SHIRLEY MCVAY LACH, INDIVIDUALLY AND ON BEHALF OF MAN O' WAR LIMITED PARTNERSHIP, A KENTUCKY LIMITED PARTNERSHIP V. MAN O' WAR, LLC, FORMERLY MAN O WAR MANAGEMENT, LLC (A KENTUCKY LIMITED LIABILITY COMPANY), ET AL.
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AS CORRECTED : MARCH 31, 2008
RENDERED : MARCH 20, 2008
TO BE PUBLISHED
,;VUyrPML11
X.Ivurf
of
2005-SC-001014-DG
SHIRLEY MCVAY LACH,
INDIVIDUALLY AND ON BEHALF OF
MAN O' WAR LIMITED
PARTNERSHIP, A KENTUCKY
LIMITED PARTNERSHIP
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NUMBER 2004-CA-001958-MR
FAYETTE CIRCUIT COURT NO. 02-CI-002853
MAN O' WAR, LLC, FORMERLY MAN
OF WAR MANAGEMENT, LLC (A
KENTUCKY LIMITED LIABILITY
COMPANY), ET AL
APPELLEES
OPINION OF THE COURT BY JUSTICE SCOTT
REVERSING AND REMANDING
We granted discretionary review of an opinion of the Court of Appeals
affirming the Fayette Circuit Court's grant of summary judgment against the
Appellant, Shirley Lach (Lach) . We now reverse and remand the matter to the
trial court for further proceedings consistent with this opinion .
Facts
In 1986, Lach and her then husband, Lynwood Wiseman (Wiseman),'
entered into a joint venture with other individuals to acquire a piece of real estate
1 Lach and Wiseman divorced in 1988, soon after the endeavor began .
for development in Lexington, Kentucky. They also formed Man O' War Limited
Partnership (the Partnership) for the purpose of leasing real property, as well as
the development and operation of shopping centers . Robert S. Miller (Miller), an
attorney, provided assistance and became a participant . Miller and Wiseman
became the general partners in the Partnership, while Lach was one of several
limited partners . They also formed M .O.W. Place, Ltd ., (LTD) to lease the
shopping center from the joint venture . LTD was controlled and managed
through the Partnership as LTD's sole general partner until the occurrence of
events in 2002 which are the subject matter of this litigation .
At all times, the Partnership's general partners, and their ownership
percentages were essentially, Miller (1 .01802%) and Wiseman (32 .43243%) .
The limited partners and their ownership percentages were essentially, Lach
(27.02703%), Jonathan Miller (8 .5%), Harry B . Miller (11 .71171 %), Harvey
Morgan (1 .08108%), Penny Miller (3 .24324%), Jeffery Mullens (1 .08108%),
Jennifer Miller (8.5%), and Sophie Wiseman (5.40541 %).
In 2002, the Partnership discovered that one of Wiseman's nonpartnership employees had over a period of years, stolen in excess of
$200,000.00 from the Partnership . Lach had made several inquiries and
complaints to the general partners regarding this possibility due to inconsistent
entrees in its books and records . As a result, Wiseman paid the money back to
the Partnership and a professional management company was retained to
actively manage the Partnership and shopping center.
Later in the spring of 2002, Miller discovered he was gravely ill with
cancer. With his approaching death, he contacted Lach in April 2002, and asked
for a meeting concerning the shopping center. At the meeting, Miller asked Lach
to sign a document he had prepared, which would name Wiseman, Jeffery
Mullens, (brother-in-law of Robert Miller), and Jonathan Miller (son of Robert
Miller), as the new general partners of the Partnership . Under the Partnership
agreement, new general partners could not be added without the consent of all
the partners . The document further provided that when Wiseman died, "the two
remaining general partners will select a new general partner ." Lach objected as
the proposal would permit the Miller family, which owned less than Lach's
individual interest, to manage and control the shopping center . The Millers'
would have two of the three general partners while Wiseman, who was then of
advancing age, was alive. Upon his death, Jonathan Miller and Jeffery Mullens
would then select the third general partner .
Believing it would be best if one of the three general partners controlling
the shopping center was a person outside the Miller family, Lach responded with
a proposal substituting her daughter, Sherri McVay, an attorney, as a general
partner in lieu of Jeffery Mullens . Her proposal was rejected .
Miller and Wiseman then sought counsel in an effort to restructure the
business form of the partnership so as to eliminate the necessity of acquiring
Lach's consent to the proposed management change . Upon advice of counsel,
they formed a new business entity, Man O' War Limited Liability Company (the
LLC). When operational, the LLC would be operated under the "manager form,"
controlled only by a majority vote of the owners. The initial managers were to be
Wiseman, Jonathan Miller, and Jeffery Mullens .
Once this was done, they transferred the Partnership's interest as the sole
general partner in LTD to the LLC, while the ownership of the LLC was
transferred to the Partnership in return . After the transfer, Miller and Wiseman
dissolved the Partnership, distributing its assets (the ownership of the LLC) to the
partners in identical proportions to their previous ownership of the Partnership,
that is - with one catch . Unless a partner signed the documents presented,
which would necessarily validate the restructuring, that partner would have no
voting rights in the LLC. As all the other partners signed the agreement, Lach
was the only one left without any voting rights. Income, yes - any say in the
management, no.
The fact that the Partnership's restructuring was to avoid the required
consent of Lach to the proposed changes in management is amply
demonstrated . For example, billing on April 19, 2002, from counsel retained for
the Partnership by Wiseman and Miller, was for "[a]ttention to freeze out and
letter to Sam Brown on requirements." Billing on April 22, 2002, was for
"[c]onference regarding change of limited partnership to limited liability company."
Billing on April 23, 2002, was for "[c]onference regarding non[-]execution of
Operating Agreement by dissident limited partner ." Counsel's letter of April 24,
2002, to the Partnership accountant, acknowledged, "[a]s we discussed earlier
this week, we have been asked to consider a restructuring of [the Partnership]
with the goal of eliminating the ability of any one limited partner . . . to prevent
any action of the [Partnership] . . . ."
Lach then brought this action in the Fayette Circuit Court alleging, among
others, that (1) the restructuring (or conversion) of the business form of the
4
Partnership without her consent was invalid, (2) the transfer of the assets of the
Partnership to the LLC and the Partnership's subsequent termination was a
violation of KRS 362.490 and a breach by the general partners of their fiduciary
duty to the Partnership and Lach . The trial court denied Appellant's motions for
partial summary judgment and granted summary judgment thereon, in favor of
the Appellees . The trial court also denied her motion to compel the production of
all communications between the Partnership, general partners and counsel
regarding the reasons for the restructuring of the Partnership business . The
Court of Appeals affirmed the trial court's summary judgments, and as a
consequence, found the discovery issues to be moot.
I.
The standard of review
The standard of review for summary judgments is whether the trial court
correctly determined that there were no genuine issues of material fact and that
the moving party was entitled to judgment as a matter of law. Steelvest, Inc. v.
Scansteel Serv. Ctr., Inc . , 807 S .W.2d 476, 480 (Ky. 1991) . Where there are no
material disputes of fact, the question is one of law and "may be reviewed de
novo." Bob Hook Chevrolet Isuzu, Inc . v. Com . Transp. Cabinet, 983 S .W .2d
488, 490 (Ky. 1998).
II.
The restructuring of the partnership business
Appellant argues that the restructuring of the Partnership business form
was invalid without her consent for two reasons : (1) the restructuring was a
conversion in violation of KRS 275.370, and (2) the restructuring made it
impossible for the Partnership to carry on its business in violation of KRS
362.490. The Appellees on the other hand, argue that (1) the restructuring of the
Partnership business into that of the LLC did not constitute a "conversion" subject
to the mandates of KRS 275.370 and (2) the Partnership agreements gave the
general partners authority to restructure as they did. Moreover, the restructuring
did not make it impossible to carry on the Partnership's ordinary business ; rather,
it made it possible to continue the business, given Lach's objection to the
proposed new general partners .
a.
Conversions under KRS 275.370
KRS 275.370 provides, in pertinent part :
(1) A partnership or limited partnership may be
converted to a limited liability company
pursuant to this section .
(2) The terms and conditions of a conversion of
a partnership or limited partnership to a limited
liability company shall, in the case of a
partnership, be approved by all the partners or
by a number or percentage specified for
conversion in the partnership agreement or, in
the case of a limited partnership, by all the
partners, notwithstanding any provision to the
contrary in the limited partnership agreement .
While conceding that the statute, in this instance, requires the approval of
all the limited partners before a limited partnership can be converted into a
limited liability company, the Appellees argue that the transformation constituted
a "reorganization," not a "conversion" as envisioned under KRS 275.370(1) .
Thus, KRS 275 .370(2), requiring the consent of all the limited partners, was not
applicable . The Appellees illustrate their distinction of the word "conversion," by
pointing out that the statute envisions a limited partnership re-designating itself
as a limited liability company, whereas, in this instance, the limited liability
company was created separately and existed concurrently with the Partnership
6
(albeit without any assets) . Thus, the fact that the LLC acquired all the assets of
the Partnership and the Partnership then dissolved is simply immaterial .
Appellant on the other hand, points to Mr. Miller's statement in his
deposition, "that there was a conversion from the partnership to an LLC," and to
the statement of their counsel, who in his letter of June 11, 2002, responding to
an inquiry by Appellant's counsel, acknowledged, "the general partners
determined that a conversion to a Limited Liability Company (LLC) was in the
best interest of the partnership . The reconstructing has been accomplished ."
We must, however, analyze a transaction for what it is, not what someone says it
is .
In resolving the dispute, we must follow common rules of statutory
construction . Thus, "[a]II statutes of this state shall be liberally construed with a
view to promote their objects and carry out the intent of the legislature . . . ."
KRS 446.080(1). Moreover, "[a]II words and phrases shall be construed
according to the common and approved usage of language, but technical words
and phrases, and such others as may have acquired a peculiar and appropriate
meaning in the law, shall be constru ed according to such meaning ." KRS
446.080(4).
It is a well-known rule for the interpretation of statutes that the court
should ascertain from their terms, as contained in the entire
enactment, the intent and purpose of the Legislature, and to
administer that intent and purpose . Furthermore . . . words will be
given their ordinary and usually understood meaning, unless a
different or technical meaning, as gathered from the entire
contents, was intended .
Seaboard Oil Co. v. Commonwealth, 193 Ky. 629, 237 S .W. 48, 49 (1922).
Moreover,
[i]f a thing contained in a subsequent statute be within the reason of
a former statute it shall be taken to be within meaning of that
statute, and, if it can be gathered from a subsequent statute in pan
materia what meaning the Legislature attached to words of a former
statute, this will amount to a legislative declaration of its meaning
and will govern construction of first statute .
Miller v. KirkseV, 265 Ky. 106, 95 S .W.2d 1059, 1061 (1936).
KRS 275 .375(1) acknowledges that "[a] partnership or limited partnership
that has been converted pursuant to this chapter shall be for all purposes the
same entity that existed before the conversion ." KRS 275.375(2) recognizes
that the property "shall remain vested in the converted [business entity] . . . [and]
[a]II obligations of the converting . . . limited partnership shall continue as
obligations of the converted [business entity]." (Emphasis added) All of which
seem to confirm Appellant's argument that a "conversion" involves only one
entity changing its legal form pursuant to statutory authorizations, rather than
through interaction between two entities .
Looking at subsequent statutes for what light they cast on the
question, we note that the Kentucky Legislature adopted the new Kentucky
Uniform Limited Partnership Act in 2006. KRS 362 .2-102, et. seq . This Act was
adopted, with some changes, from the Uniform Limited Partnership Act (2001).
Unif. Limited Partnership Act § 1102-1105, GA U .L.A. 106-109 (2006). The Act
specifically provides "[i]n applying and construing this uniform act, consideration
shall be given to the need to promote uniformity of the law with respect to its
subject matter among states that enact it." KRS 362.2-1201 .
When the need for uniformity is acknowledged, courts may consider the
"Official Comments" to a Uniform Act, even where they have not been officially
adopted . Cf. , White v. Winchester Land Dev. Corp. , 584 S.W.2d 56, 60 (Ky. App.
1979). Looking at the Official Comments to § 1102 of the Uniform Limited
Partnership Act, which, with changes, corresponds to KRS 362 .2-1102, the
Comment acknowledges, "[i]n contrast to a merger, which involves at least two
entities, a conversion involves only one . The converting and converted
organizations are the same entity." Unif. Limited Partnership Act § 1102-1105,
GA U .L.A. 107 (2006) .
Having thus considered the statutory scheme, its particular language, the
subsequent statute and Official Comments, we answer the question that was
presented to us -- that the restructuring of the business form of the Partnership,
to that of the LLC, in this instance, was not a conversion under, or subject to,
KRS 275 .370, for reasons that a conversion deals only with one entity. We have
not been asked, nor have we considered, whether the restructuring of the
Partnership into the LLC constituted a merger, pursuant to KRS 362.531 .
b.
Breach of partners' fiduciary duty
Under Kentucky law, partners owe the utmost good faith to each and
every other partner. See Axton v. Kentucky Bottlers Supply Co. , 159 Ky. 51, 166
S.W. 776, 778 (1914). "The scope of the fiduciary duty has been variously
defined as one requiring utter good faith or honesty, loyalty or obedience, as well
as candor, due care, and fair dealing ." Anthony v. Padmar, Inc., 465 S .E.2d 745,
752 (S .C. App . 1995). Indeed, it has often been said, "there is no relation of trust
or confidence known to law that requires of the parties a higher degree of good
faith than that of a partnership ." Van Hooser v. Keenon , 271 S.W .2d 270, 273
(Ky. 1954). Thus, "the doing of an act proscribed by [law] is a breach of that
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duty." Gundelach v. Gollehon, 598 P .2d 521, 523 (Colo . App. 1979) (internal
citations omitted) .
Gundelach involved a sale of all a limited partnership's assets under a
statutory scheme and circumstances similar to the case at hand . 'The Colorado
statute therein interpreted provided, in pertinent part:
(W)ithout the written consent or ratification of the
specific act by All the limited partners, a general
partner or all of the general partners have no
authority to:
(b) Do any act which would make it impossible
to carry on the ordinary business of the
partnership .
Id . at 523.
Finding that all of the limited partners did not approve of the transfer of the
limited partnership's assets and noting the dissolution of the limited partnership
after the transfer, the Court in Gundelach concluded, "that upon transfer of the
sole asset of the limited partnership, it was no longer possible for the partnership
to carry on its ordinary business within the meaning of [the statute]." Id .
_
Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1074-1075 (2nd
Cir. 1977), also involved circumstances similar to the case at hand. Therein, the
general partners and most of the limited partners desired to change the business
from a limited partnership to that of a corporation . Over the objection of three of
the limited partners, they transferred all the limited partnership's property to the
corporation and resumed the partnership's business within the corporate
structure. Both the Federal District Court for the Southern District of New York
and the Second Circuit Court of Appeals held that, "the transfer of the
10
Partnership assets without the consent of [the dissenting limited partners] was a
violation of section 98 of New York Partnership Law." Id. at 1074. Section
98(1)(b) provides that general partners may not, without the consent of all the
limited partners, do any act which would make it impossible to carry on the
ordinary business of the partnership . Id. at 1067. The court further noted, "[t]he
February 11 transfer effectively terminated the Partnership and funneled its
assets into a new entity. It is difficult to conceive of an act that would make it
more `impossible to carry on the ordinary business of the partnership ."' Id. at
1074.
KRS 362.490 provides, in pertinent part:
A general partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a partner in a
partnership without limited partners, except that without the written
consent or ratification of the specific act by all the limited partners,
a general partner or all the general partners have no authority to
(2) do any act which would make it impossible to carry on the
ordinary business of the partnership .2
Our statute thus mirrors the Colorado and New York statutes analyzed in
Gundelach , supra, and Newburger, Loeb & Co., Inc. , supra .
2 Pursuant to KRS 362.525, "[t]he repeal of any statutory provision by
1988 Acts Ch . 284, sec. 65, shall not impair, or otherwise affect, the organization
or the continued existence of a limited partnership existing on July 15, 1988, nor
does the repeal impair any contract or affect any right accrued before July 15,
1988." KRS 362.521 (1) provides, "[a] limited partnership formed under any
statute of this state prior to the adoption of [the Kentucky Revised Uniform
Partnership Act of 1988] until or unless it becomes a limited partnership under
[the Act of 1988] shall continue to be governed by the provisions of the statute
under which it was formed ."
The Appellees, however, argue that Miller and Wiseman had the authority
to perform all the acts constituting the restructuring without Lach's consent
because they did not make it impossible to carry on the business of the
partnership . They assert, it was the only act which made it possible to carry on
the business of the partnership ; suggesting that Lach would, by virtue of her right
of rejection, have destroyed the partnership's business, something she hadn't
done for the previous sixteen years. Moreover, the fact that a limited partner
with significant ownership interests in a limited partnership would object to a
transaction which would deprive her of her say in who might be able to
successfully manage her business interest as a general partner, in return for a
minority voting, or for that fact, a non-voting interest, in a limited liability company
controlled by a majority vote, is not evidence that such limited partner has an
interest in destroying the business, including the value of her interest therein .
They further argue that under the certificate of partnership and partnership
agreement, the general partners had the absolute right to "(1) terminate the
partnership, (2) execute documents agreements, contracts, leases, etc., on
behalf of the partnership, and (3) to manage the partnership business in all
aspects, which should include, but should not be limited to . . . take such other
action, execute and deliver such other documents, and perform such other acts
as the general partners may deem necessary, appropriate, or incidental to
carrying out the business and affairs of the partnership ." In this regard, they seek
to distinguish Gundelach , supra, and Newburger, Loeb & Co ., Inc. , supra,
3 The argument ignores the business fact that she was elected Chief of
the National Home Builders Association in 1989, and was the owner of various
other businesses .
12
through Mist Properties, Inc. v. Fitzsimmons Realty Co . , 228 N.Y.S .2d 406, 410
(Sup. Ct. 1962), in which the court approved the general partner's transfer of title
to property owned by the limited partnership as against the claim of the receiver,
because the limited partnership agreement allowed the general partners to do so.
Mist Properties, Inc. , supra, however, had a partnership agreement that
gave the general partners the specific power to sell all of the partnership's
property, subject to written approval of sixty-five percent of the limited partners .
"There clearly appears to have been no violation of the statute since the
conveyance was not without the written consent of the limited partners but was
specifically contemplated and provided for by the agreement ." Id . at 410 . As the
court recognized therein, the agreement the partners had made with themselves
through their partnership agreement controlled . "There is no intervening public
policy which prevents persons dealing at arm's length from entering into an
agreement such as set forth above. It has been repeatedly held that where a
limited partnership agreement has been entered into the partners cannot, inter
se, set up that their rights are not governed thereby . . . ... Id . at 410.
Simply put, we find that the general partners' rights under the partnership
agreement to (1) terminate the partnership at any time upon agreement of the
general partners, and (2) to act upon behalf of the Partnership in matters that are
"necessary, appropriate, or incidental to carry out its business," can be not
construed to allow them the power to transform the partnership into a limited
liability company, in order to favor a majority of the partners in their selection, or
substitution, of the general partners/managers of the business, without the
approval of all the limited partners .
"The obligations to do justice rest upon all persons, natural and artificial ; if
one obtains the money or property of others without authority, the law,
independently of its expressed contract, will compel restitution or compensation ."
Marsh all's Adm'r v. Webster, 287 Ky. 692,155 S.W.2d 13,18 (1941). "The law
regards substance rather than form; the spirit and essence of a thing rather than
the dry law. One may not do by indirection what he cannot do directly." Id . at 19 .
We therefore conclude that the transfer of the partnership assets to the LLC was
in violation of KRS 362.490 and thus a breach of the general partners' fiduciary
duty to the non-consenting limited partner.
Therefore, for the reasons as stated previously, the act of restructuring the
business form from the Partnership to the LLC without the consent of all the
limited partners was a breach of the general partners' fiduciary duty to the nonconsenting limited partner. As the trial court has yet to determine the remedy, or
remedies for such breaches, we will not address same . In so concluding, we are
not unmindful of Van Hooser v. Keenon, 271 S .W .2d 270 (Ky. 1954), Axton v.
Kentucky Bottlers Supply Co . , 159 Ky. 51, 166 S .W. 776, 778 (1914), or Anthony
v. Padmar, Inc. , 465 S.E .2d 745 (S.C. App. 1995), cited to the contrary by Justice
Abramson in her dissent, yet we note that the transfer here does not involve the
rights of innocent third party purchasers as occurred in the cases cited .
III.
Discovery of communications between the partnerships, general
partners and their counsel
4 The agreements of the parties obscure the question of whether majority
control of an LLC is more valuable than control of a limited partnership, subject to
the approval of all the limited partners .
14
As a consequence of its partial summary judgments, the trial court denied
Appellant's discovery motions regarding the full communications between the
partnership, general partners and their counsel in regards to the discussion,
planning and implementation of the restructuring of the partnership into the LLC .
Neither did the Court of Appeals consider the issue, having regarded it as moot,
given its affirmance of the trial court's summary judgment rulings .
Although the trial court in its opinion gave no reason for denying the
production, the arguments and record suggest the basis was attorney-client
privilege . This "privilege is generally considered to be absolute as to
communications made by or to a person advising with an attorney as to past
transactions and offenses ." Steelvest, 807 S.W.2d at 487 . "However, the rule
does not apply to future transactions when the person seeking the advice is
contemplating . . . the perpetration of a fraud."
Id . "We would presume to place
the breach of fiduciary relationship on an equal par with fraud and deceit." Id .
"Accordingly, we determine, as a matter of law, that a breach of a fiduciary duty
is equivalent to fraud." Id .
Thus upon remand, we hold that the attorney-client privilege cannot be
used to prevent discovery of the requested information to the extent the
information requested deals with, assists, or furthers the breach of a fiduciary
duty by the general partners or the Partnership .
IV.
Conclusions
Having concluded as a matter of law that the restructuring of the limited
partnership into a limited liability company without Lach's approval was a breach
of the general partners' fiduciary duty to her, as was the transfer of the
15
partnership's assets to the limited liability company in violation of KRS
362.490(2), and that the attorney-client privilege cannot be used to defeat
discovery of evidence connected with the breach of a partner's fiduciary duty, we
reverse the opinion of the Court of Appeals and remand this matter back to the
Fayette Circuit Court with directions to grant partial summary judgment to the
Appellant Lach, in regards to the general partners' breaches of fiduciary duty to
her as well as the transfer in violation of KRS 342.490, and to make such
additional decisions and findings, and to conduct such other proceedings, as are
necessary and consistent with this opinion .
Lambert, C.J. ; Cunningham and Schroder, JJ., concur . Abramson, J.,
dissents by separate opinion, with Minton, J., joining that dissent . Noble, J ., not
sitting.
COUNSEL FOR APPELLANTS :
Glen S. Bagby
WOODWARD HOBSON & FULTON LLP
200 West Vine Street, Suite 500
P .O. Box 1720
Lexington, KY 40588-1720
J. Robert Lyons, Jr .
WOODWARD HOBSON & FULTON LLP
200 West Vine Street, Suite 500
P .O. Box 1720
Lexington, KY 40588-1720
Elizabeth U . Mendel
WOODWARD HOBSON & FULTON LLP
101 South Fifth Street, 2500
National City Tower
Louisville, KY 40202-3175
COUNSEL FOR APPELEES :
Phillip D. Scott
GREENEBAUM, DOLL & MCDONALD, PLLC
300 West Vine Street, Suite 1100
Lexington, KY 40507-1665
Theodore R. Martin
GREENEBAUM, DOLL & MCDONALD, PLLC
300 West Vine Street, Suite 1100
Lexington, KY 40507-1665
COUNSEL FOR APPELLEE, STEFANIE WISEMAN, EXECUTRIX OF THE
ESTATE OF ISAAC LYNWOOD WISEMAN, DECEASED :
Robert S. Ryan
FOWLER, MEASLE & BELL, PLLC
300 West Vine Street, Suite 600
Lexington, KY 40507-1660
COUNSEL FOR APPELLEE, PENNY M. MILLER, EXECUTRIX OF THE WILL
OF ROBERTS. MILLER, DECEASED
Carroll M . Redford III
MILLER, GRIFFIN & MARKS, PSC
271 West Short Street, Suite 600
Lexington, KY 40507-1292
17
RENDERED: MARCH 20, 2008
TO BE PUBLISHED
"$Uyrrutr (~Vurf
of ~Rtufurhv
2005-SC-001014-DG
SHIRLEY MCVAY LACH,
INDIVIDUALLY AND ON BEHALF OF
MAN O' WAR LIMITED
PARTNERSHIP, A KENTUCKY
LIMITED PARTNERSHIP
V.
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NUMBER 2004-CA-001958-MR
FAYETTE CIRCUIT COURT NO. 02-CI-002853
MAN O' WAR, LLC,
FORMERLY MAN OF WAR
MANAGEMENT, LLC (A
KENTUCKY LIMITED LIABILITY
COMPANY), ET AL
APPELLEES
DISSENTING OPINION BY JUSTICE ABRAMSON
I respectfully dissent. The majority correctly concludes that the restructuring at
issue in this case was not prohibited by KRS 275.370, but then proceeds to upend
Kentucky business law by declaring the general partners of a limited partnership
breached a fiduciary duty to a limited partner by engaging in a transaction which was
not only authorized by the partnership agreement but which advanced the interests of
all partners in a manner that has caused the single complaining limited partner, Shirley
Lach, no legal damage. The majority veers off course by stating, blithely, that (1) the
Limited Partnership Agreement cannot mean what it actually says and (2) the transfer
of partnership assets was in violation of KRS 362.490, a position unsupported by the
cited case law from other states and, more importantly, a conclusion wholly at odds with
the undisputed facts of this case. The circuit court and Court of Appeals dealt with this
complex business matter appropriately, reaching the correct legal conclusions . We
should do likewise by affirming.
RELEVANT FACTS
In June, 1981 (not 1986), Shirley Lach and her then-husband, Lynwood
Wiseman, entered into a joint venture known as Richmond Road/Man O' War
Associates (the Joint Venture) with Linda Poole and trustees for various trusts created
for the Miller family. The Joint Venture purchased property at the corner of Richmond
Road and Man O' War Boulevard in Fayette County on which a shopping center was to
be developed . The Joint Venture subsequently leased the property to MOW Place Ltd .
(MOW Place), a Kentucky limited partnership which had as its sole general partner a
limited partnership created in August, 1986, and known as Man O' War Limited
Partnership . This second limited partnership (Limited Partnership) is the focus of this
litigation .
1 . The Limited Partnership
The Limited Partnership had the following stated purpose : "The purpose of the
partnership is to enter into joint ventures and carry on the business of leasing real
property and developing and operating shopping centers ." Certificate of Limited
Partnership, 12. The only general partners were Robert Miller and Lynwood Wiseman
(General Partners) . The limited partners were Harry Miller, Shirley Wiseman (now
Lach) and Linda Poole Maggard . The Certificate of Limited Partnership provided that
the partnership would not terminate upon the death, retirement or insanity of one
General Partner (as provided by Kentucky statute) but rather the remaining General
Partner would continue the business. Certificate of Limited Partnership,
7 13.
The accompanying Limited Partnership Agreement had the following provisions
relevant to the present dispute:
2. (b) Termination
The Limited Partnership shall terminate upon the happening
of any one of the following events: (i) agreement of both
General Partners or [ii] August 1, 2036, whichever occurs
first.
7. Management, Duties and Restrictions . During the
continuance of this partnership, the rights and liabilities of
the General Partners and Limited Partners respectively shall
be as follows:
(a) The General Partners shall manage the Partnership
business in all aspects, which shall include, but shall not
be limited to, the following rights and duties : . . .
9 . To take such other action, execute and deliver such other
documents, and perform such other acts as the General
Partners may deem necessary, appropriate, or incidental to
carrying out the business and affairs of the Partnership .
(b) No Limited Partner shall have either the obligation or the
right to participate in the management of the
Partnership . . . .
In early 1988, after a ten and one-half year marriage, Lach and Lynwood
Wiseman divorced in a proceeding which she herself describes as "hotly contested."
From that point forward, Robert Miller was the liaison or go-between who
communicated with Lach about partnership matters . Correspondence over the next
fourteen years reveals Lach closely monitored Limited Partnership affairs, including
asking that documents be forwarded to her attorney and accountants as early as 1993 .
In September, 2001, Lach asked that the partners' monthly distribution be raised,
suggesting $15,000 to $18,000 per month, and she inquired about a $300,000
"Advance to Wiseman Homes" appearing on the financial reports . The latter inquiry
ultimately led to the discovery in 2002 that Keith Cunningham, Lynwood's nephew who
had been entrusted with management responsibilities in several of Wiseman's
businesses, including the Limited Partnership, had stolen in excess of $250,000 from
the Limited Partnership . Lynwood paid back all of the stolen funds with interest, making
the Limited Partnership whole, and also stepped down as manager of the shopping
center.' A professional management company was retained at that time and continues
to provide day-to-day management of the shopping center .
The year 2002 proved to be a watershed year for the Limited Partnership .
Robert Miller died on August 18, 2002. A previously treated cancer had returned in
March, 2002, and without any prospect of recovery, Miller, anticipating his imminent
death, set about planning for the continuation of the Limited Partnership . As previously
noted, the Certificate of Partnership allowed the Limited Partnership to continue under
the direction of one General Partner but that one remaining partner was Lynwood
Wiseman, an 81 year-old man with his own serious health problems. Also, Robert
Miller knew that the acrimonious relationship between Wiseman and his ex-wife, Lach,
would make conducting partnership affairs difficult and, more importantly, upon
Lynwood's death, in the absence of another general partner, the Limited Partnership
would dissolve as a matter of law. This would cause a domino effect in which MOW
Place would then also dissolve as a matter of law because of the lack of a general
partner (i.e . the Limited Partnership). This series of events could leave the Joint
Venture without a lessee, Miller feared . The worst case scenario included a default on
'Although Lach addresses this issue, there was no evidence of impropriety by the
General Partners and she did not pursue any claims based on this incident .
4
the Limited Partnership loan and serious tax consequences for all partners in the
Limited Partnership .
Robert Miller proposed avoiding this chain of events by substituting his brotherin-law, Jeff Mullens (who had been a limited partner since 1986) and his son, Jonathan
Miller (who had been a limited partner since 1988) as general partners in his stead .
This would result in three general partners, including the elderly Lynwood Wiseman .
Lach was the only partner in the Limited Partnership who objected to this proposal and
she countered with a proposal that her daughter, Sherri McVay (a lawyer who was not a
Limited Partnership partner) be substituted for Mullens . All of the partners, except
Lach, objected to this proposal . Thus 72.972% of the Limited Partnership interests
favored Robert Miller's "succession plan" while 27 .027% (Lach alone) favored Lach's
plan .
After Lach rejected Miller's proposal in early April 2002, a law firm retained by
the Limited Partnership's management proposed a transaction which would avoid
Miller's concerns about the continued viability of the Limited Partnership . The law firm
proposed two scenarios "with the goal of eliminating the ability of any one limited
partner of the Limited Partnership to prevent any action of the Limited Partnership
necessary to ensure it continues to be a going concern by voting against such action ."
All of the partners in the Limited Partnership, except Lach, agreed to a restructuring
which was described by the law firm as follows :
. . . the Limited Partnership would form a limited liability
company ("LLC") and transfer its interest as a general
partner of M.O .W. Place, Ltd ., a Kentucky limited
partnership ("General Partner Interest"), to the LLC in
exchange for an interest as a member of the LLC.
Immediately thereafter, the general partners (Bob Miller and
Lynwood Wiseman) of the Limited Partnership would
terminate the Limited Partnership in accordance with
5
Section 2 (b) of the Limited Partnership Agreement and
liquidate the Limited Partnership .
In the first restructuring scenario, the Limited
Partnership would liquidate by distributing the LLC
membership interest pro rata to each of the partners of the
Limited Partnership . The end result of this transaction would
be a reconstitution of the Limited Partnership as a limited
liability company . The limited partners' veto power would be
eliminated, but the economic interests of the partners would
remain unchanged . Also, there would be no tax
consequences to the partners .
The Operating Agreement of the LLC would appoint
Jonathan Miller, Jeff Mullens and Lynwood Wiseman as the
managers of the LLC and would provide that the managers
may only act on behalf of the LLC in accordance with the
decision of a majority of the managers. The managers
would be able to take any and all action on behalf of the LLC
except that the managers would not be able to (i) merge the
LLC with another entity, (ii) file a bankruptcy petition on
behalf of the LLC, (iii) dissolve the LLC, or (iv) amend the
Operating Agreement or Articles of Organization without the
consent of a majority-in-interest of the members (based
upon their economic interests in the LLC).
Any of the limited partners who refuse to sign the
Operating Agreement would be treated as transferees of an
interest in the LLC and would not be admitted as members
of the LLC . As mere transferees, they would not have any
voting rights with respect to the LLC, although they would
have economic rights and be entitled to distributions from
the LLC . The only way for a limited partner receiving an
interest as a member of the LLC to receive voting rights with
respect to the LLC would be to agree in writing to be bound
by the provisions of the Operating Agreement.
This restructuring was accomplished with the creation of Man O' War Management LLC
(the Limited Liability Company) on May 16, 2002. Lach received the same ownership
percentage in the Limited Liability Company that she held in the Limited Partnership .
However, because she refused to sign the Assignment tendered to her, she has no
voting rights, simply economic rights including distributions . The Limited Partnership
remained in existence until May 31, 2002, when it was dissolved by the General
Partners as provided for in paragraph 2 (b) of the Limited Partnership Agreement.
If . Circuit Court Action
Lach brought suit alleging that the restructuring violated Kentucky law and that
the General Partners had breached their fiduciary duties to her as a limited partner .
She did not ask for a jury trial but sought to have the transaction "undone" and
damages awarded . Both Lach and the defendants eventually moved for summary
judgment. In oral findings of fact and conclusions of law, the trial court first addressed a
document production issue . The court held that Lach, a limited partner, was not entitled
to privileged attorney-client communications between the Limited Partnership and the
law firm, analogizing Lach to a shareholder who similarly has no right to privileged
communications . Then, noting that limited partnerships are "creatures of statute," the
trial court found that the acts taken did not result in a conversion of the Limited
Partnership in violation of KRS 275.370 entitled "Conversion of partnership or limited
partnership to limited liability company." He further found no violation of KRS 362.190
because the business of the Limited Partnership was carried on just as it had been
before, benefiting the same people but operating in a "different organizational
structure." Finally, he found no breach of fiduciary duty because the actions (1) were
expressly authorized by the Limited Partnership Agreement and (2) were undertaken for
"sound business reasons ." The trial judge found that Mr. Miller was gravely ill and
"something had to be done." Further, he noted that the defendants had an obligation to
act in the best interest of all partners and not one dissenter. He noted it was
"unfortunate that [the parties] could not agree but they couldn't." The trial judge entered
a judgment granting the defendants' summary judgment motion on Counts I and II of
the Complaint and denying Lach's motion regarding those counts.
III . Court of Appeals
In an unanimous opinion, the Court of Appeals affirmed . The Court found no
conversion within the meaning of KRS 275.370 . Significantly, the Court of Appeals
found no violation of KRS 362 .490 for the following reasons:
KRS 362 .490 provided that a general partner could not
undertake any action that would make it impossible to carry
on the ordinary business of the partnership without the
consent or ratification of all of the partners . We cannot
conclude that the transfer of assets made it impossible for
the partnership to carry on business because the
partnership's interest as the sole general partner of M.O.W.
was not simply funneled into the LLC, but was exchanged
for an interest that made the partnership the sole member of
the LLC. The purpose of the partnership was not limited to
being the sole general partner of M.O.W ., but included the
leasing of real property and the development and operation
of shopping centers . Also, the LLC and the partnership
coexisted for a period of time before the partnership was
terminated . At no time was the partnership without some
form of asset . Therefore, we cannot conclude that the
transfer violated KRS 362.490(2).
The Court summarily rejected Lach's fiduciary duty claims, noting there was no
misrepresentation or concealment; she was never "frozen out" of the entity but had the
same percentage share in the Limited Liability Company as in the Limited Partnership ;
and she received all she was entitled to upon termination of the Limited Partnership .
The Court of Appeals concluded by finding Lach's allegations she had been improperly
denied access to attorney-client communications between the Limited Partnership and
counsel regarding the restructuring were moot as she had no viable legal claims.
ANALYSIS
Proper resolution of this case begins with recognition of what makes a limited
partnership a limited partnership . As a leading Kentucky commentator describes it:
In a limited partnership, a member will be either a
general partner or a limited partner. The status of a general
partner is identical to that of a partner in a general
partnership . However, the status of the limited partner differs
substantially from a general partner in two ways. First, the
limited partner's liability is limited to his contribution to the
limited partnership . The limited partner, in this regard, is
similar to a shareholder of a corporation in that he is
insulated from the obligations and liabilities of the
partnership to the extent they exceed his capital contribution .
Second, in order to maintain the limited liability status, a
limited partner is not allowed to participate in the
management and control of the activities of the partnership .
It is the general partner's responsibility to manage the
business operations of the limited partnership .
Seiffert, Kentucky Practice - Corporations , § 1 :4 (2008).
In Kentucky, the rights accorded a limited partner derive primarily from the
parties' partnership agreement and the Kentucky Revised Statutes . Kentucky also
recognizes . the common law duty of good faith owed by each partner to each and every
other partner . See Axton v. Kentucky Bottlers Supply Co . , 166 S.W. 776, 778 (Ky.
1914) ("it is the duty of each partner to act with the utmost good faith towards his
copartners . . . A person will not be permitted to benefit himself at the expense of the
firm.")
IV. There was no Conversion of the Limited Partnership in Violation of KRS
275.370
Lach first alleges that the restructuring which produced the Limited Liability
Company violated KRS 275 .370 because it was the conversion of a limited partnership
to a limited liability company without consent of all partners, general and limited. Every
court, including this one, has rightly rejected her argument. KRS 275 .370 (1) provides
that a limited partnership "may - be converted to a limited liability company pursuant to
this section ." The language is clearly permissive, denoting a legislative intent that
limited partnerships have an option of proceeding under the statute but are not limited
to restructuring as a limited liability company only pursuant to the statute.
Moreover, as the majority acknowledges, KRS 275.370 envisions a
transformation of a single entity. Once all of the statutory steps are complied with and
articles of organization are filed with the Secretary of State the registration of the limited
partnership "shall be deemed cancelled . . ." KRS 275.370(3)(e) . Like the old phrase
"the King is dead, long live the King", the statute provides for an uninterrupted
succession - "the limited partnership is dead, long live the limited liability company ." An
uninterrupted succession or seamless transformation is not what happened in this case.
As the trial court, the Court of Appeals and the majority recognizes, the Limited Liability
Company was formed and existed concurrently with the Limited Partnership . Notably,
the Limited Partnership was not created just to manage the Man O' War property but as
quoted above to "enter into joint ventures and carry on the business of leasing real
property and developing and operating shopping centers ." Thus, the transfer of the
Limited Partnership's general partnership interest in MOW Place to the Limited Liability
Company did not deprive,the Limited Partnership of all of its lawful purpose. It could
have continued to exist as a vehicle for leasing other real property or developing and
operating other shopping centers, albeit an unlikely scenario given the status of
relations between Lach and the other parties . Regardless, the permissive language of
KRS 275.370 and the inescapable fact that the Limited Partnership and Limited Liability
Company legally existed simultaneously preclude any argument that the Limited
Partnership was improperly converted to a limited liability company . While Robert Miller
may have occasionally used the word "conversion" in discussing the restructuring, he
plainly misspoke because there was no conversion as a matter of law. KRS 275 .370
10
was not violated .
V. KRS 362.490 Was Not Violated by the Restructuring Because the Business of
the Limited Partnership Continued in a Different Form with the Same Participants
In 1986, KRS 362.490 provided in relevant part:
Rights, powers and liabilities of a general partner.
A general partner shall have all the rights and powers and
be subject to all the restrictions and liabilities of a partner in
a partnership without limited partners, except that without
the written consent or ratification of the specific act by all the
limited partners, a general partner or all of the general
partners have no authority to . . .
(2) Do any act which would make it impossible to carry
on the ordinary business of the partnership . . . .
Kentucky's Uniform Limited Partnership Act, adopted in 1970, was amended in 1988
with the passage of the Revised Uniform Limited Partnership Act (and revised again in
2006). Although different statutory provisions are applicable in the 1970 and 1988
versions, the gist is the same, i.e., general partners cannot, without the consent of all
partners, do any act which would make it "impossible to carry on the ordinary business
of the partnership ."
Lach proposes and the majority accepts the proposition that this statute means
feuding partners must remain locked together in a dysfunctional limited partnership
without recourse to other business entities for carrying on their business even if the
general partners are expressly authorized to simply dissolve the limited partnership and
to "take such other action, execute and deliver such other documents, and perform
such other acts as the General Partners may deem necessary, appropriate, or
incidental to carrying on the business and affairs of the Partnership ." Limited
Partnership Agreement, % 7 (a) (9) . This wholly illogical conclusion is premised on
cases which are so distinguishable from this case as to be irrelevant .
In Gundelach v. Gollehon , 598 P.2d 521 (Colo . App .1979), Gundelach was a
limited partner in a limited partnership created for the stated purpose of acquiring,
owning, managing, improving and leasing a particular 112 acre parcel of land in Perry
Park and to engage in business activities related "or incidental thereto ." When the
general partners saw an opportunity to combine their interests from three separate
limited partnerships to obtain a more appealing parcel of property in Perry Park, they
sought approval from the various limited partners for a consolidation of the three
partnerships. Gundelach refused to consent but the transaction proceeded anyway and
the very piece of property which Gundelach had invested in through the purchase of his
limited partnership interest was deeded over to the seller of the allegedly more lucrative
property . In that case, the Colorado Court of Appeals understandably concluded that
the general partners had undertaken an act which made it impossible to carry on the
ordinary business of the partnership . As noted, the ordinary business of that particular
partnership was the purchase, development and lease of the specific 112 acre parcel
which the General Partners sold off to a third party. Here, Lach's interest was in a
limited partnership whose purpose was not limited to operation of a particular property
but, more importantly, the Man O' War property which had been the focus of the
partnership, remained with the Limited Liability Company and provided Lach with
income in the exact percentage of ownership as she had held in the Limited
Partnership . Clearly, Gunderlach is factually distinguishable . As the Court of Appeals
found, in this case the same business was being conducted before and after the
restructuring, just through a different legal entity.
12
Newburger, Loeb & Co., Inc. v. Gross, 563 F. 2d 1057 (2 n, Cir. 1977) is
exceedingly more complex but just as distinguishable . While the case started as a
securities churning case, antitrust and partnership fiduciary duty counterclaims were
added, some of which were subject to the ancillary jurisdiction of the federal district
court. Two limited partners in the Newburger, Loeb partnership alleged that two
recently admitted general partners, two outside consultants, in-house and outside legal
counsel and others conspired to transform the partnership into a corporation and to
gain control of its assets for a small investment. 563 F.2d at 1062 . When the limited
partners refused to agree to the transfer of partnership assets to the corporation, the
defendants allegedly threatened two separate lawsuits, one for securities churning and
one for fraudulently inducing the recently admitted general partners to invest in
Newburger, Loeb. The limited partners alleged other coercive tactics were also
employed . The district court found the transfer of the partnership assets was a violation
of New York Partnership law prohibiting acts that would make it "impossible to carry on
the ordinary business of the partnership ." In the trial judge's words, the defendants
were part of a plot to "take over the new operation on a shoestring and directly enrich
themselves ." 563 F .2d at 1067. Against this backdrop the Second Circuit stated :
. . . . However, there is simply no language in the
Partnership agreement that can be construed as granting
the general partners the right to conduct the February 11
transfer ; indeed, this is the precise conclusion reached by
the Rosenman, Colin memorandum of January 25, 1971
discussed supra. The February 11 transfer did not merely
terminate the Partnership (which, in fact, is what Gross,
Bleich and Donoghue sought by liquidation), it transferred all
of the Partnership assets, including the capital interests of
Bleich and Donoghue, to an entirely new entity, with new
management and different rights between the parties . This
drastic change in the rights and relations of the parties went
far beyond any powers granted the general partners to
terminate or manage the business . . . .
13
Id . at 1075 . Without question, Newburger Loeb is distinguishable . Not only were
threats and coercive tactics used, but most importantly the partnership agreement did
not grant the general partners the authority to engage in the challenged transaction and
the result was a "drastic change in the rights and relations of the parties . . . ."
Interestingly, the Newburger, Loeb court cited in contrast Mist Properties, Inc. v.
Fitzsimmons Realty Co. , 228 N.Y.S .2d 406 (Sup. Ct. 1962), a case in which a transfer
of partnership assets was held not to violate the same New York Partnership law
because the partnership agreement allowed the general partners to terminate the
partnership at any time and delegated to them the authority to manage the business .
Again, the Newburger, Loeb court emphasized that there was no language in the
Newburger, Loeb partnership agreement which authorized the machinations of the
defendants and there was no credible argument that "the transfer was `necessary' to
enable the Partnership to carry on its business . . . ." 563 F.2d at 1075 .
In this case, as in Mist Properties, the parties' limited partnership agreement
allowed for the actions taken by the general partners . They had the authority to
undertake actions "necessary, appropriate, or incidental to carrying out the business
and affairs of the [Limited] Partnership" and the authority to dissolve the Limited
Partnership . There was no act that made it "impossible" to carry on the business of the
Limited Partnership . Indeed, it is still being carried on through the Limited Liability
Company for Lach's benefit and all the other partners' benefit in the same proportionate
interests as existed in the Limited Partnership . The same business is simply being
carried on in another legally authorized (and most would acknowledge significantly
superior) legal form. There is no credible basis for finding that KRS 362 .490 was
14
violated .
VI . There Was No Breach of Fiduciary Duty.
After discussing Gundelach , Newburger, Loeb, and Mist Properties, the majority
states :
Simply put, we find that the general partner's (sic) rights
under the partnership agreement to (1) terminate the
partnership at any time upon agreement of the general
partners, and (2) to act upon behalf of the Partnership in
matters that are "necessary, appropriate, or incidental to
carry out its business," can be not construed to allow them
the power to transform the partnership into a limited liability
company, in order to favor a majority of the partners in their
selection, or substitution, of the general partners/managers
of the business, without the approval of all the limited
partners .
No authority is cited for this statement because it is simply a pronouncement, one which
does not flow from the aforementioned cases. Having pronounced that the Limited
Partnership Agreement cannot be construed to allow the formation of the Limited
Liability Company, the majority proceeds to find the transfer of the partnership assets to
the Limited Liability Company and the restructuring of the business to be breaches of
fiduciary duties, again without citation to anything other than general fiduciary duty
cases having no comparison to the facts before this Court . See, Axton v. Kentucky
Bottlers, supra, (involving a partner who cancelled partnership contracts and diverted
opportunities to his new competing business) ; Anthony v. Padmar, Inc. , 465 S.E .2d 745
(S .C. App. 1995) (sale of partnership assets to a third party upheld but general partners
liable for failing to receive the majority vote required by the partnership agreement and
for breach of fiduciary duty by "intentionally failing to disclose information,
misrepresenting and manipulating the voting process" and mishandling the sale) ;
15
VanHooser v. Keenon , 271 S .W .2d 270 (Ky. 1954) (five partners who engaged in selfdealing were forced to account to their partners for money obtained on an option which
rightfully belonged to the entire partnership) .
After this the majority throws it all back to the trial judge with directions to
determine a remedy. Typically, a breach of fiduciary duty in the partnership context
results in an accounting (because profits, assets or opportunities have been diverted) or
simply damages (again for the profits lost or losses incurred as a result of the breach .)
Bromberg and Ribstein on Partnership % 16 .07(i) (2005) (collecting cases illustrating
remedies including accounting, damages, refund of partnership contributions,
compelled transfers and the setting aside of "conflict" transactions) . Here, there is no
allegation of monetary damage because the Limited Liability Company is as successful
as the Limited Partnership . The only thing Lach lost in the restructuring, the only thing,
was her personal choice for General Partner, a choice unacceptable to the holders of
72 .972% of the Limited Partnership interests .
The majority apparently thinks it only fair that Lach have had her choice as to
one of the three general partners and thus declares a fiduciary duty was breached.
There is absolutely no legal basis for this conclusion. Were the General Partners
supposed to ignore their own best business judgment and the wishes of all other
partners in the Limited Partnership about the identity of the new General Partners?
Would that not have been a breach of fiduciary duties to the other seven limited
partners who disagreed with Lach and who held 39.5223% as opposed to Lach's
27.0270% of the Limited Partnership? Were the General Partners supposed to ignore
2 Notably, there is no case in the fiduciary duty section of Bromberg and Ribstein on
Partnership comparable to the one before this Court.
16
those limited partners and favor Lach? Apparently so, but why?
In short, the majority finds a breach of fiduciary duty where there is none, and
then sends the case back to the trial judge to fashion a remedy. But first - what are
Lach's legally cognizable damages? Does not getting your choice for General Partner
because all the other partners disagree constitute damage? Assuming in some topsyturvy world this constitutes damage, what is it worth? Surely, there is no purer form of
speculation . The majority's breach of fiduciary duty pronouncement on these facts is
not only legally unsound, it leads to a virtual "Alice in Wonderland" world of remedies .
To the extent the majority would concede that Lach could not force her choice for
General Partner on the other partners but argues that the General Partners had a
fiduciary obligation to continue negotiating the issue with her, what about the
indisputable facts? Time was of the essence. In April, 2002, Robert Miller was dying;
he passed away approximately 90 days after the May, 2002 restructuring following
weeks of hospice care for liver cancer. Without an agreement on the new General
Partner(s) or the restructuring, the elderly Lynwood Wiseman (who himself died during
the pendency of this case) would have been the only surviving General Partner. In
Robert Miller's words from a March, 2002, letter, "[Lach] hates Lynwood passionately ;
their divorce lawsuit lasted for years and years after they were technically divorced ."
Was Robert Miller supposed to relegate the other partners to an easily foreseeable and
similarly protracted fight waged by Lach and Lynwood Wiseman? How long were the
General Partners (particularly Miller) supposed to negotiate before resorting to other
legal means that would protect the greater interest of the Limited Partnership and the
interests of the other partners? It is simply legally unjustified to look at the facts that
existed and "divine" that the General Partners breached their fiduciary duties to Shirley
17
Lach . Indeed, they did exactly what their fiduciary duties demanded of them - they
exhibited the utmost good faith to all the parties and acted in the best interests of the
entire Limited Partnership by undertaking the restructuring, resulting in a profitable
Limited Liability Company.
CONCLUSION
The restructuring did not violate KRS 275 .370 or KRS 362.490 . Moreover, it was
a permissible action undertaken by the General Partners in the interest of all partners
and was not a breach of any fiduciary duties . The Fayette Circuit Court and the Court
of Appeals should be affirmed .
Minton, J ., joins .
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