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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1483 September Term, 2002

M. RAUL GARCIA v. FOULGER PRATT DEVELOPMENT, INC., et al

F. P. ROCKVILLE LIMITED PARTNERSHIP V. M. RAUL GARCIA _____________________________ Greene, Sharer, Moylan, Charles E. Jr.
(Retired, Specially Assigned)

JJ. Opinion by Sharer, J.

Filed: December 4, 2003

The parties to this appeal, and consolidated cross-appeal, are M. Raul Garcia, appellant/cross-appellee, comprising several and three

appellees/cross-appellants

business

entities that are engaged in the development and management of commercial real estate properties. The appeals and cross

appeals are taken from a judgment and order of the Circuit Court for Montgomery County, Hon. William J. Rowan, presiding. Garcia (plaintiff below) is one of two limited partners in the F.P. Rockville Limited Partnership ("the Partnership"), holding a 10% equity interest in the Partnership. (defendants below) are (1) Foulger Appellees Inc.

Investments,

("Foulger"), the general partner of F.P. Rockville Limited Partnership, ("F.P. Rockville"), holding a 2% equity interest; (2) FP Investments, LLC ("FP Investments"), the other limited partner in the F.P. Rockville Limited Partnership, holding an 88% equity interest; and (3) Foulger Pratt Development, Inc. ("Foulger Pratt"). Garcia, a former salaried employee of Foulger Pratt

entered into a partnership agreement, in lieu of salary from the Foulger entities, for his services to identify and process new commercial real estate projects. The partnership agreement contemplated that new "limited partnerships" would be created to oversee development of each individual phase in the overall project site. Partnerships." The new entities would be known as "Operating Garcia identified a project site, and the

Partnership

formed

a

limited

liability

company

(with

an

unrelated business entity) called the Rockville Metro Plaza I, L.L.C., rather than creating an off-shoot limited partnership as anticipated by the partnership agreement. Garcia brought this action against the Foulger entities alleging, among other things, that the general partner (Foulger Investments, Inc.) of F.P. Rockville Limited Partnership had breached the partnership agreement by failing to assign him a direct 5% interest in the Rockville Metro I Plaza, L.L.C. project, and for wrongfully taking a $934,000 development fee that should have enured to the Partnership. The circuit court

agreed with Garcia that the Partnership was entitled to the development fee. The court, however, concluded that Garcia was not entitled to a direct 5% interest in the limited liability company because he failed to prove that the limited liability company constituted an "Operating Partnership" as contemplated by the agreement. Garcia, therefore, raises the following questions for our review: I. Did the circuit court err in concluding that Rockville Metro Plaza I, L.L.C. (the entity formed to own the first building) was not an "Operating Partnership" as that term is defined in Paragraph 3.01 of the Partnership Agreement? If this Court answers the first question in the affirmative, should appellant be assigned a direct interest in Rockville -2-

II.

Metro Plaza I, L.L.C.? III. If this Court rules that the general partner of the Partnership breached the Partnership Agreement by failing to assign appellant a direct interest in Rockville Metro Plaza I, L.L.C. does that ruling - coupled with the trial court's ruling - warrant dissolution of the Partnership and the appointment of a receiver? We answer "no" to the first question, and because

appellant's second and third questions are framed in the alternative, we need not address those issues. The cross-appeal in this case deals with the award of attorneys fees to Garcia related to recovery of the

development fee to the Partnership. $96,000 in attorneys' fees, and

The court awarded Garcia at the same time denied

Foulger-Pratt's request for attorneys' fees under Maryland Rule 1-341. In its cross appeal, Foulger-Pratt has raised four

questions for our review which we have condensed into two questions for clarity: I. Whether the trial court abused its discretion, or otherwise erred, when it awarded Garcia his requested attorneys' fees, including fees for unsuccessful claims that the court determined where "reasonably related" to his successful claim? Whether the trial court abused its discretion, or otherwise erred, when it denied Foulger-Pratt's request for attorneys' fees under Maryland Rule 1-3-

II.

341? We answer "no" to both questions, as discussed more fully within, and shall affirm.

FACTUAL and PROCEDURAL HISTORY In 1989, Foulger Pratt Development, Inc., hired Garcia, under a two-year employment agreement, to manage its real estate development and investment activities. Pursuant to the

employment agreement, Garcia earned an annual base salary of $85,000, plus bonuses and benefits. After July 1, 1991, when the employment agreement had ended, Garcia continued to work for the Foulger entities, but no longer received a salary. Between 1991 and 1994, Garcia

rendered services to the Foulger entities under a personal services contract. The agreement was not memorialized until

April 14, 1994, but was applied retroactively to 1991 and extended his services for one additional year, until April 25, 1995. Garcia's duties and responsibilities under the personal

services contract included "the identification and processing of new business opportunities to the point that they can be developed." In lieu of a salary, Garcia was to receive a 10%

equity interest as a limited partner in a "limited partnership -4-

... formed between [Garcia] and an assignee of Foulger-Pratt [created] for the purpose of developing, constructing, and owning the project."1 In short, each time Garcia identified and processed a new development "project" a new limited partnership would be created, in which Garcia would have a 10% equity interest as a limited partner. The Foulger entities would

retain a 90% equity interest in each limited partnership. Garcia identified a parcel of real estate for potential commercial development in downtown Rockville, bounded by Middle Lane and Hungerford Drive ("the Rockville Property"). He

concluded a contract to purchase the property from the City of Rockville and negotiated the bureaucracy to obtain the

necessary permits and support for the development of the site. As envisioned in the personal service agreement, the F.P. Rockville Limited Partnership ("the Partnership") was created to develop the Rockville Property. Foulger Investments, Inc.,

served as the general partner of the Partnership, with a 2%
1

In full, the compensation provision of the Personal Service Agreement Prior to entering into an agreement to control the site for a potential development, a limited partnership shall be formed between you and an assignee of Foulger-Pratt for the purpose of developing, constructing, and owning the project. Foulger-Pratt shall be the general partner with an equity interest equal to ninety percent (90%), and you shall be a limited partner with an equity interest equal to ten percent (10%). Subject to the other express terms of this Agreement (i.e., repayment of partner advances and interest on partner advances, if any), cash flow, profit and loss, mortgage and sale proceeds and any other benefits shall be distributed on the basis of each party's equity interest (i.e. 90% to Foulger-Pratt and 10% to you).

states:

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equity

interest.

The

two

limited

partners

included

FP

Investments, LLC, with an 88% equity interest, and Garcia with a 10% equity interest. Pertinent provisions of the Partnership Agreement include the following paragraphs:2 3.01 Business. The business of the Partnership shall be to negotiate contracts to acquire the parcels of real property [at the site in Rockville, otherwise known as "the Project"]; enter into option contracts with respect to the Project; make option payments, deposits and other payments to the owners of the Project; negotiate zoning variances, site plan approvals, proffers, locate tenants, secure financing and equity investors; and take all other actions necessary or advisable to develop or maintain the Project. The Project has been zoned to permit construction of over one million square feet of commercial office space as well as multifamily residential uses. The General Partner currently plans to develop the Project by constructing three commercial office buildings on the IBEW Site, two commercial office buildings on the Middle Lane Site, and a residential tower on the Middle Lane Site. However, the General Partner may change those plans as it deems appropriate. The General Partner expects to divide the Partnership pursuant to [Internal Revenue Service] Code Section 708(b)(2)(B) and establish separate limited partnerships (the "Operating Partnerships") to own, finance, manage, dispose of, lease and otherwise operate each building constructed as part of the Project. The ownership of the Operating Partnerships may differ from the Interests set forth in Schedule B hereto to take into account the contributions of each of the Partners,
2

The Partnership Agreement also included a merger/integration clause, stating that the agreement "contains the entire understanding among the parties hereto and supersedes all prior written or oral agreements among them respecting the within subject matter, unless otherwise provided herein."

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admission of additional equity investors, and other factors. In addition, the Partnership may engage in any other lawful activity for profit permitted under the Act. * * * 4.03 Additional Funds. If the General Partner determines that the Partnership or any of the Operating Partnerships require funds in addition to the Capital Contributions, the General Partner is authorized to admit additional Partners to the Partnership and the Operating Partnerships, from time to time, upon such terms and conditions as it determines to be appropriate, which shall result in a pro rata dilution of the Interests of the Partners, provided, such additional Partners shall not be Affiliates of the General Partner or Limited Partners, or persons related to the General Partner or Limited Partners unless the General Partner obtains the prior written consent of Raul Garcia, which consent shall not be unreasonably withheld, conditioned or delayed.[] * * * 4.07 Issuance of Additional Interests in Operating Partnerships. Upon formation of each Operating Partnership established to own a commercial office building developed on the IBEW site (pursuant to Paragraph 3.01), the General Partner shall issue interests therein to the Partners, including Raul Garcia, in the amounts set forth in Schedule B, provided, that (i) under the circumstances described in Paragraph 4.08(D), the General Partner may reduce the interest of Raul Garcia in certain of the Operating Partnerships, and (ii) such interests may very [sic] from Schedule B to take into account additional capital contributions of the Partners, and to reflect -7-

admission of one or more additional equity investors to the Operating Partnership(s). * * *

6.01 General Partner. Except as provided expressly herein, the General Partner [Foulger Pratt Development, Inc.] shall have full, exclusive and complete authority, discretion, obligation and responsibility to make all decisions affecting the business of the Partnership. The General Partner shall manage and control the affairs of the Partnership to the best of its abilities and shall use its best efforts to carry out the business of the Partnership. The General Partner shall have authority to enter into such contracts as it determines to be appropriate on behalf of the Partnership and bind the Partnership by execution of documents, including deeds, mortgage documents, deeds of trust, promissory notes, leases, construction contracts, management contracts, contracts of sale, such documents as may be required to admit equity investors, and any other document not inconsistent with the provisions of this Agreement. * * * 6.03 Compensation; Business with Affiliates. Except as specifically provided herein, no Partner shall be entitled to compensation for services rendered on behalf of the Partnership. The General Partner shall not cause the Partnership to enter into any contract with any Partner or any Affiliate of any Partner without the prior written consent of all Partners, which consent shall not be unreasonably withheld, conditioned or delayed, provided, however, that the General Partner is specifically authorized to enter into the following contracts with its Affiliates: [A. Foulger-Pratt Construction shall serve as -8-

general contractor for the project; B. Foulger-Pratt Management shall serve as the management agent for the project; and C. Pioneer Building Services, Inc., will provide cleaning services for the building]. (Emphasis added in bold italics). In order to actually develop the first building on the Rockville Property, the Partnership in turn entered into an "Operating Agreement" with an unrelated entity known as Reedy Creek Investments/Rockville LLC, to form an entity known as Rockville Metro Plaza I, L.L.C. ("Rockville Metro Plaza"), which would directly oversee the development of the property.3 Both the Partnership and Reedy Creek received a 50% interest in Rockville Metro Plaza.4 As such, Garcia now had a 5% indirect a 10% limited Also,

interest in the Operating Agreement (i.e., partnership interest in the 50%

L.L.C. interest).

according to the Operating Agreement, the Partnership was entitled to a $934,000 development fee.5 Rockville Metro Plaza,

According to the Operating Agreement, Rockville Metro Plaza was organized "solely to purchase, acquire, buy, sell, own, hold, develop, lease, manage, and otherwise deal with the Property, and to do any and all things necessary, convenient, or incidental to that purpose." The Partnership and Reedy Creek entered into the Operating Agreement on December 31, 2000. Reedy Creek contributed $3.5 million in cash to actually buy the property for the first building, and the Partnership contributed its contractual right to purchase the property.
4

3

The Operating Agreement specifically provided, "[The Partnership] shall be paid a development fee by [Rockville Metro Plaza I] equal to two and 06/100 percent (2.06%) of total project costs up to Forty-Five Million Four Hundred Forty-Eight Thousand Two Hundred and 00/100 Dollars ($45,448,271.00)...." Apparently, the development fee was initially set around $1.4 million, but because of a shortfall of equity between the Partnership and Reedy Creek in the

5

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however, paid the development fee to Foulger Pratt Development, Inc. (Garcia's initial employer, and an entity in which Garcia had no equity interest), rather than to the Partnership. Garcia filed a lawsuit against the various Foulger

entities on September 7, 2001, alleging that (1) he should have had a 5% direct interest in any new "Operating Partnerships" (according to his interpretation of Paragraph 4.07 of the Partnership Agreement) instead of a 5% indirect interest, and (2) the development fee had been wrongfully taken by Foulger Pratt Development, Inc. Garcia sought judgment for breach of

contract, dissolution of the Partnership, and attorneys' fees related to the breach of contract claim regarding the

development fee, in addition to other causes of action not relevant to this appeal. After protracted pre-trial activity,

Garcia filed a second amended complaint on June 24, 2002.6

contribution, the Partnership agreed to reduce the development fee. On May 7, 2002, Garcia filed an amended complaint which did not include any breach of contract claim for the development fee. Apparently, he did so based on representations by defendants that the development fee had already been returned to the Partnership. Counsel for defendant wrote in a letter on June 19, 2002: Recently, it has become known that the payment of the development fee to [the Partnership] has not yet occurred but will occur `on the books' at some predetermined future time. Therefore, my previous correspondence clearly indicating a more immediate payment, was not completely accurate. You may then want to `reinstate' those claims which were amended out because of the wording of my letter, which of course will not be opposed.
6

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That second amended complaint came to trial in the circuit court July 9, 2002. twenty-six exhibits During the trial, lasting four days, were admitted into evidence and five

witnesses testified.

The court took the case under advisement

on July 15, 2002, and issued a memorandum opinion and order on July 29, 2002. The court ruled that appellees had not

breached the Partnership Agreement by not granting Garcia a direct 5% interest in Rockville Metro Plaza, because Rockville Metro Plaza was established as a limited liability company and not a limited partnership, and therefore the limited liability company could not be an "Operating Partnership" as described in the Partnership Agreement. The court, however, did find that the Partnership, and not Foulger Pratt Development, Inc., was entitled to the

development fee. The court also ordered a future hearing on the attorneys' fees that were incurred by Garcia in recovering the development fee to the benefit of the Partnership. Lastly, the court declined to order dissolution of the Partnership. The court wrote the following in its extensive memorandum opinion: In 1998 F.P. Rockville, Limited Partnership, was created. Foulger Investments, Inc., is the general partner with a 2% interest. F.P. Investments, Inc., and Garcia are the limited partners, with an 88% and 10% interest, respectively. (See Defendants' Exhibit I.) The purpose of this Agreement was to take -11-

all actions necessary or advisable to develop or maintain the Rockville property purchased from IBEW. See Section 3.01. It recited that the "general partner" expects to divide the partnership pursuant to [Internal Revenue Service] Code, Section 708(b)(2)(B), and establish separate limited partnerships (the "Operating Partnerships") to own, finance, manage, dispose of, lease and otherwise operate each building constructed as a part of the project". See Section 3.01. If "Operating Partnerships" were formed, the general partner was to issue interest to the partners, "including Raul Garcia" in roughly the same percentage interest as set forth in the formation of the Limited Partnership. See Section 4.07. The Agreement contained an integration clause providing that it superseded all prior written or oral arguments among the parties concerning the subject matter. See Section 13.12. In order to secure construction financing from Reedy Creek Investments, the Limited Partnership entered into an agreement with Reedy Creek on December 31, 2000, entitled "Operating Agreement of Rockville Metro Plaza I, LLC". See Defendants' Exhibit 2. F.P. Rockville, Limited Partnership, and Reedy Creek Investment each received a 50% interest. Garcia received no written interest. * * * The Court finds that [Garcia] has failed to prove by a preponderance of the evidence that the "Operating Agreement of Rockville Metro I, LLC" is an "Operating Partnership" contemplated under Section 3.01 of the Limited Partnership Agreement. The operative words [of Section 3.01] are "expects to divide the partnership pursuant to Code, Section 708(b)(2)(b), and establish separate limited partnerships (the "operating partnerships")". (Emphasis supplied). Metro Plaza I, LLC, is not a "limited partnership" formed by two or more persons having one or more general partners and one or more limited partners. See Corporations and -12-

Associations Article, Section 10-101(i). Metro Plaza I, with 50% owners, has no delineation of general or limited partners. It was not a limited partnership converted to a limited liability company under Corporation and Associations, Section 4A-211. Rather, Metro Plaza I, LLC, is a limited liability company formed under Corporation and Associations, Title 4A. No reference was made in the formation of Rockville Metro Plaza I, LLC, to IRS Code Section 708(b)(2)(B), which the Court believes significant because of the decisions in this case which were tax driven. While Section 4.03 of the Limited Partnership Agreement does not allow the creation of a new subsidiary that is not an operating partnership for the purposes of securing additional funding (construction financing), Section 6.01 does allow under it broad powers, the general partner to direct the formation of an LLC, such as Metro Plaza I, LLC. Finally, the formation of Metro Plaza I, LLC, is referred to as an "Operating Agreement", not an "Operating Partnership". Accordingly, Mr. Garcia because of a failure the burden of proof is not entitled to a separate stated 5% interest in Metro Plaza I, LLC, under Section 4.07 of the Limited Partnership Agreement. As to the development fee, (subparagraph b), the Court finds [Garcia] has proved by a preponderance of the evidence that the Limited Partnership was entitled to the payment and receipt of the development fee. Garcia filed a timely appeal. set forth as necessary. DISCUSSION I. Did the circuit court err in concluding that Rockville Metro Plaza I, L.L.C. (the entity formed to own the first building) was not an "Operating Partnership" as that term is defined in Paragraph 3.01 of -13Additional facts will be

the Partnership Agreement? It is undisputed that Garcia has a 5% interest in

Rockville Metro Plaza.

What is disputed, however, is whether

his interest is direct or indirect (i.e., a 10% interest in the Partnership's 50% interest in Rockville Metro Plaza). Garcia

contends that he has a direct 5% interest pursuant to the Partnership Agreement, and that he has been significantly harmed by the difference.7 Specifically, Garcia points to the

language of the Partnership Agreement, Paragraph 4.07,8 which he reads together with Paragraph 3.01,9 to support his position.

Garcia posits that the matter is one of pure law (contract interpretation), and therefore the issue is subject to de novo review. See Turner v. Turner, 147 Md. App. 350, 403 (2002).

Appellees posit the opposite

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