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Shawn Knudson, Individually, and As A Partner of Tri-K Farms v. Randy Kyllo

July 26, 2012

SHAWN KNUDSON, INDIVIDUALLY, AND AS A PARTNER OF TRI-K FARMS, PLAINTIFF, APPELLANT AND CROSS-APPELLEE
v.
RANDY KYLLO, INDIVIDUALLY, AND AS A PARTNER OF TRI-K FARMS,
DEFENDANT, APPELLEE CROSS-APPELLANT



Appeal from the District Court of Traill County, East Central Judicial District, the Honorable Steven L. Marquart, Judge.

The opinion of the court was delivered by: Kapsner, Justice.

N.D. Supreme Court Knudson v. Kyllo, 2012 ND 155

This opinion is subject to petition for rehearing. [Go to Documents]

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AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Opinion of the Court by Kapsner, Justice.

[¶1] Shawn Knudson, individually and as a partner of Tri-K Farms, appeals and Randy Kyllo, individually and as a partner of Tri-K Farms, cross-appeals from a judgment ordering Knudson to pay Kyllo $24,703.97 after a bench trial in an action involving the operation and dissolution of their farming partnership, Tri-K Farms. We conclude the district court's findings of fact for the dissolution of the partnership are not clearly erroneous, but the court failed to make appropriate findings on Kyllo's claim for usurpation of a partnership opportunity. We affirm in part, reverse in part, and remand for further proceedings.

I

[¶2] Kyllo began farming with his stepfather, Michael Knudson, near Clifford in the late 1970s. Shawn Knudson, Michael Knudson's son and Kyllo's half brother, began farming with them in the 1980s. In 1992, Michael Knudson stopped farming, and in 1994, Kyllo and Shawn Knudson formed a general partnership, Tri-K Farms, to conduct their farming operation. Knudson and Kyllo did not execute a written partnership agreement, and they operated Tri-K Farms as an equal partnership, with each partner making equal contributions of land, equipment, and labor and splitting income and expenses equally. According to Knudson, they each set up a separate line of credit at a bank in Mayville to contribute their share of operating expenses and to purchase equipment for Tri-K Farms, but Knudson handled Tri-K Farms' financial affairs, including Farm Service Agency programs, cash rent leases, and the partnership's financial records. Knudson owned four quarters of land and Kyllo owned three quarters of land, including the homestead and a bin site. By the mid 1990s, they were farming about 4,000 acres of land they owned or leased. One of the parcels of land Tri-K Farms leased was the "Fougner" land, which Knudson separately purchased by contract for deed in May 2005, in part, with partnership funds.

[¶3] By 2004, Kyllo and Knudson had made improvements to the bin site on Kyllo's land. The bin site initially included several bins, and during the partnership, Tri-K Farms built additional bins on the site. On August 2, 2004, Knudson and Kyllo executed a land and equipment lease for the bin site, which stated they equally owned the bins and equipment, including grain drying and handling systems. The lease ran from July 1, 2000, through January 1, 2075, and required Knudson and Kyllo to share insurance expenses for the premises. The lease said Kyllo owned the premises and Kyllo and Knudson jointly owned the equipment in conjunction with their farming operation. The lease also provided that Kyllo and Knudson had access to the premises with a right of ingress and egress.

[¶4] According to Knudson, Kyllo had indicated he wanted to quit farming, and in March 2006, they met with an attorney about dissolving the partnership. An attorney prepared a written partnership dissolution agreement to dissolve the partnership and distribute the partnership assets, but neither Knudson nor Kyllo signed the agreement. The unsigned written dissolution agreement dissolved the partnership effective March 31, 2006; referred to attached exhibits A and B for distribution of listed partnership assets and liabilities and partnership machinery and equipment; authorized Kyllo to farm 1,800 acres of land during the 2006 farming season and required Kyllo to pay Knudson $92,235 for custom farming the 1,800 acres allocated to Kyllo during that season; allocated the parties' rights to farmland leased by Tri-K Farms for farming seasons after 2006; allowed Kyllo to dry his crop at the bin site; required Knudson to reimburse Kyllo for half the fuel purchased by the partnership for the 2006 farming season; and authorized Knudson to rent a shop on Kyllo's land and to pay liability insurance for the farming operation. The written agreement did not include attached exhibits A and B, which purported to describe partnership assets, liabilities, machinery, and equipment. The document also said transfer of the land for the bin site and payment of taxes for the transfer of machinery and equipment was not presently agreed upon.

[¶5] According to Knudson, he farmed under the terms of the unsigned written partnership dissolution agreement during the 2006 farming season, and he had no contact with Kyllo until an August 31, 2006, email. Kyllo claimed that during that time he discovered Knudson had separately purchased the Fougner land and Kyllo did not agree to the written partnership dissolution agreement. In November 2006, Knudson executed a farm lease for the "Kievman" land. According to Kyllo, when he learned about the lease, he gave Knudson a check for half the rent for the Kievman land and Knudson cashed the check. Knudson claimed he was denied access to the bin site when Kyllo placed a truck at the entrance to the site. According to Kyllo, however, a truck was placed across a road at the bin site for one day to prevent Knudson from removing equipment from the site and not to prevent Knudson from using the site.

[¶6] In 2008, Knudson sued Kyllo, alleging Kyllo breached the unsigned written partnership dissolution agreement and asserting other claims against Kyllo for the operation of the partnership and for an accounting and dissolution of the partnership. Knudson claimed the parties agreed to dissolve the partnership on March 31, 2006, but did not sign the written dissolution agreement, and under the unsigned agreement, Knudson was entitled to $92,235 for custom farming Kyllo's allotted 1,800 acres during the 2006 farming season. Knudson also sought one-half of the partnership equity in equipment; compensation for expending more than an equal share of labor, machinery, and equipment for the partnership; compensation for Kyllo's breach of the land and equipment lease for the bin site; and an accounting and formal dissolution of the partnership. Kyllo answered, seeking an accounting and dissolution of the partnership. He also counterclaimed for damages for usurpation of a partnership opportunity relating to Knudson's purchase of the Fougner land during the partnership.

[¶7] The district court granted summary judgment dismissal of Knudson's claim for breach of the land and equipment lease for the bin site, concluding the 75-year lease was for agricultural land and was void under N.D.C.C. § 47-16-02. The court thereafter granted Knudson's motion to amend his complaint to assert a claim for unjust enrichment regarding improvements made to the bin site during the partnership. After a bench trial, the court resolved the parties' claims regarding the partnership operation, provided an ...


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