully brought a claim to recover property on behalf of limited partners.  Carefree Living of America (appellant) contends the district court erred, alleging numerous grounds including:  (1) the propriety of allowing respondents to initiate a direct rather than a derivative suit; (2) a statute of limitations bar; (3) the status of respondents as limited partners; (4) the award of the property to respondents; (5) appellant’s liability for aiding and abetting a breach of fiduciary duty; (6) appellant’s claim for equitable relief; and (7) the nonjoinder of indispensable parties.  Respondents argue opposing counsel should be disqualified and filed a motion to strike parts of appellant’s brief.  We affirm and deny the motion.



In the mid-1980s, Wilnard Selbak formed a number of business entities with similar names and subsequent similar name changes.  Carefree Living of Minnetonka, Ltd., renamed Leisure Living of Minnetonka Ltd. Partnership, (Ltd. Partnership) sold limited partnership units via a private placement memorandum (PPM) to respondents to acquire and develop property for an assisted-living facility.  Carefree Living of America, Inc., renamed Leisure Living of America, Inc., (Mgmt. Co.) was the management company of the Ltd. Partnership.  Selbak was sole shareholder, director, president, and CEO.  Finally, Carefree Living of Minnetonka, Inc., renamed Leisure Living of Minnetonka, Inc., (General Partner) was the sole general partner of the Ltd. Partnership.  Selbak was the sole shareholder, director, president, and CEO.  The General Partner’s assets included a $250,000 promissory note from Selbak to be paid on demand.

Pursuant to the PPM, the entities were to generate funds for the purchase of land and financing of the construction of an assisted-living facility.  The PPM referenced a purchase agreement the Mgmt. Co. signed to buy the property giving “the [Ltd.] Partnership an option to purchase” the property.  A maximum of 40 limited partnership units were offered for $39,600 per partnership unit, but once a minimum of 15 units were sold and accepted, then all of the remaining 40 units were to be purchased by the General Partner and affiliates. If the Ltd. Partnership was unable to sell at least 15 units and obtain financing, the investment monies were to be returned.  The PPM also explains the risks associated with obtaining financing, identifies Selbak as the only source of authorized information, and allows the General Partner or an affiliate to purchase the project only upon full disclosure. 

An August 1988 supplement to the PPM details the efforts made to obtain financing and the number of subscriptions reconfirmed.  The supplement extended the offering period until May 31, 1989, to “allow for sale of the remaining Units and to provide additional time in which to obtain construction and permanent financing.”  By purchasing the 15th unit himself, Selbak sold 15 units in the Ltd. Partnership.  Thereafter, the offering proceeds were released from escrow for use by Selbak to further the project.  An attorney who wrote the PPM testified that release of the money from escrow demonstrated the investors were now limited partners.  Moreover, respondents were listed as “partners” on form 1065, U.S. Partnership Return of Income in 1988.  

            In 1991, the fee owner of the property was Tonka Properties.  On March 6, 1991, Selbak, as president of General Partner, signed a quitclaim deed conveying the property from the Ltd. Partnership to Selbak as an individual.  On this same date, Selbak, as an individual, signed a contract for deed to acquire the property from Tonka for $250,000.  This purchase was conducted without any evidence of the disclosure required by the PPM.

            Both prior to March 1991 and after March 1991, Selbak remained in contact with respondents.  In letters and meetings, Selbak assured respondents that he was continuing to seek financing and recommended respondents not cancel their investments.  He told them that the project was progressing, and eventually sent them a letter informing them that the property had been purchased.

            In December 1992, the Minnesota Secretary of State dissolved the General Partner and Mgmt. Co.  As a result, the Ltd. Partnership was dissolved without the knowledge of respondents.  Nevertheless, Selbak remained in contact with respondents, assuring them of his progress on the project and even reissuing a partnership certificate in 1994.  In 1995, Selbak formed appellant Carefree Living of America (Minnetonka).  Selbak was not the sole shareholder of this corporation, but was president and majority shareholder (60%).  Fred Bame owned the other 40%.  The pre-incorporation agreement to form appellant between Selbak and Bame noted that “[f]unds in the amount of approximately $300,000 are or will be owed to previous investors in the Project.” 

Shortly after incorporating appellant, Selbak, as an individual, quitclaimed the property to the corporation for less than $500 consideration.  The next day, Tonka Properties, the contract for deed vendor, gave Selbak, as an individual, a warranty deed for the property. Title effectively passed to appellant because of Selbak’s quitclaim deed.  Appellant then mortgaged this property and others to Miller & Schroeder Investments Corp. for more than 11 million dollars.  About four million dollars was used to pay off the contract for deed for the property in question. 

            In 1996, Zeller was introduced to Selbak by Mahoney, Hagberg & Rice, the registered agent for appellant, to operate appellant and the three other “Carefree” entities. In 1997, Selbak’s role in the operations was assumed by Kathleen Zeller.  Yet throughout 1997, Zeller continued to pay Selbak through the various entities amounts totaling up to $235,000.  Mahoney, Hagberg & Rice incorporated Carefree Management and then Summa Management for Zeller.  Carefree Management was eventually merged into Summa Management, which was solely owned by Zeller.  Zeller authorized a reverse-stock split with Selbak’s knowledge, giving Bame notice by mail.  The result of the split was that Summa owned 80% of appellant’s stock, Selbak, 12%, and Bame, 8%.  Ms. Selbak received six percent of Selbak’s stock in divorce proceedings.  Zeller obtained this six percent from Ms. Selbak.  After Selbak filed for bankruptcy in 1998, the bankruptcy court obtained Selbak’s remaining six percent.  To date, Zeller has contributed a nominal amount of cash in order to obtain 86% of the shares in appellant.

Meanwhile, in 1996, respondents, original investors in the Ltd. Partnership:  (1) moved for court supervision of the winding up of the limited partnership; (2) sued appellant for recovery of the partnership property alleging fraud; and (3) asked for the imposition of a constructive trust on the land for their benefit.  The district court’s order imposing a constructive trust was subsequently affirmed by this court.  See O’Leary v. Carefree Living of America (Minnetonka), Inc., No. C8-97-188 (Minn. App. Aug. 5, 1997), review denied (Minn. Oct. 1, 1997).  Zeller knew of both the suit and the constructive trust.  The district court then denied appellant’s request to join Miller & Schroeder in the action, found that appellant aided and abetted Selbak’s breach of fiduciary duty, and awarded the property to respondents.  This appeal followed.   



Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the district court to judge the credibility of the witnesses.  First Trust Co., Inc. v. Union Depot Place Ltd. P’ship, 476 N.W.2d 178, 181-82 (Minn. App. 1991), review denied (Minn. Dec. 13, 1991).  Questions of law, however, will be reviewed de novo.  Frost-Benco Elec.  Ass’n. v. Minn. Pub. Utils. Comm’n, 358 N.W.2d 639, 642 (Minn. 1984). 


            Appellant contends respondents improperly initiated this cause of action by bringing a direct action rather than a derivative suit pursuant to the Limited Partnership Act and Minn. Stat. § 322A.79 (2000).  We disagree.  The district court concluded that respondents properly applied to the district court to wind up the partnership.  See Minn. Stat. § 322A.65 (2000) (providing court may wind up “limited partnership’s affairs upon application of any partner”).  In winding up the affairs, a district court distributes the partnership’s assets.  See Minn. Stat. § 322A.66 (2000) (detailing order of distribution).  In order to distribute the assets, the court must determine to whom the property in question belongs.  Respondents, believing the property in question belongs to the Ltd. Partnership, brought the current action on behalf of the Ltd. Partnership to facilitate the court’s determination.  While respondents’ chosen method of initiating this suit was not the only method they could have used, we conclude that it was appropriate in the context of winding up the partnership’s assets under the unique and complex facts of this case.


            Appellant next contends this action is barred by various statute-of-limitations defenses.  This case involves a multitude of issues including property claims, allegations of breach of fiduciary duty based on the PPM, and fraud claims.  All these claims have a six-year statute-of-limitations period.  See Minn. Stat. § 541.05, subd. 1 (1), (4), (6) (2000).  Selbak quitclaimed the property on behalf of the General Partner and the Mgmt. Co. without notice to the limited partners on March 6, 1991, and respondents commenced this action on September 13, 1996.  Therefore, a recovery of property claim is within the six-year period.  Because the district court properly found that Selbak’s act of quitclaiming the property on behalf of the General Partner and the Mgmt. Co. was the first act that could be considered a breach of fiduciary duty resulting in a fraudulent transfer, we conclude that respondents’ claims were commenced within the six-year period.


            Appellant argues that respondents were subscribers, not limited partners, and therefore while respondents may recover their investment, they may not bring an action to recover the property.  We disagree.  Evidence in the record indicates that once the money was taken out of the escrow account and the partnership certificates were issued, the investors became limited partners.  Limited partners provide capital to the partnership for the partnership’s use but do not engage in the management of the partnership.  When respondents’ investment money was withdrawn from escrow and used by the partnership, and the partnership certificates were issued, respondents became limited partners and no reconfirmation of their status was required.  As limited partners, respondents could assert their rights to alleged partnership property.


            Appellant contends the district court erred in awarding the property to respondents because:  (1) the offering to purchase the property expired before the March 1991 purchase by Selbak; (2) Selbak’s actions were binding on the Ltd. Partnership; and (3) appellant was a bona fide purchaser.  We disagree.  First, although appellant argues that the offering to purchase the property expired before Selbak’s 1991 purchase, the record reflects otherwise.  Selbak twice, in November 1988 and December 1989, secured an extension on the option to purchase the property contingent on payment of real estate taxes due from the title holder.  There were also several letters from Selbak to respondents throughout 1989 assuring them that he was still working to secure a permanent loan, and even commenting that he did “desire and appreciate [respondents’] continued faith and support” because he intended “to continue this development until it is successfully completed.” 

Appellant claims that a letter sent to respondents in September 1989 states that the offering had failed, and therefore, as of that point, respondents were entitled only to the return of their money.  We disagree.  The letter states that respondents were entitled to a return of their money if they canceled their investment, but because money was used in the development and rezoning efforts, the Ltd. Partnership did not have the money and would return it as soon as it was available.  Moreover, in the letter, Selbak recommends that investors give him “some additional time to complete this project” because he is “more optimistic now than ever before.”  There is no mention in the letter that the offering failed. 

In addition, the record includes documents that reflect the offering continued.  For example, a December 1990 fax from Selbak references the purchase agreement between the Mgmt. Co. (signed by Selbak) and Tonka Properties and states that “[p]er my option, closing must take place by 12/31/90.  Midway [National Bank] approved my loan today.”  And in January 1991, a telephone message to Tonka’s attorney states that Selbak called and “the owner of the property is to be Leisure Living of Minnetonka,  [unclear] a limited partnership[.] Mr. Selbak will be signing as general partner.”

            At the time Selbak purchased the property in March 1991 for $250,000 and quitclaimed the General Partner’s and Mgmt. Co.’s interests in the property, the General Partner held a $250,000 promissory note from Selbak.  The PPM required the General Partner to loan funds to the Ltd. Partnership up to the amount of capital contributions that the Ltd. Partnership would have received if all 40 partnership units were sold.  Financial statements both before and after March 1991 reveal that Selbak had assets in excess of two million dollars, sufficient to cover his promissory note.  If Selbak wanted to purchase the property as an individual, the PPM required him as the General Partner, or appellant as an affiliate, to disclose such intention to respondents.  Such intention was not disclosed. 

Even after the March 1991 purchase, the record reflects that Selbak continued to lead respondents and others to believe that he was pursuing the project on behalf of the partnership.  In November 1992, a letter from Selbak on Ltd. Partnership letterhead requested an extension of time from the City of Minnetonka for site approval because he was still actively seeking a permanent loan.  In December 1992, a letter from Selbak to respondents states that the property “has finally been acquired” by contract for deed for $250,000.  Selbak also states that he “continued to pay the real estate taxes * * * and they are current” and “[w]ithout the land, we were unable to apply for the necessary loan for construction.”  He finishes the letter by assuring respondents that they will be “advised on any significant developments during the next six months.”

In 1992 or 1993, the district court found, and testimony supports, that Selbak met with a few of the respondents to assure them the project was progressing and told another in June 1995 that the project would succeed.  Selbak even reissued a partnership certificate in January 1994.  And finally, as late as July 1995, an agent of Tonka Properties (the original title holder of the property) sent a letter to Selbak referencing the agreement between Tonka Properties and the General Partner.  None of these facts demonstrate the offering had lapsed. 

            We also reject appellant’s argument that Selbak’s actions as the sole shareholder, director, president, and CEO of both the General Partner and Mgmt. Co. bind the Ltd. Partnership.  Selbak was neither acting in the interests of these companies, nor carrying on the normal business of the companies in purchasing the property himself and then transferring it to appellant.  Therefore, his actions are not binding on the limited partnership.  See Minn. Stat. § 323.08 (2000) (stating “act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership”).

            Finally, appellant contends that it was a bona fide purchaser, arguing that Selbak was not conducting business in the normal manner, so his knowledge cannot be imputed to appellant.  We disagree.  An officer’s knowledge can be imputed to a corporation when the officer is acting within the scope of his normal duties.  Minn. Valley Country Club, Inc. v. Gill, 356 N.W.2d 356, 361 (Minn. App. 1984).  Selbak, the majority shareholder, president, and CEO, formed appellant to develop the property into an assisted-living facility.  Selbak was acting within the scope of his normal duties in transferring the property to appellant to effectuate its purpose.  Thus, Selbak’s knowledge that neither the General Partner, nor one of its affiliates, was to acquire the property without full disclosure to respondents was imputable to appellant.  The district court’s finding that appellant was an affiliate of the General Partner because Selbak was the majority or sole shareholder, president, and CEO of both is not clearly erroneous.  The record supports the district court’s determination that appellant was not a bona fide purchaser.  Thus, on these facts, we conclude the district court did not err in awarding the property in question to respondents.


            Appellant contends the district court erred by concluding that appellant was liable for aiding and abetting Selbak’s breach of the fiduciary duty he owed to respondents.  We disagree.  The supreme court in Rodgers v. Bankers Nat’l Bank, 179 Minn. 197, 203, 229 N.W. 90, 92 (1930), held that one who assists in a breach of a fiduciary duty assumes liability.

We reject appellant’s argument that there was no breach of a fiduciary duty because, while the General Partner owes a fiduciary duty to the Ltd. Partnership (and thus respondents), Selbak, as an officer, owed no fiduciary duty to the General Partner.  Selbak was the sole shareholder, president, officer, and CEO of the General Partner.  The PPM listed Selbak as the only contact person and stated that the General Partner is “wholly owned” by Selbak whose “net worth is in excess of $1,000,000.”  Thus, the record does not support a finding that Selbak was merely an officer.

Moreover, Selbak was also the majority shareholder, CEO, and president of appellant at the time of its formation.  Appellant’s pre-incorporation agreement even identified the debt owed to respondents, yet it received the property for less than $500 consideration through Selbak, a majority shareholder, president, and CEO of both appellant and the General Partner, the latter of which appellant concedes owed a fiduciary duty to respondents.  Parties in a fiduciary relationship must disclose material facts to each other.  Klein v. First Edina Nat’l Bank, 293 Minn. 418, 421, 196 N.W.2d 619, 622 (1972).  Moreover, the PPM required full disclosure if the General Partner or an affiliate (appellant) purchased the property.  No disclosure was made.  Because appellant assisted in the breach of a fiduciary duty, we conclude that the district court properly found appellant liable.


            Appellant argues that the district court should have granted it equitable relief because it invested more than six million dollars (which reflects the Miller & Schroeder mortgage) in the property, while respondents invested less than $500,000.  A district court may exercise its discretion in deciding whether to grant or deny equitable relief, and “[o]nly a clear abuse of that discretion will result in reversal.”  Nadeau v. County of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979).  The record indicates that Zeller currently owns 86% of appellant’s stock.  The district court found, and appellant offers no contrary evidence, that Zeller obtained this 86% stock ownership for a comparatively nominal amount of cash.  In addition, the award of the property to respondents is not, as appellant alleges, an award free and clear of all encumbrances.  Rather, it is a determination of ownership of the property as between appellant and respondents.  Our decision does not address the status of any encumbrances on the property, including the Miller & Schroeder mortgage.  We conclude that on these facts the district court did not abuse its discretion in denying appellant equitable relief.


            Appellant contends that the district court erred in failing to join Miller & Schroeder Investments Corporation and Selbak as necessary parties in this action.  We disagree.  The determination of whether a party should be joined is not absolute.  Rather, it involves the balancing of many considerations and rests on the facts of each particular case.  McAndrews v. Krause, 245 Minn. 85, 94, 71 N.W.2d 153, 160 (1955).  The district court heard all arguments in a motion hearing at which Miller & Schroeder was represented by counsel.  Moreover, the record indicates that the district court allowed a separate action to be initiated by Miller & Schroeder to assert its interest in the property.  Because of the unique posture and peculiar facts associated with this case, we conclude it was within the district court’s discretion to refuse to join Miller & Schroeder. 

            Appellant does not offer any substantive arguments regarding the joinder of Selbak in its brief.  Appellant has therefore waived this issue.  Melina v. Chaplin, 327 N.W.2d 19, 20 (Minn. 1982) (stating issues not raised and argued in the briefs on appeal are waived).


            Respondents filed a notice of review and request that this court disqualify opposing counsel because they allegedly participated in the fraudulent transfer.  In November 2000, respondents filed a motion in district court to disqualify opposing counsel.  In December, they filed a motion to disqualify opposing counsel and for appointment of a receiver.  The district court subsequently issued an order appointing a receiver and setting a supersedeas bond but the court did not address the disqualification motion.  Because this issue was not decided by the district court, we will not address it.  See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (issues not presented to and decided by the district court generally not addressed by reviewing courts on appeal). 


            Finally, respondents moved this court to strike numerous documents from appellant’s appendix, arguing that they were not admitted into evidence and are not part of the record on appeal.  The challenged documents are a summary-judgment memorandum and its attached exhibits.  Generally, an appellate court “may not base its decision on matters outside the record on appeal, and may not consider matters not produced and received in evidence below.”  Id. at 582-83.  But Minn. R. Civ. App. P. 110.01 defines the record on appeal as consisting of papers filed in district court, exhibits, and transcripts.  The summary-judgment memorandum and its exhibits were filed in district court and are a part of the record on appeal.    Therefore, we deny respondents’ motion to strike.

            Affirmed; motion denied.