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Case Summaries
Administrative Law, Appeal and Error, Denial of Waiver from Smoking Ban

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The Nebraska Supreme Court here upholds the Nebraska Department of Health and Human Services, Regulation and Licensure denial of a waiver to allow smoking in pool halls in Lincoln and Omaha.

Prout v. Nebraska Dept. Of Health & Human Servs., 275 Neb. 146 (2008)

Supreme Court Headnotes

Administrative Law:

1.  Judgments: Appeal and Error. A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record. When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

Date Filed and Case No.: February 22, 2008. No. S-06-764.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-764.pdf

Court Appealed From: District Court for Lancaster County: Steven D. Burns, Judge.

Attorneys for the Appeal: Andrew M. Loudon and Jacob Wobig for Will Prout and Big John’s Billiards, Inc., a Nebraska Corporation, appellants. Teresa M. Hampton for Nebraska Department of Health and Human Services, Regulation and Licensure, appellee.

Justices: Heavican, C.J., Wright, Connolly, Gerrard, Stephan, McCormack and Miller-Lerman, J.J.

Authored By: Wright, J.

Summary: Big John’s Billiards, Inc., and its owner, Will Prout (collectively Big John’s), sought a waiver under the Nebraska Clean Indoor Air Act (Act), Neb. Rev. Stat. § 71-5701 et seq. (Reissue 2003 & Cum. Supp. 2006), to allow smoking in pool halls in Lincoln and Omaha. The Nebraska Department of Health and Human Services Regulation and Licensure (Department) denied the waiver, and Big John’s filed a petition for review in the Lancaster County District Court. The court affirmed the denial of the waiver. Big John’s appealed to the Nebraska Supreme Court.

Was the district court’s order arbitrary, capricious, or unreasonable? The Court wrote that the purpose of the Act is to “protect the public health, comfort, and environment by prohibiting smoking in public places and at public meetings except in designated smoking areas.” § 71-5702. A waiver from the Act’s requirements may be granted if the Department “determines there are compelling reasons to do so and a waiver will not significantly affect the health and comfort of nonsmokers.” § 71-5711. The Department’s regulations provide little additional guidance as to the factors that will be taken into consideration to determine whether to grant a waiver. Reviewing the record of the testimony presented below, the Court said that the district court’s order was not arbitrary, capricious, or unreasonable. Here, Big John’s did not demonstrate any compelling reason for a waiver except to argue that it would be impacted financially. The Act does not identify financial burden as a compelling reason for a waiver. In addition, Big John’s did not show that the health and comfort of nonsmokers would not be significantly affected if a waiver were granted. Simply providing warnings to persons who enter the building does not protect them from smoke. And the claim that 90 percent of the customers smoke does not support a finding that the health and comfort of the other 10 percent would not be significantly affected if a waiver were granted. Further, Prout testified that he had made no attempt to comply with the Act’s requirements. In fact, he did not believe it would be possible to come into compliance by modifying the pool halls. However, the Department’s representative testified that Big John’s could divide the Omaha building into smoking and nonsmoking areas and thereby comply with the Act.

Conclusion: The Court found no error on the record which showed that the district court’s affirmance of the Department’s denial of a waiver conformed to the law, was supported by competent evidence, and was not arbitrary, capricious, or unreasonable. AFFIRMED.


Dissolution, Modification of Decree, Alimony

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This denial of a motion to modify a decree with regards to child support and alimony is affirmed here by the Nebraska Supreme Court.

Simpson v. Simpson, 275 Neb. 152 (2008)

Supreme Court Headnotes

Modification of Decree:

1.  To determine whether there has been a material and substantial change in circumstances warranting modification of a divorce decree, a trial court should compare the financial circumstances of the parties at the time of the divorce decree, or last modification of the decree, with their circumstances at the time the modification at issue was sought.

2.  Appeal and Error. Modification of a dissolution decree is a matter entrusted to the discretion of the trial court, whose order is reviewed de novo on the record, and which will be affirmed absent an abuse of discretion by the trial court.

3.  Alimony:

     1.  Good Cause: Words and Phrases. Pursuant to Neb. Rev. Stat. § 42-365 (Reissue 2004), alimony orders may be modified or revoked for good cause shown. Good cause means a material and substantial change in circumstances and depends on the circumstances of each case.

     2.  Proof. The moving party has the burden of demonstrating a material and substantial change in circumstances which would justify the modification of an alimony award.

Judges:

1.  Words and Phrases. A judicial abuse of discretion exists when reasons or rulings of a trial judge are clearly untenable, unfairly depriving a litigant of a substantial right and denying just results in matters submitted for disposition.

Child Support:

1.  Rules of the Supreme Court. In general, child support payments should be set according to the Nebraska Child Support Guidelines. ••• The Nebraska Child Support Guidelines provide that in calculating child support, a court must consider the total monthly income of both parties.

Date Filed and Case No.: February 22, 2008. No. S-06-1461.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-1461.pdf

Court Appealed From: District Court for Scotts Bluff County: Randall L. Lippstreu, Judge.

Attorneys for the Appeal: Jeffrey L. Hansen and Margaret A. Olsen for Lana Sue Simpson, appellant. James W. Ellison and James M. Mathis for Robert Eugene Simpson, appellee.

Justices: Heavican, C.J., Wright, Connolly, Gerrard, Stephan, McCormack and Miller-Lerman, J.J.

Authored By: McCormack, J.

Summary: In May 2006, Lana Sue Simpson sought a modification of Robert Eugene Simpson’s child support and alimony obligations, which had been set in their original divorce decree on December 30, 2002 (Lana had been awarded custody of the two children. Robert’s gross monthly income was $10,833. Lana’s gross monthly income was $1,577.74. Robert was ordered to pay child support of $1,617/2 or $1,109.35/1 per month and alimony of $1,250 per month for 72 months.) In a January 2005, the decree had been modified as to child support, due to a material change in circumstances (Lana’s annual gross income was $29,000 and Robert’s annual gross income had increased from $180,000 in 2002 to $325,000 in 2005.) Child support was set at $3,250/2 or $2,250/1 per month. The court further found that Robert’s substantial increase in income was not a sufficient ground to increase alimony payments as Lana had failed to meet her burden of proof that additional funds were necessary to reasonably meet her current needs. In the 2006 application, Lana alleged that Robert’s income had increased significantly, that she had returned to school full time and did not have the same income as in January 2005. In 2006, Robert was working for Lehman Brothers, Inc., in Mumbai, India. guaranteed minimum total compensation of $550,000 in salary and bonuses for the 2006 work year. As part of his compensation package, Part of the bonuses were described as “expatriate benefits/allowances.” (Expatriate compensation is additional compensation provided to offset the differences in costs of living outside an employee’s home country.) In the present action to modify, Lana claimed that her average monthly living expenses had increased to $9,123.34.

In its November 2006 order, the district court found that Robert’s expatriate compensation was not available to pay child support, but, rather, was necessary for Robert’s additional cost of living in India. The court explained that Robert’s expatriate compensation is “analogous to the deviation recognized in Guideline C(l), i.e. extraordinary expenses of either parent or child.” Accordingly, the district court determined that Robert’s gross income for child support calculations was $550,000 annually, or $45,833.33 per month. The district court also determined that annual income in the amount of $29,000 should be attributed to Lana. The court further determined that Lana had provided no documentation to support her claim that her living expenses had increased so substantially. In light of Robert’s increased income, the district court increased Robert’s child support obligation to $4,250/2 and $3,250/1 per month. The court denied, however, Lana’s request to increase Robert’s alimony obligation. Lana appealed and the Nebraska Supreme Court wrote the opinion.

Did the district court err in failing to include Robert’s expatriate compensation in Robert’s gross monthly income for purposes of child support and alimony? The Court said that a review of Robert’s pay stubs revealed that his expatriate compensation is counted as income. Paragraph D of the Nebraska Child Support Guidelines defines total monthly income as income “derived from all sources, except all means-tested public assistance benefits which includes any earned income tax credit and payments received for children of prior marriages.” As the guidelines are very specific the Court concluded that Robert’s expatriate compensation is income for purposes of support calculations. While child support payments generally should be set according to the guidelines, at the time of the district court’s order, table 1 of the guidelines did not provide for support amounts when the combined net monthly income exceeds $10,000 per month. Paragraph C(3) of the guidelines provided that when total net income exceeds $10,000, child support “may be more but shall not be less than the amount which would be computed using the $10,000 monthly income unless other permissible deviations exist” and the Court has said such calculations should be left to the discretion of the trial court and affirmed absent an abuse of discretion. Here, the district court pointed out the evidence reflects that the additional living expenses incurred by Robert while living in Mumbai are significant. Under the facts of this case, the Court could not say that the district court abused its discretion when it determined that Robert’s expatriate compensation is not reasonably available for child support payments.

Alimony

Did the district court err in refusing to increase Robert’s alimony obligation? The Court noted that in 2005, at the time of the last modification of the parties’ decree, Lana had an annual gross income of approximately $29,000 and Robert had an annual gross income of $325,000. Since that time, both parties have seen significant changes in their financial situations. Lana voluntarily left her employment in November 2005 and presently remains unemployed. She is, however, completing her bachelor’s degree via online classes through the University of Phoenix. Robert, on the other hand, has seen a significant increase in his annual gross income. Lana also claims that her living expenses have increased. When she first sought modification in 2004, Lana estimated that her living expenses were $4,944 for her and the parties’ two children. In the present action, Lana claims her average monthly living expenses are $9,123.34, almost double what they were 2 years ago. The changes in the parties’ financial situations is the basis for Lana’s request for modification of alimony. While an increase in income is a circumstance that may be considered in determining whether alimony should be modified the record reveals that Lana did not present any evidence to substantiate her purported increase in living expenses. In this case, the district court found that Lana had not proved her claim regarding the raise in her living expenses and that most, if not all, of the increase she seeks is for additional expenses for the parties’ children. The Court concluded that the evidence of Robert’s increased income does not constitute, in and of itself, a material and substantial change in circumstances, without a proven increase in Lana’s living expenses.

Conclusion: For the reasons discussed above, the Court concluded that Robert’s expatriate compensation is income for purposes of support calculations. They further determined, however, that the district court did not abuse its discretion in refusing to increase Robert’s child support and alimony obligations. AFFIRMED.


Dissolution, Modification of Decree, Child Support

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This denial of a motion to modify a decree with regards to child support and alimony is affirmed here by the Nebraska Supreme Court.

Simpson v. Simpson, 275 Neb. 152 (2008)

Supreme Court Headnotes

Modification of Decree:

1.  To determine whether there has been a material and substantial change in circumstances warranting modification of a divorce decree, a trial court should compare the financial circumstances of the parties at the time of the divorce decree, or last modification of the decree, with their circumstances at the time the modification at issue was sought.

2.  Appeal and Error. Modification of a dissolution decree is a matter entrusted to the discretion of the trial court, whose order is reviewed de novo on the record, and which will be affirmed absent an abuse of discretion by the trial court.

3.  Alimony:

     1.  Good Cause: Words and Phrases. Pursuant to Neb. Rev. Stat. § 42-365 (Reissue 2004), alimony orders may be modified or revoked for good cause shown. Good cause means a material and substantial change in circumstances and depends on the circumstances of each case.

     2.  Proof. The moving party has the burden of demonstrating a material and substantial change in circumstances which would justify the modification of an alimony award.

Judges:

1.  Words and Phrases. A judicial abuse of discretion exists when reasons or rulings of a trial judge are clearly untenable, unfairly depriving a litigant of a substantial right and denying just results in matters submitted for disposition.

Child Support:

1.  Rules of the Supreme Court. In general, child support payments should be set according to the Nebraska Child Support Guidelines. ••• The Nebraska Child Support Guidelines provide that in calculating child support, a court must consider the total monthly income of both parties.

Date Filed and Case No.: February 22, 2008. No. S-06-1461.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-1461.pdf

Court Appealed From: District Court for Scotts Bluff County: Randall L. Lippstreu, Judge.

Attorneys for the Appeal: Jeffrey L. Hansen and Margaret A. Olsen for Lana Sue Simpson, appellant. James W. Ellison and James M. Mathis for Robert Eugene Simpson, appellee.

Justices: Heavican, C.J., Wright, Connolly, Gerrard, Stephan, McCormack and Miller-Lerman, J.J.

Authored By: McCormack, J.

Summary: In May 2006, Lana Sue Simpson sought a modification of Robert Eugene Simpson’s child support and alimony obligations, which had been set in their original divorce decree on December 30, 2002 (Lana had been awarded custody of the two children. Robert’s gross monthly income was $10,833. Lana’s gross monthly income was $1,577.74. Robert was ordered to pay child support of $1,617/2 or $1,109.35/1 per month and alimony of $1,250 per month for 72 months.) In a January 2005, the decree had been modified as to child support, due to a material change in circumstances (Lana’s annual gross income was $29,000 and Robert’s annual gross income had increased from $180,000 in 2002 to $325,000 in 2005.) Child support was set at $3,250/2 or $2,250/1 per month. The court further found that Robert’s substantial increase in income was not a sufficient ground to increase alimony payments as Lana had failed to meet her burden of proof that additional funds were necessary to reasonably meet her current needs. In the 2006 application, Lana alleged that Robert’s income had increased significantly, that she had returned to school full time and did not have the same income as in January 2005. In 2006, Robert was working for Lehman Brothers, Inc., in Mumbai, India. guaranteed minimum total compensation of $550,000 in salary and bonuses for the 2006 work year. As part of his compensation package, Part of the bonuses were described as “expatriate benefits/allowances.” (Expatriate compensation is additional compensation provided to offset the differences in costs of living outside an employee’s home country.) In the present action to modify, Lana claimed that her average monthly living expenses had increased to $9,123.34.

In its November 2006 order, the district court found that Robert’s expatriate compensation was not available to pay child support, but, rather, was necessary for Robert’s additional cost of living in India. The court explained that Robert’s expatriate compensation is “analogous to the deviation recognized in Guideline C(l), i.e. extraordinary expenses of either parent or child.” Accordingly, the district court determined that Robert’s gross income for child support calculations was $550,000 annually, or $45,833.33 per month. The district court also determined that annual income in the amount of $29,000 should be attributed to Lana. The court further determined that Lana had provided no documentation to support her claim that her living expenses had increased so substantially. In light of Robert’s increased income, the district court increased Robert’s child support obligation to $4,250/2 and $3,250/1 per month. The court denied, however, Lana’s request to increase Robert’s alimony obligation. Lana appealed and the Nebraska Supreme Court wrote the opinion.

Did the district court err in failing to include Robert’s expatriate compensation in Robert’s gross monthly income for purposes of child support and alimony? The Court said that a review of Robert’s pay stubs revealed that his expatriate compensation is counted as income. Paragraph D of the Nebraska Child Support Guidelines defines total monthly income as income “derived from all sources, except all means-tested public assistance benefits which includes any earned income tax credit and payments received for children of prior marriages.” As the guidelines are very specific the Court concluded that Robert’s expatriate compensation is income for purposes of support calculations. While child support payments generally should be set according to the guidelines, at the time of the district court’s order, table 1 of the guidelines did not provide for support amounts when the combined net monthly income exceeds $10,000 per month. Paragraph C(3) of the guidelines provided that when total net income exceeds $10,000, child support “may be more but shall not be less than the amount which would be computed using the $10,000 monthly income unless other permissible deviations exist” and the Court has said such calculations should be left to the discretion of the trial court and affirmed absent an abuse of discretion. Here, the district court pointed out the evidence reflects that the additional living expenses incurred by Robert while living in Mumbai are significant. Under the facts of this case, the Court could not say that the district court abused its discretion when it determined that Robert’s expatriate compensation is not reasonably available for child support payments.

Alimony

Did the district court err in refusing to increase Robert’s alimony obligation? The Court noted that in 2005, at the time of the last modification of the parties’ decree, Lana had an annual gross income of approximately $29,000 and Robert had an annual gross income of $325,000. Since that time, both parties have seen significant changes in their financial situations. Lana voluntarily left her employment in November 2005 and presently remains unemployed. She is, however, completing her bachelor’s degree via online classes through the University of Phoenix. Robert, on the other hand, has seen a significant increase in his annual gross income. Lana also claims that her living expenses have increased. When she first sought modification in 2004, Lana estimated that her living expenses were $4,944 for her and the parties’ two children. In the present action, Lana claims her average monthly living expenses are $9,123.34, almost double what they were 2 years ago. The changes in the parties’ financial situations is the basis for Lana’s request for modification of alimony. While an increase in income is a circumstance that may be considered in determining whether alimony should be modified the record reveals that Lana did not present any evidence to substantiate her purported increase in living expenses. In this case, the district court found that Lana had not proved her claim regarding the raise in her living expenses and that most, if not all, of the increase she seeks is for additional expenses for the parties’ children. The Court concluded that the evidence of Robert’s increased income does not constitute, in and of itself, a material and substantial change in circumstances, without a proven increase in Lana’s living expenses.

Conclusion: For the reasons discussed above, the Court concluded that Robert’s expatriate compensation is income for purposes of support calculations. They further determined, however, that the district court did not abuse its discretion in refusing to increase Robert’s child support and alimony obligations. AFFIRMED.


Insurance, Contract, Exclusion, Third Party Recovery

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In this suit, a single suit drawn from a class action, the Nebraska Supreme Court examines the medical coverage portion of an automobile insurance policy and finds that the insurance contract expressively provides a policy exclusion for monies recovered from a third party so the denial of payments where a third party had already made payments was not a breach of contract, nor was it void as against public policy.

Lynch v. State Farm Mut. Auto. Ins. Co., 275 Neb. 136 (2008)

Supreme Court Headnotes

Summary Judgment.

1.  Summary judgment is proper when the pleadings and evidence admitted at the hearing disclose no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

2.  Appeal and Error. In reviewing a summary judgment, an appellate court views the evidence in a light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

Insurance:

1.  Contracts. An insurance policy is a contract.

2.  Intent: Appeal and Error. An appellate court reviewing an insurance policy must construe the policy as any other contract and give effect to the parties’ intentions at the time the contract was made.

3.  Contracts: Parties. Parties to an insurance contract may contract for any lawful coverage, and an insurer may limit its liability and impose restrictions and conditions upon its obligations under the contract if the restrictions and conditions are not inconsistent with public policy or statute.

Actions:

1.  Insurance: Breach of Contract: Damages. In assessing claims for damages in insurance contract actions, it is ordinarily necessary to assert a breach.

Class Actions:

1.  In determining whether a class action is properly brought, considerable discretion is vested in the trial court. ••• In order to justify class action treatment, there must exist both a question of common or general interest and numerous parties so as to make it impracticable to bring all the parties before the court.

2.  Standing: Summary Judgment. The right of a party to sue as representative of a class may be determined on a motion for summary judgment.

Date Filed and Case No.: February 22, 2008. No. S-06-737.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-737.pdf

Court Appealed From: District Court for Douglas County: J. Patrick Mullen, Judge.

Attorneys for the Appeal: Christopher D. Jerram for Mary Lyn Lynch and Thomas Lynch, Individually and as Representatives of All Others Similarly Situated, appellants. Mark C. Laughlin, Joseph K. Meusey, and Patrick S. Cooper for State Farm Mutual Automobile Insurance Company, appellee.

Justices: Heavican, C.J., Connolly, Gerrard, Stephan and Miller-Lerman, J.J.

Participating on Briefs: Wright, J.

Not Participating: McCormack, J.

Authored By: Stephan, J.

Summary: This case came before the Nebraska Supreme Court for the second time. Mary Lyn Lynch was involved in an automobile accident in which the vehicle she was driving was struck from behind. At the time of the accident, Mary and her husband, Thomas, were insured under an automobile insurance policy issued by State Farm Mutual Automobile Insurance Company (State Farm). After the suit against the other driver was settled (for $6,838.67), the Lynches commenced a class action suit against State Farm alleging that State Farm was engaged in a scheme whereby it marketed medical payments medical coverage “as a promise of protection through indemnity, not as a managed care plan,” but in fact provided managed care coverage for which a lesser premium should have been charged. They sought to represent a class and alleged six separate theories of recovery and prayed for various forms of relief. In McGinn v. State Farm Mut. Auto. Ins. Co., 268 Neb. 843, 689 N.W.2d 802 (2004) The Nebraska Supreme Court held that a named plaintiff who had not asserted a claim against State Farm under his medical payments coverage could not state a cause of action for breach of contract or any of his other theories of recovery. The Court affirmed an order by the district court dismissing his claims and ordering him stricken as a party plaintiff. This appeal involves the original plaintiffs, the Lynches who appeal from a subsequent order granting State Farm’s motion for summary judgment and dismissing the action.

Did the district court err in determining as a matter of law that the denial did not constitute a breach of the insurance contract. The McGinn, Court held that a State Farm insured who had not filed a claim under the policy could not state a cause of action for breach of contract. Here, Mary filed a claim under the medical payments coverage, which State Farm denied in part. Here, the policy unambiguously provided that if an insured receives a payment from a third-party tort-feasor which is equal to or greater than medical expenses incurred by the insured, State Farm would “owe nothing” under its medical payments coverage. Other courts have held that language identical to that in the this policy constitutes a legitimate policy exclusion intended to prevent double recovery of medical expenses. Mary argued that State Farm waived its right to rely on the exclusion by its partial denial of her claim for medical payments benefits, but the Court was not persuaded by this argument. Here, the medical payments coverage is not liability insurance, and no claim was made against Mary. Instead, Mary had potential claims against her insurer and a third party for the same medical expenses. Neither the provisions of the policy nor State Farm’s denial of benefits restricted Mary from asserting a claim against the third party. The policy simply provided that if she were successful in recovering an amount equal to or greater than the amount of her medical expenses, State Farm would “owe nothing.” The Court was also not persuaded by Mary’s argument that the policy provision in question should be declared void in violation of public policy. “We conclude, as other courts have, that the provision is an enforceable contractual bar against double recovery of medical expenses.” The other claims asserted by Mary in this case are the same as those asserted by the plaintiff in McGinn. There they noted that each of the claims “incorporates the existence of the contract for insurance and each is dependent on the viability of [the named plaintiff’s] breach of contract claim.” They concluded there, that because McGinn had not stated a viable claim for breach of contract, he could not state a cause of action with respect to his remaining claims. Here, the Court concluded that because Mary’s breach of contract claim fails as a matter of law, so too must the remainder of her claims.

Could Mary maintain her individual cause as a member of the class? Because her breach of contract claim against State Farm is without merit as a matter of law, Mary lacks commonality with members of the purported class on whose behalf she sought to litigate similar breach of contract claims. The Court ruled that the district court did not err in concluding that because Mary could not maintain her individual cause of action against State Farm, she was unqualified to represent the purported class.

Did the district court err in finding that Mary’s expert witnesses lacked foundation for their opinions concerning the alleged scheme by which State Farm administered and charged premiums for medical benefits coverage? Because the Court concluded as a matter of law that Mary had no individual entitlement to medical payments benefits and cannot sue as the representative of the purported class, the manner in which State Farm may have administered such medical benefits with respect to other policyholders was not before the Court, and they said they need not reach this assignment of error.

What of Thomas’s claims? The Court wrote that Thomas’ personal interest in this case is somewhat unclear from the record. He is the named insured on the State Farm policy, but there is no indication that he has ever asserted a medical payments claim in his own behalf. As such, his claims would be barred by the holding in McGinn. However, at oral argument, counsel suggested that Thomas is a coclaimant with his wife, Mary. Assuming without deciding that to be so, his assignments of error are without merit for the reasons discussed herein with respect to Mary’s claim.

Conclusion: For the reasons discussed, the Court concluded that the district court did not err in granting State Farm’s motion for summary judgment and dismissing this action. AFFIRMED.

 

Partnership, Dissolution

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This appeal presents two main issues. The first is whether a partnership is dissolved by operation of law under the Uniform Partnership Act of 1998 when a partner voluntarily withdraws. The second is whether the parties intended this partnership to dissolve if the remaining partners failed to timely pay the buyout price for the withdrawing partner’s interest. The Nebraska Supreme Court holds that under the 1998 UPA, a partner’s voluntary withdrawal does not dissolve a partnership if the parties intended the business to continue. They further concluded that the parties intended the business to continue and did not intend the partnership to dissolve if the remaining partners failed to timely pay the buyout price for a withdrawing partner’s interest.

Shoemaker v. Shoemaker, 275 Neb. 112 (2008)

Supreme Court Headnotes

Partnerships:

1.  The interpretation of a partnership agreement presents a question of law. ••• Under Neb. Rev. Stat. § 67-431 (Reissue 2003), a partner’s voluntary withdrawal no longer results in mandatory dissolution; it results in a partner’s dissociation. ••• A partnership’s dissolution under Neb. Rev. Stat. § 67-439(1) (Reissue 2003) is a default rule that applies only when the partnership agreement does not provide for the partnership business to continue. ••• The Revised Uniform Partnership Act does not require strict compliance with a buyout provision to prevent dissolution. ••• When a partnership agreement mandates a buyout of a withdrawing partner’s interest but fails to specify a remedy for the partnership’s failure to pay, or to timely pay, the buyout price, the default rules of the Uniform Partnership Act of 1998 apply. ••• Under Neb. Rev. Stat. § 67-434 (Reissue 2003), dissolution is not a remedy for a partnership’s failure to timely pay an estimated buyout price. ••• Under the Uniform Partnership Act of 1998, a withdrawing partner’s rights are governed by the dissolution and winding up provisions or the mandatory buyout provisions, but not both. ••• If a partnership agreement is silent on profit distributions to a withdrawing partner, the default rule under Neb. Rev. Stat. § 67-434(2) (Reissue 2003) does not authorize profit distributions. ••• The Revised Uniform Partnership Act allows partners, in their partnership agreement, to fix the method or formula for determining the buyout price for a withdrawing partner’s interest unless the agreement causes a forfeiture of the partner’s interest.

2.  Time. After January 1, 2001, the Uniform Partnership Act of 1998 applies to any Nebraska partnership, including those formed before January 1, 1998.

3.  Statutes: Words and Phrases. The Revised Uniform Partnership Act is largely a series of default rules that govern the relations among partners in situations they have not addressed in a partnership agreement and control only when a question is not resolved by the parties’ express provisions.

4.  Legislature. Under Neb. Rev. Stat. § 67-433(1) (Reissue 2003), the Legislature has created separate paths through which a dissociated partner can recover partnership interests: dissolution and winding up or mandatory buyout.

Accounting:

1.  Appeal and Error. An action for a partnership dissolution and accounting between partners is one in equity and is reviewed de novo on the record.

Equity:

1.  Appeal and Error. On appeal from an equity action, an appellate court resolves questions of law and fact independently of the trial court’s determinations. ••• In an equity action, when credible evidence is in conflict on material issues of fact, an appellate court considers and may give weight to the fact the trial court observed the witnesses and accepted one version of the facts over another.

Statutes.

1.  Statutory interpretation presents a question of law.

Date Filed and Case No.: February 22, 2008. No. S-06-319.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-319.pdf

Court Appealed From: District Court for Lancaster County: Jeffre Cheuvront, Judge.

Attorneys for the Appeal: V. Gene Summerlin, Marnie A. Jensen, and Justin Firestone for David G . Shoemaker, Trustee of the Marion P. Shoemaker Revocable Trust, and Harley G. Shoemaker, Trustee of the Harley G . Shoemaker Revocable Trust, appellants. Mark A. Christensen and Andre R. Barry for Don Shoemaker and Yvonne Shoemaker, appellees.

Justices: Heavican, C.J., Connolly, Gerrard, Stephan, McCormack and Miller-Lerman, J.J.

Not Participating: Wright, J.

Authored By: Connolly, J.

Summary: This action arose from a partnership dispute between two brothers, Don Shoemaker and Harley G. Shoemaker, and their wives. Each of the four partners owned an equal share of the partnership, D & H Real Estate (D & H). After Harley and his wife, Marion Shoemaker, gave notice that they were withdrawing from D & H, the partners failed to agree on the buyout price of Harley’s and Marion’s interests. Harley, as trustee of his own trust, and their son David G. Shoemaker, as the trustee of Marion’s trust, later sought an accounting and an order compelling D & H to wind up and terminate its business. Harley and David claimed that D & H was already in dissolution once the remaining partners failed to pay the buyout price within the time specified by the partnership agreement. The remaining partners, Don and his wife, Yvonne Shoemaker, counterclaimed for breach of contract. They claimed that Harley and Marion failed to complete an appraisal process in the partnership agreement for determining the buyout value of their interests. They also claimed that Harley and Marion continued to negotiate past the buyout deadline and were estopped from claiming that Don and Yvonne had breached the agreement. (The opinion refers to Harley and David, Marion’s trustee, as “Harley” and Don and Yvonne as “Don.”) The district court agreed with Don concluding that Harley was estopped from claiming that Don had breached the agreement by failing to comply with the buyout deadline. It also concluded that Harley had breached the agreement by failing to comply with the appraisal process. Finally, the court applied part of the partnership’s distribution of earnings to Harley toward the purchase price of his interest in the partnership. Harley appealed, but the Court of Appeals dismissed for lack of jurisdiction. After remand, Harley appealed to the Nebraska Supreme Court

Did the court err in determining that the partnership was not dissolved by Don’s failure to timely pay the buyout price for Harley’s interest after Harley withdrew from the partnership? As the relevant events here occurred after the effective date of January 1, 2001, the 1998 Uniform Partnership Act (the original UPA) unquestionably governs the parties’ dispute although they formed their partnership in 1989. Reviewing the UPA, the Revised Uniform Partnership Act (RUPA), the partnership agreement and each parties arguments, the Court wrote that the district court correctly concluded that the partnership was not dissolved. But they believed the district court’s reasoning regarding Don’s breach of the partnership agreement’s “section 13" buyout deadline was incorrect. The district court concluded that Harley had lost his right to enforce the partnership agreement. Implicit in this determination was the district court’s reasoning that if Harley could have enforced the agreement, the partnership would have been dissolved. This reasoning was incorrect. Under the partnership agreement, Harley did not have the right to force the partnership’s dissolution when Don elected to continue the business. Although Don failed to timely pay the buyout price, absent a remedy provision in the agreement, Harley’s remedy was statutory. That statutory remedy against the partnership did not include dissolution, and he waived the remedy of judicial valuation. Therefore, the partnership agreement (section 12) provided the method for determining his interest’s value.

What was the value of Harley’s interests? Here, the district court determined that the value of Harley’s interest was $1.175 million. It also determined that the partnership’s payments to Harley and Marion through December 31, 2002, were income distributions. Harley did not dispute the partnership’s valuation at $2.35 million. But he contends that the court erred in applying the partnership earnings he received after January 1, 2003, toward the purchase price of his interest. The Court pointed out that the partnership agreement is silent on whether a withdrawing partner is entitled to profit distributions until the remaining partners pay for his interest. Thus, the statutory default rules for mandatory buyouts under § 67-434 control this issue. Don correctly argued that the 1998 UPA did not carry over the option to elect a share of profits and under the 1998 UPA, § 67-434(2) provides that the buyout price for a dissociated partner’s interest must include the value of his interest, plus interest “paid from the date of dissociation to the date of payment.” It does not authorize profit distributions. The Court concluded that Harley was not entitled to profit distributions after the effective date of his withdrawal. Regarding accrued interest, again after reviewing the UPA, the RUPA, the partnership agreement, each parties arguments and equity concerns, the Court concluded that the partnership agreement controls. Harley was not entitled to accrued interest on the value of his partnership interest because the partnership agreement precluded interest. Because Harley was not entitled to profit distributions or accrued interest, the district court did not err in applying the partnership’s distributions after January 1, 2003, to the purchase price of Harley’s interest.

Conclusion: For reasons other than those stated by the district court, the Nebraska Supreme Court concluded that the court did not err in determining that the partnership was not dissolved by Don’s failure to timely pay the buyout price for Harley’s interest after Harley withdrew from the partnership. Further, they concluded that the district court did not err in applying some partnership distributions to Harley toward the buyout price of his partnership interest. Harley was not entitled to profit distributions after his dissociation. The court also did not err in failing to treat the distributions as accrued interest when the partnership agreement specifically provided that the partnership was not required to pay interest on the value of a withdrawing partner’s interest. AFFIRMED.


Partnership, Dissolution, Valuation

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This appeal presents two main issues. The first is whether a partnership is dissolved by operation of law under the Uniform Partnership Act of 1998 when a partner voluntarily withdraws. The second is whether the parties intended this partnership to dissolve if the remaining partners failed to timely pay the buyout price for the withdrawing partner’s interest. The Nebraska Supreme Court holds that under the 1998 UPA, a partner’s voluntary withdrawal does not dissolve a partnership if the parties intended the business to continue. They further concluded that the parties intended the business to continue and did not intend the partnership to dissolve if the remaining partners failed to timely pay the buyout price for a withdrawing partner’s interest.

Shoemaker v. Shoemaker, 275 Neb. 112 (2008)

Supreme Court Headnotes

Partnerships:

1.  The interpretation of a partnership agreement presents a question of law. ••• Under Neb. Rev. Stat. § 67-431 (Reissue 2003), a partner’s voluntary withdrawal no longer results in mandatory dissolution; it results in a partner’s dissociation. ••• A partnership’s dissolution under Neb. Rev. Stat. § 67-439(1) (Reissue 2003) is a default rule that applies only when the partnership agreement does not provide for the partnership business to continue. ••• The Revised Uniform Partnership Act does not require strict compliance with a buyout provision to prevent dissolution. ••• When a partnership agreement mandates a buyout of a withdrawing partner’s interest but fails to specify a remedy for the partnership’s failure to pay, or to timely pay, the buyout price, the default rules of the Uniform Partnership Act of 1998 apply. ••• Under Neb. Rev. Stat. § 67-434 (Reissue 2003), dissolution is not a remedy for a partnership’s failure to timely pay an estimated buyout price. ••• Under the Uniform Partnership Act of 1998, a withdrawing partner’s rights are governed by the dissolution and winding up provisions or the mandatory buyout provisions, but not both. ••• If a partnership agreement is silent on profit distributions to a withdrawing partner, the default rule under Neb. Rev. Stat. § 67-434(2) (Reissue 2003) does not authorize profit distributions. ••• The Revised Uniform Partnership Act allows partners, in their partnership agreement, to fix the method or formula for determining the buyout price for a withdrawing partner’s interest unless the agreement causes a forfeiture of the partner’s interest.

2.  Time. After January 1, 2001, the Uniform Partnership Act of 1998 applies to any Nebraska partnership, including those formed before January 1, 1998.

3.  Statutes: Words and Phrases. The Revised Uniform Partnership Act is largely a series of default rules that govern the relations among partners in situations they have not addressed in a partnership agreement and control only when a question is not resolved by the parties’ express provisions.

4.  Legislature. Under Neb. Rev. Stat. § 67-433(1) (Reissue 2003), the Legislature has created separate paths through which a dissociated partner can recover partnership interests: dissolution and winding up or mandatory buyout.

Accounting:

1.  Appeal and Error. An action for a partnership dissolution and accounting between partners is one in equity and is reviewed de novo on the record.

Equity:

1.  Appeal and Error. On appeal from an equity action, an appellate court resolves questions of law and fact independently of the trial court’s determinations. ••• In an equity action, when credible evidence is in conflict on material issues of fact, an appellate court considers and may give weight to the fact the trial court observed the witnesses and accepted one version of the facts over another.

Statutes.

1.  Statutory interpretation presents a question of law.

Date Filed and Case No.: February 22, 2008. No. S-06-319.

Internet Address: http://www.supremecourt.ne.gov/opinions/2008/february/feb22/s06-319.pdf

Court Appealed From: District Court for Lancaster County: Jeffre Cheuvront, Judge.

Attorneys for the Appeal: V. Gene Summerlin, Marnie A. Jensen, and Justin Firestone for David G . Shoemaker, Trustee of the Marion P. Shoemaker Revocable Trust, and Harley G. Shoemaker, Trustee of the Harley G . Shoemaker Revocable Trust, appellants. Mark A. Christensen and Andre R. Barry for Don Shoemaker and Yvonne Shoemaker, appellees.

Justices: Heavican, C.J., Connolly, Gerrard, Stephan, McCormack and Miller-Lerman, J.J.

Not Participating: Wright, J.

Authored By: Connolly, J.

Summary: This action arose from a partnership dispute between two brothers, Don Shoemaker and Harley G. Shoemaker, and their wives. Each of the four partners owned an equal share of the partnership, D & H Real Estate (D & H). After Harley and his wife, Marion Shoemaker, gave notice that they were withdrawing from D & H, the partners failed to agree on the buyout price of Harley’s and Marion’s interests. Harley, as trustee of his own trust, and their son David G. Shoemaker, as the trustee of Marion’s trust, later sought an accounting and an order compelling D & H to wind up and terminate its business. Harley and David claimed that D & H was already in dissolution once the remaining partners failed to pay the buyout price within the time specified by the partnership agreement. The remaining partners, Don and his wife, Yvonne Shoemaker, counterclaimed for breach of contract. They claimed that Harley and Marion failed to complete an appraisal process in the partnership agreement for determining the buyout value of their interests. They also claimed that Harley and Marion continued to negotiate past the buyout deadline and were estopped from claiming that Don and Yvonne had breached the agreement. (The opinion refers to Harley and David, Marion’s trustee, as “Harley” and Don and Yvonne as “Don.”) The district court agreed with Don concluding that Harley was estopped from claiming that Don had breached the agreement by failing to comply with the buyout deadline. It also concluded that Harley had breached the agreement by failing to comply with the appraisal process. Finally, the court applied part of the partnership’s distribution of earnings to Harley toward the purchase price of his interest in the partnership. Harley appealed, but the Court of Appeals dismissed for lack of jurisdiction. After remand, Harley appealed to the Nebraska Supreme Court

Did the court err in determining that the partnership was not dissolved by Don’s failure to timely pay the buyout price for Harley’s interest after Harley withdrew from the partnership? As the relevant events here occurred after the effective date of January 1, 2001, the 1998 Uniform Partnership Act (the original UPA) unquestionably governs the parties’ dispute although they formed their partnership in 1989. Reviewing the UPA, the Revised Uniform Partnership Act (RUPA), the partnership agreement and each parties arguments, the Court wrote that the district court correctly concluded that the partnership was not dissolved. But they believed the district court’s reasoning regarding Don’s breach of the partnership agreement’s “section 13" buyout deadline was incorrect. The district court concluded that Harley had lost his right to enforce the partnership agreement. Implicit in this determination was the district court’s reasoning that if Harley could have enforced the agreement, the partnership would have been dissolved. This reasoning was incorrect. Under the partnership agreement, Harley did not have the right to force the partnership’s dissolution when Don elected to continue the business. Although Don failed to timely pay the buyout price, absent a remedy provision in the agreement, Harley’s remedy was statutory. That statutory remedy against the partnership did not include dissolution, and he waived the remedy of judicial valuation. Therefore, the partnership agreement (section 12) provided the method for determining his interest’s value.

What was the value of Harley’s interests? Here, the district court determined that the value of Harley’s interest was $1.175 million. It also determined that the partnership’s payments to Harley and Marion through December 31, 2002, were income distributions. Harley did not dispute the partnership’s valuation at $2.35 million. But he contends that the court erred in applying the partnership earnings he received after January 1, 2003, toward the purchase price of his interest. The Court pointed out that the partnership agreement is silent on whether a withdrawing partner is entitled to profit distributions until the remaining partners pay for his interest. Thus, the statutory default rules for mandatory buyouts under § 67-434 control this issue. Don correctly argued that the 1998 UPA did not carry over the option to elect a share of profits and under the 1998 UPA, § 67-434(2) provides that the buyout price for a dissociated partner’s interest must include the value of his interest, plus interest “paid from the date of dissociation to the date of payment.” It does not authorize profit distributions. The Court concluded that Harley was not entitled to profit distributions after the effective date of his withdrawal. Regarding accrued interest, again after reviewing the UPA, the RUPA, the partnership agreement, each parties arguments and equity concerns, the Court concluded that the partnership agreement controls. Harley was not entitled to accrued interest on the value of his partnership interest because the partnership agreement precluded interest. Because Harley was not entitled to profit distributions or accrued interest, the district court did not err in applying the partnership’s distributions after January 1, 2003, to the purchase price of Harley’s interest.

Conclusion: For reasons other than those stated by the district court, the Nebraska Supreme Court concluded that the court did not err in determining that the partnership was not dissolved by Don’s failure to timely pay the buyout price for Harley’s interest after Harley withdrew from the partnership. Further, they concluded that the district court did not err in applying some partnership distributions to Harley toward the buyout price of his partnership interest. Harley was not entitled to profit distributions after his dissociation. The court also did not err in failing to treat the distributions as accrued interest when the partnership agreement specifically provided that the partnership was not required to pay interest on the value of a withdrawing partner’s interest. AFFIRMED.