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2004-UP-147 - KCI Management v. Post

THIS OPINION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals


KCI Management Corporation and Alexis Pierre Kisteneff,        Respondents,

v.

Bara Post, Individually and as Personal Representative of the Estate of Malcolm Post, deceased,        Appellant.


Appeal From Greenville County
Alison Renee Lee, Circuit Court Judge


Unpublished Opinion No. 2004-UP-147
Heard February 11, 2004 – Filed March 1, 2004


AFFIRMED


James C. Parham, Jr. and William M. Wilson, both of Greenville; and Laurence M. Johnson, of Boston, for Appellant.

Robert "Sam" Phillips and Richard R. Gleissner, both of Columbia; and Robert C. Wilson, Jr., of Greenville, for Respondents.

PER CURIAM:  KCI Management Corporation brought this declaratory judgment action to determine the rights of Malcolm Post in properties that were part of real estate development projects. [1]   This action revolves around a dispute between Post and his former business associate, Alexis Pierre Kisteneff, as to whether Post held an interest in real property they had planned to develop.  The case was tried to a jury before the Circuit Court of Greenville County on a special interrogatory as to whether a partnership existed between Post and Kisteneff relating to their real estate development plans.  The jury found they had not entered into a partnership, thereby foreclosing Post’s claim of an ownership interest in the real estate in dispute.  Bara Post appeals.  We affirm.

FACTUAL/PROCEDURAL BACKGROUND

At the center of this case is the business relationship that developed between Kisteneff and Malcolm Post.  Several key facts are clear and undisputed:  Both gentlemen had varying experiences in real estate speculation and development prior to their association.  Both were interested in pursuing some type of real estate venture together after they were introduced to each other in 1995.  Only Kisteneff invested money in the projects; Post made no financial contributions.  None of the potential projects the two men attempted to develop together realized any profits during their association.  Beyond this basic information, however, the precise nature of the business relationship between the two is difficult to discern.  This task is complicated by the fact that Post died prior to the commencement of this suit, leaving the parties to rely primarily on the testimony of Kisteneff in its inquiry.

The record shows, in the spring of 1995, Kisteneff “met” Post by telephone after John Canney, an associate of Kisteneff’s, told Kisteneff that Post was looking for someone with whom he could get back into the real estate business.  At this time, the two discussed the possibility of working together on some real estate development opportunities.  At the time, Post had already identified a potential project in Quincy, Massachusetts.  The Quincy project did not go through, but the two men subsequently met to discuss another possible project in Broughton, Connecticut.  At this meeting, Kisteneff claims he proposed forming a partnership with Post, but Post refused, claiming he could not hold an ownership interest in any new venture because it would be subject to liens due to outstanding taxes and judgments he owed.  Both men then agreed that some type of arrangement would be reached among themselves and Canney, whereby they would work together and each receive a third of any profits from a successful project.  The fundamental principle behind their association was that they would share equally in any profits, once the project was built and succeeded in selling. 

In May 1995, Kisteneff’s attorney drafted a letter to John Canney, following a discussion with Post and his wife, concerning the appropriate entity with whom the parties should contract.  The letter proposed that Canney and Kisteneff prepare a letter on behalf of WAGA Investment Associates, L.P., which would contain language whereby WAGA would agree to contract for the services of Post.  The proposed language included that Post would “as WAGA’s Agent, negotiate the purchase and sale agreement and direct all permitting, development and construction activities subject . . . to WAGA’s supervision and direction.”  It further stated, “For your [Post’s] services, you will receive one-third of cash flow arising from operations, sale or refinancing including, without limitation, any development fee that is payable pursuant to the financing.”  The WAGA partnership was never formed after plans for the Quincy construction project fell through.  However, the three discussed the letter, and, according to Kisteneff, they all agreed that “it laid a good foundation for our relationship.”  Despite this false start, Kisteneff testified that:

[The letter] asserted the principle that a partnership would be formed in the event that we did develop the property together which would be between me and Mr. [Canney], and Mr. [Canney] and I would then turn around and contract with Mr. Post for [his] services, and that he would participate in one third of the profit of a successful project after he did what he was supposed to do, which was supervise construction and also sell the units. 

During cross-examination, Kisteneff was pressed further about the agreement he had reached with Post.  Unable to recall precise details, Kisteneff described their relationship after their initial personal meeting in general terms:

I do not have a specific recollection of what was talked about in the car.  We were getting acquainted, and talking about the possibilities of doing the possible project in Broughton.

But I would think it logical that at that meeting, possibly in the car when we were tooling around Broughton, that we came to terms on what our roles would be and what our rewards would be.

What our roles and rewards would be for discharging those roles, and the fundamental principle is basically only one, sir.  The fundamental principle was that we would share equally in the profits of the project. 

Kisteneff stated he “agreed to compensate [Post] for [his] participation in the process.”  Kisteneff further testified, he put the seed money into the projects and was responsible for the ultimate financing and that he “had sole control of the deals because I was the only one at risk.” 

After some investigation, and on advice of his bank, Kisteneff decided he would not go forward on the Broughton deal.  Over the next year, however, three other properties were considered for development:  one in Boston, Massachusetts, one in Cranston, Rhode Island and a third in Greenville, South Carolina.  In August 1995, Canney and Post contacted Kisteneff about the Boston property, and the men discussed developing single-family housing there.  Post indicated he believed they could acquire the necessary permits and break ground by March 1996.  Kisteneff agreed with the proposal and “authorized [Post and Canney] to get going” on the project. 

In September 1995, Post called Kisteneff and requested Kisteneff advance him money in order to “keep the wolf away from the door.”  Post told Kisteneff he would pay him back out of his share of the profits of one of their deals.  Kisteneff arranged for his own company, KCI Management Corporation, to advance Post $5,000 per month against his future share of any profits realized in the Boston project.  These payments continued for a period of fifteen months, through November 1996 when Kisteneff was required to turn his financial resources toward purchase of the Boston property. 

Unfortunately, the Boston project encountered objections from local residents, and the City of Boston responded by drawing out the permitting process.  The City ultimately denied the necessary building permits in March 1997.  By this time, Kisteneff had purchased the property, and he felt it necessary to bring a lawsuit against the City of Boston for wrongful denial of the permits.  Although the court ruled in Kisteneff’s favor and ordered the City to issue the permits, the City filed an appeal, preventing any further development of the Boston property. 

In late 1995, Post brought to Kisteneff’s attention the property located in Cranston, Rhode Island.  In January 1996, Kisteneff authorized Post to execute a purchase and sale memorandum on behalf of KCI Management Corporation setting out a formula for the purchase of the land.  Post executed the document as Vice President of KCI.  Although Canney, Post and Kisteneff attempted to secure financing for the project throughout 1996, by the end of the year, they were unable to locate the two million dollars they needed for the project.  In late 1996 and early 1997, Post informed Kisteneff that the owner of the Cranston property intended to withdraw the property from sale, and their open-ended contract on the property was most likely unenforceable.  Several months later, Post called Kisteneff and told him he planned to “reinsert” himself into the Cranston deal without Kisteneff.  After objection from Kisteneff, Post told him he would “see what [he could] do about letting [Kisteneff] into the deal.”  Apparently, Post did not include Kisteneff in the deal but had already begun to work with someone else on the development of the property.  Kisteneff testified Post went into business with this other person in January 1997, and negotiated a $450,000 payment for the work Post had performed on the project prior to his association with this other person.  According to Kisteneff, Post also negotiated salaries for himself and his wife, along with a forty percent share in profits on the project. 

In February, 1996, Post traveled to South Carolina, at which time Kisteneff showed Post some Greenville property he was interested in them developing together.  Kisteneff had been working on the Greenville property for over a year at that time.  Within a week of Post’s visit, Kisteneff placed a deposit on the property. 

By the end of 1996, Kisteneff had spent in excess of $600,000 and had gone into debt for $300,000, for a total of $900,000 contributed toward the potential projects.  Post, however, had contributed no money to any of the land purchases.  

Kisteneff testified, as he believed they were closer to getting the Boston project underway, he sought to formalize his working relationship with Post.  Accordingly, Kisteneff proposed that he and Post form a corporation named ALMA.  Post would not personally be a stockholder in the corporation because he did not want his creditors to be able to “get at him,” so they discussed that the corporation would formally employ Post as he worked on the various projects.  In August 1996, Kisteneff had his attorney draft a series of documents to put his proposed arrangement with Post in writing.  After sending those documents to Post and his attorney in late August 1996, Post did not initially respond.  After a few months, Post’s attorney returned the documents with notations indicating they would not be executed.  According to Kisteneff, Post’s only response was a counter-offer communicated through Post’s attorney for a single project in “Alma, South Carolina”— a place that Kisteneff knew did not exist.  Kisteneff questioned Post and Post’s attorney regarding the proposed change in their deal, but each responded they were merely acting on the instruction of the other.  According to Kisteneff, with the exception of a March 1997 communication, Post barely spoke to him after December 1996, shortly after he sent him the last monthly $5,000 check.  Post did not call or suggest any new deals or bring Kisteneff any new prospects.  At this time, Kisteneff concluded Post no longer wanted to do business with him. 

Kisteneff testified he did not hear from Post again until March or April 1998, when Kisteneff received a favorable ruling on the permits issue in Boston, and “all of a sudden, [Post] reappeared.”  On April 1, 1998, Kisteneff wrote Post a letter asking him not to interfere with Kisteneff’s negotiations of settlement with the City of Boston.  Post, however, would not agree to the request.  By letter dated April 20, 1998 Kisteneff referred to an April 3, 1998 conversation he had with Post, and informed Post he was “stunned” to hear Post describe his version of their deal.  Kisterneff stated that after loaning Post $5,000 a month for fifteen months, when “the well ran dry,” Post virtually dropped out of sight.  He then notified Post, that any relationship between Post and KCI was terminated by Post’s refusal to negotiate and define a written agreement with KCI, despite KCI’s efforts to do so.   Kisteneff further asked Post to execute an enclosed promissory note for the repayment of the $75,000 that had been advanced to Post, and to submit an estimate for the services Post rendered to KCI for the Boston project. 

In June 1998, KCI initiated the present declaratory judgment action in response to claims by Post that he possessed an equitable interest in the Greenville and Boston properties.  While various other causes of action were subsequently added by the parties, the only issue submitted to the jury was whether Kisteneff and Post entered into a partnership agreement regarding development of the real estate in question.  Appellant now appeals the jury’s verdict finding no partnership existed, as well as two rulings by the trial court regarding the trial judge’s instructions to the jury.

LAW/ANALYSIS

I.       Trial Court’s Jury Instructions

Appellant first argues the trial court erred on two occasions in instructing the jury on the law.  We find no reversible error. 

The trial judge is required to charge the current and correct law.  McCourt v. Abernathy, 318 S.C. 301, 306, 457 S.E.2d 603, 606 (1995).  When reviewing jury charges for error, an appellate court must consider the court’s jury charge as a whole in light of the evidence and issues presented at trial.  Keaton ex rel. Foster v. Greenville Hosp. Sys., 334 S.C. 488, 497, 514 S.E.2d 570, 575 (1999).  A jury charge is correct if, when read as a whole, it contains the correct definition and adequately charges the law.  Id. at 495-96, 514 S.E.2d at 574.  If the charges given, as a whole, are reasonably free from error, isolated portions which might be misleading do not constitute reversible error.  Id. at 497, 514 S.E.2d at 575.  Further, refusal to give a properly requested charge is not error if the general instructions are sufficiently broad to enable the jury to understand the law and the issues involved.  McCourt, 318 S.C. at 306, 457 S.E.2d at 606.

A.      Jury Instruction on Contract Law 

Appellant takes exception to the trial court’s decision to instruct the jury on the elements of contract formation.  She argues this instruction was wholly irrelevant to the question of partnership formation and thereby served to sow seeds of confusion in the jurors’ minds.  We disagree.

A partnership is an association of two or more persons, to carry on as co-owners a business for profit.  S.C. Code Ann. § 33-41-210 (Supp. 2003); Buffkin v. Strickland, 280 S.C. 343, 345, 312 S.E.2d 579, 580 (Ct. App. 1984).  A partnership agreement may rest in parole.  It may also be implied and without express intention.  Halbersberg v. Berry, 302 S.C. 97, 101, 394 S.E.2d 7, 10 (Ct. App. 1990).  A partnership is a relation arising out of contract, and a partnership between parties arises only out of the contract of the parties, as expressed in their agreement or implied from their dealings with each other and others.  Stephens v. Stephens, 213 S.C. 525, 531, 50 S.E.2d 577, 579 (1948).  One of the most important tests as to the existence of a partnership is the intention of the parties.  Id. at 530, 50 S.E.2d at 579.  If parties intend to and do enter into a contract as in the eye of the law constitutes a partnership, they thereby become partners whether they are designated as such or not in their contract.  Id. at 530-31, 50 S.E.2d at 579.  Thus, “where the parties to a contract, by their acts, conduct, or agreement show that they intended to combine their property, labor, skill and experience, or some of these elements on one side and some on the other, to carry on as principals or co-owners, a common business, trade, or venture as a commercial enterprise, and to share, either expressly or by implication, the profits and losses or expenses that may be incurred, such parties are partners.”  Id. at 531-32, 50 S.E.2d at 580 (emphasis added).  Where there is no express contract, either written or verbal, common tests used in determining whether a partnership exists are:  (1) the sharing of profits and losses; (2) community of interest in capital or property; and (3) community of interest in control and management.  Halbersberg, 302 S.C. at 101, 394 S.E.2d at 10;  Stephens, 213 S.C. at 532, 50 S.E.2d at 580.

The threshold question for the jury in this case was whether the parties entered a contract whereby they intended to carry on a business as principals and co-owners.  While it is not necessary there be an express agreement between the parties to enter a partnership before such a partnership can be found, there must be an intent of the parties to enter into a contract that would, in the eyes of the law, constitute a partnership, before such a finding can be made.  Thus, the law of contract was not wholly irrelevant to the issues at hand.  Further, in looking at the various tests applicable to the question of whether a partnership existed, a critical aspect of the jury’s determination in this case rested on whether the parties’ proposed agreements as to compensation, ownership, and management were ever entered into and finalized between and among the principals involved.  In light of this, the contract formation elements of offer, acceptance, and consideration that were included in the trial judge’s instructions to the jury were more likely to help rather than hinder the jury’s deliberations.  At any rate, we find, when considered as a whole, the charges were reasonably free from error, and any isolated portions which might have been misleading do not constitute reversible error.

B.      Sufficiency of Instruction in Response to Jury Question

Appellant also takes exception to the sufficiency of the trial judge’s response to a request for clarification the jury submitted to the court during deliberations.  On this point, too, we find no error.

During deliberations, the jury requested clarification of the elements that had to be shown to prove a partnership existed.  In its initial instructions, the trial court charged the jury on the statutory and common law rules and tests for determining the existence of a partnership.  Specifically, the court charged S.C. Code Ann. § 33-41-210 (Supp. 2003), defining a partnership as an association of two or more persons to carry on as co-owners a business for profit, as well as S.C. Code Ann. § 33-41-220 (1990), which provides as follows:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by § 33-41-380 persons who are not partners as to each other are not partners as to third persons;

(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 profit 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; and

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment

(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 vary with the profits of the business or

(e) as the consideration for the sale of the good will of a business or other property by installments or otherwise.

The court also charged under the common law as follows:

In South Carolina a partnership does not have to be in writing.  A partnership may be formed by oral agreement and may even be implied to exist by conduct of the parties without any evidence of expressed intent to form a partnership.  The following tests are appropriate in determining whether a partnership exists:  the sharing of profits and losses, community of interest in capital or property, and community of interest in control or management.

The jury was apparently confused, however, as to whether all of the elements under these tests had to be proven for a partnership to exist, sending a note to the trial judge asking:  “Requirements/clarification of the law re: existence of a partnership.  Do all the requirements have to exist?”  Unclear as to whether the jury was referring to the statutory rules or common law tests, the trial judge asked them to elaborate.  The jury responded:  “Requirements or elements that make a partnership; example, one, oral agreement; two, actions of each party, etc.  Please give complete list and tell us how many or all of these components exist.”  Concerned that the jury was asking the court to make a factual finding, it asked the jury foreman for further elaboration when the jury returned to the courtroom.  The foreman responded:  “What I meant was not for you to tell us which things exist, but how many are necessary to exist in order to make it --.”  Satisfied with the foreman’s clarification, the trial court recharged the jury with the substance of §§ 33-41-210 and 33-41-220, as well as the common law as to the manner in which a partnership may be formed and the common law tests, as initially charged by the court.  The court further instructed:

These rules and the tests I stated earlier are simply factors to be considered by you in determining whether or not a partnership exists as I have defined partnership, which, again, is an association of two or more persons to carry on as co-owners a business for profit.

Appellant contends the trial court’s supplemental instructions did not adequately answer the jury’s question and the court erred in failing to instruct the jury that no particular number of statutory factors under § 33-41-220 need be proven in order to permit the finding of a partnership.  We disagree.  By admonishing the jury that the rules and tests described were “simply factors to be considered” by the jury in making its determination, we find the jury’s concern about applying one or all of the elements was adequately addressed.  This instruction from the trial judge sufficiently advised the jury that no particular number of statutory factors were necessary.  The general instructions given by the court were sufficiently broad to enable the jury to understand the law and the issues involved.  Accordingly, we find no error with the trial judge’s response to the jury’s question.

II.      Entitlement to New Trial Based on the Evidence

Finally, Appellant argues the record contains no evidence to reasonably support the jury’s findings. She therefore asserts she is entitled to a new trial.  We disagree.

In an action at law, on appeal of a case tried by a jury, the appellate court will correct errors of law, but will not disturb a factual finding of the jury unless a review of the record discloses no evidence to reasonably support the jury’s findings.  York v. Conway Ford, Inc., 325 S.C. 170, 174, 480 S.E.2d 726, 728 (1997).  This court has no power to review matters of fact in an action at law, except to determine if a verdict is wholly unsupported by the evidence.  Id.

South Carolina’s Uniform Partnership Act defines a “partnership” as “an association of two or more persons to carry on as co-owners a business for profit. . . .” S.C. Code Ann. § 33-41-210 (Supp. 2003).  In applying this definition, our courts have held:  “The following tests are appropriate in determining whether a partnership exists:  (1) the sharing of profits and losses; (2) community of interest in capital or property; and (3) community of interest in control and management.”  Halbersberg v. Berry, 302 S.C. 97, 101, 394 S.E.2d 7, 10 (Ct. App. 1990).  In the present case, we find the evidence regarding the intended ownership structure, treatment of profits and losses, and control and management over the ventures was sufficient for the jury to reasonably conclude a partnership did not exist.

Specifically, there is evidence from which the jury could conclude that Post was not a “co-owner” in the venture and did not hold any “community of interest” in the capital or property at issue.  As noted above, Kisteneff testified that when he proposed that he and Post enter into a partnership, Post expressly declined, citing his inability to hold an ownership interest in any new venture due to the personal liens and judgments that had been entered against him.  Moreover, it is undisputed that Post never invested any capital toward the real estate projects in question.

Further, there is evidence from which the jury could determine Post did not hold any “community of interest in control and management” of the projects.  The WAGA letter, which Kisteneff testified they all agreed laid the foundation to their relationship, clearly contemplated an association whereby Post would be an agent of the partnership between Kisteneff and Canney, but would not, himself, be a partner.  Kisteneff also testified to instances where he “authorized” Post to begin work on a project or to execute a contract on behalf of KCI, thereby evincing Kisteneff’s control and management over the projects.  Kisteneff further maintained, because he was the only one investing money and was the only one at risk in the ventures, he had “sole control” over the projects.

Finally, the jury could reasonably find that a partnership was not implied from the sharing of profits and losses.  When examining profit-sharing arrangements for the purpose of determining the existence of a partnership, the Act provides that:

The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment

(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 vary with the profits of the business or

(e) as the consideration for the sale of the good will of a business or other property by installments or otherwise.

S.C. Code Ann. § 33-41-220(4) (Supp. 2003). 

Although there is evidence KCI advanced Post a total of $75,000 against his future share of profits in the Boston project, it is undisputed that no profits were ever actually realized from this project or any other.  The testimony from Kisteneff shows their agreement was that Post was to share in the profits if and only if the projects were successful enough to produce profits.  Thus, Post did not actually receive “a share of the profits,” but only an advance toward the monies the parties contemplated he would realize from his association in the ventures.  As discussed above, there was substantial evidence that Kisteneff and Canney intended to structure their relationship with Post so that Post would be employed as an agent, and the distribution of any profits to him would be classified as compensation, or wages, for work performed on the venture.  Accordingly, there is evidence from which the jury could have determined, pursuant to § 33-41-220(4)(b), no inference should be drawn as to a partnership based on the $75,000 advance.  Finally, one of the appropriate tests in determining the existence of a partnership is not simply consideration of the sharing of profits, but also the sharing of losses.  The evidence here shows no attendant sharing in losses by Post.

For these reasons, we find sufficient evidence of record to reasonably support the jury’s finding that no partnership existed.      

CONCLUSION

For the foregoing reasons, we find no error with the trial judge’s instructions to the jury.  We further find the evidence adduced at trial reasonably supports the jury’s verdict, and appellant is therefore not entitled to a new trial.  The ruling of the trial court is

AFFIRMED.

HUFF, STILWELL, and CURETON, JJ., concur.


[1] Ultimately, Alexis Pierre Kisteneff was added as a plaintiff andBara Post, individually and as the personal representative of her late husband, Malcolm Post, was substituted as defendant after Malcolm’s death.