Ziemann v. Grosz
2024 ND 166 (2024)
Rule of Law:
A partnership is formed by the association of persons to carry on a business for profit as co-owners, regardless of subjective intent to avoid the legal label, and in the absence of a specific agreement regarding dissolution, statutory default rules require that partners be credited for the value of property they contributed to the partnership during the winding-up process.
Facts:
- Juanita Grosz and her late husband owned and operated Grosz Wrecking, a salvage business located on the property where they resided.
- Following her husband's death, Grosz's grandson, Jason Ziemann, became involved in the business operations.
- In 2014, Ziemann moved into the home located on the business property.
- The parties entered an oral agreement where Ziemann managed day-to-day operations and expenses while Grosz handled administrative tasks.
- They agreed to split profits, eventually settling on a 70/30 split in Ziemann's favor, while Ziemann held himself out as an owner and developed the business website.
- Grosz permitted Ziemann to sell the existing inventory of wrecking vehicles that she had acquired from her husband's estate.
- In 2022, a dispute arose when Ziemann refused to purchase the home, leading Grosz to attempt to evict him from the property.
Procedural Posture:
- Ziemann sued Grosz in the District Court of McLean County seeking a declaration of partnership, accounting, and damages for tortious interference.
- Grosz filed an answer and a counterclaim for trespass.
- The parties filed cross-motions for partial summary judgment.
- The District Court denied Ziemann's motion regarding the partnership's existence but granted Grosz's motion to dismiss Ziemann's tortious interference and fiduciary duty claims.
- A bench trial was held on the remaining issues.
- The District Court entered judgment finding a partnership existed, dismissing the trespass claim, and ordering liquidation with a 70/30 distribution.
- Grosz appealed and Ziemann cross-appealed to the North Dakota Supreme Court.
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Issue:
Did the district court err in determining that the parties formed a legal partnership through their conduct despite the lack of a written agreement, and did it correctly apply the statutory rules for distributing assets upon the dissolution of that partnership?
Opinions:
Majority - Justice Crothers
Yes, the district court correctly determined a partnership existed, but No, it erred in its calculation of asset distribution upon dissolution. The Court affirmed that a partnership was formed because the parties met the critical elements: intent to carry on a business for profit, co-ownership evidenced by shared control, and a profit motive. Despite the lack of a written agreement and tax documents suggesting otherwise, their conduct—specifically Ziemann's control over operations and the shared profits—established a partnership under N.D.C.C. § 45-14-02. The Court also affirmed that the inventory Grosz owned became partnership property when she allowed Ziemann to sell it as part of the business. However, the Court reversed the lower court's winding-up order. The lower court ordered a simple 70/30 split of the surplus. The Supreme Court held that because there was no specific agreement regarding winding up, the statutory default rules (N.D.C.C. § 45-20-07) apply. These rules require that a partner be credited for the value of property they contributed. Therefore, Grosz is entitled to a credit for the value of the inventory she contributed before the remaining surplus is distributed. The Court also affirmed the dismissal of Ziemann's tort claims due to lack of evidence and inadmissible hearsay, and affirmed the dismissal of Grosz's trespass claim because Ziemann's residency was part of the partnership agreement.
Analysis:
This decision illustrates the primacy of conduct over labels in partnership law. Even when parties subjectively intend to avoid being partners (as evidenced by tax filings), courts will look to the objective reality of their business relationship—specifically control and profit sharing—to determine if a partnership exists. Significantly, the ruling highlights the danger of relying on oral agreements for complex business dissolutions. By defaulting to the statutory winding-up provisions, the Court clarified that 'operating' profit splits (like 70/30) do not automatically translate to 'winding up' distributions. The contributor of capital assets retains a right to be credited for that value upon dissolution unless explicitly agreed otherwise. This protects the capital contributor in oral partnerships.
