Leventhal v. Five Seasons Partnership, 84 Md.App. 603 (1990). Charging Order and Receiver
Opinion 1990 Maryland Receiver Site.Opinion1990MarylandLeventhalChargingOrderReceiver
Related Article: None.
AI Synopsis
♦ Judgment creditor Stephen Leventhal and receiver Stephen Trattner appealed after the Montgomery County Circuit Court dismissed with prejudice their complaint seeking dissolution and winding up of Five Seasons Partnership. Leventhal had obtained a charging order against the interests of judgment debtors Juan and Lelia Imas Gruner in various partnerships, including Five Seasons, and Trattner was appointed receiver under that order. Five Seasons, a Maryland general partnership, included as partners entities associated with the Gruners and an Argentine corporation (SKB) whose principals allegedly overdrew the partnership capital account by $300,000 and improperly received over $1 million, while partnership counsel held in escrow funds owed to Five Seasons by a related entity. The trial court dismissed on the view that the charging-order procedure was the proper remedy, but the Court of Special Appeals held this was error. Relying on Maryland’s Uniform Partnership Act and prior Maryland precedent (Rector v. Azzato), the appellate court explained that a receiver appointed under a charging order “stands in the shoes” of the debtor-partner and may seek court action, including dissolution and winding up; it also noted statutory authority allowing a holder of a charging order to petition for dissolution. The court reversed and remanded for the trial court to determine whether dissolution and/or winding up should be ordered, with costs assessed against appellees. ♦
Leventhal v. Five Seasons Partnership, 84 Md.App. 603 (1990).
Court of Special Appeals of Maryland.
Stephen LEVENTHAL, et al.
v.
FIVE SEASONS PARTNERSHIP, et al.
No. 1946, Sept. Term, 1989
Nov. 2, 1990.
Attorneys and Law Firms
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Stephen Leventhal of Bethesda and Stephen Trattner, Washington, D.C., for appellants.
Robert J. Beagan and Jonathan A. Gerlach (Flinn & Beagan, on the brief), Vienna, Va., for appellees.
Before GARRITY, ALPERT and CATHELL, JJ.
Opinion
CATHELL, Judge.
Appellants, Steven Leventhal and Steven Trattner, appeal from an order of the Circuit Court for Montgomery County dismissing with prejudice, and as final, their complaint against Five Seasons Partnership (“Five Seasons”) which requested as relief the dissolution of that partnership.
Mr. Leventhal, a judgment creditor of Juan and Lelia Imas Gruner, obtained a charging order against the Gruners' interests in several partnerships; among them, Five Seasons. Mr. Trattner is a receiver appointed under that charging order. Five Seasons is a Maryland general partnership. Its partners are Spinelli, Kehiayan–Berkman, S.A. (“SKB”), an Argentine corporation the principals of which are foreign nationals, and Imas–Gruner, A.I.A., a Maryland partnership in which the Gruners are the sole partners.
The principals of SKB have overdrawn its capital account in Five Seasons by $300,000. In addition, the principals of SKB have received over $1,000,000 from Five Seasons which was not due them from the partnership. The attorney for Five Seasons, Robert Beagan, who is also counsel to Strathmore Limited Partnership (“Strathmore”), in which Five Seasons is a general partner, holds Strathmore funds in escrow which are owed to Five Seasons by Strathmore.
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Appellants note in their brief that Five Seasons was ordered dissolved by the United States District Court for Maryland during other litigation between SKB and the Gruners. In addition, appellants note that Five Seasons should have been dissolved, pursuant to Md.Corps. & Ass'ns Code Ann., § 9–602 and § 9–603, as a result of the Gruners' bankruptcy, and because the partnership has no assets and can therefore carry on business only at a loss. Notwithstanding the several reasons why dissolution of Five Seasons should have, or could have occurred, SKB and its principals continue to operate Five Seasons, thus avoiding repayment of the sums which they owe to Five Seasons.
Md.Corps. & Ass'ns Code Ann. § 9–611 provides that, in settling accounts between partners after a dissolution, the partners must contribute funds sufficient to cover all debts to creditors other than partners, debts to partners other than capital and profits, and capital and profits due to partners. Upon the dissolution of Five Seasons, therefore, the principals in SKB will have to repay the overdraft which they created in Five Seasons' capital account, as well as the sum they took from Five Seasons without entitlement. Mr. Beagan will be required to repay the sum which Strathmore owes to Five Seasons.
The court has appointed Mr. Trattner, as Receiver, to stand in place of the Gruners with regard to money due them from Five Seasons. Mr. Leventhal, as a judgment creditor and lienholder of Mr. and Mrs. Gruner, stands in their places as a creditor of Five Seasons. Mr. Trattner and Mr. Leventhal filed a complaint in Montgomery County Circuit Court, requesting that the court order dissolution of Five Seasons, to wind up the partnership business pursuant to the ordered dissolution, including requests for accounting, repayment of excess capital, and reimbursement of improperly removed funds. Five Seasons and the principals of SKB filed a motion to dismiss for failure to state a claim upon which relief could be granted. At a hearing on the motion to dismiss, the trial judge opined:
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Appellants allege error on the part of the trial judge in granting the motion to dismiss with prejudice. We agree that the dismissal of the action was error.
Appellants present several questions for our review relating, inter alia, to the standing of a receiver and a person holding a charging order to: (1) bring an action to dissolve and wind up that partnership; (2) request an accounting; and, (3) bring an action against other partners for conversion. As support for their position that they are entitled to petition the court for the dissolution and winding up of the business of Five Seasons, appellants cite case law from Pennsylvania and California. They further cite Rector v. Azzato, 74 Md.App. 684, 539 A.2d 1162 (1988).
We said in Rector, at 691, 539 A.2d 1162, “[t]o summarize, the partnership rights and interests that are acquired by an assignee of a partner are the same rights that can be reached, through a charging order, by a judgment creditor of a partner.” We further stated [74 Md.App.] at 691, 539 A.2d 1162, “[t]he court may even appoint a receiver.... The receiver may do whatever the debtor partner could do by way of orders, directions, accounts, or inquiries. § 9–505.” In the case at bar, Stephen Trattner is a receiver appointed under the charging order. He thus stands in the shoes of the debtor and is entitled to do that which the debtor/partner could have done.
Md.Corps. & Ass'ns Code Ann. § 9–602 (1985 Repl.Vol.) provides that among the causes for dissolution is the PAGE_607 bankruptcy “of any partner or the partnership” or “[b]y decree of court under Section 9–603.” Section 9–603 provides that a court may decree a dissolution whenever
fn1.
We note that Five Seasons Partnership has already been ordered to dissolve by the United States District Court.
Section 9–608 states:
Section 9–609 states in part: “When dissolution is caused in any way ... each partner ... may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners.”
Thus, we hold, as we held in Rector, that the receiver in the case at bar stands in the shoes of the debtor/partner subject to the charging order. He thus has the right, under the circumstances of this case, to seek further court action in respect to dissolution and the winding up of the affairs of Five Seasons Partnership.
We note, additionally, that a provision of Maryland's Uniform Partnership Act, Md.Corps. & Ass'ns Code Ann. § 9–603(b) provides that a person holding a charging order may petition the court for dissolution of the partnership. That section provides:
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fn2.
Section 9–505 of Maryland's Uniform Partnership Act is the section providing for the issuance of a charging order.
- (1) After the termination of the specified term or particular understanding;(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. [emphasis added]
Section 9–603(a) and (b) and our holding in Rector make it clear that Mr. Leventhal, as the holder of a charging order against Five Seasons and Mr. Traftner as a receiver appointed pursuant to that charging order, are entitled to petition the circuit court for dissolution of the partnership and the winding up of its affairs. We must therefore remand the matter to the trial court for a determination as to whether such a dissolution and/or winding up is in order.
In light of our decision, we need not further address the remaining questions presented by either appellants or appellees.
JUDGMENT OF THE CIRCUIT COURT FOR MONTGOMERY COUNTY REVERSED; CASE REMANDED TO THAT COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION; COSTS TO BE PAID BY APPELLEES.