Berk v. Sherman

• Decision Date: 05 September 1996
• Docket Number: No. 94-CV-423.,94-CV-423.
• Citation: 682 A.2d 209
• Parties: Anton BERK, Appellant, v. Gerald H. SHERMAN and Jane M. Eldredge, Appellees.
• Court: D.C. Court of Appeals

682 A.2d 209

Anton BERK, Appellant, v. Gerald H. SHERMAN and Jane M. Eldredge, Appellees.

No. 94-CV-423.

District of Columbia Court of Appeals.

Argued September 15, 1995.

Decided September 5, 1996.

Richard A. Gross, with whom Stephen Leventhal was on the brief, for appellant.

David P. Durbin, Washington, DC, for appellees.

Before FARRELL, KING, and RUIZ, Associate Judges.

KING, Associate Judge:

In this legal malpractice action stemming from representation of a partnership formed to sell real property, Anton Berk ("Berk"), one of the two partners, seeks reversal of the grant of summary judgment in favor of the attorneys who represented the partnership, Gerald H. Sherman and Jane M. Eldredge ("partnership counsel"). Berk contends that the trial court erred in granting summary judgment first because under the Maryland Uniform Partnership Act ("UPA"),¹ the partnership, although "dissolved" had never "wound-up" its business, and thus he had standing to bring suit on a claim belonging to the partnership. Second, Berk contends that under the UPA, he had standing to sue as an individual.² Finally, Berk contends the trial court erred in concluding that, under Maryland case law, the use of the word "approximately" in a purchase agreement ("contract") drafted and negotiated by partnership counsel on behalf of the partnership, signified that the contract was a sale of property "in gross," rather than "in acreage."³

For the reasons set forth below, we hold that, in general, partnership law, as applied under Maryland's⁴ Uniform Partnership Act, permits enforcement of a partnership's claim after dissolution of the partnership, and in particular, that Berk has a right as a general partner to enforce a claim of alleged negligence against the partnership counsel. Accordingly, we reverse the trial court's grant of summary judgment.

I.

Viewed in the light most favorable to Berk, the party opposing the grant of summary judgment, see Burch v. Amsterdam Corp., 366 A.2d 1079, 1081 (D.C.1976), the record reveals the following: Berk, and his sister, Debra Greenwald ("Greenwald") formed a Maryland general partnership, GB Associates ("partnership"), on February 5, 1988, for the sole purpose of disposing of four plots of undeveloped land in Montgomery County, Maryland ("property") owned by them, for the profit and benefit of the partners. Gerald Sherman and Jane Eldredge are attorneys who represented Greenwald personally before the formation and during the life of the partnership. Following the formation of the partnership, Sherman and Eldredge also represented the partnership. Berk, however, was represented by other counsel, during the formation of the partnership.

The signed partnership agreement designated Greenwald as the managing partner with exclusive management and control and an irrevocable power of attorney from Berk to convey the partnership's real property. The only limitation on her authority was that Greenwald could not sell the property for a price below its appraised value of $7,123,650 without Berk's approval. By the terms of the agreement, the partnership "shall terminate the date on which the partnership does not have beneficial ownership of any partnership real property."

On August 25, 1988, the partnership entered into a purchase agreement with Winchester Homes, Inc. ("Winchester") for the sale of all the partnership property for a sum of $14,130,000. The contract described the acreage in "approximations," and by reference to tax maps and parcel numbers. All four plots were outlined in red on an attached plat. Of significance with respect to this case, the largest tract was stated as containing "approximately 213.95 acres." Winchester provided a cash deposit of $1.25 million to designated escrow agents. The sale was scheduled to close on a date to be mutually agreed upon, between December 26, 1988 and January 5, 1989.

In December 1988, Winchester requested an extension of the closing date, which was opposed by Berk. Greenwald, under her powers as managing partner, and on advice of Sherman, granted Winchester the extension ("first amendment to purchase agreement") on December 23, 1988, upon payment of additional interest and an increased deposit. The first amendment noted a discrepancy in the property's acreage (the largest parcel was actually 208.80 acres, not 213.95), although it specifically referred back to the contract, which was "to be read and considered part hereof." Closing was set for no later than March 10, 1989.

In February 1989, Winchester, pointing to the discrepancy in acreage, demanded a price reduction of $2 million. Ultimately, Greenwald, as managing partner and on advice of partnership counsel, agreed to a price reduction of $630,000. The new sales price, reduced from $14,130,00 to $13,500,000, allowed the parties to avoid litigation and to close the deal at a price substantially higher than the next best offer, and in partnership counsels' view, still above the property's "true market value."

On March 10, 1989, a second amendment, prepared by partnership counsel, was signed by Berk, Greenwald, and Winchester, which acknowledged the 10 acre discrepancy in the descriptions as the basis for the price reduction, and attributed some fault to the title company. Berk and Greenwald contemporaneously agreed to reserve their rights to assert claims against each other, regardless of their consent to the second amendment. As a result the sale was completed, and Berk received a net gain of $6,127,039.89 and Greenwald received a net gain of $6,124,765.95.

Berk then demanded that Greenwald, as managing partner, bring an action against partnership counsel for malpractice in preparing the documents or, in the alternative, for recommending a price reduction because of the discrepancy in acreage. Greenwald declined to do so. Berk filed suit against Greenwald in the Circuit Court of Montgomery County, Maryland.⁵ Berk alleged breach of contract, breach of fiduciary duty, gross negligence, self-dealing, fraud, and willful misconduct. The dismissal of that action with prejudice was affirmed on appeal in 1993.⁶

Contemporaneous with his Maryland action, on December 16, 1991, Berk filed the instant action against partnership counsel on behalf of himself and the partnership. Berk sought damages for: (1) negligence in drafting the contract for sale; (2) negligent legal advice in connection with Winchester's demand for a reduction in the sales price; and (3) breaches of fiduciary duty and contract. The amount prayed for was the difference between the original sale price and the reduced price agreed to after the acreage discrepancy was discovered.

On March 3, 1994, the trial court granted summary judgment in favor of partnership counsel, ruling that: (1) a lawsuit cannot be initiated on behalf of a "nonexistent" partnership even if the partnership only had been dissolved but not terminated, and (2) that Berk was not represented personally nor as an individual partner by partnership counsel but only derivatively as a partner of GB Associates, and thus was without standing to pursue claims of negligence, breach of contract, and breach of fiduciary duty against partnership counsel.

First, we conclude that the trial court erred in holding that this action could not be initiated on behalf of this partnership because the partnership had become nonexistent. A partnership does not become nonexistent upon completion of its stated business purpose, it only dissolves. See Md.Code Ann., Corps. & Ass'ns §§ 9-601-02 (1993). Although dissolution prevents future joint transactions of the partners, "the partnership is not terminated on dissolution, `but continues until the winding up of partnership affairs is completed.'" See Resnick v. Kaplan, 49 Md.App. 499, 434 A.2d 582, 586 (1981) (quoting § 9-601). "The right to compel liquidation after dissolution under § 9-609(a) exists `unless otherwise agreed.'" See Marr v. Langhoff, 322 Md. 657, 589 A.2d 470, 477 (1991) (citation omitted). Here, there was an agreement, inter se, on when the partnership would cease its business purpose, but not on winding up and termination.⁷

Dissolution, wind up, and termination as applied under the Uniform Partnership Act are distinct, albeit not clearly defined phases in the demise of a partnership. When GB Associates ceased its business activities by the term of the partnership agreement,⁸ the partnership dissolved. However, winding up and termination had only just begun. Nothing in the UPA precludes the filing, during the winding up of a partnership, of a lawsuit whose cause of action accrued during the existence of the partnership. See Beckman v. Farmer, 579 A.2d 618, 636 (D.C.1990); Washington Medical Ctr., Inc. v. Holle, 573 A.2d 1269, 1285 (D.C.1990); Cheyenne Oil Corp. v. Oil & Gas Ventures, Inc., 204 A.2d 743, 745 (Del.1964); see also Md.Code Ann., Corps. & Ass'ns § 9-608 (right to wind up); ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP, § 5.03-5.07 (1994).

Second, we also conclude that it was error to grant summary judgment on the ground that Berk lacked standing to bring suit on a partnership claim. Even if Berk was not represented personally or as an individual partner by partnership counsel, but only as a "derivative" partner of GB Associates, as the trial court ruled, he had standing to bring this action on behalf of the partnership. See Md.Code Ann., Corps. & Ass'n § 9-301 (partner agent of partnership), § 9-606(a)(1) (power of partner to bind during wind up or dissolution), see infra note 11.

II.

A party moving for summary judgment must demonstrate both that there is no genuine issue of material fact in dispute and that he is entitled to judgment as a matter of law. Super.Ct.Civ.R. 56(c); see also Young v. Delaney, 647 A.2d 784, 788 (D.C.1994); Northbrook Ins. Co. v. United Servs. Auto. Ass'n, 626 A.2d 915, 917 (D.C.1993); Beckman, supra, 579 A.2d at 626-27. We conduct an independent review,...