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REPORTED

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND

No. 2149

September Term, 1999

CARLTON M. GREEN, RECEIVER

v.

BELLERIVE CONDOMINIUMS LIMITED PARTNERSHIP

Murphy, C.J. Eyler, Adkins, JJ.

Opinion by Adkins, J.

Filed: November 3, 2000

In this appeal, we again consider the nature and extent of rights conferred by a charging order against a limited

partnership interest. is whether a receiver interests opportunity

The new question presented by this case with has -- a a in charging right this order be an against notified limited of a to

partnership partnership

to case,

opportunity

purchase the partnership's debt.

Affirming the trial court, we

hold that general partners of a limited partnership do not have a duty to notify and a charging the creditor about creditor that does partnership not have

opportunity,

that

charging

standing to assert the debtor partners' management rights to participate in or object to such a purchase.

FACTS AND BACKGROUND In 1988, Arnold D. Wolfe co-founded Bellerive Condominiums Limited appellee. Group, Partnership ("Bellerive" or the "Partnership"),

A corporation controlled by Wolfe, U. S. Investment ("USIG"), The other was one of Bellerive's partners three were general Capital

Inc.

partners.

two

general

Management and Development Corporation ("Capital Management"), a Delaware corporation Express controlled Development by its president, a Bechara York

Nammour,

and

Corporation,

New

corporation controlled by its president, Richard J. Seikaly. Wolfe borrowed $50,000 from Richard C. Beavers and Richard

P. Beavers, and contributed the funds to the Partnership.

In

turn, the Partnership used the funds to put a deposit on real property in Anne Arundel County. The Partnership's business

plan was to develop and sell the property as condominiums. As a result of the $50,000 capital contribution, Wolfe also became one of eight limited partners in Bellerive.1 terms of Bellerive's Partnership Wolfe Agreement, had as Under the (the first

amended to the

"Partnership

Agreement"),

priority

$50,000 in Partnership profits.

Like Wolfe, Nammour and Seikaly

also held both general and limited partnership interests through their business entities.2

Wolfe made his initial capital contribution through Vector Holdings, Inc. ("Vector"), a company in which he had an ownership interest. As a result of the contribution, Vector held a 24% limited partnership interest in Bellerive. By 1989, however, Vector was indebted to the Partnership, apparently as a result of its failure to meet the Partnership's capital calls. Under the Partnership Agreement, Vector's partnership interest was diluted due to the debt. In May, 1990, Vector's Partnership interest, and its debt to the Partnership, were split among its three principals, including Wolfe, and assigned to them with the consent of the other partners. In an amendment to the Partnership Agreement, which was approved by all of the partners, Wolfe was assigned an 8% limited partnership interest in Bellerive, subject to the dilution provisions of the Partnership Agreement. Wolfe never satisfied his share of Vector's debt. Nammour was president of Capital Management, which held a 1% interest as a general partner of the Partnership and served as Managing Partner. In addition, Nammour was president and controlling shareholder of Becnam Corp., which held an 11% interest as a limited partner of the Partnership, and vice(continued...) 2
2

1

To complete the purchase and develop the property, the Partnership ("NBW"). borrowed from the National Bank of Washington

A $300,000 loan was evidenced by a September 24, 1988

note and deed of trust on the property (the "Loan," "Note," and "Deed of Trust"). The Loan was increased to $400,000 in

November 1989.

But the development plans did not proceed as the The Partnership operated at a

Bellerive partners had planned.

loss, despite capital calls and loans from its partners. With no Partnership profits from which to pay the Beavers, Wolfe defaulted on his repayment obligation. Beavers obtained a judgment against Wolfe In May 1991, the and USIG, in the

amount of $124,040.74. represented efforts, the Beavers became

Attorney Carlton M. Green, appellant, in aware that that action. Wolfe's In his collection right to

Green

priority

Partnership profits might be used to satisfy the judgment, and that there might be profits if the Partnership's development and sale plans were successful. interest as Green a sought a charging and order USIG's

against

Wolfe's

limited

partner

interest as a general partner. Court for Anne Arundel County

On October 28, 1993, the Circuit entered a charging order (the

(...continued) president of E.G.A. Properties, Inc., which also had an 11% interest as a limited partner. Seikaly was president of Express Development Corp., which owned both a 1% interest as a general partner and a 29% interest as a limited partner. 3

"Charging Order") appointing Green as the receiver for any share of Partnership profits payable to either Wolfe or USIG, and for "any other money that is or becomes due to said judgment debtors by reason of their partnership interest." In November, the

Partnership was advised of the Charging Order. Meanwhile, unable to develop and sell the property as

planned, the Partnership defaulted on the Note.

At about the

same time, NBW was dissolved, and the FDIC acquired the Note. By April 1994, the Loan balance exceeded $590,000. scheduled a foreclosure sale for July 19, 1994. Seeking to avoid foreclosure, Seikaly and Nammour negotiated with the FDIC to purchase the Note at a discount. agreed to sell the Note for $375,000. The FDIC The FDIC

On May 31, 1994, Seikaly

and Nammour entered into an agreement to purchase the Note from the FDIC. settlement The scheduled settlement date was July 15th. did not occur by July 19th, the FDIC planned If to

proceed with foreclosure scheduled for that date. Seikaly and Nammour then invited all of the Bellerive In a

partners to participate in the purchase of the Note.

letter dated June 11, 1994, they informed the partners about the opportunity to purchase the Partnership's Note at a discount, and invited each partner to participate pro rata in the

purchase.

The letter specified the amount each partner would 4

have to contribute, and included payment instructions.

At the

end of the letter, there were lines to indicate whether the partner "acknowledged, accepted and agreed" or "decline[d] the offer to purchase a share of the Note." The letter further

stated that if payment was not made by July 1, Messrs. Nammour and Seikaly "shall assume you choose not to participate in the Note purchase . . . ." By this time, neither Wolfe nor USIG was active in

Partnership affairs.

Seikaly testified that USIG "went out of The notice

business so they ceased to be a general partner."

letters for Wolfe and USIG were sent via certified mail to the most recent address specified for Partnership correspondence.

But both letters were returned, marked "moved, not forwardable." No notice of the opportunity to purchase the Note was sent to the receiver. The FDIC required the consent of the Partnership to the purchase and assignment of the Note. The partners other than All but three of Note at the

Wolfe and USIG consented to the Note purchase. the partners participated in purchasing

the

discounted price.3

With the Note and Deed of Trust now held in

friendly hands, the Partnership continued efforts to develop and

We shall refer to the partners who participated in the Note purchase as the "Purchasing Partners." 5

3

market the property.

Those efforts included redesigning the

development concept as townhomes, and remarketing the property.

In January, April, and October, 1995, the receiver wrote to the Partnership's counsel to inquire about the status of the Partnership, but received no response. In June 1996, the

receiver filed a complaint for dissolution of the Partnership. He alleged that it was not reasonable to carry on the business at a loss, and that Capital Management had acted unreasonably and had failed to account to the Partnership for any income or expenses. The purpose of the petition was to force a sale of

the property and distribution of the proceeds in accordance with the Partnership Agreement. Shortly after filing the complaint, By

the receiver learned about the discounted Note purchase.4

Consent Order dated December 20, 1996, the receiver agreed to stay his dissolution efforts in order to give the Partnership more time to sell the property. In December 1997, the Partnership was able to sell the

property under the redesigned development concept, at a contract price of $825,000. A Consent Order authorized the sale, but

The receiver testified that "[t]he first time I found out about [the discounted purchase] was August of 1996," but that he did not receive copies of the certified notices mailed to Wolfe and USIG until May of 1998. 6

4

required escrow of $60,000 of the settlement proceeds pending judicial determination of the receiver's claims. On December

30, 1997, $676,374.45 of the settlement proceeds was used toward paying off the Note at its full face value, with none of the loan discount passed through to the Partnership. additional balance due on the Note. There was an

As a result of the discount

purchase, the sale of the property, and repayment of the Note three and a half years later, each of the Purchasing Partners benefitted. After settlement, the receiver sought repayment of the He

$50,000 owed to Wolfe from the $60,000 in escrowed funds. complained that the Purchasing Partners had breached

their

fiduciary duties by (1) failing to notify him of the opportunity to purchase the Note; and (2) failing to obtain the consent of Wolfe or USIG to the purchase. He asserted that because Wolfe

and USIG had not consented to the Note purchase, the Purchasing Partners held any monies they made on the Note for the benefit of the Partnership. If the amount of the Loan discount were

credited back to the Partnership, the receiver argued, there would be ample Partnership profit from which to make the

priority repayment of Wolfe's $50,000. After an evidentiary hearing, Judge Joseph P. Manck of the Circuit Court for Anne Arundel County rejected the receiver's

7

contentions in a written Memorandum Opinion and Order dated June 18, 1998 (the "Order"). The court ruled inter alia that the

receiver was not entitled to notice of the Note purchase, that the Purchasing Partners were not obligated to credit any

proceeds from the Partnership's repayment of the Note back to the Partnership, and that any benefit that the Purchasing The

Partners made on the Note was not "Partnership profit."

court also ruled that $37,500 in settlement proceeds had been improperly paid to Express Development for work to redesign the project concept, and ordered that amount to be credited back to the Partnership. The receiver's motion for reconsideration of

the Order was denied. The court subsequently ordered an accounting. On July 14,

1999, Tim Murphy, CPA, submitted his report and recommendations (the "Murphy Report"). Murphy recommended that the escrowed

$60,000, plus the $37,500 credited back to the Partnership as a result of the Order, should be used inter alia to pay the

remaining debt to the Purchasing Partners on the Note.

Because

the debt on the Note exceeded the total amount available for distribution, Murphy concluded that there were no Partnership profits, and thus, that there was no "profit" with which to pay the receiver's priority claim. On October 14, 1999, the court

ordered distribution of the escrowed funds as recommended in the 8

Murphy Report and entered a final order in accordance with its previous Order. The receiver filed this appeal.

DISCUSSION I. Standard Of Review In an appeal from a bench trial, we "review the case on both the law and the evidence." Md. Rule 8-131(c). If the issue to

which appellant excepts, and on which the court ruled, is a purely legal issue, our review is expansive. G., 107 Md. App. 257, 265 (1995). "The See In re Michael clearly erroneous

standard for appellate review . . . does not apply to a trial court's determinations of legal questions or conclusions of law based on findings of fact." See Heat & Power Corp. v. Air Because there

Prods. & Chems., Inc., 320 Md. 584, 591 (1990).

is no dispute over the trial court's findings of fact in this case, and questions, the we issues must raised by appellant whether the involve trial only court legal was

determine

"legally correct."

See id. at 592.

II. Receiver's Rights Under The Charging Order A. Collection Rights A charging order is a unique tool. Although it has some

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characteristics of both an assignment and an attachment, it is neither. (1979). See Bank of Bethesda v. Koch, 44 Md. App. 350, 354 Charging orders originated as a statutory solution to common law collection procedures "that were ill-

cumbersome

suited for reaching partnership interests."

91st Street Joint

Venture v. Goldstein, 114 Md. App. 561, 567 (1997) (detailing development commentary). creditors partners. use of charging They to are reach orders purely and relevant tools case that of law and

statutory

judgment indebted

partnership

interests

See id.

Indeed, we have characterized a charging

order against a limited partnership interest as "nothing more than a legislative means of providing a creditor some means of getting bastard, at a debtor's ill-defined interest in a statutory protecting corporate

surnamed by

`partnership,' limiting their

but

corporately as are

participants shareholders."

liability

Bank of Bethesda, 44 Md. App. at 354.

Charging orders against a limited partnership interest are governed by Title 10 of the Corporations and Associations

Article ("CA"), known as the Revised Uniform Limited Partnership Act (RULPA).5 Under section 10-705, judgment creditors may

RULPA replaced the Uniform Limited Partnership Act (ULPA) in 1982. See 1981 Md. Laws, Chap. 801. The predecessor to

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