Fraud, Breach of Contract, and Breach of Fiduciary Duty

By Powers, Thomas E., Jr. | JOPERD--The Journal of Physical Education, Recreation & Dance, September 1999 | Go to article overview

Fraud, Breach of Contract, and Breach of Fiduciary Duty


Powers, Thomas E., Jr., JOPERD--The Journal of Physical Education, Recreation & Dance


The Golden Tee, Inc. v. Venture Golf Schools, Inc. and Cooper Communities, Inc.

Supreme Court of Arkansas, May 14, 1998

Roger C. Kluska, a golf professional, and three other golf professionals (unnamed) formed Golden Tee, Inc. Kluska was president of Golden Tee. On November 19, 1992, Golden Tee (25% - 1st limited partner; appellant) joined with Cooper Communities, Inc. (75% - 2nd limited partner; appellant) to form Hot Springs Golf School Limited Partnership (hereafter, Golf Partnership). Venture Golf Schools, Inc. (appellant) was the general partner involved. Randy Brucker, a neighbor of Kluska and a representative for Cooper, was president of Venture.

At the formation of Golf Partnership, all parties agreed (1) to employment agreements between Venture and the four golf professionals, (2) to the leasing and use of Cooper's property for the Golf Partnership business, (3) that upon termination and dissolution of Golf Partnership, properties leased from Cooper (including any leasehold improvements) would revert to Cooper, and (4) that in the event of negative cash flow in excess of $200,000, produced from operation of Golf Partnership, Venture had the authority to terminate Golf Partnership. The golf school opened for business in the summer of 1993.

Cooper had planned an exit strategy-the donation of the improvements to the Hot Springs Village Property Owners' Association (POA) - if the project failed, but Cooper did not inform Golden Tee of this. Cooper had also prepared some pro forma projections of operations over a 10-year period. Kluska saw these projections at about the time Golf Partnership was formed.

By October 1994, Golf Partnership developed a negative cash flow in excess of $500,000. Kluska stated he knew of the negative cash flow in excess of $200,000. In November 1994, Venture terminated and dissolved the partnership, and the school closed. The real estate, with improvements, reverted to Cooper, who donated it to the POA.

The Complaints

Golden Tee argued on appeal that the trial court erred by granting summary judgment in the following manner, relating to breach of contract: (1) the appellees breached the agreement by disposing of the Golf Partnership property without consent of Golden Tee, and (2) Cooper breached the agreement by managing and controlling Golf Partnership.

Golden Tee also alleged a trial court summary judgment error on the grounds that its breach-of-fiduciary-duty claims were partnership related rather than individual. According to Golden Tee, the following actions made up the breach of fiduciary duty: (1) negotiating with the POA without the knowledge of Golden Tee, (2) failure to account for the value received by the appellees after Golf Partnership's dissolution, (3) charging Golf Partnership for future payments under the land-lease agreement between Golf Partnership and Cooper, (4) charging excessive management fees to Golf Partnership, and (5) failing to disclose all material facts to Golden Tee.

Golden Tee also alleged summary judgment errors on the following three fraud claims: (1) that Cooper and Venture fraudulently induced Golden Tee to enter into the partnership, (2) that Cooper and Venture failed to divulge their plans to donate the golf school property to the POA, and (3) that Cooper and Venture fraudulently charged present value of future lease payments, after donating the land to the POA, when no payments were due. It was asserted by Golden Tee that damages incurred were losses of its investments and future profits.

Findings in the Case

When an individual limited partner alleges improper actions by the partnership that indirectly damage him by rendering his interest in said partnership valueless, the limited partner is required to make a derivative claim on behalf of the partnership and not make it an individual action.

The appeals court concluded that the breach of contract allegations pertained directly to injuries suffered to Golf Partnership and that Golden Tee's injury was restricted to its relative interest in the partnership. …

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