Thompson v. Coughlin

Filed: February 17, 2000

IN THE SUPREME COURT OF THE STATE OF OREGON

BRUCE THOMPSON,

Respondent on Review,

v.

JEAN COUGHLIN,

Petitioner on Review.

(CC A8911-06395; CA A87937; SC S43847)

On review from the Court of Appeals.*

Argued and submitted January 5, 1998.

Stephen S. Walters, of Stoel Rives LLP, Portland, argued the cause on behalf of petitioner on review. With him on the briefs was Keith M. Garza.

Michael L. Williams, of Williams & Troutwine, P.C., Portland, argued the cause on behalf of respondent on review. On the briefs was Jeffrey S. Merrick.

Before Carson, Chief Justice, and Gillette, Van Hoomissen, and Kulongoski, Justices.**

KULONGOSKI, J.

The decision of the Court of Appeals is reversed. The judgment of the circuit court is reversed, and the case is remanded to the circuit court for further proceedings.

* Appeal from Multnomah County Circuit Court. 144 Or App 348, 927 P2d 146 (1996).

** Fadeley, J., retired January 31, 1998, and did not participate in this decision; Graber, J., resigned March 31, 1998, and did not participate in this decision; Durham, Leeson, and Riggs, JJ., did not participate in the consideration or decision of this case.

KULONGOSKI, J.

This action was brought by one partner of a two-person partnership for breach of their partnership agreement. Plaintiff and defendant, agents for Mutual of New York Insurance Company, formed a partnership in 1984 to sell life insurance. After defendant withdrew from the partnership in 1988, a dispute arose about the sharing of commissions, and plaintiff brought this action in which he sought both an accounting from, and a money judgment against, defendant.

The original partnership agreement provided that the partners would share equally all commissions earned during the life of the partnership. (1) That agreement further provided that, if one partner withdrew, the partners would continue to share equally commissions for insurance sold to designated partnership clients or accounts within the two years following the dissolution of the partnership. (2) In February 1986, the partners negotiated two additional documents addressing the sharing of commissions during the life of the partnership and shortening from three months to thirty days the effective date of termination following notice of withdrawal by either partner. (3) In November 1988, defendant wrote a letter to plaintiff, notifying plaintiff of her withdrawal from the partnership.

In 1988, before the partnership dissolved, and again in 1989, after dissolution, defendant and insurance agents working with her sold two insurance policies to the Macdonald family. The parties disagree about plaintiff's level of involvement in the 1988 sale, but agree that he did not participate in the 1989 transaction. A dispute arose between plaintiff and defendant about sharing the commissions that defendant received on both Macdonald transactions.

In November 1989, plaintiff filed an action in law, entitled "Complaint For Breach Of Contract And Interception Of Commission," alleging that defendant was in breach of the partnership agreement and that plaintiff was entitled to share in the commissions withheld. Defendant's answer raised four affirmative defenses, three of which were equitable defenses: unclean hands, waiver, and estoppel. The case was submitted to nonbinding arbitration. Defendant appealed from the arbitration award and requested a jury trial.

Plaintiff later filed a "First Amended Complaint For An Accounting," alleging in part:

"8. Plaintiff is entitled to such an accounting from defendant, and is entitled to receive from defendant plaintiff's equal share in any such profits. Plaintiff is without knowledge as to * * * how much money is due to him from defendant.

"* * * * *

"10. Defendant is in breach of the partnership agreement already in that:

"* * * * *

"(C) Defendant has failed to pay to plaintiff his fifty percent (50%) of her profits to date, as well as prejudgment interest thereon at the legal rate of nine percent (9%) per annum on the monies owed from the date defendant received them to the date of the judgment in this case; and

"(D) Defendant has also refused, in anticipatory breach of her obligation, to pay one-half of future renewal commissions on the same sales, for the next several years. Therefore, plaintiff is entitled to a sum of money in the form of a judgment against defendant representing the present value of his one-half of those future renewal commissions."

In her answer, defendant again raised the equitable defenses of unclean hands, waiver, and estoppel, and demanded a jury trial. On plaintiff's motion to strike defendant's jury demand, the trial court decided, based on the pleadings, that the action was in equity and that neither party was entitled to a jury trial.

The trial commenced in equity. The trial court held that the 1986 agreements collectively replaced the original 1984 partnership agreement in its entirety and that plaintiff had no right to an accounting or to recover commissions or profits from defendant. Accordingly, the trial court entered judgment for defendant. On plaintiff's appeal, the Court of Appeals reversed and remanded, holding, among other things, that the 1986 agreements supplemented, rather than replaced, the original 1984 partnership agreement. Thompson v. Coughlin, 124 Or App 398, 402, 862 P2d 582 (1993).

On remand, the trial court, again treating the matter as one in equity, refused to render an accounting on the ground that plaintiff had unclean hands and, consequently, was not entitled to equitable relief. Plaintiff appealed, and the Court of Appeals, on de novo review, reversed and remanded with instructions to render an accounting. Thompson v. Coughlin, 144 Or App 348, 357, 927 P2d 146 (1996). We allowed defendant's petition for review. On de novo review, we reverse the decision of the Court of Appeals. (4)

From the record, it appears that, when this action originally was filed, the parties viewed the action as one in law. Plaintiff filed his complaint as an action in law for breach of contract. After defendant answered by asserting three equitable defenses, plaintiff moved to strike on the ground that the action was in law and, therefore, equitable defenses did not apply. Defendant then made a jury demand. The trial court ruled, however, that defendant was not entitled to a jury trial, and the action was litigated as one in equity. On appeal, defendant continued to argue that the trial court erred in denying her jury demand. However, in the first decision by the Court of Appeals in this case, Thompson, 124 Or App at 401-02, the Court of Appeals rejected defendant's argument that she was entitled to a jury trial. Both parties and the trial court then proceeded under that determination as the law of the case. At oral argument in this court, however, the parties reiterated their original positions: Plaintiff argued that the action was one in law, and defendant argued that she was entitled to a jury trial. (5)

We originally allowed review of this case to decide whether the Court of Appeals' "comparative approach" to analysis and application of the equitable defense of unclean hands was correct. As is evident from the foregoing, however, it is unclear from a procedural standpoint whether plaintiff's action is one in law or equity. Consequently, as a threshold issue, we first must determine whether plaintiff's action is legal or equitable in nature. See Community Bank v. Jones, 278 Or 647, 650, 566 P2d 470 (1977) (even though issue was not cross-appealed, "in determining the proper scope of our review, we must, as a preliminary matter, determine whether this lawsuit is one at law or in equity."). We begin by examining the source of plaintiff's action for an accounting.

Plaintiff and defendant agreed in their 1984 partnership agreement to be bound by the Uniform Partnership Act (UPA), codified as ORS chapter 68. (6) The 1986 modifying agreements made no mention of chapter 68. A simultaneous reading of the three instruments, which we do in conformance with the Court of Appeals' holding that the 1986 agreements supplemented, rather than replaced, the 1984 agreement, leaves intact the provisions of the 1984 agreement relating to chapter 68.

ORS 68.650, the section of chapter 68 applicable to post-dissolution actions for an accounting, provides, in part:

"The right to an account of the interest of the partner shall accrue to any partner * * * as against the winding up partners or the surviving partners or the person * * * continuing the business, at the date of dissolution, in the absence of any agreement to the contrary."