Gerald E. Jacobs, et al., Respondents, vs. Crow Wing County, Relator, Commissioner of Veterans Affairs, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (1998).

C0-99-416

Hedged Investment Partners, L.P.,

Appellant,

vs.

Norwest Bank Minnesota, N.A.,

defendant and third-party plaintiff,

Respondent,

vs.

Blue Rock Advisors, Inc.,

third-party defendant,

Appellant.

Affirmed

Schumacher, Judge

Hennepin County District Court

File No. 966880

David R. Marshall, Steven J. Quam, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, MN 55402 (for appellants)

William Z. Pentelovitch, Wayne S. Moskowitz, Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402 (for respondent)

Considered and decided by Randall, Presiding Judge, Kalitowski, Judge, and Schumacher, Judge.

Appellants Hedged Investment Partners, L.P. and Blue Rock Advisors, Inc. challenge adverse summary judgment, contending the district court erred in its conclusions concerning a partner's authority to direct transfers, waiver of an agency agreement, and several contract defenses. We affirm.

Hedged Investment was a Minnesota limited partnership formed to make investments in minimum amounts of $100,000 on behalf of third parties. Hedged Investment had two general partners, Blue Rock, a Minnesota corporation, and P. Michael Trautner. Blue Rock served as Hedged Investment's managing general partner. Trautner served as Hedged Investment's consulting general partner and was also president and director of Blue Rock. Robert Fullerton also served as an officer and director of Blue Rock.

In September 1993, Hedged Investment and respondent Norwest Bank Minnesota, N.A. executed an agency agreement in which Norwest agreed to perform certain wire transfer and trustee services. The agreement imposed obligations on both Hedged Investment and Norwest. Hedged Investment's managing general partner, Blue Rock, agreed to (1) provide Norwest with lists of partners and investment advisors, (2) provide certain documentation when adding investment advisors, (3) execute all money transfers for Hedged Investment through Norwest, and (4) use form B to the agency agreement to direct all transfers. Among other things, Norwest agreed to retain on file (1) a copy of the limited partners' signatures for use in verifying partner communications, (2) a letter agreement from each investment advisor, and (3) copies of private placement memoranda or managed account agreements between Hedged Investment and its investment advisors.

Neither party fully performed its obligations. Hedged Investment failed to provide Norwest with a list of Hedged Investment's current limited partners, the signatures of Hedged Investment's limited partners, or a list of Hedged Investment's current investment advisors. As Hedged Investment added investment advisors, Hedged Investment did not provide Norwest with copies of placement memoranda, investment advisory agreements, and other required documents. Norwest also failed to meet its obligations. The employees who routinely transferred funds were not aware of the required procedures or any other terms of the agreement. Upon receipt of a form B direction to transfer funds, the employees looked to see if Trautner or Fullerton had signed it, determined whether Hedged Investment's account had sufficient funds, and made the transfer.

While the agreement was in force, Norwest made 26 transfers totaling more than $5 million to bank accounts of seven entities, none of which followed the requirements of the agreement. This litigation is limited to 19 wire transfers directed by Trauntner totaling $449,000 to Truck Alignment Corporation of America. After discovering the Truck Alignment transfers, Fullerton demanded and received Trautner's resignation from Hedged Investment and Blue Rock. After Truck Alignment defaulted, Hedged Investment sued Norwest for breach of contract and breach of its contractual fiduciary duty. Hedged Investment alleged that Norwest was liable for the default due to its failure to follow the agency agreement's wire transfer procedures. Norwest denied liability and brought a third-party complaint against Blue Rock.

On cross-motions for summary judgment, the district court granted summary judgment for Hedged Investment and Blue Rock. On appeal, this court reversed and remanded for further consideration, noting the district court had failed to determine whether Hedged Investment, Blue Rock, or Trautner authorized the transfers at issue under the law of agency. Hedged Inv. Partners, L.P. v. Norwest Bank Minn., N.A., 578 N.W.2d 765, 775 (Minn. App. 1998). This court also noted the district court had not determined whether Hedged Investment had in fact waived the agency agreement and suggested that waiver analysis would allow "a more efficient determination of this issue on remand." Id. at 771. Finally, this court remanded for consideration of indemnity, circuity of obligation, and impediment to contract. Id. at 772.

On remand the district court concluded: (1) Trautner was an agent of the partnership with authority to act for the partnership in making the Truck Alignment transfers; (2) by continuing to direct Norwest to make the wire transfers, and by accepting Norwest's further performance without objection, Hedged Investment waived any claim of breach of the agency agreement; (3) Norwest should be indemnified for damages resulting from Blue Rock's share of liability; (4) a circuity of obligation defeats Hedged Investment's claims as a matter of law; and (5) Norwest has a valid defense of impediment to contract against Hedged Investment's claims.

On appeal from summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990); see Minn. R. Civ. P. 56.03 (setting forth standard for summary judgment). This court must view the evidence "in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted). On appeal from a grant of summary judgment, this court reviews questions of law de novo. Christensen v. Eggen, 577 N.W.2d 221, 224 (Minn. 1998).

1. On the prior appeal, this court noted that the district court had incorrectly analyzed the transfers to determine whether they were "verified" under Minn. Stat. § 336.4A-202(b) (1998) rather than whether they were "authorized" under Minn. Stat. § 336.4A-202(a) (1998). Hedged Inv. Partners, L.P., 578 N.W.2d at 772-74.

A payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency.

Minn. Stat. § 336.4A-202(a). Hedged Investment and Blue Rock assert that the district court erred in concluding that Hedged Investment is bound by Trautner's actions under Minn. Stat. § 323.08 (1998), which provides in part:

Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom that partner is dealing has knowledge of the fact that that partner has no such authority.

(Repealed 1997 effective Jan. 1, 2002.)

As a partner in Hedged Investment, Trautner was an agent of the partnership under section 323.08. The district court determined Norwest did not have knowledge of any facts to show Trautner did not have authority to act for the partnership in making the Truck Alignment transfers. Consequently, so long as Trauntner was "apparently carrying on in the usual way the business of the partnership," Hedged Investment was bound by Trautner's acts. Minn. Stat § 323.08.

The phrase "not apparently carrying on partnership business in the usual way" invokes a significant departure from the usual business of a partnership. See Winter v. Liles, 354 N.W.2d 70, 73 (Minn. App. 1984) (transfer of golf course by partner in partnership whose business operation of golf course was not carrying on partnership business in usual way). In this case, Trautner directed the Truck Alignment transfers by using form B in the same way all of the other transfers were directed. Contrary to the assertion by Hedged Investment and Blue Rock, a general partner of an investment partnership directing investments is apparently carrying on partnership business in the usual way.

2. Hedged Investment and Blue Rock argue the district court erred in concluding that Hedged Investment waived its right to require Norwest to comply with the agency agreement because the district court's conclusion is inconsistent with a finding of fact. The inconsistent finding of fact was due to the district court's restatement and incorporation of its earlier pre-remand findings. A post-remand finding clearly supplants the older finding and is consistent with the district court's conclusion on remand.

Hedged Investment and Blue Rock further suggest the district court's waiver conclusion is wrong as a matter of law, asserting it is based on course of conduct in direct contradiction to this court's prior opinion. On the prior appeal, this court noted that waiver and estoppel are often confused but the concepts are not interchangeable. Hedged Inv. Partners, L.P., 578 N.W.2d at 771. "A course-of-conduct waiver is based on the theory of estoppel and requires detrimental reliance." Id. at 771-72 (citations omitted). This court agreed with the district court that detrimental reliance could not have occurred in this case because the Norwest employees making the transfers were not aware of the terms of the agency agreement. Id. at 772.

"Waiver is the intentional relinquishment of a known right and is consensual in nature." Id. at 771 (citation omitted). Although course-of-conduct waiver based on estoppel could not have occurred, Hedged Investment's conduct is nonetheless relevant to whether waiver in fact occurred. "While knowledge may be actual or constructive, intention can be inferred from conduct." Id. Waiver analysis properly involves considering whether Hedged Investment's conduct reveals an intention to relinquish a contractual right. The district court's waiver conclusion does not rely on an estoppel theory of waiver requiring detrimental reliance.

3. Appellant argues the district court erred in concluding Norwest is entitled to indemnity from Blue Rock. A party is entitled to indemnity where it "has incurred liability by action at the direction, and in the interest of, and in reliance upon the one sought to be charged." Tolbert v. Gerber Indus., Inc., 255 N.W.2d 362, 366 (Minn. 1977) (quotation omitted). Blue Rock, as managing general partner of Hedged Investment, had the full and exclusive power, right and authority to manage Hedged Investment's business, including the execution of all money transfers in Hedged Investment's account. Acting as Blue Rock's president and managing general partner, Trautner directed the Truck Alignment transfers. Because Norwest transferred the funds at Blue Rock's direction and relying on Blue Rock's authority, the district court correctly concluded that Norwest should be indemnified by Blue Rock.

A circuity of obligation exists when the plaintiff is obligated to indemnify the defendant for claims, including the plaintiff's own claims, by virtue of pre-existing indemnity agreements or obligations, and will defeat plaintiff's claims as a matter of law. Hedged Inv. Partners, L.P., 578 N.W.2d 765 at 772. In this case, any recovery would go to Blue Rock because Hedged Investment and Blue Rock have entered into a release agreement with at least 11 of the 13 limited partners. Because Norwest is entitled to indemnification from Blue Rock, there is a circuity of obligation that would defeat Hedged Investment's claim as a matter of law.

4. Hedged Investment and Blue Rock argue that the defense of impediment to contract does not apply in this case. In Minnesota, "every contract includes an implied covenant of good faith and fair dealing requiring that one party not 'unjustifiably hinder' the other party's performance of the contract." In Re Hennepin County 1986 Recycling Bond Litig., 540 N.W.2d 494, 502 (Minn. 1995) (citations omitted). Similarly, a "party to a contract cannot take advantage of the failure of a condition precedent when the party itself has frustrated performance of that condition." Id. Here, Hedged Investment failed to provide Norwest documents, but continued to have Norwest make transfers. For this reason, Norwest has a valid defense of impediment to contract against Hedged Investment's claims.

 Affirmed.