Goldstein v. 91st Street Joint Venture

SALMON, Judge. The origin of the dispute that gives rise to this appeal lies in the intense dislike that appellant, Edward S. Goldstein (“Gold-stein”), has for Malcolm Berman (“Berman”). 1 Both Berman ⁵⁴⁸ and Goldstein own interests in a partnership that operates the Princess Royale Hotel and Convention Center located in Ocean City, Maryland. The enmity between Goldstein and Berman ultimately led to a lengthy arbitration hearing, after which the arbitrator gave Berman and his cohorts the option of dissolving the partnership. The option to dissolve was exercised, and the arbitration award was confirmed by the Circuit Court for Baltimore County.

Thereafter, the trial judge was called upon to decide whether Goldstein had a right to have the assets of the partnership liquidated. To make that determination, the court endeavored to interpret section 9-609 of the Corporations and Associations Article of the Maryland Code (1975, 1993 Repl.Vol. & 1998 Supp.) as it was written prior to July 1, 1998. 2 Section 9-609 is a part of the Maryland Uniform Partnership Act 3 (“UPA”) and provides, in pertinent part, as follows: Rights of partners as to application of partnership property. (a) General rule. — When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his copartners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners____ (b) Dissolution caused in contravention of agreement.— When dissolution is caused in contravention of the partner ⁵⁴⁹ ship agreement, the rights of the partners shall be as follows: (1) Each partner who has not caused dissolution wrongfully shall have: (1) All rights specified in subsection (a) of this section; and (ii) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. (2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name, either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under paragraph (l)(ii) of this subsection, and in like manner indemnify him against all present or future partnership liabilities.

(Emphasis added.) Reduced to its essentials, the major issue that concerned the trial court was whether Goldstein caused the dissolution of a partnership “in contravention of a partnership agreement” as that phrase is used in section 9-609. If Goldstein did act “in contravention,” then the “innocent” partners’ rights are controlled by section 9-609(b) of the UPA. In this case, Berman, and others, maintained that the “winding up” of partnership affairs was to be governed by section 9-609(b) of the UPA. Accordingly, Goldstein’s erstwhile partners had the property appraised, attempted to pay off Goldstein, and continued the business of the partnership, sans Goldstein.

Goldstein contends that the partnership 4 should have been dissolved pursuant to section 9-609(a) by liquidating the assets ⁵⁵⁰ of the partnership, paying off all partnership debt, and dividing the remaining proceeds between the partners according to their interests. If the partnership were liquidated, one of the consequences would be that Goldstein could collect immediately a $1.1 million development fee owed to him by the partnership. If section 9-6Q9(b) is applicable, Goldstein would not have the right to payment of the fee any time soon. The trial judge ultimately ruled in favor of appellees (who will be named infra) based upon his reading of the arbitrator’s decision as well as his interpretation of section 9-609 of the UPA.

Goldstein filed this timely appeal. I. BACKGROUND FACTS One of the appellees, 91st Street Joint Venture, is a Maryland general partnership, whose partners since 1988 have been Joint Venture Holding, Inc., and Princess Hotel Limited Partnership (collectively, the “Berman Partners”) and Goldstein. Malcolm C. Berman controls the Berman Partners. The Berman Partners own more than a ninety-nine percent interest in 91st Street Joint Venture (“Joint Venture”).

The appellees in this case are the Joint Venture along with the Berman Partners. Appellant Goldstein, at all times here pertinent, owned less than a one-fifth-of-one-percent interest in the Joint Venture. The fixed term of the Joint Venture was until September 30, 2040, or until the dissolution of the Joint Venture due to Goldstein’s death. In 1988, the Joint Venture commenced construction of the Princess Royale Hotel and Convention Center.

Berman oversaw the construction and operation of the project. The Joint Venture was governed by a “restated and amended 91st Street Joint Venture agreement” (“the Agreement”). The Agreement provides that the parties “are bound” by the Maryland UPA. Section 6.5 of the Agreement reads: 6.5 Developer’s Fee and Certain Distributions Notwithstanding anything to the contrary contained herein, the $2.6 Million Dollars provided by the Partnership [Princess Hotel Limited Partnership] to the Joint Venture ⁵⁵¹ shall be paid to the Partnership prior to any other distributions being made hereunder.

Thereafter, each of Goldstein and JVH [Joint Venture Holding, Inc.] shall be entitled to receive $1.1 Million Dollars as a Developer’s Fee in connection with their services rendered to the Joint Venture in structuring and organizing the Joint Venture. Following distribution to the Partnership of its $2.6 Million Dollars and $1.1 Million Dollars each to Goldstein and JVH, any further distributions shall be made to the Joint Venturers in accordance with their capital accounts. (Emphasis added.) The Agreement also provided for the submission to binding arbitration by the American Arbitration Association of all disputes arising out of the Agreement. In 1996, the Berman partners decided to refinance the debt of the Joint Venture by taking out a loan from First Union Bank of Maryland (“First Union”) and using the proceeds of the loan to pay off the existing lender, NationsBank, N.A. First Union agreed to lend the Joint Venture up to 12.5 million dollars with an interest rate of 7.125 percent per year.

The agreement with First Union was very attractive to the Berman Partners because NationsBank charged the Joint Venture a significantly higher interest rate. The First Union agreement with the Joint Venture provided, inter alia, that payment of the $1.1 million developer’s fee to Goldstein would be deferred for 12.5 years. The NationsBank loan had a somewhat similar provision that precluded the payment of the developer’s fee until such time as NationsBank either consented to the $1.1 million payment or its loan was paid off. The Berman Partners sought Goldstein’s consent to the proposed First Union loan, which required Goldstein to give his personal guaranty, albeit for only a small portion of the total loan. 5 To secure Goldstein’s consent, Malcolm Berman agreed to indemnify Goldstein completely from any potential exposure as a result of his guaranty.

Nevertheless, Goldstein insisted that before making a decision he wanted his partners to ⁵⁵² supply him with a great deal of financial information concerning the operation of the Joint Venture. In addition, Goldstein informed his partners that he would not approve the First Union loan, or personally guaranty any portion of it, as long as there was a requirement that payment of his $1.1 million developer’s fee be deferred. In November of 1996, the Berman Partners filed with the American Arbitration Association a demand for arbitration of their claims that Goldstein had: (1) consented to the proposed refinancing with First Union or, alternatively, (2) breached a fiduciary duty to the Joint Venture by, inter alia, his failure to approve and guarantee a portion of the proposed First Union loan. Thereafter, the Berman Partners amended their arbitration demand to seek an additional ruling that Goldstein’s conduct made him a defaulting partner pursuant to section 14.1 of the Agreement.

Section 14.1 lists numerous ways that a partner’s conduct may constitute a default under the Agreement, one of which is if a partner breaches “any of the terms, provisions, covenants, or agreements contained in the Partnership Agreement.” If a partner defaults under section 14.1, the non-defaulting partners have certain rights, including those set forth in section 14.2 of the Agreement. Section 14.2 reads: Continuing the Joint Venture Business. Upon the election of a nondefaulting Joint Venturer to dissolve the Joint Venture pursuant to Section 14.1, the nondefaulting Joint Venturer shall have the right to continue the business of the Joint Venturer. The nondefaulting Joint Venturer shall purchase the defaulting Joint Venturer’s interest at a purchase price determined by the appraisal procedures set forth in Section 19; provided, however, that any damages resulting from the breach by the defaulting Joint Venturer shall be deducted from the purchase price.

Upon payment of the purchase price (minus damages), the interest of the defaulting Joint Venturer shall be transferred to the nonde-faulting Joint Venturer upon the nondefaulting Joint Ven-turer’s assumption of the obligations of the defaulting Joint ⁵⁵³ Venturer under this Agreement. The purchase price (minus damages) must be paid in cash. It should be noted that the rights of a non-defaulting partner under section 14.2 are quite similar to the rights granted to an “innocent” partner by section 9-609(b) of the UPA. For remedies, the Berman Partners asked the arbitrator to grant them (1) the right to dissolve the Joint Venture, (2) the right to continue the business of the Joint Venture, (3) the right to purchase Goldstein’s interest in the Joint Venture, and (4) monetary damages.

Goldstein filed a counterclaim in which he sought, inter alia, certain financial documents from the Joint Venture. A six-day evidentiary hearing was held before the arbitrator, followed by post-hearing briefing and oral argument. The arbitrator, Jonathan A. Azrael, Esq., made his initial award on June 30, 1997. Azrael ruled that Goldstein had not breached his fiduciary duty to appellees nor had he breached any other obligation owed to his partners by withholding his consent to the proposed First Union loan, or by withholding his personal guaranty of that loan.

The arbitrator also rejected appellees’ contention that Goldstein had breached his fiduciary duty to the Joint Venture in several other ways. 6 In Paragraph 7 of the arbitrator’s award it was stated: ⁵⁵⁴ 7. The evidence clearly supports a finding that due to animosities on the part of [Goldstein] towards Malcolm • Berman, [Goldstein] has so conducted himself in matters relating to the partnership that it is not reasonably practicable to carry on the business in partnership with him, and further, that it is equitable to dissolve this partnership. Upon application by Claimant, within fifteen (15) days from the date this Award is mailed to the parties, this Award will be modified to effect a dissolution of the Joint Venture under § 9-603(4) and (6) of the Maryland Uniform Partnership Act. If Claimant does not make such application, no such dissolution will be ordered.

(Emphasis added.) In addition, the arbitrator ruled in favor of Goldstein concerning one of his cross-claims by holding that Goldstein was entitled to certain financial disclosures by the Joint Venture. The appellees filed a timely application seeking “modification, correction and clarification” of the award. That application pointed out that the initial award did not address the Berman Partners’ claim that Goldstein had breached a duty owed to the Joint Venture by filing various lawsuits against the Joint Venture and the Berman Partners. As a consequence of these derelictions, they purportedly were entitled “to continue the business of the partnership pursuant to the [Joint Venture] agreement!,] section 14.2[,] and to proceed to acquire Goldstein’s interest in lieu of a liquidation of partnership assets.” In addition, the Berman Partners referred to their claims that Goldstein had breached both his fiduciary duty and the provisions of the Joint Venture agreement and asked the arbitrator to determine that they “had the right to continue the business of the Joint Venture in accordance with section 14.2 of the Joint Venture agreement and in accordance with section 9-609(b)(2) of the Maryland Uniform Partnership Act.” (Emphasis added.) They also requested a determination that they, as non-defaulting Joint Venturers, [could] purchase Gold-stein’s partnership interest at a purchase price determined ⁵⁵⁵ by the appraisal procedures of Section 19, in lieu of a Section 16 liquidation [sale] of all partnership assets as part of the dissolution ... [because] a Section 16 liquidation would have horrendous tax consequences for the Joint Venture and its Partners.

Goldstein filed an answer to appellees’ application seeking modification, etc., after which appellees filed a reply to Gold-stein’s answer. In their reply, appellees said: Unless this Arbitrator correctly finds that Respondent is a defaulting partner as described in Part I above, these proceedings will have accomplished nothing except to get rid of a bogus counterclaim, thereby leaving the parties in the same position as when this all began. On August 25, 1997, the arbitrator issued a “modification, correction, and clarification of award” that rejected all the claims of the appellees, save one, which is not here relevant. Most significantly, the arbitrator said in his August 25, 1997, award: 4.

The claim that the Award should be modified because [Goldstein] failed to cooperate in obtaining financing from NationsBank in 1994 and First Union in 1996 is DENIED. 5. The claim that the Award should be modified to find that [Goldstein] is a “defaulting partner” and that Joint Venture Holding, Inc. and Princess Hotel Limited Partnership have a right to continue the business of the Joint Venture is DENIED. Shortly after the appellees received the “modification, correction and clarification of award,” they applied to the arbitrator for “a modified award to effect a dissolution of the ... Joint Venture under Section 9-603(a)(4) and (6) of the [ ]UPA pursuant to Paragraph 7 of the initial award.” This was not opposed by Goldstein.

Several weeks later, on September 29, 1997, the arbitrator entered his “Second Modified Award,” which stated in pertinent part: “[The Berman Partners] are ordered and directed to dissolve the Joint Venture in accordance with the Maryland Uniform Partnership Act.” ⁵⁵⁶ On November 4, 1997, counsel for Goldstein wrote to appel-lees’ counsel and said, in pertinent part: Having elected to dissolve the partnership, Joint Venture Holding, Inc. is obliged to liquidate the partnership’s assets, pay the partnership debts and then distribute whatever is left among the partners in accordance with their percentage interests. Furthermore, I believe Mr. Goldstein has the right to be informed of and actually be a participant in the dissolution process. About five months later, on April 14, 1998, counsel for appellees sent a letter to Goldstein’s counsel and advised him that the Joint Venture had been dissolved in accordance with section 9 — 609(b) of the UPA; that Goldstein’s share of the Joint Venture was determined to be worth $12,941; and that the Berman Partners were buying him out and continuing the Joint Venture’s business. The letter from appellees’ counsel included the following passages: 1.

An appraisal of the real property, tangible personal property and intangible personal property owned by the Partnership [Joint Venture] including the Princess Royale Hotel, has been conducted by Lipman Frizzell & Mitchell, LLC. A copy of the appraisal is enclosed. The value of all other Partnership property, as specified in § 9-611 of the Act, was determined by Jim Jones, CPA, of Weinberg, Griffith, Tucker & Jones. The value of all of the Partnership property comprised the entire value of the Partnership (the “Entire Value”). 2.

The amount of all Partnership liabilities was calculated by Mr. Jones., 3. The net value of the Partnership was calculated and determined by subtracting the amount of all Partnership liabilities from the Entire Value of the Partnership (the “Net Value”). A copy of Mr. Jones’ calculation as well as his year end review of the partnership financials is enclosed. 4. A check for your proportionate share of the Net Value of the Partnership has been attached to this letter (less the judgment dated July 7, 1997 held by 91st Street ⁵⁵⁷ Joint Venture and others against you in the amount of $1,336.82 plus interest at 10% in the amount of $101.39).

Please note that because the arbitrator determined that your conduct caused the dissolution of the Partnership, it would be appropriate for the Partnership to withhold from the disbursement the amount of damages that your conduct has caused. Such an amount has not been withheld!;] however, if you challenge the amount of the payment sent to you, the Partnership and remaining Partners reserve the right to assess such damages against you. 5. An indemnity agreement has been executed by Joint Venture Holding, Inc. and Princess Hotel Limited Partnership (the other Partners), indemnifying you from any Partnership liabilities and is enclosed with this letter. 6. Joint Venture Holding, Inc. and Princess Hotel Limited Partnership have obtained a release for you from Nati-onsBank; the release is enclosed with this letter. 7.

The remaining assets of the Partnership have been distributed to Joint Venture Holding, Inc. and Princess Hotel Limited Partnership, as the other Partners, who will also assume the Partnership debt as called for under the Act. (Emphasis added.) All parties are in accord that the actions taken by appellees (as described in the letter) were proper only if the dissolution of the partnership was caused by actions taken by Goldstein “in contravention of the partnership agreement” as that phrase is used in section 9-609 of the UPA. On April 14, 1998 — which was the same day that counsel for appellees wrote to Goldstein’s counsel — the circuit court signed a consent order and judgment pursuant to section 3-227 of the Courts and Judicial Proceedings Article (1998 RepLVol. & Supp.1999). In its consent order, the court confirmed the arbitration Award dated June 30, 1997, the Modification, Correction, the Clarification of Award dated August 25, 1997, and the Second Modified Award dated September 29, 1997. ⁵⁵⁸ Four days after the consent judgment was entered, Gold-stein’s attorney responded to the letter from counsel for appellees.

In the letter, counsel objected to the Berman Partners proceeding in accordance with section 9-609(b) and asserted that the dissolution “must proceed pursuant to Section 9-609(a) of the UPA.” Goldstein’s counsel pointed out that the arbitrator denied claims that Goldstein had breached any fiduciary duty or other obligation owed to the Joint Venture and denied, as well, the Berman Partners’ contention that they had a right to continue the business of the Joint Venture. Counsel demanded that the Berman Partners dissolve the Joint Venture by liquidating the partnership property “to the end that all liabilities be discharged and ‘the surplus applied to pay in cash the net amounts owing to the respective partners.’ ” (Emphasis in original.) After additional correspondence made it clear that the partners were hopelessly at odds as to which subsections of section 9-609 were applicable, Goldstein filed, in the Circuit Court for Baltimore County, a “Cross Petition to Enforce Consent Order and Judgment Confirming Arbitration Award.” In his cross petition, Goldstein asked the circuit court to (1) order the liquidation of the Joint Venture, (2) order the Berman Partners to return any Joint Venture assets loaned or distributed to them, (3) appoint a receiver to wind up the Joint Venture’s affairs, and (4) order the Berman Partners to pay Goldstein the costs (including reasonable attorneys’ fees) incurred by him in connection with his suit to enforce the arbitration award. Appellees responded by filing a motion to dismiss or, alternatively, for summary judgment. Goldstein, in turn, filed a motion for summary judgment.

The trial judge denied Gold-stein’s motion and granted both of appellees’ motions.

II

PRELIMINARY MATTERS An interesting feature of the briefs filed in this case is that both sides point with pride to the decisions of the arbitrator and assert their entitlement to summary judgment based on ⁵⁵⁹ the assumption that they “won” before the arbitrator. Gold-stein presents as his first question: 1. Should res judicata be accorded to an arbitration award entered in a formal proceeding that both provided for and involved the presentation of evidence and written memoranda substantially similar in form and scope to a judicial proceeding? Appellees counter: The question arising here consists of whether the [ajrbitrator, and the judgment confirming his award, decided that [ajppellees could dissolve the partnership, continue the business and pay [ajppellant the net value of his share.

In terms of issue preclusion, has this issue been litigated and decided? Appellee[s] contend[] that it has. Appellant seeks to catch this Court’s attention and fancy by raising the specter that the facts of this case present a case of first impression in Maryland. He contends that for the first time, a litigant poses the question whether a confirmed arbitration award, entered in a judicial-like proceeding is accorded res judicata effect.

He cites Ewing v. Koppers Co., 312 Md. 45 [ 537 A.2d 1173 ][,] and its reference to § 83 and § 94 of the Restatement [Judgments, Second]. Appellant glosses over an important distinguishing fact which prevents the application of that doctrine and which prevents that interesting question from arising here. The “earlier case” and its decision which [ajppellant seeks to enforce, is not a binding arbitration proceeding ending in a decision of that tribunal, but rather is a judgment of the Circuit Court for Baltimore County confirming an arbitration award, to which [a]ppellant consented. Thus, it is a consent judgment which constitutes the “earlier case,” not a valid and final award of binding arbitration that one might ask whether it should be given effect as a judgment of a court as the Restatement suggests.

(Emphasis added.) We agree with appellees that, technically speaking, it is not the arbitrator’s award that is entitled to be enforced. Rather, ⁵⁶⁰ it is the consent judgment entered on April 14, 1998, which must be given res judicata (issue preclusion) effect. This makes no practical difference, however, because the April 14th judgment confirmed in all respects the arbitration awards of June 30, August 25, and September 29,1997. In this appeal, both sides agree that appellees had a right to dissolve the partnership.

They also agree that the trial court acted properly when he signed the consent decree dated April 14, 1998. But, as the parties recognized in their briefs, the central question presented is whether the arbitrator granted, or denied, appellees the right to dissolve the partnership under the provisions of section 9-609(b) of the UPA.

II

Was the trial judge legally correct when he granted summary judgment in favor of appellees? A. Standard of Review In reviewing a lower court’s grant of summary judgment, the standard is simply whether that court was correct as a matter of law. Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993); see also Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990); King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985). A grant of summary judgment is proper when the movant clearly has demonstrated the absence of any genuine issue of material fact and that he or she is entitled to judgment as a matter of law.

Md. Rule 2-501(e); Castiglione v. Johns Hopkins Hosp., 69 Md.App. 325, 332 , 517 A.2d 786 (1986). In its review, an appellate court is limited to examining the same information from the record and decides the same issues of law as the trial court. Nationwide Mut. Ins.

Co. v. Scherr, 101 Md.App. 690, 695 , 647 A.2d 1297 (1994). B. The Trial Judge’s Opinion Section 9-603 governs when a court may dissolve a partnership. It reads: ⁵⁶¹ Dissolution by decree of court. (a) Application by or for partner. — On application by or for a partner, the court shall decree a dissolution whenever: (1) A partner has been declared a lunatic in any judicial proceeding or is shown to be of unsound mind; (2) A partner becomes in any other way incapable of performing his part of the partnership contract; (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (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; (5) The business of the partnership can only be carried on at a loss; or (6) Other circumstances render a dissolution equitable.

(b) Application of purchaser of interest. — On the application of the purchaser of a partner’s interest under § 9-504 or 9-505, the court shall decree a dissolution: (1) After the termination of the specified term or particular understanding; (2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. As noted earlier, the arbitrator found in paragraph 7 of his initial award that the partnership could be dissolved, at the option of the appellees, under section 9-603(a)(4) and (6). Specifically, he found that due to Goldstein’s animosity toward Berman it was “not reasonably practicable to carry on the business in partnership” with Goldstein. The arbitrator also found that it would be “equitable to dissolve the partnership.” It should be noted, however, that the arbitrator did not explicitly find that Goldstein acted in “contravention of the partnership agreement.” ⁵⁶² The trial judge, in granting summary judgment in favor of appellees, emphasized the portion of the arbitrator’s findings that was set forth in paragraph 7 of the initial award and then said: In construing a statute, all parts, provisions or sections of a statute should be read, considered or construed together so that all parts are consistent with its general object and scope and to give effect, if possible, to all such parts.

When reading § 9-603[ (a) ](4) in context and together it seems reasonable to infer that the legislature] intended both acts to be wrongful conduct by a partner in contravention of the partnership agreement. It is further clear that it is their desire, pursuant to § 9-609[ (b) ](2), to allow the partners who have not caused the dissolution wrongfully to continue the business if they desire. Therefore, it would be a reasonable interpretation to find that a partner that conducts himself in matters relating to the partnership business that is not reasonably practicable to carry on the business in partnership with him as an act which is in contravention of the partnership agreement and wrongfully causing the dissolution that, therefore, the rights of the partners shall be governed by § 9-609(b) and not (a) as argued by [Gold-stein]. (Footnote omitted.) C. Three Ways of Construing § 9-609 Scholars have puzzled over the meaning of the term “in contravention of the partnership agreement” as that term is used in the UPA.

Robert W. Hillman The Dissatisfied Participants in the Solvent Business Venture: A Consideration of the Relative Permanence of Partnerships and Close Corporations, 17 Minn. L.Rev. 1, 15 n. 49 (1982). The term “in contravention of the partnership agreement” is used not only in section 9-609 but in section 9-602. Section 9-602 reads: Causes of dissolution.

Dissolution is caused: (1) Without violation of the agreement between the parties: ⁵⁶³ (1) By the termination of the definite term or particular undertaking specified in the agreement; (ii) By the express will of any partner when no definite term or particular undertaking is specified; (iii) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; (iv) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement