Waite on Behalf of Bretton Woods Acquisition Co. v. Sylvester

• Court: New Hampshire Supreme Court
• Writing for the Court: BROCK
• Citation: Waite on Behalf of Bretton Woods Acquisition Co. v. Sylvester, 560 A.2d 619, 131 N.H. 663 (N.H. 1989)
• Decision Date: 13 June 1989
• Docket Number: No. 87-383,87-383
• Parties: Alvis J. WAITE, on Behalf of BRETTON WOODS ACQUISITION COMPANY and Mt. Washington Management Company, Inc. v. John E. SYLVESTER, Jr. John E. SYLVESTER, Jr. v. BRETTON WOODS ACQUISITION COMPANY. John E. SYLVESTER, Jr. v. MT. WASHINGTON MANAGEMENT COMPANY, INC.

Page 619

560 A.2d 619

131 N.H. 663

Alvis J. WAITE, on Behalf of BRETTON WOODS ACQUISITION COMPANY and Mt. Washington Management Company, Inc. v. John E. SYLVESTER, Jr.

John E. SYLVESTER, Jr. v. BRETTON WOODS ACQUISITION COMPANY.

John E. SYLVESTER, Jr. v. MT. WASHINGTON MANAGEMENT COMPANY, INC.

No. 87-383.

Supreme Court of New Hampshire.

June 13, 1989.

Rehearing Denied July 25, 1989.

Sheehan, Phinney, Bass & Green P.A., Portsmouth (Michael C. Harvell, on the brief and orally and Daniel P. Schwarz on the brief), for plaintiffs Alvis J. Waite, on behalf of Bretton Woods Acquisition Co. and Mt. Washington Management Co., Inc.

Devine, Millimet, Stahl & Branch P.A., Manchester (E. Donald Dufresne, on the brief and orally and Martha V. Gordon on the brief), for defendant, John E. Sylvester, Jr.

BROCK, Chief Justice.

Cross-appeals from the decision of the Superior Court (Manias, J.) present five issues arising from disputes among the partners of the Bretton Woods Acquisition Company (BWAC), a Georgia limited partnership: (1) whether removal of John E. Sylvester, Jr., the defendant, as co-managing partner of BWAC violated either the partnership agreement or implied covenants of good faith and fair dealing; (2) whether the defendant was entitled to the managing partner's fee and distribution as a general partner after his removal; (3) whether proceeds from the sale of resort assets could be distributed in accordance with the BWAC partnership agreement without considering the agreements of entities which owned two of the resort's major assets; (4) whether the defendant owed the other BWAC partners a fiduciary duty during negotiations regarding the formation of BWAC; and (5) whether the defendant breached a duty to the plaintiff, thus giving the plaintiff a defense to the defendant's valid claim for payment of accrued salary. We affirm in part, reverse in part, and remand.

In December 1983, BWAC was formed to own and operate the Bretton Woods resort (the resort). Directly and through affiliated entities, BWAC owned essentially all the real estate, businesses, and improvements of the resort. As originally formed, BWAC had four general partners, Alvis J. Waite, Douglass C. Smith, Frank W. Hulse, IV, and the defendant, John E. Sylvester, Jr., and one limited partner, North Woods Partners. The BWAC partnership agreement (the agreement) designated Waite and Sylvester co-managing partners, authorizing them to manage the partnership.

Prior to the formation of BWAC, the defendant had been a managing partner in Bretton Woods Associates (BWA), which owned the resort's improvements and leased its real estate. The defendant held $400,000 of BWA notes, which he agreed to convey to BWAC. As part of his compensation for conveying these notes, the defendant was to receive an unspecified 50-acre parcel of resort property, allocated a value of $100,000. The defendant selected a parcel of land, and the plaintiff agreed to its transfer.

Among the entities affiliated with BWAC was the Mt. Washington Management Company, Inc. (MWMC), a New Hampshire corporation wholly owned by the partnership, which managed the resort. MWMC hired the defendant as its president and chief executive officer. The Bretton Woods Ski Area Complex, on 365 acres of land, was owned by Bretton Woods Alpine Associates (BWAA), a Georgia partnership, which in turn was largely owned by Bretton Woods Ski Area Investors (BWSAI), a Georgia limited partnership composed of the same partners as BWAC, but in differing interests. Mountain Motor Inn Associates (MMIA), a New Hampshire partnership, owned the Lodge at Bretton Woods, a motel on five acres of land. BWAC, along with Waite and Sylvester individually, owned all of MMIA except for 1% interests owned by two other investors.

The plaintiff alleged that during late 1984 and early 1985, the other partners became increasingly dissatisfied with the defendant's performance. Throughout this period, BWAC's cash flow crisis caused difficulty in meeting debt obligations in a timely fashion. The partnership failed to make an installment payment on a long-term note due to Robert Lieb, which allowed Lieb to accelerate the note at great cost to BWAC. On August 17, 1985, Waite notified the defendant of the other partners' decision to remove him as co-managing partner of BWAC; Waite subsequently notified the defendant that his employment with MWMC was terminated.

In September, 1985, Waite, acting on behalf of BWAC and MWMC, filed a petition for injunctive relief against the defendant, seeking to restrain him from participating in the management of the resort. The defendant filed an answer and a cross-petition for declaratory, temporary, and injunctive relief. The superior court held a hearing on these petitions and issued an order allowing Waite to manage the resort pending a hearing on the merits and preserving the defendant's rights as a BWAC partner. The cross-petitions were amended and additional claims among the parties were consolidated for trial, which commenced in June, 1987. On July 16, 1987, the court issued its decision in an order which formed the basis for the appeals now before us. Both parties moved for reconsideration and clarification, and the court issued a second order on August 31, 1987. The trial court found, inter alia, that (1) BWAC's removal of the defendant as co-managing partner was valid; (2) the defendant was not entitled to the managing partner's fee after his removal and was only entitled to distribution as a limited partner; (3) the proceeds of any sale of resort assets should be distributed pursuant to the BWAC agreement; (4) the defendant owed no fiduciary duty to his prospective partners during negotiations leading to the formation of BWAC; and (5) the defendant breached no duty to BWAC which could give rise to a defense against his valid claim for salary accrued as president and chief executive officer of MWMC. Both parties appealed, and we now address the five issues they have raised.

Because the agreement provides that it is governed by Georgia law, in our review of the trial court's decision, we will apply Georgia law to substantive questions regarding the limited partnership, see 68 C.J.S. Partnership § 451 (1950), and New Hampshire law to procedural matters. Gordon v. Gordon, 118 N.H. 356, 360, 387 A.2d 339, 342 (1978). Under our law, the trial court's findings will be upheld unless they lack evidentiary support or are tainted by error of law. Burnham v. Downing, 125 N.H. 293, 296, 480 A.2d 128, 130 (1984).

I. Removal of Defendant

The defendant contends that his removal as co-managing general partner of BWAC violated the limited partnership agreement, the other partners' fiduciary duties, and the implied covenants of good faith and fair dealing. He first argues that because the partners removed him without a formal vote at a duly noticed meeting, they violated the agreement. The trial court found that although the removal vote was conducted informally, without a meeting, it was valid under § 9.02 of the agreement. That section conditions the removal of a managing partner upon the "affirmative vote of Partners" having a 60% or greater aggregate interest in the partnership.

We agree with the trial court's conclusion. In Consortium, etc., Co. v. Mutual Am. Corp., 246 Ga. 346, 271 S.E.2d 488 (1980), the Georgia Supreme Court approved the removal of the general partners at the direction of a limited partner owning more than the requisite partnership interest. The court held that the removal was effective despite the lack of notice to the general partners before the controlling limited partner took action. Id. at 348, 271 S.E.2d at 490. The only procedural requirement explicit in the BWAC agreement's § 9.02 is "delivery of written notice of such removal to the Managing Partner." The section requires notice of removal after the fact; it does not require notice before a vote. We will not infer additional due process type protections from the agreement's removal provisions. See Holman v. Coie, 11 Wash.App. 195, 208, 522 P.2d 515, 521 (1974), cert. denied, 420 U.S. 984, 95 S.Ct. 1415, 43 L.Ed.2d 666 (1975). To do so would "frustrate[ ] the unambiguous language of the agreement and the result contemplated." Id. at 211, 522 P.2d at 524. The trial court therefore properly relied on Consortium, etc., Co. in concluding that notice was not required before the defendant's removal. Contrary to the defendant's contention, the agreement's use of the word "vote" does not require official notification and a formal meeting. The terms of the BWAC agreement, in conjunction with Georgia law, see GA.CODE ANN. § 75-401 et seq., provide all the procedures required. BWAC partners holding over 60% of the partnership interest agreed to the removal; their decision complied with the agreement.

The defendant also argues that the vote to remove him as a managing general partner was invalid because § 5.07 of the agreement, providing that "Limited Partners shall take no part in the conduct or control of the Partnership business," precluded the limited partner, North Woods Partners, from participating in a decision affecting the partnership's management structure. Section 9.02 authorizes the removal of a managing partner upon a vote of "Partners" having an aggregate partnership interest of at least 60%. Section 1.01(u) defines "Partners" to "mean collectively the General Partners [and] the Limited Partners." This express grant of voting authority to limited partners supersedes § 5.07's broad restriction on limited partner participation. See Griffin v. Barrett, 155 Ga.App. 509, 510, 271 S.E.2d 647, 648 (1980) (specific provision prevails over broader one); see also Kilroe v. Troast, 117 N.H. 598, 601, 376 A.2d 131, 133-34 (1977) (express grant in agreement supersedes broad ban). The evidence thus supported the trial court's finding that § 9.02 "expressly empowers the holders of 60% interest in the partnership, be they...