[SOLVED] Shamburger v. Shamburger Court of Appeals of

Shamburger v. Shamburger
Court of Appeals of Arkansas, Division I, 2016 Ark.App. 57, 481 S.W.3d 448 (2016).
In the Language of the Court
Cliff HOOFMAN, Judge
There are five LLPs [limited liability partnerships] at issue in this case: (1) CMH Management, LLP; (2) S.E. Management, LLP; (3) Bryant Hospitality, LLP; (4) Winners Circle Hospitality, LLP; and (5) SJS Management, LLP. At the time these LLPs were created, they were each composed of six partners, or three married couples: Sarah Jane and Robert Shamburger, Karyn Ann and Ricky Alan Johnson, and Thresa Kay and James Shamburger, Jr. Each partner had a 16.667% interest in each of the five LLPs. The partners executed partnership agreements in connection with each LLP, as well as separate buy-sell agreements setting forth the required procedure through which partners could transfer their interests.
The buy-sell agreements * * * contained similar language regarding the transfer of a partner’s interest. As an example, the relevant provisions of the buy-sell agreement for Bryant Hospitality, LLP, are set forth below: 1. * * * The parties agree that the only manner in which any of the partners may transfer a partnership interest * * * shall be in the manner set forth herein: (a) Any couple may give notice * * * of an intent to either buy the others’ entire company interests or to sell their entire company interest. Such notice shall contain one price at which such transaction shall occur. The offeree couples, or any single partner, shall, for sixty (60) days, have the option to either buy the offerors’ entire interests for such price, or to sell their entire interest for such price. * * * * (c) If neither option is timely accepted by both individuals of the offeree couples, the offer shall be deemed an offer to purchase only, and acceptance of such offer shall be presumed.
3. In the event of the death or divorce of a partner, the purchase price of such partner’s interest, and the spouse’s interest, or the interest of both in the event of common disaster, shall be the higher of the figures achieved in paragraphs (a) and (b) below: (a) The aggregate * * * revenue * * * for the preceding thirty-six months (or so long as the partnership has been in business, if less than that time), as reflected on the books of the partnership, multiplied by the partner’s percentage ownership. (b) The applicable percentage of partnership interest of the value of the real property * * * as determined by the average of two appraisals.
* * * * Appellant [Thresa Kay Shamburger] and her husband, James, divorced. [Two and a half years later,] Sarah Jane and Robert Shamburger mailed a letter to appellant and James, stating that their divorce proceeding had “adversely affected the operation of all the family partnerships” and that, “in an effort to avoid continued disagreements and acrimony harmful to the businesses we propose to purchase your collective interest in all the partnerships, for a total price of $400,000, or $200,000 to each of you.” The letter further referred appellant and James to the buy-sell agreements associated with each partnership and stated that they had sixty days from their receipt of the letter to make their election. Appellant received the letter * * * but did not respond. Instead, she filed a complaint [in an Arkansas state court] against appellees [all of the partnerships and the other partners], alleging that her divorce from James had triggered the terms of the buy-sell agreements dealing with a divorced party’s interest and that appellees were attempting to bypass that provision by attempting to invoke the transfer provision set forth in Paragraph 1 of the agreements.
* * * Appellant requested an order from the * * * court * * * determining that the attempted buy-sell arrangement by Sarah Jane and Robert Shamburger was in violation of the buy-sell agreements. * * * * Separate appellees Sarah Jane and Robert Shamburger filed a counterclaim against appellant, alleging that appellant had failed to respond to their purchase offer within the sixty-day period required by the buy-sell agreements and that the offer should therefore be deemed an offer to purchase her interest for $200,000. Robert and Sarah Jane requested that the * * * court order specific performance of the terms of the buy-sell agreements. * * * * * * * The court granted appellees’ motion for summary judgment * * *. In addition, the court granted the relief for specific performance requested in the counterclaim * * *. Appellant timely appealed. Where two provisions of a contract conflict, the specific provision controls over a more general provision, as it is assumed that the specific provision expresses the parties’ intent. [Emphasis added.]
We agree with appellant that the specific provision governing transfers in the event of a divorce or death of a partner controls over the more general provision found in Paragraph 1. Appellees argue that Sarah Jane and Robert Shamburger’s offer to purchase appellant’s and her ex-husband’s interest was not necessarily due to the divorce. However, this argument is belied by Sarah Jane and Robert Shamburger’s statements in their offer letter * * *. Appellees also contend that the death-or-divorce provision is not more specific than the provision in Paragraph 1, and they compare the length and detail of the two provisions at issue. As appellant responds, however, it is the fact that the death-or-divorce provision applies only under specific and limited circumstances that renders it controlling over the more general provision in Paragraph 1, not the specificity of the language used to describe each method of purchase.
* * * * In addition to the rule of construction discussed above, * * * the use of the word “shall” in each buy-sell agreement’s death-or-divorce provision further supports [appellant’s] claim that application of this provision was mandatory under the circumstances in this case. * * * “Shall” is defined as “has a duty to” or “is required to.” * * * “Shall,” when used in a contract provision, means that compliance with that provision is mandatory. [Emphasis added.] * * * The combination of the specific nature of the death-or-divorce provision and its use of mandatory language such as “shall,” indicates that compliance with this particular provision was required under the circumstances in this case.
Appellees also contend that interpreting the death-or-divorce provision as mandatory supersedes the procedure set forth in Paragraph 1 of the agreements and “neutralizes” that provision in violation of our rule of construction that we will not adopt an interpretation neutralizing a provision if the various clauses of a contract can be reconciled. We disagree because interpreting the application of the death-or-divorce provision as mandatory in this case does not mean that the procedure set forth in Paragraph 1 of the agreements does not apply in all other situations that do not involve the death or divorce of a partner.
Furthermore, as appellant argues, it is also possible to reconcile the two provisions in such a way that the general procedures set forth in Paragraph 1 apply, even in the event of a divorce or death of a partner, but the value of the partner’s or couple’s interest is determined pursuant to the formula set forth in the death-or-divorce provision. Based on our rules of construction, we agree with appellant that the [lower] court erred in interpreting the buy-sell agreements in such a manner as to find that the death or-divorce provisions did not apply to the offer to purchase appellant’s interest in the LLPs. Accordingly, we reverse the * * * order granting summary judgment and remand for further proceedings.
Legal Reasoning Questions
1. Why would a partnership agreement contain one provision for a buyout on a partner’s divorce or death and another for a partner’s decision to quit the firm?
2. How did the court’s interpretation of contract principles affect the result in this case?
3. The lower court awarded attorneys’ fees to the defendants, who prevailed on their motion for summary judgment. By reversing the summary judgment, does the appellate court’s decision also require a reversal of the award of attorneys’ fees?

Question: Shamburger v. Shamburger Court of Appeals of