Robertson v. Jacobs Cattle Company

Partners James and Patricia Robertson and Duane and Carolyn Jacobs (plaintiffs) sued Jacobs Cattle Company (JCC) and its other partners (defendants) to dissolve JCC. Because JCC primarily owned land, the four departing partners sought amounts they would obtain if JCC sold the property. The parties agreed on the land’s value but disputed how to credit their partnership accounts. The partnership agreement allotted each partner a capital account and an income account. Capital accounts reflected original capital contributions less any withdrawals. The agreement specified “net profits and net losses as determined by generally accepted accounting principles” would be applied against income accounts in proportion to each partner’s vote in JCC. Each dissociating partner had one of eight votes, entitling each to 12.5 percent of net profits. The trial court valued the liquidation value of JCC’s assets at $5,212,015 without clarifying whether capital gain from a hypothetical sale should be distributed in proportion to capital or income accounts. If the capital gain were distributed based on capital-account ownership, each dissociating partner would receive 5.33 percent. If the gain were treated as net profits, each dissociating partner would receive 12.5 percent. An expert testified that under generally accepted accounting principles, “net profits” included capital gain from selling land. After two appeals, the Nebraska Supreme Court remanded, directing the trial court to calculate buyout distributions “by adding 12.5 percent of the profits received from a hypothetical sale” to each capital account. The trial court subtracted the total balance of the dissociating partners’ capital accounts of $1,159,814 from the liquidation value of $5,212,015, leaving gain of $4,052,201, then distributed 12.5 percent or $506,525 to each dissociating partner and added back the balance of their capital accounts, resulting in the dissociating partners receiving between $598,497 and $598,996 each. The dissociating partners again appealed, arguing the land’s original purchase price instead of their capital accounts should be subtracted from $5,212,015, so each would receive approximately $719,000. However, the dissociating partners conceded during oral argument that their capital accounts included all cumulative profits and losses during the partnership’s life, except profits from the hypothetical sale.