South Atlantic Limited v. Riese
| Decision Date | 22 March 2002 |
| Docket Number | No. 99-1552.,No. 99-1497.,No. 99-1987.,99-1497.,99-1552.,99-1987. |
| Citation | 284 F.3d 518 |
| Parties | SOUTH ATLANTIC LIMITED PARTNERSHIP OF TENNESSEE, LP; South Atlantic Income Properties, LLC; South Atlantic Management Company, Plaintiffs-Appellants, E. Stephen Stroud; Grace D. Ramsey; Steven M. Simpson, Third Party Defendants-Appellants, v. David R. RIESE; Gary Plichta; Gibraltar Companies of Tennessee, Incorporated; Gibraltar Companies, Incorporated, Defendant & Third Party Plaintiff-Appellees. David R. Riese; Gary Plichta; Gibraltar Companies of Tennessee, Incorporated; Gibraltar Companies, Incorporated, Defendant & Third Party Plaintiff-Appellants, v. E. Stephen Stroud; Grace D. Ramsey; Steven M. Simpson, Third Party Defendants-Appellees, South Atlantic Limited Partnership of Tennessee, LP; South Atlantic Income Properties, LLC; South Atlantic Management Company, Plaintiffs-Appellees. South Atlantic Limited Partnership of Tennessee, LP; South Atlantic Income Properties, LLC; South Atlantic Management Company, Plaintiffs-Appellants, E. Stephen Stroud; Grace D. Ramsey; Steven M. Simpson, Third Party Defendants-Appellants, v. David R. Riese; Gary Plichta; Gibraltar Companies of Tennessee, Incorporated; Gibraltar Companies, Incorporated, Defendant & Third Party Plaintiff-Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: E.D. Gaskins, Jr., Michael Joseph Tadych, Everett, Gaskins, Hancock & Stevens, Raleigh, North Carolina, for Appellants. Sean Eric Andrussier, Womble, Carlyle, Sandridge & Rice, P.L.L.C., Raleigh, North Carolina, for Appellees.
ON BRIEF: Pressly M. Millen, Womble, Carlyle, Sandridge & Rice, P.L.L.C., Raleigh, North Carolina, for Appellees.
Before WIDENER, TRAXLER, and KING, Circuit Judges.
Affirmed by published opinion. Judge King wrote the opinion, in which Judge Widener joined. Judge TRAXLER wrote an opinion concurring in part and dissenting in part.
These consolidated appeals arise out of a failed business relationship between several real estate developers in North Carolina and Tennessee in the mid-1990s. In early 1993, David Riese and Gary Plichta (the "Riese Group") joined forces with E. Stephen Stroud, Stroud's wife Grace Ramsey, and Steve Simpson (the "Stroud Group") to form the South Atlantic Limited Partnership of Tennessee ("SALT" or the "SALT Partnership"), a company dedicated to developing real estate in the Nashville, Tennessee, metropolitan area. The SALT Partnership then hired Gibraltar Companies, Incorporated ("Gibraltar"), a construction company owned by the Riese Group, to serve as its general construction contractor, and SALT began developing an upscale apartment community near Nashville known as Lexington Apartments (the "Lexington Project" or the "Project").1
Over time, the relationship between the two Groups became strained, and, in May 1996, the Stroud Group expelled the Riese Group from SALT due to alleged poor construction and financial impropriety. Litigation thereafter ensued in the Eastern District of North Carolina, with the two Groups asserting a myriad of claims against one another, including breaches of contract, breaches of fiduciary duties, and violations of the North Carolina Unfair Trade Practices Act ("UTPA").2
A jury trial was conducted in the Eastern District of North Carolina in November 1998, and, on November 19, 1998, the jury rendered a split verdict, finding that Gibraltar had breached its construction contract with the SALT Partnership, that the Riese Group had breached various fiduciary duties it owed to SALT, and that both Groups had engaged in unfair and deceptive trade practices. Following the submission and briefing of post-trial motions, the district court upheld the jury's determinations in their entirety. The two Groups, as well as the various corporate parties, have appealed adverse aspects of the court's judgment. For the reasons explained below, we affirm.
In early 1993, the Riese Group entered into discussions with the Stroud Group about the possibility of investing in the Lexington Project. In July 1993, the parties reached an understanding that the Stroud Group would own seventy-five percent of the Lexington Project and the Riese Group would own the remaining twenty-five percent. Pursuant to this understanding, the Stroud Group formed SALT, a development company structured under a limited partnership agreement (the "SALT Partnership Agreement" or the "Partnership Agreement").3 On April 15, 1994, the members of the Riese Group became limited partners in the SALT Partnership, receiving their combined partnership interest of twenty-five percent. SALT then purchased the real estate in Nashville on which the Lexington Project was to be developed.
Under the provisions of the SALT Partnership Agreement, none of the SALT partners were to be paid salaries; their sole source of compensation was to be any income derived from the sale or lease of SALT's properties. The SALT Partnership Agreement also established procedures for the expulsion of a "defaulting partner" who, inter alia, "by misconduct or willful inattention to the business welfare of the Partnership seriously injur[es] the business of the Partnership." Under the SALT Partnership Agreement, whether any such misconduct had occurred was to be "determined reasonably and in good faith by the unanimous decision of the nondefaulting partners." If the nondefaulting partners decided that such misconduct had occurred, they had the right, within six months thereof, to expel the defaulting partner from the SALT Partnership by majority vote. If the nondefaulting partners decided to expel a defaulting partner, they were required, pursuant to the SALT Partnership Agreement, to do the following: (1) send written notice of expulsion to the defaulting partner, and (2) pay the defaulting partner "book value, as determined by `generally accepted accounting principles,'" of his partnership interest in SALT, calculated as of the date of expulsion.4 Other than these two procedures, the Partnership Agreement contained no other requirements for removal of a partner from SALT.
After the April 15, 1994, amendments to the SALT Partnership Agreement to include the Riese Group, the two Groups executed, on May 4, 1994, a Memorandum of Agreement which established their respective responsibilities for development of the real estate in Nashville.5 Under the Memorandum of Agreement, SALT agreed to use Gibraltar as the general contractor for the construction of its development projects. Upon SALT's selection of real estate for development, Gibraltar was obligated to generate a "control package" for each particular project, i.e., a budget estimating and itemizing the costs that would be incurred during the development of a project to its leasing stage. In turn, SALT agreed to pay Gibraltar three percent of the "hard construction costs," i.e., the actual construction costs (such as grading or foundation work), for supervising a project's construction.6 The Memorandum of Agreement also provided that Gibraltar would inform SALT of any activities "which impact [the] viability, cost, time of construction or which might otherwise have any material affect on" a development project.
With the two Groups having executed their Memorandum of Agreement, Gibraltar began work on generating the control package for the Lexington Project. In August 1994, Gibraltar completed the control package, which was required before SALT could obtain financing for the Project. The control package estimated that the Project would cost $14,030,000, and that it would be finished in eighteen months. Gibraltar and SALT then executed, on August 15, 1994, a formal construction contract for the Lexington Project (the "Construction Contract"). Pursuant to the Construction Contract, SALT agreed to pay Gibraltar the actual cost of the Project's construction, plus the sum of one dollar.7 The Construction Contract specified, in a manner consistent with the control package, that the Project was to be substantially completed eighteen months after the commencement of construction.
While they were concluding negotiations on the Construction Contract, SALT and Gibraltar were also negotiating with First Union National Bank to obtain a construction loan. This loan, in the sum of $14,020,000, was closed, pursuant to a Loan Agreement, on August 18, 1994, three days after Gibraltar and SALT executed the Construction Contract.8 Under the Loan Agreement, SALT was obliged to submit monthly draw requests to First Union, thus drawing down the loan to pay for the Project's monthly construction costs. SALT would then pay Gibraltar, as the Project's general contractor, and Gibraltar in turn would pay the Project's subcontractors and vendors. Although SALT possessed responsibility for preparing the monthly draw requests, the parties informally agreed that the Riese Group would handle the Project's finances. As a result, the Riese Group assumed responsibility for the Project's accounting, and it agreed to provide SALT with monthly budget reports.
The construction of the Lexington Project was initially scheduled to begin in August 1994, immediately after the loan closing; thus, the Project was to be completed eighteen months later in approximately February 1996. Work on the Project, however, did not commence until October 1994, and it immediately encountered a number of problems and delays. First of all, Gibraltar discovered that its engineers had miscalculated the topography over a large portion of the Project's Nashville construction site, and the grading and preparation of the construction site proved much more difficult than anticipated. In addition, Gibraltar retained a framing subcontractor, called Today's Contractors, which performed substandard framing work on the...
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