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Stephens v. Ainsworth

Court of Appeals of Kansas

January 18, 2019

Ashley Stephens, Special Administrator of the Estate of Randall D. Stephens, Appellant,
v.
Cindy L. Ainsworth, Executrix of the Estate of William J. Lewis Jr., Appellee.

         SYLLABUS BY THE COURT

         1. An appellate court reviews a district court's findings of fact to see whether they are supported by substantial evidence, which we define as evidence that a reasonable person might accept as sufficient to support a conclusion.

         2. In determining whether substantial competent evidence supports the district court's findings, an appellate court must accept as true the evidence and all the reasonable inferences drawn from the evidence which support the district court's findings and must disregard any conflicting evidence or other inferences that might be drawn from it. An appellate court does not reweigh the evidence or assess the credibility of witnesses.

         3. A partnership is broadly defined as "an association of two or more persons to carry on as co-owners a business for profit." K.S.A. 56a-101(f). The existence of a partnership may be implied from the circumstances where it appears that the individuals involved have entered into a business relationship for profit, combining their property, labor, skill, experience, or money.

         4. Where no partnership agreement is shown the Kansas Revised Uniform Partnership Act (RUPA) governs relations among the partners and between partners and the partnership.

         5. Property is partnership property if acquired in the name of (1) the partnership; or (2) one or more partners with an indication in the instruction transferring title to the property of the person's capacity as partner or of the existence of a partnership but without an indication of the name of the partnership.

         6. Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or one or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership.

         7. Property is presumed to be separate property, even if used for partnership purposes, if acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as partners or of the existence of a partnership, and without use of partnership assets.

         8. The determining factor in these competing presumptions under the facts of this case is whether the property was purchased with partnership assets. The presumption that the property is partnership property can apply even when the partnership provides only a portion of the purchase price.

         9. RUPA creates a rebuttable presumption that property acquired with partnership funds is partnership property. Similarly, RUPA's presumption of separate property is rebuttable. In determining whether a party has rebutted either presumption no single factor or combination of factors is dispositive. Ultimately, the partners' intentions control whether property belongs to the partnership.

         10. A court determines the intent of the parties by considering all the pertinent facts and circumstances of record.

         11. Factors to aid in determining the partners' intent regarding a partnership's ownership of property include: (1) the language of any partnership agreement; (2) the use of the property in the partnership business; (3) the listing of the property as an asset and of its mortgage as a liability in the partnership books and tax returns; (4) the construction of improvements on the property at partnership expense; (5) the payment of taxes and insurance premiums on the property out of partnership funds; (6) a party's declaration of intent accompanying his act of entering the partnership; (7) the parties' conduct with respect to the property; (8) the attribution of profits or losses from the property to the partnership; (9) the use of partnership funds to maintain the property; (10) whether partnership books and accounts treat property as partnership property; and (11) the parties' statements, conduct, and writings when the property was acquired.

         12. A joint tenancy may be terminated by a party's action indicating his or her intent that the property no longer be owned as joint tenants. When dealing with real property owned by two individuals as joint tenants with rights of survivorship, one of the joint tenants may sever the joint tenancy by unilaterally executing a quitclaim deed to himself or herself.

          Appeal from Elk District Court; Charles M. Hart, judge.

          Ted E. Knopp, of Ted E. Knopp, Chtd., of Wichita, for appellant.

          Jerry D. Bogle, of Young, Bogle, McCausland, Wells & Blanchard, P.A., of Wichita, for appellee.

          Before Gardner, P.J., Atcheson and Powell, JJ.

          GARDNER, J.

         This case asks us to determine who owns a cabin and 120 acres of land in Elk County. That property was purchased by Randall D. Stephens and William J. Lewis Jr., both of whom are deceased. The appellant is the administrator of Stephens' estate, and the appellee is the executor of Lewis' estate but for ease of reference we refer to the parties as Stephens and Lewis. The district court ruled that the Elk County property was never partnership property so it passed to Lewis under the deed when Stephens died. Stephens appeals arguing that the Elk County property was partnership property under Kansas' partnership statutes and was awarded to him in the partnership dissolution. Although the facts pose a close question, we uphold the district court's decision.

         Factual and Procedural Summary

         Lewis and Stephens became friends in the 1970s and later married sisters. In the early 1990s, each had separate businesses. Lewis created Cytech and Stephens started a business called In-Tech. In-Tech moved into Cytech's building and operated there until 2003. In 1994, Lewis and Stephens started a general contracting business together for the primary purpose of building metal structures and began doing business as High Plains Construction. High Plains operated out of Cytech's building. Lewis and Stephens' partnership in High Plains, which is the focus of this case, was oral-no partnership agreement existed.

         In 1995, Lewis and Stephens decided to build a cabin on land in Elk County owned by a mutual friend, Brian Schreck, after a previous farmhouse on Schreck's property burned down. The parties had used that property for hunting and recreation, as had their fathers before them. The new cabin was used for the mutual recreational use of the three friends and their guests. Lewis and Stephens bought 80 acres adjacent to the cabin in 1997, then purchased the 40-acre parcel that included the cabin in 2000.

         Lewis and Stephens titled both parcels of land in their names personally as joint tenants with rights of survivorship without any mention of High Plains or any partnership and without any reference to themselves as partners. O'Rourke Title in Wichita prepared the deeds. The title agent for both closings advised Lewis and Stephens at closing that they were taking title as joint tenants with rights of survivorship and not as tenants in common. Lewis testified that he and Stephens wanted to take title to the land personally because they had no business or profit purpose in the property and it was intended for their personal recreational enjoyment.

         The record does not reflect a specific date of dissolution of the partnership, but Lewis appears to have withdrawn from the partnership sometime between 2000 and 2003. Lewis testified that he ended his involvement in High Plains in 2000 or 2001 but that High Plains did business until around 2003. High Plains' last tax return was filed in 2003. Stephens concedes that the partnership was liquidated as early as 2001 and was wound up by 2004. Stephens' daughter testified that Lewis and Stephens were "severely acrimonious" by 2002 and High Plains dissolved then. She is likely correct. A partnership is dissolved where, among other circumstances, it is not reasonably practicable to carry on the partnership in conformity with the partnership agreement or with the business relationship between the partners. Dissolution in such a case is an equitable solution to the situation where "bitter and antagonistic feeling between partners has developed to the point that the partners cannot continue the partnership to their mutual advantage." Wallace v. Sinclair, 114 Cal.App. 2d 220, 228, 250 P.2d 154 (1952).

         Upon dissolution, Lewis or Cytech owed High Plains, Stephens, and In-Tech $140, 000 or more. All High Plains assets were divided and distributed by acquiescence of the partners, and all of High Plains' liabilities were settled. The record does not reflect the date at which all partnership affairs were wound up, but it was likely within a reasonable time after 2003.

         When Stephens died in 2013 the Elk County property soon became the subject of litigation, with Stephens' family and Lewis both claiming exclusive ownership. Lewis sought possession of the property in accordance with his right as survivor under the deeds to the land since both deeds named Lewis and Stephens as joint tenants with the right of survivorship and made no reference to any partners or partnership. Stephens' family sought possession of the property as partnership property which had previously been distributed solely to Stephens, who had been residing on the property.

         After a bench trial, the district court found that the Elk County property was never partnership property but was instead governed by the deed to the land, thus it had been owned individually by Lewis and Stephens as joint tenants with right of survivorship. As a result, the district court awarded the property to Lewis in 2016 as the surviving joint tenant. Lewis died in 2017. The administrator of Stephens' estate appeals.

         Stephens contends that the district court failed to consider the proper characteristics of partnership property from the Uniform Partnership Act (UPA) of 1914 and the Revised Uniform Partnership Act of 1997 (RUPA)-both of which were effective at different times during the property transactions. He also contends that the court erred by focusing too much on whether the property served a business purpose and that the statute of limitations bars Lewis from relitigating the partnership debt and distribution of partnership property to Stephens.

         Standard of Review

         We review the district's court's findings of law de novo, meaning we give them no deference. Gannon v. State, 298 Kan. 1107, 1176, 1182, 319 P.3d 1196 (2014). But the district court's determination that the property was not partnership property is a finding of fact, made after an evidentiary bench trial. On appeal, we ask whether the district court's findings of fact are supported by substantial evidence, which we define as evidence that a reasonable person might accept as sufficient to support a conclusion. Gannon, 298 Kan. at 1175. "Findings that are supported by substantial evidence will be upheld by an appellate court even though evidence in the record would have supported contrary findings." Chowning v. Cannon Valley Woodwork, Inc., 32 Kan.App.2d 982, 987, 93 P.3d 1210 (2004):

"'In determining whether substantial competent evidence supports the district court's findings, appellate courts must accept as true the evidence and all the reasonable inferences drawn from the evidence which support the district court's findings and must disregard any conflicting evidence or other inferences that might be drawn from it. Accordingly, appellate courts do not reweigh the evidence or assess the credibility of witnesses. [Citations omitted.]'" Gannon v. State, 308 Kan. 372, 382, 420 P.3d 477 (2018).

         Because this court refrains from weighing conflicting evidence, assessing witness credibility, or redetermining questions of fact, this standard of review can be outcome-determinative where, as here, the record contains conflicting evidence.

         Analysis

         Which partnership statutes apply here?

         Stephens and Lewis had no written partnership agreement and loosely operated High Plains as a d/b/a. But the facts show they nonetheless established a partnership, broadly defined as "an association of two or more persons to carry on as co-owners a business for profit." K.S.A. 56a-101(f). The existence of a partnership may be implied from the circumstances where it appears that the individuals involved have entered into a business relationship for profit, combining their property, labor, skill, experience, or money. Bass v. Bass, 814 S.W.2d 38, 41 (Tenn. 1991). Such is the case here. Lewis and Stephens entered a business relationship to construct metal structures for profit, combining their property, experience, or money in High Plains.

         Our inquiry focuses on whether the Elk County property was partnership property. Because the parties had no partnership agreement to govern this determination, the RUPA governs: "To the extent the partnership agreement does not otherwise provide, this act governs relations among the partners and between partners and the partnership." K.S.A. 56a-103(a).

         RUPA defines partnership property in four subsections of K.S.A. 56a-204. The first two provide:

"(a) Property is partnership property if acquired in the name of:
(1) The partnership; or
(2) One or more partners with an indication in the instruction transferring title to the property of the person's capacity as partner or of the existence of a partnership but without an ...

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