Hanaway v. Parkesburg Grp., LP
| Citation | 168 A.3d 146 |
| Decision Date | 22 August 2017 |
| Docket Number | No. 55 MAP 2016.,55 MAP 2016. |
| Parties | Lynn J. HANAWAY and Connie Hanaway, Appellees v. The PARKESBURG GROUP, LP; Parke Mansion Partners, LP; Sadsbury Associates, LP; Parke Mansion, LLC; and T.R. White, Inc., Appellants |
| Court | United States State Supreme Court of Pennsylvania |
Stephen M. Howard, Esq., Brian P. McVan, Esq., McVan & Weidenburner, for Appellees.
Patrick John Kearney Jr., Esq., James Howard Steigerwald, Esq, Duane Morris LLP, Robert McCarthy Palumbos, Esq., for Appellants.
OPINION
This case involves a dispute between partners of the Parkesburg Group, L.P. ("Parkesburg"), a Pennsylvania limited partnership. At issue is the applicability of the implied covenant of good faith and fair dealing to a limited partnership agreement formed pursuant to Pennsylvania's Revised Uniform Limited Partnership Act ("PRULPA").1 The Superior Court reversed the trial court's order, which had granted partial summary judgment in favor of Parkesburg's general partner and against two of its limited partners. We reverse the Superior Court's order in relevant part,2 and we hold that the implied covenant of good faith and fair dealing is inapplicable to the Pennsylvania limited partnership agreement at issue, which was formed well before the enactment of amendments that codified such a covenant.3
On May 21, 1998, in order to pursue a real estate investment and development project, Lynn and Connie Hanaway, T.R. White, Inc. ("T.R. White"), and several others formed a limited partnership, Sadsbury Associates, L.P. ("Sadsbury"). The Hanaways were among several limited partners of Sadsbury, while T.R. White served as the general partner. Sadsbury profitably carried out its purpose.
In 2002, acting independently from Sadsbury, T.R. White contracted for options to purchase two separate tracts of land. Specifically, in January 2002, T.R. White acquired an option to purchase, for $850,000, a 43.2–acre parcel of unimproved land, hereinafter referred to as the "Davis Tract." On September 9, 2002, T.R. White obtained an option to purchase, for $800,000, an adjacent 17–acre parcel of unimproved land, hereinafter referred to as the "Loue Tract."
On October 14, 2005, prompted by the success of Sadsbury, the partners of Sadsbury formed Parkesburg in order to implement a new residential development project involving the Davis and Loue Tracts. T.R. White served as Parkesburg's general partner, and the Hanaways were among several limited partners.4 Parkesburg's limited partnership agreement gave T.R. White broad discretion to carry out its duties. Pursuant to the express terms of the agreement, T.R. White, as the general partner, controlled "the business and affairs of the Partnership." Parkesburg Limited Partnership Agreement ¶ 6.1. The business of the partnership included "[r]eal [e]state investment and development" as well as "all other acts and things which may be necessary, incidental or convenient" to carry on the business of the partnership. Id. at ¶ 2.1. The agreement provided T.R. White with "full, exclusive and complete discretion in the management and control of the business of the Partnership [.]" Id. at ¶ 6.2. Additionally, T.R. White had the absolute right "to cause [Parkesburg] (i) to execute and deliver any contract, amendment, supplement or other document relating to the Business and (ii) subject to the terms of this Agreement, to exercise the rights and fulfill the obligations of the Partnership under the applicable law[.]" Id. at ¶ 6.5. The Agreement did not confer management authority on Parkesburg's limited partners.
The parties referred to the Parkesburg development project as the Subdivision. In addition to developing the Davis and Loue Tracts, Parkesburg's plan for the Subdivision included an adjacent quarry, which the Hanaways owned. Parkesburg had acquired a $180,000 option to purchase the quarry from the Hanaways. On May 6, 2006, Parkesburg acquired the option to purchase the Davis Tract. On July 11, 2006, Parkesburg exercised its option, purchasing the tract for $1,024,000.
On February 21, 2007, the Hanaways informed T.R. White that the option to purchase the quarry from them had expired and that they were unwilling to include it in the Subdivision. They also refused to contribute any additional capital toward the project. This change of heart forced Parkesburg to restructure and obtain new approvals for a development plan that excluded the quarry. Because the Hanaways were unwilling to contribute additional capital to continue developing the Subdivision, the remaining limited partners became reluctant to contribute as well.5 Lacking capital and financially restrained from proceeding, Parkesburg's development of the Subdivision stalled. With the option on the Loue Tract approaching its expiration date, T.R. White acted to save the development project and its investment. On September 25, 2007, T.R. White informed the Hanaways that, upon obtaining a third party fair market value appraisal, it intended to sell the Davis Tract and the option for the Loue Tract contemporaneously.
The crux of this dispute concerns Parkesburg's sale of the Davis Tract and the Loue Tract option to a newly formed limited partnership, Parke Mansion Partners ("PMP"). With the exception of the Hanaways, all of Parkesburg's limited partners were also partners of PMP. On November 29, 2007, Parkesburg assigned the option to purchase the Loue Tract to PMP for $10. PMP subsequently exercised this option, purchasing the Loue Tract for $800,000. On September 5, 2008, Parkesburg sold the Davis Tract to PMP for $1.9 million. Having purchased the Davis and Loue Tracts, PMP planned to continue developing the Subdivision without the Hanaways.
On February 11, 2011, more than two years after PMP had purchased the disputed land from Parkesburg, the Hanaways commenced this litigation by filing a six-count complaint against T.R. White, PMP, Parkesburg, and Sadsbury. Of relevance, the Hanaways averred in Count I of their complaint that T.R. White transferred the Davis Tract and the Loue Tract option to PMP for less than adequate consideration and below fair market value as part of a scheme to eliminate the Hanaways' ownership interests. Specifically, the Hanaways alleged that T.R. White, as general partner, breached Parkesburg's limited partnership agreement. They viewed the sale of the Parkesburg tracts to PMP as a sham, executed to freeze them out of Parkesburg.
T.R. White filed a motion for partial summary judgment, arguing that the Hanaways' breach of contract claim failed as a matter of law because the Hanaways did not identify a specific term of the Parkesburg limited partnership agreement that T.R. White had breached. See T.R. White's Motion for Partial Summary Judgment, 07/01/2013, ¶ 64. In response, the Hanaways expounded upon their initial breach of contract claim, contending that T.R. White had breached the implied covenant of good faith and fair dealing. See The Hanaways' Answer to Motion for Partial Summary Judgment, 8/06/2013, ¶ 46. The trial court granted summary judgment as to the contract claim, agreeing with T.R. White that the Hanaways had failed to identify a specific term of the limited partnership agreement that had been breached.6 The trial court also observed that the Parkesburg limited partnership agreement unequivocally provided T.R. White, as the general partner, with complete and exclusive discretion to manage the partnership. According to the court, the implied covenant of good faith and fair dealing could not override such clear language. See Trial Court Order, 1/23/2014, at 3.
The Hanaways appealed the trial court's order to the Superior Court. A divided panel of the Superior Court reversed the trial court's order granting partial summary judgment with respect to the contract claim, and concluded that T.R. White was obliged to discharge its duties under the limited partnership agreement in good faith. Hanaway v. Parkesburg Grp., L.P. , 132 A.3d 461 (Pa. Super. 2015). The majority adopted the Restatement (Second) of Contracts Section 2057 and, in doing so, considered several cases in which courts have applied the concept of good faith in the contract setting.8 In light of its review of precedent, the Superior Court perceived no reason to treat limited partnership agreements differently than any other type of contract. The majority also opined that the Hanaways' breach of the covenant of good faith and fair dealing claim was a breach of contract action, not an independent action for breach of a duty of good faith.
To bolster its holding, the Superior Court majority examined Delaware law, which recognizes an implied covenant of good faith and fair dealing with respect to limited partnership agreements formed pursuant to Delaware's Revised Uniform Limited Partnership Act ("DRULPA"). DEL. CODE title 6, 17–101 –1111. The majority noted that DRULPA permits parties to a limited partnership agreement to contractually "expand, restrict, or eliminate any fiduciary duties that a person may owe." Hanaway , 132 A.3d at 473 (quoting DEL. CODE title 6, 17–1101(d) ). The majority found it significant that DRULPA forbids contracting parties from waiving the implied covenant of good faith and fair dealing. To that end, the majority reasoned that, in Delaware, "the implied covenant of good faith and fair dealing provides a viable alternate remedy in contract where the fiduciary duty has been restricted." Hanaway, 132 A.3d at 473. The Superior Court found a Delaware Supreme Court case persuasive, see Gerber v. Enterprise Products Holdings, L.L.C., and incorporated aspects of the Gerber court's analysis into its own opinion.9 Drawing from Gerber , the Superior Court reasoned that, in this situation, as in Gerber and under Delaware law, parties to a limited partnership agreement owe a duty to exercise managerial discretion in good faith, a duty that cannot be eliminated...
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