Opinion 2006 Oklahoma Baldwin Charging Order

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Baldwin

 

In re Baldwin (Miller v. Bill and Carolyn LP), 2006 WL 2034217 (10th Cir.BAP (Okla.), 2006) (Unpublished Disposition).

 

NOTICE: THIS IS AN UNPUBLISHED OPINION. Use FI CTA10 BAP Rule 8018-6 for rules regarding the citation of unpublished opinions.

 

NOTE: THIS OPINION WILL NOT BE PUBLISHED IN A PRINTED VOLUME. THE DISPOSITION WILL APPEAR IN A REPORTER TABLE.

 

United States Bankruptcy Appellate Panel for the Tenth Circuit.

 

In re Trenton J. BALDWIN, doing business as Cross-Triangle Brangus, doing business as Spot Light Flowers & Gifts, doing business as With Photography On The Side, and Carolyn S. Baldwin, also known as Carolyn S. Bailey, doing business as Broken Bow School of Dance, doing business as Spot Light Flowers & Gifts, Debtors.

 

Gerald R. MILLER, Trustee, Plaintiff-Appellee,

 

v.

 

BILL AND CAROLYN LIMITED PARTNERSHIP, an Oklahoma limited partnership, The Maxie O. “Bill” Bailey Living Trust, and Maxie O. “Bill” Bailey, Defendant-Appellants,

 

and

 

Trenton J. BALDWIN and Carolyn S. Baldwin, Defendants.

 

No. BAP.NO. EO-05-114, BANKR. 04-72919, ADV.NO. 04-7126.

 

July 11, 2006.

 

Appeal from the United States Bankruptcy Court for the Eastern District of Oklahoma.

 

Thomas B. Webb, McAlester, OK, Layla J. Dougherty, Love, Beal & Nixon, Ross A. Plourde, Drew D. Webb, McAfee & Taft, Thomas B. Webb, Oklahoma City, OK, Thomas A. Lee, III, Becket & Lee LLP, Malvern, PA, for Debtors.

 

Gerald R. Miller, Gerald R. Miller, P.C., Attorney at Law, Muskogee, OK, pro se.

 

Before CLARK, BROWN, and MCNIFF, Bankruptcy Judges.

 

ORDER AND JUDGMENT FN*

 

FN* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP L.R. 8018-6(a).

 

CLARK, Bankruptcy Judge.

 

*1 Appellants seek reversal of the bankruptcy court's order, after trial, finding that debtor Carolyn Baldwin's interest in a limited family partnership is property of her estate and ordering the limited partnership dissolved pursuant to Oklahoma law. We affirm in part, reverse in part, and remand for further proceedings.

 

I. BACKGROUND

 

Debtors Trent and Carolyn Baldwin filed a petition for Chapter 7 bankruptcy relief in August, 2004. Carolyn is the sole limited partner in a limited partnership created by her parents in 1994, pursuant to the Oklahoma Uniform Limited Partnership Act, Okla. Stat. tit. 54, §§ 141-171 (2005). At the time of filing the petition, Carolyn owned a 99% interest in the partnership. The partnership's sole general partner is a trust, consisting of Carolyn's parents as the sole trustees. The partnership agreement grants exclusive management and control of the partnership and its assets to the general partner, which owns a 1% interest in the partnership. Further, the partnership agreement provides that “[t]he Limited Partner shall not take any part in or interfere in any manner with the conduct or control of the business of the Partnership or have any right or authority to act for or on behalf of the Partnership.” FN1 The partnership will dissolve 50 years after execution of the partnership agreement, otherwise, dissolution only occurs if the general partner agrees to dissolution, dies, or becomes incompetent, insolvent, or bankrupt.FN2

 

FN1. Limited Partnership Agreement of Bill and Carolyn Limited Partnership (“Limited Partnership Agreement”) ¶ 12.6, in Appellants' Appendix (“App.”) Vol. II at 390.

 

FN2. Limited Partnership Agreement ¶ 15.1, in App. Vol. II at 393. It can only be assumed that the parties intended for dissolution to occur upon the death or mental incompetency of appellant Maxie O. “Bill” Bailey and his wife, co-trustees of the general partner, since the general partner, a trust, can neither die nor be declared mentally incompetent.

 

The partnership assets consist of approximately 200 acres of undeveloped land that is partly timber and partly pasture, and a house that the partnership constructed on the land, in which debtors reside. The debtors maintain the house and pay the costs associated with it, including mortgage, taxes and utilities. Debtors also use the land, in part, for the grazing of cattle. The parties apparently agree that the total value of partnership assets is approximately $400,000.

 

Following initiation of bankruptcy proceedings, the trustee filed an adversary proceeding against the partnership and the general partner seeking a declaration that Carolyn's interest in the partnership now belonged to the estate and, further, that continuation of the partnership was impracticable due to the general partner's refusal to recognize the estate's interest. After trial, the bankruptcy court ruled in favor of the trustee on both of these issues. The partnership and the general partner appeal.

 

II. APPELLATE JURISDICTION

 

This Court has jurisdiction to hear timely-filed appeals from “final judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr.P. 8001; 10th Cir. BAP L.R. 8001-1. Neither party has elected to have this appeal heard by the United States District Court for the Eastern District of Oklahoma, and each have thereby consented to review of this case by the Bankruptcy Appellate Panel. 28 U.S.C. § 158(b) and (c); Fed. R. Bankr.P. 8001(e); 10th Cir. BAP L.R. 8001-1.

 

III. ISSUES ON APPEAL

 

*2 1) What interest in the partnership became property of the estate upon filing of the bankruptcy petition?

 

2) Was the partnership properly dissolved pursuant to Oklahoma law?

 

IV. DISCUSSIONA. Trustee's Partnership Interest

 

Appellants contend that the trustee's claim to the partnership is in the nature of a judgment creditor, who must obtain a charging order pursuant to Okla. Stat. tit. 54, § 342 (2005),FN3 and who would be treated as an assignee of Carolyn's interest in the partnership. As such, any recovery would be limited to Carolyn's interest in partnership profits and accrued distributions, of which there are none. However, although state law determines the nature of Carolyn's partnership interest, federal law determines the extent to which that partnership interest becomes a part of the estate. Bailey v. Big Sky Motors, Ltd. ( In re Ogden), 314 F.3d 1190, 1197 (10th Cir.2002).

 

FN3. Applicability of this provision, which specifically applies only to judgment creditors, initially requires acceptance of appellants' unsupported assumption that a trustee in bankruptcy becomes a judgment creditor with respect to a debtor's property interests, rather than one standing in the shoes of the debtor.

 

At least two factually similar cases have held that a debtor's rights pursuant to a family partnership or limited liability company become property of the bankruptcy estate and may be exercised by the trustee. In Samson v. Prokopf ( In re Smith), 185 B.R. 285 (Bankr.S.D.Ill.1995), the court held that a limited partner “has contractual rights arising from the partnership” that are “legal or equitable interests of the debtor within the ambit of 11 U.S.C. § 541(a)(1) FN4 and become property of the bankruptcy estate.” Id. at 290-91 (footnote omitted). Thus, “the right to obtain judicial dissolution vested in the debtor's estate upon her bankruptcy filing, and the trustee, as representative of her estate, succeeded to the debtor's right to bring this cause of action by operation of law.” Id. at 292 (citations omitted).

 

FN4. This bankruptcy proceeding was filed prior to the October 17, 2005, enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which is expressly non-retroactive. Therefore, all references herein to Title 11 of the United States Code are as it was prior to enactment of BAPCPA.

 

Similarly, in Movitz v. Fiesta Invs. ( In re Ehmann), 319 B.R. 200, 204 (Bankr.D.Ariz.2005), the court considered the estate's interest in a limited liability company that was set up by the debtor's parents in order “to remove assets from the parents' estates for estate tax purposes, and to accumulate investments for the benefit of their children after their deaths.” The court concluded that the “[t]rustee has all of the rights and powers with respect to [the company] that the [d]ebtor held as of the commencement of the case [,]” including the right to seek dissolution. Id. at 206.FN5

 

FN5. Both Smith and Ehmann discussed whether limited partnership agreements were “executory contracts” governed by 11 U.S.C. § 365, and concluded that unless the debtor owed such a material obligation to the partnership that failure to perform it would relieve the partnership of its obligations to debtor, the debtor's limited partnership interest was a “property interest” governed by § 541, rather than by § 365. To the extent that appellants contend that the Limited Partnership Agreement constitutes an executory contract, we reject that contention, and find that § 541 controls.

 

We conclude that the bankruptcy court was correct in finding that Carolyn's partnership interests became property of her estate at the time of filing the petition. Likewise, the bankruptcy court correctly determined that the trustee in bankruptcy steps into the shoes of the debtor with respect to partnership interests and may assert whatever rights the debtor has as a partner under the partnership agreement and state law, including the right to seek dissolution. We therefore affirm these conclusions.

 

B. Dissolution

 

The next issue is whether the bankruptcy court correctly determined Carolyn's rights as a limited partner under the partnership agreement and under Oklahoma law. Appellants correctly point out that Carolyn's rights under the partnership agreement are extremely limited. In fact, the partnership agreement grants Carolyn no right to manage the partnership, to sell or demand distribution of partnership property, or to dissolve the partnership.FN6 The partnership agreement provides limited circumstances under which the partnership may be dissolved, none of which are applicable to the present situation.FN7 Therefore, dissolution pursuant to the partnership agreement would be improper.

 

FN6. We note, however, that Carolyn apparently does have a right to “withdraw” from the partnership pursuant to ¶ 16 of the Limited Partnership Agreement, which right the trustee does not here attempt to exercise, and instead seeks only to dissolve the partnership and liquidate its assets. Limited Partnership Agreement at ¶ 16, in App. Vol. II at 395.

 

FN7. See Limited Partnership Agreement ¶ 15.1, in App. Vol. II at 395.

 

*3 However, in ordering dissolution of the partnership, the bankruptcy court relied on Oklahoma law, rather than on the partnership agreement. Oklahoma specifically allows limited partners to seek dissolution of a partnership “whenever it is not reasonably practicable to carry on the business [of the partnership] in conformity with the partnership agreement.” Okla. Stat. tit. 54, § 346 (2005).FN8 As previously noted, the bankruptcy court correctly held that the trustee had whatever rights Carolyn had to seek dissolution of the partnership under this provision. Whether the partnership was properly dissolved pursuant to this statute is a mixed question of fact and law. We review the bankruptcy court's findings regarding the fundamental facts of the partnership's business under a clearly erroneous standard and its application of the statute to those facts de novo. Sender v. The Bronze Group, Ltd. ( In re Hedged-Invs. Assocs., Inc.), 380 F.3d 1292, 1297-98 (10th Cir.2004). A factual finding is “clearly erroneous” when “it is without factual support in the record, or if the appellate court, after reviewing all the evidence, is left with the definite and firm conviction that a mistake has been made.” Las Vegas Ice & Cold Storage Co. v. Far W. Bank, 893 F.2d 1182, 1185 (10th Cir.1990) (citation omitted).

 

FN8. Virtually identical statutory language was considered in the Smith case. However, because that matter was before the court on a motion for summary judgment, issues of fact precluded a finding that carrying on the partnership business was not practicable. 185 B.R. at 294-95.

 

From the evidence at trial, the bankruptcy court found that the general partner “does not recognize the [trustee's] interest in the Partnership as trustee of the bankruptcy estate. Furthermore, the Partnership no longer serves any estate planning purpose. [The general partner] even stated at trial that he considered the future development of the property into residential lots as a possibility.” From these findings, the bankruptcy court determined that it was no longer “reasonably practicable” to carry on the partnership's business. FN9

 

FN9. November 15, 2005, Order (“Order”) at 6, in App. Vol. I at 270.

 

The partnership agreement defines its business purpose as follows:

 

The purpose of this Partnership shall be to engage in general business activities including but not limited to the purchasing, holding, construction, owning, operation, improving, managing, mortgaging, leasing and selling of and dealing in and with real property. In addition to the foregoing, the Partnership may engage in any business activity in which any limited partnership may engage under the laws of the State of Oklahoma.FN10

 

FN10. Limited Partnership Agreement at ¶ 4, in App. Vol. II at 381.

 

At trial, Mr. Bailey, Carolyn's father, testified that the partnership was set up in 1994 as a part of his effort to remove assets from his estate for tax purposes.FN11 Mr. Bailey characterized the primary and continuing purpose of the partnership as estate planning, with the intent that he would retain full management and control of the partnership assets during his lifetime. FN12 He further testified that the partnership had at one time invested in mutual funds for a small profit,FN13 that lumber from the property had been sold at a profit to his lumber company,FN14 and that he expected the property to appreciate in value, at which point, the partnership might sell lots out of the 200 acres and/or develop a subdivision for profit.FN15 All of the partnership profits were put back into the partnership property. FN16 Mr. Bailey also testified that it was his opinion that the trustee should not get the partnership property, and that Carolyn should be his partner.FN17 Finally, Mr. Bailey testified that the partnership was an ongoing part of his estate planning.FN18

 

FN11. October 6, 2005, Trial Transcript (“Tr.”) at 47-50, in App. Vol. I at 321-24.

 

FN12. Id. at 66-67, in App. Vol. I at 340-41.

 

FN13. Id. at 59-60, in App. Vol. I at 332-33.

 

FN14. Id. at 63-64, in App. Vol. I at 336-37.

 

FN15. Id. at 68, in App. Vol. I at 342.

 

FN16. Id. at 60-61, in App. Vol. I at 334-35.

 

FN17. Id. at 72-73, in App. Vol. I at 346-47.

 

FN18. Id.

 

*4 After reviewing the record, this court is left with the definite and firm conviction that the bankruptcy court was mistaken in finding that the partnership no longer serves an estate planning purpose. As was the limited liability company in Ehmann, the limited partnership was set up to allow Mr. Bailey to retain complete control of the partnership assets during his lifetime, while at the same time removing them from his estate for tax purposes. This purpose is still being served and will continue to be served even if the partnership were to become totally inactive. In addition, at various times the general partner has made, or attempted to make, profits for the partnership that were then reinvested in the property. Such profit-seeking efforts, such as the possible sale or subdivision of the real property, are expected to continue as circumstances allow, and serve the partnership purpose of preserving and maintaining assets for the benefit of Mr. Bailey's heirs. FN19 Given that the partnership was set up, among other things, to hold, improve, and sell real property, along with any other valid business purpose, we can only conclude that the partnership is still operated within the parameters of its stated purposes.

 

FN19. In fact, absent its for profit” business purposes, the limited partnership might not be a lawful partnership under Oklahoma law. See Okla. Stat. tit. 54, § 1-101(6) and § 144 (2005); Roby v. Day, 635 P.2d 611, 613 (Okla.1981).

 

In addition, Okla. Stat. tit. 54, § 346 (2005), the statute upon which the bankruptcy court relied in dissolving the partnership, requires a finding that it is no longer “reasonably practicable to carry on the business [of the partnership] in conformity with the partnership agreement.” The bankruptcy court found this provision applicable because the general partner “does not recognize” the trustee's interest in the partnership.FN20 However, the precise purpose of the adversary proceeding and this appeal is to let Mr. Bailey know just what interest the trustee holds. Mr. Bailey testified that he did not believe that the trustee should be given Carolyn's partnership interest, and that he did not want the trustee to be his partner.FN21 Significantly, however, Mr. Bailey did not testify that he could or would not continue to carry out his duties as general partner in the event the trustee was found to have an interest in the partnership, nor did he testify that he would refuse to recognize the court's determination of the trustee's interest. In any event, the partnership agreement does not require Mr. Bailey either to deal with or to “recognize” the limited partner as he carries out his duties as general partner.

 

FN20. Order at 6, in App. Vol. I at 270.

 

FN21. Tr. at 72-73, in App. Vol. I at 72-73.

 

Since the trustee holds Carolyn's rights with respect to the partnership, and since Carolyn has neither management power under the partnership agreement, nor any present right to dissolve or liquidate the partnership, then the trustee doesn't either. Carolyn, and therefore the trustee, does have a right under state law to require the general partner to exercise his partnership duties as a fiduciary. Okla. Stat. tit. 54, § 1-404 (2005). In addition, the trustee has succeeded to any rights Carolyn could exercise under the Limited Partnership Agreement, including without limitation, the rights set forth in ¶¶ 14 and 16 of that agreement. However, since the partnership is operating as allowed under the partnership agreement and Oklahoma law, we are constrained to say that the trustee has no present right to force either dissolution of the partnership or liquidation of its assets.

 

V. CONCLUSION

 

*5 We therefore reverse the bankruptcy court's conclusion that the partnership is subject to dissolution pursuant to Okla. Stat. tit. 54, § 346 (2005), and remand for further proceedings in accordance with this decision.

 

= = = = = = = = = =

 

In re Baldwin, 593 F.3d 1155 (10th Cir. 2010)

 

United States Court of Appeals,

 

Tenth Circuit.

 

In re Trenton J. BALDWIN, d/b/a Cross-Triangle Brangus, d/b/a Spot Light Flowers & Gifts, d/b/a With Photography On The Side; Carolyn S. Baldwin, a/k/a Carolyn S. Bailey, d/b/a Borken Bow School of Dance, d/b/a Spot Light Flowers & Gifts, Debtors.

 

Gerald R. Miller, Trustee, Plaintiff-Appellant,

 

v.

 

Bill and Carolyn Limited Partnership, an Oklahoma Limited Partnership; The Maxie O. “Bill” Bailey Living Trust; Maxie O. “Bill” Bailey, Defendants-Appellees,

 

and

 

Trenton J. Baldwin; Carolyn S. Baldwin, Defendants.

 

In re Trenton J. Baldwin; Carolyn S. Baldwin, a/k/a Carolyn S. Bailey, Debtors.

 

Bill and Carolyn Limited Partnership, an Oklahoma limited partnership; The Maxie O. “Bill” Bailey Living Trust; Maxie O. “Bill” Bailey, Appellants,

 

v.

 

Gerald R. Miller, Trustee, Appellee.

 

Nos. 06-7083, 09-7004.

 

Jan. 26, 2010.

 

*1158 Ross A. Plourde (Drew D. Webb with him on the briefs) of McAfee & Taft, Oklahoma City, OK, for Gerald R. Miller, Trustee.

 

Charles E. Wetsel of Robertson & Williams, Oklahoma City, OK, for Bill and Carolyn Limited Partnership, the Maxie O. “Bill” Bailey Living Trust, and Maxie O. “Bill” Bailey.

 

Before KELLY, McKAY, and LUCERO, Circuit Judges.

 

McKAY, Circuit Judge.

 

These two consolidated appeals arise from separate adversary proceedings in a Chapter 7 bankruptcy case. Both adversary proceedings involve the same parties and relate to a family limited partnership in which Debtor Carolyn Baldwin owned a 99% limited partnership interest at the time the bankruptcy proceeding commenced. The parties have agreed on appeal that the bankruptcy trustee stepped into the shoes of the debtor with respect to this partnership interest and was entitled to assert whatever rights the limited partner had under the partnership agreement. The question now before us is what exactly these rights are. Specifically, we must decide whether the trustee has the right to seek dissolution of or withdrawal from the partnership. We must also determine whether the buy/sell offer made by the trustee based on a price of $3000 per percentage point of partnership interest is valid and enforceable under the partnership agreement's withdrawal provision.

 

BACKGROUND

 

At the time she and her husband filed their bankruptcy petition in 2004, Mrs. Baldwin was the sole limited partner of a family limited partnership created by her father as an estate planning tool in 1994. The partnership's sole general partner is a trust, consisting of Mrs. Baldwin's parents as the sole trustees. When the partnership was first formed, Mrs. Baldwin owned a 7.73993% limited partnership interest, while her parents' trust owned a 91.26007% limited interest and a 1% general interest. Soon after the partnership's creation, the general partner assigned its entire limited interest to Mrs. Baldwin. Thus, at the time she filed for bankruptcy, Mrs. Baldwin owned a 99% limited interest in the partnership, while the general partner had a 1% general interest with exclusive management and control rights. The partnership assets at the time of the bankruptcy filing consisted of approximately 200 acres of undeveloped land and a house-the debtors' primary residence-that the partnership had constructed on the land.

 

Following initiation of bankruptcy proceedings, the bankruptcy trustee filed an adversary proceeding against the partnership and the general partner, seeking a declaration that Mrs. Baldwin's interest in the partnership now belonged to the bankruptcy estate and that the partnership should be dissolved due to the general partner's refusal to recognize the bankruptcy estate's interest. After a trial, the bankruptcy court ruled in favor of the trustee on both of these issues and ordered dissolution of the partnership. The Bankruptcy Appellate Panel affirmed the bankruptcy court on the first issue but reversed as to dissolution, and the trustee appealed the BAP's reversal of the bankruptcy court's dissolution order to this court. We stayed any action in the appeal pending resolution of the second adversary proceeding, which was then ongoing in the bankruptcy court.

 

In the second adversary proceeding, the trustee sought to enforce a withdrawal notice and buy/sell offer that he gave to the *1159 general partner following the BAP's ruling. In the buy/sell offer, the trustee offered to purchase the general partner's 1% partnership interest for $3000, payable immediately in cash, or to sell the 99% limited partnership interest for $297,000, also payable immediately in cash. The bankruptcy court held that this offer was valid and enforceable under the partnership agreement, and the non-debtor Defendants-the limited partnership, the general partner, and Mrs. Baldwin's father-appealed. Pursuant to 28 U.S.C. § 158(c)(1)(B), the trustee elected to have the appeal heard by the district court. After the opening brief and response brief had been filed, but prior to the deadline for filing a reply brief, the district court affirmed the bankruptcy court's ruling. Defendants subsequently filed a reply brief and motion for rehearing. The district court then granted rehearing as to consideration of the reply brief, denied rehearing on the merits, and affirmed the bankruptcy court. Defendants appealed, and we consolidated this appeal with the appeal from the first adversary proceeding for purposes of argument and disposition.

 

DISCUSSION

 

[1]  [2]   In an appeal in a bankruptcy case, we independently review the bankruptcy court's decision, applying the same standard as the BAP or district court. See In re Albrecht, 233 F.3d 1258, 1260 (10th Cir.2000); Broitman v. Kirkland (In re Kirkland), 86 F.3d 172, 174 (10th Cir.1996). We thus review the bankruptcy court's legal determinations de novo and its factual findings for clear error. In re Kirkland, 86 F.3d at 174.

 

The parties have raised three main issues in these consolidated appeals. First, the trustee argues that the BAP erred in reversing the bankruptcy court's order of dissolution. Second, Defendants argue that the district court erred in affirming the bankruptcy court's ruling that the trustee's withdrawal notice and buy/sell offer were valid and enforceable. Third, Defendants argue that the district court erred in denying their motion for rehearing on the merits.

 

I. Dissolution

 

The trustee argues that the BAP erred in concluding that he was not entitled as the limited partner to dissolve the partnership. In the bankruptcy court and BAP proceedings, the trustee argued that dissolution was warranted under both the partnership agreement and Oklahoma law. On appeal to this court, the trustee does not contest the BAP's conclusion that none of the triggering events for dissolution under the partnership agreement had occurred. He argues only that judicial dissolution is warranted under Oklahoma law.

 

[3]  [4]   The first question we must consider is one of jurisdiction. In their appellate brief, Defendants argue that we do not have jurisdiction over this appeal because the BAP's decision was not a final order under 28 U.S.C. § 158(d). We disagree. “[T]he appropriate ‘judicial unit’ for application of these finality requirements in bankruptcy is not the overall case, but rather the particular adversary proceeding or discrete controversy pursued within the broader framework cast by the petition.” Adelman v. Fourth Nat'l Bank & Trust Co. (In re Durability, Inc.), 893 F.2d 264, 266 (10th Cir.1990). This particular adversary proceeding and both of the issues raised therein-whether Mrs. Baldwin's partnership interests became property of the bankruptcy estate and whether dissolution of the partnership was warranted under either the partnership agreement or Oklahoma law-were fully resolved by the BAP's order. We accordingly conclude *1160 that the BAP's order was a final, appealable order.

 

[5]   We thus turn to the merits of this issue. Oklahoma law provides that “[o]n application by or for a partner, the district court may decree dissolution of a limited partnership whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement.” Okla. Stat. tit. 54, § 346 (2000). The trustee argues that he is entitled to judicial dissolution of the limited partnership pursuant to this statute. Because family estate planning was the purpose of the partnership, he argues, the partnership can no longer lawfully carry on its business in conformity with the partnership agreement-it would be improper for the limited partnership to be run for family estate planning purposes now that the 99% limited partnership interest has become part of the bankruptcy estate. He also argues that the general partner's refusal to acknowledge the bankruptcy estate's interest in the partnership is grounds for judicial dissolution.

 

While Mrs. Baldwin's father testified at trial that the partnership was established for estate planning purposes, the partnership agreement itself expressly provides that “[t]he purpose of this Partnership shall be to engage in general business activities including but not limited to the purchasing, holding, construction, owning, operation, improving, managing, mortgaging, leasing and selling of and dealing in and with real property.” (Appellant's App., Case No. 09-7004, at 30.) Mrs. Baldwin's father testified at trial about the partnership's holding and management of real property and about various profit-seeking activities the partnership had engaged in over the past several years. He also testified that all of the partnership's profits had been put back into the partnership property. Finally, he testified that he anticipated property values to rise in the future, at which point the partnership would potentially develop a subdivision or sell some or all of its acreage for a profit. This testimony was not rebutted at trial, nor was any evidence introduced to indicate that the limited partner's bankruptcy filing had caused the partnership to deviate from its stated purpose of engaging in business activities including holding, owning, improving, and managing real property.

 

After reviewing the partnership agreement and the evidence introduced at trial, we agree with the BAP that the bankruptcy court clearly erred in finding the partnership could no longer carry on its business in conformity with the partnership agreement. All of the evidence in the record indicates that the partnership was continuing to carry out its business in accordance with the partnership agreement just as it had been for the past ten years. We see nothing in the Oklahoma statute permitting judicial dissolution when a partnership's business operations are continuing to be carried out in accordance with the partnership agreement, even if a new limited partner wishes to change the operation of the partnership. We note that the partnership agreement does not require any participation by or cooperation with the limited partner in the partnership's business activities, and nothing in the partnership agreement required the general partner to acknowledge or accede to the new limited partner's requests for the partnership to deviate from its long-term investment strategies. We also agree with the BAP that the general partner did not breach the partnership agreement or call its validity into question by disputing a contested issue regarding the bankruptcy trustee's interest in the partnership. We reject the trustee's argument that certain alleged improper practices by the general partner constituted grounds for dissolution.*1161 We see nothing clearly erroneous in the bankruptcy court's finding that the general partner's practices did not amount to a breach of fiduciary duty, and the trustee has cited to no legal authority indicating that the complained-of actions otherwise justified dissolution of the limited partnership under Oklahoma law.

 

Thus, because we see nothing in either the partnership agreement or the evidence introduced at trial to indicate that it was not reasonably practicable for the partnership to carry on its business in conformity with the partnership agreement, we affirm the BAP's reversal of the bankruptcy court's order of dissolution.

 

II. Withdrawal and enforceability of the buy/sell offer

 

[6]   In his withdrawal notice and buy/sell offer, the trustee offered to sell the 99% limited partnership interest for $297,000 or to purchase the general partner's 1% interest for $3000, based on a $3,000 price per percentage point of partnership interest. The bankruptcy court and district court concluded that this notice and offer were valid and enforceable under the partnership agreement's withdrawal provision. On appeal, Defendants argue both that the trustee was not entitled to withdraw from the partnership and that the buy/sell offer violated the partnership agreement's requirement that sale and purchase offers be “on identical terms.”

 

Paragraph 16 of the partnership agreement provides in relevant part as follows:

 

16. Withdrawal of a Partner.

 

16.1 Notice of Withdrawal. A Partner may withdraw from the Partnership after delivering written notice of his intention to withdraw to the other Partner at least thirty (30) days prior to the proposed date of withdrawal.... Such notice of withdrawal shall include an offer by the Withdrawing Partner to purchase the interest of the Remaining Partner (the “purchase offer”) on stated terms and for a stated amount and, in the alternative, to sell the Withdrawing Partner's interest (the “sale offer”) on identical terms.

 

16.2 Option of Remaining Partner. For thirty (30) days after the delivery of such notice of withdrawal, the Remaining Partner shall have the option to accept the purchase offer o[r] the sale offer, or serve notice that the Partnership be terminated and liquidated in accordance with Section 15.3 herein.

 

(Appellants' App., Case No. 09-7004, at 36.)

 

Defendants argue that the trustee was not entitled to withdraw from the partnership, notwithstanding this provision, because withdrawal of the limited partner would result in a dissolution. This argument is premised on a misreading of the BAP's decision. Defendants argue that the BAP held that the limited partner was not permitted to cause dissolution of the partnership agreement, and they assert this holding applied either to a direct dissolution or to actions that might result in dissolution. However, the BAP simply held-and we agree-that neither the partnership agreement nor Oklahoma law permitted the trustee to directly dissolve the partnership. Indeed, the BAP specifically noted that ¶ 16 provided for a separate withdrawal right which was not affected by the BAP's ruling on dissolution. Nothing in the BAP's ruling or our affirmance thereof negates the partnership agreement's withdrawal provision, even if dissolution is a possible result of its enforcement.

 

We are also not persuaded that other provisions in the partnership agreement trump ¶ 16. The fact that ¶ 15 does not list withdrawal by the limited partner as an event potentially triggering dissolution of the partnership does not mean that ¶ 16 *1162 should be disregarded. Nor do provisions describing entitlement to capital contributions outside of the withdrawal context trump ¶ 16's specific description of the buy/sell procedure that may be used by either partner to withdraw from the partnership. By its clear terms, ¶ 16 entitles the limited partner to withdraw by making a buy/sell offer in accordance with the provisions off ¶ 16.

 

[7]   The parties also dispute the validity of the trustee's buy/sell offer under ¶ 16 based on this provision's requirement that the sell offer be “on identical terms” with the purchase offer. Defendants argue that “identical terms” means that the limited partner must be willing to buy or sell for an identical total amount, while the trustee argues that “identical terms” means that the buy and sell offers must be based on the same price per percentage point of partnership interest and the same proposed payment terms. We agree with the bankruptcy court and district court that the more natural reading of ¶ 16 is the interpretation asserted by the trustee-that the “terms” that must be identical under ¶ 16 include the proposed payment terms and the pro rata value for a percentage of partnership interest.FN1 We are simply not persuaded that “on identical terms” means for an identical total amount, particularly where ¶ 16 distinguishes between the “terms” and “amount” in the context of the purchase offer. We thus agree with the bankruptcy court and district court that the trustee's buy/sell offer satisfied the requirements of ¶ 16 because it was based on the same $3000 value per percentage point of partnership interest and the same term that the price be paid immediately in cash.

 

FN1. We also note that two of the three experts who testified at trial stated that, under customary usage, “identical terms” would be interpreted to mean the same price per ownership interest, not an identical total amount.

 

[8]  [9]  [10]   Defendants further argue that the buy/sell offer was invalid because it was intrinsically inequitable and did not account for the management and control differences between the general and limited partnership interests. While it is true that the trustee's buy/sell offer did not distinguish between these interests, such was not required by the partnership agreement's withdrawal provision. Under Oklahoma law, which controls our review of the partnership agreement, “[i]t is the duty of the court to enforce valid voluntary contracts” as written. Barnes v. Helfenbein,548 P.2d 1014, 1021 (Okla.1976); see also Heskett v. Heskett, 896 P.2d 1200, 1202 (Okla.Civ.App.1995) (applying Oklahoma laws regarding contract interpretation to a written partnership agreement). “The fairness or unfairness, folly or wisdom, or inequality of contracts are questions exclusively within the rights of the parties to adjust at the time the contract is made.” Barnes, 548 P.2d at 1021. While the language of a contract does not govern if it “involve [s] an absurdity,” Okla. Stat. tit. 15, § 154 (1993), we are not persuaded that calculating the sale and purchase amounts for disparate partnership interests on a pro rata basis is absurd. For similar reasons, we reject Defendant's argument that the withdrawal provision should not be enforced because it defeats the purpose of forming a family partnership. This potential problem with the partnership agreement is simply not sufficient to prevent its enforcement under Oklahoma principles of contract interpretation.

 

III. Denial of motion for rehearing

 

[11]   Defendants argue that the district court erred in denying their motion for rehearing because the court failed to address any of their actual propositions of error. We disagree. While the court did *1163 not expressly state the reasons why it agreed with the bankruptcy court, it stated that it had reviewed the record and fully considered Defendants' arguments. Nothing in the district court's order suggests that it failed to consider any of the arguments raised by the appellants. It simply did not find these arguments convincing. We see no error in the court's terse affirmance of the bankruptcy court's ruling.

 

CONCLUSION

 

For the foregoing reasons, we AFFIRM the BAP's decision affirming in part and reversing in part the bankruptcy court's ruling in the first adversary proceeding. We AFFIRM the district court's order affirming the bankruptcy court's decision as to the enforceability of the trustee's withdrawal notice and buy/sell offer.

 

RECENT ARTICLES

by Jay Adkisson

 

2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case

2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon

2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou

 

 

More Articles On Charging Orders click here

 

LAW REVIEW ARTICLES

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For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):

 

Effect of Bankruptcy On The Debtor-Member's LLC Interest here

 

 

Collected Court Opinions On Charging Orders here and below

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

 

Appeal - Issues relating to the appeal of a charging order

 

Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

 

Compliance - Issues for the LLC and non-debtor members in complying with a charging order

 

Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

 

Creditor Rights Restrictions - Limitations on creditors' management and informational rights

 

Distributions - Creditors rights to distributive payments

 

Economic Rights - Limitation of charging order and foreclosure to debtor's economic rights

 

Exclusivity - The charging order as the sole remedy available to creditors and exceptions

 

Exemptions - Available state and federal protections that may apply to charging orders

 

Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

 

Foreign Entities - Charging orders against out-of-state entities

 

Information Rights - Creditors' ability to access information about the LLC

 

Intra-Member Disputes - Where one member obtains a charging order against another

 

Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

 

Lien - The lien effect of a charging order and priority issues

 

Management & Voting Rights - Rights of creditor after charging order issued

 

Order Form Generally - Most issues to the form of the charging order

 

Order Form Future Interests - How the charging order affects subsequently-acquired interests

 

Prejudgment Relief - Freezing the interest and distributions pending judgment

 

Procedure - The procedure for obtaining a charging order and ancillary provisions

 

Receiver - The role of the receiver in charging order proceedings

 

Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest

 

Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

 

Taxes - Tax issues relating to charging orders for all involved parties

 

Unknown Interest - Where the debtor's interest, if any, has not been ascertained

 

Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests

 

= = = = =

 

Additional Court Opinions About charging orders (unsorted)

 

THE CHARGING ORDERS PRACTICE GUIDE

 

The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more

 

Available for purchase directly from the ABA at https://goo.gl/faZzY6

 

Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643

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  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

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© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.