This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-645

 

 

Ralph T. Laumann,

Appellant,

 

vs.

 

Jerome J. Laumann,

Respondent.

 

 

Filed April 19, 2004

Affirmed in part, reversed in part, and remanded

Anderson, Judge

 

Carver County District Court

File No. CX-00-1381

 

Keith J. Broady, Timothy C. Matson, Abdo, Abdo, Broady & Satorius, P.A., 710 Northstar West, 625 Marquette Avenue, Minneapolis, MN  55402 (for appellant)

 

Stephen W. Walburg, Jaspers, Moriarty & Walburg, P.A., 206 Scott Street, Shakopee, MN  55379 (for respondent)

 

            Considered and decided by Anderson, Presiding Judge; Stoneburner, Judge; and Hudson, Judge.

U N P U B L I S H E D  O P I N I O N

 

G. BARRY ANDERSON, Judge

 

            This matter for (1) partition of property owned by tenants in common, (2) dissolution of a partnership, and (3) an accounting was tried before the district court on July 16-17, 2001; August 1, 2001; July 11, 2002; and August 19, 2002.  The judgment of the district court was filed in April 2003.  The district court judgment ordered (1) the partition by sale of the partnership land, and (2) that appellant pay respondent $185,572.52 from appellant’s portion of the partnership assets.  Appellant challenges the judgment, arguing that the district court erred by ordering a sale of the parties’ farmland instead of partition in kind and by requiring appellant to pay the judgment after, not before, the division of the partnership assets.  Appellant also argues that several of the district court’s findings of fact and conclusions of law are clearly erroneous.

We affirm in part, reverse in part, and remand.

FACTS

 

In 1974, brothers Ralph Laumann (appellant) and Jerome Laumann (respondent) began a farming partnership by oral agreement.  Each brother contributed cattle and machinery to the startup capitalization of the partnership.

            In 1979, appellant moved into a house on the Thaemert farm, one of the farms owned by the partnership.  The partnership contributed some money to purchase the farm, but the partnership also borrowed money from the parents of the parties for the purchase.  Respondent lived with his parents on a different farm. 

            In January 1981, the brothers entered into a written partnership agreement.  In January 1982, the brothers executed a second written partnership agreement; this agreement was amended in October 1993.  The 1982 partnership agreement provided that appellant and respondent would divide the receipts and profits of the partnership on an equal basis.  Appellant was responsible for the bookkeeping of the partnership.

            Several years after appellant and respondent formed the partnership, appellant’s wife and children (family) began working for the benefit of the partnership.  Appellant paid his family for their labor from the partnership assets.  In 1993, as appellant’s family began receiving more income from the partnership, appellant reduced his own income from the partnership.  Appellant did not disclose his own income, or the income paid by the partnership to his family, to respondent.  At trial, respondent introduced evidence that between 1980 and 1999 appellant had received several thousand dollars more in income from the partnership than respondent.  Further, during the same time period, appellant’s family received several hundred thousand dollars of income from the partnership.

            Over the years, appellant, respondent, and third-party creditors loaned money to the partnership.  Appellant and respondent set up a repayment schedule to repay respondent for his loans to the partnership, which exceeded $70,000; the partnership repaid respondent several thousand dollars on the outstanding loans. 

            Respondent, at various times, requested to see the partnership accounts kept by appellant; appellant did not allow respondent to see the accounts until the partnership dissolution action began.

            In 1999, the brothers divided the partnership land on a temporary basis, but neither brother was satisfied with the division.  Thereafter, at the district court, respondent sought: (1) voluntary dissolution of the partnership, (2) an accounting of the partnership business, and (3) partition of the partnership land.  Appellant challenges the April 2003 district court judgment in favor of respondent.

D E C I S I O N

 

I.

            Appellant argues that the district court erred by ordering the sale of the farmland owned by the partnership instead of ordering partition in kind.  Appellant argues that the district court erred because it (1) failed to make the statutorily required finding of great prejudice necessary before the court can order the sale of land, and (2) failed to follow the statutory procedures of the Partition of Real Estate Act, as required by Minn. Stat. § 558.01 (2002).  We agree.

            A reviewing court is not bound by, and need not give deference to, a district court’s decision on a purely legal issue.  Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003) (citing Frost-Benco Elec. Ass’n v. Minn. Pub. Utils. Comm’n, 358 N.W.2d 639, 642 (Minn. 1984)).  But in reviewing the district court’s conclusions on ultimate issues or mixed questions of law and fact, we will carefully examine the explanations given by the district court for its decisions.  Maxfield v. Maxfield, 452 N.W.2d 219, 221 (Minn. 1990).  In cases with mixed questions of law and fact, we correct erroneous applications of law, but we accord the district court discretion in its ultimate conclusions; we review such conclusions under the abuse of discretion standard.  Rehn v. Fischley, 557 N.W.2d 328, 333 (Minn. 1997).  Further, we will affirm the findings of fact of the district court if they “are not without support in the evidence.”  Colburn v. Pine Portage Madden Bros., Inc., 346 N.W.2d 159, 161 (Minn. 1984).

            Without stating on what authority it was relying, the district court concluded that the “partnership assets shall be sold to the highest bidder in a fashion to generate the greatest profit” because (1) both parties wanted to continue farming, (2) the partnership land could not be divided in a way that would allow both parties to do so, and (3) appellant did not have any other assets available to satisfy the judgment against him.   

            Appellant challenges both the district court’s application of the law and the district court’s findings supporting the sale.  Appellant argues that the Minnesota Partition of Real Estate Act (the Act) applies in this case.  The Act states that:

[w]hen two or more persons are interested, as joint tenants or as tenants in common, in real property in which one or more of them have an estate of inheritance or for life or for years, an action may be brought by one or more of such persons against the others for a partition thereof according to the respective rights and interests of the parties interested therein, or for a sale of such property, or a part thereof, if it appears that a partition cannot be had without great prejudice to the owners.

 

Minn. Stat. § 558.01.  Partition by sale generally may only be ordered where a party alleges, “in the complaint and establishe[s] by evidence that the property, or any part of it, is so situated that partition cannot be had without great prejudice to the owners.”  Minn. Stat. § 558.14 (2002). 

            Because actions for partition in Minnesota are governed by the Act, and because the district court did not apply the Act in determining whether to partition the land by sale, we reverse the partition determination and remand to the district court with instructions to apply the Act to determine if partition by sale is appropriate.  Because we remand with instructions to apply the Act, we do not reach appellant’s challenge that the findings do not support partition by sale.


II.

            Appellant argues that the district court erred by requiring him to pay, after the division of the partnership assets, the $185,572.52 judgment in favor of respondent.  We agree.

            The partnership agreement governs the settling of accounts and distribution of partnership assets.  See Minn. Stat. § 323A.1-03(a) (2002) (stating “[e]xcept as otherwise provided . . . relations among the partners and between the partners and the partnership are governed by the partnership agreement”).  Here, the 1982 partnership agreement, as amended, provides:

Upon dissolution, the partnership assets will be distributed to the following priority:

 

A.     Payment of all partnership debts and liabilities except those owed by the partners and the payment of all liquidation expenses.

B.     Payment of all partnership debts and liabilities owed to the partners.

C.     Payments to the partners for the consumption of, sale of, and/or loss of assets leased to the partnership.

D.    Undivided profits shall be divided as the profits were allocated to each partner in the year that they were earned.  The partnership equity shall be divided according to the capital account of each partner as of the date of termination.

 

            Appellant argues that the payment of (1) partnership debts and liabilities owed to the partners, (2) loans, and (3) reimbursements in the form of medical reimbursements and equalization of cash receipts are encompassed under the terms of the partnership agreement, and, therefore, these obligations should be satisfied pursuant to the partnership agreement.  Appellant argues that because the partnership agreement requires some obligations to be paid before the assets of the partnership are divided between respondent and appellant, the district court erred when it ordered appellant to pay a money judgment to respondent after division of the partnership assets. 

            In ordering the money judgment, the district court relied on the principle that “[a]ctions for accounting and dissolution of a partnership are equitable actions.”  Maras v. Stilinovich, 268 N.W.2d 541, 544 (Minn. 1978).  But this principle alone does not overcome the statutory requirement that the partnership agreement controls, with limited exceptions, all relations between the partners and the partnership.  See Minn. Stat. § 323A.1-03 (stating that the partnership agreement generally governs relations both among the partners and between the partners and the partnership).

            In this case, the partnership agreement specifically requires payment of the partnership’s outstanding debts owed to the partners before the partnership equity is divided.  Respondent’s award of medical reimbursements, which is properly classified as a debt of the partnership, should also be paid before the partnership equity is divided, pursuant to the partnership agreement. 

            The amount awarded by the district court to “equalize the cash receipts” between the two parties should also be paid into the partnership equity by appellant before division of the assets even though this amount is not addressed by any provision of the partnership agreement.  Appellant took this money from the partnership, not from respondent; if appellant had not taken the money, it would still constitute partnership funds and would, upon dissolution, be divided between the partners.  It should therefore be restored to the partnership and then allocated between the partners as part of the division of the assets. 

            We reverse and remand to the district court with instructions to apply the partnership agreement where applicable and to order appellant to restore, before division of the partnership assets, any money he was not authorized to take out of the partnership funds.

III.

            Appellant argues that several of the district court’s findings and conclusions are clearly erroneous and should therefore be reversed and remanded.  The district court’s findings of fact based on either oral or documentary evidence “shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.”  Minn. R. Civ. P. 52.01.  In applying Minn. R. Civ. P. 52.01, “we view the record in the light most favorable to the judgment of the district court.”  Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999).  This court will not reverse the district court’s judgment merely because we view the evidence differently.  Id.; see Vangsness v. Vangsness, 607 N.W.2d 468, 474 (Minn. App. 2000) (stating, “[T]hat the record might support findings other than those made by the [district] court does not show that the . . . findings are defective”).  Rather, the district court’s factual findings must be clearly erroneous or “manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole” to warrant reversal.  Rogers, 603 N.W.2d at 656. (quotation omitted).  “Findings of fact are clearly erroneous only if the reviewing court is left with the definite and firm conviction that a mistake has been made.”  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999) (quotation omitted).  “If there is reasonable evidence to support the district court’s findings, we will not disturb them.”  Rogers, 603 N.W.2d at 656.

1.      Appellant argues that the district court did not independently evaluate each party’s testimony and evidence.

 

Appellant argues that, with limited exceptions, the district court adopted

respondent’s proposed findings and conclusions.  Appellant argues that this constituted an abuse of discretion.  We disagree. 

This court has concluded that a district court’s wholesale adoption of one party’s proposed findings and conclusions may raise the specter of whether the district court independently evaluated the testimony and evidence presented.  Bliss v. Bliss, 493 N.W.2d 583, 590 (Minn. App. 1992), review denied (Minn. Feb. 12, 1993).  But even a verbatim adoption of one party’s proposed findings and conclusions is not reversible error per se.  Id.

Here appellant argues that the district court adopted respondent’s proposed findings with respect to the partnership income, expenses, disbursements, debts, and liabilities.  But appellant concedes that the district court’s findings and conclusions regarding (1) the partition of the land, and (2) a compilation of medical reimbursements, loan repayments, and equalization of cash disbursements to the partners were not adopted wholesale from respondent’s proposed findings and conclusions. Although the district court did adopt some of respondent’s findings and conclusions, the district court independently evaluated the testimony and evidence; it did not therefore abuse its discretion in drafting its findings and conclusions.

2.      Appellant argues that the district court clearly erred in its findings and conclusions because the court did not properly credit the parties for (1) loans to the partnership, and (2) the parties’ initial contributions to the partnership.

 

Appellant challenges several individual findings and conclusions of the district court.  Appellant argues that the district court made a clear mathematical error in finding no. 5.  Respondent does not contest the error.  We agree that the district court made a mathematical error in finding no. 5, but we conclude that this error is harmless.

Finding no. 5 reads, in relevant part:

There were however legitimate loans made by [appellant] to the partnership. These were in the amount of $22,478.75.  [Appellant] has received repayments on these loans totaling $19,614.10.  The balance due [appellant] for loans to the partnership is the amount of $2,364.65.

 

However, $22,478.75 - $19,614.10 = $2,864.65, not $2,364.65.  But the district court used the correct figure—$2,864.65—in its conclusion of law.  The error in the finding was therefore harmless.  See Minn. R. Civ. P. 61 (stating that error that does not affect the substantial rights of the parties may not be used as grounds to disturb the judgment).

Appellant next argues that the district court made several errors in its findings and

conclusions related to the parties’ loans and capital contributions.  Appellant argues that uncontroverted evidence supports his claim that he made loans to the partnership in the amount of $73,172.74, not $22,478.75, as found by the district court.  Appellant also argues that cancelled checks submitted to the court established that he initially contributed $3,079 to the corporation and that the district court clearly erred by failing to credit him that amount.  We disagree with both contentions.

            With regard to the $73,172.74 amount, appellant argues that because the district court did not accept the evidence that appellant submitted in support of the amount he loaned the partnership, the district court committed error.  It is clear that the district court rejected appellant’s argument that he had loaned the partnership $73,172.74; this determination was not clearly erroneous.  See Minn. R. Civ. P. 52.01 (directing that due regard be given to the district court’s credibility judgments).

            With regard to the $3,079 amount, the district court found that “[e]ach partner contributed approximately equally to the startup capitalization.”  The district court recognized that appellant contributed to the startup, but found that because the partners contributed in equal amounts there was no need to reimburse either party for startup capitalization expenditures.  Therefore, even if the record shows that appellant contributed $3,079 to the startup, he is not entitled to recover the $3,079.  Because, on this record, the district court’s finding that each partner contributed equally and need not be reimbursed for startup capitalization is not clearly erroneous, it will not be disturbed. 

            Next, appellant argues that the district court finding that appellant’s expenditures of $17,703 and $7,612 were capital contributions, and not loans, is clearly erroneous.  We disagree.  Because the record provides a basis for the district court’s finding that the amounts were not loans, the finding is not clearly erroneous.  See Rogers, 603 N.W.2d at 656. 

            Appellant argues that the district court’s findings in regard to respondent’s loans and capital contributions to the partnership are clearly erroneous.  We disagree.  Appellant argues that the district court erroneously credited respondent for a loan to the partnership in the amount of $3,800.  But, because there is a basis in the record for this loan, the district court did not clearly err in including the $3,800 loan in the findings of fact.

            Appellant next argues that the finding of the district court that a loan made by Farm Credit Services (FCS) was not a partnership loan but credit extended by FCS is clearly erroneous.  Appellant argues that the $12,700 credit extended by FCS was used to secure a soil finisher for the partnership; appellant argues that the soil finisher is partnership property and the loan used to buy the finisher is a partnership loan.  Appellant argues further that any payments made out of appellant’s personal funds for the soil finisher should be reimbursed.  Because the record supports the determination of the district court that the credit extended by FCS was not a partnership loan, we will not disturb that finding. 

But appellant claims he made payments on the finisher from personal funds for

four of five years.  Respondent concedes that appellant may have made the payment for the soil finisher one of the five years.  The district court did not credit appellant for making any payments for the soil finisher out of personal funds.  Because it is clear and undisputed that appellant has made at least some payments from personal funds for the soil finisher, we reverse and remand this issue for the district court to make findings on the amount of appellant’s expenditure of personal funds on the finisher and to order any appropriate reimbursement.

            Appellant argues that the district court’s holding that appellant retained possession of the soil finisher which was procured with the credit extended by FCS was clearly erroneous.  We agree.  Respondent does not dispute that he retains possession of the soil finisher in question but instead states, “[T]he fact that [respondent] had the soil finisher in his possession is of no significance in that other assets were given to [appellant] in the personal property split.”  The district court’s finding that appellant retained possession of the soil finisher is clearly erroneous.  Because it is clearly erroneous, we reverse and remand for the district court to correct this finding.

Next, appellant argues that although the district court recognized in its findings of

fact that the partnership owed appellant $2,864.65 for unreimbursed loans, the district court failed to credit appellant for any unreimbursed loans in its conclusions of law.  We agree.  The district court concluded that the difference in loan balance between the partners was $30,427.85.  But it awarded respondent $33,292.50 for the difference between the unpaid loan balances of the partners.  It appears that the district court failed to credit appellant for $2,864.65 of unreimbursed loan.  We therefore reverse and remand with instructions that the district court make consistent findings and conclusions for the loan reimbursement awards.

            Appellant argues that because he made capital improvements to partnership property, he should be reimbursed for those improvements.  We agree in part.  Appellant claims that he made two expenditures for capital improvements to the partnership that should be reimbursed: one for $17,703 and one for $7,612.  The testimony offered at trial supported the district court’s conclusion that appellant was reimbursed for the $17,703 expenditure; the finding that appellant is not entitled to further reimbursement on that amount is, therefore, not clearly erroneous.  But, for the $7,612 expenditure, which the district court describes as a “capital improvement,” appellant is entitled to reimbursement.  In Minnesota, before the Uniform Partnership Act was repealed in 1997, Minn. Stat. § 323.39 governed distribution of partnership property upon dissolution.  Caselaw interpreting Minn. Stat. § 323.39 “established beyond question in this state, as elsewhere, that the capital contributed by a partner is a debt of the partnership which must be paid after the outside creditors but before there is any division of the profits.”  Petersen v. Petersen, 169 N.W.2d 228, 230, 284 Minn. 61, 64 (1969).

            After the legislature enacted the Uniform Partnership Act of 1994, the language governing the distribution of partnership property upon dissolution was amended to read:

(a)   In winding up a partnership’s business, the assets of the partnership, including the contributions of the partners required by this section, must be applied to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors.  Any surplus must be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subsection (b).

 

Minn. Stat. § 323A.8-07 (2002).

 

            Despite the change in language from Minn. Stat. § 323.39, there is no compelling reason why, under Minn. Stat. § 323A.8-07, a partner would not be reimbursed for capital contributions before division of the partnership assets.  We reverse and remand on the $7,612 expenditure with the instruction that appellant be reimbursed from the partnership funds for this capital expenditure.

            Appellant argues that the district court erred by failing to credit the payments he made from a personal account to pay for partnership insurance.  Because the judgment does not provide a sufficient factual basis to permit meaningful review, we remand this issue. 

3.      Appellant argues that the district court’s finding that the partnership overpaid appellant’s family for services is clearly erroneous.

 

Appellant argues that the finding of the district court that $105,000 represented a fair amount of reimbursement for the services rendered by appellant’s family is not supported by the evidence, that the finding that appellant’s family was paid $268,578.95 for services rendered from 1993 until 1999 is clearly erroneous, and that the finding that a “significant difference [in the pay for services rendered by the family] cannot be explained away as additional work being performed by the family for the partnership . . . [but instead] was an accounting sleight of hand” is also clearly erroneous.  We disagree.

The record supports the determination that the family earned $11,000 for services rendered in 1992.  Based on the $11,000 figure from 1992, together with testimony by the parties detailing the services rendered to the partnership between 1993 and 1999, the conclusion of the district court, that from the years 1993 to 1999 the family should have earned $15,000 per year for services rendered to the partnership, is not clearly erroneous. 

Appellant maintains that the partnership tax returns, checks, computer reports, and summaries demonstrated that appellant’s family was actually paid $163,316.91 for services rendered between 1993 and 1999.  But evidence presented by respondent indicated that the family was paid $268,578.95 during that period.  Here, the evidence conflicted, and the district court credited respondent’s accounting of the amount the family had received between 1993 and 1999.  The record supports this finding; the finding is not clearly erroneous.

Appellant argues that the district court’s finding that the increase in payment to appellant’s family for services rendered to the partnership from 1980 to 1992 could not be explained as additional work being performed by the family is clearly erroneous.  But testimony from the parties on the issue was sufficient to support the determination that the increase in pay was not for additional work performed by the family but an attempt to “reduce the difference between what [the parties received as] income payments.”  This finding is not clearly erroneous.

4.      Appellant argues that the district court’s finding that appellant refused to disclose books, partnership checks, K-1’s, and other partnership documents was clearly erroneous.

 

Appellant argues that the district court’s finding that he failed to disclose partnership documents with respondent is clearly erroneous.  But evidence and testimony presented at trial indicated that appellant did not disclose the partnership documents until the dissolution proceedings began.  The district court’s finding was not, therefore, clearly erroneous.

            Affirmed in part, reversed in part, and remanded.