Opinion
No. X10 NNH-CV-05-4015873S (CLD)
April 19, 2006
MEMORANDUM OF DECISION
Before the court are cross motions for partial summary judgment, filed by the plaintiff, Thomas Brennan, and the defendants, David Lehn, Peter DiNardo, Leonard DiNardo and Salvatore DiNardo as co-administrators of the estate of Richard Aiello (the "defendants"). The motions seek to determine the fate of the ownership interest of Richard Aiello in the defendant Brennan Associates. For the reasons set forth herein, the cross-motions for summary judgment are granted in part and denied in part.
Peter DiNardo and Leonard DiNardo are defendants both in their individual capacities and in their capacities as co-administators of the Estate of Richard Aiello. Salvatore DiNardo is a defendant solely in his capacity as a co-administrator of the Estate of Richard Aiello.
The following facts are not in dispute. In 1984, the plaintiff, Thomas Brennan, Richard Aiello, and the defendants Alexander Aiello and Serge Mihaly entered into a general partnership agreement (the "Agreement") for the operation and management of certain real property. The Agreement created a general partnership known as Brennan Associates. The interests of the partners were structured such that each partner's management stake mirrored his proprietary interest in the partnership, to wit: The plaintiff, Thomas Brennan, and Richard Aiello each owned 32% of the partnership and each held 32 (out of 100) management votes; the defendant Alexander Aiello owned a 25% interest in the partnership and held 25 votes; and the defendant Serge Mihaly owned an 11% interest and held 11 votes.
Brennan Associates continued to operate in this form until the death of Richard Aiello on December 17, 2004. Pursuant to his last will and testament, Richard Aiello directed his executor to "dispose of any and all of my investment assets and/or business assets by offering the same for sale to the following children of Salvatore K. DiNardo and Betty Lea DiNardo (being Peter DiNardo and Leonard DiNardo), or any entity established by said children for such purpose of purchasing such assets . . ." The will does not specifically mention Richard Aiello's interest in Brennan Associates.
In accordance with the will, Richard Aiello's interest in Brennan Associates was offered for sale, by the executor of his estate, to an entity owned by the defendants Peter and Leonard DiNardo (which two defendants are sometimes hereinafter referred to as the "DiNardos"). After this offer apparently was accepted, the remaining partners of Brennan Associates were notified that Richard Aiello's interest therein was being transferred to the DiNardos.
The plaintiff thereafter filed the present action, seeking, inter alia, a declaratory judgment that: (1) the plaintiff has a preemptive right, under the Connecticut Uniform Partnership Act, to purchase Richard Aiello's interest in Brennan Associates and (2) to the extent that such a preemptive right does not exist, only an economic interest, rather than management and voting rights in the partnership, may be assigned to the DiNardos under the terms of the Agreement, absent the unanimous consent of all partners.
The defendants filed an answer and a counterclaim also seeking a declaratory judgment that, among other things, the DiNardos in their individual capacities have the right to purchase Richard Aiello's pecuniary and managerial interest in Brennan Associates, subject only to the Agreements requirement that any assignment of a partnership interest "shall not be made without such written consent of the Partners but no partner shall reasonably withhold consent." The defendants claim that the plaintiff has unreasonably withheld his consent of the attempted transfer of Richard Aiello's partnership interest to the DiNardos. The defendants also seek a declaratory ruling clarifying the powers of the defendants as co-administrators of Richard Aiello's estate.
The summary judgment motions presently before the court frame these issues for resolution as a matter of law, based upon the interpretation of the Agreement. The court will set forth further facts, including relevant portions of the Agreement, as is necessary to its analysis.
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law . . . In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Citation omitted; internal quotation marks omitted.) Davies v. General Tours, Inc., 63 Conn.App. 17, 20-21, 774 A.2d 1063, cert. granted on other grounds, 256 Conn. 926, 776 A.2d 1143 (2001) (appeal withdrawn October 18, 2001).
The court first addresses the plaintiff's argument that he has a preemptive purchase right of Richard Aiello's partnership interest under CUPA. According to the plaintiff, the attempted transfer of Richard Aiello's interest in the partnership was an event of dissociation under General Statutes § 34-355(9), which provides that a partner is dissociated upon:
In the case of a partner that is an estate or is acting as a partner by virtue of being a personal representative of an estate, distribution of the estate's entire transferable interest in the partnership, but not merely by reason of the substitution of a successor personal representative . . .
The plaintiff argues that the dissociation triggered the buyout provision of General Statutes § 34-362, which compels a partnership to purchase a dissociated partner's interest at specified price if the partnership is not dissolved. The court rejects this argument.
The plaintiff acknowledges that the Agreement, at section 15, specifically provides that upon the death of a partner, the partner's estate or personal representative "shall succeed to such partner's interest." The plaintiff appears to ignore, however, the next sentence of section 15, which cloaks a partner's estate of personal representative with "all of the powers of such partner." As is discussed in more detail below, the powers of the partners under the Agreement include the right to assign or transfer the partner's interest in the partnership, subject to certain conditions. The court concludes that this provision is sufficient to displace the default rule of dissociation embodied in General Statutes § 34-355(9).
The court realizes that an unworkable situation may result to the extent that the estate is left with interests in the partnership following trial. For example, if it is determined that the plaintiff's refusal to consent to transfer to the DiNardos was reasonable, the estate would be left with a full partnership "interest" including management rights. On the other hand, if the plaintiff's refusal was unreasonable, only an economic interest would be transferred to the DiNardos, and the severed management interest would remain in the hands of the estate. The court recognizes that the administrators cannot control, and the estate cannot own, these interests in perpetuity. Therefore, if these issues cannot be resolved by agreement of the parties, further application to the court may be necessary.
The court turns next to the nature of the partnership interest that may be conveyed by the defendants, as co-administrators of the Estate of Richard Aiello, to the DiNardos. The plaintiff, relying on the Connecticut Uniform Partnership Act ("CUPA"), contends that only Richard Aiello's economic interest, not including voting and management rights, may be conveyed to the DiNardos. The defendants, on the other hand, argue that the Agreement permits the unrestricted assignment of Richard Aiello's interest, including voting and management rights. The court agrees with the plaintiff that only an economic interest may be assigned by the defendant co-administrators of Richard Aiello's estate.
Analysis of this issue must begin with the Agreement itself. The pertinent portions of the Agreement are contained within § 15, which is entitled "Transferability." Section 15A defines the term "assign" as follows:
The term "assign" shall mean and include sell, assign, convey, donate, transfer or otherwise dispose of, contract to assign, or mortgage, pledge, hypothecate or otherwise encumber, or contract to encumber.
Section 15B goes on to prescribe the conditions under which an "interest" in the partnership may be assigned:
The written application of a partner for consent to his assignment of all or part of his interest in the partnership shall set forth the desired effective date, the proposed division between the assignor and assignee of the profits or losses and a statement that the partnership shall enter such assignment on its records upon the written consent of the partners. The assignor and the assignee shall sign such application and if all partners consent to the assignment, such signature shall bind both assignor and assignee to the terms of this Agreement as if both were originally parties to this Agreement including the Power of Attorney for which provision is hereafter made. The assignment is subject to prior approval of the Holder of mortgage or mortgages on the partnership property. Such assignment shall not be made without the written consent of the Partners but no partner shall unreasonably withhold consent.
The defendants contend that this provision, because it contains no restriction or qualification on the nature of the partnership interest that may be assigned, broadly permits the defendant co-administrators to transfer, pursuant to Richard Aiello's will, both an economic and managerial interest in Brennan Associates to the DiNardos. In response, the plaintiff contends that the Agreement must be read in light of CUPA, which provides that the transfer of a partnership interest does not entitle the transferee to management rights in the partnership. See General Statutes § 34-348(a)(3). The plaintiff further argues that the putative transfer to the DiNardos is controlled by § 15E of the Agreement, which provides procedures for adding or substituting partners to the partnership, rather than § 15B. The fourth paragraph of § 15E provides that "Partners may be added or substituted upon the unanimous written agreement of the Partners." The court agrees with the plaintiff.
The Agreement, while defining the term "assign" and providing that a partner may make application to assign "all or part of his interest in the partnership," does not purport to define the nature of a partnership interest. In other words, "interest" is left undefined by the Agreement. Under these circumstances, the court must look to CUPA for the definition of the term "interest." CUPA's definitional section, General Statutes § 34-347, provides at subsection (12): "`Partnership interest' or `partner's interest in the partnership' means all of a partner's interests in the partnership, including the partner's transferable interest and all management and other rights." The nature of the interest that may be transferred, however, is restricted by General Statutes § 34-348(a)(3):
Section 11 of the Agreement, entitled "Contribution; Interest of a Partner," provides for the percentage interest of each partner and the amount of each partner's contribution but does not define the term "interest."
The defendants have argued that because the agreement equates a partner's share of his ownership interest with his voting rights, the Agreement defines "interest" to include such rights. The court disagrees. Even if the court were to grant the premise of this argument (the veracity of which is far from self-evident), there is nothing in the Agreement to indicate that this management structure has any bearing upon the nature of the interest that a partner may transfer.
A transfer, in whole or in part, of a partner's transferable interest in the partnership . . . Does not, as against the other partners or the partnership, entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions or to inspect or copy the partnership books or records.
Therefore, under this provision, only Richard Aiello's share of distributions, along with the other incidents to a partnership interest enumerated by General Statutes § 34-348, may be transferred to the DiNardos. His management and voting rights may not be transferred under this statutory scheme.
The defendants contend that the result in this case must be controlled by the partnership agreement, rather than CUPA. According to the defendants, section 15B of the Agreement, which permits the assignment of "all or a part" of a partner's interest, permits a partner to alienate management and voting rights as well as an economic interest. An examination of the entire Agreement, however, reveals that the parties intended to embrace, rather than alter, the scheme established by CUPA with respect to the nature of a partner's transferable interest. Specifically, the Agreement plainly distinguishes between two categories of transactions: assignment of a partnership interest, on the one hand, see Agreement § 15B; and the admission or substitution of new partners, on the other hand, see Agreement § 15E. The former transaction requires "written consent of the partners but no partner shall [un]reasonably withhold consent." The latter event, in contrast, requires that "Partners may be added or substituted upon the written unanimous agreement of the Partners."
The more onerous requirement for adding or substituting partners is entirely consistent with the bedrock principle of partnership law, embodied in CUPA at General Statutes § 34-335i, that partners must be free to choose their companions in business. Regarding § 401i of the Revised Uniform Partnership Act, which was codified verbatim at General Statutes § 34-335i, Bromberg Ribstein's treatise opined:
R.U.P.A. § 401(i) provides for a particular decision as to which a unanimous vote of the partners is required in the absence of a contrary agreement: admission of new partners. This rule of delectus personae (choice of the person) is an aspect of the basic principle that partnership is based on the intent of all parties involved.
Bromberg Ribstein on Partnership, § 6.03d (Sup. 2005).
In light of this general rule of freedom of partnership association, provisions purporting to permit the assignment of partnership management rights must be strictly construed. See Sunshine Cellular v. Vanguard Cellular Systems, Inc., 1993 WL 212675, at *4 (S.D.N.Y. 1993); Bromberg Ribstein, supra, § 6.01. Accordingly, the court will not construe section 15B of the Agreement as encompassing a transfer of management and voting rights in the absence of express language so providing, particularly where the Agreement, at section 15E, establishes another procedure that more directly addresses the kind of transaction contemplated by the transfer to the DiNardos, namely, the substitution of a partner.
The defendants point to language in section 15B of the Agreement providing that "The Assignor and Assignee shall sign such application and if all the Partners consent to the Assignment, such signatures shall bind both assignor and assignee to the terms of this Agreement as if both were originally parties to this Agreement . . ." as evidence that section 15B permits the transfer of voting rights. The court disagrees. The language cited by the defendant does nothing more than make the Agreement binding upon any assignee as well as the assignor.
Further support for this construction of the agreement can be drawn from another, more fundamental tenet of contractual interpretation. "The contract must be viewed in its entirety, with each provision read in light of the other provisions . . . and every provision must be given effect if it is possible to do so." United Illuminating Co. v. Wisvest-Connecticut, LLC 259 Conn. 665, 671, 791 A.2d 546 (2002). The defendants' argument, if accepted, would effectively nullify the "substitution" language of 15E of the Agreement by permitting section 15B, rather than section 15E, to control over what is, in substance, a substitution of a partner, namely, the substitution of the DiNardos for Richard Aiello. If a partner were free to effectuate a substitution by recourse to the less burdensome "reasonable consent" requirement, it is difficult to imagine a circumstance under which the "unanimous agreement" requirement of § 15E would come into play. "The law of contract interpretation militates against interpreting a contract in a way that renders a provision superfluous." Id., 674 On the other hand, construing section 15B as permitting the transfer of an economic interest only, while applying section 15E to transfers of a "full" interest, harmonizes the agreement by giving effect to both provisions.
The defendants attempt to ameliorate this result by arguing that section 15E applies only when the substitution purports to extinguish the liability of the partner whose position is being replaced. The court rejects this argument as it is wholly unsupported by anything in the Agreement.
Finally, the court notes that the interpretation urged by the Defendants would have the incongruous result of conferring greater powers upon the defendants, as co-administrators of the Estate of Richard Aiello, than Richard Aiello held during his lifetime. Section 15C of the Agreement provides, inter alia, that upon the death or incapacity of a partner, "his estate or personal representative may exercise all of the powers of such Partner." It appears plain to the court that if Richard Aiello sought, in life, to substitute the DiNardos for himself in the partnership, the strictures of section 15E of the Agreement — including the unanimous agreement requirement — would have to be followed. The court can discern no principled basis for permitting the defendants, as co-administrators of Richard Aiello's estate, to transfer management and voting rights absent compliance with section 15E simply because Richard Aiello is now deceased.
The last issue remaining before the court concerns the parties' dispute over the nature and extent of the powers of the defendants in their capacity as co-administrators. The defendants (in their capacities as co-administrators) argue that they succeeded to all the powers of Richard Aiello, including the authority to enter into agreements encumbering partnership assets and to conduct banking. The plaintiff contends, on the other hand, that because those powers are vested in Richard Aiello specifically by name, they did not survive his death.
The court concludes that section 15C of the Agreement is controlling of this issue. That section provides that a partner's personal representative, upon the death or incapacity of a partner, "may exercise all of the powers of such partner." (Emphasis added.) The grant of authority is unqualified. Had the parties intended to restrict the operation of this provision to non-personal powers, they could have done so. While the court takes cognizance of the general rule that a contractual duty specific to an individual generally terminates upon the death of that person, the Agreement in this case displaces that rule in clear and unambiguous language.
This construction of the Agreement does not end the matter, however. The plaintiff has claimed that the defendants, in their capacity as co-administrators of the estate of Richard Aiello, have engaged in conduct in derogation of their duties of good faith and fair dealing, as well as in breach of their fiduciary duties to the plaintiff. These claims include allegations that the defendant Lehn has acted in conflicting capacities in simultaneously serving as representative of the Estate of Richard Aiello, as an attorney for the DiNardos, and as an acting partner of Brennan Associates; that the Administrators have held themselves out as "managing partners" of Brennan Associates; that Brennan Associates has been billed inflated and/or fraudulent amounts by the defendants; and that the defendant administrators have taken inappropriate actions with regard to Brennan Associates banking activities. The plaintiff has sought injunctive relief in connection with these allegations. The court concludes that these allegations create triable issues of fact and that the powers of the defendant administrators with respect to the partnership are subject to such equitable relief as may be fashioned by the court following trial. Moreover, the court agrees with the plaintiff that the powers of the defendant administrators, the contours of which are to be determined at trial, may only be exercised for such time as is reasonable to complete the business of the Estate of Richard Aiello necessary for the disposition of the estate's interest in the partnership. The issue of what constitutes a "reasonable time" will also be determined at the trial of this matter. The court further notes that an issue of material fact exists as to whether the participation of four co-administrators in the administration of the Estate of Richard Aiello, and thus in partnership affairs (as opposed to one; it should be noted that the Agreement, at section 15C, uses the term "personal representative" in the singular, rather than the plural) is consistent with the Agreement and/or is in the best interests of the partnership.
In summary, the co-administrators of the Estate of Richard Aiello may transfer his interest in Brennan Associates, in accordance with the Agreement as construed herein, without triggering an event of dissociation. Therefore, the statutory duty of Brennan Associates to purchase that interest does not come into play. Absent the unanimous agreement of the partners of Brennan Associates, the defendant co-administrators may transfer only Richard Aiello's right to distributions from the partnership, subject to the reasonable consent requirements set forth in section 15B of the Agreement. The reasonableness of the plaintiff's refusal to consent to the transfer of this interest is an issue to be determined at trial. The scope and duration of the powers of the defendant administrators also will be considered by the court following the receipt of evidence. Judgment is hereby rendered, in accordance with the foregoing, on Count One of the plaintiff's Revised, Amended Complaint and on the counterclaims of the defendants David Lehn, Peter DiNardo, Leonard DiNardo and Salvatore DiNardo in their capacities as co-administrators of the Estate of Richard Aiello.