C.A. No. 99-5852 (DRD).
August 24, 2001
Andrew J. Goldstein, Esq., Nancy Lem, Esq., GOLDSTEIN LEM, LLC, Newark, NJ, Counsel for Plaintiff and Third-Party Defendants/Fourth-Party Plaintiffs.
Howard G. Goldberg, Esq., Michael A. Simpson, Esq., GOLDBERG, PIKE BESCHE, P.C., Baltimore, MD, Barry J. Donahue, Esq., LINDABURY, McCORMICK ESTABROOK, PC, Westfield, NJ, Counsel for Defendant/Third-Party Plaintiff.
This matter is before the court on the unopposed motion of plaintiff Picorp Baltimore Realty Development Company ("Picorp Realty") for leave to file an amended complaint; on the motion of defendant and third-party plaintiff Picorp Inc., Baltimore ("Picorp Inc.") for summary declaratory judgment, which motion is opposed by Picorp Realty; on Picorp Realty's cross-motion for summary declaratory judgment or other equitable relief and to dismiss Picorp Inc.'s counterclaim, which motion is opposed by Picorp Inc.; and on the third-party defendants' motion to dismiss Picorp Inc.'s so-called third-party complaint. Picorp Inc. has consented in writing to Picorp Realty's filing an amended complaint, which consent obviates the need for the court to rule on that motion. See Fed.R.Civ.P. 15(a). For the reasons that follow, the remaining motions shall be denied.
FACTUAL BACKGROUNDThis case revolves around two real estate leases, a partnership agreement, and the conduct of Picorp Realty and Picorp Inc.'s principals. Picorp Realty is a New York general partnership formed on or about December 16, 1980, pursuant to a written partnership agreement, for the purpose of purchasing and developing commercial and industrial realty. Picorp Realty's Statement of Undisputed Facts ¶ 1, at 2; Picorp Inc.'s Statement of Material Facts Not in Dispute ¶ 1, at 2. The terms of the partnership agreement are not in dispute. The original partners of Picorp Realty were Umberto J. Guido, Jr., Clifford M. Palmer, John T. Hug, Jr., Pat Mazzella, Antonio Mellone, Frank L. Curreri, Jr., August T. Ambrose, Richard B. Guido, Mortimer J. Shapiro, Ray Santos, Joseph J. Paulinski, and Robert Sauerbach. Partnership Agreement, Picorp Realty, 12/14/80, Exhibit A to Amended Certification of Barry J. Donahue, at 1. These original partners in Picorp Realty became the original shareholders of Picorp Inc., a Delaware corporation, with its principal place of business in Baltimore, Maryland, formed for the purpose of operating certain realty in Baltimore owned by Picorp Realty. Picorp Realty's Statement ¶¶ 5-7, at 2; Picorp Inc.'s Statement ¶ 5, at 3.
Sometime after its formation, Picorp Realty purchased certain realty on East Lombard Street, Baltimore, Maryland (the "subject property"). Picorp Realty's Statement ¶ 8, at 2; Picorp Inc.'s Statement ¶ 3, at 2. As part of its acquisition of the subject property, on March 1, 1981, Picorp Realty borrowed one million dollars ($1M) from the Union Trust Company of Maryland ("Union Trust"), signing a promissory note to evidence its indebtedness and a deed of trust of the subject property to secure the loan. Picorp Inc.'s Statement ¶ 6, at 3.
Beyond these undisputed facts, there is little else upon which the parties agree. Picorp Realty alleges that on or about March 30, 1981, Picorp Realty and Picorp Inc. entered into a lease (the "1981 lease"), whereunder Picorp Inc., as tenant, leased the subject property from Picorp Realty, as landlord, for a term lasting from March 31, 1981 through July 1, 2001. Picorp Realty's Complaint, filed 12/15/99, ¶ 6, at 3; Picorp Realty's Statement ¶ 10, at 4; see 1981 Lease, Ex. B to Lem Certification, at 1-2. The lease was signed by Joseph J. Paulinski on behalf of Picorp Realty and by August T. Ambrose on behalf of Picorp Inc. 1981 Lease at 8. Picorp Realty alleges that the yearly rental payments under the 1981 lease were calculated by adding the yearly mortgage payments to Union Trust, the yearly real estate taxes, and the yearly insurance costs, and that the term of the lease coincided with the term of the mortgage. Compl. ¶ 7, at 3. Picorp Inc. denies these allegations. Picorp Inc.'s Answer, filed 4/13/00, ¶¶ 6, 7, at 2.
The pleadings are in a somewhat unsettled state. As noted above, Picorp Realty filed its initial complaint on December 15, 1999, and Picorp Inc. filed its answer thereto on April 13, 2000. However, Picorp Realty was directed by this court to cure defective allegations of diversity jurisdiction, and it did so by filing a curative amended complaint on May 7, 2001. The curative amended complaint differs from the initial complaint in only two respects: it properly alleges diversity jurisdiction and properly invokes the federal Declaratory Judgment Act instead of the cognate New Jersey statute.
Picorp Inc. has not yet answered this complaint. However, counsel for Picorp Realty has informed the court that it will soon file its proposed amended complaint, which will incorporate the entirety of the curative amended complaint and also contain new allegations and causes of action. Counsel for Picorp Inc. has in turn informed the court that it plans to answer this proposed amended complaint in a timely fashion.
Notwithstanding the parties' contemplated amendments to the pleadings, this court must treat the initial complaint and the answer now on file as the operative pleadings for purposes of disposing of the instant motions.
Picorp Realty calls into question the bona fides, validity, and enforceability of a second lease it describes as "purportedly entered into" on April 20, 1988 (the "1988 lease"). The 1988 lease was signed by Kenneth J. Hug on behalf of Picorp Realty and by John T. Hug, Jr. on behalf of Picorp Inc. See 1988 Lease, Ex. J. to Am. Donahue Certification, at 8. Picorp Realty acknowledges that the 1988 lease by its terms provides that Picorp Inc. has leased the subject property from Picorp Realty for a term for twenty years beginning on an unspecified date in 1988 and ending on an unspecified date in 2008. Compl. ¶¶ 11-12; see 1988 Lease at 1-2. Picorp Realty further acknowledges that the formula for calculating yearly rental payments under the 1988 lease is the same as the formula under the 1981 lease: yearly rental payments equal the yearly mortgage payments plus the yearly real estate taxes plus the yearly insurance costs. Picorp Realty's Statement ¶ 48, at 6-7; accord Picorp Inc.'s Statement ¶ 14, at 4-5. Picorp Inc. alleges that the 1988 lease is genuine, valid, and enforceable. Answer ¶ 11, at 3.
Picorp Realty has in its principal brief questioned the authenticity of the 1988 lease, calling it fraudulent. See Picorp Realty's Principal Brief at 22-25. Though Picorp Realty has not in its complaint pleaded fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure, the court shall deem Picorp Realty's complaint to have been amended to include the allegations of fraud that Picorp Realty makes in its brief.
The key distinction between the leases, which animates the instant controversy, is their expiration dates. The 1981 lease expired by its terms on July 1, 2001, by which date the mortgage was to have been paid in full. By contrast, the 1988 lease expires sometime in 2008. Under the 1988 lease, Picorp Inc. is obligated to pay rent to Picorp Realty, through sometime in 2008, only in the total amount of the real estate taxes plus the insurance costs — for the mortgage has been satisfied. If Picorp Realty must honor the 1988 lease, it cannot relet the subject property to another tenant who would presumably pay rent at a market rate much higher than the sum of the taxes and insurance. To put it simply, Picorp Realty is losing potential profits on the subject property, and wants the 1981 declared valid and binding and the 1988 lease declared invalid and of no legal effect. This relief Picorp Realty seeks by way of summary declaratory judgment under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2201 (1948, as amended), and Rule 57 of the Federal Rules of Civil Procedure.
Picorp Realty's main argument for the invalidity of the 1988 lease is that Kenneth J. Hug, the individual who signed the 1988 lease on behalf of Picorp Realty, was without authority to sign the lease under the partnership agreement that Picorp Realty alleges was still in effect when the 1988 lease was signed on April 20, 1998, despite the death of at least one of the original partners of Picorp Realty between the partnership's formation and that date. The court will undertake detailed examination of the pertinent provisions of the partnership agreement in addressing this pivotal issue.
In the alternative, Picorp Realty seeks reformation of the 1988 lease. Picorp Realty's argument on this score is that the twenty-year term of the 1988 lease was a mistake, and should instead have expired on July 1, 2001, the date by which the mortgage was to have been satisfied. Picorp argues it is illogical for the term of the 1988 lease to extend to 2008, some seven years after discharge of the mortgage. See Picorp Realty's Principal Brief at 25-27.
Picorp Inc. seeks a declaration that the 1988 lease is genuine, valid, enforceable, and binding. In addition to arguing that the 1981 lease has been supplanted by the 1988 lease, Picorp Inc. argues that Picorp Realty has ratified the 1988 lease, is estopped from denying that the 1988 lease is binding, has waived any claim that the 1988 lease is not binding, and is barred by laches from denying that the 1988 lease is binding. See Picorp Inc.'s Principal Brief at 9-17; Picorp Inc.'s Opposition Brief at 1-5.
Picorp Inc. has lodged counterclaims for fraud, unjust enrichment, and specific performance against Picorp Realty that Picorp Realty has moved to dismiss. Picorp Inc. prays for, inter alia, compensatory damages on its fraud and unjust enrichment counterclaims in a dollar amount equal to the rent it has paid and will have paid on the 1988 lease. See Picorp Inc.'s Counterclaim at 6-7. On its counterclaim for specific performance, Picorp Inc. seeks to specifically enforce an alleged oral agreement between Picorp Realty and Picorp Inc. whereunder Picorp Realty was to sell the subject property to Picorp Inc. for one hundred fifty thousand dollars ($150,000). See Countercl. at 7-8.
Finally, Picorp Inc. has filed a so-called third-party complaint against certain partners of Picorp Realty, in which Picorp Inc. seeks to hold the named partners liable "for the tortuous [sic] acts of the partnership and for the debts of the partnership." Picorp Inc.'s Third-Party Complaint ¶ 3, at 8. As Picorp Realty does not seek to hold Picorp Inc. liable on any claim, but rather seeks only a declaratory judgment or reformation of the 1988 lease, none of the partners is "a party to the action who is or may be liable to the third-party plaintiff [Picorp Inc.] for all or part of the plaintiff's [Picorp Realty's] claim against the third-party plaintiff." FED. R. CIV. P. 14(a) (1937, as amended 2000). Impleader was therefore inappropriate; the named partners shall be deemed to have been made parties to this action as cross-claim defendants under Rule 13(h) of the Federal Rules of Civil Procedure. The cross-claim defendants have moved to dismiss Picorp Inc.'s cross-claim.
DISCUSSION SUMMARY JUDGMENT STANDARDS
A motion for summary judgment shall be granted only if there is "no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Material facts are those that might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A genuine issue exists if the record taken as a whole could lead a rational trier of fact to find for the party opposing summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986).
In disposing of a motion for summary judgment, it is not the province of the trial court to weigh the evidence and to decide the case on its merits; rather, the trial court shall simply determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S. Ct. at 2511. In determining whether there is a genuine issue for trial, the trial court must take the nonmovant's allegations of fact as true, Goodman v. Mead Johnson Co., 534 F.2d 566, 573 (3rd Cir. 1976), and resolve all doubts and make all reasonable inferences in the nonmovant's favor, Apalucci v. Agora Syndicate, Inc., 145 F.3d 630, 631 (3rd Cir. 1998). Credibility determinations are not to be made on motions for summary judgment. Abraham v. Raso, 183 F.3d 279, 287, 294 (3rd Cir. 1999).
These standards for disposing of a motion for summary judgment remain unchanged when a court is faced with cross-motions for summary judgment. Appelmans v. City of Phila., 826 F.2d 214, 216 (3rd Cir. 1987). The denial of one such motion does not warrant the automatic granting of the other motion; for either movant to prevail, it must demonstrate the absence of any genuine issue of material fact and its entitlement to judgment as a matter of law. See Rains v. Cascade Indus., 402 F.2d 241, 245 (3rd Cir. 1968), cited in Newark Morning Ledger Co. v. United States, 539 F.2d 929, 932 (3rd Cir. 1976) ( per retired Associate Justice Tom C. Clark), and in Manetas v. Int'l Petroleum Carriers, Inc., 541 F.2d 408, 413 (3rd Cir. 1976).
VALIDITY OF THE 1988 LEASE UNDER NEW YORK PARTNERSHIP LAW
The only issue presented by these motions that requires extended discussion is whether the 1988 lease is invalid because Kenneth J. Hug was without authority to sign it on Picorp Realty's behalf. Addressing this issue requires examination of the key provisions of the partnership agreement, and application of principles of New York partnership law to the agreement, to the undisputed facts of Picorp Realty's history, and to the conduct of Picorp Realty's principals.
Key Provisions of the Partnership Agreement
As noted above, the parties do not dispute the provisions of the partnership agreement, though their opinions differ about the legal effect of those provisions. In pertinent part, the partnership agreement provides that the "[d]eath or insanity of a partner shall cause an immediate dissolution of the partnership absent an agreement to the contrary among the partners." Partnership Agreement, Ex. A to Donahue Am. Certification, at 5 (emphasis added). However,
[i]n the event of the dissolution of the partnership as the result of retirement, death or insanity of a partner, the other partners shall have the right to continue the business of the partnership under its present name, by themselves, or in conjunction with any other person or persons that they may select, but they shall pay to the retiring partner, or to the legal representatives of the deceased or insane partner, as the case may be, the value of his interest in the partnership in the manner provided for in this paragraph. If the remaining partners desire to continue the business, but not as copartners, the partnership shall be liquidated in accordance with the further provisions of this agreement.Ibid. (emphasis added).
The partnership agreement further provides that "[c]hecks and drafts shall be drawn on the partnership bank account for partnership purposes only and may be signed by AUGUST T. AMBROSE and JOSEPH J. PAULINSKI." Id. at 8. More significantly, it provides that " [n]o partner may, without the consent of the other partners, lease or mortgage any partnership real estate or any interest therin [sic] or enter in [sic] any contract for such purpose. . . ." Id. at 8-9 (emphasis added). Finally, it provides that "[n]otwithstanding anything contained herein to the contrary, UMBERTO J. GUIDO, JR., is herein specifically empowered to lease, mortgage, or purchase real estate property within the City of Baltimore, State of Maryland, or specifically a certain parcel of land [the subject property],. . . ." Id. at 9.
Undisputed Facts of Picorp Realty's History
The parties do not dispute that August T. Ambrose, one of Picorp Realty's original partners, died sometime between the partnership's formation and April 20, 1988, the date the 1988 lease was signed. The parties also do not dispute that Kenneth J. Hug apparently became a general partner of Picorp Realty circa 1987. Picorp Realty's Statement ¶ 19, at 3-4; Picorp Inc.'s Statement ¶ 2, at 2. Finally, the parties do not dispute that there are no other written agreements besides the partnership agreement that govern Picorp Realty. See Picorp Realty's Statement ¶ 2, at 2.
Picorp Realty and Picorp Inc.'s Arguments
In signing and entering into the partnership agreement, the partners of Picorp Realty agreed to continue what had been a de facto partnership "under the laws of the State of New York, under the terms provided for in [the partnership] agreement." Partnership Agreement, Ex. A to Am. Donahue Certification, at 2. As the agreement by its terms calls for application of New York partnership law, and as the parties have briefed New York partnership law ( see Picorp Realty's Principal Brief at 18-22; Picorp Inc.'s Opp'n Brief at 10-14), this court shall follow New York partnership law.
Picorp Realty argues that the partnership was not immediately dissolved under the partnership agreement by the death of August T. Ambrose — not because the partners entered into an oral agreement contrary to immediate dissolution, see Partnership Agreement at 5; Picorp Realty's Principal Brief at 19, but because the partners continued the business of the partnership under Picorp Realty's name in accordance with the agreement, see Partnership Agreement at 5; Picorp Realty's Principal Brief at 19. Picorp Realty's position is that the partnership agreement governed on April 20, 1988, when the 1988 lease was signed, and still governs today. Picorp Realty's Principal Brief at 21. Picorp Realty argues that under the partnership agreement and the facts, Kenneth J. Hug lacked authority to bind Picorp Realty to the 1988 lease because (i) the partnership agreement gave Umberto J. Guido, Jr. exclusive power to lease realty owned by Picorp Realty on Picorp Realty's behalf, and (ii) in the alternative, he had not secured the express consent of all of the other partners of Picorp Realty, required under the partnership agreement, to bind Picorp Realty to the 1988 lease. Picorp Realty's Principal Brief at 21-22.
Before proceeding to Picorp Inc.'s arguments in this regard, the first of Picorp Realty's arguments must be discredited. The partnership agreement in no wise gave Umberto J. Guido, Jr. exclusive power to bind Picorp Realty to leases; it merely specifically empowered him to do so notwithstanding any other contrary provisions in the agreement, such as the unanimous-consent provision. See Partnership Agreement, Ex. A to Donahue Am. Certification, at 8-9.
By contrast, Picorp Inc. argues that New York partnership law worked an immediate dissolution of Picorp Realty upon August T. Ambrose's death. Picorp Inc.'s Opp'n Brief at 10. However, Picorp Inc. acknowledges that Picorp Realty thereafter continued to do business as a partnership, and was doing business as a partnership on April 20, 1988, when the 1988 lease was signed — but as a partnership at will under New York law, not as a partnership operating under the partnership agreement, which Picorp Inc. argues was extinguished by the dissolution of Picorp Realty and by Picorp Realty's failure affirmatively to decide, through its partners, to continue to operate under the agreement, and to express that decision in writing. Picorp Inc.'s Opp'n Brief at 11-13. As the partnership agreement did not survive dissolution under this theory, Picorp Inc. argues that Kenneth J. Hug, as a general partner of Picorp Realty, was vested by New York partnership law with the power to bind Picorp Realty to the 1988 lease without his fellow partners' consent. Picorp Inc.'s Opp'n Brief at 13-14.
New York Partnership Law
"The rights and obligations of the partners as between themselves arise from, and are fixed by, their agreement." Corr v. Hoffman, 256 N.Y. 254, 272, 176 N.E. 383, 391 (1931). "A partnership is dissolved by the death of a partner, absent a specific agreement to the contrary." Burger, Kurzman, Kaplan Stuchin v. Kurzman, 139 A.D.2d 422, 423-24, 527 N.Y.S.2d 15, 16 App. Div. 1988) (citing, inter alia, N.Y. PARTNERSHIP LAW § 62(4)). Where the partners have made a specific agreement contrary to immediate dissolution of the partnership, the death of a partner and the nominal dissolution of the partnership as a matter of law does not automatically terminate the partnership agreement as to the surviving partners, Alpert v. Bannon, 40 A.D.2d 988, 989, 338 N.Y.S.2d 650, 653 (App.Div. 1972), and does not work a true dissolution of the partnership. Vann v. Kreindler, Relkin Goldberg ( In re Vann), 78 A.D.2d 255, 259, 434 N.Y.S.2d 365, 368 (App.Div. 1980), aff'd, 54 N.Y.2d 936, 429 N.E.2d 817, 445 N.Y.S.2d 139 (1981). "The liquidation of a partnership [i.e. its winding-up and termination] dissolved by death of a member is controlled by Partnership Law only in the absence of a particular agreement on the subject made by the partners themselves." In re Eddy's Estate, 175 Misc. 1011, 1016, 26 N.Y.S.2d 115, 120 (Surrogate's Ct. 1941), aff'd, 262 A.D. 1015, 30 N.Y.S.2d 848 (App.Div. 1941), aff'd, 290 N.Y. 677, 49 N.E.2d 628 (1943) (citing Corr, 256 N.Y. at 272).
Such an agreement contrary to immediate dissolution and automatic liquidation of the partnership need not be express; it may be implied in the conduct of the parties. Corr, 256 N.Y. at 272, 176 N.E. at 391. The Court of Appeals of New York continues:
Continuance of the partnership by consent of the parties, though without express contract, may not evidence an intention to renew the partnership contract for another fixed term; [but] it does show an unmistakable intention to continue the existing partnership relations indefinitely; and, since the existing relations are defined by the provisions of the written contract, the same provisions so far as applicable to a partnership terminable at will continue to govern these relations.Corr, 256 N.Y. at 272-73, 176 N.E. at 391 (emphasis added).
Application of New York Partnership Law to the Partnership Agreement and to the Partners' Conduct
Though there is no evidence that the partners struck an agreement contrary to immediate dissolution and separate from the partnership agreement before August T. Ambrose's death, it is clear that they contemplated in the partnership agreement continuing the partnership after a partner's death, and expressly provided a mechanism in the agreement for doing so. See Partnership Agreement, Ex. A to Am. Donahue Certification, at 5. However, the record does not reveal the absence of a genuine issue of material fact concerning whether the surviving partners paid to August T. Ambrose's legal representatives the value of his interest in the partnership as mandated by the partnership agreement. See ibid. The legal status of the partnership, and of the partnership agreement, is therefore in doubt. For this reason alone, summary declaratory judgment must be denied both to Picorp Realty and to Picorp Inc.
Assuming without deciding that the surviving partners paid August T. Ambrose's legal representatives the value of his interest in the partnership as mandated by the partnership agreement, Picorp Realty would have subsisted as a partnership at will in the eyes of the law, but one governed by the provision of the partnership agreement. Corr, 256 N.Y. at 272-73, 176 N.E. at 391. However, the record does not reveal the absence of a genuine issue of material fact concerning whether Kenneth J. Hug was authorized by his fellow partners, as mandated by the partnership agreement, q.v. at 8-9, to bind Picorp Realty to the 1988 lease. For this reason as well, summary declaratory judgment must be denied both to Picorp Realty and to Picorp Inc.
Picorp Realty has also moved for declaratory summary judgment under the doctrines of ratification, estoppel, waiver, and laches. These doctrines require certain factual showings of the parties' conduct, their intent, or the prejudice they have suffered in order to be availing. The record does not reveal the requisite absence of genuine issues of material fact on these matters that would justify granting summary judgment on any of these factually intensive doctrines. Picorp Realty's cross-motion for summary declaratory judgment shall be denied on this ground as well.
Reformation of the 1988 Lease
Regardless of the ultimate availability and propriety of the remedy of reformation, it would be premature for this court to address this issue at this time, as the status of the partnership, the applicability of the partnership agreement, and the validity of the 1988 lease are all currently in doubt. Picorp Realty's cross-motion for equitable relief shall therefore be denied.
Picorp Realty's cross-motion to dismiss Picorp Inc.'s counterclaims cannot be granted. Picorp Inc.'s counterclaims for fraud and unjust enrichment turn on the validity of the 1988 lease, which cannot be declared at this time. Picorp Inc.'s counterclaim for specific performance is also unripe for dismissal, as Picorp Inc. seeks to specifically enforce an alleged oral agreement between Picorp Realty and Picorp Inc. whereunder Picorp Realty was to sell the subject property to Picorp Inc. for one hundred fifty thousand dollars ($150,000). Though this counterclaim appears at first blush to be unsustainable under the applicable statute of frauds, the parties have not briefed this issue. Assuming such an agreement could be enforced, its terms would have to be specified and agreed to by the parties (highly unlikely) or proved up by oral testimony at trial. Picorp Realty's cross-motion to dismiss Picorp Inc.'s counterclaims shall be denied.
Picorp Inc.'s Cross-Claims
As the relative rights of Picorp Realty and Picorp Inc. cannot be established at this time, it is impossible to determine whether the general partners of Picorp Realty have any liability to Picorp Inc. The cross-claim defendants' motion to dismiss Picorp Inc.'s cross-claim shall be denied.
For the foregoing reasons, all motions except for Picorp Realty's motion for leave to file an amended complaint, which motion the court need not dispose of, shall be denied. An appropriate order shall enter.