Hooper v. Musolino

• Decision Date: 15 January 1988
• Docket Number: No. 841603,841603
• Citation: 234 Va. 558,364 S.E.2d 207
• Parties: Eugene N. HOOPER v. Anthony F. MUSOLINO, et al. Record
• Court: Virginia Supreme Court

Page 207

364 S.E.2d 207

234 Va. 558

Eugene N. HOOPER v.Anthony F. MUSOLINO, et al.

Record No. 841603.

Supreme Court of Virginia.

Jan. 15, 1988.

John F. Kay, Jr.(Stephen A. Northrup, John R. Easter, Richmond, Douglas J. Sanderson, Fairfax, Mays, Valentine, Davenport & Moore, Bettius, Fox and Carter, P.C., Richmond, on briefs), for appellant.

Dexter Odin, Fairfax, Harvey B. Cohen, Arlington (Thomas J. Shaughnessy, Sally Ann Hostetler, Odin, Feldman & Pittleman, P.C., Fairfax, Cohen, Gettings, Alper & Dunham, Arlington, on brief), for appelleesAnthony F. Musolino, North Duke Mall Ltd. Partnership and John W. Warner.

No brief or argument for appelleeCharles S. Warner.

Present: CARRICO, C.J., POFF, COMPTON, STEPHENSON, THOMAS, and WHITING, JJ., and COCHRAN, Retired Justice.

POFF, Justice.

This is an appeal from a judgment in a suit for an accounting.The final decree ordered Eugene N. Hooper to pay to North Duke Mall Limited Partnership(the partnership) the sum of $8,430,000 as damages resulting from Hooper's negligence in the conduct of the partnership's affairs, his wrongful appropriation of partnership property, and his breach of a contract for the construction of an improvement on partnership property.

By agreement dated February 1973, Hooper and three other persons formed a limited partnership for the purpose of acquiring and developing two tracts of land, parcels A and B, in Durham, North Carolina, as a shopping center.Hooper and Charles S. Warner signed the partnership agreement as both general and limited partners and were joined by Eugene R. House and S. Parker Oliphant(as nominee for John W. Warner) as limited partners.House later assigned his interest to Charles Warner and Oliphant.Anthony F. Musolino acquired a 15% interest as a limited partner on April 25, 1974.Hooper's combined interests were 45%, Charles Warner's interests totaled 15%, and Oliphant's interest was 25%.

In March 1974, the partnership engaged Hooper as general contractor to build a shopping center on parcel A at a contract price of $2,632,073.Hooper acquired performance bonds from Safeco Insurance Company of America (Safeco).On May 2, 1974, the partnership obtained a construction loan from Mortgage Investors of Washington (MIW) in the principal amount of $3,920,000, secured by a first deed of trust on the project.Hooper and his wife, Celeste Hooper, personally guaranteed repayment of the loan.

Thereafter, Hooper commenced construction but was unable to complete the project within the time prescribed in the construction contract and the loan agreement.By August 6, 1975, the project still was not complete, the partnership was in default under its loan agreement, and the partnership and MIW entered into a new loan agreement.In exchange for a forbearance of MIW's right to foreclose and continued disbursement of funds, each of the partners was required to contribute additional capital, and October 15, 1975 was set as the new date for completion.

By July 28, 1976, Hooper had not yet completed construction of the project, MIW had instituted foreclosure proceedings, and the parties entered into a "workout" agreement.In exchange for MIW's agreement to terminate the foreclosure proceedings, to take over completion of the project, and to disburse the balance of the loan proceeds, the partnership promised to deposit $200,000 with MIW for use in paying delinquent debts and in completing construction of the project.In a "buyout" agreement required by the workout agreement and executed the same day, Hooper purchased Charles Warner's partnership interests for $11,000.This raised Hooper's combined interests to 60% of the partnership.In the buyout agreement, Hooper agreed to indemnify Warner against all claims arising from his status as a general partner and to "assume all liability for ... all debts of the ... Partnership".Also as a part of the workout agreement, the partnership and MIW, joint obligees on Hooper's payment and performance bonds, released Safeco from all liability as surety in exchange for Safeco's payment of $200,000 to the partnership and MIW.The partnership relinquished its rights in that payment in satisfaction of its obligation to deposit $200,000 with MIW.

The project finally was completed September 1, 1978, but because rental income from the completed units was insufficient to satisfy the partnership's obligations under its loan agreement, MIW foreclosed on the project.Parcel A, as improved, was bid in at the foreclosure sale for $4,500,000.The balance due on the construction loan was more than $5,000,000.In a "settlement" agreement dated October 22, 1979, MIW released the partnership and the guarantors, Eugene and Celeste Hooper, from any liability for the deficiency in exchange for the Hoopers' payment of $340,000 to MIW.MIW also foreclosed under a separate deed of trust on parcel B, the unimproved tract adjacent to the shopping center.Hooper and his wife subsequently acquired that parcel from MIW for a stated consideration of $130,000.

By bill of complaint filed August 12, 1977, Musolino sought an accounting of the affairs of the partnership.Musolino named Hooper, Charles Warner, and the partnership as partyrespondents.Musolino alleged that Hooper, in his role as a general partner, "failed to discharge his fiduciary duties" and "misused, misappropriated and diverted" partnership funds, and in his role as contractor, failed to perform the work as required under the construction contract.Hooper denied the substantial allegations of the bill, and the chancellor referred the matter to a commissioner in chancery.The decree instructed the commissioner to file a complete accounting of the assets and liabilities of the partnership from the time of its inception and to ascertain whether Hooper or Charles Warner owed any monies to the partnership or to Musolino.

By order entered September 29, 1978, the court found that Hooper had made no effort to respond to Musolino's discovery requests and ordered Hooper to file answers to interrogatories and to produce the books and records of the partnership.Hooper failed to comply with the order, and on November 6, 1978, the court entered a new discovery order, assessed costs and legal fees against Hooper, and took under advisement the question whether to award judgment against Hooper in the amount of Musolino's investment in the partnership.

In April 1980, the commissioner entered an order requiring Hooper to produce all the records and books of the partnership.After taking depositions, the commissioner submitted his first report on April 2, 1982, finding that:

Eugene Hooper has failed to make a complete accounting of the assets, liabilities, receipts and disbursements of all the funds of the partnership, nor can a complete accounting be made because of his failure to comply with the Order of this Commissioner requiring the production of all books, papers, vouchers, documents and writings necessary to provide such a complete accounting....

Based on the books and records available to the commissioner, he concluded that Hooper had commingled his own accounts and funds with those of the partnership.

The commissioner further found that the construction contract between Hooper and the partnership was a "fixed-price" contract, but that insurance and construction bond premiums, electricity costs, cost overruns, subcontractors' expenses, other construction costs, and certain personal obligations all were treated by Hooper as partnership construction costs.The commissioner stated that:

Eugene Hooper's neglect of the project, poor management, unavailability during critical periods during the construction and failure to respond to job needs had a serious and adverse effect, on the project, causing delays which resulted in problems with anchor tenants, subcontractors and the leasing program, directly causing inability to obtain permanent financing and also causing failure of the project.

In addition, the commissioner reported that Hooper had released Safeco from its obligations to the partnership as surety on the performance bonds and had failed to dissolve the partnership (as required by the partnership agreement) when Hooper became the sole general partner.These actions by Hooper, the commissioner concluded, "amounted to a conversion to his own personal use of all the partnership assets, and coupled with the express terms of the partnership agreement, make Eugene Hooper liable to ... Musolino for the return ... of his investment".

Finally, the commissioner reasoned that, in purchasing the interests of Charles Warner in the partnership, Hooper "assumed all liability for all the unpaid bills and accounts outstanding against the partnership as of that date, and assumed liability for all debts of the partnership and defense of all lawsuits which have or might arise against the partnership".

Hooper filed exceptions to virtually every factual and legal finding of the commissioner, and the court sustained several.Musolino filed four exceptions to the report.The court sustained each and remanded the cause to the commissioner with instructions to determine whether Hooper was liable:

1.For the damages sustained by the Partnership as a result of Mr. Hooper's neglect of his partnership obligations;

2.For the sums due as a result of Mr. Hooper's failure to perform the contractual obligations to the partnership;

3.For those sums which Mr. Hooper took from the Partnership in excess of those due him; and

4.For the Partnership property lost due to Mr. Hooper's failure to perform both partnership and contractual obligations.

After considering memoranda of law, the commissioner filed his second report dated October 11, 1983.The commissioner rejected Hooper's claims of credits for capital contributions on the ground that Hooper had not documented any such contributions.The commissioner also found that Hooper's financial exhibit provided "no more...