Coleman v. Lofgren

OPINION RABINOWITZ, Chief Justice. I. This marks the second occasion this matter is before us. In Coleman v. Lofgren, [1366] 593 P.2d 632 (Alaska 1979), we held that Coleman, as successor of a dissolved partnership that included Lofgren, Wright and Coleman, had assumed the debts incurred by the former partnership.1 More particularly, we concluded that these debts became the obligation of a successor partnership between Coleman and his two sons. In our opinion in the first appeal we determined that one facet of the superior court’s decision necessitated a remand for additional proceedings. Our reasons for the remand were explained as follows: The trial court found that a note signed by the withdrawing partners on February 1, 1973, in favor of the First National Bank of Fairbanks in the sum of $30,020 was a partnership obligation for which the successor partners, the Colemans, were primarily liable under their agreement to assume the liabilities of the partnership. However, the partnership records show that on February 1, 1973, Wright and Lofgren were each credited with a capital contribution of $15,000, and the records do not indicate any assets attributable to such a contribution other than the funds received from the First National Bank under the note of the same date. Thus, the indications are very strong that the note proceeds were used to supply the capital contributions of Lof-gren and Wright. If this is so, the primary obligation to repay the note should fall on Lofgren and Wright, not on the partnership or on the successor partners. Because this issue was not sharply focused in the trial proceedings, we shall remand to the trial court so that Lofgren and Wright may be given the opportunity to show, if they can, an independent source for their capital contribution of February 1, 1973. If they fail, the judgment must be modified accordingly.2 On remand, the superior court heard extensive testimony, at the conclusion of which it ruled that Lofgren’s and Wright’s capital contributions did have an independent source. In resolving the issue, the superior court made two related findings. First, it found that: Lofgren and Wright have demonstrated by a preponderance of the evidence that Wallace Coleman was informed of the partnership loan with the [FNB] and that all parties in this action considered this debt to be a partnership obligation which was to be satisfied by the partnership assets which had been escrowed to secure performance of the sublease agreement with J. B. Gottstein and Company. Although the partnership records reflected a contribution of $15,000.00 each from Lofgren and Wright on February 1, 1973, this was merely a bookkeeping error which did not accurately reflect the agreement or understanding of any of the partners involved in this action. Through exhaustive testimony and documentary evidence, defendants Lofgren and Wright have demonstrated by a preponderance of the evidence that the note proceeds were not used or intended by them or the [Colemans] to be capital contributions of Lofgren and Wright. Accordingly, this court finds that the primary obligation to repay the note lies with the assuming partners .... In our view, this finding is not clearly erroneous.3 Mrs. Lofgren, who was the bookkeeper for the partnership, testified that she had decided to make the entry in the capital accounts because it was a convenient place to put a crediting entry and keep the books in balance. She also testi [1367] fied that she discovered the error in April or May of 1974 and attempted to correct it, but was unsuccessful because the partnership records were by then in the possession of the new Coleman partnership. Wright and Lofgren both testified that they had never contemplated that the proceeds from the FNB loan would be part of their capital investment in the partnership. They both indicated they considered the loan to be a partnership obligation, and that the loan and the escrow account securing the sublease agreement with J. B. Gottstein were to be a wash transaction. The partnership would pay interest on the note, and when the agreement with J. B. Gottstein ended, or this escrow account was replaced by a new security arrangement, the proceeds of the escrow account would be used to pay off the note, and the interest which had accumulated would be paid to the partners or the partnership.4 Wright and Lofgren also testified that prior to his entry into the partnership Coleman had been fully informed of the existence of the FNB note and its relationship to the escrow account securing the sublease agreement. Both indicated that Coleman had refused to replace John Bridgers, to whose place he succeeded in the partnership, on the note.5 The only conflicting evidence was Coleman’s testimony that he did not recall the escrow account or the note ever being mentioned, but the superior court specifically stated that it had resolved conflicting issues in favor of the Wright-Lofgren witnesses. The superior court further concluded that an independent source for the $30,000 in Lofgren’s and Wright’s capital accounts did exist. It found that “the capital contributions of Lofgren and Wright at the time of Coleman’s entry into the partnership were to consist of cash which was actually invested in the business, and past and future credit which Lofgren and Wright were to receive for the duties which they performed in the operation of the warehouse.” Additionally, the superior court determined “that the reasonable value of the services and labor so rendered by Lofgren and Wright during their association with the warehouse [was] at least $15,000.00 each.” 6 [1368] Coleman acknowledged that when the partnership was first formed it was agreed that he would be a “silent partner” while Lofgren and Wright would continue to work in the business, and that they had agreed not to take any draws until the business showed a profit. He acknowledged that they would share in the business on an equal basis, but he also maintained he expected that for an equal interest in the partnership all partners should put in the same amount of money. Lofgren denied that he or Wright had ever represented that they had $30,000 to put into the business. Here, again, the superior court resolved conflicting credibility issues in favor of the Wright-Lofgren witnesses.7 Given the foregoing, we conclude that the superior court’s finding that an independent source was proven for the $30,-000 in Lofgren’s and Wright’s capital accounts was not clearly erroneous. Although our remand in regard to the first appeal in the case at bar was worded to require that Lofgren and Wright demonstrate an independent source for their capital contributions, the primary question was who should bear the responsibility for repayment of the $30,000 FNB loan. In this regard we hold that the superior court’s determinative findings of fact as to an independent source for Lofgren’s and Wright’s capital contributions furnish the requisite foundation for the further conclusion that the $30,000 loan was intended by the Coleman, Lofgren and Wright to be a partnership obligation, and is therefore the responsibility of the Colemans. II. Coleman also attacks the trial court’s award of attorney’s fees following the remand. At the first trial the superior court awarded Lofgren and Wright $6,334.76 in attorney’s fees as the prevailing parties. After the trial on remand it awarded Lofgren and Wright another $5,753.46. Thus, Coleman claims that he was forced to pay twice for the same fees incurred by Lofgren and Wright. The $5,753.46 figure is based on the fee schedule of Civil Rule 82(a)(1),8 as applied to the value of the note ($30,020) plus interest. There is nothing in the record indicating the basis of the first fee. Our own calculations indicate that $6,334.76 is exactly equal to the Rule 82(a)(1) amount based on all of the items specified in the first judgment, including $30,020 for the note. Since Coleman was apparently assessed fees twice on the note, the attorney’s fee award must be vacated, and the case remanded for redetermination of the award.9 [1369] III. One additional point remains for discussion. On September 19, 1978, the First National Bank of Fairbanks obtained judgment on the $30,000 note at issue here against Lofgren, Wright, and John Bridg-ers. On August 29,1979, the bank obtained a writ of execution to enforce this judgment, and threatened to levy on real property that Lofgren wished to sell. It offered Lofgren and Wright a deal: it would refrain from execution if Lofgren and Wright would agree to begin paying fourteen and one-half percent interest on the note and its accumulated interest. After the superior court ruled, on September 5, 1979, that the note was Coleman’s obligation, counsel for Lofgren and Wright demanded that Coleman satisfy the debt, and informed Coleman’s counsel that if Coleman refused Lof-gren and Wright would be forced to accept the bank’s offer. Coleman, contemplating this appeal, evidently did refuse, for Lof-gren and Wright both signed the bank’s “conditional covenant not to execute.” On October 10, 1979, Lofgren and Wright moved the superior court for permission to file an amended answer and cross-claim alleging, among other things, that Coleman was liable to Lofgren and Wright for the payments the latter had to make pursuant to the fourteen and one-half percent interest agreement. Over Coleman’s objections, the superior court approved the filing of the amended pleading. The amended judgment, signed on the same day the superior court granted leave to amend the cross-claim, accordingly placed the liability for the fourteen and one-half percent interest payments upon Coleman. Coleman argues that the superior court erred in allowing the amended pleading. We agree. In the procedural and factual context surrounding the filing of the amended pleading Coleman was not accorded an appropriate opportunity to dispute the claimed fourteen and one-half percent interest by answer or by trial, since the issue arose subsequent to the trial upon remand and the superior court’s judgment was entered on the same day that the “amended” pleading was accepted.10 The judgment of the superior court is AFFIRMED in part, VACATED in part, and REMANDED for further proceedings consistent with this opinion. Footnotes [1] For a detailed explanation of the factual circumstances of this case, see Coleman v. Lofgren, 593 P.2d 632 (Alaska 1979). The superior court’s findings of fact and conclusions of law upon remand are reproduced in full in the appendix to this opinion. [2] Coleman v. Lofgren, 593 P.2d 632, 638 (Alaska 1979). [3] Civil Rule 52(a) requires that, when the issue on appeal primarily consists of findings of fact by the superior court, “[findings of fact 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.” See Coleman v. Lofgren, 593 P.2d 632, 636 and cases cited at 636 n.8 (Alaska 1979). [4] Sigrid Karabelnikoff, a C.P.A. with Arthur Young Co. who prepared the partnership’s 1973 and 1974 tax returns, testified that from an accounting standpoint the FNB note would be viewed as a partnership obligation. She indicated that from her past experience it was fairly common for a partnership to have such an obligation, and that typically the interest was paid by the partnership. Karabelnikoff indicated that she never discovered the error because the FNB note was not included in the partnership records sent to Arthur Young Co. for use in preparation of the tax returns. Mrs. Lofgren testified in the previous trial that the interest on the FNB note was paid by the partnership. This is consistent with the contention of Lofgren and Wright that the note was intended to be a partnership obligation. [5] Bridgers was a member of the original partnership set up to run the warehouse. He was replaced by Coleman in 1973. He is a nominal party to this appeal. Lofgren also testified that after the partnership ended he had discussed the escrow account and the loan with Carson Coleman who was then managing the warehouse. Lof-gren and Wright wanted the Colemans to obtain some other kind of security arrangement so that the FNB note could be paid off, thus relieving Lofgren and Wright of any obligations with respect to the partnership. (Lofgren, Wright, and Bridgers individually guaranteed the FNB note.) Lofgren testified that Carson indicated to him that the Colemans would get their own security deposit. [6] It appears that the superior court based this ruling on the testimony of Wright and Lofgren concerning the understanding they had with Coleman. Wright’s testimony regarding the understanding was as follows: Well, if he [Coleman] would put in $30,-000.00, he would be an equal one-third partner, and with what time and effort that we had already put into the business, getting it as far as it was, plus our cash to start the business, and that we would work until it was a paying proposition before we’d ever draw any wages or anything like this .... [I]f there was any additional monies needed, that it would be treated like a loan to the partnership, and whoever come up with more money, why, it would be an obligation to the partnership to repay at the time that the business could afford it. Lofgren testified as follows: [Coleman] was to come in as an equal partner, with a $30,000.00 capital contribution .... [0]ur [Lofgren’s and Wright’s] recommendations to Mr. Coleman was that we [1368] would perform all the duties necessary to run the warehouse operation, and that we would not make any draws against the partnership, until such time that the partnership was on a paying proposition. [7] Contribution by parties to a partnership enterprise need not always be in the form of tangible assets or capital. Partnerships are often formed where one party provides the money and the other party provides labor or services. Cutler v. Bowen, 543 P.2d 1349 (Utah 1975); Mercado v. Hoeñer, 190 Cal.App.2d 12, 11 Cal.Rptr. 787 (1961); see also J. Crane & A. Bromberg, Law of Partnership § 12, at 60 n.55 (1968). [8] That rule provides, in relevant part: Unless the court, in its discretion, otherwise directs, the following schedule of attorney’s fees will be adhered to in fixing such fees for the party recovering any money judgment therein, as part of the costs of the action allowed by law: ATTORNEY’S FEES IN AVERAGE CASES Without Non-Contested Trial Contested 20% 15% First $2,000 Ü1 15% 12.5% Next $3,000 O 12.5% 10% Next $5,000 W 7.5% 5% Over $10,000 O [9] While the superior court has discretion on remand to determine an appropriate attorney’s fee award, we think some possible solutions are indicated. The court might reduce the award by $3,002 (ten percent of the $30,020 included in the first judgment), or it might base its award for the second trial on the “reasonable fee” provision of Rule 82(a)(2); or it might set aside the $6,334.76 award, and make a new award for both trials based on Rule 82(a)(2). We also note that our calculations indicate that the superior court, in figuring the attorney’s fee award on the initial judgment, excluded prejudgment interest from the total on [1369] which the award was based. We have indicated that prejudgment interest is to be included. ERA Helicopters, Inc. v. Digicon Alaska, Inc., 518 P.2d 1057, 1063 (Alaska 1974). Since the attorney’s fee award is to be recalculated, it would be advisable to make some adjustment on this point also. [10] Under these circumstances, neither subsection (a) nor (d) of Civil Rule 15 authorized the entry of judgment against Coleman for the fourteen and one-half percent in question. Civil Rule 15(a) provides: Amendments. A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 20 days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of thá adverse party; and leave shall be freely given when justice so requires. A party shall plead in response to an amended pleading within the time remaining for response to the original pleading or within 10 days after service of the amended pleading, whichever period may be the longer, unless the court otherwise orders. Civil Rule 15(d) provides: Supplemental Pleadings. Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented. Permission may be granted even though the original pleading is defective in its statement of a claim for relief or defense. If the court deems it advisable that the adverse party plead to the supplemental pleading, it shall so order, specifying the time therefor.