91st Street Joint Venture v. Goldstein

• Decision Date: 28 March 1997
• Docket Number: No. 1035,S,1035
• Citation: 114 Md.App. 561,691 A.2d 272
• Parties: 91ST STREET JOINT VENTURE, et al. v. Edward S. GOLDSTEIN. ept.Term 1996.
• Court: Court of Special Appeals of Maryland

Page 561

114 Md.App. 561

691 A.2d 272

91ST STREET JOINT VENTURE, et al. v. Edward S. GOLDSTEIN.

No. 1035, Sept.Term 1996.

Court of Special Appeals of Maryland.

March 28, 1997.

Stephen J. Nolan (Stuart A. Schadt and Noal, Plumhoff & Williams, Chtd., on the brief), Towson, for Appellants.

Henry J. Williams, Silver Spring, for Appellee.

Argued before EYLER, THIEME and SONNER, JJ.

EYLER, Judge.

The question presented by this appeal is whether the Circuit Court for Baltimore County erred in vacating a charging order pursuant to which it had appointed a receiver to transfer a joint venture interest. We hold that the trial court possessed broad discretion to fashion the charging order and to review for basic fairness the transfer of the debtor's interest, and that it did not abuse its discretion in vacating the charging order and refusing to ratify the transfer. Accordingly, we shall affirm the judgment of the trial court.

Facts

On July 25, 1994, the trial court granted a petition by appellants, 91st Street Joint Venture, a joint venture and a Maryland general partnership, Joint Venture Holding, Inc., and Princess Hotel Ltd. Partnership, to confirm an arbitrator's award. Appellants and Edward S. Goldstein, appellee, are the joint venturers in 91st Street Joint Venture. A dispute between appellants and appellee regarding capital calls required under the joint venture agreement was the subject of the arbitrator's award. Pursuant to that award, appellee's interest in the joint venture was reduced to 0.2022%, and a judgment, representing fees and expenses incurred in the arbitration, was entered in favor of appellants against appellee in the amount of $55,938.08.

On August 5, 1994, the trial court entered a charging order against appellee's 0.2022% interest in 91st Street Joint Venture. The order appointed William A. Hahn, Jr., an attorney, as receiver, for the sole purpose of effectuating a transfer, assignment, and/or conveyance to the joint venture of appellee's interest therein in the event that the judgment remained unsatisfied more than 15 days after service of the order on appellee. On August 18, 1994, appellee noted an appeal to this Court. On August 23, 1994, the trial court entered an order staying enforcement of the judgment and fixed a supersedeas bond in the amount of $56,000. In paragraph E, that initial order of stay further provided that

such stay of the enforcement of the Judgment does not extend to the right of the Movant/Petitioner [appellee] to challenge the Respondent's [appellant's] good faith request for issuance of the ... Charging Order, the adequacy of notice given to the Petitioner and any specific provisions of said ... Charging Order....

On September 21, 1994, the trial court amended its order staying enforcement of judgment. In that order, the court increased the amount of the bond to $61,600 and deleted paragraph E of the first order of stay "in light of the pending appeal to the Court of Special Appeals of Maryland...." Appellee posted a cash bond in the amount of $61,600 on October 20, 1994. We dismissed appellee's appeal for lack of prosecution on our own motion on June 6, 1995, and the mandate issued on July 5, 1995.

On February 1, 1996, appellants sought and obtained an order dissolving the stay of enforcement of the judgment. On February 23, 1996, William Hahn filed a report with the Clerk of the Circuit Court stating that he had assigned appellee's joint venture interest to the appellants, valued by an independent accounting firm at $28,950, in partial satisfaction of the judgment. On the same day, appellants filed a petition to release part of appellee's bond and to retain it in an amount sufficient to satisfy the unsatisfied portion of the judgment. The judgment with interest at that time was $64,752.83, and the amount deposited in the Clerk's Office was $63,501.09, representing the cash bond plus accrued interest.

On March 6, 1996, appellee filed an opposition to appellants' petition, a motion to release the bond, distribute the funds, and vacate the charging order, and exceptions to the receiver's report. At a hearing on March 27, 1996, the trial court orally granted appellee's exceptions and motion to vacate the charging order and denied appellants' petition to release part of the bond. The rulings were subject to the condition that, by April 8, 1996, appellee deposit into the court additional cash to cover the deficit between the amount held in the Clerk's registry and the amount necessary to satisfy the judgment with accrued interest. The court indicated that, if the judgment was not fully satisfied by April 8, 1996, the court would approve the transfer of appellee's interest to appellants on that date. The court further instructed appellee's counsel to prepare a written order. Appellee paid the deficiency into the Clerk's registry on March 27, 1996. The parties were unable to agree to the contents of a prepared written order and appeared at a second hearing on May 7, 1996. After that hearing, the trial court entered an order, dated May 22, granting appellee's exceptions and his motion to vacate the charging order and denying appellants' petition to release part of the bond. Appellants filed a timely appeal from the court's written order.

Question Presented

The parties pose several questions to this Court but, in essence, inquire whether the trial court erred in setting aside the receiver's transfer of appellee's partnership interest and in vacating the charging order and terminating the receivership.

Discussion

A charging order is the statutory means by which a judgment creditor may reach the partnership interest ¹ of a judgment debtor. Bank of Bethesda v. Koch, 44 Md.App. 350, 354, 408 A.2d 767 (1979). Prior to its availability, the courts would resort to common law procedures for collection that were ill-suited for reaching partnership interests. Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash.L.Rev. 1 (1953). Typically, despite the fact that individual partners do not have title in partnership property, partnership property would be seized under writs of execution; the debtor partner's interest in the partnership would be sold, often to the judgment creditor, subject to the payment of partnership debts and prior claims of the partnership against the debtor partner; and the sale of the debtor partner's interest would result in compulsory dissolution and winding up of the partnership. Id. As noted by at least one jurist, "[a] more clumsy method of proceeding could hardly have grown up." Id. (quoting Lord Justice Lindley of the English Court of Appeal, Brown Janson & Co. v. Hutchinson & Co., 1 Q.B. 737 (1895)).

The charging order solution to this procedural nightmare appeared first in the Partnership Act adopted in England in 1890, and then in the 1914 Uniform Partnership Act (UPA) at § 28. Gose, 28 Wash. L.Rev. at 3. Maryland adopted, unrevised, § 28 of the UPA in 1916. Laws of Maryland 1916, ch. 175, § 28. The current statutory provision, which remains unchanged from its original version, is codified at § 9-505 of the Corporations and Associations Article (1995 Repl.Vol., 1996 Supp.). It provides as follows:

§ 9-505. Partner's interest subject to charging order

(a) Authority of court.--On due application to a competent court of any judgment creditor of a partner, the court which entered the judgment, order or decree, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of the judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which circumstances of the case may require.

(b) Redemption of interest.--The interest charged may be redeemed at any time before foreclosure or in case of a sale being directed by the court may be purchased without thereby causing a dissolution:

(1) With separate property, by any one or more of the partners; or

(2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.

(c) Partner's interest in partnership not deprived by title.--Nothing in this title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.

By its express terms, § 9-505(a) empowers the trial court to (1) charge the interest of the partner, thereby creating a lien upon the interest; (2) appoint a receiver of any monies due the debtor partner; and (3) "make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which circumstances of the case may require." Also implicit in the statute is that any orders "which circumstances of the case may require" is broad enough to include the power to order a judicial sale of the property subject to the right of redemption prior to foreclosure. See § 9-505(b). In the jurisdictions which have adopted § 28 of the UPA, there is general agreement that the charging order is now the judgment creditor's exclusive method of reaching a partner's interest in a partnership and that the creditor may no longer execute directly on partnership property. See, e.g., Bohonus v. Amerco, 124 Ariz. 88, 602 P.2d 469, 470-71 (1979); Baum v. Baum, 51 Cal.2d 610, 335 P.2d 481, 483 (1959); Weisinger v. Rae, 19 Misc.2d 341, 188 N.Y.S.2d 10, 19 (N.Y.Sup.Ct.1959); Shirk v. Caterbone, 201 Pa.Super. 544, 193 A.2d 664, 665 (1963).

While the statute sets forth the general goals and parameters of the charging order remedy, it does not delineate the particular procedures to be utilized in achieving those goals. Section 9-505 does not set forth any procedures to be followed (regarding, for example, any ultimate sale of the partnership interest)...