Legal Battles in Business Partnerships: The Conlon vs. Harder Case

In March 1971, Robert M. Conlon, Paul F. Harder, and others formed Chalet Properties, Ltd., a Colorado limited partnership, to own and operate a thirty-eight-unit senior citizen apartment complex known as the Chalet Apartments. Under the limited partnership agreement, Harder and one other individual were designated as the only general partners, while the remaining participants were designated as limited partners. In 1972, the other general partner transferred his entire interest in Chalet Properties, Ltd. to Harder and withdrew from the partnership, leaving Harder as the sole general partner.

The partnership agreement provided for one hundred total units of ownership to be issued in exchange for capital contributions. Over time, those units were transferred among various parties. At the time relevant to the dispute, Harder owned five units as a general partner, Harder’s former spouse owned forty-five units as a substituted limited partner, Conlon owned forty units as a limited partner, and two additional limited partners owned five units each.

The partnership agreement required written consent from the general partner for any new party to become a substituted limited partner. Harder provided written consent for the substitution of his former spouse but did not provide written consent for another substituted limited partner, even though that individual was later treated as a limited partner and listed as such in amended partnership filings.

Events Leading to the First Lawsuit

In 2015 and 2016, Conlon attempted to transfer his forty units of ownership to The Joint Trust of Robert M. Conlon and Grace M. Conlon for estate planning purposes. Acting in his role as general partner, Harder refused to consent to either transfer. Despite that refusal, Conlon later asserted that he was a general partner of Chalet Properties, Ltd. and, in 2020, filed a document purporting to transfer all of his partnership interests to the Trust.

In 2019, Conlon filed a lawsuit against Harder and Chalet Properties, Ltd. The action included a request to inspect partnership records and claims that Harder breached fiduciary duties under the partnership agreement. The alleged breaches included failures to distribute partnership income, charging Conlon for partnership expenses in excess of his ownership share, and overcharging for certain maintenance and upkeep costs.

In February 2021, the district court granted summary judgment dismissing Conlon’s fiduciary duty claims. The claim seeking inspection of records was dismissed by stipulation. A division of the Colorado Court of Appeals affirmed the dismissal of the fiduciary duty claims in a separate appeal.

Filing of the Second Lawsuit

In September 2021, several months after the dismissal of the first lawsuit and while the appeal was still pending, Conlon filed a second lawsuit against Harder and Chalet Properties, Ltd. The amended complaint added the Trust as a named party. The complaint again alleged breaches of fiduciary duty by Harder and also requested partition of the real property owned by the partnership.

The fiduciary duty allegations in the second lawsuit included claims that Harder failed to distribute income, charged Conlon for partnership costs in excess of his ownership interest, overcharged for maintenance expenses, overpaid for bookkeeping and accounting services, treated partners differently with respect to transfers of partnership interests, paid above-market interest to himself and family members on partnership loans, and failed to distribute profits in 2020 and 2021.

District Court Rulings

After the mandate issued in the appeal from the first lawsuit, Harder and Chalet Properties, Ltd. moved for a determination of law and partial summary judgment. The district court ruled that Conlon was not a general partner of Chalet Properties, Ltd. as a matter of law, that many of Conlon’s fiduciary duty claims were barred by claim preclusion, and that Harder did not owe a fiduciary duty to the Trust. The court also concluded that even if a duty were owed, Harder did not breach it by refusing to consent to the Trust becoming a substituted limited partner.

The remaining claim for partition was dismissed without prejudice by stipulation. The district court later awarded attorney fees to Harder and Chalet Properties, Ltd. after finding that certain claims were brought without substantial justification.

Issues on Appeal

Conlon and the Trust appealed the district court’s rulings. The appeal challenged the determination that Conlon was not a general partner, the application of claim preclusion to the fiduciary duty claims, the ruling that Harder owed no fiduciary duty to the Trust, the handling of expert testimony, and the award of attorney fees.

The Colorado Court of Appeals reviewed the district court’s rulings under the summary judgment standard, examining whether genuine issues of material fact existed and whether the moving parties were entitled to judgment as a matter of law.

Appellate Court Analysis and Findings

The Court of Appeals concluded that the partnership agreement unambiguously identified Harder as the sole general partner after 1972 and did not support Conlon’s assertion that ownership of certain units conferred general partner status. The court determined that general partner status was conveyed by explicit designation in the partnership agreement, not by the number or type of ownership units held.

The court also addressed claim preclusion and held that fiduciary duty claims arising from conduct that occurred before the first lawsuit were barred because they were or could have been litigated previously. Claims alleging failures to distribute income, improper expense allocations, and overcharging for partnership services were found to be identical or closely tied to the claims raised in the first lawsuit.

The Court of Appeals reached a different conclusion with respect to allegations based on conduct occurring after the first lawsuit was filed. Claims alleging payment of above-market interest on loans and failure to distribute profits in 2020 and 2021 were not barred to the extent they arose after the first lawsuit. Those claims were permitted to proceed.

With respect to the Trust, the court agreed that Harder did not owe it a fiduciary duty because the Trust was neither a general nor a limited partner and had not received the required consent to become a substituted limited partner. The court further concluded that any assignment of economic interests to the Trust did not create a fiduciary relationship.

Disposition

The Colorado Court of Appeals affirmed in part and reversed in part the district court’s judgment. The dismissal of claims barred by claim preclusion was affirmed, while the dismissal of certain post-lawsuit fiduciary duty claims was reversed. The case was remanded for further proceedings on those remaining claims. The court also reversed the attorney fee award and directed the district court to reconsider it in light of the partial reinstatement of claims.

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