Lust v. Kolbe

Gilbert, J., delivered the opinion of the Court. Celia C. Lust Kolbe, the appellee and mother of Bernard S. Lust, entered into a limited partnership, on January 1, 1967. The business endeavor was known as Sidney Lust Theatres Limited Partnership. 1 The appellant, Bernard S. Lust, served as the general partner and his mother as the limited partner. Whatever the relationship was between the parties prior to April 12, 1973, it may now safely be characterized as far removed from being serene.

On that date the appellee filed a bill of complaint in the Circuit Court for Montgomery County in which she alleged the existence of the limited partnership, charged mismanagement of the business by her son, the appellant, averred a breach of appellant’s “. .. confidential and fiduciary relationship . . .” with the appellee, and stated that appellant was “.. . conducting himself in matters relating to the partnership business in such a way that it . . . [was] not reasonably practicable to carry on the business of the partnership.” The bill prayed that the court decree a dissolution of the partnership, 2 order an accounting by the appellant to the appellee, enjoin ⁴⁸⁵ appellant from removing or secreting partnership assets, declare a constructive trust in favor of appellee, appoint a receiver for the business, enter judgment against appellant for any sum found due by him to appellee and direct a sale of the partnership assets. Appellant, in due time, answered the bill and specifically denied the material allegations of the complaint. 3 The case was called to trial before Judge Ralph G. Shure on July 9, 1973. During his opening remarks to the court, the appellant’s counsel said that the partnership business was operated in the same manner as it had been run prior to the creation, on January 1, 1967, of the limited partnership. In response to Judge Shure’s question of what counsel had to say with respect to unsecured loans made by appellant, as general partner, to himself or his other personal business ventures, counsel replied: “ . . .

I can only tell you that our testimony will show that Mr. Lust has conducted this business on the same basis that the Sydney Lust Theatres have been conducted since time immemorial.” Counsel argued that the father-mother-son relationship created a unique situation which underlaid the borrowing of money by appellant. During opening argument, however, counsel conceded that the appellant had borrowed money without giving a note, establishing terms for repayment, or giving security, but asserted that this was a long-established manner of operating the business. We note that the partnership agreement did not authorize such loans. While appellant’s counsel was arguing before Judge Shure the judge said, “Let’s dissolve the partnership.” The record reflects the following then occurred: “Mr. Frosh [appellant’s attorney]: We have no objection to dissolving the partnership.

We have no objection to that. The Court: Isn’t that what they pray for? ⁴⁸⁶ Mr. Frosh: We do not object to dissolving the partnership. It depends on the terms; and if you are going to appoint a receiver, then your Honor is throwing the baby out with the bath water. The minute they have a receiver, they have lost two assets of the partnership.” 4 Perspicuously, appellant's counsel acquiesced in the dissolution of the partnership.

What he did not agree to, however, was the appointment of a receiver. Counsel’s prior acknowledgment that his client had, in fact, made unsecured loans to himself, which were not authorized by the partnership agreement, was tantamount to a confession of mismanagement of the partnership by the appellant. 5 The unsecured loans seemingly placed the partnership assets in jeopardy and, thus, clearly called for the appointment of a receiver. Following the arguments of both counsel and a short recess in order for the judge to “read over” the agreement, the court stated: “Well now, gentlemen, this is a suit for dissolution of a partnership and for related relief including, or they ask the request for an imposition of a constructive trust and appointment of a receiver and an injunction, et cetera. The Defendant in his opening statement, by which he is bound, says that he is willing to have this partnership dissolved, so we now have determined that those parties want the partnership dissolved.

The partnership agreement which is now in evidence as Plaintiff’s Exhibit No. 1 provides how assets should be distributed in the event of a ⁴⁸⁷ dissolution; and it seems to me that there is no useful purpose that can be served by taking any testimony now. It seems to me that we are under the jurisdiction of the court, and that the court should sign an order dissolving the partnership, referring the matter to a court auditor, and signing an injunctive order, so that the general partner is restricted from either making any additional sales of assets or transfers, or dissipating the assets or anything of that sort. I do not see any purpose in taking any testimony, under these circumstances. Now, if it is true that the appointing of a receiver would be a detriment to the partnership, there is no use in appointing a receiver, because we can accomplish the same thing by having the matter referred to an auditor and signing an injunctive order, so that he would not be able to proceed any further in the dissipation of assets, or making any unsecured loans, or anything of that sort, in addition to which, the testimony of mother against son would seem to me to be just opening up additional wounds, which is not now necessary.” The next day, July 10, 1973, the judge signed an order (filed July 11, 1973) which (a) dissolved the Sidney Lust Theatres Limited Partnership and commanded distribution of assets in accordance with the “Articles of Partnership”; (b) referred the case to an auditor for statement of account upon dissolution; (c) enjoined the appellant to “ .. . remain as manager of . .. [the] partnership during the period of dissolution . . .” with compensation deferred until the final report of the auditor; and (d) enjoined appellant from removing or secreting partnership assets.

On July 18, 1973, appellant moved for reconsideration of the court’s order. Judge Shure, on January 30, 1974, determined that his original “ . . . [o]rder must stand as the ultimate dissolution of the ... partnership.” Bernard Lust then appealed to this Court on February 15, 1974. Five days ⁴⁸⁸ later, appellant filed a “Motion for Leave to File An.Appeal.” Appellant also filed an appeal on February 28, 1974. We dismissed the appeal under the authority of Md. Rule 1035 b 1 in that there was no timely appeal taken from the order of July 10, 1973, and although the appeal from the order of January 30, 1974, was timely, the latter order was interlocutory in nature and, hence, not appealable under Md. Ann. Code, Courts and Judicial Proceedings Art. § 12-303.

The auditor-filed his first report on March 21,1974. In the report of the auditor, it was noted that appellant had not been fully cooperative and, as a result, the report would be incomplete. The following day, the court ordered that appellant appear before the auditor. Appellant filed “objections” to the first report.

Before any ruling on these objections, the auditor filed, on November 8,1974, his second report. Appellant excepted thereto. The court overruled all exceptions on January 30, 1975, and at the same time designated the auditor as a “Trustee,” until his appointment as a “Trustee in Liquidation” of the partnership. The final appointment of the “Trustee in Liquidation” was deferred pending a consent to the appointment by Beta Corporation, the landlord of a property leased to the partnership.

The obvious purpose in attempting to obtain Beta’s consent was to avoid bringing into effect a covenant of the lease that provided for the lease’s termination if the partnership was adjudicated to be bankrupt. Prior to Beta’s answer, Bernard Lust noted an appeal from the order of January 30,1975. We dismissed that appeal on the ground that it was interlocutory and, hence, not appealable under Courts Art. § 12-303. In the time period between the noting of an appeal to this Court, and our dismissal thereof, Beta Corporation, in their answer of March 7, 1975, and at a hearing on May 9, 1975, took the position that the appointment of a “Trustee in Liquidation” was equivalent to an adjudication of bankruptcy.

Judge Shure made no ruling at that time, because he believed the appeal divested the trial court of jurisdiction. 6 ⁴⁸⁹ After we dismissed the appeal from the January 30, 1975, order, the court, on August 22, 1975, based on the argument before it on May 9, 1975, signed an “Order for Appointment of Trustee in Liquidation and Injunction.” The order appointed the auditor-trustee as the “Trustee in Liquidation”