G & S Investments v. Belman
145 Ariz. 258, 700 P.2d 1358 (Ct. App., Div. 2, 1984).

Facts:
G & S (Gary Gibson and Steven Smith) were part-owners of an apartment complex with Thomas Nordale. Nordale starting using cocaine which led to personal issues and caused business disputes. Gibson and Smith then filed a complaint seeking dissolution of the partnership so that they could carry on the business and buy out Nordale’s interest. Shortly after the complaint was filed, Nordale died, and a supplemental complaint was filed.

  • Belman argued that the mere filing of the complaint acted as a dissolution of the partnership, requiring the liquidation of the assets and distribution of the net proceeds to the partners.
  • He thinks the estate will receive more money under this theory than if the other partners pay what was owed to Nordale.
  • Belman also argued that the term “capital gains” in the buy-out formula was ambiguous.

History:
The trial court ruled in favor of G & S, holding that it had the right to continue the partnership, and that the estate was owed approximately $5,000.

Issues:

(1) Whether the surviving general partner, G & S Investments, is entitled to continue the partnership after the death of Nordale.
(2) How is the value of Nordale’s interest in partnership property to be computed?

Holding/Reasoning:
(1) Yes.

ARTICLE 19 OF THE ARTICLES OF PARTNERSHIP:

  • Article 19 of the Articles of Partnership provides that upon the death, retirement, insanity or resignation of one of the general partners the surviving or remaining general partners may continue the partnership business. It further provides that should the surviving or remaining general partners desire to continue the partnership business, they must purchase the interest of the retiring or resigning general partner.

(2) ARTICLE 19(e)(2)(i) – THE BUY-OUT FORUMLA:

The amount shall be calculated as follows:

  • By the addition of the sums of the amount of the resigning or retiring general partner’s capital account plus an amount equal to the average of the prior three years’ profits and gains actually paid to the general partner, or as agreed upon by the general partners, provided said agreed sum does not exceed the calculated sum in dollars.

Important Note: Filing a complaint in and of itself does NOT cause dissolution! Dissolution occurs when decreed by the court!