Leoff v. S and J Land Company et al

Filing 210

PROPOSED RULING, ORDERED: the parties shall have to and including March 3, 2014, within which to file objections and supporting briefs to this Proposed Ruling. If no objections are filed, an order will enter directing further filings in accordance with these rulings, by Judge Richard P. Matsch on 2/6/2014. (rpmcd )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior District Judge Richard P. Matsch
Civil Action No. 08-cv-02112-RPM
RICHARD (Chance) LEOFF,
Plaintiff,
v.
S AND J LAND COMPANY,
a Colorado Limited Liability Company,
Defendant.
_____________________________________________________________________
PROPOSED RULING
_____________________________________________________________________
Given the difficulties that have arisen in this civil action after withdrawal of Jay

Horowitz as Plaintiff’s counsel, it is this Court’s view that to comply with the mandate of
the Tenth Circuit Court of Appeals remanding this case for further proceedings on two
issues, the most efficient procedure is to issue this Proposed Ruling and provide the
parties an opportunity to file objections with briefs supporting those objections.
The provisions in the Management Agreement that formed the basis for the legal
conclusion that Leoff and S & J Land Company were in a partnership for the
construction and development of the condominium units known as the White House
Project is this language:
It is agreed that Duty 1, as specified above, has been completed
and that Leoff is entitled to 30% of all profits or losses of S & J, as defined
in III - R of the Operating Agreement of S & J, and to be distributed as per
Section 6 in the same agreement.
Plaintiff’s Exhibit 12.
The agreement referred to is entitled Development Agreement and Operating

Agreement of S & J Land Company. Plaintiff’s Exhibit 11. It is the formative document
for S & J as a Colorado limited liability company with Stephen Finger and Jeffrey Lehrer
as members and gives them authority and responsibility for overseeing the construction
and completion of The White House Condominiums as the stated purpose of the
company.
Article III, Definitions in paragraph R reads:
R. “Net Profit and Net Loss” means an amount equal to the
company’s taxable income or loss for each fiscal year or other period,
adjusted pursuant to this Agreement.”
Plaintiff’s Exhibit 11, p. 4.
These written documents are both dated March 14, 2006, but the Operating
Agreement recites that it is made to be effective as of February 10, 2005. In the factual
findings from the trial in this Court’s Memorandum Opinion and Order entered on June
3, 2011, Finger, Lehrer and Leoff had agreed to pursue this development project in
2004. Finger purchased the land during that summer and the first public hearing before
the Town Planning and Zoning Commission was held on June 10, 2004. The written
agreements were prepared in March, 2006, because Leoff was concerned about the
informality of the venture and wanted some documentation. He had no input into the
Operating Agreement. This paragraph from the previous findings is worth repeating.
These two documents have confusing and inconsistent provisions
which defy any attempt to define the relationship of the three “partners”
and their respective obligations and interests in this development project.
Memorandum Opinion and Order, p.4 (Doc. 164).

Pursuant to this Court’s Decree of Dissolution and Order of Sale, formally
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dissolving the partnership, the condominium building was sold to S & J for $3,150,000,
of which $3,050,505 went to pay off the bank loan.
The following finding of fact in this Court’s Memorandum Opinion and Order is of
critical importance to the task of a final accounting of the partnership as required by
Colorado law.
Accepting that the one paragraph of the Management Agreement
created a partnership for a particular undertaking under the Colorado
Uniform Partnership Act, S&J dissociated itself by engaging in conduct
relating to partnership business which made it “not reasonably
practicable to carry on the business of the partnership” with Leoff. C.R.S.
§ 7-64-601(1)(e)(III). The effect of that dissociation by one of the two
partners resulted in a dissolution of the partnership under § 7-64-603,
which was formalized by this court’s Decree of Dissolution. In practical
effect the partnership ended when construction began.
Memorandum Opinion and Order, p. 14 (Doc. 164).
That finding was not affected by the Order and Judgment of the Tenth Circuit
Court of Appeals. It was not mentioned. The appellate court directed this court to
proceed to conduct a final accounting pursuant to C.R.S. § 7-64-807. Paragraph (2) of
that statute reads as follows:
(2) Each partner is entitled to a settlement of all partnership
accounts upon winding up the partnership business. In settling accounts
among the partners, the profits and losses that result from the liquidation
of the partnership assets shall be credited and charged to the partners’
accounts. The partnership shall make a distribution to a partner in an
amount equal to any excess of the credits over the charges in the
partner’s account. A partner shall contribute to the partnership an amount
equal to any excess of the charges over the credits in the partner’s
account.
The only partnership asset was the White House Condominiums and S & J seeks
to recover losses after the preparation of partnership tax returns. In the Proposed
Procedures on Remand, filed on February 20, 2013, (Doc. 193), S & J proposed the
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following:
Documents establishing the taxable income or loss for each fiscal year,
costs of winding up and equalization of capital accounts per C.R.S. 7-64807, will be produced (such information being identical for the White
House Partnership and S & J because S & J’s only asset and only
business is the White House project).
Proposed Procedures on Remand, ¶ 5.3 (Doc. 193).
In a memorandum by plaintiff in response to the defendant’s proposal,1 Mr.
Horowitz, as counsel for Leoff, pointed to this Court’s finding, quoted above, that in
effect the partnership ended before construction began. Accordingly, the winding up
should be based on the profit or loss of S & J as of the date construction began, May,
2007.
In its reply2 S & J insists that the partnership continued until the Decree of
Dissolution and Order of Sale, entered on December 21, 2010 (Doc. 147).
In its finding this Court referred to C.R.S. § 7-64-601(1)(e)(III) which reads as
follows:
(1) A partner is disassociated from a partnership upon the occurrence of
any of the following events.
(e)(III) The partner engaged in conduct relating to the partnership
business which makes it not reasonably practicable to carry on the
business in partnership with the partner.
It is not necessary that the conduct of Finger and Lehrer be determined to be
wrongful to apply this statute. The evidentiary record from the trial supports this finding.

1

Plaintiff Richard “Chance” Leoff’s Memorandum in Response to Defendant S & J
Land Company’s Proposed Procedures on Remand (Doc. 196).
2

Reply Concerning Proposed Procedure on Remand (Doc. 197).
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From the beginning of construction Leoff was effectively excluded from the
management of this development. He was no longer treated as a partner in the project.
Leoff had received $50,000 as an advance in anticipation of profits. There were
no profits before disassociation and he will be required to repay that and any other
amounts he received. Just as this partnership was formed by operation of the Colorado
statute so it was terminated by that statute. The events occurring after May, 2007, are
irrelevant to the final accounting.
The mandate also requires this court to award a reasonable attorney’s fee for the
services resulting in removal of the mechanic’s lien on the White House property by
granting the defendant’s motion for partial summary judgment on June 1, 2009. The
applicable statute is C.R.S. § 38-22-128, reading as follows:
Any person who files a lien under this article for an amount greater
than is due without a reasonable possibility that said amount claimed is
due and with the knowledge that said amount claimed is greater than that
amount then due, and that fact is shown in any proceeding under this
article, shall forfeit all rights to such lien plus such person shall be liable to
the person against whom the lien was filed in an amount equal to the
costs and all attorneys’ fees.
The literal language does not fit this case because the invalidity of the lien was
because of the status of Leoff as a partner, not that the amount was excessive. It is
applicable because any amount would be excessive if there is no valid basis for
claiming the lien. The purpose of the statute is to compensate the title holder for the
cost of removing an impediment to title. To determine the amount of the award, S & J
should submit the billing for fees and costs paid for those legal services attributable to
the submission of the motion for partial summary judgment. It is now
ORDERED, that the parties shall have to and including March 3, 2014, within
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which to file objections and supporting briefs to this Proposed Ruling. If no objections
are filed, an order will enter directing further filings in accordance with these rulings.
DATED: February 6th, 2014
BY THE COURT:
s/Richard P. Matsch
________________________________
Richard P. Matsch, Senior District Judge

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