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HomeMy WebLinkAbout98-3420 / 01-2718 CivilAHM ASSOCIATES, a general partnership, SAMUEL L. ANDES and CARLTON E. HUGHES, Plaintiffs VS. ROBERT M. MUMMA, II, Defendant IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - EQUITY 98-3420 CIVIL ROBERT M. MUMMA, II, Plaintiff VS. SAMUEL L. ANDES and CARLTON E. HUGHES, individually and d/b/a AHM ASSOCIATES, Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW NO. 01-2718 CIVIL IN RE: PETITION TO DISSOLVE PARTNERSHIP OPINION AND ORDER This case involves a longstanding dispute between the partners of AHM Associates. This partnership developed and operated real estate improved with commercial office buildings at 1007 Mumma Road and 1011 Mumma Road in Wormleysburg, Cumberland County, Pennsylvania. The partnership was formed in 1982. By 1997 disagreements arose concerning the refinancing of partnership debt and other matters. By 1999 it became apparent that the partnership could not continue and all three of the partners, Samuel L. Andes, Carlton E. Hughes, and Robert M. Mumma, II, agreed to dissolve the partnership and liquidate its assets. The partnership agreed to list 1011 Mumma Road and 1007 Mumma Road for sale. An offer was received from one Charles Davis and the offer was accepted by all three partners. Problems arose when one of the tenants in one of the buildings elected to exercise a right of first refusal. Mr. Mumma then undertook to block the sale of the real estate. The remaining partners, Andes 1998-3420 EQUITY 01-2718 CIVIL and Hughes, filed a petition seeking, inter alia, a declaratory judgment that Andes and Hughes constituted a majority of the partnership of AHM and could take necessary action to sell and convey the real estate to Davis. This relief was granted. Mr. Mumma filed no appeal from this order. In our opinion and order of September 20, 2000, we observe that all of the partners of AHM were in agreement that the partnership would be dissolved and its assets sold. The only disagreement concerned the identity of the buyer. The attempt to sell to Davis was eventually unsuccessful. AHM then received an offer from Duquesne University to purchase 1007 Mumma Road. That property was subsequently sold to Duquesne University at a contract price of $850,000. The 1011 Mumma Road property was sold to KJ Capital for a purchase price of $1,935,000. The proceeds from these two sales were distributed between the parties with an amount being reserved for the payment of taxes, professional fees and the resolution of financial claims as between the parties. On May 30, 2002, Mr. Andes and Mr. Hughes filed a petition asking the court to recognize the dissolution of the partnership, ratify actions taken by the partnership in winding up its affairs, and dissolve the remaining disputes between the partners. The petition was filed at both the equity docket, number 98-3420, and the civil law docket at 01-2718. Both parties have acceded to a procedure whereby, in an effort to expedite resolution of these controversies, they would submit to the court a statement of issues which remain to be resolved in the case and any financial damages related thereto. A list of Mr. Mumma's complaints was duly forthcoming in a letter from Mr. Milspaw to Mr. Gilroy dated January 3, 2003. This letter was marked as Defendant's Exhibit No. 1 at our hearing on April 7, 2003. We will discuss those issues seriatim but first feel compelled to make some general comments. 2 1998-3420 EQUITY 01-2718 CIVIL We are satisfied that the order of September 20, 2000, was a final order and thus any attempt to revisit the holding after the appeal period has expired is inappropriate. The order granted a request for declaratory judgment and in essence granted an equitable or injunctive remedy by expressly permitting two partners, over the objection of a third, to consummate a real estate transaction. Actions granting declaratory relief are expressly made "final" by statute. See 42 Pa.C.S.A. 7532. Likewise, the grant of injunctive relief triggers an interlocutory appeal as a matter of right. See Pa.R.A.P. 311. Even were our prior orders now appealable or subject to further review, we continue to adhere to our earlier interpretation of 15 Pa.C.S. 8331. In his proposed findings, the defendant contends that we "incorrectly quoted" from this statute. We did not intend to quote the statute but rather paraphrase it. We continue to believe, in the context of this case, that once all three partners had agreed to sell their real estate, then any differences of opinion with respect to proposed purchases and purchase prices could be resolved by a majority. This is not to suggest that a majority of partners is at liberty to make decisions to the financial detriment of a minority partner. We are satisfied, in fact, that that did not happen in this case. To the contrary, the aggressive and astute actions of the majority partners rescued the partnership from the quagmire which was most certain to ensue from minority control. Mr. Mumma's first specific complaint is that the equity action commenced in 1998 was begun in bad faith and that there was an absence of any factual or legal basis therefore. He seeks attorney's fees in connection with that litigation. There is no basis to award Mr. Mumma attorney's fees particularly in light of the fact that he did not prevail in the underlying litigation. Rather, the judgment was for the other side. 3 1998-3420 EQUITY 01-2718 CIVIL Next, Mr. Mumma faults his partners for accepting the offer of Duquesne University to purchase 1007 Mumma Road. This sale, however, generated an additional $10,000 over and above the sale price that Mumma had agreed to with respect to the sale to Davis. Moreover, Andes and Hughes testified credibly that Mr. Mumma could not be trusted to go through with his agreement and that, in the meantime, an excellent opportunity to make the sale to Duquesne would be lost. The Duquesne sale resulted in the opportunity of all three partners for a sizable deduction on their 2001 income tax returns based on a charitable contribution. Mr. Mumma, however, objected to that portion of the transaction providing for a charitable contribution. Notwithstanding, he has refused to provide any evidence, from his tax returns or otherwise, in support of his contention that he could not claim the charitable deduction. Mr. Mumma also objects to the partnership paying the rather nominal expense for a private security firm. The security officer monitored Mr. Mumma's review of partnership records. In light of their earlier difficulties with Mr. Mumma, it was entirely reasonable for the majority partners to incur this expense to maintain the integrity of the partnership records. Mr. Mumma also objects to the payment of a $3,000 bonus to Mr. Andes's secretary. This is money which the partnership would have paid in any event. Mr. Andes testified that he received a $3,000 payment on an annual basis as a fee for handling the administrative affairs of AHM. He decided, in the last year, to forego that payment and pay his secretary the money instead. Mr. Andes had every right to redirect this payment which would have been made to him in any event. Mr. Mumma also objects to AHM paying $36,000 for leasehold improvements without his consent. Mr. Mumma has failed to produce any evidence, however, suggesting that he was 4 1998-3420 EQUITY 01-2718 CIVIL harmed in any way by this expenditure or that the expenditure was not made in good faith. It is also important to note that Mr. Mumma did not object to the expenditure until after it was made. Mr. Mumma also contends that Mr. Andes and Mr. Hughes should be surcharged with respect to some $81,400 for HVAC improvements. Again, he has failed to show how he has been harmed in any way by this expenditure. To the contrary, the work was completed by H. B. McClure for $20,000 less than the estimate given by the contractor favored by Mr. Mumma. Moreover, Mr. Mumma did not voice objection to awarding the work to H. B. McClure until after McClure had been directed to proceed. It appears that all three partners had agreed to put money in the partnership to take care of the HVAC improvements. Mr. Mumma, however, reneged on a verbal commitment to do so and would not contribute money to cover McClure's bill. Mr. Andes and Mr. Hughes, therefore, were obliged to contribute approximately $40,000 each to cover the McClure bill. That money was eventually paid back to them by the corporation. This is money which the corporation would have been obliged to spend in any event. Thus, once again, Mr. Mumma fails to show how he has suffered any financial loss as a result of the actions of his other two partners. Mr. Mumma also claims unspecified financial damages because other expenditures exceeding $2,000 were made without his express written consent in violation of the partnership agreement. The partnership agreement, sub judice, does indeed prohibit the creation of liabilities in excess of $2,000 without the written consent of all three partners. Mr. Mumma, however, is unable to demonstrate any financial harm that has been done to him by any of these expenditures. Moreover, this provision of the partnership agreement was largely ignored for a period of twenty years. Such conduct of the parties modified the contract effectively waiving the 1998-3420 EQUITY 01-2718 CIVIL enforcement of this clause. See Somerset Community Hosp. v. Allan B. Mitchel & Assocs. Inc. et al.., 685 A.2d 141 (Pa. Super. 1996). Mr. Mumma also alleges lack of good faith and a breach of fiduciary duty by Mr. Andes and Mr. Hughes for failing to keep proper books and records and by making it difficult for Mr. Mumma to examine the books and records of the partnership. No testimony was presented during the hearings of this matter relative to improperly kept books. Moreover, it is clear that Mr. Andes made the partnership records available for Mr. Mumma's inspection normally by appointment. It was Mr. Mumma, and not Mr. Andes, who appeared to be incapable of mutual accommodation with respect to the times and dates for inspection. Mr. Mumma also makes general allegations of a conspiracy on the part of the partners to squeeze him out of the partnership to his financial detriment. It is clear that over the years, of the three partners, Mr. Mumma has become the "odd man out." This is not surprising. His behavior has been obstructionist (if not irrational). Mr. Andes and Mr. Hughes are unquestionably entitled to take steps to protect the investment of all three partners. This they have done. Finally, Mr. Mumma complains with respect to certain specific acts of his partners: (1) in demanding that he execute refinance documents with Corestates Bank; (2) in not compelling Brown-Shultz meet its obligation to purchase 1007 Mumma Road; (3) in failing to cure any default of the provisions of the Partnership Agreement requiring unanimity of action; and (4) in opening a new bank account on behalf of the partnership. None of these actions have caused any harm to Mr. Mumma. Mr. Mumma's refusal to execute the refinance documents ultimately led to the dissolution of the partnership. It was Mr. Mumma who obstructed the settlement with Brown-Shultz. Mr. Hughes and Mr. Andes properly elected not to demand the forfeiture of a 6 1998-3420 EQUITY 01-2718 CIVIL deposit made by Brown-Shultz for fear that had they done so, legal action would have been taken against them. Finally, we deal with the issue of whether or not the attorneys' fees incurred by the majority partners should be paid by the partnership. The general rule is, of course, that each party is responsible for his own counsel fees. See Hankin v. Hankin_, 487 A.2d 1363 (Pa. Super. 1985). This is so unless the award of counsel fees is expressly authorized by law. There are indeed more than a few exceptions to the general rule. For example, counsel fees are awardable for obdurate or vexatious conduct in the course of litigation. 42 Pa.C.S.A. 2503. Attorneys' fees are also recoverable in mortgage foreclosure actions, 41 P.S. 406, and also where a debtor prevails in opening a confessed judgment against residential real property. 41 P.S. 503. Authority for the payment of counsel fees may be found, also, in the so-called "common fund doctrine." This doctrine was discussed in Couy v. Nardei Enterprises, 587 A.2d 345 (Pa. Super. 1991): It is the American rule that parties to adversary litigation are required to pay their own counsel fees. The common fund doctrine, a common law exception to this rule, has been statutorily codified at subdivision (8) of § 2503. Jones v. Muir, 511 Pa. 535, 515 A.2d 855 (1986). In essence, the common fund doctrine applies when an attorney's services: protect a common fund for administration or distribution under the direction of the court, or where such fund has been raised for like purpose, it [the fund] is liable for costs and expenses, including counsel fees incurred. This is the case even though the protection given or the raising of a fund results from what may be properly termed adversary litigation. Hempstead v. Meadville Theological School, 286 Pa. 493, 134 A. 103 (1926). 7 1998-3420 EQUITY 01-2718 CIVIL In other words, when several people have a common interest in a fund, the assets of which may be created through adversary litigation, and one or more of these people, for the benefit of all, but at their own cost and expense, bring suit to administer or preserve that fund, the court will order plaintiff or plaintiffs to be reimbursed for costs and expenses, including counsel fees, from the property of the fund, or order those benefited to contribute proportionately toward that expense. Pennsylvania Association of State Mental Health Hospital Physicians v. State Employees' Retirement Board, 87 Pa. Cmwlth. 108, 483 A.2d 1003 (1984). Id. at 346. The argument advanced by Mr. Andes and Mr. Hughes is that their counsel was instrumental in protecting partnership assets and in advancing the interest of the partnership. There are similarities between this contention and the common fund doctrine. The litigation involved here, however, while ultimately resulting in a benefit to all of the partners was adversary to a member of the partnership. We do not believe that this is the situation contemplated in 42 Pa.C.S.A. 2403(8). Nor are we able to find any other express authority for the award of counsel fees. Accordingly, we are satisfied that each side to this dispute should bear their own attorneys' fees. ORDER AND NOW, this day of March, 2004, the court finds that the partnership of AHM Associates is and ought to be DISSOLVED. The partners are directed to proceed with winding up the affairs of the partnership by the filing of all necessary tax returns and the payment of any additional outstanding obligations of the partnership including those relative to the preparation of those returns. Thereafter, the remaining partnership assets, consisting of cash 1998-3420 EQUITY 01-2718 CIVIL and two bank accoums, shall be dispersed in equal shares between the three partners with any appropriate adjustment for previously paid counsel fees. BY THE COURT, Hubert X. Gilroy, Esquire For AHM Associates, Andes and Hughes Luther E. Milspaw, Jr., Esquire For Mumma :rlm Kevin A. Hess, J. 9 AHM ASSOCIATES, a general partnership, SAMUEL L. ANDES and CARLTON E. HUGHES, Plaintiffs VS. ROBERT M. MUMMA, II, Defendant IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - EQUITY 98-3420 CIVIL ROBERT M. MUMMA, II, Plaintiff VS. SAMUEL L. ANDES and CARLTON E. HUGHES, individually and d/b/a AHM ASSOCIATES, Defendants AND NOW, this IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW NO. 01-2718 CIVIL PETITION TO DISSOLVE PARTNERSHIP BEFORE HESS. J. ORDER day of March, 2004, the court finds that the partnership of AHM Associates is and ought to be DISSOLVED. The partners are directed to proceed with winding up the affairs of the partnership by the filing of all necessary tax returns and the payment of any additional outstanding obligations of the partnership including those relative to the preparation of those returns. Thereafter, the remaining partnership assets, consisting of cash and two bank accounts, shall be dispersed in equal shares between the three partners with any appropriate adjustment for previously paid counsel fees. BY THE COURT, Kevin A. Hess, J. 1998-3420 EQUITY 01-2718 CIVIL 11 Hubert X. Gilroy, Esquire For AHM Associates, Andes and Hughes Luther E. Milspaw, Jr., Esquire For Mumma :rlm