GAMBLE ROBINSON COMPANY v CAROUSEL
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No. 84-43 I N THE SUPREME COURT OF THE STATE O F MONTANA 1 98 4 GAMBLE ROBINSON COMPANY, a Corporation, P l a i n t i f f and R e s p o n d e n t , CAROUSEL P R O P E R T I E S , et al., D e f e n d a n t s and A p p e l l a n t s . APPEAL FROM: D i s t r i c t C o u r t of t h e F i f t h J u d i c i a l D i s t r i c t , I n and f o r t h e C o u n t y of B e a v e r h e a d , T h e H o n o r a b l e F r a n k D a v i s , Judge p r e s i d i n g . COUNSEL OF RECORD: For Appellant: Z a n e I . S u l l i v a n , I l i s s o u l a , Montana ( For Respondent: John Warren; S c h u l z , D a v i s & Warren, D i l l o n , Montana S u b m i t t e d on B r i e f s : Decided: Clerk -- June 2 8 , 1 9 8 4 September 13, 1984 Mr. J u s t i c e L. Court. Gulbrandson d e l i v e r e d C. Fifth Judicial District, the i n t h e D i s t r i c t Court of 'This a c t i o n w a s b r o u g h t t h e Opinion of the in for and B e a v e r h e a d , M o n t a n a , on a n a c c o u n t d u e . summary judgment for Appellants contest $4,414.76 the the County of Respondent r e c e i v e d plus interest lower c o u r t ' s ruling, and and costs. ask this We reverse C o u r t t o g r a n t summary j u d g m e n t i n t h e i r f a v o r . and remand. On J u n e 1978, 20, C a r r o l l M. H a r t , Ray L . Plissoula, Montana, Crosswinds Walter agreed to form Article Enterprises. t h e o w n e r s h i p and o p e r a t i o n of other businesses a ". . . 1.4 of the called Partnership ". the partnership, . . o n e o r more r e s t a u r a n t s a n d related thereto, and such other In addition, the i n Article 4.1 of t h e agreement, contemplated t h a t the partnership c o n t r a c t of time full Hart, M. partnership business a s the p a r t n e r s s h a l l determine." partners, Alan I n g a l l s a n d H a r r y M. O p s a h l , a l l o f Agreement set o u t t h e p u r p o s e o f any Deines, W. intends to enter employment w i t h H a r r y M. operation and a separate Opsahl regarding of management i n i t i a l restaurant venture." into partnershj.pls the the U n t i l t h e n t h e Agreement g a v e H a r r y O p s a h l t h e s p e c i f i c a u t h o r i t y t o manage t h e r e s t a u r a n t as a partner include, borrow and but not monies . . . business employee, be for limited "which to operating [and] said authority t h e powers expenses ( i i i ) expend of to the . . . shall (ii) partnership sums f o r t h e p a y m e n t o f ordinary business expenses, purchase of inventory, supplies, or other limited consumables all Opsahl's, of to the those . . . partners' " The Agreement authority, specifically otherwise including granted. Harry Crosswinds Enterprises filed a registration of trade name on June 16, 1978. In July of 1978, Crosswinds Enterprises acquired real property in Dillon, Montana on which it intended to begin A Notice of Purchasers Interest in restaurant operations. the name of Crosswinds Enterprises, a partnership, was filed with the Beaverhead County Clerk and Recorder at that time. Little apparently happened until March of 1979. March 1, the partnership five partners agreement. joined The name of changed to Carousel Properties, and in amending On the the partnership was the provision in the Agreement giving Harry Opsahl general managerial powers was deleted. The purposes clause of the partnership was not amended. On March 30, Carousel Properties filed notice with the Secretary of State that it was assigning all of its rights in its old name, Crosswinds Enterprises, to a corporation formed that same day. the partnership were equal All five principals in shareholders in the new corporation, which took as its name Crosswinds Enterprises. The purpose of the corporation was the management" of the Crosswinds Restaurant. "operation and That same day, the partnership also filed a notice of name change. On 1, April Properties) leased Enterprises) the before. June On 1979, to the the real property partnership corporation it had (Carousel (Crosswinds aquired 1, 1979, Harry Opsahl the year into a entered written agreement with the corporation to be general manager of the Crosswinds Restaurant. The restaurant opened for business on June 9 , 1979. Sometime early that June, Ken Marsh, a sales representative for respondent, Gamble Robinson Company, visited the Crosswinds Restaurant to solicit orders for bulk foodstuffs. Between June 11 and June 22, the restaurant ordered $582.15 worth of food from Gamble Robinson Company. The first order was billed to "Crosswinds Restaurant; Dienes, Opsahl, Hart and Hart," and was paid on July 14. All subsequent orders were billed the same way. June or early July, Ken Marsh In late and Harry Opsahl met to discuss the credit arrangement between Crosswinds and Gamble Robinson. The details of this conversation are unclear. Marsh has not testified, and Opsahl's equivocal at best. conversation, restaurant Gamble Robinson alleges that during this Opsahl was recollection is owned represented and to operated by Marsh that the a partnership. Regardless, what apparently came out of this conversation was a credit application that Marsh filed sometime in July with Gamble Robinson Company's branch manager. The application listed the restaurant's owner as a partnership of Dienes, Opsahl, Ingalls, Hart and Hart. It was not signed by Opsahl or any of the purported partners. A line of credit was approved and operations began on that basis. In 1982, managerial and financial difficulties beset the restaurant. Harry Opsahl was fired as manager in April, and by October, Crosswinds was unable to pay its bills. The account with Gamble Robinson went unpaid from August 3 to October 16, when the line of credit was rescinded. Crosswinds then owed Gamble Robinson $4,414.96, the amount at issue in this action. In January of 1982, Crosswinds Enterprises effected a bulk transfer of all of its corporate assets to Snowden Enterprises, Ltd. Snowden was a newly formed corporation with only one shareholder, Iris Hart, the wife of Carrol Hart (one of the partners and shareholders in the other two entities). Gamble Robinson Co. received a notice of bulk transfer, and indicated in a letter dated January 27, 1982 that it would file a claim as a corporate creditor. Following the bulk transfer, Carousel Properties transferred the lease from Crosswinds Enterprises to Snowden. On February 18, 1983, Crosswinds Enterprises filed a petition in United States Bankruptcy Court. Gamble Robinson, an unsecured creditor, received nothing. On action February for the 24, 1983, Gamble unpaid account Robinson against filed this "Crosswinds Enterprises, a partnership consisting of Walter W. Dienes, Alan M. Hart and Ray L. Ingalls, also known as Crosswinds Restaurant." Harry Opsahl was not named in the original complaint, apparently because he had left the partnership at the same Defendant time he moved was to fired dismiss from his post under the as manager. name "Carousel Properties, a partnership formerly known as Crosswinds Enterprises, a partnership consisting of Walter W. Dienes, Harry Opsahl, Allan W. Hart, Carrol M. Hart and Ingalls; also known as Crosswinds Restaurant." Roy L. The motion to dismiss was denied, and it is under that name this action has proceeded. Following a hearing, the Honorable Frank E. Blair, District Judge, authorized a writ of attachment to issue against Carousel Properties. This cause was heard on December 8, 1983, before the Honorable Frank M. Davis, District Judge, on cross-motions for summary judgment. At the hearing, Carousel Properties withdrew its motion and Gamble Robinson's motion was then granted. Judge Davis found this case to be appropriate for summary judgment because there were no genuine issues of material fact that the partnership, Carousel. debt at issue belonged to the This ruling was based upon: (1) the stated general purpose of the partnership; (2) the apparent authority of Opsahl to bind the partnership; (3) Opsahl's alleged representation to Marsh that he was dealing with a partnership; (4) the record title of the real estate was in the partnership name; and the various entities. (5) the deceptive similarity of The court also intimated although it was not strictly necessary for that, its decision, this case was ripe for the application of the doctrine of piercing the corporate veil. Appellant presents the following issues on appeal: (1) Was summary judgment properly granted? (2) Did the District court err in its analysis of the record in determining the facts before the court? (3) Is the doctrine of piercing the corporate veil applicable? Was Summary Judgment Proper? Summary judgment is not a substitute for trial, Baylor v. Jacobson (1976), 170 Mont. 234, 552 P.2d 55. M0nt.R.Civ.P. Rule 56 (c) permits summary judgment to issue only when there is no genuine issue of material fact, and the moving party is entitled to the judgment as a matter Reaves v. Reinhold (Mont. 1980), 615 P.21 1500. of law. 896, 37 St.Rep. In Cereck v. Albertson's, Inc. (1981), 195 Mont. 409, 637 P.2d 509, we stated the test for granting summary judgment : "It is well established that a party moving for summary judgment has the burden of showing a complete absence of any genuine issue as to all facts deemed material in light of the substantive principles that entitle that party to a judgment as a matter of law. [Citations omitted.] All reasonable inferences that may be drawn from the offered proof are to be drawn in favor of the party opposing summary judgment." [Citations omitted.] The moving party's initial burden is two-fold. First, it must show the absence of any genuine issue as to material fact. Second, that party must also show that this set of facts entitles it to the judgment as matter of law. This necessarily implies the articulation of cogent legal grounds to which the facts apply. In addressing the factual test, although the court has no duty to anticipate or speculate as to material facts to the contrary, it must nonetheless draw every inference in favor of the non-moving party. Bouma (1981), 195 Mont. Larry C. Iverson, Inc. v. 351, 639 P.2d 47; State ex re1 Burlington Northern v. District Court (1972), 159 Mont. 295, If the movant has met this burden, it then shifts to the non-moving party to demonstrate a genuine issue of material fact. Mere denial or speculation will not suffice, the non-moving party must show facts sufficient to raise a genuine issue. k; ;rf.q Detert v. Lake County (Mont. 1984), =P.2d 1097, 41 St.Rep. 76; Lewis v. State (Mont. 1984), 675 P.2d The fatal defect below was respondent's meet its initial burden. failure to It did not show an absence of any genuine issue of material fact, and assuming it had, it did not articulate cogent legal grounds could lie. upon which judgment To reach this conclusion, it is necessary to set forth the substantive law governing this matter. Gamble Robinson Co. relied primarily on section 35-10-301(1), MCA, to the effect that: "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 of which he is a member binds the partnership ..." To this Carousel Properties responded that any actions or representations by Harry Opsahl to Ken Marsh were beyond the scope of his authority because of the amendments to the partnership agreement. acting beyond partnership. clause of his March 1979 Because he was authority, Opsahl did not bind the For this point, Carousel relies on the second section 35-10-301(1), MCA: ". . . unless the partner so acting has in fact no authority to act for the partnership in the particular matter and the person with whom he is dealing has knowledge of the fact that he has no such authority." Carousel attempts to impute "knowledge" onto Gamble Robinson by characterizing Opsahl's representations as not within the scope of business as ordinarily conducted and not "for the carrying on of the partnership in the usual way," section 35-10-301(2), MCA. The scope of Harry Opsahl's authority partnership agreement under the is not the correct legal issue. Crosswinds Restaurant was legally being corporate entity, Crosswinds Enterprises. operated by the The only role that the partnership, Carousel, played was that of lessor of the restaurant property. Harry Bpsahl was acting for the corporation as manager-employee. in his role The five principals complied with all of the necessary legalities in assigning the partnership name, incorporating Crosswinds Enterprises, and leasing the property to the corporation. Gamble Robinson was dealing with the corporation, and not the partnership. In that respect it ran afoul of the general rule that persons must be partners to one another before they can be partners to third persons. Machinery Mfg. Co. v. Bruce et. a1. (1918), 54 Mont. 549, 172 P. 330; Martin v. Peyton (1927), 246, N.Y. 77; 59 Am.Jur.2d St. Paul Partnership section 67. 213, 158 N.E. This underscores that the issue in this case is not whether the partnership, Carousel, is itself liable, but rather, whether the five shareholders of the corporation, Crosswinds Enterprises, are liable as partners. In general, "[tlhe effect of a belief by dealing with a governed by estoppel." corporation that it is a a person partnership is the principles applicable to partnerships by Rowley on Partnerships 2d ed. section 57.15 (1960), see also Mulkey v. Anglin (Okla. 1933), 25 P.2d 778. Section 35-10-308, MCA, is the pertinent statutory authority, stating in part: "(1) When a person by words spoken or written or by conduct represents himself or consents to another representing him to anyone as a partner in a existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made who has on the faith of such representation, given credit to the " actual or apparent partnership, (Emphasis added. ) .. . Partnership by estoppel is the exception to the general rule, stated above, that parties must be partners to each other before parties. they can be liable as partners to third The elements are: (1) that the person or entity represents to the third party that he is dealing with a partnership, even though no such partnership exists; and (2) that the third party rely to his detriment. Section 35-10-308, MCA; Krone v. McCann (Mont. 1982), 638 P. 2d 397, 39 St.Rep. 500. This reliance must be reasonable, and under the circumstances, the third party is "under a duty to make reasonable inquiry to ascertain whether he was dealing with an individual or 1979), 517 S.W.2d partnerships. a corporation." 602, 607. Payne v. Lucas (Tex. The same applies to putative Hempstead v. Allen (1953), 126 Mont. 578, 255 This determination is inherently factual. v. Taber (1951), 125 Mont. 225, 234 P.2d Cyclopedia Corporations, section 4019 471. Gustafson 8 Fletcher (1982) points out: "Liability of partners on contracts entered into and obligations incurred after the incorporation must depend upon a number of circumstances, among which are the legality and completeness of the incorporation, and notice thereof on the part of those subsequently dealing with the partners. Ordinarily the partners do not become liable on debts and obligations incurred after they have become incorporated, unless the other parties dealt with them as partners and were justified in so doing because of lack of actual or constructive notice or knowledge of their incorporation or The attempted incorporation liability of a partner or firm for future debts of the corporation, when such debts are incurred by reason of credit having been extended because of the belief induced by the conduct of the partners that they were still interested in or carrying on the business, rests upon a principle akin to that of . . . . . . . . this equitable estoppel, differing only in this respect that no specific intent to mislead need be shown." (Citations omitted. ) The ultimate factual issue in this case is whether the five principals, Dienes, Opsahl, Hart, Hart and Ingalls, under these themselves to Enterprises circumstances, be represented, represented, as partners or in Crosswinds in operating Crosswinds Restaurant, whether Gamble Robinson relied thereupon. allowed and then The particular issue as to Harry Opsahl's representation was whether he acted under the apparent authority to bind the shareholders as partners so as to give rise to reasonable reliance. Although partnership by estoppel was not at issue below, we will look at the facts in the record and uphold the lower court's decision if it is ultimately correct. Shimsky v. Valley Credit Uni 41 St.Rep. 641 P.2d 1984), 676 P.2d 1308, 258; Steadman v. - H a - H m A (1982), 197 Mont. 45, 448; Kirby Co. of Bozeman v. Employment Security Division (1980), 614 R.2d 1040, 37 St.Rep. 1255. We do not affirm because the facts in the record do not provide a sufficient basis for summary judgment. Respondent points partnership liability. out several facts supporting First, and most significant, are the alleged representations by Harry Opsahl to Tom Marsh, to which he testified to in deposition. In response questioning, Opsahl stated: "Q. Do you feel that you would have, at that time, told them that this was a partnership operation? "A. I very well could have told them it was a partnership operation. "Q. Your possible - statement is, then, it is that you advised Gamble to Robinson, when the account was opened that it was a partnership operation. "A. It's possible. "Q. Do you recall supplying information to Ken Marsh about credit for the restaurant business here in Dillon? "A. I would say yes. "Q. Do you recall telling Ken Marsh that the partners in the business were Walter Deines of Missoula, Harry Opsahl, manager, Ray Ingalls of Missoula, Alan Hart of Missoula and Carrol Hart of Missoula? "A. I don't recall that. "Q. Could you have provided him with that information? "A. Yes. "Q. So, basically your position is that you could have and probably did give the information to Gamble Robinson at this time, that it was a partnership operating a restaurant. "A. That's possible. "Q. Probable? "A. Looking at the information that they have, probable. "Q. Why? "A. Why would I give them this I suppose in order to do information? business with them I would have had to give them some information to fill this credit application. Again, they weren't the type of supplier I would go after if they didn't come to me. You treat them more as a courtesy when they come. We did use them, but as a minor supplier. I don't know just when he got this information. Maybe he got it at the time it was a partnership.II (Emphasis added.) And, in another statement at the deposition: "A. You know, there's five of us and we're building and opening restaurants. I guess different entities. I wasn't thinking We had the same purpose." in terms of Although Opsahl's responses provide some support for a conclusion of partnership liability, this is not the type and sufficient weight judgment of evidence to support summary . In any event, appellant contends that these representations were beyond the scope of Opsahl Is authority because of the 1979 amendments to the Partnership Agreement. To the extent that this restriction on Opsahl's authority is used to protect Carousel, this argument is irrelevant, because the issue is the partnership liability of the five shareholders of Crosswinds Enterprises. Gamble Robinson Co. also points out the fact that the record title to the real estate was Enterprises, the partnership. 3 title when the owning support liability by MCA, it reliance. entity that by Crosswinds Although the failure to amend changes itself, see e.g. is evidence held can names does not section 70-20-109, support the element of Gamble Robinson Co. nowhere alleged that it knew about the title at the time credit was given. Nor does the record unequivocally show that it relied upon the alleged partnership in granting that credit. of Crosswinds to correct the Finally, the failure billing document that apparently indicated a partnership does not itself support summary judgment. In Facit-Addo, 1982), 653 P . 2 d Inc. v. Davis Financial Corp (Ariz. 356, the Arizona Supreme Court overturned a ruling of summary judgment in similar circumstances. In Facit-Addo, the appellant, Facit-Addo Co. had been dealing with two principals over the course of several months, and ultimately entered into a franchise agreement with them. Things went sour, and the two alleged that they had previously incorporated and were not personally liable on the contract. incorporation Facit-Addo and alleged asserted no knowledge liability on of the basis the of partnership by estoppel. The Arizona Supreme Court emphasized that partnership by estoppel is a factual issue, and presented did not establish a set of another. The case was remanded. Hermansen (1968), 8 Ariz.App. that the testimony facts one way or See also Kitchell Co. v. 424, 446 P.2d 934, where the Arizona Supreme Court stated: "We agree with the appellant that A.R.S. section 29-216 [which is the same as section 38-10-308, MCA] may estop a person from denying that he was acting as a general partner of a company rather than as an officer of a corporation. When it is contended that such a thing has occurred, the question is whether his actions and conduct were sufficient to lead a creditor to believe that the debtor was acting as an ostensible cooartner, and whether he was assuming responsibility as such. This is an issue of f a c t for the trial court to determine from all of the evidence presented. J. & J. Builders Supply v. Caffin, 248 Cal.App.2d 292, 56Cal.~ptr. 365 (1967)." (Summary judgment reversed.) (Emphasis added. ) L See also Mulkey v. Anglin (Okla. 1933), 25 P.2d 778; Flemmer f 0323 v. Ming (Mont. 1981), 621 P.2d 9334, 37 St.Rep. 1916. We find that summary judgment was improperly granted, and thus do not reach the issue of whether this case is appropriate for the doctrine of piercing of the corporate veil. / Reversed and remanded. /' We concur: %&&pa C gJRd~* Chief Justice
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