Gail M. Benson Living Trust v. Physicians Office Building, Inc.
2011 SD 30
S.D.2011Background
- POB Associates, a South Dakota limited partnership, formed in 1980 to develop an office building for Avera McKennan Hospital; the building is POB’s primary asset.
- General partners Jeremiah Murphy and POB, Inc. (owner of Presentation Sisters, Inc.) controlled management, including sale of partnership units; Murphy served as president/director of POB, Inc.
- Partnership Agreement § 1.06(b) allocated profits and losses: 1980-1982 to Limited Partners pro rata by units; from 1983 onward, profits/losses allocated by unit, with Limited Partners receiving 1/32 of 98% per unit and General Partners receiving the remainder, with Murphy capped at 1% and General Partners never below 2%.
- Only 15 of the 32 authorized partnership units were sold; 17 units remained unsold/unissued, and the identity of Limited Partners was otherwise inconsequential for the allocation scheme.
- From 1983–2007, allocations followed the second sentence of § 1.06(b) (per-unit allocation across all partners); in 2008, the General Partners adopted a new allocation relying on the third sentence, reallocating 17/32 of 98% to the General Partners and reducing Limited Partners’ interest.
- Limited Partners sued in 2009 seeking declaratory relief and alleging breach of contract and fiduciary duties; the circuit court granted summary judgment for the General Partners, prompting this appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is § 1.06(b) ambiguous as applied to unsold units? | Benson/Limited Partners contend ambiguity exists in how to allocate profits. | Murphy/POB argue the clause unambiguously ties to a per-unit distribution with a fixed cap. | Section 1.06(b) is ambiguous. |
| Does ambiguity require remand to determine the parties’ intent? | Ambiguity entitles evidence of intent; trial should resolve it. | Contract language should control; no remand needed if unambiguous. | Remand is appropriate to allow evidentiary resolution of intent. |
Key Cases Cited
- Pesicka v. Pesicka, 2000 S.D. 137, 618 N.W.2d 725 (2000) (contract ambiguity assessed by objective meaning of entire agreement)
- Vollmer v. Akerson, 2004 S.D. 111, 688 N.W.2d 225 (2004) (contract ambiguity and interpretation must consider entire contract)
- Citibank (S.D.) N.A. v. Hauff, 2003 S.D. 99, 668 N.W.2d 528 (2003) (contract interpretation standard; look to natural import of language)
- Union Pacific R.R. v. Certain Underwriters of Lloyd’s London, 2009 S.D. 70, 771 N.W.2d 611 (2009) (ambiguity and meaning determined from context of integrated agreement)
- All Star Const. Co., Inc. v. Koehn, 2007 S.D. 111, 741 N.W.2d 736 (2007) (ambiguous contract interpretations require careful construction against scrivener)
- North River Ins. Co. v. Golden Rule Const. Inc., 296 N.W.2d 910 (1980) (contract ambiguity assessed by examining the integrated agreement)
- W. Consol. Coop. v. Pew, 2011 S.D. 9, 795 N.W.2d 390 (2011) (summary judgment standard requires no genuine issue of material fact)
- Discover Bank v. Stanley, 2008 S.D. 111, 757 N.W.2d 756 (2008) (summary judgment framework in SD)