Opinion
C.A. No. PC-2016-2677
04-04-2019
GEORGE HASEOTES, individually, and derivatively in his capacity as a General Partner and a Limited Partner of the V.S. HASEOTES & SONS LIMITED PARTNERSHIP, Plaintiff, v. V.S. HASEOTES & SONS LIMITED PARTNERSHIP; and LILY H. BENTAS, individually and in her capacity as Managing General Partner of V.S. HASEOTES & SONS LIMITED PARTNERSHIP, Defendants.
ATTORNEYS: For Plaintiff: Michael A. Kelly, Esq.; Matthew J. McGowan, Esq.; Randall L. Souza, Esq. For Defendant: Richard G. Fallago, Esq.; Melissa L. Curley, Esq.; Michael S. Marino, Esq.
DECISION SILVERSTEIN , J. (Ret.) Before the Court for decision following a nonjury trial is this matter brought by George Haseotes (Haseotes or Plaintiff), individually and derivatively as a General Partner and a Limited Partner of the hereinafter referred to Limited Partnership, against V.S. Haseotes and Sons Limited Partnership (the Partnership) and Lily H. Bentas (Bentas or Defendant), individually and in her capacity as Managing General Partner of the Partnership. Haseotes seeks this Court's Order effecting the removal of Bentas as Managing General Partner, supervision of the winding up of the business affairs of the Partnership, and other remedies in equity as well as money damages to compensate for Bentas's alleged mismanagement of the Partnership. By order of the Court the question of money damages, if any, for Plaintiff individually and derivatively is to be the subject of subsequent litigation. This Court exercises jurisdiction pursuant to G.L. 1956 § 8-2-13 and Super. R. Civ. P. 39(b).
I
Facts and Travel
This matter arises from a dispute between general partners of the Partnership, an entity formed in 1976 under the laws of Rhode Island by the descendants of the founding family of Cumberland Farms, Inc. The original purpose of the Partnership was to farm agricultural property owned by the Partnership. The Partnership, however, ceased its farming activities approximately twenty years ago at which time the Partnership's purpose shifted principally to liquidating its real estate holdings. The Partnership's assets primarily consist of hundreds of acres of undeveloped land in eastern Massachusetts, comprised, at the time of trial, of approximately 87 parcels worth an estimated $45 million. At all times relevant to this action, the Second Amended and Restated Agreement of Limited Partnership (the Partnership Agreement), together with a Delegation of Authority Agreement, governed the Partnership.
The Partnership was originally made up of four general partners and seven limited partners, all of whom are siblings. General partners included Plaintiff, Defendant, Demetrios B. Haseotes, and Byron Haseotes, each holding a 1.00% interest in the Partnership as general partners. The original limited partners consisted of each of the General Partners other than Bentas, each holding a 24.00% interest as limited partners, along with Bentas, Hytho H. Pantazelos, Anastasia H. Marty, and Jo Ann Tambakis, holding interests of 5.25%, 6.25%, 6.25%, and 6.25% as limited partners, respectively. Two of the partners are now deceased: Byron Haseotes having died in 2009 and Demetrios B. Haseotes in 2017.
Since Byron Haseotes's death in 2009, his general and limited partnership interests became property of his estate, and his son Ari Haseotes has served as a representative of the estate's interest and voted as a general partner. Likewise, since Demetrios B. Haseotes's death in 2017, his general and limited partnership interests became property of his estate, and his son Demetrios E. Haseotes and Edgar R. Alger, III, CPA have voted on his behalf in their roles as co-executors of his estate. No general partner has objected to Ari Haseotes or Demetrios E. Haseotes and Edgar R. Alger, III, CPA voting on behalf of Byron Haseotes and Demetrios B. Haseotes.
The Partnership is not a stranger to this Court having been before it in a receivership proceeding from 2004 through 2012. During the receivership, the Partnership sold twenty-five properties and had a total of $13,899,449.93 in gross receipts. However, the expenses totaled $13,470,412.16, leaving the Partnership with $400,000 at the close of the receivership. One liability that contributed to Partnership costs was a promissory note (the Note) executed in 2002 in favor of the Bay Colony Partners (Bay Colony), a former Massachusetts partnership, in consideration of the conveyance of certain real estate to the partnership. The outstanding balance on the Note, including interest, was approximately $7 million at the time of trial. The four original partners of Bay Colony are the same four individuals as the general partners of the Partnership, each holding a 25% interest in Bay Colony. Although none of the partners as partners of the Partnership received cash distributions from the Partnership directly between 2004 and the date of trial, the Partnership made a distribution of $600,000 to Bay Colony in 2016, $300,000 of which was distributed to Plaintiff. Further, by Consent Order dated April 27, 2018, an additional $2,000,000 was ordered to be paid to Bay Colony, of which $1,000,000 was to be distributed to Plaintiff.
Indeed, in an earlier non-receivership matter, our Supreme Court had occasion to refer to the "internecine financial war within the Haseotes family" in a case involving this very same Limited Partnership. See V.S. Haseotes & Sons, L.P. v. Haseotes, 819 A.2d 1281, 1283 (R.I. 2003).
In 2010, the general partners sought to end the receivership to reduce costs and appointed Defendant to the role of Managing General Partner, as set forth in the Delegation of Authority Agreement, executed by all general partners. The receivership was terminated on November 2, 2012, pursuant to a Consent Order Regarding Petition to Dismiss Proceeding and a Conditional Dismissal Order.
Defendant thereafter assumed the role of Managing General Partner of the Partnership, responsible for the management of all Partnership affairs, with the exception of the power to determine the selling price of Partnership real property, which requires a majority vote of general partners. However, Defendant testified that she "didn't devote a lot of time to the Partnership," due to the fact that she "went back to being the interim CEO of Cumberland Farms for approximately a year" after the receivership ended. Defendant delegated the responsibility for sales and management of Partnership property to John Peck (Peck), a cousin of the general partners who served as "property manager" of the Partnership. Defendant testified that "there wasn't really a lot to do except for the sales and things of that nature that [she] got involved with and if there was money in the accounts and so forth." Defendant further testified that Peck was the only person practically trying to sell the Partnership properties on behalf of the Partnership, and that she did not know whether it would cost more to list the properties with a real estate brokerage than the $10,000 per month the Partnership paid to Peck to sell the properties.
Prior to 2017, every Partnership real estate transaction was approved by a unanimous vote of the general partners.
Peck also served in that capacity during the receivership proceeding.
Sales of Partnership property were limited in the years following the receivership, and Partnership expenses subsumed most of the sale proceeds. These sales essentially occurred through word-of-mouth efforts on the part of Peck. In 2013, the Partnership sold seven properties and had a total of $1,385,000 million in gross sales, but had a negative net income of $1,072,931.66. In 2014, the Partnership sold six properties and had a total of $1,996,000 in gross sales, but had a net income of only $388,734.26. In 2015, the Partnership sold five properties and had a total of $2,430,000 in gross sales, but had a net income of $1,066,973.58. In 2016, the Partnership sold seven properties and had a total of $4,257,500 in gross sales, but had a net income of only $2,829,431.70. At the time of trial, the Partnership property constituted approximately 87 parcels of land with an estimated value of $45 million.
Plaintiff began to express his discontent with the lack of Partnership property sales after the receivership ended, first verbally, then through written communications to Defendant. On May 14, 2013, Plaintiff sent a letter to Defendant and the other general partners requesting a discussion to formulate a plan to divest Partnership property. However, none of the general partners responded. Plaintiff continued to express concerns regarding the mismanagement of the Partnership in the years that followed. On April 13, 2016, after several unsuccessful attempts to schedule a Partnership meeting, Plaintiff requested a list of the Partnership properties that were currently for sale, but he did not receive a response.
On April 18, 2016, Plaintiff sought further information from Defendant and expressed concern with respect to Defendant's "lack of diligence in seeking to sell the VS Haseotes properties, many of which [had] been for sale for decades." Plaintiff also expressed his dissatisfaction regarding the dumping of processed sewage (or "sludge") onto Partnership property. This material was produced by a company called EarthSource, Inc. (EarthSource), and was periodically dumped upon Partnership property between 2008 and 2015. Peck received $1000 per month from EarthSource in consideration for the agreement—for which there was no written contract and was instead governed by a "handshake"—although the Partnership itself received no compensation. In May 2016, Plaintiff made multiple unsuccessful attempts to gain access to records regarding Partnership real property, financial information, and the sludge being dumped upon the land.
In June 2016, Plaintiff filed a sealed Complaint, seeking, inter alia, access to Partnership records. On October 26, 2016, this Court ordered that certain documents that Defendant had previously withheld be made available to the Plaintiff. On December 23, 2016, Plaintiff filed a Third Amended Complaint. Plaintiff alleged that Defendant breached her statutory and fiduciary duties as Managing General Partner, and sought her removal from that position, along with other monetary and equitable remedies. This Court held a non-jury trial on February 20, 2017, from May 15, 2017 through May 25, 2017 and following the grant of a motion to reopen from February 22 through February 26, 2018.
II
Standard of Review
The justice in a nonjury trial acts as the trier of both fact and law. Hood v. Hawkins, 478 A.2d 181, 185 (R.I. 1984). This role involves the consideration of evidence, the determination of the credibility of the witnesses, and the eventual drawing of proper inferences, all of which need not be done in the light most favorable to the plaintiff. Id. at 184-85. Indeed, "[t]he task of determining the credibility of witnesses is peculiarly the function of the trial justice when sitting without a jury." Parella v. Montalbano, 899 A.2d 1226, 1239 (R.I. 2006). '"It is also the province of the trial justice to draw inferences from the testimony of witnesses."' Id. (quoting Walton v. Baird, 433 A.2d 963, 964 (R.I. 1981)). These "findings of fact by a trial justice sitting without a jury are entitled to great weight and will not be disturbed on appeal absent a record showing that the trial justice overlooked or misconceived material evidence or was otherwise clearly wrong." Donnelly v. Cowsill, 716 A.2d 742, 747 (R.I. 1998) (citing Thomas v. Ross, 477 A.2d 950, 953 (R.I. 1984)).
The Rhode Island Superior Court has broad powers, and exclusive original jurisdiction, over matters in equity. Roch v. Garrahy, 419 A.2d 827, 830 (R.I. 1980); § 8-2-13; see also Ret. Bd. of Emps.' Ret. Sys. of City of Providence v. Corrente, 111 A.3d 301, 306 (R.I. 2015). Furthermore,
"[i]f an action is brought in the [S]uperior [C]ourt which represents an attempt in good faith to invoke [] jurisdiction [in equity], the [S]uperior [C]ourt shall have jurisdiction of all other actions arising out of the same transaction or occurrence, provided the other actions are joined . . . and the [C]ourt may retain jurisdiction over the other actions even though the initial action fails for want of equity jurisdiction." Sec. 8-2-13.The removal of a general partner from a limited partnership is a remedy in equity. See, e.g., Miltland Raleigh-Durham v. Myers, 807 F. Supp. 1025, 1059-60 (S.D.N.Y. 1992).
III
Analysis
Haseotes brings this action seeking, inter alia, remedies for economic injuries suffered individually and by the Partnership resulting from Bentas' alleged mismanagement in her role as Managing General Partner. Sec. 8-2-13. The Third Amended Complaint includes four counts: (1) violation of G.L. 1956 § 7-13-21 (against the Partnership and Bentas); (2) breach of fiduciary duty (against Bentas in her capacity as Managing General Partner of the Partnership); (3) a derivative claim pursuant to the Rhode Island Uniform Limited Partnership Act (against Bentas); and, (4) a petition for dissolution of the Partnership under the Rhode Island Uniform Limited Partnership Act. As relief, Haseotes requests that this Court declare the Partnership dissolved as of 2009; order the immediate winding up of the Partnership's affairs; relieve Bentas of her powers as Managing General Partner or remove her as Managing General Partner; appoint a competent, regional broker to formulate a plan for and to comprehensively market, list, and sell all remaining Partnership properties; order that any properties unsold within six months of the appointment of the broker be sold at auction; and, award damages and attorney's fees to Haseotes. With regard to Haseotes' request for damages, this Court shall hold an additional trial; all other relief Haseotes seeks is addressed herein.
This Court entered an Order to that effect on May 15, 2017.
A
Violation of § 7-13-21
Haseotes contends that Bentas wrongfully denied him access to records of the Partnership in violation of § 7-13-21, entitled "Information." Specifically, Haseotes asserts that Bentas failed to respond to numerous written and verbal communications by or on behalf of Haseotes requesting access to Partnership records. Haseotes argues that when Bentas did respond, Bentas's requirement that Haseotes pay for the Partnership's attorney to supervise Haseotes' inspection of the records additionally amounted to a violation of § 7-13-21, the Partnership Agreement, and Bentas' fiduciary duty of disclosure to the other partners.
Bentas submits that she has met her duties as Managing General Partner with regard to Haseotes' access to partnership records. Bentas asserts that while rights of general partners are delineated by statute, they are subject to modification by contract. See § 7-12-29 (stating that "[t]he rights and duties of the partners in relation to the partnership . . . [are] subject to any agreement" between the partners). According to Bentas, Section 9 of the Partnership Agreement modifies § 7-13-21, in that it allows only "reasonable inspection and examination" of partnership records, rather than the broader access allowed by statute. See § 7-13-21 (allowing partners to "[i]nspect and copy any of the partnership records") (emphasis added). Bentas maintains that Haseotes' request for "unfettered access" to Partnership documents was overbroad under both the Rhode Island statute and the Partnership Agreement.
After consideration of the parties' arguments, this Court entered the November 7, 2016 Order allowing Haseotes' further inspection of Partnership records. Rhode Island law requires that in a Partnership,
"Each limited partner has the right to:Indeed, Section 9 of the Partnership Agreement modifies this broad statutory access, instead simply requiring that "books of account" be available for "reasonable inspection and examination of the partners." Black's Law Dictionary defines a book of account as a "[a] detailed statement of debits and credits giving a history of an enterprise's business transactions." See Black's Law Dictionary (10th ed. 2014.)
"(1) Inspect and copy any of the partnership records required to be maintained by § 7-13-5; and
"(2) Obtain from the general partners from time to time upon reasonable demand:
"(i) True and full information regarding the state of the business and financial condition of the limited partnership,
"(ii) Promptly after becoming available, a copy of the limited partnership's federal, state, and local income tax returns for each year, and
"(iii) Other information regarding the affairs of the limited partnership that is just and reasonable." Sec. 7-13-21.
Even under the modifying language of the Partnership Agreement, Bentas failed to comply with her contractual obligation to Haseotes. Specifically, Plaintiff requested documents that should have been kept in the "ordinary course of business" of the Partnership, including a list of properties for sale and Partnership financial statements. Therefore, the Court finds Bentas' failure to provide Plaintiff with access to records of the Partnership violates § 7-13-21, even though the constant demands by Plaintiff substantially exceeded that to which, by reason of the Amended Agreement, he was entitled.
B
Breach of Fiduciary Duty
Haseotes further asserts that Bentas, both individually and in the role of Managing General Partner, breached her statutory and common-law fiduciary duties to the general and limited partners of the Partnership. See Sullivan v. Hoey, 102 R.I. 487, 488, 231 A.2d 789, 790 (1967) (stating that partners owe fiduciary duties to their partnerships). Haseotes maintains that Bentas owed a duty of loyalty and a duty of care to the other partners, along with fiduciary duties of good faith, fair dealing, disclosure of information, and a duty to properly manage business to avoid waste and damages to the other partners. See In re Schick, 235 B.R. 318, 327 (Bankr. S.D.N.Y. 1999) (holding that breaches of fiduciary duties "include . . . in some cases, mismanagement").
Bentas argues that she has met her duties to the Partnership and the partners as Managing General Partner. Citing the business judgment rule, which "acts as a rebuttable presumption that . . . managers . . . have acted with due care, good faith, and in the best interest of the . . . company," Bentas maintains that Haseotes has failed to rebut the presumption. See Marsh v. Billington Farms, LLC, No. 04-3123, 2006 WL 2555911, at *7 (R.I. Super. Aug. 31, 2006). Overall, Bentas states she has met all common law fiduciary duties including the duty of loyalty, the duty of good faith, and the duty of care. Tomaino v. Concord Oil of Newport, Inc., 709 A.2d 1016, 1021 (R.I. 1998); DV Realty Advisors LLC v. Policemen's Annuity and Benefit Fund of Chicago, 75 A.3d 101, 108-10 (Del. 2013); Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 366, 369 (Del. 1993).
Rhode Island law "recognize[s] that partners in a partnership owe one another a fiduciary duty." A. Teixeira & Co. v. Teixeira, 699 A.2d 1383, 1387 (R.I. 1997) (citing Sullivan, 102 R.I. at 488, 231 A.2d at 790). The Supreme Court has explained the term "fiduciary" as "a broad concept that might correctly be described as 'anyone in whom another rightfully reposes trust and confidence.'" Id. at 1387 (quoting Francis X. Conway, The New York Fiduciary Concept in Incorporated Partnerships and Joint Ventures, 30 Fordham L. Rev. 297, 312 (1961)); see also In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 67 (Del. 2006) ("[t]he good faith required of a . . . fiduciary includes not simply the duties of care and loyalty, . . . but all actions required by [] true faithfulness and devotion"). Upon the dissolution of a partnership, the surviving partner owes a duty to wind up business affairs within a reasonable time, and must account fully to partners on all partnership matters. Littlefield v. Gorton, 65 R.I. 390, 14 A.2d 682, 685 (1940) (holding that the partner remains a fiduciary to the partnership and its partners following the dissolution of a partnership upon the death of a partner).
The business judgment rule, which has been adopted in Rhode Island, sets forth "a presumption that 'in making a business decision [a fiduciary] acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.'" Heritage Healthcare Servs., Inc. v. Beacon Mut. Ins. Co., No. C.A. 02-7016, 2004 WL 253547, at *6 (R.I. Super. Jan. 21, 2004) (explaining the application of the business judgment rule with respect to corporate directors) (quoting Emerald Partners v. Berlin, 787 A.2d 85, 90 (Del. 2001)); see also Friedman v. Kelly & Picerne, Inc., No. PB 05-1193, 2010 WL 5042896, at *13 (R.I. Super. Dec. 06, 2010) (applying the business judgment rule in the partnership context). More specifically, "[u]nder the business[]judgment rule, there is no liability for losses resulting from the exercise of business judgment even if the judgment was wrong." 2 Practical Tools for Handling Insurance Cases § 14:4, The business-judgment rule—The duty of care (June 2018 update). However, in the seminal Delaware case Smith v. Van Gorkom, the court found that the directors at issue had a duty to stay informed, and that the business judgment rule did not protect against the failure to act with care on an educated basis. 488 A.2d 858, 872 (Del. 1985) ("[u]nder the business judgment rule there is no protection for . . . '[] unintelligent or unadvised judgment'") (citing Mitchell v. Highland-Western Glass, Del. Ch. 326, 330, 167 A. 831, 833 (1933) (overruled by Gantler v. Stephens, 965 A.2d 695 (Del. 2009) based on other grounds).
As Managing General Partner of the Partnership, Bentas owed fiduciary duties to conduct the affairs of the Partnership including its winding up with the "utmost good faith and loyalty," including during the years following the 2009 dissolution of the Partnership, at least from the time that she exercised her duties as Managing General Partner. Littlefield, 14 A.2d at 685. Bentas additionally owed a duty to stay informed and exercise reasoned judgment regarding Partnership matters. Smith, 488 A.2d at 872. However, Bentas failed to provide Plaintiff with access to records of the Partnership, and failed to take reasonable steps such as listing with a multiple listing service and engaging appropriate brokers to expedite the wind up of business affairs of the Partnership during the ten-year period after its dissolution or in any event following the termination of the receivership.
Bentas provided no showing of an informed decision to centralize sales efforts in Peck's hands to the almost total exclusion of other efforts, which precludes the application of the business judgment presumption. Smith, 488 A.2d at 872 ("[u]nder the business judgment rule there is no protection for [fiduciaries] who have made 'an unintelligent or unadvised judgment'"). As Plaintiff's expert testified at trial, Bentas demonstrated "[a] lack of understanding of the market," "[l]ack of understanding of the Boston market," and that Bentas "should have prepared a plan for the sale of all [P]artnership property." See Updated Expert R. of Webster Collins, Ex. 23, at 45-46. Considering such failures, coupled with Bentas' laissez-faire attitude with respect to the affairs of the Partnership, the Court finds Bentas in breach of her fiduciary duty as Managing General Partner.
The Court accepts this testimony by Webster Collins but recognizes that his standing as an expert as to valuation was called into question by Defendant's experts.
With regard to Plaintiff's argument that Bentas' acquiescence in the dumping of the sludge upon Partnership property amounted to a breach of fiduciary duty, the Court disagrees. As Defendant established at trial, EarthSource maintained the proper permits at all times relevant to this action and the sludge was properly tested and within the ranges required by environmental regulations. Plaintiff has failed to carry his burden with respect to this claim. The Court further notes that Plaintiff failed to timely share his concerns about the sludge, along with Peck's questionable sales tactics, with his co-partners. Regardless of this oversight by Plaintiff, the Court finds Bentas in breach of her fiduciary duty, for reasons discussed above.
C
Derivative Claim Pursuant to the Rhode Island Uniform Limited Partnership Act
Acting both as a limited partner and a general partner, Haseotes asserts derivative claims on behalf of the Partnership against Bentas, seeking to recover for harms as alleged in the Third Amended Complaint. Secs. 7-13-56, 7-13-57. Haseotes submits that in accordance with § 7-13-58, he made formal demands that Bentas "cause each and every one of the Partnership's properties to be listed for sale," and that Bentas has not replied to these demands. See Am. Compl., Exs. B-G. Accordingly, Haseotes seeks damages for the Partnership, including compensatory damages and attorney's fees. Bentas denies Haseotes' allegations and maintains that she has met all duties to the Partnership, for the reasons detailed above.
This Court shall schedule an additional trial on the issue of damages.
The Rhode Island Uniform Limited Partnership Act provides a derivative right of action that allows limited partners to sue on behalf of a partnership. Secs. 7-13-56, 7-13-57. Section 7-13-56 sets forth that:
"[a] limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed."The plaintiff bringing a derivative action must be a "partner at the time of bringing the action and (1) at the time of the transaction of which he or she complains, or (2) his or her status as a partner had developed upon him or her by operation of law . . . ." Sec. 7-13-57. Haseotes, in his capacity as both a General Partner and a Limited Partner, therefore brings the suit appropriately under these provisions. Id. Accordingly, the Court will consider damages to the Partnership in subsequent proceedings to adjudicate damages.
D
Dissolution of the Partnership Under the Rhode Island Uniform Limited Partnership Act
In the Third Amended Complaint, Haseotes asks this Court to declare judicial dissolution of the Partnership. See § 7-13-45. On May 15, 2017, this Court entered an Order declaring the Partnership dissolved as of 2009. The Court determined that by virtue of the death of Byron Haseotes in 2009, and pursuant to the provisions of the Second Amendment to Agreement of Limited Partnership of V.S. Haseotes & Sons Limited Partnership, the Partnership was dissolved as a matter of law. Sec. 7-12-42 ("[d]issolution is caused . . . (4) [b]y the death of any partner . . .); see also Littlefield, 14 A.2d at 685 (holding that a partnership dissolves upon the death of a partner).
Under § 7-13-44, Nonjudicial dissolution, "A limited partnership is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following: (1) At the time or upon the happening of any of the events specified in the partnership agreement . . ."; Section 13(a) of the Partnership Agreement specifies that the Partnership will be dissolved upon the death of any general partner.
E
Remedies
Haseotes seeks the following redress for harms suffered personally and to the Partnership resulting from the aforementioned causes of action: (i) a declaration by this Court that the Partnership dissolved in 2009 and an order for the immediate wind-up of the Partnership's affairs and liquidation of its properties; (ii) removal of Bentas as Managing General Partner; (iii) appointment of a broker to comprehensively market and sell the remaining Partnership properties and an order that any properties unsold within six months of the appointment of the broker be auctioned; and (iv) damages and attorney's fees.
1
Dissolution and Winding Up of the Partnership
Having already declared the Partnership dissolved as of 2009, the Court turns to the issue of the winding up of Partnership business. Under Rhode Island law, a partnership is not terminated upon dissolution. Sec. 7-12-41. Rather, such "dissolution . . . merely triggers the winding up of partnership activities and the liquidation of partnership assets." Jeffrey B. Cianciolo et al., A Practical Guide to Organizing a Business in Rhode Island: Limited Partnerships § 6.3.10 (MCLE 1st ed. 2011); see also Black's Law Dictionary (10th ed. 2014) (defining "winding up" as "[t]he process of settling accounts and liquidating assets in anticipation of a partnership's or a corporation's dissolution"). Following the dissolution of a partnership, the remaining partners "have the right and duty, with reasonable dispatch, to wind up the partnership affairs, to complete transactions begun but not then finished, to collect the accounts receivable, to pay the firm debts, to convert the remaining firm assets into cash, and to pay in cash to the partners . . . ." See McClennen v. Comm'r of Internal Revenue, 131 F.2d 165, 167 (1st Cir. 1942). "The [S]uperior [C]ourt may wind up [a] limited partnership's affairs upon application of any partner . . . ." Sec. 7-13-46.
Here, the Partnership dissolved approximately ten years prior to the entry of this Decision. Therefore, the Court finds that an unreasonable period of time has passed without the winding up having been completed. Littlefield, 14 A.2d at 685 (noting that affairs must be wound up within a reasonable time following the dissolution of a partnership). As Managing General Partner, Bentas had a duty to facilitate sales of the real property of the Partnership following the termination of the receivership proceeding and to distribute the net proceeds to the Partners, but has failed to do so. Sec. 7-13-46.
The Court finds that sales efforts by the Partnership under the management of Bentas post-receivership have not been reasonable. Essentially leaving to Peck the responsibility within a reasonable time frame of obtaining sales of the expensive assets valued at, by all accounts, multiple millions of dollars in order to effect a winding up of the Partnership, which he has attempted to do almost exclusively by word of mouth, was not reasonable particularly in view of the fact that primary purpose of the Partnership was to wind down its affairs and to dispose of its assets. The Court recognizes that sales have taken place through efforts of Peck; however, the Court notes that at least some of these sales were questionable by reason of Peck's failure fully and accurately to inform Bentas of his factual knowledge of certain of the parcels as to the percability and suitability for development purposes. It appears further that Peck did not communicate to Bentas his close relationship directly or indirectly to the buyers of some of the properties sold through his efforts. Accordingly, this Court shall exercise its equitable powers to supervise the winding up of the Partnership's affairs. Secs. 8-2-13, 7-13-46.
2
Removal of Bentas as Managing General Partner
In addition to his request that this Court supervise winding up of the Partnership's business affairs, Haseotes seeks to remove Bentas as Managing General Partner of the Partnership. Haseotes asserts that Bentas' mismanagement—including Bentas' failure to effectively and in a timely manner wind-up business affairs, permitting the dumping of sludge onto the properties under Bentas' supervision, and her general neglect of her fiduciary duties—has caused significant waste to the Partnership and that Bentas must be removed. Bentas objects to her removal and denies any wrongdoing.
See discussion at page 13 where the Court finds no breach of fiduciary duty by Bentas with respect to sludge dumping.
"The court ordered removal of a partner . . . [is a] rarely invoked remed[y]." Drucker v. Mige Assoc. II, 225 A.D.2d 427, 429, 639 N.Y.S.2d 365 (N.Y. App. Div. 1996); see also NWM Capital, LLC v. Scharfman, 144 A.D.3d 414, 416, 41 N.Y.S.3d 471, 474 (N.Y. App. Div. 2016). However, a court may remove a general partner from a limited partnership pursuant to its powers in equity. See, e.g., Miltland Raleigh-Durham, 807 F. Supp. at 1059. Persuasive precedent from New York courts holds that, "[a] court has the power to remove a general partner from a partnership [upon a finding that] . . . (i) the general partner violated his fiduciary duties to the partnership and that (ii) removal is necessary to preserve the partnership." Garber v. Stevens, No. 601917/05, 2012 WL 2091186 (N.Y. Super. June 6, 2012) (Trial Order) (citing Miltland Raleigh-Durham, 807 F. Supp. at 1059-60). If a Court has the power to remove a general partner from a partnership, a fortiori, the Court has the power to relieve a Managing General Partner of her duties in that position.
Here, having determined that Bentas has breached her fiduciary duty of care to the Partnership, this Court exercises its equitable power to relieve Bentas from her duties as Managing General Partner. Sec. 8-2-13. Not only has Bentas failed for at least the past seven years to wind up business expeditiously as required by Rhode Island law, that failure constitutes a breach of her fiduciary duties to the Partnership. Littlefield, 14 A.2d at 684) (holding that partners owe a duty to wind up affairs upon the dissolution of a partnership); see also Tomaino, 709 A.2d at 1021 (holding that partners owe fiduciary duties to one another). See Drucker, 225 A.2d at 429, 639 N.Y.S.2d at 367; Miltland Raleigh-Durham, 807 F. Supp. at 1059-60; Ret. Bd. of Emps.' Ret. Sys., 111 A.3d at 306.
3
Court Appointment of a Real Estate Broker and Sale of Property at Auction
Lastly, Haseotes requests that this Court appoint a competent, regional broker to properly formulate a comprehensive plan to market and sell all remaining Partnership property. If the property is not sold within six months, Haseotes asks that all remaining property after a six month period then be sold at auction to the highest bidder(s).
In order to expedite the wind-up of the partnership affairs, the Court directs that:
1. The General Partners, acting by majority vote, shall select an administrative agent (who may—but need not—be a Partner).
2. The administrative agent shall have the power to convene meetings of the General Partners from time to time and shall, at the request of the majority of the General Partners, convene such meeting.
3. The General Partners may attend such meetings in person, telephonically, or by duly designated proxy.
4. The administrative agent shall have the power on such terms and conditions as such agent deems reasonable to engage counsel for the Partnership and to engage accountants and such other professional assistance as may be necessary in connection with the winding up of the Partnership, other than real estate brokers. Real estate brokers shall be selected in the manner hereinafter set forth in number 5 below.
5. Any Partner may recommend to the Court a Massachusetts licensed real estate broker ("the Broker") who shall assist the Partnership as hereinafter provided in connection with the disposition of the real estate owned by the Partnership.
If the Partners unanimously are in agreement as to who should be engaged as the Broker, the Court shall designate that person as the Broker. In the event that any Partner objects to that person serving as Broker, the Court shall conduct a hearing and after the presentation of evidence and argument from such parties as may be objecting to the appointment and in favor of the appointment, shall determine if such person shall serve as Broker.
The Broker, when selected, shall expeditiously develop a marketing plan and thereafter attempt to sell the various parcels of real estate owned by the Partnership at prices subject to approval as to each separate parcel by vote of the majority in interest of the Partners. In the event of the failure to obtain a majority vote with respect to any particular price for a parcel the Court reserves the power to appoint a Special Master with power to sell such parcel on such terms and conditions approved by the Special Master and the Court as may be appropriate following notice to all of the General Partners and an opportunity to be heard.
Any Partner shall have the right to seek an order of the Court providing for an alternative means of disposing of any remaining real property owned by the Partnership. No request for such an order shall be filed until not sooner than six months following the Court's designation of the Broker. The proposed alternative means may include sale by auction (limited to Partners or not so limited); division among Partners or such other method as may be suggested by a/the Moving Partner(s). Any such method shall be subject to approval by the Court after notice and an opportunity to be heard.
Prevailing counsel shall present an appropriate Order consistent herewith which shall be settled after due notice to all counsel of record.
ATTORNEYS:
For Plaintiff: Michael A. Kelly, Esq.; Matthew J. McGowan, Esq.; Randall L. Souza, Esq. For Defendant: Richard G. Fallago, Esq.; Melissa L. Curley, Esq.; Michael S. Marino, Esq.