Schaefer v. Franzoni

Decision Date22 October 2020
Docket NumberNo. 553,553
PartiesDIEDRA SCHAEFER, ET AL. v. JAMES A. FRANZONI
CourtCourt of Special Appeals of Maryland

Circuit Court for Queen Anne's County

Case No. C-17-CV-17-000267

UNREPORTED

Arthur, Friedman, Sharer, J., Frederick (Senior Judge, Specially Assigned), JJ.

Opinion by Arthur, J.

*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

Diedra Schaefer, Michael Schaefer, and James A. Franzoni, the owners of two related LLCs, were at loggerheads over how to address a lawsuit alleging that their businesses were unlawfully polluting the soil, groundwater, and surface water. After the parties were unable to agree on an appropriate course of action, Mr. Franzoni filed a complaint in the Circuit Court for Queen Anne's County for the judicial dissolution of one of the LLCs.

Before trial, Mr. Franzoni filed what he called a motion for "specific performance," to compel the Schaefers to cooperate with his efforts to shut down one of the LLCs. In response to the motion, the court ordered the appointment of a third-party receiver who would displace both Mr. Franzoni and the Schaefers and dissolve that LLC. The Schaefers appealed.

Because neither of the parties requested that the circuit court appoint a third-party receiver, we must vacate the court's order.

FACTUAL AND PROCEDURAL HISTORY

The Schaefers and Mr. Franzoni jointly own two businesses, New Pintail Point, LLC ("New Pintail"), and The Point at Pintail, LLC ("The Point"). Ownership of each business is split evenly between the Schaefers and Mr. Franzoni.1 The parties adopted an operating agreement for New Pintail, but not for The Point.

New Pintail owns a 281-acre property located along the Wye River in Queenstown and leases the cropland, greenhouses, and residential and commercial buildings on the property to various tenants. The Point is (or perhaps was) one of New Pintail's tenants.

The Point operates a shooting sports venue and event facility on the property. As a tenant, The Point once generated the greatest source of income for New Pintail and covered the majority of New Pintail's monthly expenses and debts, including its mortgage payments. In recent years, however, The Point encountered financial difficulties and, as of July 2017, had allegedly failed to pay rent for at least 14 months. As a result, The Point was allegedly more than $140,000 in arrears on its rent payments. The lease between New Pintail and The Point expired in September of 2017.

In the summer of 2015, Mr. Franzoni had permitted the Midshore Riverkeeper Conservancy, Inc. ("Riverkeeper"),2 to test the soil and water on the property for lead. The Riverkeeper claimed to have found dangerously high levels of lead caused by lead shot leaching into the surrounding environment from The Point's shooting range. The Executive Director of the Riverkeeper suggested to Mr. Franzoni that all shooting activities should stop and that The Point remediate the lead on the property. Because ofthe lead pollution in the water surrounding the property, the Riverkeeper alleged that The Point was in violation of section 301 of the Clean Water Act, 33 U.S.C. § 1311(a).3

The Schaefers and Mr. Franzoni disagreed on how to address the Riverkeeper's concerns. Mr. Franzoni wanted to comply with the Riverkeeper's directives and avoid litigation. The Schaefers, conversely, believed that the business was operating within the law and that there was no need to clean up the lead on the property.

In July of 2017, The Point was still operating the shooting range and had not remediated the lead on the property. Consequently, the Riverkeeper notified the Schaefers and Mr. Franzoni of its intention to file suit against them and their businesses to enforce the Clean Water Act and the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., a federal statute that concerns the disposal of hazardous waste.

After the Riverkeeper gave notice of its intention to file suit, the Schaefers and Mr. Franzoni continued to disagree on how to address the allegations. The Schaefers proposed hiring environmental attorneys to assess the Riverkeeper's claims, while Mr. Franzoni insisted on suspending the shooting range operation and cleaning up the lead on the property.

Because of the threat of the Riverkeeper litigation, the substantial amount of back rent that The Point owed, and other financial obligations that would allegedly require additional capital contributions, Mr. Franzoni claimed that The Point's continued dailyoperation was no longer a viable option. Consequently, on July 17, 2017, Mr. Franzoni, through counsel, sent a letter to the Schaefers demanding that, within ten days, they agree to "immediately cease the day-to-day operation of the commercial shooting facility" and "cooperate with Mr. Franzoni" to address the Riverkeeper's concerns. Mr. Franzoni asserted that he would take legal action if the Schaefers did not agree.

The Schaefers did not agree to Mr. Franzoni's demands. On October 3, 2017, therefore, Mr. Franzoni filed a simple, three-page complaint in the Circuit Court for Queen Anne's County for the judicial dissolution of The Point.

On November 20, 2017, Mr. Franzoni wrote to the Schaefers, requesting that they consent to several "major decisions" under New Pintail's operating agreement. The "major decisions" included the cessation of all of The Point's business activities, the dissolution of New Pintail, and the listing of New Pintail's property for sale at $2.6 million.

Under Section 5.7 of the New Pintail operating agreement, if a member of the company "requests in writing that another Member . . . consent to a major decision, consent shall be deemed given if the Offering Member receives no response within thirty (30) days after the request." The Schaefers did not respond to the request. Instead, on January 3, 2018, the Schaefers filed a lengthy counterclaim against Mr. Franzoni, alleging, among other things, that he breached his fiduciary duties to the businesses. On February 28, 2018, the Schaefers moved for a temporary restraining order and a preliminary injunction, under which Mr. Schaefer would become the sole memberauthorized to make decisions regarding the businesses, and Mr. Franzoni would be enjoined from discussing the businesses' affairs with anyone besides the Schaefers.

Meanwhile, on December 20, 2017, the Riverkeeper filed a lawsuit in federal district court, naming Mr. Franzoni, Mr. Schaefer, and their businesses as defendants. As of the date of oral argument in this appeal (September 4, 2020), the Riverkeeper litigation was still pending. Midshore Riverkeeper Conservancy, Inc. v. James Franzoni, et al., Civil Action No.: 1:17:CV-03769-SAG (D. Md.).

On February 9, 2018, Mr. Franzoni moved for what he called "specific performance" of the New Pintail operating agreement.4 His motion asked the court to enter an order compelling the Schaefers to cooperate with his efforts to close The Point's shooting range, to resolve the Riverkeeper lawsuit, and to sell New Pintail's real estate. On February 21, 2018, the Schaefers moved to strike the motion for specific performance.

On February 28, 2018, the circuit court held a hearing on these and other motions.5 On April 19, 2018, the circuit court issued its order and an accompanying memorandum opinion.

In its opinion, the court concluded that because the Schaefers failed to respond to Mr. Franzoni's letter of November 20, 2017, they had consented to its terms. Thus, the court granted the "motion for specific performance pursuant to the [New Pintail] operating agreement." But rather than order the relief requested in the motion for specific performance (an order compelling the Schaefers to cooperate with Mr. Franzoni's efforts to close the shooting range, to resolve the Riverkeeper lawsuit, and to sell the real estate), the court announced that it would "appoint a receiver to wind up" The Point's affairs. The court denied all other motions.

The court gave the parties until the date of an upcoming settlement conference to agree on a receiver. If the parties had not agreed to a receiver by that date, the Court said that it would appoint one itself.

Before the date of the settlement conference, the Schaefers noted their timely appeal of the court's order.6

DISCUSSION

The Schaefers request that we reverse the court's order granting specific performance on two grounds. First, they argue that the order violated their due process rights because they had no notice that the court would consider the dissolution of The Point at the hearing. The Schaefers stress that there was no pending motion seeking dissolution of The Point, and thus, they claim, the court appointed a receiver on its own initiative. Second, the Schaefers argue that the circuit court erred in ordering the appointment of a receiver and dissolution of The Point by relying on the "major decisions" provision of the operating agreement for a different entity, Pintail Point. The Schaefers contend that the terms of the New Pintail operating agreement are not relevant to the...

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