ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION
DIVISION IV

MARK A. LYNN

APPELLANT

V.

RICHARD L. COX, TRUSTEE

APPELLEE and CROSS-APPELLANT

V.

MARK A. LYNN and GEORGIA

LYNN

CROSS-APPELLEES

CA 02-848

September 17, 2003

APPEAL FROM THE PHILLIPS

COUNTY CIRCUIT COURT

[E-97-692]

HONORABLE KATHLEEN BELL,

CIRCUIT JUDGE

REVERSED AND REMANDED ON

DIRECT APPEAL; AFFIRMED IN

PART AND REMANDED IN PART ON CROSS-APPEAL

John F. Stroud, Jr., Chief Judge

This case involves a dispute between a father and son in a family farming operation. The procedural history of the case is long and complicated. For purposes of this appeal and cross-appeal, however, it is not necessary to recount that history in detail. It is sufficient to state that appellant, Mark Lynn, essentially prevailed in a lawsuit that he filed against his father, Harry Lynn, concerning certain questionable accounting treatments that Harry employed regarding "partnership expenses" and capital accounts. Even though Mark prevailed in the lawsuit, he filed the instant appeal contending that the trial court erred in refusing to award him prejudgment interest on certain misappropriated funds.

During the course of this case, Harry Lynn filed for bankruptcy. The bankruptcy court subsequently modified the automatic stay to allow for additional proceedings in the case. Eventually, the bankruptcy case was converted to Chapter 7, and Richard L. Cox was appointed trustee. Consequently, the appellee and cross-appellant in this case is Richard L. Cox, as trustee. In the cross-appeal, Cox contends: 1) that the "trial court erred in not applying the three-year statute of limitations to Mark's claim of conversion and breach of fiduciary duty in Count IV"; 2) that the "trial court erred in failing to give [Harry] Lynn credit for equipment contributed to the partnership during its first year and the down payment on the Scott Place on which it imposed a constructive trust giving a one-half interest to Mark."

We reverse and remand on Mark Lynn's appeal concerning prejudgment interest. On Cox's cross-appeal, we affirm with respect to the trial court's refusal to apply the three-year statute of limitations and with respect to the trial court's refusal to give Harry Lynn credit for the equipment contributed during the first year of the partnership; however, with respect to the issue concerning the down payment on the Scott Place, we remand to the trial court.

Mark and Harry entered a partnership agreement on January 2, 1978, to form Lynn & Lynn Farms. Two of the more pertinent provisions of the agreement provide:

5. The Parties have contributed to the capital of this firm equally and the interest of the respective partners in the firm is fifty percent (50%) each.

. . .

10. An accounting shall be had of the earnings and losses of the Partnership on an annual basis and a statement thereof rendered to each partner. At this time any losses must be paid and liquidated by the partners according to their respective interest and any profits may be distributed according to their respective interest taking into account the withdrawal of the respective members, provided that at all times there shall be left sufficient working capital to carry out the business of the Partnership.

On November 29, 1978, Mark and Harry entered another agreement, which has been treated as an amendment or addendum to the original agreement. It provides in pertinent part:

Any funds withdrawn by a partner for personal use or reasons will be charged to his personal account and repaid each year from his share of the profits.

Any investment of cash or fixed assets shall be recorded on the books under the name of the partner making the contribution to the partnership.

The partnership agreement was amended again in February 1989 to divide the partnership among several corporations. However, due to their equal ownership of the corporations, the parties agreed that the partnership essentially remained a fifty-fifty split between Mark and Harry. Harry served as the managing partner, and it was generally agreed that the partnership books were kept at his residence.

The partnership was dissolved in 1995 after the crops were harvested, and the winding-up process was finished by 1996. As a result of his parents' divorce action, Mark began learning some things in late 1997 concerning the manner in which his father had handled partnership assets while the partnership was in existence. The first complaint filed by Mark dealt with the Scott Place, and issues related thereto. With a second substituted complaint, filed on February 9, 1999, he added Count IV, which alleged in part:

33. In violation of the partnership agreement and in breach of his statutory duties as a partner and fiduciary, Harry used partnership assets for this [sic] exclusive benefit. Among other things, Harry: . . . .

There follows a list of several asserted misappropriations. A fourth substituted complaint refined those allegations.

For his point of appeal, Mark contends that the chancellor misapplied the law by denying him prejudgment interest because the documentary evidence, consisting principally of partnership checks, deposit tickets, and other financial data, specifically fixed Harry's misappropriations of partnership assets by date and amount. The test for awarding prejudgment interest is whether a method exists for fixing an exact value on the cause of action at the time of the occurrence of the event that gives rise to the cause of action. Home Mut. Fire Ins. Co. v. Jones, 63 Ark. App. 221, 977 S.W.2d 12 (1998). If such a method exists, prejudgment interest should be allowed because one who has use of another's money should be justly required to pay interest from the time it lawfully should have been paid. Id.

Here, although the trial court awarded prejudgment interest with respect to Count III, which is not involved in this appeal, the trial court did not explain its rationale for denying the prejudgment interest with respect to Count IV. Yet, many of the items making up the total amount awarded to Mark pursuant to Count IV of his complaint seem to qualify for prejudgment interest because they have an exact value and time of occurrence. Consequently, to the extent that any of the items making up the total amount awarded to Mark satisfy the requirements for an award of prejudgment interest, the trial court erred in refusing to award it. Rather than this court addressing each item, determining the appropriateness of applying prejudgment interest, and then calculating the amount of such interest, we reverse and remand this issue to the trial court with directions to award the interest where appropriate, applying the test set forth above.

Under the first point of the cross-appeal, Richard Cox, trustee, contends that the trial court erred in refusing to apply the three-year statute of limitations "to Mark's claim of conversion and breach of fiduciary duty in Count IV." We find no error.

The basic thrust of cross-appellant's argument under this point of appeal is that "Mark used the `language' of tort to plead his cause of action" and the "statute of limitations for general torts like conversion and breach of fiduciary duty will be three years from when the underlying tort is `complete.'" As an example, cross-appellant cites the language of paragraph 33 of Count IV of Mark's second substituted complaint, quoted earlier in this opinion, and argues that it clearly sounds in tort.

It is undisputed that Mark and Harry entered a written partnership agreement in 1978 and that they dissolved the partnership in 1995. Mark's original complaint was filed in 1997 with respect to the Scott Place, and on February 9, 1999, he filed his second substituted complaint, which added Count IV, alleging that Harry violated the partnership agreement and breached his statutory duties as a partner and fiduciary by using partnership assets for his exclusive benefit. He also listed several alleged misappropriations. Actions to enforce written obligations, duties, or rights shall be commenced within five years after the cause of action shall accrue. Ark. Code Ann. § 16-56-111 (Supp. 2001). "The right to an account of his interest shall accrue to any partner, or his legal representative, as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution in the absence of any agreement to the contrary." Ark. Code Ann. § 4-42-615 (Repl. 2001); see also Peden v. Peden, 234 Ark. 26, 350 S.W.2d 509 (1961) (five-year statute of limitation applies to partnership based upon a written instrument).

Moreover, every partner must account to the partnership for any benefit and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. Ark. Code Ann. § 4-42-404(1) (Repl. 2001). The trial court specifically found that there was "no behavior of Harry Lynn which would impose upon [Mark] the duty to investigate prior to the time the parties were engaged in wrapping up the partnership business" and concluded that "[t]his lawsuit, commenced in 1997 and amended in 1999, is not barred by the limitations statute." We find no error in the trial court's finding of fact nor in its legal conclusion.

For his second point, cross-appellant contends that the trial court erred in failing to give him credit for 1) his contribution to the partnership of farm equipment, valued at $147,700, and 2) the down payment on the Scott Place.

1) Farm Equipment

At trial, Harry testified that during the first year of the partnership, he contributed farm equipment, valued at $147,700, and that Mark did not contribute anything. The trial court did not allow a corresponding set-off for Harry, reasoning:

Harry Lynn also requests a set-off for his contribution of the equipment when the partners [sic] was initially formed. Prior to formation of the partnership, Harry Lynn was the owner of a significant amount of equipment. Charles Loeschner testified as to the value of the equipment. The parties and this court are bound by the terms of the partnership agreement, including its amendments. The partnership agreement executed in January 1978, contains this paragraph:

5. The parties have contributed to the capital of this firm equally and the interest of the respective partners in the firm is fifty percent (50%) each.

The addendum to that agreement, signed on November 29, 1978 stated: "Any investment of cash or fixed assets shall be recorded on the books under the name of the partner making the contribution to the partnership." Exhibit 1-2. The fact that partners did not comply with that provision at the time of the formation of the partnership does not allow the court to do so. No list of the contribution, either cash or other assets, was made a part of the partnership records. The court cannot now create such a record.

(Emphasis in original.) We find no error in the trial court's conclusion.

2) Down payment on Scott Place

Under this portion of Cox's argument, he contends that the trial court acknowledged that Harry contributed $100,000 of his own personal funds to make the down payment on a parcel of land referred to as the Scott Place, an amount that was disputed by Mark. Cox argues, therefore, that the trial court erred in failing to give him credit for that amount against the $180,992.55 judgment awarded to Mark. We find no error in the trial court's failure to set off this amount against the money judgment because the money judgment in this case resulted from fraudulent misappropriations, which is an entirely different issue from the trial court's imposition of a resulting trust on the Scott Place.

However, in her August 13, 1999 letter opinion, which was incorporated into the September 22, 1999 order imposing and implementing a resulting trust on the Scott Place, the trial judge found that Harry had made the $100,000 down payment, but apparently did not take that into consideration when she granted Mark a full undivided one-half interest in the Scott Place. Therefore, we remand this issue to the trial court to adjust Harry and Mark's respective undivided interests in the Scott Place to the extent that Harry contributed his own funds as all or part of the down payment.

Reversed and remanded on direct appeal; affirmed in part and remanded in part on cross-appeal.

Bird and Vaught, JJ., agree.