Denise A. Cuevas v. Margaret K. Kellum
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IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI
NO. 2007-CA-01590-COA
DENISE A. CUEVAS
APPELLANT
v.
MARGARET K. KELLUM
DATE OF JUDGMENT:
TRIAL JUDGE:
COURT FROM WHICH APPEALED:
ATTORNEY FOR APPELLANT:
ATTORNEYS FOR APPELLEE:
NATURE OF THE CASE:
TRIAL COURT DISPOSITION:
DISPOSITION:
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
APPELLEE
07/17/2007
HON. JAYE BRADLEY
JACKSON COUNTY CHANCERY COURT
CHRISTOPHER E. FITZGERALD
EARL L. DENHAM
HENRY P. PATE
CIVIL - OTHER
FINAL JUDGMENT ENTERED DENYING
THE PLAINTIFF A TRIAL ON THE MERITS
OF HER CLAIMS
REVERSED AND REMANDED: 06/30/2009
BEFORE LEE, P.J., GRIFFIS AND CARLTON, JJ.
GRIFFIS, J., FOR THE COURT:
¶1.
Denise Cuevas appeals the chancellor’s decision to forgo a formal accounting and trial
in the dissolution of her partnership with Margaret Kellum. Cuevas alleges that: (1) the
chancellor denied her the right to a trial on the merits of the claims asserted in her complaint,
and (2) the adoption of the special master’s report was manifestly wrong.
FACTS
¶2.
On September 8, 1999, Cuevas and Kellum entered a into a partnership agreement
with the purpose of operating an elderly-care facility, Settler’s Point Assisted Living.
Kellum submitted the general partnership agreement – signed by both parties – to the
chancellor. The partnership owned Settler’s Point and other real property located in Jackson
County, Mississippi. On October 23, 2003, Kellum informed Cuevas that she intended to
dissolve the partnership, and from that time on, Cuevas alleges that Kellum denied her access
to the financial records of the business.
¶3.
On October 27, 2003, Cuevas filed a compliant that requested injunctive relief and
alleged that Kellum: (1) breached the partnership, (2) breached her fiduciary duties, and (3)
tortuously breached the partnership agreement warranting punitive damages. Cuevas also
demanded a full and complete accounting of all accounts billed and monies received and paid
out starting on October 1, 2003, to present.
¶4.
By agreed order, the chancellor, on May 4, 2004, appointed Haidee Oppie Sheffield
as the special master with instructions to determine: (1) the capital contributions from each
party to the business; (2) the personal-related withdrawals from the business; (3) the
ownership interest of each party in the business as of the date of the filing of this litigation;
and (4) the ownership interest of each party in the real property as of the date of the filing of
this litigation. The chancellor also stated that the trial would be reset following the special
master’s report.
¶5.
On March 28, 2005, the special master made her findings, and no timely objections
were made to her findings. On April 19, 2005, Cuevas filed a motion to allow out-of-time
objections to the special master’s report, which was denied. On February 10, 2006, the
chancellor adopted the special master’s findings. The trial was set and continued numerous
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times.
¶6.
On May 25, 2007, the chancellor heard motions to compel at which time she stated,
“I thought this case was over. What’s left?” Cuevas’s attorney explained to the chancellor
that: (1) there had never been a formal accounting; (2) documents were recently produced;
(3) depositions had been set; (4) the partnership was never dissolved; and (5) trial on the
remaining issues was set for June.
¶7.
On July 17, 2007, the chancellor entered an order nunc pro tunc to the special master’s
findings and gave the parties thirty days to agree to an implementation of the special master’s
report dividing the partnership’s assets, and if they could not agree, then the order allowed
for the appointment of a special commissioner.
STANDARD OF REVIEW
¶8.
"The findings of a chancellor will not be disturbed when supported by substantial
evidence unless there was manifest error or a[n] improper legal standard was applied." In
re Estate of Temple, 780 So. 2d 639, 642 (¶15) (Miss. 2001) (citation omitted). However,
an appellate court conducts a de novo review on any question of law. In re Admin. of the
Estate of Abernathy, 778 So. 2d 123, 127 (¶13) (Miss. 2001) (citation omitted).
ANALYSIS
1.
¶9.
Did the chancellor deny Cuevas the right to a trial on the merits of
claims asserted in her complaint?
Cuevas claims that the special master’s report does not negate the need for a trial on
the merits of her complaint. For the first time, Kellum argues that the chancery court had no
jurisdiction to hear Cuevas’s complaint on the merits.
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¶10.
First, we address whether all of Cuevas’s claims were resolved by the special master.
In her complaint, Cuevas alleged that Kellum: (1) breached the partnership, (2) breached her
fiduciary duties, and (3) tortuously breached the partnership agreement warranting punitive
damages.
¶11.
A special master was appointed by the chancellor pursuant to Mississippi Rule of
Civil Procedure 53 to aid in the resolution of this case. The supreme court has stated that
under Rule 53(d):
The order of reference to the master may specify or limit his powers and may
direct him to report only upon particular issues or to do or perform particular
acts or to receive and report evidence only and may fix the time and place for
beginning and closing the hearing and for the filing of the master's report.
(Emphasis added). See also Massey v. Massey, 475 So. 2d 802, 805 (Miss. 1985). Here, the
chancellor limited the special master to a determination of (1) the capital contributions to the
partnership by each party; (2) the value of personal-related withdrawals from the partnership;
(3) the ownership interest of each party in the partnership as of October 27, 2003; and (4) the
ownership interest of each party in three parcels of real estate.
¶12.
The special master’s authority was limited to the assignment given to her by the
chancellor. The chancellor’s specific delegation to the special master did not instruct her to
address the merits of Cuevas’s claims – nor did she address Cuevas’s claims for breach of
partnership, breach of fiduciary duties, and tortuous breach of the partnership agreement. All
of Cuevas’s claims were not resolved by the special master’s report.
¶13.
Next, we turn to the issue of a trial. The special master was appointed on May 4,
2004, and submitted her report on March 28, 2005. The findings were adopted by the
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chancellor on February 10, 2006, and for the first time on May 25, 2007, the chancellor
opined that no trial was necessary. In the order appointing the special master, the chancellor
specifically stated that the trial would be reset following the special master’s report.
Furthermore, in the two years following the special master’s report, numerous references
were made by the chancellor and Kellum’s counsel to the impending trial.
¶14.
Kellum argues that the chancellor’s order should be affirmed because the chancery
court lacked the jurisdiction to address Cuevas’s claims for damages for breach of fiduciary
duty, breach of the partnership agreement, and tortuous breach of the partnership agreement,
which are claims at law and subject to a jury trial. Cuevas claims that the chancery court has
pendent jurisdiction over her claims. “Jurisdiction is a question of law which [the appellate
court] reviews de novo.” Issaquena Warren Counties Land Co., LLC v. Warren County, 996
So. 2d 747, 749 (¶5) (Miss. 2008) (citation omitted).
¶15.
“To determine whether a court has subject matter jurisdiction, we look to the face of
the complaint, examining the nature of the controversy and the relief sought.” RAS Family
Partners, LP v. Onman Biloxi, LLC, 968 So. 2d 926, 928 (¶11) (Miss. 2007) (citations
omitted). “The dissolution of a partnership requires the settling of accounts. A Mississippi
chancery court holds the authority to hear a case for an accounting.” Crowe v. Smith, 603
So. 2d 301, 307 (Miss. 1992) (internal citation omitted). The supreme court “has stated,
where there appears from the face of the well-pleaded complaint an independent basis for
equity jurisdiction, our chancery courts may hear and adjudge law claims.” Issaquena
Warren Counties Land Co., LLC, 996 So. 2d at 751 (¶10). “In such circumstances, the legal
claims lie within the pendent jurisdiction of the chancery court.” Id. Cuevas’s claims for
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dissolution of the partnership were properly brought in a court of equity; therefore, the other
claims asserted fall within the chancery court's pendent jurisdiction. The chancellor did not
consider the claims for breach of fiduciary duty or the tortuous breach of the partnership
agreement warranting punitive damages; therefore, we reverse the judgment of the
chancellor. On remand, the chancellor should permit a hearing to allow evidence to be
presented on the remaining claims.
2.
¶16.
Was the chancellor’s adoption of the special master’s report manifestly
wrong?
Cuevas argues the adoption of the special master’s report was manifestly wrong due
to a lack of formal accounting. Kellum argues that Cuevas is not entitled to a formal
accounting because the special master’s report is sufficient.
¶17.
Cuevas claims that a partner has an absolute right to a formal accounting in the event
of the dissolution of a partnership under Mississippi Code Annotated section 79-12-43
(Repealed Jan. 1, 2007). That statute was repealed effective January 1, 2007. “The effect
of a repealing statute is to abrogate the repealed statute as completely as if it had never been
passed . . . unless the repealing or modifying statute contains a saving clause.” City of
Belmont v. Miss. State Tax Comm'n, 860 So. 2d 289, 303 (¶28) (Miss. 2003). The Uniform
Partnership Act – which repealed sections 79-12-1 through 79-12-119 – provides a savings
clause. Mississippi Code Annotated section 79-13-1206 (Supp. 2008) states that “[t]his
chapter does not affect an action or proceeding commenced or right accrued before this
chapter takes effect.”
¶18.
Cuevas filed her complaint on October 27, 2003, well before section 79-12-43 was
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repealed by Chapter 13, the Uniform Partnership Act, on January 1, 2007. Section 79-12-43
states that “any partner shall have the right to a formal account as to partnership affairs: (a)
[i]f he is wrongfully excluded from the partnership business or possession of its property by
his copartners.” Miss. Code Ann. § 79-12-43(1)(a) (Rev. 2001). In her initial complaint,
Cuevas argued that she had been wrongly excluded from the partnership because Kellum
removed her from the bank accounts, barred her from the premises, and refused to allow her
access to the financial affairs of the business.
¶19.
Cuevas has a statutory right to a formal account of the partnership’s finances under
section 79-12-43. However, it is unclear what constitutes a formal account of a partnership
because there is no Mississippi case law addressing the issue. Therefore, we look to other
areas of the law where a formal account is required for guidance. Under estate law, an
executor has a duty, at least once a year, to “present under oath an account of his
administration, showing the disbursements, every item of which and the amount thereof to
be distinctly stated and supported by legal voucher, and it shall also show the receipts of
money and from what sources.” Miss. Code Ann. § 91-7-277 (Rev. 2004). A formal account
of a partnership – as in an estate – should contain, at minimum, the partnership’s
disbursements and receipts of money.1 It is undisputed that the dissolution proceedings did
1
Unlike an estate, however, a partnership is a business organization that typically
accounts for its operations on an annual basis. The account for operations can be
accomplished by using a computer accounting software program that prepares, or has the
functions to prepare, a trial balance, income statement, balance sheet, statement of cash flow,
or other accounting statements that are used in the business. We recognize that not every
business organization follows generally accepted accounting principles or uses a Certified
Public Accountant to prepare its accounting records. However, every business organization
must account for its operations, if for no other reason than to prepare and file the required
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not report the partnership’s receipt of income.
¶20.
In her brief, Kellum acknowledges that Cuevas had a right to a formal account at
Cuevas’s expense. However, Kellum cites no authority that requires Cuevas – the ousted
partner – to bare the expense of the accounting. Kellum admits the chancellor did not direct
the special master to render a formal account, and that the special master did not require her
to produce a monthly accounting for the period that she ran Settler’s Point without Cuevas.
However, Kellum claims that a formal accounting means nothing more than an adjusting of
the equities of the parties, and that the chancellor’s judgment should be affirmed because the
chancellor adjusted the equities of the parties. Barry v. Mattocks, 156 Miss. 424, 432-33,
125 So. 554, 556 (1930). We find no support for this proposition in Barry. It is undisputed
by Cuevas, Kellum, and the special master that a formal accounting was not conducted.
¶21.
Cuevas is entitled to a formal accounting, but the need for a formal accounting does
not invalidate the special master’s report. As we have said, the special master was given four
specific tasks, which did not include conducting a formal accounting. The special master
was diligent and reasoned in her determination of the specific findings. Cuevas waived her
objections to the findings when she failed to timely object within ten days as required under
Mississippi Rules of Civil Procedure 53(g)(2). Cuevas has given this Court no reason to
reject the findings of the special master. The chancellor did not err by adopting the special
tax returns. Indeed, there is no statutorily required specific form that must be used for an
“accounting.” Indeed, an accounting may be as simple as a list of receipts and disbursements
or as complex as an audited financial statement. However, the accounting must show the
results of operations either through income that remains in the organization, liabilities of the
organization, or equity balances of the owners.
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master’s report, but the chancellor did err in refusing to order a formal accounting and to
allocate those costs. Accordingly, we find that the chancellor should order a formal
accounting on remand.
¶22. THE JUDGMENT OF THE CHANCERY COURT OF JACKSON COUNTY
IS REVERSED AND REMANDED FOR FURTHER PROCEEDINGS CONSISTENT
WITH THIS OPINION. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE
APPELLEE.
KING, C.J., LEE AND MYERS, P.JJ., IRVING, BARNES, ROBERTS,
CARLTON AND MAXWELL, JJ., CONCUR. ISHEE, J., NOT PARTICIPATING.
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