Wassenaar v. Simons , 16 F. App'x 274 ( 2001 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
KURT MILLER WASSENAAR, 
Appellant,
v.
LOUIS SIMONS; KENNETH R. LAPE; P.

SCOTT MORRILL; JOHN A. STALFORT;
RIVER ROAD COMMERCIAL No. 00-2394
DEVELOPMENT PARTNERSHIP, LLP,
Appellees,
W. CLARKSON MCDOW, JR., United
States Trustee,
Movant.

LOUIS SIMONS; KENNETH R. LAPE; 
SCOTT MORRILL; JOHN A. STALFORT;
RIVER ROAD COMMERCIAL
DEVELOPMENT PARTNERSHIP, LLP,
Appellants,
v.  No. 00-2501
KURT MILLER WASSENAAR,
Appellee,
W. CLARKSON MCDOW, JR., United
States Trustee,
Movant.

Appeals from the United States District Court
for the Western District of Virginia, at Charlottesville.
Norman K. Moon, District Judge.
(CA-99-112-3, BK-99-1042-3, 99-65-AP)
2 WASSENAAR v. SIMONS
Argued: June 5, 2001
Decided: August 23, 2001
Before WILKINS, LUTTIG, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: S. Miles Dumville, REED, SMITH, HAZEL &
THOMAS, L.L.P., Richmond, Virginia, for Appellant. Donald R.
Morin, MORIN & BARKLEY, Charlottesville, Virginia; Robert
Power Hodous, PAYNE & HODOUS, L.L.P., Charlottesville, Vir-
ginia, for Appellees. ON BRIEF: Robert F. Moorman, REED,
SMITH, HAZEL & THOMAS, L.L.P., Richmond, Virginia; Bruce H.
Matson, LECLAIR RYAN, P.C., Richmond, Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
This case arises from an action for an accounting, contribution, and
other relief brought against an ousted partner by the remaining part-
ners and the partnership itself. The ousted partner appeals the district
court’s holding that the remaining partners are entitled to receive con-
tribution from him in relation to a loan that was repaid through the
partnership. He also contends that the court erred by settling his part-
nership account under former Va. Code Ann. § 50-42. The remaining
partners cross appeal, arguing that the district court’s calculation
WASSENAAR v. SIMONS 3
under § 50-42 was in error. We affirm, primarily on the reasoning of
the district court.
I.
In 1989, Kurt Wassenaar ("Wassenaar") entered into a partnership
agreement (the "agreement") with Louis Simons, Kenneth Lape, P.
Scott Morrill, and John Stalfort, II (collectively, the "partners") under
which they formed the River Road Commercial Development Partner-
ship (the "partnership"). In 1993, Wassenaar and the partners bor-
rowed $350,000 in their individual capacities from NationsBank (the
"bank") for the purpose of infusing capital into the partnership.
Wassenaar and the partners each executed the promissory note evi-
dencing the loan (the "note") and agreed to be jointly and severally
liable under it. The partnership had no liability under the note.
Having funded the partnership with the proceeds of the loan,
Wassenaar and the partners were each credited with a $70,000 capital
contribution in the partnership’s records. For the sake of convenience,
and to ensure the timeliness of the loan payments going forward,
Wassenaar, who at that time served as managing general partner,
established an accounting practice whereby the partnership issued
checks to the bank under the note and the payments were in turn
treated in the partnership’s records as distributions to Wassenaar and
the partners.1
The business relationship between Wassenaar and the partners ulti-
mately soured, however, and on May 21, 1996, the partners voted to
remove him from the partnership.2 A short time later, the partners
took out a $350,000 renewal note (the "renewal note") to replace the
note, once again obligating themselves in their individual capacities.
The renewal note finally was extinguished on December 1, 1998 with
proceeds from a $2.8 million loan to the partnership. In the partner-
ship’s records, the final payment was treated as a reduction of debts
owed by the partnership to the partners. Wassenaar, however, never
1
These transactions were likewise treated as distributions on the part-
ners’ individual income tax returns. (J.A. at 194.)
2
The partners nonetheless continued to utilize the payment and
accounting methods described above.
4 WASSENAAR v. SIMONS
reimbursed the partners for any of the payments made following his
removal from the partnership.
On April 29, 1997, both the partners and the partnership sought
judgment in Virginia state court against Wassenaar for balances alleg-
edly due on his partnership account. The partners also sought contri-
bution for Wassenaar’s share of the balance outstanding on the note
as of June 21, 1996. The court referred the case to a special commis-
sioner (the "commissioner"), who conducted an evidentiary hearing
and submitted a report. As to the contribution claim, the commis-
sioner found that the partnership had made all of the payments on
both the note and the renewal note. The commissioner also calculated
the value of Wassenaar’s partnership interest pursuant to former Va.
Code § 50-42, arriving at a negative value.
Before the state court could act on the commissioner’s report,
Wassenaar filed a Chapter 11 bankruptcy petition and removed the
case to the bankruptcy court. The bankruptcy court upheld the com-
missioner’s report in its entirety, and further held that the partners had
no right to contribution from Wassenaar because the partnership,
rather than the partners, had made all of the loan payments.
On appeal, the district court reversed, holding that while the part-
nership had issued the checks by which the loan payments were made,
it had done so on behalf of the partners, who were thus entitled to
contribution. The court affirmed, however, the bankruptcy court’s cal-
culation of Wassenaar’s partnership interest, holding that the commis-
sioner’s factual findings, upon which it was based, were not clearly
erroneous. In so doing, the court denied Wassenaar’s cross appeal, in
which he alleged that the commissioner and the bankruptcy court had
erred in applying § 50-42, in lieu of the winding up and liquidation
provision in Article IX of the agreement, to settle his partnership
account. These appeals followed.
II.
In a bankruptcy case, "[w]e review de novo the decision of the dis-
trict court, effectively standing in its place to review directly the find-
ings of fact and conclusions of law made by the bankruptcy court."
Butler v. David Shaw, Inc., 72 F.3d 437, 440 (4th Cir. 1996). "While
WASSENAAR v. SIMONS 5
we exercise plenary review of the bankruptcy court’s legal conclu-
sions, its factual findings may not be set aside unless they are clearly
erroneous." Id. at 441.
III.
Wassenaar first challenges the district court’s holding that the part-
ners are entitled to contribution. Under Va. Code Ann. § 8.3A-116
(Supp. 2000), "a party having joint and several liability who pays [a
negotiable instrument such as the note or the renewal note] is entitled
to receive from any party having the same joint and several liability
contribution in accordance with applicable law." (Emphasis added.)
Thus, if the partners "paid" the note and the renewal note, they are
entitled to contribution from Wassenaar. Wassenaar maintains, as he
did below, that the partners are not entitled to contribution because
they made no payments in their individual capacities.
The district court relied on Va. Code Ann. §§ 8.3A-116 and 8.3A-
602 (Supp. 2000) in holding that the partners are entitled to contribu-
tion. Under § 8.3A-602, a negotiable instrument is considered paid "to
the extent payment is made (i) by or on behalf of a party obliged to
pay the instrument, and (ii) to a person entitled to enforce the instru-
ment." (Emphasis added.) As noted above, the district court found
that while the partnership actually issued the checks, it was nonethe-
less clear that it did so "on behalf of" the partners within the meaning
of § 8.3A-602. For this reason, the court held that the partners were
entitled to contribution from Wassenaar under § 8.3A-116.
We agree with the district court that the partnership made the rele-
vant loan payments on behalf of the partners. Wassenaar admits that
he personally established the payment practice for the sake of his and
the partners’ convenience only. As noted above, the partnership
assumed no liability under the relevant loans, the payments them-
selves were treated as distributions to Wassenaar and the partners on
the partnership’s books, and the partners likewise treated the pay-
ments as distributions for tax purposes. The final payment, moreover,
was treated in the partnership’s records as a reduction of debts the
partnership owed to the partners. On these facts, it is clear that the
partners, rather than the partnership, effectively "paid" the relevant
6 WASSENAAR v. SIMONS
debts within the meaning of § 8.3A 116.3 We therefore affirm the dis-
trict court’s holding that the partners are entitled to contribution from
Wassenaar.
IV.
Wassenaar next argues that the district court erred in settling his
partnership account under former Va. Code Ann. § 50-42.4 Under
§ 50-42, where a partner is removed from a continuing partnership,
and no settlement of the ousted partner’s accounts has occurred, the
ousted partner,
unless otherwise agreed . . . may have the value of his inter-
est at the date of dissolution ascertained, and shall receive
as an ordinary creditor an amount equal to the value of his
interest in the dissolved partnership with interest, or, at his
option or at the option of his legal representative, in lieu of
3
Having reached this conclusion on the strength of § 8.3A-116, it is
unnecessary for us to decide the applicability of § 8.3A-602, and we
accordingly express no view on that issue. We further note our agree-
ment with the district court that Green v. Foley, 856 F.2d 660 (4th Cir.
1988), does not assist Wassenaar here. We additionally note that the
recent decision of the Virginia Supreme Court in Investor Associates v.
Copeland, 546 S.E.2d 431 (Va. 2001), does nothing to alter our conclu-
sion on the contribution issue. There, the course of the parties’ conduct,
as revealed primarily by the documents relating to the transactions at
issue, indicated that the true nature of those transactions belied the plain-
tiffs’ argument that they had effectively lent and advanced funds directly
to the partnership being dissolved. See Copeland, 546 S.E.2d at 435-36.
Here, by contrast, the course of conduct, as revealed primarily through
the documents reflecting the parties’ treatment of the loan payments,
indicates that those payments were in effect made by the partners, not the
partnership, such that the partnership was a mere conduit. In short, Cope-
land is distinguishable from the instant case on its facts. We also note
that in both cases, the fact that the partnership at issue is a distinct legal
entity, while relevant, is not dispositive.
4
Although the former Uniform Partnership Act, Va. Code Ann. §§ 50-
1 through -43.12 (1998), was repealed, effective January 1, 2000, by
Acts 1996, ch. 292, its provisions, including § 50-42, remain applicable
here under Va. Code Ann. § 50-73.149 (1998).
WASSENAAR v. SIMONS 7
interest, the profits attributable to the use of his right in the
property of the dissolved partnership.
Id. (emphasis added). Wassenaar essentially contends that he and the
partners have "otherwise agreed" that the partnership must be wound
up and liquidated under Article IX of the agreement. In Wassenaar’s
view, the partners, by neglecting to make an offer to purchase his
partnership share, failed to follow the procedures set forth in Articles
VI and VII of the agreement. Since Article IX governs where Articles
VI and VII have not been followed, Wassenaar argues that he and the
partners have agreed to a winding up and dissolution under Article
IX, and that the district court’s application of § 50-42 consequently
was improper. Wassenaar additionally maintains that even if § 50-42
were applicable, it would nevertheless be improper to interpret it to
require him to pay the equivalent of the negative net value of his part-
nership interest, because § 50-42 by its terms only speaks to amounts
that an outgoing partner may receive.
Upon review of the parties’ briefs and the applicable law, and hav-
ing had the benefit of oral argument, we agree with the district court
that Article IX of the agreement is inapplicable here. Under Article
VII, the partners were not required to make an offer for Wassenaar’s
partnership interest. As the district court explained, Article IX does
not apply in these circumstances. Because no settlement of Wassen-
aar’s account has been effected, § 50-42 was properly invoked.
We also agree that requiring Wassenaar to pay the negative net
value of his partnership interest avoids the "illogical result" that
would flow from Wassenaar’s reading of § 50-42, whereby he, as an
ousted partner, "could collect his share of any positive value in the
partnership, while at the same time standing immune from contribu-
tion for his share of the partnership’s liabilities." (J.A. at 386.) We
therefore affirm, on the reasoning of the district court, its holding that
the settlement of Wassenaar’s account under § 50-42 was proper.
V.
Finally, in their cross appeal, the partners maintain that the district
court erred in affirming the commissioner’s actual calculation of
Wassenaar’s partnership interest under § 50-42. In sum, the partners
8 WASSENAAR v. SIMONS
argue that the commissioner improperly valued the partnership’s
assets, thereby rendering the final calculation of Wassenaar’s interest
inaccurate. Having considered all of the arguments presented by the
partners and the partnership on this issue, we conclude that the factual
findings that served as the basis for the calculation of Wassenaar’s
partnership interest were supported by the evidence and not clearly
erroneous. Consequently, we affirm, on the reasoning of the district
court, the calculation of Wassenaar’s liability under § 50-42.
AFFIRMED