Curves for Women Angola An Indiana Partnership, Dan Cole, and Lori Cole v. Flying Cat, LLC

FILED
Feb 26 2013, 9:29 am
FOR PUBLICATION CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEY FOR APPELLANT: ATTORNEYS FOR APPELLEE:
KEVIN L. LIKES JEREMY N. GAYED
Likes Law Office MARK H. BAINS
Auburn, Indiana Fort Wayne, Indiana
IN THE
COURT OF APPEALS OF INDIANA
CURVES FOR WOMEN ANGOLA )
An Indiana Partnership, DAN COLE, )
And LORI COLE, )
)
Appellants-Defendants, )
) No. 76A04-1206-PL-312
vs. )
)
FLYING CAT, LLC, )
)
Appellee-Plaintiff. )
APPEAL FROM THE STEUBEN CIRCUIT COURT
The Honorable Allen N. Wheat, Judge
Cause No. 76C01-1003-PL-129
February 26, 2013
OPINION – FOR PUBLICATION
MATHIAS, Judge
Dan Cole (“Dan”) appeals the judgment of the Steuben Circuit Court in favor of
Flying Cat, LLC (“Flying Cat”), in Flying Cat’s breach-of-contract claim against Dan and
his ex-wife Lori Atkison f/k/a Lori Cole (“Lori”) arising out of a lease agreement
between the Coles and Flying Cat for the operation of a business owned and operated by
the Coles. On appeal, Dan presents three issues, which we consolidate and restate as: (1)
whether the trial court clearly erred in finding that Dan and Lori were in a business
partnership, and (2) whether the trial court clearly erred in finding that a lease extension
signed by Lori could bind Dan and make him liable for a breach of the lease.
We affirm.
Facts and Procedural History
On December 5, 2001, Dan and his then-wife Lori entered into a Franchise
Agreement with Curves International, Inc., so that they could operate a Curves exercise
facility in Angola, Indiana. Dan and Lori each signed the Franchise Agreement
individually as a “Franchisee.” Appellee’s App. p. 35. An affirmation clause in the
Franchise Agreement provided:
We the undersigned principals of the corporate or partnership franchisee, do
as individuals jointly and severally, with the corporation or partnership and
amongst ourselves, accept and agree to all of the provisions, covenants and
conditions of this agreement[.]
Id. at 36. Although the Franchise Agreement did not specify which type of entity the
Coles would be operating their franchise under, the Coles never incorporated their Curves
franchise, which did business as Curves for Women of Angola (“Curves of Angola”).
At approximately the same time, the Coles negotiated with Rosalie Dellinger, the
predecessor in interest to Flying Cat (“the Landlord”), to lease space in Angola to operate
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Curves of Angola, with Dan acting as the principal negotiator of the terms of the lease.
As a result of these negotiations, the Coles executed a commercial lease (“the Lease”)
with the Landlord on December 11, 2001. Both Dan and Lori signed the Lease in the
capacity of “Owner.” Appellant’s App. p. 55. Dan then made an initial payment of six
months of rent to secure the Lease. The Lease was for an initial term of three years, with
an option for two additional terms of three years.
After the Lease was executed, Lori managed the day-to-day operations of Curves
of Angola, and Dan handled the accounting responsibilities and maintenance of the
equipment. Dan and Lori operated Curves of Angola for profit and treated the profits of
the business as marital property that they were both entitled to use.
On September 7, 2004, the Coles exercised the option for the first three-year
extension to the Lease. The timing of this extension did not technically comply with the
provisions of the original Lease, which required a sixth-month notice of the extension.
However, the Landlord overlooked this deficiency and agreed to the extension. Both Dan
and Lori signed the letter memorializing the extension agreement. Appellant’s App. p.
58.
Almost one year later, in July 2005, Dan and Lori separated, but they made several
attempts at reconciliation. During one of these periods of reconciliation, Dan and Lori
entered into another franchise agreement to operate another Curves franchise in Ohio.
However, on May 4, 2007, Lori filed a petition for dissolution of her marriage with Dan.
By the end of 2007, the Coles were in default under the terms of the Lease in an amount
of $21,641.55.
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Despite this default, on January 1, 2008, Lori and the Landlord executed the
second option to renew the Lease. This second extension, like the first, was
memorialized on behalf of “Curves for Women of Angola.” Appellant’s App. p. 59.
Although Dan did not sign the renewal petition, neither he nor Lori informed the
Landlord of the pending divorce. Nor did Dan otherwise inform the Landlord that he was
no longer in a partnership with Lori. Thus, the Landlord believed that Lori was signing
on behalf of both her and Dan as a partnership. And a representative of Flying Cat
explained at trial that it routinely allows fewer than all partners to sign lease agreements
on behalf of a partnership.
In August 2008, Curves had still not paid its overdue rental obligations. The
Landlord presented Lori with a repayment schedule under which Curves of Angola could
repay its back rent over time. Curves of Angola then repaid a small amount of its
overdue rent, but soon fell behind again, and by the end of the term of the second
extension in 2010, it was behind in rent and maintenance fees in the amount of
$44,647.39. In 2011, Lori decided to sell Curves of Angola. Dan, as a franchisee under
the Franchise Agreement, signed an “intent to sell” document authorizing the sale of the
Curves for Angola franchise.
In the meantime, on March 2, 2010, Flying Cat had filed suit against the Coles,
seeking damages for the unpaid rental and maintenance fees. Dan filed an answer, but
Flying Cat obtained a default judgment against Lori and Curves of Angola in the amount
of $49,945.03. On October 21, 2010, the trial court entered partial summary judgment in
favor of Flying Cat and against Dan for the amounts due and unpaid under the Lease
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through December 31, 2007. At a bench trial held on May 1, 2012, the issue was whether
Dan was liable for the amounts due and unpaid under the Lease through December 31,
2010. On May 21, 2012, the trial court entered findings of fact and conclusions of law in
favor of Flying Cat. Dan now appeals.
Standard of Review
The trial court entered findings of fact and conclusions of law pursuant to Indiana
Trial Rule 52(A). We therefore apply a two-tiered standard of review: we first determine
whether the evidence supports the trial court’s findings, and second we determine
whether the trial court’s findings support the judgment. Anderson v. Ivy, 955 N.E.2d
795, 800 (Ind. Ct. App. 2011), trans. denied. The trial court’s findings and conclusions
will be set aside only if they are clearly erroneous, i.e., if the record contains no facts or
inferences supporting them. Redd v. Redd, 901 N.E.2d 545, 549 (Ind. Ct. App. 2009).
The party appealing the trial court’s judgment must establish that the findings are clearly
erroneous. Anderson, 955 N.E.2d at 800. The trial court’s findings are clearly erroneous
only when a review of the record leaves us firmly convinced that a mistake has been
made. Id. In reviewing the trial court’s findings, we neither reweigh the evidence nor
assess the credibility of witnesses, but consider only the evidence most favorable to the
judgment. Redd, 901 N.E.2d at 549. We do not, however, defer to the trial court’s
conclusions of law, which we review de novo. Anderson, 955 N.E.2d at 800; Redd, 901
N.E.2d at 549.
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I. The Existence of a Partnership
Dan first claims that the trial court erred in concluding that he and Lori were in a
partnership when they established Curves of Angola. “A partnership is an association of
two (2) or more persons to carry on as co-owners a business for profit and includes for all
purposes of the laws of this state a limited liability partnership.” Ind. Code § 23-4-1-6(1).
The existence of a partnership is generally a question of fact. Copenhaver v. Lister, 852
N.E.2d 50, 58 (Ind. Ct. App. 2006).
For a partnership to exist, the parties must have joined together to carry on a trade
or venture for their common benefit, each contributing property or services, and having a
community of interest in the profits. Id. at 58-59. Put another way, to establish a
partnership relation between parties there must be: (1) a voluntary contract of association
for the purpose of sharing profits and losses, which may arise from the use of capital,
labor, or skill in a common enterprise; and (2) an intention on the part of the parties to
form a partnership. Id. at 59. The intention that controls in determining the existence of
a relationship is “the legal intention deducible from the acts of the parties.” See id. Thus,
the intention to form a partnership must be determined by examining all the facts of the
case, and the conduct of the parties reveals their true intentions and the construction they
placed upon their own agreement. Id.Indiana Code section 23-4-1-7 sets forth rules for determining whether a
partnership exists, specifically:
(1) Except as provided by section 16[1] of this chapter, persons who are not
partners as to each other are not partners as to third persons.
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Indiana Code section 23-4-1-16 governs partnership by estoppel.
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(2) Joint tenancy, tenancy in common, tenancy by the entireties, joint
property, common property, or part ownership does not of itself
establish a partnership, whether such co-owners do or do not share any
profits made by the use of the property.
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived.
(4) The receipt by a person of a share of the profits of a business is prima
facie evidence that the person is a partner in the business, but no such
inference shall be drawn if such profits were received in payment for
the following:
(a) As a debt by installments or otherwise.
(b) As wages of an employee or rent to a landlord.
(c) As an annuity to a widow or representative of a deceased partner.
(d) As interest on a loan though the amount of payment varies with the
profits of the business.
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
(5) The existence of a partnership is not affected by the following:
(a) The filing or failure or omission to file an original or renewal
registration as a limited liability partnership under section 45 of
this chapter.
(b) The expiration of a partnership’s status as a limited liability
partnership.
(c) The filing of a notice of withdrawal under section 45 of this
chapter.
(emphasis added).
Dan claims that the trial court clearly erred in finding that he and Lori were in a
partnership because they did not share profits. In so doing, he refers to evidence that
does not favor the trial court’s findings, a reference we are not permitted to make on
appeal. See Redd, 901 N.E.2d at 549. Dan also notes that it was Lori who ran Curves of
Angola on a day-to-day basis. However, the lack of daily involvement by one party is
not per se indicative of an absence of a partnership. J.M. Schultz Seed Co. v. Robertson,
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451 N.E.2d 62, 64 (Ind. Ct. App. 1983). And there was evidence that Dan did participate
in the Curves business by discharging the responsibility for maintenance and accounting.
Dan also claims that he and Lori did not share profits “under any set formula[.]”
Appellant’s Br. p. 11. But there is no requirement in Indiana Code section 23-4-1-7(4)
that the profits be shared under any specific formula. Instead, there was evidence that
both Lori and Dan shared in the profits as a general marital asset and that such profits
were used for their common benefit by being spent on items such as joint vacations and
household appliances.
Still, Dan claims, without citation to authority, that a partnership cannot be found
based solely on a “community of interest.” Appellant’s Br. p. 11. Indiana Code section
23-4-1-7(2) does provide that “[j]oint tenancy, tenancy in common, tenancy by the
entireties, joint property, common property, or part ownership does not of itself establish
a partnership, whether such co-owners do or do not share any profits made by the use of
the property.” But in Copenhaver, we specifically noted that, for a partnership to exist,
the parties must have joined together to carry on a trade for their common benefit, each
contributing property or services, and having a community of interest in the profits. Id. at
58-59 (emphasis added). And here, there was more than simple, joint ownership of the
property.
Dan and Lori signed the Franchise Agreement, which referred to the signers as
“principals of the corporate or partnership franchisee.” Appellant’s App. p. 36. Dan and
Lori signed the initial Lease as “owners.” Id. at 7, 55. Dan also paid the first six months
of rent for the Curves business. Dan provided maintenance and accounting services for
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Curves of Angola, and he shared in the profits of the business. From this evidence, the
trial court could reasonably find that Dan and Lori operated Curves of Angola as a
partnership.
II. Liability Under Lease Extensions
Dan next argues that, even if he had been in a partnership with Lori to operate the
Curves franchise, his liability should be limited to the terms of the initial Lease, and to
the lease extension that Dan signed, but not extended to the subsequent lease extension
signed by Lori alone. Thus, Dan claims that the trial court erred in holding him liable for
any damages after the end of the term of the first lease extension, i.e. December 31, 2007.
The trial court specifically found that Dan and Lori’s partnership was dissolved on
May 4, 2007, when Lori filed for divorce. See Appellant’s App. p. 12 (“By filing the
divorce petition on May 4, 2007, Lori clearly manifested her intention that her personal
and business relationship with [Dan] had come to an end.”). Still, the trial court rejected
Dan’s argument that he could not be held liable for Lori’s act of signing the subsequent
lease extension on January 1, 2008, after the dissolution of the partnership.
The trial court correctly noted that, under certain circumstances, a partner can still
bind the partnership even after a partnership has been dissolved. Indiana Code section
23-4-1-35 provides:
(1) After dissolution a partner can bind the partnership except as provided
in paragraph (3):
(a) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution.
(b) By any transaction which would bind the partnership if dissolution
had not taken place, provided the other party to the transaction:
(I) had extended credit to the partnership prior to dissolution and
had no knowledge or notice of the dissolution; or
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(II) though he had not so extended credit, had nevertheless known
of the partnership prior to dissolution, and, having no
knowledge or notice of dissolution, the fact of dissolution had
not been advertised in a newspaper of general circulation in
the place (or in each place if more than one) at which the
partnership business was regularly carried on.
(2) The liability of a partner under paragraph (1)(b) shall be satisfied out of
partnership assets alone when such partner had been prior to
dissolution:
(a) unknown as a partner to the person with whom the contract is
made; and
(b) so far unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any
degree due to his connection with it.
(3) The partnership is in no case bound by any act of a partner after
dissolution:
(a) where the partnership is dissolved because it is unlawful to carry
on the business, unless the act is appropriate for winding up
partnership affairs; or
(b) where the partner has become bankrupt; or
(c) where the partner has no authority to wind up partnership affairs;
except by a transaction with one who:
(I) had an extended credit to the partnership prior to dissolution
and had no knowledge or notice of his want of authority; or
(II) had not extended credit to the partnership prior to dissolution,
and, having no knowledge or notice of his want of authority,
the fact of his want of authority has not been advertised in the
manner provided for advertising the fact of dissolution in
paragraph (1)(b)(II).
(4) Nothing in this section shall affect the liability under section 16 of this
chapter of any person who after dissolution represents himself or
consents to another representing him as a partner in a partnership
engaged in carrying on business.
I.C. § 23-4-1-35 (emphasis added).
As the emphasized portion of this statute explains, even after a partnership has
been dissolved, a partner may still bind the partnership by engaging in a transaction that
would bind the partnership had it not been dissolved, if the other party to the transaction
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had known of the partnership prior to dissolution but had no knowledge or notice of the
dissolution because “the fact of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more than one) at which the
partnership business was regularly carried on.” I.C. § 23-4-3-35(1)(b)(II).
Here, Lori’s execution of the second lease extension was continuing the business
affairs of Curves of Angola and her execution of the second lease was done with
authority that would have bound the partnership had it not been dissolved. See Life v.
F.C. Tucker Co., Inc., 948 N.E.2d 346, 351 (Ind. Ct. App. 2011) (noting the well-settled
rule that partners are bound by the contracts of each other when made in the scope of the
firm’s business). Nor did Dan ever inform Lori that she could not sign the second
extension. Further, Dan and Lori held themselves out to the Landlord as partners
operating Curves of Angola, and the Landlord had no notice of the dissolution until after
Lori signed the second extension, because the fact of the dissolution had not been
advertised in an appropriate newspaper and the record shows no other, actual knowledge
by the Landlord.
Thus, the facts of this case fall precisely within the scope of Indiana Code section
23-4-1-35(1)(b)(II), and Lori could still act to bind Dan despite the fact that the
partnership had been dissolved. And Dan admits that all partners are jointly and
severally liable for everything chargeable to the partnership and jointly for all other debts
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and obligations of the partnership.2 See Ind. Code § 23-4-1-15(1). Therefore, the trial
court did not clearly err in determining that Dan was liable for the amounts incurred
under the second lease extension even though it was signed only by Lori.
Conclusion
The trial court did not clearly err in finding that Dan and Lori were in a
partnership to operate Curves of Angola. Nor did the trial court clearly err in concluding
that Dan was liable for damages under the second lease extension that was signed by
Lori.
Affirmed.
KIRSCH, J., and CRONE, J., concur.
2
Dan also claims that he cannot be held liable for Lori’s act of signing the second lease extension because
the second lease extension materially altered the terms of the first lease and the first lease extension, that
he did sign. However, Lori, as a partner, had the authority to enter into contracts and bind the partnership
on her own. Again, it is well settled that partners are bound by the contracts of each other when made in
the scope of the firm’s business. Life, 948 N.E.2d at 351. The fact that the second lease extension Lori
signed was different than the lease and extension signed by Dan is irrelevant to the fact that Lori still had
authority to bind the partnership.
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