Elting v. Elting

849 N.W.2d 444 (2014)

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Nature of the Case

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Facts

Glenn Elting and Sons was a family farming partnership that was formed in 1976 among Glenn Elting and his sons, P, and D, all as managing partners. The managing partners during the time period relevant were: D; D's son, Carl; and P's son, Knud. The partnership had an established decision-making process. The managing partners would have informal discussions regarding whether and how to proceed, and once a consensus was reached, the partners would proceed. Glenn, and later D, were responsible for carrying out the decision, including signing contracts on the partnership's behalf. On January 31, 2005, the partners entered into the 'Amended and Restated Partnership Agreement for Glenn Elting and Sons.' Paragraph 5.1 of the Partnership Agreement provided that the partnership was to be managed by the managing partners, and paragraph 5.2 provided that the managing partners were Glenn, P, and D. The approval of a majority of the Managing Partners was required for the Managing Partners to act on behalf of the Partnership unless unanimous approval of the Managing Partners is required for such action by another provision of the Agreement. In 2008, D's son, Carl, and P's son, Knud, joined the partnership and became additional managing partners. The managing partners were P, D, Carl, and Knud. In December 2008, Knud withdrew from active participation but his status as a managing partner remained unchanged. In 2007, the partnership had entered into hedge contracts with Cargill, Inc., and Aurora Cooperative to sell all of the partnership's anticipated corn production for the years 2008, 2009, and 2010. This was done with the knowledge and consent of the managing partners at the time. Cargill began offering a product called a focal point contract. The focal point contract allowed a farmer to 'unlock' the price of hedged corn and allow it to float with the market based upon the increase or decrease in the market between the opening and closing dates specified in the focal point contract. In 2008 and 2009, D entered into a series of focal point contracts with Cargill on behalf of the partnership. D entered into the Focal Point contracts on behalf of the partnership three times. In total, the partnership lost $2,144,350 on the three sets of Focal Point contracts from the originally contracted price. P and D started having discussions with respect to dissolving the partnership. A separation notice was agreed upon. D’s separate deals were discovered when the new separate partnership presented financial data to its bank. P and Knud learned of the Focal Point contracts for the first time. Ps sued D seeking $867,000 in damages, which represented their understanding of their portion of the total partnership losses from the Focal Point contracts. Ps alleged that they had not been consulted regarding whether the partnership should enter into the Focal Point contracts, that they had never voted to enter into the Focal Point contracts, and that D lacked authority to enter into those contracts on behalf of the partnership. D alleged that he had received authorization to enter into the Focal Point contracts on behalf of the partnership and that even if he lacked such authority, Ps had ratified his actions. D claimed he was shielded from any liability by the limitation of liability clause in the Partnership Agreement. The court determined that D lacked authority to enter into the contracts, that his actions had not been ratified, and he was not shielded from liability by the limitation of liability provision in the Partnership Agreement. D appealed.