Appeal from the District Court of Stustman County, Southeast Judicial District, the Honorable John E. Greenwood, Judge.
The opinion of the court was delivered by: Crothers, Justice.
N.D. Supreme CourtCarlson v. Carlson, 2011 ND 168
This opinion is subject to petition for rehearing. [Goto Documents]
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AFFIRMED IN PART, VACATED IN PART, AND REVERSED AND REMANDED IN PART.
Opinion of the Court by Crothers, Justice. Kip M. Kaler (argued), P.O. Box 423, Fargo, N.D. 58107-0423, for plaintiff, appellant and cross-appellee. Kenneth L. Dalsted (on brief), P.O. Box 1727, Jamestown, N.D. 58402-1727, for defendant and appellee Marlys Jane Carlson. Monte Lane Rogneby (argued) and Mandy R. Maxon (appeared), P.O. Box 2097, Bismarck, N.D. 58502-2097, for defendant, appellee and cross-appellant Mylee Redlin.
Carlson v. CarlsonNos. 20100318 & 20100319
[¶1] Gerald Carlson appeals, and Gary Carlson cross-appeals, from a district court judgment dissolving their farming and ranching partnership and settling their capital accounts in the partnership. We affirm in part, vacate in part, and reverse and remand in part, concluding: (1) the district court's finding the partners agreed there would be no accounting for unequal contributions of proceeds from the sale of individually owned land to pay partnership debt was not clearly erroneous; (2) the district court's findings Gerald Carlson was not entitled to reimbursement for amounts charged to his personal credit cards were inconsistent and did not enable this Court to understand the rationale for the result reached; (3) the district court erred in determining Gary Carlson's transfer of an interest in land to his wife violated the Uniform Fraudulent Transfer Act; and (4) the district court erred in concluding Gerald Carlson was not liable for breach of fiduciary duty for failing to pay Gary Carlson's life insurance premiums.
[¶2] The Carlsons are brothers who participated in a farming and ranching partnership in Stutsman County from 1971 to 2007. All land used in the partnership business was titled individually in the partner's name. Each partner also built a home on his respective property. Although titled in the partners' names, all costs and expenses for the individually held real estate, including mortgage payments, insurance and taxes, were paid by the partnership. The amount of property owned by the partners and the payments made on behalf of the property by the partnership were not equal. The district court found that "[f]rom the beginning the overriding purpose of the partnership was to pay the real estate mortgage payments of the individual partners to the end that the partners would own their land and homes individually without bank mortgages."
[¶3] In addition to the payment of costs related to the land, until 2003 the partnership paid the personal and household expenses of the partners and their families, including personal travel, household furnishings, medical bills, chiropractic bills, clothing and the partners' children's college tuition and expenses. The partners maintained credit cards in their individual names, routinely using the credit cards to pay for both partnership and personal expenses, and the partnership paid the credit card billings. The district court found that "both partners were agreeable that the partnership would pay for whatever the partners' families needed." When the partnership experienced financial difficulties in 2003, the partnership limited payment of the partners' personal expenses to mortgage payments, real estate taxes, utilities, life insurance premiums, vehicle payments, and property and vehicle insurance premiums.
[¶4] In the 1990s, the partners found it necessary to sell some of their individually owned real estate to pay down the partnership's outstanding debt. Gerald Carlson sold three parcels of land and Gary Carlson sold one, with most of the proceeds applied to the partnership debt. Gerald Carlson claims that the value of the proceeds from his land applied to the partnership debt was greater than that of his brother's.
[¶5] In 2003 the partnership's lender required that in order for the partnership to secure an operating loan, both partners would have to convey certain land to the lender, with the deeds to be held in escrow until the partnership debts were paid. Gerald Carlson conveyed 300 acres to the lender, but his 90-acre homestead was not included; Gary Carlson conveyed 600 acres, including his homestead, to the lender. When the partnership debt was not repaid, the lender recorded the deeds in 2004. Gary Carlson's wife, Marlys Carlson, used her retirement funds to repurchase 530 acres of his land from the lender, and the lender issued a quit claim deed to Gary and Marlys Carlson. Claiming the deed was in error and it was their intent that Marlys Carlson would receive the property in her name only, Gary Carlson subsequently conveyed his interest in the property to her.
[¶6] In 2002, the partners took out four insurance policies on the lives of Gerald Carlson and Gary Carlson, one business policy and one personal policy on each, with policy premiums paid by the partnership. The partners allowed the business policies to lapse in 2004, but continued the personal policies. In 2005, while Gerald Carlson was acting as managing partner and handling payment of the partnership's bills, he stopped making payments on Gary Carlson's policy but continued making payments from partnership funds on his own policy. Gary Carlson's policy lapsed and was terminated for nonpayment of premiums in 2005.
[¶7] In 2007 Gerald Carlson sued Gary Carlson and the partnership, seeking dissolution of the partnership and a determination of the amount of each partner's capital account. Gerald Carlson claimed the partners' capital accounts should be credited with the value of the land each sold to pay partnership debts. He also claimed he was entitled to credit for amounts he paid on his personal credit cards that should have been paid by the partnership. He also brought a separate action against Gary and Marlys Carlson, alleging Gary Carlson's transfer of his interest in the real estate to Marlys Carlson was a fraudulent transfer violating N.D.C.C. ch. 13-02.1. Gary and Marlys Carlson counterclaimed, seeking an accounting and alleging Gerald Carlson breached his fiduciary duty by failing to pay Gary Carlson's life insurance premiums. The cases were consolidated for trial.
[¶8] The district court found the partners had agreed to make unequal contributions to, and to receive unequal benefits from, the partnership, without an accounting for the unequal contributions and benefits:
"[I]t was the explicit or implicit agreement of the partners throughout the existence of this partnership that the contributions that each partner made in the form of expertise, labor, or contributions from the income or product from their respective real estate holdings would not be equal. Similarly, it was also the agreement that the partnership pay expenses on behalf of the partners and their families without any regard as to whether the expenses were clearly personal or whether the expenses related in any ...