Unpublished Disposition, 925 F.2d 1469 (9th Cir. 1987)

MEMORANDUM^** 

Defendants, Maika'i Makani Cruises, Ltd. ("MMC") and Edgar Kerr, appeal from the district court's amended judgment, which held that they breached a right of first refusal clause in their limited partnership agreement with plaintiff, Paul Dino. MMC and Kerr contend that the district court erred when it admitted extrinsic evidence to show the parties' intent and when it determined that their transfer of an interest to third parties breached that clause. They also contend that plaintiff waived the breach and that the district court erred when it admitted evidence of defendant Kerr's financial worth. We affirm.

BACKGROUND

Plaintiff, Paul Dino, and defendant, Maika'i Makani Cruises, Ltd. ("MMC"), entered into a limited partnership to operate a commercial charter boat, the Maika'i Makani II. Defendant, Edgar Kerr, owned the stock of MMC, and the jury found that MMC was his alter ego. In February 1985, MMC and Dino executed a limited partnership agreement ("Agreement") in which MMC was the general partner and Dino was the limited partner. Section 10.5 of the Agreement provided that if either party should "desire to sell their interest in this partnership, then the partner desiring to sell shall give the other partner the first right of refusal to purchase the interest of the selling partner upon the same terms and conditions pursuant to a bona fide offer."

On December 16, 1985, MMC sold the right to 25% of the operating revenues from the operation of the vessel to Donald Frakes for $40,000. The revenue sharing agreement stated that Frakes owned a "net profits interest only" and that Frakes' interest was not an "ownership interest" in the vessel or in MMC. In the event that the vessel was sold, Frakes was entitled to receive 25% of the proceeds. Kerr's attorney assured him that the agreement did not violate Section 10.5.

In May 1986, Dino learned of Frakes' involvement. Subsequently, Dino met Frakes and obtained a copy of Frakes' revenue sharing agreement. In June 1986, Kerr denied that Frakes was a partner, but Dino confronted Kerr with Frakes' revenue sharing agreement. Kerr then assured Dino that Frakes was a partner for only one year. In October 1986, Dino expressed his dissatisfaction with the revenue sharing agreement and, on August 31, 1987, he made a formal demand to terminate it.

Dino then filed this action and asserted a breach of contract claim based on MMC's revenue sharing agreement with Frakes.¹  During jury trial, defendants objected to Dino's testimony concerning the Agreement. The court overruled the objection and held that Dino's understanding of the Agreement was probative. When Dino sought to ask Kerr his understanding of Section 10.5, defendants again objected because there had been no determination of ambiguity. The court again overruled this objection because Dino had the right to ask about a party's understanding of the provision.

Dino sought to introduce evidence of Kerr's net worth. The court allowed the evidence, because there was sufficient evidence to support a finding of punitive damages on the derivative claims. Kerr then testified as to his net worth.

In a special verdict, the jury found that MMC was the alter ego of Kerr. The jury awarded damages because it found that MMC breached the limited partnership agreement when it entered the revenue sharing agreement with Frakes. The court reduced the amount of that award upon stipulation by the parties and entered judgment accordingly. Defendants filed a timely notice of appeal.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291.

We review de novo the question whether a contract is ambiguous. L.K. Comstock & Co., Inc. v. United Eng'rs and Constructors, Inc., 800 F.2d 219, 221 (9th Cir. 1989). Waiver is a factual issue, which we review for clear error. CBS, Inc. v. Merrick, 716 F.2d 1292, 1295 (9th Cir. 1983). We review the admission of evidence for an abuse of discretion. Coursen v. A.H. Robins Co., Inc., 764 F.2d 1329, 1339 (9th Cir. 1985).

DISCUSSION

A. Breach of the Limited Partnership Agreement.

Construction of a contract is a question of law. Hanagami v. China Airlines, Ltd., 67 Haw. 357, 688 P.2d 1139, 1144 (1984) (per curiam). If the contract is unambiguous, there is no need for the court to interpret the contract. Id. A contract is ambiguous if the terms are reasonably susceptible to more than one meaning. Airgo, Inc. v. Horizon Cargo Transp., Inc., 66 Haw. 590, 670 P.2d 1277, 1280 (1983) (per curiam).

Section 10.5 of the Agreement was not ambiguous, and it covered Frakes' revenue sharing agreement.²  Defendants contend that the provision covered only a transfer of both rights and obligations. Thus, defendants argue, because Frakes' revenue sharing agreement was an assignment of part of MMC's right to profits, the revenue sharing agreement did not violate Section 10.5.

Defendants are incorrect. Absent a restriction on alienation, a party's rights under contract are freely assignable. See Restatement (Second) Contracts Sec. 317(2) (c) (1981) (assignment of right allowed unless validly precluded by contract). A right of first refusal provision functions in much the same way as a prohibition on assignment. E.g., Groves v. Prickett, 420 F.2d 1119, 1122-23 (9th Cir. 1970). See Restatement (Second) Contracts Sec. 322.

Section 10.5, as a matter of law, covers an assignment of rights. Even absent any restriction by contract, MMC would have been precluded from delegating its obligations. Under Hawaii law, an assignor of a partnership agreement cannot, without the consent of the other parties to the partnership, make the assignee a partner in fact. See Block v. Lea, 5 Haw.App. 266, 688 P.2d 724, 730-31, cert. denied, 744 P.2d 781 (Hawaii 1984).

As the court pointed out in Block, 688 P.2d at 731, Haw.Rev.Stat. Sec. 425-127 (1985) provides that a conveyance of general partnership rights does not "entitle the assignee ... to interfere in the management or administration of the partnership business or affairs...." Instead, the assignee is entitled to receive only "the profits to which the assigning partner would otherwise be entitled." Id. See also Haw.Rev.Stat. Sec. 425-39 (1985), superseded by Haw.Rev.Stat. Sec. 425D-704 (supp.1989) (right of assignee to become limited partner when the agreement so allows).

Therefore, in the absence of Section 10.5, the most that MMC could have done under Hawaii partnership law was to transfer an interest in receiving all or a portion of net profits. Section 10.5 allows Dino to capture the right to those profits should a transfer be attempted. That is particularly true where, as here, the Agreement expressly provided that the partnership would be dissolved should MMC attempt to withdraw, or even suffer a change in its stock ownership of as much as 50%. It follows from the plain words of the Agreement that the "interest" in question here was exactly the interest which MMC transferred.

MMC's breach is underscored by the fact that the revenue sharing agreement with Frakes did not merely provide that he would receive a portion of MMC's distribution from the partnership as provided in Article VI of the partnership agreement. Rather, the revenue sharing agreement purported to assign an actual interest in the net operating revenues of the partnership itself, and, indeed, tracks the net operating revenue language of the partnership agreement. Agreement, Sec. 6.1. It also gave Frakes the right to receive a portion of the proceeds of any sale of the vessel.

Thus, the revenue sharing agreement comprehended "interests" as contemplated in Section 10.5 of the Agreement. MMC breached that Agreement by conveying an interest without first offering it to Dino. See Karber v. Karber, 145 Ariz. 293, 701 P.2d 1, 2-3 (Ariz.Ct.App.1984). The district court did not err when it entered judgment for Dino on the contract claim.

B. Waiver.

Defendants claim that plaintiff waived the alleged violation of the Agreement by MMC. Waiver is the intentional relinquishment of a known right. Association of Owners v. Swinerton & Walberg Co., 68 Haw. 99, 705 P.2d 28, 36 (1985). As evidence at trial showed, however, Dino made repeated objections to the Frakes-MMC revenue sharing agreement. The district court's refusal to find a waiver and to enter judgment for defendants on the breach of contract claim was not clear error. The jury found no such waiver as to Frakes. There is no reason to disturb that verdict.

C. Evidence of Plaintiff's Net Worth.

Defendants contend that financial worth evidence was admissible only for purposes of showing punitive damages and that they could not be awarded on the breach of contract claim. That is true, but the evidence was admissible to prove punitive damages on the claims asserted on behalf of the partnership, which were later dismissed. The district court did not abuse its discretion in admitting the evidence, and, in any event, it is highly unlikely that defendants suffered any prejudice therefrom. See, Glanzman v. Uniroyal, Inc., 892 F.2d 58, 61 (9th Cir. 1989).

D. Attorneys' Fees.

In his brief, Dino requested attorneys' fees on this appeal. Under 9th Cir.R. 28-2.3, he was required to "identify the authority under which the attorneys' fees will be sought." He failed to so. Accordingly, we refuse to consider his request.

AFFIRMED.