Newby's allegations stunned Claude Trout. Trout insisted that he had made every effort to conserve the partnership's cash, had not diverted any funds to friends to friends or relatives, and had been unaware that he was required to deed the Laurel Valley property to the partnership.Trout then told Newby that he would immediately make the necessary change in the title of the property. Newby cut off Trout in mid-sentence, telling the elderly gentleman that "it was too late" to transfer the property to the partnership. Within minutes, Newby had packed his briefcase and was on his way out the door when Trout stopped him. "What can I do clear this up?" Trout asked. After a brief pause, Newby replied sarcastically, "Pray."
Early the next morning, Harry Moore telephoned Trout and asked that he drive to Sacramento to meet with him, Jay Kent Newby, and Newby's father in the accounting firm's office. Trout agreek to make the short trip to Sacramento. Jay Kent Newby reported that presided over the meeting that afternoon among the four men. Newby reported that he had devised a plan for resolving the situation without any legal action being taken against Trout. Because Trout was obviously "crooked and dishonest," Newby suggested that Moore be allowed to withdraw immediately from the partnership. Newby's plan called for Trout to return Moore's initial cash investment in the partnership and to pay Moore interest on his investment for the prior three years. When Trout asked Moore if that was what he wanted, Moore, who had yet to speak during the meeting, nodded affirmatively.
Trout agreed to the settlement arranged by Jay Kent Newby and then apologized for the mistake he had made. He insisted once more that he had been unaware of the need to transfer the title of the 400-acre property to the partnership. Trout also told Moore, a longtime friend, that he not been irresponsible in managing the funds committed to the partnership by Moore. Again, Moore remained silent.
Following the dissolution of the partnership, Trout lost interest in completing the development of the Laurel Valley property and sold it, incurring a large loss. Over the following several months, Trout's health deteriorated, and he was eventually forced to seek psychiatric help. Trout attributed his physical and mental deterioration to the dissolution of his partnership with Moore and to Jay Kent Newby's allegation that he was "crooked and dishonest."
In late 1982, Trout told Jim Hardy, a partner of Laurel Valley Estates' original accounting firm, of the problem that had led to the breakup of his partnership with Moore, Hardy immediately informed Trout that state law did not require him to deed the Laurel Valley property to the partnership. According to Hardy, the stated intentions of partners dictate whether personal assets of individual partners have been contributed to the partnership. Because the Trout and Moore partnership agreement clearly specified that Trout's initial capital contribution would be the 400-acre property, that property was legally a partnership asset although the title remained in Trout's name. In fact, Hardy had researched that specific question when he set up the books for Laurel Valley Estates shortly after the partnership's formation in 1978.