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Maus v. Galic

September 16, 2003

STEVEN M. MAUS, RESPONDENT,
v.
GEORGE J. GALIC, APPELLANT, WILLIAM LEWIS, NOMINAL DEFENDANT.



Hennepin County District Court File No. CT 995673

Considered and decided by Halbrooks, Presiding Judge; Toussaint, Chief Judge; and Wright, Judge.

SYLLABUS BY THE COURT

A partnership is dissolved by mutual consent and the express will of the partners upon an exchange of pleadings alleging dissolution of the partnership by the express will of a partner.

The opinion of the court was delivered by: Toussaint, Chief Judge

Affirmed in part, reversed in part, and remanded

OPINION

This is an appeal from a judgment dissolving a partnership. After trial with an advisory jury, the court dissolved the partnership by judicial decree as of the last day of trial and adopted the special master's report on the division of assets and award of damages. After denial of post-trial motions, this appeal followed. Because we conclude that the mutual pleadings claiming dissolution by the express will of a partner evidenced dissolution of the partnership, we reverse and remand for calculation and distribution of profits consistent with the earlier date of dissolution, but we affirm the trial court's conclusions regarding partnership accounting and the bidding process.

FACTS

This action concerns the dissolution of the business partnership of Galic/Maus Ventures, L.L.P. (GMV), a Minnesota partnership. The partnership formed on December 6, 1985, with no definite duration, to conduct the business of inventing more efficient and sophisticated techniques of manufacturing injection-molded plastics, specifically in the areas of optical lenses and compact discs.

At the inception of the partnership, there were two equal partners, appellant George Galic and respondent Steven Maus. At the time of litigation, the two majority partners each held 48% of the equity ownership in GMV; the remaining 4% having been acquired by nominal defendant William Lewis. Galic was the managing partner, with sole authority to make binding commitments to outside parties, possible future employees, and lenders. Mutual agreement between the two partners, however, was required for any "strategic business decisions" described in their partnership agreement.

When Galic and Maus executed the GMV partnership agreement in 1985, they acknowledged that their "[c]ontributions on any given project may well not be equal..., both in services rendered and in monies." They agreed that appropriate records would be kept and that partner time would be valued at $40 per hour for Galic and $30 per hour for Maus. There is no record evidence that the partners were compensated for their time under this provision.

Three addenda to the partnership agreement relate to capital contributions and splitting proceeds. Except for the special cases set out in the June 1991 addendum, the parties agreed to an equal split of the net proceeds after GMV business costs were deducted. By the time of the October 21, 1991 addendum, Galic and Maus had contributed $435,124 and $18,000, respectively. Galic accepted a reduced "pay-off " due to the large accumulation of interest. All of the partnership's outstanding obligations to Galic were paid by the July 28, 1992 addendum, at which time the partners reiterated that they each owned 50% of the partnership.

A personality conflict between Lewis and Maus developed in the spring and summer of 1997. In 1997 and 1998, Maus substantially reduced the time he spent in the GMV shop in Minnesota, and while at the shop, he worked on his own personal projects.

On April 8, 1998, GMV, through its majority partners, Galic and Maus, signed an agreement to sell substantially all of GMV's assets to Optics Technology, Inc. (OTI) for $4.5 million. Of that amount, $1 million was to remain in escrow until April 8, 1999. An additional agreement for consulting and subcontracting yielded another $500,000 to the partners, and they signed non-compete agreements with OTI, for which they each received $100,000. Incorporated into these agreements was Galic's warranty that he and Maus were partners in GMV.

At about the time of the April 1998 sale, Maus purchased a home in Texas. After the sale to OTI, Galic ceased providing Maus with financial information that he had routinely provided pursuant to the partnership agreement. Galic did not resume providing the information to Maus until December 1998, two months after Maus retained an attorney. Galic also ceased making distributions to the partners and, instead, kept the funds in escrow. GMV relieved Lewis of his obligations and authorized him to provide consulting services to OTI and others.

Under the agreement with OTI, GMV remained obligated to manufacture an optic-lens machine called a "RoboCoater" at OTI's request until April 8, 2003. There was little profit left in the RoboCoater business, and by the fall of 1998, the partners considered closing that line of business for lack of work. Galic proposed a plan to manufacture RoboCoaters and proceeded with the plan even though Maus did not agree. On the two RoboCoaters manufactured without Maus's permission, Galic indemnified Maus against any potential loss, and GMV managed to retain a larger profit than that earned on prior RoboCoaters.

On March 15, 1999, about one year after the sale of assets, Maus commenced this action, alleging that his partner Galic had partnership assets and was planning a disproportionate distribution. He claimed that Galic had breached the partnership agreement by failing (1) to provide him information; (2) allow him access to the business, and (3) conduct business according to their agreement. Maus sought an accounting and an injunction from distributing assets. In an amended summons and complaint dated March 31, 1999, Maus added his claim for dissolution of the partnership due to Galic's conduct. He alleged that dissolution was caused by the express will of a partner, and he asked for an order and decree of the court dissolving the partnership.

On April 2, 1991, Galic served his answer and counterclaim to Maus' amended complaint, alleging that Maus's actions had violated his fiduciary duty to the partnership and to Galic and that Maus had wrongfully dissolved the partnership, requiring an adjustment to the distribution due the partners. As an affirmative defense, Galic alleged that he had the right to continue the business despite Maus's wrongful termination of the partnership. He also counterclaimed for breach of fiduciary duty, wrongful dissolution, and defamation. Galic alleged that "sometime after April 9, 1998, there was a significant change in the relations of the partners caused by [Maus's] expressed will, unilaterally and without any consultation with any of the GMV partners, to cease being associated in the carrying on of GMV's business."

In June 1999 Maus moved for summary judgment, requesting that the district court appoint a receiver to wind up the affairs of the partnership. In August, the court denied the motion. Maus later moved to amend the complaint to add a claim for punitive damages, which was also denied.

From August 8 to 18, 2000, the parties tried the action before the court with an advisory jury. In October, the trial court entered findings and conclusions in favor of Maus and concluded that the partnership was dissolved on the last day of trial, August 18, 2000. The trial court concluded that Galic had breached the agreement by denying Maus information and access to the business and that Maus had not breached the agreement by ceasing his contributions of time and services. The court appointed a special master to hear disputes regarding the winding-up of the partnership business and to hear and decide the parties' claims regarding distribution of the partnership assets. The trial court adopted most of the jury's findings and entered its own amended findings, conclusions, and order dated November 28, 2000.

By December 2000, the parties were in mediation with the special master. After evidentiary hearings and arguments, the special master made his recommendation, including his conclusion that Maus suffered no damages from Galic's breaches and that Galic had acted in good faith in accounting and winding up the business. In the recommendation, he divided the cash among the three partners and, as agreed to by the parties, concluded that an auction would be used for the non-cash assets. The court set up the bidding process that began with Galic submitting bids for the GMV lines of business. The special master explained that it "is equitable and appropriate that Galic bid first because he improperly excluded Maus from the partnership business." Maus then could outbid Galic for any line of business, but Maus's bid must be at least 10% more than Galic's to be valid. Maus successfully bid for ...


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