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Limited Interest
by Ron Davis

Investors in a Wisconsin shopping-center project have prevented any interference in the controversial settlement that results from the sale of the property.

The shopping center, located in the Appleton-Oshkosh area, was owned by a limited partnership until 2002. That’s when the general partners decided, with the limited-partner investors’ consent, to sell the center through liquidation. The two parties started the bargaining at $250 for each investor’s unit of interest in the property, but eventually agreed to a payment of $281 per unit.

The general partners then decided, however, to buy and renovate the center themselves. Investors therefore didn’t receive the liquidation payment because the partnership never actually liquidated.

The investor group sued, charging the general partners with failure to market the shopping center to the highest bidder. Instead, the investors added, the general partners purchased and renovated the property on terms favorable to themselves.

The two parties eventually reached a settlement. The general partners agreed to pay more than $3 million into a fund, representing payment to the investors of $525 per unit of interest. In exchange, the investors agreed to relinquish their interest in the partnership as well as the shopping center. That settlement meant a $275-per-unit increase over the amount initially offered the investors.

Attorneys for the investors then sought a share in the windfall, seeking a third of that $275-per-unit increase as fees and reimbursement, though not to exceed $50,000. None of the investors objected to payment of those amounts that the attorneys requested. But the general partners protested that the settlement fees and reimbursement request were an attempt to capitalize on the partnership’s appreciation in value resulting from the shopping center’s renovation. That renovation, they reminded, had met with opposition from the investors.

The attorneys countered that the general partners could not legally challenge the attorney fees because the general partners no longer had a standing for such a challenge.

A Wisconsin appellate court rejected the argument of the general partners, explaining, “The general partners and the limited-partner investors worked together to prepare the distribution. The general partners then expressly stated that they were ‘agreeable to’ and had ‘no objections to the notice that was submitted for the court’s review.’ The notice explained the settlement terms, fees, and how investors could object and get more information. Not one investor objected to the settlement or to the attorneys’ proposed fees or expenses. In fact, the notice to the investors generated only favorable feedback…. We cannot fathom how an award to the investors’ attorneys, satisfactory to the investors, in any way bears directly or injuriously upon the general partners’ interests. They simply are not aggrieved. Any fiduciary relationship that once existed between them and the investors is over. In this dispute, they are adversaries, pure and simple.” (Kiser v. Jungbacker, Slip Copy, 2008 WL 1959932 [Wis.App.])

Decision: May 2008
Published: May 2008



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