Horizon is a large, publicly traded provider of both nursing home facilities and management for nursing home

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Horizon is a large, publicly traded provider of both nursing home facilities and management for nursing home facilities. It wanted to expand into Osceola County in 1993. Southern Oaks was already operating in Osceola County; it owned the Southern Oaks Health Care Center and a Certificate of Need issued by the Florida Agency for Health Care Administration for a new 120-bed facility in Kissimmee. Horizon and Southern Oaks decided to form a partnership to own the proposed Kissimmee facility, which was ultimately named Royal Oaks, and agreed that Horizon would manage both the Southern Oaks facility and the new Royal Oaks facility. To that end, Southern Oaks and Horizon entered into several partnership and management contracts in 1993.

   In 1996, Southern Oaks filed suit alleging numerous defaults and breaches of the twenty-year agreements. * * * The trial court found * * * that Horizon breached its obligations under two different partnership agreements * * * [and] that Horizon had breached several management contracts. Thereafter, the court ordered that the partnerships be dissolved, finding that ‘‘the parties to the various agreements which are the subject of this lawsuit are now incapable of continuing to operate in business together’’ and that because it was dissolving the partnerships, ‘‘there is no entitlement to future damages.’’ * * * In its cross appeal, Southern Oaks asserts that because Horizon unilaterally and wrongfully sought dissolution of the partnerships, Southern Oaks should receive a damage award for the loss of the partnerships’ seventeen remaining years’ worth of future profits. We reject its argument.

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   * * * First, the trial court’s finding that the parties are incapable of continuing to operate in business together is a finding of ‘‘irreconcilable differences,’’ a permissible reason for dissolving the partnerships under the express terms of the partnership agreements. Thus, dissolution was not ‘‘wrongful,’’ assuming there can be ‘‘wrongful’’ dissolutions, and Southern Oaks was not entitled to damages for lost future profits. Additionally, the partnership contracts also permit dissolution by ‘‘judicial decree.’’ Although neither party cites this provision, it appears that pursuant thereto, the parties agreed that dissolution would be proper if done by a trial court for whatever reason the court found sufficient to warrant dissolution.

   Second, even assuming the partnership was dissolved for a reason not provided for in the partnership agreements, damages were properly denied. Under RUPA, it is clear that wrongful dissociation triggers liability for lost future profits. See §602(3) (‘‘A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the partner to the partnership or to the other partners.’’). However, RUPA does not contain a similar provision for dissolution; RUPA does not refer to the dissolutions as rightful or wrongful. Section 801, ‘‘Events causing dissolution and winding up of partnership business,’’ outlines the events causing dissolution without any provision for liability for damages. Under subsection 801(5), the statute recognizes judicial dissolution:

   A partnership is dissolved, and its business must be wound up, only upon the occurrence of any of the following events:

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(5) On application by a partner, a judicial determination that:

(a) The economic purpose of the partnership is likely to be unreasonably frustrated;
(b) Another partner has engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with such partner; or
(c) It is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement. * * *

   Paragraph (5)(c) provides the basis for the trial court’s dissolution in this case. While ‘‘reasonably practicable’’ is not defined in RUPA, the term is broad enough to encompass the inability of partners to continue working together, which is what the court found.

   Certainly the law predating RUPA allowed for recovery of lost profits upon the wrongful dissolution of a partnership. [Citations.] However, RUPA brought significant changes to partnership law, among which was the adoption of the term ‘‘dissociation.’’ Although the term is undefined in RUPA, dissociation appears to have taken the place of ‘‘dissolution’’ as that word was used pre-RUPA. [Citation.] ‘‘Dissolution’’ under RUPA has a different meaning, although the term is undefined in RUPA. [Citation.] It follows that the pre-RUPA cases providing for future damages upon wrongful dissolution are no longer applicable to a partnership dissolution. In other words a ‘‘wrongful dissolution’’ referred to in the pre-RUPA case law is now, under RUPA, known as ‘‘wrongful dissociation.’’ Simply stated, under section 602, only when a partner dissociates and the dissociation is wrongful can the remaining partners sue for damages. [Court’s footnote: Dissociation is not a condition precedent to dissolution under RUPA. * * * (‘‘Most dissolution events are dissociations. On the other hand, it is not necessary to have a dissociation to cause a dissolution and winding up.’’)] * * *

   Southern Oaks’ attempt to bring the instant dissolution under the statute applicable to dissociation is rejected. The trial court ordered dissolution of the partnership, not the dissociation of Horizon for wrongful conduct. There no longer appears to be ‘‘wrongful’’ dissolution—either dissolution is provided for by contract or statute or the dissolution was improper and the dissolution order should be reversed. In the instant case, because the dissolution either came within the terms of the partnership agreements or paragraph 801(5)(c) (judicial dissolution where it is not reasonably practicable to carry on the partnership business), Southern Oaks’ claim for lost future profits is without merit.

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Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

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