In a decision handed down today, the South Dakota Supreme Court helped Kevin Costner keep open the Midnight Star casino in Deadwood, S.D.. and saved him hundreds of thousands of dollars in the dissolution of a limited partnership that operates it.
From a legal standpoint, the case resolves questions about the legal rules South Dakota courts should use when a partnership is dissolved. From a voyeur standpoint, it attracts attention because of Costner’s involvement.
The casino is named after the saloon in Costner’s breakout film, Silverado, and its restaurant and sports bar are named after characters in the movie. It is operated by Midnight Star Enterprises. L.P. (“limited partnership”). Midnight Star Enterprises, Ltd. is the general partner in the partnership, owning 22 percent. Costner owns 71.5 percent and Francis and Carla Caneva each owned 3.25 percent. That is somewhat deceptive, though, in that Costner is the sole owner of Midnight Star Enterprises, Ltd. and, thus, essentially owns 93.5 of the partnership.
According to the Supreme Court decision, the Canevas managed the operations of the casino but Costner became concerned about their management. The Canevas’ employment was terminated and they then declined to participate in “an amicable disassociation.” Costner then filed an action to dissolve the partnership. An accountant hired by Costner indicated the “fair market value” of the partnership was $3.1 million based on a hypothetical transaction between a willing buyer and seller. Another Deadwood casino owner, however, offered $6.2 million for the partnership. Although Costner claimed the offer was solicited by the Canevas, the trial court ordered Costner to buy the business for $6.2 million within 10 days or the court would order it sold on the open market.
On appeal, the Supreme Court adopted Costner’s position. After rejecting an argument by the Canevas that the partnership agreement required the casino be sold on the open market, the Supreme Court said a hypothetical transaction was the proper test of fair market value. It said Costner offered
sound policy reasons why an offer cannot be the fair market value. For example, what if a partnership solicited a “strawman” to offer a low price for the business? What if a businessman, for personal reasons, offers 10 times the real value of the business? What if the partnership, for personal reasons, such as sentimental value, refuses to sell for that absurdly high offer? These arbitrary, emotional offers and rejections cannot provide a rational and reasonable basis for determining the fair market value.
As a result, the Court said the value of the casino was $3.1 million and, hence, Costner could not be ordered to buy it for $6.2 million. The Court also concluded that rather than the remaining partners (Costner) having to pay for the entirety of the partnership being dissolved, they were only required to pay any interests the withdrawing partner is due. Thus, Costner is obligated “pay the Canevas the value of their 6.5 partnership units, if any value exists after revaluation.” If Costner refuses to pay that amount, though, the Court said a forced sale of the business would be appropriate.
The 5-0 decision was handed down approximately four weeks after the Court heard oral arguments in the case.