WPCV  z{x| DAJknNDevωc[n'z%-o#8W0)}$.G ]K"Mœ@X3X5hXal#MI/ Js6گoӕR>ndJ$⍠jtg}<];tv֥!ŏq 䪨є5LTʕ(zTbYtN$$iݘ֭:!pEG٪IxX37ӒfkSnDཛྷᵶF{ P2V4.S|4 ="9y̴sqV\uX_+>|UCv~@5YJذN3L py(3Y NBRW,NbU>P 0V\ 0 0<P 0< 0U, D+ C  0 # UN % M ( N ^  w% 4) = m? \  `&Times New Roman' Marengo v $Judge Don AshL0A satisfied Microsoft Office User .   6 4Heading 1   64 '4Heading 4XXX        <:Default Para6 4Body Text < :Document MapA $TahomaAC 4$X ddCA $TahomaA  7 (X7S\  `&Times New RomanS  $Tahoma'dxddd#|x(Pp$..      +SXX+S+SHP LaserJet 4050 Series PCL 6,,,,0(9 Z6Times New Roman RegularXG+s 8n_+0U  Pp!..      <{XX<{<{  _              <{ INTHECOURTOFAPPEALSOFTENNESSEE݌  Ќ       ATNASHVILLE݌  Ќ     *  N  September2001SESSION*H݌ > Ќ         XlXN ݌̌       h  N XXlROBERTF.MARENGOANDFRANCINER.MARENGOV.TERRY 0 BOWENh݌  < Ќ     X  Xv݌̌       XlXN AppealfromtheChanceryCourtforPutnamCounty݌  T Ќ       No.92573@..VernonNeal,Chancellor݌  : Ќ     2  N XXl___________________2P݌   Ќ       ݌̌      &  B  NO.M200002379_COA_ԄR3CVFiledDecember10,2001By  UԌ 8  Ќ      :  XlXN ___________________:e  MԌ D  Ќ            <    Ԍ̌         ThisisanappealfromthejudgmentoftheChancellorregardingthejudicialdissolution  ofacontinuingpartnership.Thetrialcourtdeterminedthewithdrawingpartnersdebt  shouldnotbeoffsetagainsthiscapitalaccountinassessinghisdissolutiondatevalue  untilthevaluationofthebusinesswasmadebythecourt,itwaspropertoaddan r additional$20,000asagoingconcernadjustmenttothevaluationofthepartnership, X certainsalaryadjustmentswereproper,andamarketabilityand/orminoritydiscountdoes > notapplytothepartnership.ThisCourtconcludedthetrialcourtsdetermination $t offsettingthewithdrawingpartnersdebttothepartnershipasofthetrialdatewas  Z proper,thetrialcourterredinaddinganadditional$20,000asagoingconcernvalueto @ thevaluationofthepartnership,thetrialcourtssalaryadjustmentwasproper,thetrial & courtsrefusaltoapplyaminorityand/ormarketabilitydiscountwasproper,andthetrial   courtsadjustmentforaportionofthepartnershipslegalandprofessionalexpenseswas  proper.Thejudgmentofthetrialcourtisaffirmedinpart,reversedinpart,andremanded  forrecalculationofthevalueofthewithdrawingpartnersinterestasconsistentwiththis n order.Costsofthisappealshallbesplitbetweentheappellantandtheappellee.   Ԍ T Ќ  <{XXl'mXlX<{      &    Tenn.R.App.P.3AppealasofRight;JudgmentoftheCircuitCourt&  Ԍ  I Ќ  <{XXl  XlX<{        AffirmedinPart;ReversedinPart;andRemandedU  =Ԍ !/ Ќ  <{XXl  XlX<{' DonR.Ash,S.J.,deliveredtheopinionofthecourt,inwhichWilliamB.Cain,J.and #! BenH._Cantrell_,_P.J._,M.S.,joined. $" <{XXl      &  j  XlX<{OPINIONj  }Ԍ 6&!$ Ќ        A  Ax  TԌ̌  '6&  I. (8$'     &      C  Ԍ̌    ')7 XOnSeptember1,1989,Plaintiffs/Appellants,RobertF.MarengoandFrancineR. +&* Marengo,formedanoralpartnershipwithDefendant/AppelleeTerryBowenknownas ,'+ CustomFireplaces&More.PlaintiffsmadeapersonalloantotheDefendantonApril f-(, _15,1991,asevidencedbytwonotesfor$9,500and$19,500.Defendantrepaidhis  personalloanfromthePlaintiffsonAugust12,1992,byrefinancingitwithaloanfrom  thepartnership.ThePartnershipissuedcheck#1087payabletoDefendantintheamount | of$29,086.64.DefendantendorsedthecheckinfavorofPlaintiffs.Theloanbythe b partnershipwasfurtherevidencedbyapromissorynote,referredtoas theBowenNote. H TheBowenNotewascarriedonthebooksofthePartnershipasapartnershipasset.On . ~ August21,1992,PlaintiffsmadeaseparateadvancetothePartnership,alsointhe  d amountof$29,086.64,fromtheirpersonalfunds.TheadvancemadebythePlaintiffs  J wascarriedonthebooksofthePartnershipasapartnershipliability.  0  X XPlaintiffsnotifiedtheDefendantthepartnershipwasdissolvedbyletterdated    September10,1992.PlaintiffsfiledaComplainttoDissolveaPartnershiponOctober5,   1992,requestingjudicialdissolutionandcontinuationofthebusinesswithDefendantto x  receivehisappropriateshare.DefendantfiledhisAnsweronNovember18,1992and ^  consentedtothecontinuation.ThomasE.HalewasappointedasSpecialMasteronMay D  6,1993.Mr.HalewasremovedasSpecialMasterduetoapotentialconflictofinterest *z  onNovember5,1993andreplacedbyJimH.Camp.Mr.Campsreportfound,among ` otherthings,itwaspropertoemploytheexcessearningsmethodtovaluethebusiness,it F waspropertoaddanadditional$20,000asagoingconcernadjustment,Defendantsdebt , shouldnotbeoffsetagainsthiscapitalaccountindetermininghisdissolutiondatevalue  untilthedateofdistribution,andamarketabilityand/orminoritydiscountdoesnotapply  tothepartnership.TheChancellorheldalimitedhearingonPlaintiffsobjections,and  initiallyfoundthewithdrawingpartnersdebtshouldbeoffsetagainsthiscapitalposition t asofthedateofdissolution,September10,1992,andremandedthemattertoMr.Camp Z forreconsideration.Mr.Campfileda FinalReportofSpecialMaster,JimH.Campon @ November25,1998,acquiescingtotheChancellorsrecommendationthedebtshouldbe &v appliedasareductiontotheDefendantscapitalaccount.Sadly,theSpecialMaster  \ becameillanddiedbeforeMr.Campwasabletopresenthistestimonytothecourt. B  ( Next,theCourtappointedSpecialMasterJoeThornetoreviewMr.Camps  report.Mr.ThornefiledhisreportonMarch9,2000.Mr.Thorneconcludedhecould  findnofaultwiththeadditionof$20,000asagoingconcernvalue.Healsostatedinhis   (unsupported)opinion,thepropertimeforoffsettingtheloantotheDefendantwasatthe p!  timeofsettlement.AfinalhearingwasheldbeforetheChancelloronJuly10,2000and V"! theChancellorsignedtheresultingOrderonAugust24,2000.Plaintiffstimelyfiled <#" theirNoticeofAppealonSeptember15,2000.DefendantfiledaMotiontoAlteror "$r# AmendonSeptember22,2000.TheCourtfiledanAmendedOrderonNovember30, %X $ 2000. %>!%  X  II. &$"&  X  Thefollowingissuesarebeforethecourt:(A)Whetherthetrialcourterredin (#( offsettingthevalueofthewithdrawingpartnersdebttothepartnershipasofthetrial )$) dateratherthanthedissolutiondate;(B)Whetherthetrialcourterredinaddinga l*%* $20,000 goingconcernvalueadjustmenttothevalueofthepartnershipasofthe R+&+ dissolutiondate;(C)Whetherthetrialcourterredbyapplyingan artificiallylowsalary 8,', adjustmenttoreflectthecontributionsofthethreepartnerstothebusinesspriortothe -n(- dissolutiondateindeterminingthevalueofthepartnership;(D)Whetherthetrialcourt  erredbyapplyingan artificiallylowsalaryadjustmenttoreflectthecontributionsof  theremainingpartnerstothebusinessafterthedissolutiondateindeterminingthevalue | ofthepartnership;(E)Whetherthetrialcourterredwhenitrefusedtoapplyaminority b and/ormarketabilitydiscount,wherethewithdrawingpartnerhadonlyaonethird H interestandtheremainingpartnerswereamarriedcouplewiththepowertooutvoteany . ~ otherpartner;and(F)Whetherthetrialcourterredinapplyinganadjustmentfora  d portionofthelegalandprofessionalexpensesincurredbythepartnershipwhen  J determiningthewithdrawingpartnersinterest.  0    X-  --݌̌       .  III..?.݌    Ќ       .  ..݌̌     /  A. 4 Whetherthetrialcourterredinoffsettingthevalueofthewithdrawing x  partnersdebttothepartnershipasofthetrialdateofDecember31,1999,rather ^  thanthedissolutiondateofSeptember10,1992?/-/݌ D  Ќ  XFirst,thiscourtmustdeterminetheappropriatedateforthecalculationof ` Bowensinterestinthepartnership,followedbyconsiderationofthepropertimingfor F theoffsetofthevalueofBowenscorrespondingdebttothepartnership.Appellee , complainsappellatereviewoftheChancellorsdeterminationoftheoffsetshouldbe  calculatedonDecember31,1999isprecludedbythetrialcourtsconcurrentfindingsof  fact.Althoughconcurrentfindingsoffactaretypicallyentitledtopreclusiveeffect,  appellatecourtsmayintervenewheretherearequestionsoflaw,mixedquestionsoflaw t andfact,orwheretherulingisnotsupportedbymaterialevidence.Staggsv.Herff Z MotorCo.,390S.W.2d245,251(Tenn.1965).Thedeterminationofthedateofthe @ offsetisultimatelyalegalquestiongovernedbythetermsofthepromissorynote &v executedbetweenthepartiesandtheinterpretationoftheTennesseestatutesunderthe  \ UniformPartnershipAct.Assuch,appellatereviewofthisissueisappropriate. B  X XForpurposesofclarification,thiscourtwouldliketodistinguishthetwo  scenariosinwhichaformerpartnersinterestinadissolvedpartnershipmaybe  calculated.First,dissolutionmaybeachievedthroughcompletelywindingupthe   partnershipsoperations.Anaccountingbetweenformerpartnersandthecalculationofa p!  withdrawingpartnersinterestisappropriateasofthedateofdistribution only whenthe V"! partnershiphasbeenwoundup.Shepardv.Griffin,929S.W.2d336(Tenn.App.1995). <#" Incontrast,twoormoreoftheformerpartnersmayelecttocontinuetheoperationofthe "$r# partnershipwithouttheparticipationofoneormoreformerpartners.Tennessees %X $ adoptionoftheUniformPartnershipActprovidesspecificinstructionsfortheproper %>!% calculationofawithdrawingpartnersinterestinacontinuingpartnership.T.C.A.611 &$"& 141indicatesthatthewithdrawingpartnerofacontinuingpartnershipisentitledto ' #' receivethevalueofhisfixedinterestonthedateofdissolutionplushiselectionofeither (#( interestortheprofitsattributabletothecontinuingpartnersuseofhisinterestinthenow )$) dissolvedpartnership.ThepurposeofT.C.A.611141istocompensatethe l*%* withdrawingpartnerfortheprofitsearnedbythecontinuingpartnershipasaresultofthe R+&+  useoftheformerpartnersequity.Bowenconsentedtothecontinuationofthe 8,', partnership,andcalculationofthewithdrawingpartnersinterestasofthedateof  dissolutionisappropriateunderT.C.A.611141.   X XNext,wemustconsidertheappropriatetimingfortheoffsetofthevalueof b Bowenscorrespondingdebttothepartnership.ThisCourtbelievesthetermsofthe H PromissoryNoteexecutedbythepartiescontrolswhentheNotebecomesdueandthe . ~ timingfortheoffsetofBowensdebttothepartnership.Thepertinentlanguageinthe  d agreementreads, intheeventofabuyout,theunpaidbalanceofthisnote,including  J interestduetodate,willbesubtractedfromtheagreedsellingpriceofmy1/3(onethird)  0 shareofalltheownerequity,tools,equipment,accounts,andgeneralintangiblesof    CustomFireplaces&More.Thisagreementconstitutesademandnote,andthereare    twoeventsthatmustoccurinorderfortheNotetocomedue:1)theremustbeabuyout,   and2)anagreedsellingpricemustbecalculated. BuyoutisdefinedinBlacksLaw x  Dictionaryasthepurchaseofacontrollingpercentageofacompanysshares.Abuyout ^  maybeaccomplishedthroughnegotiation,throughatenderofferorthroughamerger. D  Inthepresentcase,thepurchaseofthewithdrawingpartnerssharesinthecompanyand *z  thecalculationofanagreedsellingpricewerenotcompleteduntilthetrialdate. ` Consequently,thetrialcourtsdeterminationtheNoteshouldbeoffsetagainstthevalue F ofBowensinterestasofDecember31,1999isaffirmed. ,  X   ED  (B) 4 Whetherthetrialcourterredinaddinga$20,000 goingconcernvalue  adjustmenttothevalueofthepartnershipasofthedissolutiondate?EDcD݌  Ќ     wE  wEE݌̌     XE  Again,Appelleecontendsappellatereviewofthegoingconcernvalueadjustment Z isprecludedbythetrialcourtsconcurrentfindingsoffact.However,appellatereview @ ofthisissueisappropriatebecauseitinvolvesaquestionoflawanddoesnotappeartobe &v supportedbymaterialevidence.Thetrialcourtadoptedtheexcessearningsapproachas  \ themethodforvaluingthepartnership.Theexcessearningsmethodconsidersthevalue B ofbothtangibleandintangibleassetswhenarrivingatthetotalvalueofthebusiness. ( Thegoingconcernvalueofthepartnershipmustbeclassifiedaseitheratangibleor  intangibleasset.SpecialMasterThorneultimatelyclassifiedthegoingconcernvalueof  thepartnershipasatangibleassetandassessedavalueof$20,000.Hefailedhowever,to   citeanymaterialevidencetosupporthisconclusionthegoingconcernvalueofthe p!  partnershipwasatangibleassetorthatitshouldbevaluedat$20,000.Infact,theonly V"! evidenceintherecordrelatedtothegoingconcernvalueofthepartnershipsuggestsit <#" maybeanintangibleasset.Mr.Thorneeventuallyconcludedthevalueofallintangible "$r# assetsconsistedof$3,428.Thiscourtconcludesthetrialcourterredinaddinga$20,000 %X $ goingconcernvalueadjustmenttothevalueofthepartnership.EF݌ %>!% Ќ     XL  LL݌̌     M  (C) 4 Whetherthetrialcourterredbyapplyingan artificiallylowsalary ' #' adjustmenttoreflectthecontributionsofthethreepartnerstothebusinessprior (#( tothedissolutiondateindeterminingthevalueofthepartnership? 󀀀 M0M݌ )$) Ќ     N  NN݌̌     "O  (D) 4 Whetherthetrialcourterredbyapplyingan artificiallylowsalary R+&+ adjustmenttoreflectthecontributionsoftheremainingpartnerstothebusiness 8,', afterthedissolutiondateindeterminingthevalueofthepartnership?"O@O݌ -n(- Ќ     P  PP݌̌     XQ  ThecourtwilladdressIssues3and4togethersincetheybothconsiderthesame  topic"salaryadjustmentfigures.Salaryfiguresforthecontributionsofthepartners | mustrepresentareasonablewageforsimilarpersonnelperformingthesameorsimilar b functionsinasimilarsizedbusiness.Partnersareentitledtobecompensatedforthefair H valueoftheirtime,skillandlaborfortheservicestheyperformed.Shepard,929S.W.2d . ~ at345.Therecordinthismattercontainsmaterialevidencetosupporttheconcurrent  d findingsofbothoftheSpecialMastersandtheChancellor.Thedeterminationofthetrial  J courtisconclusive,andthiscourtaffirmstheChancellorssalaryadjustment.QIQ݌  0 Ќ     XT  T'U݌̌     nU  (E) 4 Whetherthetrialcourterredwhenitrefusedtoapplyaminorityand/or    marketabilitydiscounts,wherethewithdrawingpartnerhadonlyaonethird   interestandtheremainingpartnerswereamarriedcouplewiththepowerto x  outvoteanyotherpartner?nUU݌ ^  Ќ     /W  /WMW݌̌     XW  Appelleecontendsappellatereviewofthetrialcourtsrefusaltoapplya30% *z  minorityand/ormarketabilitydiscountisprecludedbytheetrialcourtsconcurrent ` findingsoffact.Theapplicationofaminorityand/ormarketabilitydiscounttothe F valuationofawithdrawingpartnersinterestisaquestionoflaw.Thus,appellatereview , ofthisissueofisappropriate.ItisalsoanissueoffirstimpressioninTennessee.This  courthasconsideredtheprecedentsofotherstatesforguidance.Thiscourtisunwilling  toapplyaminorityand/ormarketabilitydiscounttothevaluationofapartnershipinthe  absenceofspecificauthorizationunderTennesseelaw.Consequently,thiscourtaffirms t thetrialcourtsrefusaltoapplyaminoritydiscounttothecalculationofthewithdrawing Z partnersinterest.WW݌ @ Ќ     X\  \?\݌̌     \  (F) 4 Whetherthetrialcourterredinapplyinganadjustmentforaportionofthe  \ legalandprofessionalexpensesincurredbythepartnershipwhendeterminingthe B withdrawingpartnersinterest? \\݌ ( Ќ     ]  ]^݌̌     Xc^  T.C.A.611141explicitlyprovidesthewithdrawingpartnerbecomesacreditor  ofthepartnershipasofthedateofdissolution.ThelawiswellestablishedinTennessee   thesurvivingpartnersareentitledtoattorneyfeesfordefendingpartnershipassets.Bird p!  v.Collette,168S.W.2d797(Tenn.App.1942);Evansv.Boggs,245S.W.2d641 V"! (Tenn.App.1951).Therecordinthismattercontainsampleauthorityforthiscourtto <#" affirmtheconcurrentfindingsoftheSpecialMastersandTheChancellordetermining "$r# thattheAppelleewasacreditorofthepartnershipandapplyinganadjustmentfora %X $ portionofthelegalandprofessionalexpensesincurredbythepartnership.c^^݌ %>!% Ќ     X)b  )bUb݌̌       b  ***bb݌ ' #' Ќ     $c  $cBc݌̌     c  IV.cc݌ )$) Ќ     d  d#d݌̌     X  jd  Thiscourtconcludesthetrialcourtsdeterminationoffsettingthewithdrawing R+&+ partnersdebttothepartnershipasofthetrialdateofDecember31,1999isaffirmed;the 8,', trialcourtsadditionofa$20,000goingconcernvalueadjustmenttothevalueofthe -n(- partnershipisreversedandremandedforrecalculationconsistentwiththisopinion;the  trialcourtsdeterminationsregardingsalaryadjustmentsareaffirmed;thetrialcourts  refusaltoapplyaminoritydiscounttothecalculationofthevalueofthewithdrawing | partnersinterestinthepartnershipisaffirmed;andthetrailcourtsadjustmentfora b portionofthelegalandprofessionalexpensesincurredbythepartnershipisalso H affirmed.CostsofthisAppealshallbesplitbetweentheappellantandtheappellee.For . ~ theforegoingreasons,thejudgmentofthetrialcourtisaffirmedinpart,reversedinpart,  d andremandedforrecalculationofthevalueofthewithdrawingpartnersinterestas  J consistentwiththisorder.jdd݌  0 Ќ     Xi  ij݌̌     Nj  Njlj݌̌       j  @..@..@..@..@..@..@..@.._______________________jj݌   Ќ       k  kl݌̌       Xl  @..@..@..@..@..@..@..DONR.ASH,SPECIALJUDGEXll݌ ^  Ќ       {m  󀀀{mm݌ D  Ќ  <{XXl