July 22, 2011
Refresher on Partnerships, A North Dakota Example
Last month, the North Dakota Supreme Court decided Zink v. Enzminger Steel, LLC, 2011 ND 122, and the case serves as a good reminder of how partnerships are formed, in large part for what the case doesn't say. The basic facts are summarized as follows:
Enzminger Steel contracted with Doug Zink to supply components for a new grain drying site. This contract lists Zink as the purchaser of Enzminger Steel's materials. Zink and his son, Jeremy Zink, signed this contract. Doug Zink and [Ted] Keller contend, however, that they had formed a partnership for the purposes of constructing and operating this grain drying site. They further allege that it was this partnership, not the Zinks separately, that entered into the contract with Enzminger Steel.
Keller represented himself at the hearing, but the Zinks did not attend because, they said, they did not oppose any of the motions that were to be considered at a hearing scheduled for that purpose. The district court expressed concern with what it suspected was Keller's unauthorized practice of law. Keller reiterated that he and Doug Zink were partners, but said his appearance was only for himself, and not Zink or the claimed partnership.
Because of its questions about Keller's role, the district court
verbally ordered that it would dismiss the action brought by Keller and Doug Zink unless either could prove the existence of a partnership within four days. If documents were produced proving the existence of a partnership, Keller would be joined as a party to the action brought by Enzminger Steel. If these documents were not produced, the court stated the action brought by Zink and Keller would be dismissed and Enzminger Steel would be awarded its attorney's fees because the pleadings were made in bad faith.
Ultimately, when the documents weren't produced to prove the partnership, the district court dismissed the claim and ordered attorney's fee be awarded to Enzminger Steel. The North Dakota Supreme Court reversed, finding that Zink did not have proper notice of the issue, which the district court had raised on its own motion. That all seems about right to me, but the Supreme Court failed to address one other big issue: that the district court seems to have required documents to prove the existence of a partnership.
Under the North Dakota Century Code, 45-13-01, consistent with many such laws, a partnership is defined as follows:
19. "Partnership" means an association of two or more persons to carry on as coowners a business for profit formed under section 45-14-02, predecessor law, or comparable law of another jurisdiction.
20. "Partnership agreement" means the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement.
Note that a partnership agreement can be written, but it need not be. It can also be oral or implied. As such the district court should have required "evidence" of the partnership, not "documents" proving the partnership existed. I suppose one could argue that the court meant that any evidence needed to be reduced to a document filed with the court, but that's not how I read this. It sounds like the district court was skeptical enough that it wanted some hard proof. The problem is, that simply is not what is needed to prove a partnership in North Dakota.
In 2005, the North Dakota Supreme Court made clear that "a partnership could be created regardless of the parties' subjective intent, making it possible for individuals to inadvertently create a partnership despite their expressed subjective intent not to do so." Ziegler v. Dahl, 691 N.W.2d 271 (N.D. 2005). And, in 1992, the Supreme Court reviewed the dissolution of farming partnership that was created by an oral agreement among three partners, expressly stating, "In this case, there were no written partnership agreements." First Nat. Bank of Belfield v. Candee, 488 N.W.2d 391 (N.D. 1992).
Ultimately, I think the court got this case right, but I always appreciate a little more precison when it comes to the process of creating, and then proving the existance of, partnerships. This Fall, my BA I students will get a very up-to-date reminder of that.