Mid-South Management v. Sherwood Development

• Court: Court of Appeals of South Carolina
• Decided: December 7, 2004
• Docket: 2004-UP-611
• Status: Unpublished

Opinion

THIS OPINION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON AS
PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Mid-South Management Company Incorporated and William C. Buchheit Trust A, as partners of Spartanburg Beach Cove Associates, a general partnership and a joint venturer of Beach Cove Associates Joint Venture, and Beach Cove Associates Joint Venture, Respondents,

v.

Sherwood Development Corporation, a joint venturer of Beach Cove Associates Joint Venture; Coastal Financial Corporation, Coastal Federal Savings Bank; Coastal Mortgage Bankers and Realty Co., Inc.; John Doe, which represent unidentified shareholders of Sherwood Development Corporation; Michael C. Gerald and James T. Clemmons, Defendants,

of whom, Sherwood Development Corporation, a joint venturer of Beach Cove Associates Joint Venture; Coastal Financial Corporation, Coastal Federal Savings Bank; Coastal Mortgage Bankers and Realty Co., Inc., Michael C. Gerald and James T. Clemmons, Appellants.

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Appeal From Horry County
J. Stanton Cross, Jr., Circuit Court Judge

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Unpublished Opinion No.  2004-UP-611
Submitted November 1, 2004 – Filed December 7, 2004

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AFFIRMED

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Robert E. Stepp and Amy L.B. Hill, both of Columbia, for Appellants.

Michael B.T. Wilkes, of Spartanburg, and Michael W. Battle, of Conway, for Respondents.

PER CURIAM:  Spartanburg Beach Cove Associates (Spartanburg) and Sherwood Development Corporation (Sherwood) dispute their monetary contributions to a settlement of lawsuits brought against their joint venture, Beach Cove Associates (the “joint venture”).  Sherwood and its affiliates (Appellants), appeal an order finding Spartanburg and its affiliates (Respondents), are entitled to a judgment in the amount of $278,333.33, plus interest.  We affirm. [1]

FACTS

Beach Cove Development Corporation (BCD), Spartanburg, and Sherwood created the joint venture in 1983 to develop land and sell condominiums in Horry County.  Originally, Spartanburg had a 50% interest in the joint venture, and Sherwood and BCD each had a 25% interest.  BCD defaulted as a joint venturer sometime in the mid 1980’s, before the litigation began, leaving Spartanburg with a two-thirds interest, and Sherwood with a one-third interest.

Spartanburg, Sherwood, and BCD entered into a joint venture agreement (“Agreement”) on August 23, 1983.  The Agreement described the project to be undertaken and defined the role of the venturers.  BCD was granted limited powers of management.  However, after BCD defaulted, Spartanburg became the majority venturer, and thus gained control as the managing venturer.

The management authority was subject to certain limitations.  The Agreement provided that none of the venturers would have authority to act for or assume any obligations or responsibility on behalf of any other venturer or the joint venture.  Additionally, the Agreement restricted management of the joint venture from making certain expenditures without prior authorization and provided that venturers could not take actions binding the joint venture without the consent of the other venturers. 

The Agreement specified initial contributions, and provisions were made for additional capital contributions.  Sherwood agreed to use its best efforts to obtain loans to provide financing as necessary, and BCD was given authorization to require additional contributions from the venturers by giving written notice.  The Agreement further provided that no venturer would be required to make any capital contribution or loan to the joint venture other than as provided in this Agreement or as mutually agreed upon by the parties.  The Agreement also provided for allocation of profits and losses:  “The respective share of each Venturer in all joint venture income and expenses and each item thereof, including depreciation and any investment tax credits, shall be allocated to the Venturers in accordance with their Percentage Interest.”         

Finally, the Agreement contained indemnification provisions.  The venturers agreed to hold each other harmless from losses resulting from, among other things, lawsuits against the joint venture arising out of breach of the Agreement.  Additionally, upon dissolution the parties agreed to fund any negative balances.

Pursuant to the Agreement, the condominiums were built, but the project was largely unsuccessful.  The project encountered serious difficulties because of federal tax changes, increased construction costs, and problems with management.  Numerous capital calls were made and Sherwood paid all of them.  Additionally, in August 1993, Beach Cove Ocean Resort Homeowners Association, Inc., sued the joint venture, alleging construction defects in the condominiums and the parking garage.  The lawsuit also named numerous other defendants, including the builders and suppliers of Beach Cove Ocean Resort.  Individual homeowners in the condominium project also brought a class action lawsuit against the joint venture. 

The joint venture retained the Bellamy Law Firm (Bellamy), which advised the joint venture that a trial on the merits could result in a significant judgment against it.  When mediation failed, Bellamy began working on a settlement.  A conflict of interest existed in that Sherwood was set up as a corporation with no assets, and was thus effectively judgment-proof, whereas Spartanburg, a general partnership capable of responding to an adverse judgment, was not.  Bellamy was aware of the possible conflict and discussed it with the venturers.  Howell Bellamy, Jr., testified the venturers agreed that Bellamy would continue to represent the joint venture and the venturers would deal with their differences later.  Sherwood initially refused to contribute anything toward a potential settlement, but did pay some of the legal fees.

In January 1997, Mike Gerald, president of Sherwood, and Ray Harris, Spartanburg’s corporate attorney, discussed the possibility that the lawsuits could be settled if the joint venture authorized Bellamy to offer up to $1 million in settlement.  As a result, Harris called Bellamy and confirmed the joint venture would contribute up to $1 million to settle the lawsuits.  The minutes from the Sherwood Board of Directors meeting on January 16, 1997 show that Sherwood approved the authorization to fund the settlement, but there was an erroneous assumption that the other defendants would contribute approximately $650,000 towards the $1 million settlement, so the joint venture would be responsible for only $300,000.  The Sherwood board then approved a measure to commit $100,000, or one-third of the anticipated amount, toward the settlement.  This offer was subject to approval by Spartanburg and receipt of a full release of Sherwood.  However, Harris thought Sherwood’s offer was unsatisfactory.  Thus, Spartanburg did not respond and subsequently rejected the offer.

Spartanburg decided to authorize Bellamy to continue with the settlement negotiations and “deal with Sherwood at a later time.”  Bellamy continued to work on a settlement and in February 1997 all parties to the underlying litigation entered into a global settlement in the amount of $5,450,000.  The joint venture was responsible for $835,000 of the total settlement.  Spartanburg then issued a capital call requiring Sherwood to contribute $278,333.33, or one-third of the joint venture’s portion.  However, Sherwood refused to pay.  Spartanburg paid the entire amount and sued Sherwood to collect its share of the settlement.  The joint venture was dissolved as of December 31, 1998. 

The case was referred to a master-in-equity by a consent order of the parties.  The claims against Appellants were bifurcated because all the other Appellants stood in the shoes of Sherwood in regard to the claims asserted in this case.  The claims against Sherwood were tried before the master, and he issued a preliminary order finding Sherwood was liable for its share of the settlement as alleged, plus pre-judgment interest in the amount of $158,302.11, for a total of $436,635.44.  Sherwood made a motion for reconsideration.  In August 2003, the master issued an order denying Sherwood’s motion to the extent it sought to reverse his findings of fact and conclusions of law, resolving his findings on certain testimony in Spartanburg’s favor, and adopting the preliminary order as the final order and judgment against Sherwood.  Sherwood now appeals.

STANDARD OF REVIEW

In an action at law, referred to a master for final judgment, this court will correct errors of law, but we must affirm the master’s factual findings unless there is no evidence that reasonably supports those findings. Jefferies v. Phillips, 316 S.C. 523, 527, 451 S.E.2d 21, 22-23 (Ct. App. 1994).  The complaint alleges four causes of action against Sherwood, three of which are legal claims.  Of these, two involve breach of the joint venture Agreement, and one is a claim for contribution pursuant to S.C. Code Ann. § 33-41-510 (Supp. 2003).  See Sterling Dev. Co. v. Collins, 309 S.C. 237, 240, 421 S.E.2d 402, 404 (1992) (action for breach of contract seeking money damages is an action at law); Wallace v. Milliken & Co., 300 S.C. 553, 555, 389 S.E.2d 448, 449 (Ct. App. 1990), aff’d as modified, 305 S.C. 118, 406 S.E.2d 358 (1991) (actions created by statute are generally legal in nature).

The fourth issue, quantum meruit, is equitable in nature.  When both legal and equitable claims are in the same suit, each retains its own identity and applicable standard of review.  Corley v. Ott, 326 S.C. 89, 92, 485 S.E.2d 97, 99 (1997).  In equity cases, the appellate court may find facts in accordance with its own view of the preponderance of the evidence.  Sloan v. Greenville County, 356 S.C. 531, 544, 590 S.E.2d 338, 345 (Ct. App. 2003).

LAW/ANALYSIS

Sherwood argues it is not required to pay its share of the settlement because it did not agree to contribute to the settlement.  We disagree. 

Partnership law governs relations among joint venturers.  Matter of Fox, 327 S.C. 293, 301, 490 S.E.2d 265, 270 (1997).  “Practically the only difference between a ‘joint adventure’ and a ‘partnership’ is that a partnership is ordinarily for the transaction of a general business of a particular kind, while a joint adventure relates to a single transaction.”  Wellington v. Crosland, 129 S.C. 127, 141, 123 S.E. 776, 781 (1924).  Accordingly, joint venturers owe each other the highest level of fiduciary duty, as in partnerships.  Kuznik v. Bees Ferry Assoc., 342 S.C. 579, 597-98, 538 S.E.2d 15, 24-25 (Ct. App. 2000).  Also, section 33-41-510(1) of the South Carolina Code (Supp. 2003) provides that each joint venturer must contribute toward the joint venture’s losses according to its share of the profits unless there is a contrary agreement between the venturers. 

It is unclear from the record whether an agreement was ever reached between the parties in regard to authorization of the settlement.  However, under partnership law, Spartanburg does not have to show that Sherwood agreed to contribute to the settlement.  Each venturer in a joint venture is an agent of the joint venture, and his or her acts done in the ordinary course of business bind the joint venture.  S.C. Code Ann. § 33-41-310 (1990).  Thus, if the settlement was a valid act of the joint venture, done in the ordinary course of business, Sherwood must contribute its share unless it can show an agreement to the contrary.  S.C. Code Ann. § 33-41-510(1) (Supp. 2003). 

There is evidence in the record to support the master’s finding that authorization of the settlement was in the ordinary course of business.   Although the venturers never voted on the settlement, Sherwood offered $100,000 toward the settlement, which represented what it believed at the time to be one-third of the joint venture’s obligation.  Neither Gerald nor anyone else at Sherwood objected to the settlement, and Gerald testified he was present in the courtroom when the settlement was announced on the record in open court.

Spartanburg made the decision to go forward, believing it had the authority as majority venturer to act for the joint venture.  Harris, acting as counsel for Spartanburg, made the call to Bellamy to authorize the settlement on behalf of the joint venture.  Once the authorization was made, the obligation became a valid debt of the joint venture.  Sherwood agreed to pay one-third of any valid joint venture debts under the Agreement.  Although there is some disagreement as to whether Sherwood agreed to fund the settlement, there is no dispute that Spartanburg did not agree that Sherwood would be relieved of its responsibility to pay its part of the settlement amount.  Thus, Sherwood is required under partnership law to pay its share of the settlement. 

Sherwood argues section 1.3 of the Agreement, which provides that a venturer is only liable for debts or obligations incurred pursuant to the Agreement, absolves it of liability for the settlement because it was not an obligation incurred pursuant to the Agreement.  We disagree.  

The settlement did not create a new obligation for the joint venture.  It merely settled a contingent liability.  The lawsuits were a liability of the joint venture, not just Spartanburg, and there was evidence that an adverse judgment could have cost more than $13 million.  Regardless of the amount eventually agreed upon, Sherwood demonstrated it was willing to participate in a settlement by approving a contribution of $100,000.  Therefore, section 1.3 does not remove Sherwood’s obligation to pay its share.

Sherwood also argues the settlement payment was not a valid joint venture debt because Spartanburg paid the settlement amount out of its own account for tax purposes.  We disagree. 

Whether or not parties attempt to characterize payments as something they are not for tax purposes does not affect the agreement between the partners.  Bray v. Head, 311 S.C. 490, 496-97, 429 S.E.2d 842, 845-46 (Ct. App. 1993).  Spartanburg intended the payment to be on behalf of the joint venture.  In Kuznik v. Bees Ferry Assoc., 342 S.C. 579, 538 S.E.2d 15 (Ct. App. 2000), this court considered several factors in determining whether a promissory note was a valid partnership obligation.  While one of the factors the court considered was how the partnership characterized the debt, the court also considered other factors, including capital calls from the partnership and testimony from a partner and an attorney for the partnership.  Id. at 591-92, 538 S.E.2d at 21-22.  Applying these factors to this case, we find no error in the master’s conclusion that the settlement was a valid partnership obligation.

The master further found that Section 33-41-510(1) of the South Carolina Code created a right of contribution in Spartanburg from Sherwood.  This is consistent with our holding in Kuznik, where we upheld a finding of entitlement to indemnity once a valid partnership obligation was found.  Thus, without determining whether the statute itself created a right of contribution, Spartanburg clearly had a common law right of contribution for indemnity.  Additionally, the joint venture Agreement itself creates a right of indemnity in Spartanburg from Sherwood.  Pursuant to section 9.4.5 of the Agreement, Sherwood is required to pay its share of the settlement in order to remove the negative capital balance that was created when the joint venture dissolved.  

Because the settlement created a valid joint venture obligation, and Sherwood is required to pay its share under both partnership law and the Agreement, we need not address the quantum meruit claim or the remaining issues in this case.  Accordingly, Sherwood is liable for one-third of the settlement.

AFFIRMED.

ANDERSON, STILWELL, and SHORT, JJ., concur.

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[1] We decide this case without oral argument pursuant to Rule 215, SCACR.