FILED

United States Court of Appeals

Tenth Circuit

June 8, 2009
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT

Clerk of Court

SPRINGFIELD HOLDING
COMPANY LTD LLC,
Plaintiff - Appellee,
and

No. 08-6210
(D.C. No. 07-CV-00250-R)
(W.D. Okla.)

MARK W. REINITZ; ROGER L.

KINNARD; DAVID H. KINNARD,
Plaintiffs-Counter-DefendantsAppellees,
v.
ROBERT STONE, M.D.; THE
CHILDRENS FUND, an Illinois
limited liability company; ROBERT L.
STONE, a/k/a Robert L. Stone the III;
CYNTHIA A. STONE,
Defendants-Counter-Claimants Appellants.

ORDER AND JUDGMENT *

Before KELLY, LUCERO, and HARTZ, Circuit Judges.

This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.

Defendants-Counter-Claimants-AppellantsRobert L. Stone, Cynthia A.

Stone, Robert Stone, M.D., and The Childrens Fund (referred to collectively as
the Stones)appeal the district courts judgment in favor of the PlaintiffsCounter-Defendants-Appellees, David Kinnard, Roger Kinnard, Mark Reinitz, and
Plaintiff-Appellee Springfield Holding Co. (referred to collectively as the
Kinnards, given that the principal actors are David and Roger Kinnard). The
primary issue on appeal is whether the district court erred in concluding that the
Stones no longer maintain an ownership interest in a set of business entities in
which they had previously held a minority interest. We exercise jurisdiction
pursuant to 28 U.S.C. 1291, and affirm the district courts judgment.

Background
The present case arises from a complicated series of business transactions
between the Stones and the Kinnard brothers, David and Roger, that turned sour.
Because the district court set forth the confused tangle of transactions with as
much clarity as is practicable, see Kinnard v. Stone, No. CIV-07-250-R, 2008 WL
4000445, at *1-5 (W.D. Okla. Aug. 25, 2008), we will not exhaustively recount
the facts of the case here. A relatively cursory overview of the facts will suffice.
Together, Robert L. Stone and the Kinnard brothers had formed a number of
limited liability companies, partnerships, and other entities to manage their joint
business ventures in rental real estate. These entities functioned under an
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aggregator, the Oklahoma Investment Group (OIG). This aggregator,

which had virtually no assets, was used to run the day-to-day operations of the
various entities and receive and disburse money for each entity. OIG utilized a
single bank account for the entities, although separate books and records were
kept for each one. David Kinnard was the most active member of the investors,
and he acted as the managing partner of OIG. Robert L. Stone was not an active
participant in OIGs internal affairs, as he eventually moved to Chicago.
The problems that led to this litigation find their root in the agreement
between David Kinnard and Robert L. Stone that the Stones would receive a
monthly allowance or distribution of $17,000. These monthly payments
continued from 1996 through 2005, though they apparently ceased for a period
during 1999 for reasons that are disputed by the parties. The Stones contend that
the payments were withheld as leverage in a dispute between the Stones and
Kinnards over the distribution of proceeds from a lawsuit (which the parties refer
to as the Beatrice litigation) against a third party not involved in this litigation.
The Stones further claim that the Kinnards still owe them the arrearage that arose
in 1999. On the other hand, the Kinnards maintain that the payments were merely
advances on the Stones distributive share of income from the various entities. 1

At the end of the year, to the extent that advances exceeded distributive
net income, the excess was treated as an account receivable (a loan to the
recipient). Aplt. App. 774-75, 1048-49.
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The problems between the parties subsequently deepened when Robert L.

Stone began to seek loans from the Kinnards. Mr. Stone sought a loan from the
Kinnards in 2003, and David Kinnard agreed to grant him the requested money in
exchange for an assignment of Stones interest in one of the entities owned by
the investors, Cinnamon Creek L.L.C. The nature of this exchange is also
disputed; the Stones contend that it was a loan, while the Kinnards argue that it
was a transfer of the Stones ownership share with an accompanying right to
repurchase. This was a critical transaction, because it set the precedent for the
subsequent financial dealings between the Stones and the Kinnards. In any event,
the Stones eventually reestablished their ownership interest in Cinnamon Creek
by paying David Kinnard $130,000.
The transactions between the Stones and Kinnards then began to multiply.
In 2004, Stone once again used his Cinnamon Creek interest to secure money
from David Kinnard. Later in that year, in separate transactions, the Stones
assigned to the Kinnards their interest in other entities, including Peppertree
Partners, Inc., Peppertree Partners, Ltd., Windrock Associates, Summer Pointe,
and the Springfield Entities in exchange for cash. The Stones also apparently
executed two promissory notes in relation to other disputed debts, and David
Kinnard assumed those obligations as part of the transactions between the Stones
and Kinnards. The Kinnards then evidently informed the Stones that no further
money would be forthcoming, as they had concluded that the Stones had
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transferred all of their ownership interests in the various entities to the Kinnards.
The Kinnards initiated this litigation by bringing an action for declaratory
judgment, seeking a declaration that the Stones no longer maintained an interest
in any of the entities. The Stones counterclaimed, seeking a full accounting for
each of the entities and a declaratory judgment that they did in fact still have an
ownership interest in each of the entities. Accordingly, the central question posed
by these competing claims was whether the aforementioned transactions were
loans or whether they were actually transfers of the Stones ownership interest.
Additional issues were also implicated, in that the Stones challenged the adequacy
of the consideration the Kinnards paid for the Stones ownership interest and
contended that they were due a full accounting. Ultimately, the district court
concluded that the Stones had sold all of their interests to David Kinnard for
adequate consideration, and that they had received an adequate accounting.
Kinnard, 2008 WL 4000445 at *7-10. The Stones now appeal the district courts
judgment, raising several alleged errors on the part of the district court.

Discussion
We review the district courts findings of fact for clear error. Fed. R. Civ.
P. 52(a)(6); La Resolana Architects, PA v. Reno, Inc., 555 F.3d 1171, 1177 (10th
Cir. 2009). [A] finding is clearly erroneous when although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite and
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firm conviction that a mistake has been committed. Anderson v. City of

Bessemer City, 470 U.S. 564, 573 (1985) (citation omitted). If the district courts
findings are plausible, we will not reverse. Id. at 573-74. Our review of
questions of law, on the other hand, is de novo. La Resolana Architects, 555 F.3d
at 1177. We review mixed questions of law and fact under either the clearly
erroneous standard or the de novo standard, depending on whether the inquiry is
primarily factual or legal. Hollern v. Wachovia Secs., Inc., 458 F.3d 1169, 1175
n.4 (10th Cir. 2006).
I.

Sale of the Stones Interests in the Business Entities

The Stones first argument is that the district court erred by concluding that

there was a valid contract for the sale of their ownership interest because, they
contend, there was no meeting of the minds. The Stones correctly point out that
as a matter of law there must be a meeting of the minds in order to form a
contract. 2 Beck v. Reynolds, 903 P.2d 317, 319 (Okla. 1995). However, we
review the question of whether there was actually a meeting of the minds for clear
error, as it is a factual inquiry. See Homestead Golf Club, Inc. v. Pride Stables,
224 F.3d 1195, 1200 n.5 (10th Cir. 2000). Here, we cannot conclude that the
district court clearly erred, given the factual record before us. The parties
presented conflicting evidence, which the district court resolved in favor of the

Both parties agree that Oklahoma law governs in this case.

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Kinnards.
The most important piece of evidence supporting the district courts
conclusion is the handling of the initial transaction relating to Cinnamon Creek.
In 2003, Robert L. Stone sought a loan from David Kinnard, and in so doing
proposed a document entitled Assignment of Partnership Interest as Collateral
for Note offering his interest in Cinnamon Creek as collateral for a loan. Aplee.
Supp. App. 3. However, David Kinnard rejected this offer and the proposed
document because he wanted outright ownership rather than a collateral interest.
Having had his proposed loan arrangement rejected, Mr. Stone ultimately signed a
document that he referred to as an unconditional transfer of [his] partnership
interest in Cinnamon Creek. Aplee. Supp. App. 4.
The instrument provided that Robert L. Stone:
hereby sells, assigns, transfers and conveys . . . all of his membership
interests and other ownership interest of any kind in Cinnamon
Creek, L.L.C., an Oklahoma limited liability company (the
Company), and all rights appurtenant thereto, including but not
limited to the right to receive distributions, profits or income of any
kind from the Company.
Aplt. Supp. App. 6. The attorney who drafted the document called it an
Assignment of Membership Interest in an e-mail to the principal parties, referred
to the $100,000 sale price, and informed Mr. Stone that they were preparing an
agreement whereby he could repurchase his membership interest. Aplee. Supp.
App. 5. Further, the evidence suggests that Mr. Stone was aware of the difference

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between these two documents when he inquired why the transaction was
described as a sale-redemption and not as a loan. Aplee. Supp. App. 7. When
Mr. Stone eventually repurchased his interest, David Kinnard advised him in
writing that [t]here is no loan. There is only an opportunity to buy back shares.
Please read these docs carefully. 3 Aplee. Supp. App. 8. This sequence of events
strongly suggests that the Stones attempted to secure a loan, but failed to do so;
rather, they ultimately entered into a sale and buy-back agreementand they
apparently did so knowingly. This is of significance, given that the parties then
proceeded to use the same unconditional transfer document in all the subsequent
transactions. 4
In light of the documentary evidence and testimony, ample evidence
supports the district courts finding/conclusion that the Stones knew they were
selling their interests rather than merely utilizing their interests as security. To be
sure, the Stones point to evidence which, if credited, might support their position.

There is further evidence of the Stones knowledge of the nature of the

transaction into which they had entered. When Cynthia Stone assigned her
interest in Summer Pointe using an identical unconditional transfer document, an
OIG employee informed her that the assignment documented a sale, not security
for a loan.
4

The parties agree that identical documents were used for all the relevant
transactions. However, they disagree as to whether the first transaction was a
loan or a sale. Given our standard of review, we have no basis to reverse the
district courts eminently reasonable conclusion that it was a sale. Accordingly,
we cannot rely on this first transaction to show that the remainder were loans, as
the Stones would have us do.
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For instance, the Stones testified that they had no idea they were selling their
interests, produced e-mails wherein the transactions were referred to as loans, and
elicited testimony from the Kinnards that the Stones frequently referred to the
transactions as loans in their communications. Further, they point to testimony
to the effect that payments were reclassified as purchases after the fact. This
testimony, they suggest, shows that there was no sale for an agreed-upon purchase
price, even though the district court concluded there was a sale and found the
amount of each purchase price based on testimony and exhibits entered into
evidence. See Kinnard, 2008 WL 4000445, at *2-3.
But pointing to conflicting evidence inconsistent with the district courts
finding is insufficient, standing alone, to establish clear error . . . . Penncro
Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1161 (10th Cir. 2007).
This is necessarily so, given that every trial is replete with conflicting evidence,
and in a bench trial, it is the district court[] which enjoys the benefit of live
testimony[,] . . . has the opportunity firsthand to weigh credibility and evidence,
[and] has the task of sorting through and making sense of the parties competing
narratives. Watson v. United States, 485 F.3d 1100, 1108 (10th Cir. 2007). The
district court has the discretion to credit some individuals testimony above that
of others and weigh the competing evidence, as long as its conclusion is plausible.
Anderson, 470 U.S. at 573-74. That is the very nature of the function of the
district court in a bench trial, and we may not second-guess the district courts
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determinations absent clear error. Here, the district court had strong
corroborating evidence suggesting that the hundreds of thousands of dollars
received by the Stones were advances on distributions, rather than guaranteed
payments, and that the Stones knowingly sold their interests to obtain cash. We
find no clear error.
II.

Adequacy of the Consideration Provided

The Stones next challenge the adequacy of the consideration they received

for the sale of their ownership interests. In particular, they argue that the district
court erred by finding that David Kinnard paid valid consideration for the Stones
interests. According to the Stones, neither the forgiveness of the promissory
notes executed by Robert L. Stone nor the funds borrowed by David Kinnard from
the Springfield Entities can serve as consideration. The Stones challenge raises a
mixed question of law and fact.
A.

The Promissory Notes

There are two promissory notes at issue. The first was a $500,000 note
executed on March 11, 2005, by Robert L. Stone to Bernice Kinnard, the mother
of the Kinnard brothers. The record shows that the Stones had borrowed money
from Mrs. Kinnard in the 1990s, and this promissory note memorialized the debt.
The second promissory note was executed on March 16, 2005, by Robert L. Stone
to Roger and David Kinnard for $250,000. This note apparently stemmed from
the dispute between the Stones and Kinnards over the proceeds from the Beatrice
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litigation. The Stones contend that the district court erred as a matter of law in
finding these notes to be valid consideration because they were not accepted,
because they were not a detriment to David Kinnard, because they were executed
after the final assignment of the Stones interests, and because they were of
uncertain value. None of these contentions, which actually involve a primarily
factual inquiry, have merit.
First, the district court found as a matter of fact that David Kinnard was
assuming the debt, making him liable for payment to his mother on the first
promissory note, Kinnard, 2008 WL 4000445, at *3, and there is testimony
sufficient to uphold the district courts conclusion on this point. Further, there is
no evidence that the Kinnard brothers somehow rejected the second promissory
note relating to the Beatrice litigation. Accordingly, the Stones argument that
the promissory notes were not accepted misses the mark. Second, the first
promissory note was a detriment to David Kinnard, because he was assuming the
debt that Robert L. Stone admitted he owed to David Kinnards mother.
Accordingly, the Stones argument is misguided insofar as they argue that David
Kinnard merely attempted to forgive a note that was not his. Furthermore, the
evidence supports the finding that the Kinnards forgave the second promissory
note and can no longer enforce it against the Stones. This also constitutes a
detriment and, hence, consideration.
Finally, it is of little consequence here that the notes were executed
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subsequent to the final assignment of the Stones interest; this fact does not
render their value sufficiently uncertain such that there was no detriment to the
Kinnards or benefit to Robert L. Stone. Rather, while the notes were technically
executed after the final assignment of the Stones interest, it appears that these
notes simply memorialized pre-existing debts which the Kinnards forgave or
assumed as part of the assignments. This is sufficient under Oklahoma law. See
Okla. Stat. tit. 15 106. See generally Taylor v. Taylor, 389 P.2d 622, 627-28
(Okla. 1964) (stating that a disputed claim is good consideration, even if that
claim later is demonstrated to be unfounded). Accordingly, the district court
properly treated the promissory notes as good consideration. 5
B.

Use of Funds Borrowed from the Springfield Entities

The Stones make two primary arguments relating to the payments that
David Kinnard made to Robert L. Stone. First, they argue that the payments
cannot serve as consideration because they were merely payments under a prior
obligation (namely, the alleged arrearage in payments on the $17,000 monthly
distribution). Second, they argue that the payments are null and void because
they actually came from Springfield in violation of the requirement that a partner
only borrow from the entity with the written consent of the other partners.

In any event, we note that the undisputed testimony of the Plaintiffs

expert witness was that the consideration for the purchases would have been
reasonable even without including the discharge of the Stones obligation under
the promissory notes. Aplt. App. 1136-40.
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The first argument is plainly without merit. It is a factual question whether

the Kinnards periodic failure to pay the $17,000 monthly distribution created a
prior obligation such that later payments would essentially constitute a
satisfaction of the preexisting debt. The district court concluded that the monthly
payments were not guaranteed payments, but rather were advances on the Stones
distributive share. Kinnard, 2008 WL 4000445, at *6. This conclusion was not
clearly erroneous, given that it is amply supported by testimony from David
Kinnard, the accountant for the entities involved, the Kinnards expert witness,
and the Stones tax returns. The district court had the discretion to credit this
testimony over that of the Stones, and we have no basis for finding clear error.
See Penncro Assocs., 499 F.3d at 1161.
The second argument proffered by the Stones also fails. The Stones
contend that David Kinnard took the funds from Springfield in violation of the
Springfield operating agreement, and that, ergo, the payments were void and of
no effect. However, this argument depends on the related issue of whether the
Stones had waived their right to enforce the pertinent provision in the Springfield
operating agreement. The district court concluded that the Stones had waived
their rights by previously borrowing from Springfield without the written consent
of the Kinnard brothers. Kinnard, 2008 WL 4000445, at *7.
Under Oklahoma law, in order to waive a right, there must be an actual
intention to relinquish a known right, either expressly, or by such conduct as
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warrants an inference of such relinquishment. Atlas Life Ins. Co. v. Schrimsher,

66 P.2d 945, 948 (Okla. 1937); see Whitmire v. Zolbe, 403 P.2d 445, 448-49
(Okla. 1965). The district court correctly concluded that this standard had been
satisfied, given that the Stones had taken a loan from Springfield without the
other owners written consent on prior occasions. Moreover, the arrangement
whereby the Stones consistently took advances of their distributive share of
income from Springfieldthereby creating an account receivable or debt in favor
of OIG and Springfieldalso supports the district courts finding of waiver.
Thus, the Stones intentionally bypassed the written consent provision by taking
the loan in contravention of the provision. Accordingly, their waiver was
knowing and demonstrated by explicit conduct, as is required by Oklahoma law.
Atlas Life Ins. Co., 66 P.2d at 948. The Stones cannot now use the provision that
they bypassed against their erstwhile partners.
The Stones arguments before this court that they did not waive the
provision in the operating agreement miss the key point raised by the district
court. 6 The Stones waived their rights under the operating agreement not because
David Kinnard had taken a loan from Springfield without written consent (which
is how the Stones frame the argument); rather, they waived their rights by taking

We do not need to reach the Stones argument that the Kinnards breached
their fiduciary duties, as it was not properly raised in the district court. The
Stones attempted to amend their counterclaim to add an additional claim for
breach of fiduciary duty, but the district court rejected their motion as untimely.
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a loan from Springfield themselves without written consent. Accordingly, the

issue is not whether the Stones failure to object to another partys breach
constitutes waiver; instead, the issue is whether the Stones own violation of the
agreement operates as a waiver. As noted above, we conclude that it does.
Furthermore, we recognize that the Stones argue to this court that they took that
loan from the Kinnard Brothers individually, not from Springfield, Aplt. Br. 39,
but there is sufficient factual support for the district courts conclusion that they
did take the loan from Springfield that we cannot say this factual finding was
clear error. As noted above, the most significant evidence supporting the district
courts conclusion is that Mr. Stone himself testified that he had taken a loan
from Springfield without written consent, and had signed a promissory note
payable to Springfield. Accordingly, we find no error.
Having concluded that the Stones waived their right to enforce the pertinent
provision in the Springfield operating agreement, we must also conclude that the
funds David Kinnard provided to the Stones constituted valid consideration. The
district courts conclusion that the Stones received reasonable consideration for
their interests in the subject entities, Kinnard, 2008 WL 4000445, at *8, is not
clearly erroneous given the underlying evidence which supports it.
III.

Unclean Hands
The Stones also contend that the district court erred by granting an

equitable remedy to a party who it found to have unclean hands. The unclean
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hands doctrine means, in general, that equity will not aid a party whose conduct
has been unlawful, unconscionable, or inequitable. Houston Oilers, Inc. v.
Neely, 361 F.2d 36, 42 (10th Cir. 1966). However, the doctrine

. . . should

[not] be applied in every case where the conduct of a party may be considered
unconscionable or inequitable. Id. Here, we have no reason to conclude that the
district court abused its discretion by not applying this doctrine. Id. (The maxim
admits of the free exercise of judicial discretion in the furtherance of justice.);
see Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 562 F.3d 1047, 1058
(10th Cir. 2009) (reviewing application of unclean hands doctrine for abuse of
discretion). In particular, we note that this argument was apparently not raised
before the district court. It is based primarily on the Stones argument that the
Kinnards breached their fiduciary dutya claim not properly presented below.
Further, the Stones overstate the district courts finding regarding unclean hands.
While the district court found that both parties had unclean hands regarding the
Springfield operating agreements prohibition on loans without written consent,
Kinnard, 2008 WL 4000445, at *7, it did not so find regarding the broader
fiduciary claims now advanced by the Stones. Accordingly, we find that the
district court did not abuse its discretion.
IV.

Right to an Accounting
Finally, the Stones argue that the district court erred by denying them the

right to a full accounting. According to the Stones, a fair trial was impossible
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with an incomplete accounting, and this inadequacy demonstrates that the district
court erred by failing to grant them their requested relief. However, this
misconstrues the issue. The district court actually held that the Stones had as a
factual matter received a full accounting of the entities, utilizing accepted
principles of forensic accounting, not that they were not entitled to such an
accounting. Kinnard, 2008 WL 4000445, at *10. We cannot say that this factual
finding was clearly erroneous. An expert accountant testified that he was able to
perform an accounting for all the entities involved given the tax returns and other
information available to him, and that expert provided a full report with
documentation. This evidence gave the district court a sufficient basis to
conclude that an adequate accounting had been provided. Kinnard, 2008 WL
4000445, at *6 n.17. We find no clear error.
The district courts judgment is AFFIRMED. The motion to supplement
the record is DENIED.
Entered for the Court

Paul J. Kelly, Jr.

Circuit Judge

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