COURT OF
APPEALS DECISION DATED AND
RELEASED February
5, 1997 |
NOTICE |
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 96-0469
STATE OF WISCONSIN IN
COURT OF APPEALS
DISTRICT II
ALLEN
R. RADTKE, JR., and
SIMONE
ENGINEERING, INC.,
Plaintiffs-Appellants,
v.
EAST
MEQUON BUSINESS PARK LIMITED
PARTNERSHIP
and EAST MEQUON
DEVELOPMENT
CORPORATION,
Defendants-Respondents,
EAST
MEQUON DEVELOPMENT CORPORATION,
Third Party Plaintiff,
v.
GIC
DEVELOPMENT, INC., a Wisconsin
corporation,
and JOHN O. GRAHAM,
Third Party Defendants.
APPEAL
from a judgment of the circuit court for Ozaukee County: WALTER J. SWIETLIK, Judge. Affirmed.
Before
Snyder, P.J., Brown and Nettesheim, JJ.
PER
CURIAM. Allen R. Radtke, Jr. and Simone Engineering, Inc.
appeal from a judgment dismissing four causes of action against East Mequon
Business Park Limited Partnership and East Mequon Development Corporation
(collectively, the Partnership) for the failure to make Radtke a limited
partner in the Partnership. They argue
that summary judgment was inappropriate because it was error to exclude
consideration of negotiations because of a merger clause in a lease between
Simone Engineering and the Partnership and issues of fact exist as to promises
and representations made to Radtke and Radtke's reliance on them. We affirm the dismissal of the complaint.
Radtke
is the president and sole shareholder of Simone Engineering. The Partnership owned and developed
commercial real estate in the City of Mequon.
GIC Development, Inc. was the general partner of the Partnership. Larry Huffman was the only limited partner
of the Partnership. GIC's president,
John O. Graham, was a personal friend of Radtke's. Graham had involved Radtke as a limited partner in several
residential developments during their personal relationship.
In
late 1988 and early 1989, Radtke was looking for a new location for expansion
of Simone. The Partnership, through GIC
and Graham, proposed development of certain real estate in a business park for
Simone's use. Radtke was interested in
owning rather than leasing a building.
Graham suggested that Radtke be given a limited partnership interest in
the Partnership if Simone leased from the Partnership.
Believing
that he would be given a limited partnership interest, Radtke, on behalf
of Simone, executed a lease agreement with the Partnership on September 1,
1989. In October 1989, a draft of an
amendment to the partnership agreement admitting Radtke as a special limited
partner was prepared and reviewed.
Terms and drafts were reviewed and discussed over the next few
years. The Partnership agreement was
never amended to include Radtke's participation. In 1992, East Mequon Development Corporation replaced GIC as the
general partner of the Partnership.
Radtke
commenced this action in 1994. Radtke's
complaint alleged four causes of action:
breach of the oral contract to form a partnership with Radtke,
promissory estoppel, misrepresentation, and breach of the duty of utmost good
faith in negotiations regarding the formation of a new partnership.[1] He sought to recover the excessive costs
incurred in leasing from the Partnership over those costs of obtaining
comparable facilities elsewhere. The
circuit court dismissed the fourth cause of action for the breach of the duty
of utmost good faith for the failure to state a claim. Summary judgment was entered dismissing the
remaining causes of action. The circuit
court concluded that the undisputed facts established that there was not an
enforceable contract to form a partnership, only an "agreement to
agree," and that Radtke's reliance on Graham's representations was unreasonable.
We
review decisions on summary judgment de novo, applying the same methodology as
the circuit court. See M
& I First Nat'l Bank v. Episcopal Homes Management, Inc., 195
Wis.2d 485, 496, 536 N.W.2d 175, 182 (Ct. App. 1995); § 802.08(2), Stats.
That methodology has been recited often and we need not repeat it here
except to observe that summary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter
of law. See M & I
First Nat'l Bank, 195 Wis.2d at 496-97, 537 N.W.2d at 182.
Radtke
first argues that it is an undisputed fact that there was an explicit promise
to give him a partnership interest and the circuit court erred in applying the
parol evidence rule[2] to bar
evidence of partnership terms discussed prior to the signing of the lease. It may be that the merger clause in the
lease was not effective to bar the agreement to give Radtke a partnership
interest. See Federal
Deposit Ins. Corp. v. First Mortgage Investors, 76 Wis.2d 151, 158, 250
N.W.2d 362, 366 (1977) ("Parol evidence is always admissible with respect
to the issue of integration, that is parol evidence is admissible to show
whether the parties intended to assent to the writing as the final and complete
(or partial) statement of their agreement."). We need not decide this because even considering the parol
evidence, nothing more than an agreement to agree existed.
The
enforcement of an oral contract requires that the terms be complete and
definite with reasonable certainty. See
Witt v. Realist, Inc., 18 Wis.2d 282, 297, 118 N.W.2d 85, 93
(1962). There must be a meeting of the
minds and mutual assent to the terms of the agreement. See Ziolkowski v. Caterpillar,
Inc., 800 F. Supp. 767, 779 (E.D. Wis. 1992).
It
is undisputed that Graham had proposed to Radtke that he become a limited
partner with respect to the building Simone would lease and participate in 50%
of the cash flow generated from the building and receive 50% of the proceeds of
the sale of the building. Radtke
admitted at his deposition that there was no discussion or agreement about his
management rights as a limited partner, including his ability to approve or
disapprove the sale of the building.
Nor was there any discussion or agreement on how the building would be
valued if there was a sale of the entire business park, how long the limited
partnership interest would last, or Radtke's rights upon dissolution of the
partnership. Radtke acknowledged that
these were issues that would be "dealt with" or "worked
out" after the lease was signed and the partnership agreement reduced to
writing. Additionally, Radtke admitted
that after signing the lease he sought a partnership agreement which would
insulate his limited partnership interest in the one building from financial
risks associated with the entire project.
He admitted that the issue of insulating his interest was not discussed
with Graham and that it was another issue that had to be agreed upon after the
lease was signed. Radtke admitted that
what exactly his 50% participation meant was not clearly defined when the lease
was signed.
The
record establishes that the terms of the oral agreement were not definite. Moreover, after the lease was signed, Radtke
and Graham involved their respective attorneys in drafting and reviewing a
proposed partnership agreement. Radtke
was negotiating terms. The continuing negotiations reflect that there was no
meeting of the minds on the terms of Radtke's limited partnership. See Ziolkowski, 800 F.
Supp. at 779-80. Although Radtke would
have us believe that the parties intended the "gaps" in their
agreement to be filled by Wisconsin partnership law, the continuing
negotiations and Radtke's interest in insulating his interest belie that
possibility.[3] Also, there is no evidence that the parties
ever discussed that the partnership would be governed by the simple provisions
of partnership law. At best, the oral
contract was an agreement to agree and unenforceable. See Witt, 18 Wis.2d at 298, 118 N.W.2d at
94. We conclude that the breach of
contract claim was properly dismissed.
We
turn next to the claim of promissory estoppel.
To recover on a promissory estoppel theory a party must establish that:
(1) there was a promise the promisor should reasonably expect to induce action
or forbearance of a definite and substantial character on the part of the
promisee; (2) the promise induced such action or forbearance; and (3) injustice
can be avoided only by enforcement of the promise. See Hoffman v. Red Owl Stores, Inc., 26
Wis.2d 683, 698, 133 N.W.2d 267, 275 (1965).
The
circuit court determined that Radtke's reliance on promises made by Graham was
not reasonable. Radtke argues that
reasonable reliance is not an element of promissory estoppel and is a factual
issue dependent on a full development of the facts. The reasonableness of reliance on a promise is one of several
considerations bearing on the determination of whether an injustice can only be
avoided by enforcement of the promise. See
U.S. Oil v. Midwest Auto Care Servs., Inc., 150 Wis.2d 80, 91-92,
440 N.W.2d 825, 829 (Ct. App. 1989).
The determination of whether enforcement is necessary to avoid an
injustice is a policy question to be decided by the court in the exercise of
its discretion. See id.
at 89, 440 N.W.2d at 828. The weighing
of the various considerations is also a discretionary determination. Thus, we consider whether the circuit court
erroneously exercised its discretion in concluding that no injustice
exists. If the facts are undisputed,
reasonable reliance is a question of law.
See Ritchie v. Clappier, 109 Wis.2d 399, 406, 326
N.W.2d 131, 134 (Ct. App. 1982).
It
is undisputed that due to the personal and trusting relationship he had with
Graham, Radtke relied on Graham's promise that a partnership interest would be
delivered. Radtke admitted that he
relied on the promise without concern for whether the other partner in the
partnership had agreed to allow Radtke to become a partner. Radtke knew that a written contract was
contemplated. The deal had fairly high
stakes and was apparently Radtke's first limited partnership venture involving
his own business. Moreover, Radtke was
a sophisticated businessman and investor.
Radtke's "blind faith" in Graham's ability to deliver an
acceptable partnership arrangement does not excuse Radtke's failure to act as a
reasonably prudent investor. He should
have known that the anticipated written contract making him a limited partner
would not be a simple document. Yet he
chose to rely on an informal and indefinite promise which came from only one of
two partners in the Partnership. Both
the formality or definiteness of the promise and the sophistication of the
parties are proper considerations in determining whether an injustice
exists. See Silberman v.
Roethe, 64 Wis.2d 131, 146-47, 218 N.W.2d 723, 730-31 (1974). As a matter of law, it was unreasonable of
Radtke to act on the promise that a partnership interest would be conferred
until a formal and more detailed written contract had been executed. See Ziolkowski, 800 F.
Supp. at 781.
We
are not persuaded that any other consideration neutralizes Radtke's
unreasonable reliance. We conclude that
the circuit court properly exercised its discretion in determining that the
promissory estoppel claim failed because of Radtke's unreasonable reliance.
Radtke's
misrepresentation claim was also properly dismissed. Radtke alleges that at the time the promise was made to make him
a partner, the Partnership knew facts which prevented Radtke from being made a
partner, namely, that Huffman had not agreed to admit Radtke as a partner. One element of a claim of misrepresentation
is reliance upon the representation resulting in damage. See Ritchie, 109 Wis.2d
at 404, 326 N.W.2d at 134. The reliance
must be reasonable. See id.
Radtke's
unjustifiable reliance also overruns the misrepresentation claim. As noted earlier, Radtke admitted that he
acted on the promise without concern for whether the other partner in the
partnership had agreed to allow Radtke to become a partner. Also, there is no evidence that Huffman
refused to admit Radtke into the Partnership and that is why Radtke never
obtained the partnership interest. Even
if there was a misrepresentation, it was not one resulting in damages.
Prior
to the filing of a second amended complaint, Radtke's claim for a breach of fiduciary
duty was dismissed. Radtke argues that
the Partnership owed him a fiduciary obligation arising out of the promise to
form a partnership. He claims that the
fiduciary obligation is present during the negotiations to form a partnership.
There
is no support in Wisconsin law for Radtke's position. Radtke argues that other states have construed the Uniform
Partnership Act, ch. 178, Stats.,
to impose the fiduciary obligation during negotiations. See Waite on Behalf of Bretton
Woods Acquisition Co. v. Sylvester, 560 A.2d 619, 625 (N.H. 1989); Elk
River Assocs. v. J. David Huskin, 691 P.2d 1148, 1152 (Colo. Ct.
App. 1984); Allen v. Steinburg, 223 A.2d 240, 246 (Md. 1966); Solomont
v. Polk Dev. Co., 54 Cal. Rptr. 22, 27 (Cal. Ct. App. 1966). However, those cases involve instances where
a partnership actually resulted from the negotiations. The parties became partners.
We
are not persuaded that a fiduciary relationship can be imposed between parties
who never became partners. The Uniform
Partnership Act only applies to partners. Specifically, § 178.18, Stats., provides that a partner
is accountable as a fiduciary. "A
fiduciary relationship arises from a formal commitment to act for the benefit
of another (for example, a trustee) or from special circumstances from which
the law will assume an obligation to act for another's benefit." Merrill Lynch, Pierce, Fenner &
Smith v. Boeck, 127 Wis.2d 127, 136, 377 N.W.2d 605, 609 (1985). The formal commitment comes only with the
execution of the partnership agreement.
The duty is dependent on the creation of the partnership.
Radtke
never became a partner. The fiduciary
relationship which exists between partners never came into play. There are no circumstances here from which
the law would assume a fiduciary relationship between the Partnership and
Radtke. The claim was properly
dismissed.
Because
no fiduciary duty exists between the parties, the claim for a breach of the
duty of utmost good faith has no basis.[4] The duty of utmost good faith is a
description of the duty owed by fiduciaries.
See General Automotive Mfg. Co. v. Singer, 19
Wis.2d 528, 533, 120 N.W.2d 659, 662 (1963); Shevel v. Warter,
256 Wis. 503, 505, 41 N.W.2d 603, 605 (1950); Bank of California v.
Hoffmann, 255 Wis. 165, 171, 38 N.W.2d 506, 509 (1949).
Radtke's
final argument challenges the circuit court's denial of a motion in limine
to exclude from evidence at trial alleged other wrongful conduct by Radtke.[5] We conclude that summary judgment was proper
and the action was properly dismissed.
We need not address this remaining claim.
By
the Court.—Judgment affirmed.
This
opinion will not be published. See
Rule 809.23(1)(b)5, Stats.
[1] These causes of
action were set forth in Radtke's second amended complaint. The first amended complaint alleged a breach
of a fiduciary duty instead of the breach of the duty of utmost good faith.
[2] The parol evidence
rule is that when the parties to a contract embody their agreement in writing
and intend the writing to be the final expression of their agreement, the terms
of the writing may not be contradicted or varied by proof of prior written or
oral agreements. See Federal
Deposit Ins. Corp. v. First Mortgage Investors, 76 Wis.2d 151, 156, 250
N.W.2d 362, 365 (1977). It is a rule of
substantive law and not a rule of evidence.
See id.
[3] Radtke contends
that the mere fact that contracting parties agree to memorialize their oral
contract in writing at a later date does not mean that there is no enforceable
contract. While that may be, because
the oral contract here fails for indefiniteness, we need not decide if a
factual issue exists as to whether the agreement to reduce the partnership deal
to writing was a condition precedent to enforceability.