Goldstein v. 91st Street Joint Venture

SALMON, Judge. This appeal concerns another engagement in an ongoing war between Edward S. Goldstein and entities controlled by Malcolm Berman. Facts related to other battles between these litigants have been discussed by us in 91st Street Joint Venture v. Goldstein, 114 Md.App. 561 , 691 A.2d 272 (1997) (“Goldstein I”), and Goldstein v. 91st Street Joint Venture, 131 Md.App. 546 , 750 A.2d 602 , cert. denied, 360 Md. 273 , 757 A.2d 809 (2000) (“Goldstein II”). I. BACKGROUND The 91st Street Joint Venture is a Maryland general partnership, whose partners are Joint Venture Holding, Inc., Princess Hotel Limited Partnership (collectively, the “Berman Partners”), and Goldstein.

Malcolm C. Berman controls the Berman Partners, which owns 99.9671 percent of 91st Street Joint Venture (hereinafter “the Partnership”), and Goldstein owns the remaining .0329 percent. The Partnership built, and currently owns, the Princess Royale Hotel and Convention Center in Ocean City, Maryland. Serious disputes arose between the parties in the 1990’s, resulting in the disputes being submitted to binding arbitration. On September 29, 1997, the arbitrator entered an award, which said in pertinent part: “[The Berman Partners] are ordered and directed to dissolve ... [the Partnership] in accordance with the Maryland Uniform Partnership Act.” Immediately thereafter, still another dispute arose as to whether, under the terms of the arbitrator’s decision, the Partnership should be dissolved pursuant to section 9-609(a) ¹⁷⁴ of the Corporations and Associations Article of the Maryland Code (1975, 1993 Repl.Vol. & 1998 Supp.) or under section 9-609(b) of that article.

At all times here pertinent, section 9-609 was a part of the Maryland Uniform Partnership Act 1 (“UPA”). Section 9-609 provided, 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 partnership agreement, the rights of the partners shall be as follows: (1) Each partner who has not caused dissolution wrongfully shall have: (i) All rights specified in subsection (a) of this section; and (ii) The right, as against each partner who had caused the dissolution wrongfully, to damages for breach. of agreement. ¹⁷⁵ (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.) The Berman Partners contended that the arbitrator had determined that Goldstein caused the dissolution of the Partnership in contravention of the partnership agreement, and therefore, the Partnership should be dissolved pursuant to section 9-609(b). Goldstein, on the other hand, contended that, pursuant to the arbitrator’s decision, the Partnership should be dissolved in accordance with section 9-609(a). This dispute was the subject of a lawsuit filed in the Circuit Court for Baltimore County, in which the circuit court ruled that the Partnership should be dissolved in accordance with section 9-609(b). The court’s decision was appealed to this Court.

We reversed, saying: We hold, based on the arbitrator’s decision, that [the Berman Partners] had no right to wind up the affairs of the [Partnership] in accordance with section 9-609(b); instead, as Goldstein’s lawyer pointed out to counsel for appellees in his letter of November 4, 1997, appellees were required to dissolve the Partnership in accordance with section 9-609(a). Therefore, the trial judge erred in granting summary judgment in favor of [the Berman Partners] and in dismissing Goldstein’s cross-petition to enforce consent order and judgment confirming arbitration award. Goldstein II, 131 Md.App. at 572 , 750 A.2d 602 . Later in the Goldstein II decision, we said: ¹⁷⁶ Although Goldstein does not get along with his partners, it is at least conceivable that they will agree to some remedy short of liquidation now that it has been decided that section 9-609(a) is applicable.

Section 9-609(a) does not require liquidation if the parties agree otherwise. It might well be economically ruinous, or at least very expensive, for the Berman Partners to liquidate. On the other hand, if Gold-stein were immediately paid his developer’s fee plus the relatively minuscule value of his share of the partnership, some accommodation short of liquidation might be reached. We will leave it to the good judgment of the trial court to work out the mechanics of the dissolution.

Id. at 574 , 750 A.2d 602 . In April 1998, which was prior to our decision in Goldstein II , all the assets of the Partnership were transferred to an entity known as “91st Street Joint Venture LLC” (hereinafter “LLC”). The transfer was made over the vehement objection of Goldstein. LLC was the assignee solely of the Berman Partners.

After remand, the Partnership’s interest in the Princess Royale Hotel in Ocean City was, at the behest of the Berman Partners, appraised by Lippman Frizzell & Mitchell, LLC, who are specialists in Ocean City real estate and licensed appraisers. In a report dated April 4, 2001, Lippman Frizzell & Mitchell filed a lengthy report in which, using an “income approach,” they concluded that the value of the Partnership interest was $45,100,000. 2 Two weeks after receipt of the appraisal, the Berman Partners filed a motion in the Circuit Court for Baltimore County asking the court to order that the assets of the 91st Street Joint Venture be sold at a private sale and that a special master be appointed to wind up the Partnership. As part of that motion, the Berman Partners submitted their proposal, expressed their concerns, and suggested the manner ¹⁷⁷ by which the private sale and wind up of the Partnership should be conducted. Goldstein filed a brief in reply to the Berman Partners’ proposal, in which he asked the court to appoint a receiver to conduct the liquidation of the Partnership in order to “obtain the highest price possible for the partnership assets.” Gold-stein requested that the assets of the Partnership, which had been transferred to LLC, “be returned to the partnership,” because the Berman Partners had no right to transfer those assets without his consent as a general partner.

Goldstein did not contend, at that point, that the Berman Partners should be prohibited from purchasing the Partnership assets. The Berman Partners filed a reply brief, in which they opposed the transfer of LLC’s assets back to the Partnership. They contended that the transfer would be expensive because a huge tax charge would be incurred; they maintained that this would be unfair because the transfer to LLC had been made in good faith, based upon advice of counsel, and prior to the decision in Goldstein I. The circuit court conducted a hearing on June 19, 2001, in which it considered argument of counsel as to how the sale of the assets of the Partnership should be handled. The court then announced that it would appoint a trustee to conduct a private sale of the assets of the Partnership.

The judge made it clear that he would allow the trustee to do whatever he needed to do, with the court’s approval, to facilitate the sale and that the trustee would work under the court’s supervision. Counsel for Goldstein asked the court for a forty-five-day period within which Goldstein could obtain an appraisal of the Partnership’s assets. Goldstein’s counsel asserted that in order to arrive at a valid appraisal, he would need the cooperation of the Berman Partners. In particular, cooperation was needed to obtain valid financial information concerning the Partnership.

The court agreed that the Berman Partners would be ordered to supply the information Gold-stein needed. ¹⁷⁸ On June 22, 2001, the court filed an order directing the private sale of the assets of the Partnership and the appointment of Daniel J. Dregier, Jr., Esq., as a trustee “to oversee and conduct the private sale and the wind-up of the Partnership, with the authority, subject to the further order and approval of this [c]ourt, to engage, if necessary, third-party professionals to assist with the performance of the duties hereunder.” The court’s order, additionally (1) allowed the parties, within forty-five days, to submit an áppraisal of the value of the Princess Royale Hotel complex; (2) allowed the appraisal, already performed by Lippman Frizzell & Mitchell, 'to be deemed “to have been timely filed in accordance with the provisions of this order”; (3) ordered that the Berman Partners “make available to all appraisers engaged pursuant to this Order all of the information that [the Berman Partners] made available to Lippman, Frizzell & Mitchell,” provided that the appraiser first sign “an appropriate Confidentiality And Non-Disclosure statement”; (4) announced that the court and the trustee, “in consultation with counsel for the parties, will determine the specific procedures for a private sale of the Partnership’s assets”; and (5) ordered that the Trustee shall make his report of sale in accordance with the procedures of Md. Rule 14-305, and the provisions of Rule 14-305 shall be applicable after the sale; provided that any exceptions to the sale or claims against the proceeds of such sale shall be filed within forty-five (45) days after the date of a notice issued pursuant to Md. Rule 14-305(c) [and reserved] until a future date the determination of whether to appoint a [s]pecial [mjaster to hold a hearing and submit recommendations to this [c]ourt concerning the disposition to be entered by the [c]ourt with respect to any such exceptions to sale or with respect to any such claims against the proceeds of the sale. The court passed two additional orders on June 22, 2001. The first allowed LLC, “as the legal titleholder of the ... property of [the Partnership], a dissolved Maryland general partnership,” the right to intervene as a “party plaintiff petitioner.” The second order allowed the Council of Unit Own ¹⁷⁹ ers of Princess Royale Resort Condominium the right to intervene as a plaintiff. 3 On August 16, 2001, counsel for the parties met with the trustee to discuss procedures for the sale of the Partnership’s assets. In advance of the meeting, counsel for the Berman Partners submitted, in writing, suggestions as to how the sale should be conducted.

Goldstein’s counsel, on August 22, 2001, submitted his proposed procedures, which were much different than those proposed by his opponents. The trustee, on August 30, 2001, informed counsel that, in concert with the judge who had appointed him, he would “make every effort to expedite the filing procedures for the private sale of the assets of the Partnership.” On October 15, 2001, the Berman Partners submitted an offer to the trustee of $97,517,000 for the interest of the LLC, contingent upon the Berman Partners receiving a 99 percent credit. The proposed credit represented the Berman Partners’ approximate' interest in the Partnership. The offer amount was more than twice the appraised value of the partnership assets, but, in legal effect, the dollar amount offered was quite small, i.e., only $975,517.

That latter sum was, however, more than enough to buy out Goldstein’s interest in the Partnership. The record is unclear, however, as to whether the offer, if accepted, was sufficient to pay off all, creditors of the Partnership, 4 nor was there any indication that the bidder intended to pay off immediately the indebtedness of the Partnership. By letter dated November 9, 2001, the trustee requested that the Berman Partners submit a contract of purchase that ¹⁸⁰ he and the court could review along with any other interested parties. A proposed contract was submitted by the Berman Partners on November 19, 2000; it provided that, for the price mentioned, the trustee would sell to the Berman Partners one hundred percent of the trustee’s membership interest in the LLC, which was the entity that previously had been assigned all the assets of the Partnership.

Goldstein promptly objected to the proposal that the Berman Partners be given credit for its 99 percent ownership when it bid. On December 7, 2001, the trustee wrote a letter in which he rejected the Berman Partners’ proposed contract. The trustee said: Following our telephone conference last week, I met with [the trial court] and discussed the details of the guidelines that we wish to implement in this case. We also reviewed the credit application issue and whether or not it would be applicable to the parties in this matter.

I direct your attention to the case of Citibank Federal Savings Bank, et al. v. New Plan Realty Trust, et al., 131 Md.App. 44 , 748 A.2d 24 (March, 2000). We believe this case is instructive and one in which [the trial court] and I concur should be dispositive of the [99 percent credit] issue. Additionally, it is the Trustee’s determination that the present offer from [the Berman Partners,] is not a qualifying offer, unless or until it meets the conditions of Mr. Topazian’s [counsel for Goldstein] proposed qualifying offer terms, as set forth in item no. 5 of his letter to the Trustee dated August 22, 2001. Consequently, I am returning herewith, under separate cover and hand delivered, Mr. Nolan’s Contract of Sale and draft representing the deposit.

If Mr. Nolan chooses to re-submit a contract, he may do so. In the meantime, I will be conferring with a consultant/broker specializing in resort hotel sales in order to solicit other qualifying offers that comply with those terms. Furthermore, the Trustee will entertain all other qualified offers for a period of sixty (60) days following receipt of any ¹⁸¹ qualified offer by way of written contract and will allow any and all other qualified offers to be submitted for consideration, with ultimately the highest bidder prevailing, subject to the Court’s acceptance. The Trustee will report to the parties the status and receipt of all bids during the 60 day period.

Following the Trustee’s Report of Sale, in accordance with Maryland Rule 14-305, exceptions to the sale or claims against the proceeds of such sale, shall be filed within forty-five (45) days after the date of notice issued pursuant to Maryland Rule 14-305(c) as ordered by the Court. I apologize to all of you for not communicating with you earlier, but given both [the trial court’s] schedule and mine in the past few weeks, we have not been able to disseminate this information to you sooner. I trust that we can now move forward to conclude the sale of the partnership assets as the Court has ordered. Paragraph 5 of Goldstein’s counsel’s August 22, 2001, letter to which the trustee referred, read: Offers/Contingencies/Warranties/Deposits/ Transfer Taxes/Closing.

The Trustee shall evaluate and determine all qualified offers, which must be in writing. All qualified offers must be equal to or in excess of the Total Value of the Joint Venture (less cash and assets unrelated to operation of the Princess Royale) utilizing the Lippman Frizzell appraisal. Certain contingencies, such as physical inspection in addition to title examination, are so commercially standard and reasonable that the Trustee must not deprive a prospective purchaser of these rights. Otherwise, there will be no prospective purchasers.

A financing contingency is not absolutely necessary. Ultimately, however, the Trustee must have the discretion to decide whether a contingency or warranty is commercially reasonable in light of the purchase price. The contract must allow that the seller warrants and represents that the financial information provided is accurate in all material respects. A $4,500,000 10% deposit is agreeable, but is forfeitable only if the prospective purchaser fails to perform as required under the contract.

All deposits will be held by the Trustee. The purchaser must ¹⁸² pay transfer and recordation taxes, however, if the State or Worcester County determines exemptions were erroneously granted to the Partnership or the LLC as a result of past transfer(s), the 91st Street Joint Venture must indemnify any prospective purchaser for such taxes which may become due. A 60 day closing period is essential for prospective purchasers who intend to use financing. Counsel for Goldstein, on December 10, 2001, made several written objections to the procedures outlined in the trustee’s December 7, 2001, missive.

First, counsel reiterated Gold-stein’s objection to the Berman Partners being granted a 99 percent credit for their ownership interest in the joint venture. Second, Goldstein took the position that the Berman Partners “are absolutely prohibited from continuing the partnership business without Mr. Goldstein’s authorization and consent.” Additionally, Goldstein maintained that LLC could not be designated as the seller of the Princess Royale Hotel because it unlawfully was granted title to the hotel. In regard to this last-mentioned argument, counsel for Goldstein said: [I]t is undisputed that ■ Mr. Berman lacked authority to transfer the Princess Royale Hotel to the LLC. No responsible third-party would even consider bidding until the Hotel and all other partnership assets are transferred back to their rightful owner.

Indeed, there is a significant cloud on ' title posed by the improper evasion of transfer and recordation taxes, as well as the serious legal issues arising from Mr. Berman’s improper looting of at least $17,038,158 in! partnership assets held by the LLC without the authorization of the Court or Mr. Goldstein, a general partner. (Footnote omitted.) The Berman Partners on December 14, 2001, submitted a proposed new contract. This time the purchase price was reduced from the original $97,517,000 to $65,000,000. That proposed contract was rejected by the trustee.

By letter dated January 14, 2002, the Berman Partners submitted a third proposed contract to the trustee, in which they offered $97,000,000, subject to application of a 99 percent ¹⁸³ purchase-price credit. The trustee, in a letter dated January 22, 2002, advised that he had signed the proposed agreement of sale but would nevertheless entertain other “qualified offers” for a period of sixty days. The contract, which the trustee signed, provided in part: WHEREAS, legal title to all of the [joint venture’s] assets is currently held by ... LLC ..., as nominee for the benefit of the [Partnership]; WHEREAS, pursuant to an Order dated June 22, 2001, the LLC was permitted to intervene in the Case as a party plaintiff and the LLC and its assets are now subject to the jurisdiction of the Circuit Court for Baltimore County, Maryland, and the supervision of Daniel J. Dregier, Jr., as trustee; 1.

Sale of Interests in the LLC. (a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Seller shall sell, assign, and transfer to the Buyer, and the Buyer shall purchase from the Seller, all of the Seller’s right title and interest in and to all of the membership interests in the LLC (the “Assets”). It is understood and agreed by the Buyer and the Seller that since the LLC holds all of the Partnership’s assets as a nominee for the benefit of the Partnership, the Seller holds equitable and beneficial title to the Assets and the sale to the Buyer of all of the membership interests in the LLC will effect the transfer to the Buyer of all of the Partnership’s assets, subject to all of the Partnership’s liabilities. The entities comprising the Buyer shall purchase the Assets in the following proportions: (i) [Joint Venture Holding, Inc.]—73.73%; and (ii) [Princess Hotel Limited Partnership]—26.25%.

(Emphasis added.) The sales