Reference no: EM132241549

LEOFF v. S&J LAND CO.

U.S. COURT OF APPEALS FOR THE 10TH CIRCUIT 2012 U.S. APP. LEXIS 24560 (2012)

Richard Leoff and S&J Land Company entered into the condominium business together in Colorado. When their planned project fell through and was unsuccessful, Leoff filed a lien against the condominium property and sued the defendant for damages and to enforce the lien. The defendant, S&J Land Company, responded by asserting that it had formed a partnership with Leoff, and then filed a counterclaim against the plaintiff seeking damages for a wrongful filing of a lien and breach of contract. The defendant argued that under Colorado law, a partner cannot place a lien on partnership property. The district court granted the defendant’s motion in June 2009 and provided Leoff with the opportunity to file an amended complaint. At that time, Leoff filed a new complaint asserting that S&J Land Company had defrauded him. The district court denied Leoff’s motion, deferring it until trial. At trial, the district court filed an opinion ruling that a partnership had in fact been established between Leoff and S&J Land Company, and that S&J had dissociated as a partner by acting in a fashion that made the partnership not reasonably practical to carry out. Both parties appealed the ruling.

JUDGE HARTZ

In determining that Leoff and S&J had formed a partnership, the district court followed settled Colorado law. Colorado’s version of the Uniform Partnership Act defines a partnership as “the association of two or more persons to carry on as co-owners a business for profit … whether or not the persons intend to form a partnership.” Interpreting nearly identical language in an earlier partnership statute (“A partnership is an association of two or more persons to carry on, as co-owners, a business [*15] for profit….”), the Colorado Supreme Court explained that “a partnership is a contract, express or implied, between two or more competent persons to place their money, effects, labor or skill, or some or all of them, into a business, and to divide the profits and bear the losses in certain proportions.” As the final clause of the statutory definition indicates, parties can form a partnership by their conduct alone, regardless of their actual intentions.

The district court concluded that Leoff and S&J were partners because the 2006 Management Agreement provided for the sharing of profits and losses. The Agreement states that “Leoff is entitled to 30% of all profits or losses of Page 819S&J” and that “[i]f S&J suffered a loss rather than a profit, than [sic] Leoff’s pro-rata share must be accounted for.”

Leoff concedes that a partner cannot file a mechanic’s lien against partnership property under Colorado law, but he disputes that he actually formed a partnership with S&J. In reviewing the district court’s decision to the contrary, we must apply the same standard that the court should have applied in granting summary judgment. That is, we must view the record in the light most favorable to Leoff and ask whether it discloses any genuine issue of material fact with respect to the existence of a partnership.

Leoff argues that several facts undermine the district court’s ruling. He points out that the parties never expressly designated each other as partners: the Agreement was titled “Management Agreement” rather than “Partnership Agreement,” and it referred to Leoff not as a partner or owner, but as a “Manager.” And he emphasizes the absence of any correspondence referring to the relationship as a partnership. But he ignores that a partnership can be created without any formalities and regardless of the parties’ intentions. Similarly, Leoff’s observation that the “Development Agreement and Operating Agreement of S & J Land Company, LLC,” makes no mention of Leoff is irrelevant. The issue is whether Leoff and S&J became partners with each other, not whether Leoff was made a partner in S&J.

Leoff also calls attention to a Colorado statutory provision providing exceptions to the presumption that one who shares in a business’s profits is a partner of that business. It states: “A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment … [f]or services as an independent contractor or of wages or other compensation to an employee….” Leoff argues that his sharing in S&J’s profits constituted wages for his contracting services and that the statute therefore rules out any presumption of a partnership. But Leoff was sharing in losses as well as profits. He has presented no authority that one sharing in both profits and losses can be merely an employee or an independent contractor.

Thus, we deny Leoff’s challenges to the ruling of the district court that Leoff and S&J formed a partnership under Colorado law. The district court committed no error in awarding partial summary judgment to S&J.

CRITICAL THINKING Question

What evidence led the court to determine that Leoff and S&J Land Company were partners? Do you think any evidence hints at suggesting that Leoff and S&J could have not been partners?