SADDLE CREEK ASSOC V FENTON FAMILY/PARZ LTD PARTNERSHIP
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STATE OF MICHIGAN
CO OF APPEALS
SADDLE CREEK ASSOCIATES,
UNPUBLISHED
May 10, 2007
Plaintiff-Appellant,
v
No. 273797
Oakland Circuit Court
LC No. 06-073618-CK
FENTON FAMILY/PARZ LIMITED
PARTNERSHIP,
Defendant-Appellee.
SADDLE CREEK ASSOCIATES,
Plaintiff-Appellee,
v
No. 274066
Oakland Circuit Court
LC No. 06-073618-CK
FENTON FAMILY/PARZ LIMITED
PARTNERSHIP,
Defendant-Appellant.
Before: Talbot, P.J., and Donofrio and Servitto, JJ.
PER CURIAM.
In Docket No. 273797, plaintiff appeals as of right the trial court’s order granting
defendant summary disposition. We affirm.
In Docket No. 274066, defendant appeals as of right the trial court’s order denying its
motion for sanctions. We affirm.
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I. Basic Facts and Proceedings
Plaintiff is a partnership that owns an apartment building valued at $28 million and
located in Novi. Plaintiff is comprised of three partners: Saddle Creek Investors, L.L.C. (SCI),
Beztek of Saddle Creek (BSC), and defendant. SCI owns 50 percent of plaintiff, and BSC and
defendant each own 25 percent. Defendant is a partnership that was created for the acquisition
of a partnership interest in plaintiff and was comprised of three partners: Edgar M. Fenton
Company (EMFCO), Robert Fenton, and Ronald Parz (Parz). Robert Fenton and Parz were
general partners, and EMFCO was a limited partner. Edgar M. Fenton was a partner of EMFCO.
A. Plaintiff’s Restated Partnership Agreement
The Restated Partnership Agreement (RPA) governs plaintiff’s partnership and its
interpretation is at issue in this appeal. Section 7.1 of the RPA governs transfers of partnership
interests and provides, in pertinent part, as follows:
(a)
The Partners’ interests in the Partnership shall not be transferable,
and any purported transfer shall be void and of no effect and shall be a breach of
this Agreement. If a transfer of any portion of a Partner’s Partnership interest is
effective notwithstanding the provisions of this Section 7.1, then the transferee
shall have no rights under this Agreement or against the Partnership except to
receive those distributions which, but for the assignment, would have been made
to its assignor, and the provisions of Section 8 [Buy-out Provisions] shall become
operative. . . .
(b)
The provisions of Section (a) above shall not be construed as
prohibiting transfers of interest in a Partner; however . . . Edgar M. Fenton, so
long as he is living shall continue to maintain a significant interest in FFP [Fenton
Family/Parz Limited Partnership]. . . . An interest shall be deemed “significant”
for purposes of the foregoing, if such interest entitles the holder to a material
participation in capital and profits and in management of the Partner.
Section 12(aa) of the RPA defines the term “transfer” as used in section 7.1 as follows:
The term “transfer” means any direct or indirect transfer, assignment,
conveyance or alienation of, or succession to, any legal or beneficial interest or
rights in the subject matter thereof, whether voluntary, involuntary or by
operation of law, including a sale, exchange, gift, contribution, pledge or granting
of a security interest, or the act of entering into a pooling or sharing agreement. . .
. [Emphasis in original.]
Section 8 of the RPA provides, in pertinent part, as follows:
If any part or all of a Partner’s interest in the Partnership is transferred, or
if a Partner withdraws or is disassociated from the Partnership, or if a Partner
prevents or fails to join in the reconstitution of the Partnership as provided in
Section 7.3:
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(a)
Such Partner shall be in default and shall be liable to the
Partnership and to the other Partners for any damages resulting from the default.
***
(c)
A majority in interest of the other Partners may expel the
defaulting Partner from the Partnership at any time until the default is cured.
***
(f)
If the defaulting Partner is expelled from the Partnership . . . the
Partnership shall cause the expelled Partner’s Partnership interest to be redeemed
for an amount equal to the balance then standing in the expelled Partner’s capital
account, or if such capital account balance is less than $100.00 or is negative, then
for the sum of $100.00. . . .
B. EMFCO’s Partnership Interest in Defendant
In May 2005, plaintiff issued a capital call that required a $400,000 payment from
defendant. Although Edgar M. Fenton was obligated to make all capital calls on defendant’s
behalf, Parz made the capital call and plaintiff accepted it. In March 2006, SCI and BSC
executed a consent resolution that purported to terminate defendant’s partnership interest in
plaintiff for $100 based on a violation of section 7.1(b) of the RPA.
In LC No. 05-067555-CK, defendant1 sued Edgar M. Fenton and EMFCO, alleging that
EMFCO had forfeited its interest in defendant because it failed to timely make the capital call
payment. Fenton Family Parz Ltd Partnership v Fenton, unpublished opinion per curiam of the
Court of Appeals, issued November 16, 2006 (Docket No. 270425), slip op at 1. The trial court
relied on a release and settlement agreement and determined that EMFCO had forfeited its
interest in defendant to Parz and that EMFCO and Edgar M. Fenton were no longer affiliated
with defendant. Id. The trial court granted summary disposition in favor of defendant on May 3,
2006. Id.
Plaintiff sued defendant in the instant case on March 31, 2006, seeking a declaration that
1) defendant was in default of the RPA, 2) the consent resolution was valid and authorized by the
RPA, 3) defendant’s interest in plaintiff had been extinguished by the consent resolution, and 4)
$100 was the full amount required to extinguish defendant’s interest in plaintiff under the RPA.
Defendant moved for summary disposition pursuant to MCR 2.116(C)(10), arguing that the
forfeiture of Edgar M. Fenton’s interest in defendant did not trigger the $100 redemption
provision of the RPA and defendant had not forfeited its interest in plaintiff. Defendant asserted
that plaintiff’s complaint was frivolous and requested sanctions pursuant to MCR 2.114(E) and
(F).
1
For the sake of consistency, we will refer to the parties by their designation in the instant case
where applicable throughout this opinion.
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The trial court found that there had been a change of ownership within defendant, which
constituted a breach of section 7.1(b) of the RPA. However, the trial court concluded that
section 8 of the RPA did not apply because EMFCO had not transferred any of its interest in
plaintiff, withdrawn or disassociated from plaintiff, or prevented or failed to join a reconstituted
partnership. The trial court held that the RPA did not contain any ambiguity and granted
defendant summary disposition.
Regarding defendant’s request for sanctions pursuant to MCR 2.114(E) and (F), the trial
court did not find plaintiff’s complaint to be frivolous and denied the motion.
On appeal from the trial court’s grant of summary disposition in LC No. 05-067555-CK,
this Court interpreted the release and settlement agreement and found that it was ambiguous
because it could reasonably be understood in different ways. Fenton Family Parz Ltd
Partnership, supra at 3-4. This Court reversed the trial court’s grant of summary disposition,
and remanded for further proceedings, including a determination of whether the clean hands
doctrine barred the equitable relief sought by defendant. Id. On remand, defendant moved for
summary disposition and the motion was scheduled for hearing on January 31, 2007.
II. Interpretation of the Restated Partnership Agreement
In Docket No. 273797, plaintiff argues that the trial court erred in interpreting the RPA
and granting defendant summary disposition. We disagree.
A. Standard of Review
We review de novo a trial court’s decision on a motion for summary disposition. Zsigo v
Hurley Medical Ctr, 475 Mich 215, 220; 716 NW2d 220 (2006). Summary disposition is
appropriately granted if, except for the amount of damages, there is no genuine issue regarding
any material fact and the moving party is entitled to judgment as a matter of law. Id.
Similarly, interpretation of a contract is a question of law that is reviewed de novo,
Burkhardt v Bailey, 260 Mich App 636, 646; 680 NW2d 453 (2004), “including whether the
language of a contract is ambiguous and requires resolution by the trier of fact.”
DaimlerChrysler Corp v G Tech Professional Staffing, Inc, 260 Mich App 183, 184-185; 678
NW2d 647 (2003). We also review de novo questions of contract ambiguity. Klapp v United Ins
Group Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003). If a phrase or word is
unambiguous and reasonable persons could not differ regarding application of the phrase or word
to undisputed material facts, summary disposition is appropriately granted. St Clair Medical, PC
v Borgiel, 270 Mich App 260, 264; 715 NW2d 914 (2006).
B. Ambiguity and Interpretation
When the language of the contract is clear and unambiguous, interpretation is limited to
the actual words used. Burkhardt, supra at 656. The primary goal of contract interpretation is to
enforce the parties’ intent. Id.; Mikonczyk v Detroit Newspapers, Inc, 238 Mich App 347, 349350; 605 NW2d 360 (1999). Unambiguous terms must be construed according to their plain and
commonly understood meaning. Busch v Holmes, 256 Mich App 4, 7-8; 662 NW2d 64 (2003).
“A contract is ambiguous only if its language is reasonably susceptible to more than one
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interpretation.” Cole v Ladbroke Racing Michigan, Inc, 241 Mich App 1, 13; 614 NW2d 169
(2000). If a contract is subject to two interpretations, factual development is necessary to
determine the intent of the parties, and summary disposition is inappropriate. Klapp, supra at
469; Mahnick v Bell Co, 256 Mich App 154, 159; 662 NW2d 830 (2003).
Plaintiff maintains that Section 7.1(a) unambiguously entitles it to buy out defendant for
$100 pursuant to section 8. Section 7.1(a) provides that a partner’s interest is not generally
transferable, but if a transfer is effective, the buyout provisions of section 8 apply. Section
12(aa) defines transfer to include any direct or indirect assignment, conveyance, or alienation of
or succession to any interest or rights. Because the language is clear and unambiguous, we
restrict our interpretation to the actual words used and construe the terms according to their plain
and commonly understood meaning. Busch, supra at 7-8. We conclude that the language used is
susceptible only to one interpretation and there are no conflicting provisions, and these
provisions are unambiguous. Klapp, supra at 469; Cole, supra at 13. A transfer of any part of a
partner’s interest in plaintiff to another partner is prohibited, subjects the partner to expulsion,
and constitutes a default that entitles the other partners to buy out the defaulting partner.
Even if the trial court in LC No. 05-067555-CK concluded on remand that EMFCO
forfeited its interest in defendant to Parz, this does not affect our analysis because it does not
implicate section 7.1(a). Although defendant is a partner in plaintiff, any transfer of interest that
occurs internally within defendant’s partners does not constitute a transfer of interest among
plaintiff’s partners. Nothing in Section 7 prohibits a partner from reorganizing or transferring
interests among the constituents of a partner, as long as no interest in plaintiff is transferred to
another. Section 7.1(b) clearly requires Edgar M. Fenton to maintain a significant interest in
defendant, but it provides no remedy for the failure to maintain a significant interest. Further,
neither section 7.1(b) nor the definition of “transfer” in section 8 provides any indication that the
failure to maintain a significant interest constitutes a transfer. We are not persuaded that the
mere inclusion of section 7.1(b) under the heading of “transfers” in section 7 implicates the
buyout provisions of section 8.
Plaintiff claims that Edgar M. Fenton had a “beneficial interest,” as used in section
12(aa), in plaintiff and that the involuntary termination of his interest constitutes a transfer that
implicates the buyout provisions of section 8. While Edgar M. Fenton’s interest, beneficial or
not, in defendant may have been involuntarily terminated, it does not follow that there was a
transfer of defendant’s interest in plaintiff. Again, plaintiff overlooks the necessary requirement
that the interest of a partner in plaintiff must be transferred.
Plaintiff alternatively contends that the RPA is ambiguous. However, in analyzing the
trial court’s interpretation of the RPA, we have already determined that the RPA is not
ambiguous.
III. Sanctions
In Docket No. 274066, defendant argues that the trial court erred in denying its motion
for sanctions pursuant to MCR 2.114. We disagree. We review for clear error a trial court’s
finding regarding whether an action is frivolous. Kitchen v Kitchen, 465 Mich 654, 661; 641
NW2d 245 (2002). A decision is clearly erroneous when, although there is some evidence to
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support it, we are left with a definite and firm conviction that a mistake has been made. Id. at
661-662.
MCR 2.114(E) provides, in relevant part:
If a document is signed in violation of this rule, the court, on the motion of
a party or on its own initiative, shall impose upon the person who signed it, a
represented party, or both, an appropriate sanction, which may include an order to
pay to the other party or parties the amount of the reasonable expenses incurred
because of the filing of the document, including reasonable attorney fees. . . .
Therefore, one who files a signed pleading that is not well grounded in fact and law is subject to
sanctions. Jerico Const, Inc v Quadrants, Inc, 257 Mich App 22, 36; 666 NW2d 310 (2003).
Similarly, MCR 2.114(F) provides that a party pleading a frivolous claim or defense is subject to
costs as provided in MCR 2.625(A)(2), which authorizes a trial court to award costs pursuant to
MCL 600.2591.
To determine whether a claim is frivolous under MCR 2.114(F), we must look at the facts
of the case. Kitchen, supra at 662. We turn to MCL 600.2591(3), which defines frivolous as:
(i) The party’s primary purpose in initiating the action or asserting the
defense was to harass, embarrass, or injure the prevailing party.
(ii) The party had no reasonable basis to believe that the facts underlying
that party’s legal position were in fact true.
(iii) The party’s legal position was devoid of arguable legal merit. [See
also Kitchen, supra at 662.]
Defendant implies plaintiff’s complaint was frivolous or ungrounded merely because it
was dismissed on summary disposition and plaintiff was not persuaded by defendant’s
correspondence urging plaintiff to dismiss the complaint on defendant’s belief that the language
of the RPA supported its position. However, not every error in legal analysis constitutes a
frivolous position, and it does not follow that an unsuccessful claim is groundless or devoid of
legal merit. Kitchen, supra at 663. Defendant fails to provide any explanation of how plaintiff’s
claim was frivolous or groundless, and it did not develop this argument before the trial court. “It
is not sufficient for a party ‘simply to announce a position or assert an error and then leave it up
to this Court to discover and rationalize the basis for his claims, or unravel and elaborate for him
his arguments, and then search for authority either to sustain or reject his position.’” Wilson v
Taylor, 457 Mich 232, 243; 577 NW2d 100 (1998), quoting Mitcham v Detroit, 355 Mich 182,
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203; 94 NW2d 388 (1959). Failure to properly address the merits of this assertion constitutes
abandonment of the issue. Thompson v Thompson, 261 Mich App 353, 356; 683 NW2d 250
(2004).
Affirmed.
/s/ Michael J. Talbot
/s/ Pat M. Donofrio
/s/ Deborah A. Servitto
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