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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 6195 SEPTEMBER TERM, 1998

CHARLES S. SHAPIRO ET AL. v. MARVIN GREENFIELD ET AL.

Moylan, Eyler, Kenney, JJ.

Opinion by Kenney, J.

Filed: November 1, 2000

-1-

This

appeal

arises

out

of

a

derivative

suit

brought

by

minority shareholders, Marvin and Betty Greenfield (appellees), against, Park") among its of a others, officers College and Park Woods, Inc. ("College alleging Park and By

and

directors opportunity

(appellants), of College

usurpation

corporate

seeking an accounting and dissolution of the corporation.

order dated February 23, 1998, the trial court found that the disputed transaction that there constituted were no usurpation disinterested fair and of corporate and the

opportunity, that the

directors, to

transaction

was

not

reasonable

corporation. College Park.

The trial court appointed a single receiver for Appellants filed a timely notice of appeal and

present three issues, which we have re-numbered as follows: I. Whether the trial court's ruling that the Clinton Crossings Shopping Center was a corporate opportunity of College Park was clearly erroneous? II. Whether the trial court erred in appointing a receiver to assume control of a corporation when the trial court did not make the statutorily required findings of illegal, oppressive, or fraudulent conduct by the corporation's directors? III. Whether the trial court erred in not finding that shareholder plaintiffs estopped from challenging a corporate act where shareholder plaintiffs, after being duly notified, elected not to attend the shareholders' meeting where the corporate act was voted upon? FACTUAL BACKGROUND

-3Charles Shapiro was the operating officer for College Park during the relevant time period. included Joan Smith, Charles' Other officers and directors sister, and Michael Shapiro,

Charles' son.1 cousin.

Appellee Marvin Greenfield is Charles Shapiro's

In 1961, College Park acquired approximately 68 acres of land in Prince 72,000 square George's foot County, Plaza on which it constructed the By 1991,

Clinton

shopping

center.

Clinton Plaza was only 50% leased and generating insufficient cash flow. the It was decided that the best use of the land was not of Clinton Plaza, but redevelopment of the

continuation

property into a substantially larger shopping center.

Having

determined that College Park was not capable of redeveloping Clinton Plaza on its own, the directors explored suitable

partnerships or joint ventures, but for some time did not find any. Charles Shapiro, the operating officer of College Park,

subsequently developed a joint venture with S. Bruce Jaffe, an occasional business partner of his with experience developing retail space. entities: Crossings
1

The joint venture required the creation of three Clinton Crossings which Limited was to Partnership own the ("Clinton

1)

Partnership"),

redeveloped

Appellants include Joan Smith and Michael Shapiro.

-4Clinton Plaza shopping center; 2) Clinton Crossings, Inc., which was to be a one percent owner and the general partner of Clinton Crossings Partnership;2 and 3) TSC/Clinton Associates Limited

Partnership ("Clinton Associates"), which was to own forty-nine percent of Clinton Crossings Partnership.3 College Park was to

transfer its fee simple interest in Clinton Plaza to Clinton Crossings Partnership in exchange for a fifty percent limited partnership interest in Clinton Crossings Partnership, the owner of the redeveloped center. everything necessary for Clinton Associates was to contribute the shopping center's redevelopment

with the exception of the land. As a limited partner, College Park would have no rights to manage, direct or control the affairs of Clinton and Crossings Clinton

Partnership.

Clinton

Crossings

Partnership

Associates, on the other hand, would assume the risk associated with the redevelopment, while College Park would assume none. Moreover, College Park would not be obligated to transfer its interest in Clinton Plaza until Clinton Associates had obtained a construction loan, pre-leased at least eighty percent of Phase I space, and obtained a debt coverage ratio of 1 to 1. The

2

Charles Shapiro was to own all the stock of Clinton Crossings, Inc.

Clinton Associates was to be owned by Clinton Crossings, Inc., Charles Shapiro, S. Bruce Jaffe, and Michael Mates.

3

-5agreement further provided that, if Phase II of the development was not completed within five years, any unused portion of the land would revert to College Park. A capital account in Clinton

Crossings Partnership was to be established for College Park, in the amount of $4.00 With per square I foot for to land used 36 in the

redevelopment.

Phase

expected

utilize

acres,

College Park's capital account was funded at $6,272,640. On October 26, 1991, a special meeting of College Park's shareholders was called for the purpose of "considering and

approving a resolution authorizing the corporation to enter into a limited partnership agreement with Clinton Crossings, Inc., ... and TSC/Clinton Associates Limited Partnership..." notice of the meeting included documents that Advance the

described

joint venture in detail.

The notice also provided:

The transaction to be considered at the Special Meeting is an interested director transaction within the meaning of Section 2419 of the Corporations and Associations Article of the Code of Maryland because (i) Charles S. Shapiro and Michael Shapiro are each directors of the Corporation, (ii) Charles S . Shapiro is the sole shareholder of Clinton Crossings, Inc., and (iii) it is expected that Charles S. Shapiro and Michael Shapiro will each have an interest, directly or indirectly, as a limited partner in TSC/Clinton Associates Limited Partnership. Appellees, Marvin and Betty Greenfield did not attend this

-6special meeting.4 voted At for the the meeting, proposal. the shareholders present that

unanimously

Appellees

contend

following the October 26, 1991 meeting, they protested that the votes taken at the meeting were not valid as none of the

directors could be considered disinterested directors and thus their votes as shareholders could not be counted. Appellees

also asserted their right to inspect the corporation's books and records.5 On April 2, by 1992, the College Park at directors the met to ratify and

actions taken

corporation

special

meeting

other occasions. College Park

On April 3, 1993, the appellees visited the and sought inspection of the corporate

offices

books and records.

They viewed the corporation's minute book

and stock ledger, in addition to a series of promissory notes executed by College Park, Charles Shapiro, and other entities which Charles Shapiro owns or controls. When they requested

other documents relating to the transactions described in the April 2, 1992 minutes, they were refused. Appellees filed this

In their complaint, appellees alleged that they did not receive prior notice of the meeting. At trial, however, appellees abandoned the claim of lack of notice, and proceeded to argue that the only persons who voted upon the transaction were interested directors, which made the transaction void, ab initio. Appellees assert that, by letter dated November 6, 1991, they objected to the proposed transaction on this basis. The letter, however, has not been included in the Record Extract to this Court.
5

4

-7suit on July 15, 1992, against College Park and its directors, Charles S. Shapiro, Michael Shapiro, and Joan Smith, requesting "damages, imposition an of accounting, a the appointment trust, costs the and of a receiver, of the the and

constructive fees,

dissolution other

corporation,

attorneys'

legal

equitable relief." Between 1991 and 1994, Shapiro and Jaffe guaranteed over $2 million in bonds and expended over $1 million advertising, and other pre-construction for marketing, Clinton

activities.

Associates also expended over $1 million in risk capital, hiring architects, and engineers. By 1994, Jaffe had secured leases

with Safeway, Caldor, Fashion Bug, Baskin Robbins, and others, had fulfilled all conditions for the construction loan

commitment, and had satisfied the debt ratio and pre-leasing requirements. Without College Park further conveyed shareholder the land action, to on April 20, 1994,

Clinton

Crossings

Limited

Partnership in exchange for a fifty percent interest in Clinton Crossings Partnership and the establishment of a capital account in the amount of $6,272,640. personally guaranteed Clinton Charles Shapiro and Jaffe both Crossings Partnership's $21.5

-8million construction loan with NationsBank.6 It was projected that, upon completion of Phase I of the redevelopment, the project would have a value of $36.5 million and immediately realize an annual positive cash flow of

approximately $1 million. was expected to go from

As a result, College Park's cash flow negative to approximately $500,000

annually. On October 4, 1994, appellees amended their complaint adding CCI, Clinton Crossings Partnership, and Clinton Associates as defendants, and alleged that the Clinton Crossings redevelopment was a corporate opportunity that belonged to College Park and was usurped by the appellants. The matter was tried before the Circuit Court for Montgomery County from May 1 to May 4, 1995. On June 29, 1995, the trial

court entered an interlocutory order granting appellees' request for an accounting, and appointed a special master to determine specific factual issues. The special master filed his Report of

Factual Findings, Conclusions, and Recommendations ("Report") on October 17, 1997. In the Report, the master concluded:

These determinations will have significant impact on the relative financial positions of the parties. I have made these recommendations for legal decisions to the Court, since I am not a lawyer and do not
6

At the time, Shapiro and Jaffe had a combined net worth of $40 million.

-9believe I possess the appropriate expertise to make ultimate legal findings on these two issues. However, I did perform fact finding and analysis on these two issues to aid the Court in its decision. These specific issues I recommend for legal decisions are: (1) The legality and appropriateness of the [College Park] board approval of the numerous related party loans made from CPWI to Mr. Shapiro and other Shapiro owned companies (the so called Interested Director issue). (2) The legality of [College Park's] retroactive imposition of the fees inherent in the June 1982 Management Agreement between [College Park] and CSS Management. No exceptions were taken to the Report. On December 2, 1997, appellees filed a motion to appoint a receiver for College Park. Hearings on the motion were held on A of

December 18, 1997, January 8, 1998, and February 9, 1998. suggestion of bankruptcy for Charles Shapiro, president

College Park, was filed on February 6, 1998.

On February 23,

1998, the trial court granted appellees' motion, appointing a single receiver for College Park, and a separate single receiver for other related Shapiro corporations,7 stating that "the

appointment of specific receivers and the duties and powers of the receivers shall be the subject of a further order by the Court." Appellants filed a notice of appeal. On March 27,

1998, the trial court appointed Neil H. Demchick as the receiver

7

The appointment of a receiver for the other related entities is not at issue in this appeal.

-10for College Park, specifying his powers and duties. MOTION TO DISMISS Prior to filing briefs in this appeal, appellees filed a motion to dismiss, arguing that appellants "appealed the wrong order." They asserted that the February 23, 1998 order did not

"appoint any receivers, and most importantly, it did not set forth the powers of any such receivers or terms upon which their appointment was conditioned." They contend that the February

order was an "interlocutory order apprizing the parties of the court's intent to enter a subsequent final order on the issue" and thus, unappealable. dismiss "without This Court denied appellees' motion to to appellees' right to move for

prejudice

dismissal in their brief." their brief.

Appellees renewed their motion in

Maryland Code (1974, 1998 Repl. Vol.),

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