Della Ratta v. Larkin
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Joseph M . Della Ra tta, et al. v. Barb ara A. La rkin, et al., No. 126, Sept. Term, 2003. PART NERS HIP UNIFORM PARTNERSHIP ACT REVISED UNIFORM PART NERS HIP ACT REVISED UNIFORM LIMITED PARTNERSHIP ACT ASSIGNMENT OF INTEREST LIMITED PARTNER'S RIGHT TO WITHDRAW FIDUCIARY DUTY AND GOOD FAITH: This case examines: (a) the retrospective reach of Maryland's Revised Uniform Partnership Act; (b) the legal effect of an anti-assignment clause in a partnership agreement; (c) a limited partner's statutory right to withdraw from a limited partnership; and, (d) a general partner's fiduciary duty to his limited partners. The Court concludes, on the facts of this case, that Maryland's Revised Uniform Partnership Act does not apply retrosp ectively to a partnership dispute which occurred before the Act took effect. We hold also that an a ssignmen t of a partne rship interest is invalid and unen forceable where it violates a partn ership agre ement's anti-a ssignmen t clause. Pen ultimately, we h old that limited partners have a statutory right to withdraw from a par tnership , und er M arylan d's Revised Uniform Limited Partnership Act, where, in addition to other satisfied criteria, the partnership agreement does not specify the time or the events on the occurrence of which the limited partners may voluntarily end their relationship with the partnership. Finally, we conclude that a gener al partner's eff orts to force-out s ome of th e limited partn ers by default, through acceleration of a capital call, violated a fiduciary duty and was in bad faith. Circuit Co urt for Anne A rundel Co unty Case # C-2002-80490 IN THE COURT OF APPEALS OF MARYLAND No. 126 September Term, 2003 JOSEP H M. D ELLA RAT TA, et al. v. BAR BAR A A. L ARK IN, et al. Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ. Opinion by Harrell, J. Filed: August 20, 2004 This dispute among the partners of the East Park Limited Partnership ( East Park ) arose in the aftermath of East Park's sole general partner issuing a substantial capital call in March 2002. Some of the limited partners, who believed compliance with the ca pital call was financially unw ise, wrote to th e general p artner to inform h im of their in tention to withdraw from the partnership before the capital call became due. The general partner responded that the limited partners could not withdraw from the partnership and would be in default should they fail to comply with the capital call, the due date for which the general partner accelerated to a point in time prior to the announced effective date of the withdrawal of the pertinent limited partners. The limited partners w ho wishe d to withdraw filed a complaint in the Circuit Court for Anne Arundel County seeking, among other things, a declaratory judgment that they had a statutory right to w ithdraw from East Park and an injunction barring enforcement of the capital call. The Circ uit Court ultim ately entered judgment in favor of the limited partners. This appeal followed in which we consider a number of issues of first impression concerning Maryland partnership law. Although we agree with the Circuit Court's (1) application to the facts of this case of Maryland's Uniform Partnership Act, instead of Maryland's Revised Uniform Partnership Act; (2) conclusion that the limited partners possessed a statutory right to withdraw; and (3) declaration that the general partner, in accelerating the capital call and failing to investigate alternative fin ancing, bre ached his f iduciary duty and acted in bad faith, we disagree with its determination that an assignment of a partnership interest in violation of an anti-assign ment clau se is valid and enfo rcea ble a nd, in this instance, caus ed E ast P ark's dissolu tion. I. In 1969, the T rinity Joint Ventu re Limited P artnership ( Trinity ) was f ormed in Maryland to develop commercially-zoned property on Crain Highway in Glen Burnie. In 1974, Trinity admitted Joseph M . Della Ratta ( Della Ra tta ) as a general partner. On 21 December 1981, an amended partnership agreement (the Agreement ) was executed under w hich Della Ratta beca me Trinity s so le general p artner. Della Ratta also was one of the partnership 's thirteen limited partners. The Agreement was amended on 4 May 1992 to change the name of the partnership to East Park. A further amendment was executed on 1 June 1992 sub stituting as limited partners the widows (Barbara A. Larkin, Rosemary Krupnik, and Valeree Sass) of three deceased limited partners. East Park developed a shopping center on its Glen Burnie property that, over time, grew to includ e 205,0 00 squ are fee t of retail space. In 1992, East Park obtained $9,000,000 in financing secured by a mortgage on the shopping center (the Aegon Loan ). The Aegon Loan provided for interest at the rate of 9.375% per annum and had a due date of 1 January 2003. In December 2001 , Della Ratta, a leg al resident of Florida, crea ted the De lla Ratta Intangible Asset Management Trust (the Trust ) in order to av oid a Florida tax on intan gible assets. When Della Ratta's accountant prepared East Park's 2001 tax returns, he showed no 2 ownersh ip interest for Jo seph M . Della Ratta. Instead , the K-1 S chedules re flected that a ll of Della Ratta's ownership interest in East Park had been transferred to the Trust. After the tax returns were brought to his attention during the course of the present litigation, D ella Ratta argued tha t this purported transfer was a mistake and filed amended returns correcting the alleged mistake. By letter dated 1 March 2002, Della Ratta informed East Park's limited partners that the Aegon Loan would be due on 3 February 2003.1 The letter stated that the loan balance of $7,528,499 could not be repaid by East Park's cash reserves an d that a capita l call would be due on 30 S eptem ber 200 2. Each limite d partner w ould be req uired to contribute his or her pro-rata share of the Aegon Loan balance. Some of the limited partners met with Della Ratta on 15 March 2002 to discuss the capital call. According to the m eeting minutes, some lim ited partners were concerned about meeting the capital ca ll. Refinancing the Aegon Loan was suggested as an alterna tive. Della Ratta stated that he would contact lenders and try to get a com mitment fo r a loan. By his own admission, Della Ratta thereafter failed to explore refinancing options. After the 15 March me eting, Barbara Larkin, Valerie Sass, Rosemary Krupnick, and the Charles L. Helferstay Residuary Trust (the Withdrawing Partners or Appellees ) each gave written notice to Della Ratta purporting to exercise their statutory right to withdraw 1 Although the Aegon Loan due date was 1 January 2003, Della Ratta referred to 3 February 2003 as the loan's due date. 3 from East Park, pursuant to Md. Code (1975, 1999 Repl. Vol.), § 10-603(b) of the Corporations and Associations Article.2, 3 Each Withdrawing Partner's withdrawal would be effective on 29 Se ptember 2 002, giving more than the six mon ths n otice requ ired by § 10603(b). The Withdrawing Partners atto rney subsequ ently wrote to D ella Ratta to in form him that, pursuant to Md . Code (1975, 19 99 Repl. Vol.), § 10-6 04 of the Corporations and 2 Unless otherwise indicated, all statutory references are to Maryland Code (1975, 1999 Repl. Vol.), Corporations and Associations Article. 3 Md. Code (1975, 1999 Repl. Vol.), § 10-603(b) of the Corporations and Associations Article provides: When not specified by agreement. A limited partner may withdraw on not less than 6 months' prior written notice to each general partner at the general partner's address on the books of the limited pa rtnership if the following conditions a re met: (1) The limited partnership was formed before October 1, 1998; (2) On October 1, 1998, the partnership agreement of the limited partnership did not specify in writing the time or the events on the occurrence of which a limited partner may withdraw or a definite time for the dissolution and the winding up of the limited partnership; and (3) The limited partnership did not amen d its partnersh ip agreement on or after Octobe r 1, 1998 to specify in writing the time or the events on the occurrence of which a limited partner may withdraw or a definite time for the dissolution and winding up of the limited partnership. 4 Associations Article,4 each Withdrawing Partner asserted entitlement to the fair value of her or its interest in East Park. Della Ratta wrote to the Withdrawing Partners' counsel on 3 April 2002 claiming that § 10-603(b) wa s inapplicable because the Agreement specified when the Withdrawing Partners' capital could be removed from the partnership and the Withdrawing Partners were not so entitled under the circumstances. After further communications, on 10 May 2002, Della Ratta again wrote to the Withdrawing Partners' counsel and extended a settlement offer good for ten days. He stated that if the settlemen t offer wa s not accep ted, the capital c all would be accelerated and due on 1 September 2002. Della Ratta claimed that a default by the Withdrawing Partners in meeting the call would result in forfeiture of their interes ts in East Park.5 4 Md. C ode (197 5, 1999 R epl. Vol.), § 10-604 of the Corporations and Associations Article provides: Except as otherwise provided in this subtitle, on withdrawal any withdrawing partner is entitled to receive any distribution to which the partner is entitled under the partnership agreement and, if not otherwise provided in the partnership agreement, the partner is entitled to receive, within a reasonable time after withdraw al, the fair value of the partner's pa rtnership interest in the limited partne rship as of the da te of withdrawal, based on the partner's right to share in distributions from the limited partnership. 5 Section 13 of the Agreement provides that if a limited partner fails to make any installment of his capital contribution, his ownership interest can be purchased by the other partners at a price equal to the amount of his capital contributions plus the am ount paid to purchase outgoi ng part ners less distribu tions, w ithout in terest... Because the partne rs had received, over the years, distributions that exceed ed their contributions, limited partners who (contin ued...) 5 The Withdrawing Partners collectively owned a 20.797 % interest in East Park. In order to meet the capital call, the Withdrawing Partners were obligated to contribute a total of approximately $1,126,000. In addition, in his correspo ndence D ella Ratta suggested that the East Park partners might face additional ca pital calls in the future. A lthough as the sole gen eral partner D ella Ratta excl usiv ely co ntrolled a ny cash distributions from East Park to the partners, he gave no indication that he planne d to make distributions in the future. Indeed, for a number of years the limited partners realized no net income from their investment in East Park. Given these circumstances, the Withdrawing Partners believed that further out-of-pocket investment in East Park was unw ise. For som e limited partn ers, satisfying the cap ital call also wo uld have been a serious financial hardship. On 24 May 2002, the W ithdrawing Partners filed a compla int in the Circuit Court for Anne Arundel County seeking a declaratory judgement that they properly had withdrawn from East Park and we re entitled to the fair value of their East Park partnership interests. They also sought an injunction barring enforcement of the capital call. East Park, Della Ratta, other limited partners, and purported assignees of East Park interests (collectively, the Remaining Partners or Appellants ) were named as defendants. 6 5 (...continued) failed to satisfy the capital call essentially would forfeit their investments in East Park. 6 The Withdrawing Partners' original com plaint did no t name as d efendan ts all of the Appellan ts in this appea l. Several Appellants were added as defendants in the amended (contin ued...) 6 The Withdraw ing Partner s amend ed their complain t approxim ately two months later to add a count seeking a declaratory judgment that East Park was dissolved in December 2001 when D ella Ratta pu rportedly transferred his interest to the Trust. On the same day, the Withdrawing Partners filed an amended motion for summary judgment on the issues of East Park 's purported dissolution and the Withdrawing Partners' purported statutory right of withdraw al, together with a motion for a preliminary injunction to stay enforcement of the capital call claimed due on 1 September 2002. The Circuit Court, by an order of 30 August 2002, granted partial summary judgment to the Withdrawing Partners, ruling tha t the Withd rawing P artners had a statutory right to withdraw from East Park. The Circuit Court also issued a p reliminary injunction enjoining the capital call pending a trial on the merits. A bench trial o n liability was he ld from 22 January through 24 January 2003.7 On 28 March 2003, the Circuit Court issued an opinion and order (1) dec larin g tha t Della R atta's assignment to the Trust effected his withdrawal as general partner and trigg ered East Park's dissolution; (2) ordering East Park to wind up its business and distribute its assets to the partners; and (3) permanently enjoining enforcement of the capital call against the Withdrawing Partners. 6 (...continued) complain t. 7 The Circuit Court bifurcated the case into a liability phase and a damages phase. 7 On 21 May 2003, the Circuit Court sta yed, pending final judgm ent and ap peal, all aspects of its 28 March order, other than the permanent injunction barring enforcement of the capital c all. Because the Circuit Court's determination that East Park had been dissolved made moot its prior order that the Withdrawing Partners properly exercised a statutory right of withdrawal, there was no trial on the question of relief. On 2 8 July 2003, the Circuit Cou rt issued its final judgment: (1) declaring that East Park was dissolved; (2) ordering East Park wound up and its assets distributed to its partners; and (3) continuing the permanent injunction b arring enfo rcement o f the capital c all. The Remaining Partners filed a timely appeal to the Court of Specia l Appeals . While the appeal was pen ding and before the intermed iate appellate court could decide the case, the Withdrawing Partners filed a petition for writ of certiorari with this Court. On 11 February 2004, we issu ed the w rit, Della Ratta v. Larkin, 379 M d. 225, 841 A.2d 33 9 (2004), to consider the following questions, which we have slightly rephrased: I. Whether the Circuit Court erred in concluding that the Uniform Partnership Act, not the Revise d Unifo rm Partne rship Act, as enacted in Maryland, governs the outcome of this case? II. Whether the Circuit C ourt erred in f inding that D ella Ratta transferred his general partner interest in East Park to a trust and thereby caused the dissolution of the limited partnership? III. Whether the Circuit Court erred in finding that the Withdrawing Partners had a statutory right to withdraw from East Park pursuan t to § 10-603(b)? 8 IV. Whether the Circuit Court properly enjoined enforcement of the capital call based on its findings that Della Ratta did not have the authority to unilate rally issue the cap ital call, and that Della Ratta breached his fiduciary duties as general partner when he issued, then advanced the due date of, the capita l call? II. When reviewing a case tried without a jury, we review the case on both the law and the ev idence. M d. Rule 8-1 31(c) (200 4 Repl. V ol.). We w ill not set aside a C ircuit Court's findings of fact unless clearly erroneous, and we must give due regard to the oppor tunity of th e trial cou rt to asse ss the cre dibility of th e witne sses. Id. In addition, we must consider the evidence in the light most favorable to the prevailing party . . . and decide not whether the trial judge's conclusions of fact were correct, but only whether they were supported by a preponderance of the evidence. Colandrea v. Wilde Lake Community Ass'n, Inc., 361 Md. 371, 394, 761 A.2d 899, 911 (2000) (quoting Urban Site Venture II L td. Partners hip v. Leve ring Asso cs. Ltd. Partn ership, 340 Md. 223, 229-230, 665 A.2d 1062, 1065 (1995)) (citations omitted). The clearly erroneous standard does not apply to our review of a trial court's legal conclusions, which we review de novo. See Ins. Co. of N. Am. v. Miller, 362 Md. 361 , 372, 765 A.2d 5 87, 593 (2001). When r eviewing a grant of a motion fo r summa ry judgment, o ur task is to determine whether any genuine dispute of m aterial fact w as show n to exist and , if not, wheth er the C ircuit Co urt was legally co rrect. See Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737, 625 A.2d 1005, 1011 (1993). A trial judge's grant of injunctive relief, 9 however, unless infected by an erroneous legal conclusion, is reviewed for abuse of discretio n. See Colandrea, 361 Md. at 394, 761 A.2d at 911. III. Marylan d enac ted the U niform Partne rship A ct ( UP A ) in 1 916, Creel v. Lilly , 354 Md. 77, 87, 729 A.2d 385, 391 (1999), and it governed partnerships for more than eighty years. Effe ctive 1 July 199 8, Maryland enacted the Revised U niform P artnership Act ( RUPA ), Md. Code (1975, 1999 Repl. Vol.), § 9A-101 et seq. of the Corporations and Associations Article. The Circuit Court in the present case concluded that UPA, not RUPA, applied to these facts. We agree, concluding that the Legislature did not intend RUPA to have a retrospective reach so as to apply to the present case. The general rule is that the partnership agreement governs the relations among the partner s and b etwee n the pa rtners an d the pa rtnershi p. Creel, 354 Md. at 87, 729 A.2d at 391. Wh ere applicab le statutes are co ncerned, E ast Park, as a limited partne rship, is governed in the first instance by Maryland's Revised Uniform Limited Partnership Act ( RULPA ), Md. Code (1975, 1999 Repl. Vol.), § 10-101 et seq. of the Corporations and Associations Article, which took effect in 1982. Limited partnerships also were governed by UPA, Md. Code (1975, 1999 Repl. Vol.), § 9-101 et seq. of the Corporations and Associatio ns Article, ex cept whe re its provision s were m odified by or in consistent w ith RULPA. § 10-108. 10 In ad opting R UPA , the L egislatur e cle arly so ught to el imin ate some of U PA's harsh p rovision s. Creel, 354 Md. at 91, 729 A.2d at 393. Finalized in 1994 by the National Conference of Comm issioners on Uniform State Laws, RUPA represents a comp lete rew riting of UPA and ef fectua tes chan ges in se ven m ajor are as. See gene rally Robe rt W. H illman e t al., The Revised Uniform Partnership Act, introductory cmt. (2003 ed.). Amo ng severa l changes re levant to the p resent case, R UPA contains a c ompletely new a nd con troversi al articula tion of a partner s fiduc iary duties . Id. Unlike UPA, which co-existed with the common law, RUPA attempts to displace the common law and define the fidu ciary dutie s of partners en tirely by statute . Id. at § 404. Moreover, RUPA narrowly defines the fiduciary duties of partners and downgrades the common-law fiduciary duty of good faith to the status of a non-fiduciary "obligation." Id. Accordingly, determining which Act applies is important and may prove dispositive to the outcome of the present case. Upon its e naction in 1 998, RU PA did n ot immed iately replace U PA for a ll partnerships. RUPA contains a phase-in provision, § 9A-1204, which caused RUPA and UPA to coex ist until 31 Dece mber 2 002. Creel, 354 Md. at 81, 729 A.2d at 387. Section 9A-120 4 determin es the applic ability of the respe ctive Acts, p roviding in r elevant par t: (a) Before January 1, 2003. Before January 1, 20 03, this title governs only a partnership formed: (1) On or after July 1, 1998, unless that partnership is continuing the business o f a dissolved partnership u nder § 9A-601 of this article; or 11 (2) B efor e July 1, 19 98, th at ele cts, a s pro vide d by subsection (c), to be governed by this title. (b) After December 31, 2002. After D ecembe r 31, 2002 , this title governs all partnerships. (c) Election before January 1, 2003. Before January 1, 2003, a partnership voluntarily may elect, in the manner provided in its partnership agreement or by law for amending the partnership agreement, to be governed by this title. The Circuit Court applied UPA based on three determinations: (1) East Park came into existence prior to 1 July 1998; (2) E ast Park did not elect to be governed by RUPA as provided in § 9A-1204 (c); and (3) all of the events which gave rise to this litigation occurred prior to 31 December 2002. The Remaining Partners contend that UPA ceased to have any effect on 1 January 2003 and that RUPA should have been applied to reach an outcome in this case. They point to the fact that the Legislature added a termination provision to UPA, § 9-1001(b), which provides: Termination. [UPA] shall terminate and be of no effect after December 31, 2002. Although the Circuit Court in the present case conducted the trial and entered final judgment after 1 January 2003, the time period during which the East Park dispute arose determines which Act applies. . . . [A] statute, though applied only in legal proceedings subsequent to its effective date and in that sense, at least, prospective, is, when applied so as to determine the legal significance of acts or events that occurred prior to its effective date, applied retroactively. State Ethics Comm'n v. Evans, 12 à à Md. à à (2004) (No. 125, September Term, 2003) (slip op. at 12-13, filed 30 July 2004) (quoting Allstate Ins. Co. v. Kim, 376 Md. 276, 289-90, 829 A.2d 611, 618-19 (200 3)). Because the events at issue in the present case occurred prior to 1 Ja nuary 2003, RU PA's application to this dispute among East Park's partners would be a retrospective one. In determining whether a statute may be given retroactive effect, we engage in a twopart analysis. Evans, slip op. at 12. First, we must determine whether the Leg islature intended the statute to have the kind of retroactive effect that is asse rted. Id. Statutes are presumed to operate prospectively unless the Legislature clearly expresses an intent that the statute apply retroactively. Id. If we co nclude tha t the Legislatu re intended for the statute to have retroactive effect, we must then examine whether such effect would contravene a constitutional right or proh ibition, for exa mple, imp airing vested rights or viola ting the prohibition a gainst ex post facto laws. See Evans, slip op. at 12. In the present c ase, to determ ine the Leg islature's intent regarding retroactive application, we look to RUPA's applicability provision, § 9A-1204, and UPA's termination provision, § 9-1001. As we stated in Bank of America v. Stine, 379 Md. 76, 85-86, 839 A.2d 727, 732-33 (20 03): ...'[W]hen the statute to be interpreted is part of a statutory scheme, ... [we read it in context, toge ther with the other statutes] on the same subject, harmonizing them to the extent possib le....' Mid-Atlantic Power Supply Ass'n v. Pub. Serv. Com m'n, 361 Md. 196, 204, 760 A.2d 1087, 1091 (2000). ...[W]e will presume that 'the Legislature 'intends its enactmen ts to operate together as a consistent and harm onio us bo dy of law'' 13 Toler v. Motor Vehicle Admin., 373 Md. 214, 220, 817 A.2d 229, 23 4 (200 3).... In the UPA-RUPA coexistence scheme adopted by the Legislature we find no clear legislative intent to hav e RUP A retroactiv ely apply to the circumstances of the present case. Read together, § 9A-1204 and § 9-1001 merely make clear the date on which the UPARUPA coexistence scheme ceased to exist. Had the Legislature intended RUPA to govern events such as evolved regarding East Park during 2002, it could have provided so in a number of ways. Instead, the Legislature chose, as codified at § 9A-1204(c), to give East Park the option to bring itself under RUPA for activities occurring during the transition period. East Park did not exercise that option. Moreover, but of le sser sign ificanc e, we agree with the Circuit Court and the Withdrawing Partners that the phrase shall govern, found several times in § 9A-1204, intimates prospectiv e application and refers to future pa rtner condu ct. The conduct at issue here occurred during 2002. Section 9A-1204(a) makes clear that RUPA would not govern East Park s partners conduct during 2002 unless they so elected. An extensive search for cases in o ther jurisdiction s which m ay have add ressed this question did not yield much; however, the scant authority discovered supports our conclusion that RUPA generally wa s not intende d to have retrospective reach.8 In BT-I v. Eq uitable Life 8 Neither Appellants nor Appellees brought to our attention in their briefs any out-ofstate cases w ith respect to this issue. Appellees rely on Ross v. American Iron Works, 153 Md. App. 1, 834 A.2d 962 (2003). There, with respect to a partnership formed prior to 1 July (contin ued...) 14 Assurance Soc'y of the United States, 89 Cal. Rptr. 2d 811 (Ct. App. 1999), the C alifornia Court of App eal applied C alifo rnia's then-repealed UPA in a decision filed nearly a year after Cali forn ia's RUPA took effe ct as to all partnerships. 89 Cal. Rpt. 2d at 815 n.4. Although the California Court of Appeal did not employ retrospectivity analysis or explicitly discuss Cali forn ia's UPA-RU PA coexistence scheme, it nevertheless applied UPA because the partnership at issue was formed before RUPA took full effect and had not elected to be govern ed by the Revise d Act. Id. In a subsequent case , the U .S. C ircuit Co urt of Ap peal s for the N inth Circ uit's Bankruptcy Appellate Panel, app lying California partnership law, also determined that Cali forn ia's UPA should be applied sub sequent to its repea l. See In re Tsurukawa, 287 B.R. 515, 521 n.6 (B.A.P . 9th Cir . 2002) . Because the partnership completed its business and the appellee filed its complaint before RUPA took full effect, and the partnership had not elected to be go verned by RUP A, the c ourt co nclude d that U PA ap plied. Id. 8 (...continued) 1998, the Court of Special Appeals construed the effective date referred to in RUPA 's savings clause, § 9A-1 205, to b e 31 D ecemb er 2002 . Ross, 153 Md. App. at 12 n.2, 834 A.2d at 968 n.2. § 9A-1205 provides: [RUPA] does not affect an action or proceeding commenced or right accrue d before th is title takes effe ct. Appellees argue that § 9A-1205 also applies here because their amended complaint was filed before 31 December 2002. We agree with Appellants, however, that the effective date referred to in § 9A-1205 is 1 July 1998 and decline to follow Ross. 15 The coex isten ce sc hem e and the specific la nguage e mployed by the Maryland Legislature support, rather than rebut, RUPA s prospective application o nly. Acc ordingly, because the Legislature did not express clearly its intention to effect retroactive application, RUPA does not apply and UPA, where applicable, applies to this case.9 IV. The Circuit Court ordered East Park to w ind up its affairs and distribu te its assets to the partners pu rsuant to a conclusion tha t Della Ra tta caused E ast Park's disso lution in December 2001. The trial judge based this conclus ion on his f inding that D ella Ratta assigned his interest in East Park to the Trust, which had the effect of his withdrawal as East Park 's sole general partner. In light of the Agreement's anti-assignment clause, and the specific, limited remedy sought by the Withdrawing Partners, we hold that any assignment or attempted a ssignmen t of the gen eral partner's inte rest was vo id at its inception and could not have resulted in Della Ratta's withdrawal or East Park's dissolution. Under RUL PA, a partnership interest in a limited partnership is assignable unless otherwise provided by the partnersh ip agreement. § 10-702. Article 11(a) of the Agreement provides in relevant part: [T]he General Partner shall not assign, mortgage, or sell his share in the Par tnership . . . . The partie s and the C ircuit Court a gree that D ella Ratta s purported 9 In their briefs, th e Rema ining Partne rs proffer a rgumen ts under RUPA with respect to the sub sequen t issues p resente d in this a ppeal. Because we conclude that RUP A is inapplicab le to the present case, we need not address the Remaining Partners' RUPA-based conten tions. 16 assignment to the Tru st was therefore impro per. The dispute is over a specific legal effect of that imp roper assign ment. RULPA is silent regarding the legal ramification s of an assig nment in contravention of a limited partnership agreem ent s anti-assignm ent clause. B ecause § 1 0-702 is a defau lt rule and subje ct to modif ication by the partnersh ip agreem ent, the Ag reement s a ntiassignme nt provision should be give n effe ct. See § 10-702. A partnership is a contractual relationship to which the princip les of co ntract law are fully a pplicab le. Klein v. Weiss, 284 Md. 36, 63, 395 A.2d 126, 141 (1978 ). In determining the meaning of contractual language, we objectively interpret the language and, where the language is unambiguous, give effect to its plain mean ing. Wells v. Chevy Chase Bank, 363 Md. 232, 250-51, 768 A.2d 620, 630 (2001). In their amended complaint, the Withdrawing Partners essentially sought a declaration that the Agre ement allow s an assignm ent to destroy the partnership . The Ag reement, however, is unambiguous in stating that the assignment, mortgage, or sale of a general partner s interest is proh ibited. The o bjective me aning and purpose o f this prohibition is to preven t the gen eral par tner fro m unila terally alterin g East P ark s pa rtnershi p structu re. In general, we have adopted the rule that an assignment in violation of an antiassignment clause is inva lid and un enforc eable. Pub. Serv. Comm n of Maryland v. PandaBrandywine, L.P., 375 Md. 1 85, 203 , 825 A .2d 462 , 472 (2 003). We now apply that rule in the context of a limited partnership agreement and, in light of the specific and limited remedy 17 sought by the Withdrawing Partners, hold that D ella Ratta's purp orted assign ment wa s invalid and unenforceable from its inception. Because there was no effective assignment, Della Ratta did not withdraw and East Park was not dissolved.10 We r ever se the Cir cuit C ourt's declarations that Della Ratta's assignment implicitly was enforceable, that he withdrew as general partner, and that East Park was dissolved. V. The Circuit Court concluded that the Withdrawing Partners had a statutory right to withdraw from East Park. We agree. RULPA specifically addresses whether a limited partner may withdraw from a limited partnership. § 10-603 provides: (a) When specified by agreement. A limited partner may withdraw from a limited partnership at the time or on the happenin g of even ts specified in the partnership agreem ent. If the partnership agreement does not specify the time or the ev ents on the occurrence of which a limited partner may withdraw, a limited partner ma y not withdraw before the dissolution and winding up of the limited partnership. (b) When not specified by agreement. A limited partner may withdraw on not less than 6 months' prior written notice to each general partner at the general partner's address on the books of the limited pa rtnership if the following conditions a re met: 10 The Withdraw ing Partners suggest that an assignor is estopped from challenging the validity of his assignment and enforcing an anti-assignment clause. We need not decide that question. As the Remaining Partners point out, Della Ratta is not alone in challeng ing his purported assignment. Several other East Park partners seek enforcement o f the antiassignment clause. They were not parties to the assignment a nd did no t waive the antiassignm ent clau se. The refore, t hey wo uld not be esto pped f rom en forcing the pro vision. 18 (1) The limited partnership was formed before October 1, 1998; (2) On October 1, 1998, the partnership agreement of the limited partnership did not specify in writing the time or the events on the occurrence of which a limited partner may withdraw or a definite time for the dissolution and the winding up of the limited partnership; and (3) The limited partnership did not amend its partnership agreement on or after Octo ber 1, 1998 to specify in writing the time or the events on the occurrence of which a limited partner may withdraw or a definite time for the dissolution and winding up of the limited partnership. Section 10-603(b ) sets forth conditions which must be satisfied in order for a limited partner to exercise a statutory right to withdraw . We first ex amine the words o f the statute and if, giving them their plain and ordinary meaning, the statute is clear and unambiguous, our inq uiry ends . Stine, 379 Md. at 85, 839 A.2d at 733. The Withdrawing P artners gave Della Ra tta more than six months written notice of their withdrawal and thus satisfied § 10-60 3(b). In addition, East Park w as formed befo re 1 October 1998, and the Agre ement w as not ame nded on or after that d ate to specify the time or events on the occurrence of which a limited partner may withdraw, satisfying §§ 10603(b)(1)&(3), respectively. Of critical importance to the Withdrawing Partners' position, § 10-603(b)(2) also must be shown to be satisfied. If the Agreement specified the time or the events on the occurrence of which a limited partner may withdraw, then the Circuit Court was incorrect that the Withdrawing Partners had a statutory right to w ithdraw. In th at event, §10-603(a) controls an d the With drawing Partners on ly may withdraw in accorda nce with the terms of the Agre ement. 19 To determine whe ther § 10-603(b)(2) was satisfied requires interpretation of the partnership agreeme nt. The R emaining Partners po int to four Agreement provisions which they contend specify the time or ev ents on the occurrence of which a limited partner may withdraw, thus satisfying § 10-603(b)(2). Article 11(d) allows a limited partner to transfer his or her interest to limited categories of relatives, subject to the other partners' right of first refusal. 11 11 Article 11(f) provides a mechanism to handle a partner 's incompetency or Article 11(d) provides: Assignment of Interest of Limited Partner No Limited Partner shall dispose of any or all of his in terest in the Partners hip otherwise than by gift, bequest, sale or exchange to a spouse, ancestor, descendant, relative, brother or sister, without the written consent of sixty-six and two-thirds percent (66-2/3%) of the other partne rs, or, in the abse nce of su ch written consent, without first giving to the other partners, General and Limited, at least thirty (30) days in advance of such dispositions, written notice by registered mail of his intention to make the disposition. No such notice shall be given until the Limited Partner desiring to make the disposition, hereinafter called the Offering Partner, shall have obtained a bona fide written offer to purchase . A true cop y of the offe r setting forth a ll the terms and conditions of the proposed purchase, with the names and addresses of the purchaser or purchase rs, shall be attached to the registered notice. For a period of thirty (30) days from the receipt of the registered no tice, the other p artners shall have the option to make the purchase from the Offering Partner under the same terms and conditions as are set out in the written offer. The other partners shall exercise the aforesaid option by giving written notice b y registere d mail to the Of fering P artner. If such notice has not been given by the other partners by the expiration of the aforesaid thirty (30) days period, the Offering Partner shall be free to make the disposition; provided, how ever, that the (contin ued...) 20 bankruptcy and grants the other partners the right to buy-out the incompetent or bankrupt partner's interest. 12 Article 11(k) allows a partner to pledge his or her partners hip interest as 11 12 (...continued) disposition shall be made within ninety (90) days after such expiration and in strict accordance with the terms and conditions of the written offer. Th e aforesaid option is granted to all of the other partners in p roportion to their respectiv e Partnersh ip interest; but if any of the other partners do not desire to exercise the option, his portion may be taken up pro rata by the remaining other partners. Article 11(f) provides: If any Limited or Gene ral Partner shall be finally adjudicated an incompetent, or take advantage of any bankruptcy or insolvency act, of if any insolvency petition shall be filed against any Limited Partner and a final adjudication of insolvency entered thereon, or if any Limited or General Partner shall make an assignment for the benefit of his creditors, then, within ninety (90) days af ter receipt of w ritten notice of each such adjudication or assignm ent, all of the o ther partners shall have the absolute option and right to purchase such Limited or General Partner's interest in the Partnership at a price equal to the value, as de fined in Se ction 13, payable twenty percent (20%) in cash and the balance represented by a negotiable promissory note bearing interest at twelve percent (12% ) pre annum, principal and interest amortized in sixty (6) equal monthly installments. This option and right is granted to all of the other partners in proportion to the ir respective Partners hip interest; but if any partner does not desire to exercise the option, his portion may be taken up pro rata by the remaining partners. Any partner, General or Limited, shall become a Limited Partner as to such purchased interest and the Partnership shall continue. If no partner, General or Limited, exercises such purchase option to purchase such Limited Partner's interest, the Committee or Trustee in Bankruptcy of such incompetent or bankrupt Limited Partner shall become his substituted Limited (contin ued...) 21 security for a loan.13 Should that partner incur a lien on his interest, the other partners may act against that partnership interest pursuant to Article 11(d). Article 13 concerns a limited partner's failure to satisf y a capital call or co mply with an Agreem ent coven ant. 14 In the 12 (...continued) Partner as to such Limited P artner's interest, an d the Partne rship shall continue. If no partner, General or Limited, exercises such purchase option to purchase such Gen eral P artner's interest, the Partnership shall dissolve in accordance with the provisions of Section 18. 13 Article 11(k) provides: A partner, General or Limited, shall have the right to pledge his interest in the Partnership as security for a loan or in connection with any other transaction that may result in a lien on his interest in the Partnership. Should a partner suffer a lien to be obtained against his interest in the Partnership by way of attachmen t, or otherwise, his interest shall then become subject to the provisions of Article 11(d) and Article 14 herein; provided, howe ver, such partner shall have the right to satisfy such lien or to redeem such pledge on his own initiative and shall submit to the Partnership evidence of such satisfaction or redemption within sixty (60) days of such lien, pledge or attachmen t. 14 Article 13 provides: In the event a Limited P artner shall fail to make any installment of his capital contribution or comply with any of the covenants of this Agreement within tw enty (20) days of notice from the General Partner, he shall thereby be deemed a defaulting Limited Partne r[.] [T]he remaining Limited Partners shall have the option, f or a period o f twenty (20) days to purchase all of the intere st of such d efaulting Lim ited Partner. The remaining Limited Partners shall exercise such right of purchase in proportion tot he Limited Partnership profit and loss (contin ued...) 22 event of such failure, the limited partner is deemed in default an d his or her p artnership interest sold to the other partners or a third-party selected by the gen eral partner. These Agreement provisions primarily preserve certa in rights for th e partnership vis-à vis consanguinity limits on the transferability of a partner's interest, and for the remaining partners as regards a partner w ho declare s bankrup tcy, suffers a lien, o r falls into def ault. The word withdrawal, as used in § 10-603, connotes more, we think. 14 (...continued) sharing rations of the Partnership. If any Limited Partner does not desire to exercise his portion of the optional right of purchase, then his p ortio n ma y be ex ercis ed, p ro ra ta, by the remaining Limited Partners. If the remaining Lim ited Partners or Partner does not desire to exercise such optional right of purchase, then such defaulting Limited Partnership interest shall be offered b y the Genera l Partner in his sole discretio n to any person who may wish to become a Limited Partner in the place of the defaulting Lim ited Partner. The price to be paid for the interest of the defaulting Limited Partner shall be the amount of his capital contributions plus the amount paid to purchase outgoing partners less distributions, without inte rest, but in no event shall such amount exceed the amou nt of his cap ital contributio ns plus amoun ts paid to purchase outgoing partners to date o f default. P ayment, therefor, shall be made in cash by the Substituted Limited Partner to the defaulting Limited Partner, at the office of the Partnership on the 15th day followin g the twenty (20) days option period granted to the remaining Limited Partners. The capital account of the defaulting Limited Partner shall then be transferred on the Partnership books to the credit of the Substituted Limited Partner. The defaulting Limited Partner shall then have no further right or interest in the affairs of the Partnership. 23 Our construction of the word withdrawal comes from our review of §§ 10-402, 10602, &10-604. Section 10-402 defines the events of withdrawal of a general partner and provides in relevant pa rt: A person ceases to be a general partner of a limited partn ership upon the happening of any of the following events: (1) The person's withdrawal from the limited partnership as provided in § 10-602 of this title; (2) The pers on's remov al as a general partne r in accordan ce with the partnership agreeme nt; (3) Unless oth erwise pro vided in the partnership agreement or with the consent of all partners, the person's: (i) Making an assignment for the benefit of creditors; (ii) F iling a voluntary pe tition in ba nkru ptcy; (iii) Being adjudged bankrupt or insolvent or having entered against him an order or relief in any bankruptcy or insolvency proceeding; § 10-602 relates to a general partner's withdrawal and provides: A general partner may withd raw from a limited p artnership at any time by giving w ritten notice to th e other partn ers, but if the withdrawal notice violates the partnership agreement, the limited partnership may recover from the withdrawing general partner damages for breach of the partnership agreement and offset the damages against the amount otherwise distributable to the withdrawing g eneral partner. § 10-604 concerns distributions upon the withdrawal of a partner and provides: Except as otherw ise provide d in this subtitle, on withdrawal any withdrawing partner is entitled to receive an y distribution to which the partner is entitled under the partnership agreement and, if not other provided in the partnership agreement, the partner is entitled to receive, within a reasonable time after withdraw al, the f air value of th e par tner's partnership interest in 24 the limited partnership as of the date of withdrawal, based on the partner's right to share in distributions from the limited partnership. Because these provisions are part of RULPA's statutory scheme, we presume that the Legislature intended th em to operate together as a consistent and harmonious body of law. Stine, 379 Md. at 85-86, 839 A.2d at 732-33. Accordingly, the term withdrawal must have a consistent meaning in all three sections. In addition, that meaning should not render anothe r part of the statu te mean ingless o r nugat ory. Id. at 86, 839 A.2d at 733. Section 10-602 is the genera l-partner cou nterpart to § 1 0-603. In d efining the events of withdrawal of a general partner, § 10-402 lists not only § 10-602, but also a general partner's removal, bankruptcy, or insolvency. If the word withdrawal as used in §§ 10-602 and 10-603 were to encompass the Agreement's removal, bankruptcy, and insolvency provisions, §§ 10-402(2) & (3) would be rendered redundant and meaningless. Withdrawal cannot be as broad as the Remaining Partners urge. Moreover, withdrawal must have a consistent meaning in §§ 10-603 & 10-604. The distribution upon w ithdrawal re ferred to in § 10-604 would be paid by the partnership, not by a third-party purc haser or ind ividual partn ers. This must be the same type of withdrawal contemplated by the Legislature in § 10- 603. Harmo nized, §§ 1 0-603 & 10-604 e ssentially allow a partner to cash out his or her equity before the partnership terminate s. That is a different scenario than the events provided for in Agreement sections 11(d), 11(f), 11(k), and 13 where a partner would receive payment from a third-party or other partners. We conclude 25 that the Agreemen t, within the meaning of § 10-603(a), does n ot undertake to specify the time or the events on the occurrence of which a limited partner may withdraw from East Park. We hold that the W ithdrawing Partners ha d a statutory right to withdraw from East Park and affirm the Circuit Court's grant of summary judgment on that issue. VI. The Circuit Co urt determin ed that De lla Ratta did not have the authority to issue the capital call in controvers y here and that, even if he wer e imb ued with such auth ority, advancing the due date, under these circumstances, was a breach of his fiduciary duty as genera l partner and in b ad faith . Because we agree with the Circuit Court that Della Ra tta breached his fiduciary du ty and acted in bad faith, w e shall assume, without deciding, he had the authority to issu e the capital c all. To determine whether Della Ratta s actions constituted a breach of fiduciary duty and bad faith we undertake a two-stage review. First, we review for clear error the Circu it Court s underlying findings of fact, leaving them undistur bed if su pported by a preponderance of the evidenc e. Colandrea, 361 Md. at 394, 761 A.2d at 911. Second, applying a de novo standard, we must determine whether the trial judge correctly concluded that the facts, as h e found th em to be, leg ally constituted a breach of f iduciary duty and bad faith. See Miller, 362 Md. at 372, 765 A.2d at 593. The Circuit Court found that a significant motivation for Della Ratta issuing the capital call wa s to squ eeze o ut som e of the limited p artners. The trial judge did not believe 26 Della Ratta's testimony regarding his motivation for issuing th e capital call an d found Della Ratt a's actions to be completely self-serving. In addition, the Circuit Court found that Della Ratta advance d the date o f the capital c all in order to out-maneuver the Withdrawing Partners and block them from exercising their statutory right to withdraw. The Circuit Court further fou nd that Della Ratta's failure to explore alternatives less oppressive than the cap ital call showed a lack of good faith, particularly because such options were readily available at the time. Expert testimony adduced before the trial court established that financing was available at historically low rates and that refinancin g would have been prudent and typical in East Park's business under the circumstances. Nevertheless, Della Ratta nev er explored refinancin g even tho ugh he told the limited partners he would do so. We conclude that the Circuit Court's findings of fact were supported by the record and not clearly erroneous. Th e trial judge's find ings largely w ere based o n credibility determinations which ordinarily will not be disturbed b y an appellate c ourt. In addition, the written correspondence between Della Ra tta and the Withdraw ing Partners tends to conf irm the Circuit Court's conclusions by demonstrating, in Della R atta's own w ords, his advancement of the capital call due date in response to the Withdrawing Partners' withdrawal notice. We note that the R emaining Partners did n ot point to in their briefs a ny evidence contradicting the Circuit Court's con clusions. Ind eed, they did not c halle nge the tr ial ju dge's findings of fact in this regard. 27 The partnership relationship is a fiduciary one, a relation of trust. Allen v. Steinberg, 244 Md. 119, 128, 223 A.2d 240, 246 (1966). Managing or general partners particularly owe a fiducia ry duty to ina ctive pa rtners. Id. Moreo ver, the partn ership relation ship carries w ith it the requirem ent of utm ost good f aith and loya lty. Herring v . Offutt, 266 Md. 593, 597, 295 A.2d 876, 879 (1972). As Justice Cardozo, then Chief Judge of the New York Court of Appeals, stated: Many forms of conduct p ermissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the ma rket place. N ot honesty alon e, but the pu nctilio of an honor the most sensitive, is then the standard of behav ior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exception s....Only thus has the level of conduct for fiduciaries been k ept at a le vel high er than th at trodd en by the crowd . Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928) (quoted in Herring, 266 Md. at 597, 295 A.2d at 879). The Remaining Partners analogize the present c ase to one o ccurring in a corporate setting and then rely on Lerner v. Lerner Corp., 132 Md. App. 32 (2000), in which the Court of Special Appeals held that a reverse stock split which had the effect of eliminating a minority shareholder was proper and justified. Although we have analogized the relationship between general an d limited par tners to that between corporate directors and shareholders, Klein, 284 M d. at 59, 395 A.2d at 13 9, we find the Rem aining Partners' 28 reliance on Lerner inapt here. In Lerner, the force-out of the minority shareholder was preceded by twelve years of internal con flict and dissension. 132 Md. App. at 49. The corporation had spen t over $2,00 0,000 in legal fees to r esolve disp utes with the minority shareholder and the time spent in litigation had diverted executive officers from managing the corpor ation. Id. These facts, which surely influenced the Cou rt of S peci al Appeals's conclusion that the force-out was lawful, are much different than the facts presented here. Della Ratta did n ot act to force-out the Withdrawing Partners in response to a longstanding or resource-draining dispute among the partners. Rather, the singular dispute at issue here arose only after Della Ratta issued the capital call and tried to force-out the Withdrawing Partners. The Remaining Partners also ask us to apply the business judgment rule, an accepted principle ap plied to corporate matters, as part of Maryland partnership law. That rule, codified at Md. C ode (1975, 1999 Repl. Vol.), § 2-405.1 o f the Corporations and Associations Article, i nsulates business decisions made by those lawfully in charge of corporate decision-making from judicial review, absent a showing that the officers or directors acted f raudul ently or in b ad faith . See NAACP v. Golding, 342 Md. 663, 673, 679 A.2d 5 54, 559 (1996 ). We need not decide here whether the business judgmen t rule applies to partnerships. Even if we were to ap ply it as requested, the business judgment rule requires that the decision maker act in good faith and on an informed basis. See Yost v. Early, 87 Md . App. 364 , 377 (199 1). As fou nd by the Circ uit Court, Della Ratta acted 29 in bad faith and was not fully informed of alternative business possibilities because h e did not explore, despite saying he would, refinancing options for the Aegon Loan. Indeed, the Circuit Court did not find cre dible Della Ra tta's purported business reasons for issuing the capital call in the first instance. We a ffirm the C ircuit Co urt's decision that Della Ratta breached his fiduciary du ty to the Withdrawing Partners and acted in bad faith.15 As the sole general pa rtner, Della Ratta owed a high f iduciary duty to the Withdrawing Partners, all of whom were inactive limited partners. Della Ratta's decision not to pursue refinancing options after assuring the Withdrawing Partners he would, and his decision to force-out the Withdrawing Partners and place them into default, did not comport with his fiduciary duty and were in bad faith. Moreover, we conclude tha t the Circuit C ourt did no t abuse its disc retion in enjoining th e Rema ining Partne rs from en forcing the capital call. VII. Although it is not entirely clear from the recor d, it appears th at the Circ uit C ourt's final judgment was based in part upon its finding that Della Ratta assigned his East Park interest and thereby caused the partner ship's dis solution . Pursuant to those findings, the 15 Although we have concluded that UPA, not RUPA, applies to the present case, we note without d eciding that Della Ra tta's actions ma y have been unlawfu l under eithe r Act. The Remaining Partners contend that RUPA lowers the standard to which a general partner must conform his conduct. Even if we were to accept that contention, under RUPA, general partners nonetheless must discharge their duties and exercise any rights consistently w ith the obligation of good faith and fair dealing. § 9A-404(d) (emphasis added). Although our analysis might differ under RUPA, we cannot say that the outcome would change. 30 Circuit Court ordered E ast Park to wind up its business af fairs and d istribute its assets to the partners. Because we find that conclusion regarding dissolution to be erroneous, we vacate the judgment and remand th e case to the Circuit Court for further proceedings not inconsistent with this opinion. JUDGMENT OF THE CIRCU IT COURT FOR ANNE ARUNDEL COUNTY V A C A T E D ; C A S E REMANDED FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION; COSTS TO BE PAID BY APPELLA NTS. 31
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