Della Ratta v. Dyas

LAWRENCE F. RODOWSKY, Judge, retired, specially assigned. The litigation underlying this appeal arose out of the dispute between the two equal owners of two hotels and a condominium in Ocean City, Maryland. The appellee, Edward J. Dyas, Jr. (Dyas), was the plaintiff below. One of the appellants, Joseph M. Della Ratta (Della Ratta), was a defendant below.

We shall refer to Della Ratta and Dyas collectively as “the Developers.” The earliest of their projects was the Best Western Sea Bay Inn (Sea Bay or the Old Hotel), located at 6007 Coastal Highway, which opened in 1988. The Developers’ vehicle for this project was Spa Motel General Partnership (Spa), that was formed in 1987. Originally, Spa was comprised of three partners. Before Sea Bay was completed, Dyas bought out the third partner so that he and Della Ratta thereafter each held a fifty percent interest in Spa.

The Developers’ second project was a condominium, Mare-sol, located at 5501 Coastal Highway. Their vehicle for that project was Bay View Condominiums, LLC (Bay View), formed in 2002, in which the Developers had equal interests. Maresol was completed in 2004. Construction financing for ³⁴⁸ Maresol was furnished by Severn Savings Bank FSB (Severn Bank), a defendant below, but not one of the appellants.

The Developers’ third project was Best Western Hotel and Suites (the New Hotel), located at 5501 Coastal Highway. It opened in 2006, more than one year after the instant litigation had been instituted by Dyas. Spa was the entity in which the Developers placed the New Hotel project. Each of the projects was built by a construction company solely owned by Della Ratta, Della Ratta, Inc. (DRI).

The two hotels were managed for Spa by Commercial Management Company (CMC), also wholly owned by Della Ratta. DRI and CMC were defendants below and are appellants. 1 Dyas instituted this action on January 10, 2005, in the Circuit Court for Anne Arundel County, with a request for a temporary restraining order against calls for capital issued by Della Ratta for Spa. In overview, Dyas’s theory of the case was that Della Ratta was attempting wrongfully to squeeze out Dyas from Spa and Bay View. Under Dyas’s analysis, Della Ratta’s strategy in the general partnership, Spa, was to call for a very substantial capital contribution to pay claims by CMC for alleged advances made by it for operational expenses of Sea Bay and to pay claims by DRI for New Hotel construction costs.

Dyas contended those calls were unauthorized because, inter alia, the underlying claims could not be substantiated and the partnership agreement required the Developers first to seek a commercial loan before resorting to calls for additional capital. To the extent that the claims were authorized, Dyas alleged that the squeeze out strategy sought wrongfully to deprive him of funds from Bay View with which to satisfy the calls in Spa. With respect to the LLC (Bay View), Dyas’s theory of Della Ratta’s squeeze out strategy involved two ploys. First, Della Ratta sought personally to purchase the loan from Severn ³⁴⁹ Bank and obtain from it an assignment of the security instrument, on which Della Ratta then would foreclose, so that he could buy in at the foreclosure sale.

Severn Bank, however, would not assign the loan to Della Ratta. Dyas further alleged that, as an alternate squeeze out strategy, Della Ratta wrongfully refused to sell condominium units in Maresol. The resulting illiquidity would deprive Bay View of the cash needed to repay Severn Bank, so that Della Ratta could buy in Maresol at a foreclosure sale conducted by Severn Bank. The illiquidity would also deprive Dyas of the funds to pay any authorized capital calls in Spa.

For ten days between June 5 and June 19, 2006, the case was tried on the merits in Anne Arundel County. That circuit court, in an oral opinion rendered on June 28, 2006, concluded that Dyas had proved these allegations. By an amended interlocutory judgment dated August 4, 2006, the Circuit Court for Anne Arundel County granted the relief set forth below. It • transferred the action to the Circuit Court for Montgomery County, effective August 7, 2006, for further proceedings, because Montgomery County was the location of the principal offices of Spa and Bay View; • ordered, by agreement of the Developers, sale of the remaining ten units in Maresol; • permanently enjoined Della Ratta from taking unilateral action affecting ownership interests in Spa and Bay View; • declared that Della Ratta was not authorized unilaterally to manage Bay View; • declared that the Bay View operating agreement did not permit any member, or any entity owned or controlled by any member, to charge interest on loans made to Bay View; • declared that the partnership agreement for Spa did not authorize Della Ratta unilaterally to manage that entity; • declared void the capital call notices issued by Della Ratta; ³⁵⁰ • ordered an accounting at the sole expense of Della Ratta and CMC; • found that CMC was indebted to Spa for $579,589, plus interest, based on overcharges by CMC under an equipment lease from it to Spa; • found that DRI was entitled to repayment of a construction loan to Spa in the amount of $758,000, plus interest; • found that Della Ratta was entitled to repayment of an advance by him to Spa of $500,000, plus interest; • found that Della Ratta contributed $500,000 of capital to Spa; • found that the contract between Spa and DRI for construction of the New Hotel was at a fixed price of $3,280,000, beyond which the defendants were not entitled to reimbursement for purported loans or advances to Spa related to construction costs; • found that the contract between Bay View and DRI for the construction of Maresol was at a fixed price which, with authorized change orders, totaled $5,613,438, beyond which the defendants were not entitled to reimbursement for any purported loans or advances to Bay View related to construction costs; and • limited the auditor to an accounting based solely on exhibits at the trial.

Ultimate findings of the Circuit Court for Anne Arundel County were that it was “no longer reasonably practicable to carry on the business” of Spa or of Bay View and that Dyas “ha[d] proved to the Court’s satisfaction facts sufficient for the Court to grant a dissolution” of each of those entities, “but that only the Circuit Court for Montgomery County has the subject matter jurisdiction to grant a dissolution.” The court further ordered dissociation of Della Ratta as a partner in Spa. The original record in the Anne Arundel County action, No. 02-C-05-102992BC, was filed in the Circuit Court for Montgomery County on August 25, 2006, and designated as Case ³⁵¹ No. 274403 in the latter court. In addition, Chief Judge Bell designated the trial judge (Caroom, J.) to sit as a judge of the Circuit Court for Montgomery County. Orders for the dissolution of Spa and Bay View were entered by the Circuit Court for Montgomery County on March 20, 2007.

After two interim accounts and distributions, the auditor, in September 2007, submitted his final report. It was approved by the final judgment entered by the Circuit Court for Montgomery County on October 12, 2007. 2 From that judgment this appeal was noted. Additional facts necessary to the resolution of the issues presented will be stated in the discussion of those issues. Appellants present the following questions: “1.

Did the Trial Court have the subject matter jurisdiction to dissolve Bay View Condominiums, LLC, and judicially supervise the winding up of Spa Motel General Partnership? “2. Did the Trial Court err by dissociating Joseph M. Della Ratta as a general partner of Spa Motel General Partnership based on his conduct in Bay View Condominiums, LLC? “3. Did the Trial Court err by enjoining the December 10, 2004, capital calls for Spa Motel General Partnership based on the conduct of Joseph M. Della Ratta in Bay View Condominiums, LLC? “4. Did the Trial Court err when it found that the parties formed an enforceable agreement to construct the Maresol Condominiums on a firm, fixed price basis? “5.

Did the Trial Court err by refusing to allow Joseph M. Della Ratta, the opportunity to introduce proffered exhibit L26 into the record before the court appointed auditor during the accounting phase of the case?” ³⁵² I. JURISDICTION/VENUE A. Background While this action was pending in the Circuit Court for Anne Arundel County, Dyas, by his first amended complaint filed February 9, 2005, added counts requesting a dissolution of Spa and a dissociation of Della Ratta from Spa. Appellants filed an answer to the first amended complaint. In response to the averments of the counts requesting dissolution and dissociation, appellants raised no issue over proceeding in the Circuit Court for Anne Arundel County. In November 2005, appellants moved to have the entire action transferred to the Circuit Court for Montgomery County.

They contended that that court had exclusive subject matter jurisdiction over the action, by virtue of the requested dissolution of Spa and because Montgomery County was the location of the principal office of Spa. This argument was based upon the Maryland Revised Uniform Partnership Act (MRUPA), Maryland Code (1975, 2007 Repl.Vol.), § 9A-803 of the Corporations and Associations Article (CA). Subsection (a) of that statute provides: “(a) Participation and supervision. — After dissolution, a partner who has not wrongfully dissociated may participate in winding up the partnership’s business, but on application of any partner, partner’s legal representative, or transferee, the circuit court for the county in which the principal office of the partnership is located, for good cause shown, may order judicial supervision of the winding up.” 3 ³⁵³ Initially, the circuit court (Manck, J.) mistakenly concluded that CA § 9A-803 had no application to Spa because it had been formed prior to the enactment of the MRUPA by Chapter 654 of the Acts of 1997, and because the prior general partnership statute’s provisions, dealing with dissolution, had made no reference to the circuit court of the county of the principal office of the entity. The parties now agree that the MRUPA applies to this action.

Dyas, by his third amended complaint filed on May 15, 2006, added a count seeking the dissolution of Bay View. Defendants filed an answer to that pleading, in which they pled specially as a defense the absence of “subject matter jurisdiction” in the Circuit Court for Anne Arundel County. This legal position was based upon the Maryland Limited Liability Company Act (MLLCA) that had been enacted by Chapter 536 of the Acts of 1992 as Title 4A of CA. CA § 4A-903 provides: “On application by or on behalf of a member, the circuit court of the county in which the principal office of the limited liability company is located may decree the dissolution of the limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or the operating agreement.” Comparable to CA § 9A-803, applicable to general partnerships, CA § 4A-904 provides: “(a) In general. — Unless otherwise provided in the articles of organization or the operating agreement, the remaining members of a limited liability company may wind up the affairs of the limited liability company. ³⁵⁴ “(b) Judicial winding wp. — Notwithstanding the provisions of subsection (a) of this section, the circuit court of the county in which the principal office of the limited liability company is located, on cause shown after dissolution, may wind up the limited liability company’s affairs on application of any member.” Throughout the proceedings, appellants maintained their position that the Anne Arundel County court lacked subject matter jurisdiction.

In this Court, appellants contend, with respect to Bay View, that the plain and unambiguous meaning of CA § 4A-903 is that the only court with subject matter jurisdiction to hear and decide an action for the dissolution of a limited liability company is the circuit court of the county of that company’s principal office. Placing similar reliance on the allegedly plain language of CA § 9A-803, appellants submit that, here, only the Circuit Court for Montgomery County could supervise the winding up of Spa. These results flow, appellants argue, because the statutes address an “application” for dissolution or for judicial supervision of winding up. As appellants see it, although the orders for dissolution were entered by the Circuit Court for Montgomery County, they were void because proceedings underlying those orders had already taken place in Anne Arundel County pursuant to Dyas’s “application” there.

Dyas submits that CA §§ 4A-903 (MLLCA) and 9A-803 (MRUPA) are venue provisions and that any venue privilege has been waived by appellants’ failure to comply with Maryland Rule 2-322(a) that requires improper venue to be raised by a motion to dismiss, filed before answer. 4 Alternatively, Dyas contends that it was the Circuit Court for Montgomery County and not the Circuit Court for Anne Arundel County that ordered dissolution of Bay View and supervised the winding up of Spa. ³⁵⁵ B. Discussion — Venue Appellants’ argument uses “the term ‘jurisdiction’ fundamentally, to indicate the actual power, rather than the propriety, of the Circuit Court [for Anne Arundel County] acting in such matters.” In re Application of Kimmer, 392 Md. 251 , 254 n. 1, 896 A.2d 1006 , 1008 n. 1 (2006). See also Fooks’ Ex’rs v. Ghingher, 172 Md. 612, 624 , 192 A. 782, 787 (1937) (“There is a wide distinction between the lack of jurisdiction to decide a given case, and the improper or irregular exercise of a power which, while within the general jurisdiction of the court, under its established practice, is not applicable to the facts in respect to which it is exerted.”). “Jurisdiction of the subject-matter means not simply the particular case to which the attention of the court is directed, but the class of cases to which it belongs, and over which the authority of the court extends.” Id. at 620 , 192 A. at 786 . “Whether a court has fundamental jurisdiction, i.e., the power, to decide a matter, must be determined by looking to ‘the applicable constitutional and statutory pronouneements[.]’ ” Board of Nursing v. Nechay, 347 Md. 396, 405 , 701 A.2d 405, 410 (1997) (quoting Kaouris v. Kaouris, 324 Md. 687, 708 , 598 A.2d 1193, 1203 (1991), in turn quoting First Federated Commodity Trust Corp. v. Commissioner of Securities for Maryland, 272 Md. 329, 334 , 322 A.2d 539, 543 (1974)). First Federated Commodity Trust described the jurisdiction of the circuit courts, saying: “The circuit courts of this State ... are courts of original general jurisdiction, Maryland Const., Art. IV, §§ 1, 19, 20 and, therefore, they may hear and decide all cases at law and in equity other than those which fall within the class of controversies reserved by a particular law for the exclusive jurisdiction of some other forum.” Id. at 335, 322 A.2d at 543 . Constitution, Article IV, § 1 vests the judicial power of this State ³⁵⁶ “in a Court of Appeals, such intermediate courts of appeal as the General Assembly may create by law, Circuit Courts, Orphans’ Courts, and a District Court.” Constitution, Article IV, § 19 establishes the eight judicial circuits of the circuit courts.

Constitution, Article IV, § 20(a) addresses the jurisdiction of the circuit courts and provides: “(a) There shall be a Circuit Court for each County and for Baltimore City. The Circuit Courts shall have and exercise, in the respective counties, and Baltimore City, all the power, authority and jurisdiction, original and appellate, which the Circuit Courts of the counties exercised on the effective date of these amendments, and the greater or lesser jurisdiction hereafter prescribed by law.” Appellants’ challenge to the subject matter jurisdiction of the Circuit Court for Montgomery County in ordering the dissolution of Bay View is premised on their construction of CA § 4A-903. The cardinal rule of statutory interpretation is to ascertain and effect the legislative intent. The process begins with the statutory language which will be given its plain meaning, if the language is clear and unambiguous.

If the statute is ambiguous, we look to the pertinent legislative history, to related statutes, and other material bearing on the legislative intent. Johnson v. Mayor & City Council of Baltimore City, 387 Md. 1, 11-12 , 874 A.2d 439, 445-6 (2005). We seek to avoid interpretations that are “illogical, unreasonable, or inconsistent with common sense.” Frost v. State, 336 Md. 125, 137 , 647 A.2d 106, 112 (1994). Here, the statute applicable to LLCs, CA § 4A-903, is ambiguous.

Is there underlying power in all circuit courts to dissolve an LLC, with a legislatively expressed preference for exercise of that power by the court in the county of the LLC’s principal office, or is that latter court the only one that is endowed with the power to dissolve? Asked another way, as to dissolutions of LLCs, is there no power lying dormant in all circuit courts, to be exercised, properly or improperly, when invoked in a particular case, but only a power, statutorily ³⁵⁷ conferred, that arises in a given action in a single circuit court, determined by the location of the principal office of the subject LLC? Finding the plain language inconclusive, we look to the aids for statutory construction. There is a presumption, usually applied to issues of fact, that courts of general jurisdiction have acted within their jurisdiction.

Brown v. State, 169 Md.App. 442, 464-65 , 901 A.2d 846, 849 , cert. denied, 395 Md. 56 , 909 A.2d 259 (2006); In re Nahif A., 123 Md.App. 193 , 717 A.2d 393 (1998), overruled on other grounds, In re Antoine M., 394 Md. 491 , 907 A.2d 158 (2006). Consequently, statutes are to be read as favoring subject matter jurisdiction, absent a clear intention of the legislature to limit it. Sivilla v. Philips Med. Sys. of North America, Inc., 46 Conn.App. 699 , 700 A.2d 1179, 1182 (1997).

The legislative history of CA § 4A-903 fails to disclose any legislative intent to alter the subject matter jurisdiction of the circuit courts in the radical and unorthodox manner required by appellants’ construction of the statute. The judicial dissolution provision of the MLLCA traces to the Maryland Revised Uniform Limited Partnership Act (MRULPA) that, in turn, traces to the Maryland Uniform Partnership Act (MUPA), Code (1975), CA Title 9. The references to principal office in CA §§ 4A-903 and 904 were part of the MLLCA’s original enactment by Chapter 536 of the Acts of 1992. Section 4A-901(a) of that act explains that dissolution of a limited liability company “is a change in the relationship between the members, not [its] winding up or termination^]” The legislative bill that became the MLLCA was drafted for the General Assembly’s consideration by a special joint committee of the Sections of Taxation and Business Law of the Maryland State Bar Association (the Committee).

See D. Cohen et al., Doing Business under the New Maryland Limited Liability Company Act (The Maryland Institute for Continuing Professional Education of Lawyers, Inc. (1993)) at 66 (MICPEL). The Committee explained the ³⁵⁸ effect of “dissolution,” as used in MLLCA § 4A-901, as follows: “This section is similar to [CA] § 9-601.[ 5 ]Partnership law has long drawn a distinction between events which extinguish the authority of partners to continue to conduct the affairs of the partnership as a going concern and those which terminated the partnership itself. Extinguishing the authority to continue to conduct the affairs of the partnership as a going concern has historically been referred to as the dissolution of the partnership. Following dissolution, the partnership remains in existence in order to wind up its affairs.

Only after the affairs have been wound up is the partnership itself terminated. “On the other hand, in the corporate context, the term ‘dissolution’ generally is thought to refer to the termination of the existence of the entity. The existence of these two different meanings of the term ‘dissolution’ often creates confusion. “The term ‘dissolution’ is so firmly entrenched in partnership law and has been accorded such great significance for federal income tax purposes that its continued use in this Act in the partnership sense is thought to be essential. “Specifically, dissolution under subsection (A) means that the authority of the members under § 4A-401, or the authority of any other agent of the limited liability company, to continue to conduct the business as a going concern has ended. Following dissolution, unless the remaining members elect to continue the business under § 4A-904, the members must commence efforts to wind up and ultimately terminate the limited liability company.” MICPEL at 82-83. Specifically with respect to judicial dissolution under CA § 4A-903, the Committee stated: “This provision is derived from [CA] § 10-802. ³⁵⁹ “It is generally intended that all circumstances which justify judicial dissolution under the Maryland Revised Uniform Limited Partnership Act will justify judicial dissolution of a limited liability company.” MICPEL at 84.

By Chapter 801 of the Acts of 1981, the General Assembly adopted the MRULPA, now codified as Title 10 of the CA Article. Subtitle 8 of the MRULPA addresses dissolution. It contains the provision under which “the circuit court of the county in which the principal office of the limited partnership is located may decree dissolution[.]” CA § 10-802. Chapter 801 of the Acts of 1981 adopted, and legislatively approved, comments following the statutory sections.

The comment to CA § 10-802 reads: “This section is new and is derived from § 9-603(a)(4) of this article, which is part of the Maryland Uniform Partnership Act. It is not intended to modify existing law. § 10-109(a)(3) of the previous Limited Partnership Act (§ 10 of the prior uniform law) also granted this right.” 1981 Md. Laws at 3047 (emphasis added). Prior to the enactment of the MRULPA by Chapter 801 of the Acts of 1981, the circuit courts of this State exercised fundamental jurisdiction to decree the dissolution of partnerships and to supervise the winding up of their affairs. See, e.g., Metaxa v. Coutros, 211 Md. 499, 128 A.2d 273 (1957); Smith v. Smith, 189 Md. 1 , 53 A.2d 15 (1947); Pritzker v. Stern, 187 Md. 499 , 51 A.2d 69 (1947); Laddon v. Whittlesey, 44 Md.App. 19 , 408 A.2d 93 (1979).

There is no indication in the MRULPA of an intent to alter the subject matter jurisdiction of the circuit courts. The sections referenced in the Comment to CA § 10-802 are to the MUPA and to the predecessor Limited Partnership Act. Former CA (1975) § 9-603 of the MUPA, in relevant part, read: “ § 9-603. Dissolution by decree of court. “(a) On application by or for a partner, the court shall decree a dissolution whenever: ³⁶⁰ “(4) A partner -willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him[.]” This provision was included in the enactment of the original MUPA by Chapter 175 of the Acts of 1916.

The MUPA contained no limitation as to the circuit court in which a judicial dissolution could or should be ordered. Substantially the same provision as former CA § 9-603 is now found in the MRUPA, Code (2007), CA § 9A-801(5)(ii). The MRUPA likewise contains no limitation as to the court that may order a judicial dissolution of a partnership. Section 10-109(a)(3) of the former MULPA is the other statute referred to in the legislative comment to the MRULPA’s § 10-802.

Former CA (1975), § 10-109(a)(3) provided that “(a) a limited partner shall have the same rights as a general partner to: “(3) Have dissolution and winding up by decree of court.” The MULPA was enacted by Chapter 280 of the Acts of 1918 and, throughout its legal life, contained no language of limitation as to the court that may order dissolution of a limited partnership. See CA (1975), General Revisor’s Note following § 10-129. In sum, the legislative history reveals that the principal office provision was placed in the MLLCA because it was in the MRULPA, where it had been inserted with no intent to change prior law. Under prior law, the circuit courts had unrestricted subject matter jurisdiction to hear an action for the dissolution of partnerships.

Consequently, it would seem that the draftpersons of the MRULPA, by inserting the reference to principal office in that statute, simply assumed that venue of an action to dissolve a limited partnership would always lie where its principal office was located. ³⁶¹ Another statute that is related to the issue before us is Maryland Code (2007), CA § 3-413, dealing with involuntary dissolutions of corporations. It sets forth the grounds for involuntary corporate dissolution and requires a vote of twenty-five percent of the shares eligible to vote for directors in order to petition “a court of equity to dissolve the corporation!;.]” There is no restriction as to the court entertaining the action, other than the general venue statute. The history of the provisions for judicial dissolution of corporations bears significantly on the issue before us. Provisions for the judicial dissolution of corporations were broadened by Chapter 649 of the Acts of 1967, legislation that was presented to the General Assembly in the final report of the Commission on Revision of the Corporation Laws of Maryland, dated December 15, 1966.

That Commission considered the then existing law “inadequate to deal with situations of deadlock, serious dissention and the like.” Dec. 15, 1966 Report at 73. Prior thereto, Maryland Code (1957), Article 23, § 80(a) in relevant part read that any stockholder or creditor of an insolvent corporation “may petition any court having equity jurisdiction in the county in which is located the principal office of the corporation in this State, to dissolve the corporation.” Chapter 649 of the Acts of 1967 amended former § 80 and enacted new provisions in new § 80A, reading in relevant part: “ § 80A. Venue; Receivers; and Certain Procedures “(a) Any petition brought pursuant to §§ 79, 79A or 80 of this Article shall be brought in any court having equity jurisdiction in the county in which is located the principal office of the corporation in this State.” Maryland Code (1957, 1973 Repl.Vol.), Article 23, § 80A. The term “venue” in the catchline of § 80A was part of Senate Bill 8, enacted as Chapter 649.

It is the General Assembly’s characterization that the forum provision relates to venue as opposed to the catchline’s being a description added by the codifier. See II1967 Md. Laws at 1328. ³⁶² Former Article 23, § 80A remained unchanged until Code Revision and the enactment of the Corporations and Associations Article by Chapter 311 of the Acts of 1975. Former Article 23, § 80A(a) was deleted. The Revisor’s Note to CA (1975) § 3-416 advises: “The first sentence of former Article 23, § 80A(a), dealing with venue, is deleted since it is covered by CJ § 6-201.” The reference is to the general venue statute, now Maryland Code (1974, 2006 Repl.Vol.), § 6-201 of the Courts and Judicial Proceedings Article.

We can discern no logical reason why the General Assembly would intend the reference to principal office in the former corporation law to be a venue provision, but intend that a similar reference to the principal office of a limited liability company in CA § 4A-903 to be a withdrawal of subject matter jurisdiction from all circuit courts, other than that in the county of the principal office of the LLC sought to be dissolved. Consequently, we hold that reference to the circuit court of the county of the principal office of the LLC in CA § 4A-903 is a venue provision. For the reasons applicable to the LLC provision, we also hold that the similar reference in CA § 9A-803 to supervising the winding up of a general partnership is a venue provision. C. Discussion — Subject Matter