Thomas v. Bozick , 217 Md. App. 332 ( 2014 )

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 0269
September Term, 2013
JAMES R. THOMAS, JR.
v.
PETER A. BOZICK, JR., ET AL.
Woodward,
Wright,
Thieme, Raymond G., Jr.
(Retired, Specially Assigned),
JJ.
Opinion by Woodward, J.
Filed: May 28, 2014
On December 31, 2010, James R. Thomas, appellant, retired as the managing member
of the architectural firm George, Miles & Buhr, LLC (“GMB”), and of GMB Plaza, LLC
(“GMB Plaza”), the latter a limited liability company created for the sole purpose of owning
the building in which GMB operates (“the Property”). Upon appellant’s retirement, the
GMB Plaza Operating Agreement (“Operating Agreement”) required appellant to offer to
sell his interest in GMB Plaza to GMB Plaza. The remaining members of GMB Plaza were
appellees, Peter A. Bozick, Jr., Judith A. Schwartz, individually and as Trustee of the Judith
A. Schwartz Revocable Trust, James H. Willey, Jr., and Charles M. O’Donnell.
GMB Plaza declined to purchase appellant’s interest after appellees determined that
the method for fixing the purchase price for appellant’s interest set forth in the Operating
Agreement no longer reflected the fair market value of the Property. Appellees also decided
to reduce the rent GMB paid for use of the Property, because a September 2010 appraisal
showed that the current rental rate was 60% higher than prevailing market rates. After
obtaining new appraisals of the Property in June 2011, appellees decided to sell the Property.
After selling the Property, GMB Plaza sent appellant a distribution check reflecting his
portion of the proceeds from the sale based on his 48% interest in GMB Plaza.
On December 20, 2011, appellant filed a complaint in the Circuit Court for Wicomico
County, claiming that appellees breached the Operating Agreement by selling the Property,
reducing the rent, and failing to include appellant in meetings and decisions regarding the
Property’s sale. Appellees moved for summary judgment, which the circuit court granted on
March 14, 2013.
Appellant appealed, presenting three issues for our review, which we have condensed
into one question:1 Did the circuit court err in granting appellees’ motion for summary
judgment? For the reasons set forth below, we answer that question in the negative and
affirm the judgment of the circuit court.
BACKGROUND
Appellant was a member of the architectural firm GMB from 1969 until December
31, 2010 when he retired. GMB has an office located in the Property at 206 West Main
1
Appellant’s questions as presented in his brief were:
1. Whether the circuit court erred by granting summary judgment
after making numerous, disputed factual findings, including that
appellees 1) acted in good faith when they secretly dissolved and
bought the [Property] from themselves at a lower price; 2) sold the
building for “fair market value” when it was substantially less than
previously agreed upon; and 3) did not breach any fiduciary duties
owed to the appellant by intentionally lowering the rent of the
building to artificially reduce its appraised value, when all of these
factual findings were disputed by appellant[.]
2. Whether the circuit court erred when it held, as a matter of law,
that 1) appellant ceased being a member of GMB Plaza upon his
retirement; and 2) appellant lost all membership rights in GMB Plaza
even though his purchase offer for his membership interests was never
accepted by appellees[.]
3. Whether the circuit court erred when it held, as a matter of fact and
law, that the operating agreement was not breached, when majority
members of GMB Plaza intentionally disregarded the buy-sell
provisions set forth in their operating agreement, dissolved the entity,
formed a new entity, and sold assets to themselves for an artificially
low sales price[.]
2
Street in Salisbury, Maryland. During appellant’s tenure with GMB, the Property was owned
by GMB Plaza, a limited liability company that was governed by the Operating Agreement.
Prior to appellant’s retirement on December 31, 2010, appellant and appellees comprised
GMB Plaza’s members.
Near the end of 2009, appellant announced his plan to retire. At that time, appellant
was the managing member of both GMB and GMB Plaza. In preparation for appellant’s
retirement, on November 1, 2010, GMB Plaza elected Bozick to become the new managing
member of GMB Plaza.
On December 31, 2010, appellant retired from GMB. Pursuant to the Operating
Agreement of GMB Plaza, appellant’s retirement from GMB triggered his involuntary
withdrawal from GMB Plaza, and an automatic offer to sell his interest in GMB Plaza to
GMB Plaza.2 GMB Plaza had the option to purchase appellant’s interest within sixty days
of January 1, 2011. The purchase price of the option was to be determined based upon a
formula set forth in the Operating Agreement. As of January 1, 2011, the total value of the
Property based on the Operating Agreement’s formula was $1,221,671.00.
At a meeting on February 16, 2011 appellees unanimously decided that the
$1,221,671.00 value as determined by the Operating Agreement was no longer representative
of the fair market value of the Property. The decision was based on two appraisals completed
2
The Operating Agreement states that a member who is involuntarily withdrawn
offers to sell his “Membership Rights.” What “Membership Rights” are in fact encompassed
under the Operating Agreement is discussed in Section I, infra.
3
by The Trice Group, a certified real estate appraisal company, in September 2010 while
appellant was still the managing member of GMB Plaza. The Trice Group used two
approaches—the sales approach and the income approach—to value the Property. Using the
sales approach, The Trice Group valued the Property at $875,000.00; under the income
approach, the Property was valued at $760,000.00. As a result of The Trice Group’s
appraisals, GMB Plaza declined to exercise its right to purchase appellant’s interest in GMB
Plaza. Appellant was notified of the decision the following day.
The September 2010 income approach appraisal also revealed that the rent GMB had
been paying to GMB Plaza for use of the Property was approximately 60% higher than
prevailing market rates. Consequently, Bozick, on behalf of GMB, submitted a formal
request to GMB Plaza to reduce the rent retroactive to January 1, 2011. On or about
February 16, 2011, the members of GMB Plaza unanimously approved the request for a
reduction in rent retroactive to January 1, 2011.
In an effort to determine the true value of GMB Plaza, appellees commissioned a
second set of appraisals from The Trice Group. The resulting appraisals, dated June 9, 2011
and June 30, 2011, respectively, valued the Property at $830,000.00 using the sales approach,
and $700,000.00 using the income approach.
On July 13, 2011, appellees sent appellant a letter with the results of the June 2011
appraisals. The letter offered to purchase appellant’s interest based on a property value of
$760,000.00, i.e. slightly less than the average of the sales approach and income approach
4
values. Appellant rejected the offer in an email dated August 10, 2011
On October 20, 2011, the members of GMB Plaza unanimously voted to dissolve
GMB Plaza and sell the Property to a newly formed entity, GMB Properties, for $765,000.00,
the average of the June 2011 sales approach and income approach values. GMB Properties
was to be composed of appellees plus an additional member of GMB who did not have an
interest in GMB Plaza, with each member owning 20% of the interest in GMB Properties.
On October 28, 2011, GMB Plaza notified appellant of its decision to sell the Property
to GMB Properties for $765,000.00. Appellant also was informed that settlement of the sale
was anticipated to take place between December 1, 2011 and December 15, 2011. Settlement
on the sale of the Property to GMB Properties took place on December 14, 2011.
Appellant was informed of GMB Plaza’s sale of the Property to GMB Properties on
December 20, 2011 via a Liquidation and Dissolution Notice. The Notice included a
distribution check for $270,394.60, which appellant later deposited. On December 20, 2011,
the same day appellant received the Liquidation and Dissolution Notice, appellant filed a
complaint in the circuit court against appellees.3
In his amended complaint, filed on August 10, 2012, appellant alleged that appellees
3
On February 3, 2012, appellees filed a Motion to Dismiss or in the Alternative for
Summary Judgment and a Memorandum in Support, arguing that appellant’s depositing of
the check was an accord and satisfaction. The circuit court denied appellees’ motion without
prejudice on May 4, 2012. Appellees did not file a cross-appeal or conditional cross-appeal
from that decision.
5
breached the Operating Agreement.4 The breach of contract claim rested on four allegations:
(1) that appellees wrongfully failed to give appellant notice of, and to allow appellant to
participate in, GMB Plaza meetings after January 1, 2011; (2) that appellees wrongfully
changed the method of determining fair market value for the purchase of the Property; (3)
that appellees breached their fiduciary duties by lowering the purchase price of the Property
and buying it back themselves at the lower price; and (4) that appellees intentionally and
artificially decreased the rent in order to also decrease the payout to appellant.
On December 21, 2012, appellees filed a Motion for Summary Judgment and
Memorandum of Law in Support Thereof. On January 8, 2013, appellant filed a response
to appellees’ motion for summary judgment. The circuit court held a hearing on the motion
on March 14, 2013. The court orally ruled in favor of appellees at the hearing, and entered
4
The amended complaint also asserted that appellees’ engaged in a civil conspiracy
to defraud appellant. The circuit court determined that there was no merit to this claim,
stating:
[A] civil conspiracy is an agreement or understanding between two or
more persons to accomplish an unlawful act or to use unlawful means
to accomplish an act not in itself illegal. Here, there is no evidence
that [appellees] ever had an understanding to accomplish an illegal act
or to use unlawful means to accomplish an act not itself illegal. In
fact, there was no unlawful or illegal act by any of [appellees],
whatsoever. In addition, there is no evidence that [appellees]
defrauded [appellant]. There is, quite simply, no factual or legal basis
for this [conspiracy] Count. [Appellees] are correct that there are no
disputes of material fact and [appellees] are entitled to judgment as a
matter of law as to this Count.
Appellant does not challenge the trial court’s determination in this regard on appeal.
6
its written Opinion and Order granting the motion for summary judgment on March 18, 2013.
The Opinion stated that on appellant’s retirement, he disassociated himself with GMB Plaza
and thus lost all membership rights in the company. Because appellant did not retain his
membership rights, the court concluded that appellant was not entitled to notice of GMB
Plaza meetings and that appellees could determine the fair market value of the Property
without appellant’s consent. The court also decided that there was no genuine dispute as to
the fair market value or the fair rental value of the Property. The court thus concluded that
appellees were entitled to judgment as a matter of law.
Appellant timely filed this appeal of the circuit court’s decision. Additional facts will
be set forth below as necessary.
STANDARD OF REVIEW
“A trial court’s grant of a summary judgment motion is proper
if there is no genuine dispute as to any material fact and . . . the party
in whose favor judgment is entered is entitled to judgment as a matter
of law. Maryland courts hold that a material fact is a fact the
resolution of which will somehow affect the outcome of the case.
Once the moving party provides the trial court with a prima
facie basis in support of the motion for summary judgment, the
non-moving party is obliged to produce sufficient facts admissible in
evidence, if it can, demonstrating that a genuine dispute as to a
material fact or facts exists. These tendered facts should be given
under oath, based on the personal knowledge of an affiant. Bald,
unsupported statements or conclusions of law are insufficient.
If no genuine dispute of material fact is found to exist, a court
then considers whether the movant is entitled to judgment as a matter
of law. On appellate review of the grant of summary judgment, we
review the trial court’s conclusions of law de novo. As we consider
7
the trial court’s conclusions of law, we construe the facts properly
before the court, and any reasonable inferences that may be drawn
from them, in the light most favorable to the non-moving party.”
Dolan v. McQuaide, 215 Md. App. 24, 31 (2013) (alteration in original) (internal citations
and quotation marks omitted) (quoting Dual Inc. v. Lockheed Martin Corp., 383 Md. 151,
162 (2004)).
DISCUSSION
I. Appellant’s Continued Membership in GMB Plaza
Appellant argues that his membership rights in GMB Plaza did not dissolve on
December 31, 2010 when he retired. According to appellant, because appellees, through
GMB Plaza, did not exercise the option to purchase appellant’s interest in GMB Plaza,
appellant retained all of his membership rights in GMB Plaza after the sixty-day purchase
period expired. In addition, appellant contends that the plain language of the Operating
Agreement and relevant sections of the Corporations and Associations Article of the
Maryland Code require that appellant retain his right to vote and participate in the
management of GMB Plaza as a result of the failure to purchase appellant’s interest in GMB
Plaza.
Appellees counter that appellant was not a member of GMB Plaza after his retirement
on December 31, 2010, and thus did not retain any membership rights.5 According
5
Appellees argue that appellant is judicially estopped from contending that his
membership rights in GMB Plaza continued after GMB Plaza declined to exercise its option
(continued...)
8
5
(...continued)
to purchase, because he acknowledged, in his response to appellees’ motion to dismiss, that
his membership in GMB and GMB Plaza was lost upon retirement. In response to appellees’
motion to dismiss, appellant stated: “Upon [appellant’s] retirement, [appellant] lost his
membership status and became an assignee of his 48% membership interest without a right
to participate in voting or management of the entity upon his retirement.” In response to
appellees’ motion for summary judgment, however, appellant argued:
It is [appellant’s] position that the Operating Agreement of GMB
Plaza [ ] mandates that, upon leaving the employ of GMB, he make an
Involuntary Withdrawal Offer to sell his Membership Rights to the
Company which, if accepted, would divest him of his economic
interest in the company as well as his right to vote, participate in
management and inspect the Company’s books and records.
However, if the Company elects not to accept his Withdrawal
Offer that interest and those rights remain vested in him.
On appeal, appellant continues to assert that his membership rights remained vested in him
once GMB Plaza declined his offer to sell.
Although appellant has asserted inconsistent positions regarding his membership
status in GMB Plaza, judicial estoppel is inappropriate in the present case. First, judicial
estoppel only applies to a position taken in a subsequent action that is inconsistent with a
position taken in a previous action. See Dashiell v. Meeks, 396 Md. 149, 170 (2006).
Second, “‘the party sought to be estopped must assert a position inconsistent with that taken
in prior litigation and the position must be one of fact rather than law or legal theory.’”
Vogel v. Touhey, 151 Md. App. 682, 711 (emphasis added) (quoting Sedlack v. Braswell
Servs. Grp., Inc., 134 F.3d 219, 224 (4th Cir. 1998)), cert. denied, 378 Md. 617 (2003).
Because appellant’s status as a member of GMB Plaza after January 1, 2011, is a legal
question requiring us to interpret the Operating Agreement and the Corporations and
Associations Article of the Maryland Code, and because the inconsistent positions arose in
the same action, judicial estoppel may not be applied to the case sub judice.
Appellant also did not waive on appeal his right to assert that his membership in GMB
Plaza continued after his retirement, despite his inconsistent positions in the trial court. “In
the appellate setting, the general waiver rule holds that ‘a voluntary act of a party which is
inconsistent with the assignment of errors on appeal normally precludes that party from
obtaining appellate review.’” Brockington v. Grimstead, 176 Md. App. 327, 351 (2007)
(quoting Franzen v. Dubinok, 290 Md. 65, 69 (1981)), aff’d, 417 Md. 332 (2010). The Court
(continued...)
9
to appellees, they did not owe appellant any legal or contractual duty to include him in or
notify him of management decisions, because under the language of the Operating
Agreement and the Corporations and Associations Article of the Maryland Code, appellant’s
membership in GMB Plaza ceased upon his retirement and his status became one of an
assignee of an economic interest. Appellees also argue that it would be illogical for
appellant’s non-economic rights in GMB Plaza to be lost on retirement and then reinstated
at the end of the sixty-day option to purchase period if the option was not exercised.
When a member of GMB Plaza ceases to be an employee of GMB, such as when that
member retires, Section I of the Operating Agreement defines the end of employment with
GMB as an “involuntary withdrawal” of the member from GMB Plaza. Section 6.3 of the
Operating Agreement makes clear that such withdrawal is involuntary, because“[n]o Member
[of GMB Plaza] shall have the right or power to voluntarily withdraw from the Company.”
Appellant’s retirement from GMB thus caused him to involuntarily withdraw as a member
from GMB Plaza.
A member’s involuntary withdrawal triggers Section 6.5 of the Operating
Agreement—“Option to Purchase in Event of Involuntary Withdrawal Other than Death.”
5
(...continued)
of Appeals, however, stated that “waiver by acquiescence is limited to a party’s
post-judgment conduct.” Exxon Mobil Corp. v. Ford, 433 Md. 426, 463 (2013). Because
appellant’s inconsistent positions were taken during the course of the trial proceeding, not
post-judgment, appellant did not waive his right to assert that he continues to be a member
of GMB Plaza.
10
Section 6.5 reads:
In the event of an Involuntary Withdrawal of a Member for any reason
other than the Member’s death, the withdrawn member shall be
deemed to have offered to sell to the Company all of the
Membership Rights owned of record and beneficially by the
withdrawn Member (the “Withdrawal Interest”) at and for the
Purchase Price determined in accordance with Section 6.6 and on
the Payment Terms set forth in Section 6.7. The Withdrawal Offer
shall [ ] remain open for a period of sixty (60) days following the
date of the Involuntary Withdrawal. At any time during this
period, the company may accept the Withdrawal Offer by notifying
the withdrawn Member of its acceptance. The withdrawn Member
shall not be deemed a Member or manager for the purpose of the vote
on whether the Company will accept the Withdrawal Offer. If the
Company accepts the Withdrawal Offer, the notice of acceptance shall
fix a closing date for the purchase which shall not be not [sic] earlier
than ten (10) days or later than one hundred eighty (180) days after the
expiration of the Withdrawal Period.
(Emphasis added).
Because the Operating Agreement is silent on what happened in the instant case,
namely GMB Plaza elected not to exercise the option to purchase, we turn to the Maryland
Limited Liability Company Act to fill in the gap. Under Maryland Code (1975, 2007 Repl.
Vol., 2013 Cum. Supp.), § 4A-606(2) of the Corporations and Associations Article (“C.A.”),
a person ceases to be a member of a limited liability company, such as GMB Plaza, when that
person is removed as a member in accordance with the company’s operating agreement.
When a person is removed, the company may, but is not required to purchase that person’s
membership interest. C.A. § 4A-606.1(a). Pursuant to C.A. § 4A-606.1(b),
[i]f a person ceases to be a member of a limited liability company
under § 4A-606 of this subtitle and the limited liability company
11
elects not to completely liquidate the person’s membership
interest under § 4A-606.1(a) of this subtitle, that person will be
deemed to be an assignee of the unredeemed economic interest
under §§ 4A-603 and 4A-604 of this subtitle.
(Emphasis added).
An assignee is not a member of the limited liability company, and may not exercise
any of the rights of a member. C.A. § 4A-603(b)(2). An assignee may become a member
only if (1) the terms of the operating agreement provide a method for that person to become
a member, (2) the current members unanimously consent to the assignee becoming a
member, or (3) there are no remaining members of the limited liability company when the
assignee obtains the economic interest. C.A. § 4A-604(a).
Combining the Operating Agreement and C.A. § 4A-606, we conclude that appellant’s
retirement from GMB caused him to cease being a member of GMB Plaza. His retirement
gave GMB Plaza the option to purchase appellant’s membership interest in accordance with
the Operating Agreement and C.A. § 4A-606.1(a). When GMB Plaza declined to exercise
its purchase option, however, appellant became an assignee of the unredeemed economic
interest pursuant to C.A. § 4A-606.1(b). As an assignee, appellant was divested of his
membership status in GMB Plaza, unless (1) the Operating Agreement contained a method
for assignees to become members, (2) the members of GMB Plaza unanimously voted to
make appellant a member again, or (3) no members of GMB Plaza remained. See C.A.
§§ 4A-603(b)(2), 4A-604(a). Because none of these conditions occurred, appellant was only
an assignee of his unredeemed economic interest and not a member of GMB Plaza after his
12
retirement on December 31, 2010.
Appellant contends, however, that, because Section 6.5 of the Operating Agreement
required that he offer to sell his “Membership Rights” to GMB Plaza upon his retirement,
and “Membership Rights” under Section I of the Operating Agreement expressly included
the “right to participate in the management of and vote on matters coming before [GMB
Plaza],” he necessarily had to own and retain those voting and participation rights at the time
of the offer and could not have been divested those rights. In our view, for appellant to have
retained his membership rights, appellant was required to be a member of GMB Plaza.6 C.A.
§ 4A-101(m) defines a member of an LLC as “a person who has been admitted as a member
of a limited liability company under [C.A.] § 4A-601 . . . and who has not ceased to be a
member.” (Emphasis added). Under the Operating Agreement, appellant involuntarily
withdrew as a member of GMB Plaza when he “cease[d] to be an employee of [GMB].”
When he withdrew as a member of GMB Plaza because of his retirement from GMB,
appellant “ceased to be a member” of GMB Plaza and thus lost his membership rights,
including the right to participate in the management of and to vote on company matters. The
only membership interest appellant retained after his retirement and involuntary withdrawal
was his economic interest, which GMB Plaza had the option to purchase. See C.A.
§§ 4A-603(b)(2), 4A-606.1(b).
6
“Membership Rights” as defined in the Operating Agreement include “all of the
rights of a Member in [GMB Plaza]. . . .” (Emphasis added).
13
Moreover, section 6.5 required appellant to sell “all of the Membership Rights owned
of record and beneficially by the withdrawn Member . . . at and for the Purchase Price
determined in accordance with Section 6.6 . . . .” (Emphasis added). Section 6.6, entitled
“Purchase Price” provides, in relevant part, that
[u]nless otherwise agreed by the parties to the transaction, the price
to be paid for the purchase and sale of a Member’s Interest, in
part or in whole, (“Purchase Price”) shall be equal to the product
obtained by multiplying (a) the Percentage Interest and Membership
Rights owned by the Transferor by (b) the “Fair market Value of
[GMB Plaza’s] Assets” as determined in accordance with Section
6.6.2.
(Emphasis added). Therefore, when Sections 6.5 and 6.6 are read together, it is clear that the
“Membership Rights owned of record and beneficially by the withdrawn Member” refer only
to appellant’s “Interest” in GMB Plaza, which is defined in Section I as his “share of the
Profits and Losses of, and the right to receive distributions from, [GMB Plaza].” 7
Appellant also argues that C.A. § 4A-606.1, which outlines the basic procedures for
purchasing or not purchasing a former LLC member’s economic interest, does not apply
when an operating agreement sets forth different procedures than the statute, because the
7
Our interpretation of Sections 6.5 and 6.6 is consistent with Section 6.4, entitled
“Mandatory Purchase in Event of Death.” Using the same language as in Section 6.5,
Section 6.4 requires GMB Plaza to purchase “all of the Membership Rights owned of record
and beneficially by the Deceased Member . . . at and for the Purchase Price determined in
accordance with Section 6.6 . . . .” It is physically impossible for any deceased Member of
GMB Plaza to exercise the membership rights of voting and participation claimed by
appellant to be part of the “Membership Rights” subject to sale to GMB Plaza upon
involuntary withdrawal. Again, Section 6.6 provides for only the purchase and sale “of a
Member’s Interest.”
14
statute is simply a “default provision.” Appellant contends that, because the Operating
Agreement “does not mandate that a member divest or abandon his membership rights upon
retirement,” appellant continued to own all of his membership rights when GMB Plaza
declined to purchase his interest in GMB Plaza. Appellees counter:
This is illogical and defies both C.A. § 4A-604 and the Operating
Agreement. The Operating Agreement does not contain any
provision providing for a withdrawn member to leap back into
membership status after the 60-day purchase option period
expires. If this were the intended result, then there would not be an
automatic and involuntary withdrawal upon a member’s ceased
employment at GMB. Rather, there would be some sort of 60-day
option window in which the company could elect to buy the retired
member’s interest and the retired member would continue to be a
member until his interest was purchased. No provision allows the
withdrawn member to become a member again after the 60-day
option period expires.
(Emphasis added). We agree with appellees.
C.A. § 4A-606.1 reads in full:
(a) Liquidation of interest.—Unless otherwise agreed, if a person
ceases to be a member of a limited liability company under § 4A-606
of this subtitle, and the limited liability company is not dissolved as
a result, then, within a reasonable time after the person ceased to be
a member, the limited liability company may elect to pay the
person or the person’s successor in interest, in complete
liquidation of the person’s membership interest, the fair value of
the person’s economic interest in the limited liability company as of
the date the person ceased to be a member, based upon the person’s
right to share in distributions from the limited liability company.
(b) Assignation of interest.—If a person ceases to be a member of
a limited liability company under § 4A-606 of this subtitle and the
limited liability company elects not to completely liquidate the
person’s membership interest under § 4A-606.1(a) of this subtitle,
15
that person will be deemed to be an assignee of the unredeemed
economic interest under §§ 4A-603 and 4A-604 of this subtitle.
(Emphasis added).
First, contrary to appellant’s assertion, the Operating Agreement supersedes only
C.A. § 4A-606.1(a)—the provision which applies when the LLC elects to purchase the
withdrawn member’s economic interest. The plain language of the statute provides that the
Operating Agreement does not supersede C.A. § 4A-606.1(b)—the provision that applies
when the LLC declines to purchase the withdrawn member’s economic interest.
Second, even if the Operating Agreement could supersede the provisions of
C.A. § 4A-606.1(b), the Operating Agreement has no provision that allows for appellant to
rejoin GMB Plaza instead of remaining an assignee of an economic interest at the expiration
of the sixty-day option to purchase. Without a provision in the Operating Agreement to
supersede C.A. § 4A-606.1(b), the statutory requirements apply. Consequently, pursuant to
C.A. § 4A-606.1(b) appellant’s retirement and GMB Plaza’s decision not to purchase
appellant’s economic interest in GMB Plaza caused appellant to become an assignee of the
unredeemed economic interest without any other membership rights.
In sum, appellant’s membership in GMB Plaza ended upon his retirement, and only
his economic interest in GMB Plaza, of which he was an assignee, remained. As an assignee,
appellant could not partake in the management of GMB Plaza or vote on company matters.
He was not entitled to notice of meetings of GMB Plaza, nor could he participate in the
decision to sell the Property or decide on the Property’s fair market value. The circuit court
16
did not err in reaching this conclusion.
II. Reduced Rent
Appellant contends that appellees breached the Operating Agreement by decreasing
the rent charged to GMB for use of the Property, because the rent reduction was designed to
decrease the Property’s appraised value under the income approach. According to appellant,
appellees intended to defraud appellant by “secretly lowering the rent to obtain an artificially
low price” from which the payout to appellant would be less than previously agreed.
Appellees respond that the circuit court properly granted summary judgment regarding
the reduced rent paid by GMB to GMB Plaza, “because [1] no provision in the Operating
Agreement was implicated by the reduction in rent; and because . . . [2] [a]ppellant offered
nothing to refute [a]ppellees’ expert evidence that the reduced rent was at a market rate.”
Appellees also contend that the Operating Agreement permitted the managing member to set
the rent and thus the reduction in rent did not violate the Operating Agreement.
In their Motion for Summary Judgment, appellees submitted as evidence two
appraisals of the Property performed in June 2011, and Bozick’s sworn affidavit regarding
the September 2010 appraisals. Bozick’s affidavit stated that he had submitted on behalf of
GMB a formal request for rent reduction to GMB Plaza based on the September 2010
appraisal, which was completed while appellant was still the managing member of GMB
Plaza. The September 2010 appraisal revealed that GMB’s rental payments to GMB Plaza
were approximately 60% higher than prevailing market rates.
17
Appellant, on the other hand, presented no evidence in his response to appellees’
motion for summary judgment to demonstrate that the reduction in rent was not reflective of
prevailing market rates or somehow in violation of the Operating Agreement. Appellant also
failed to present any factual basis on which to support his assertion that the rent reduction
was completed in order to defraud appellant and reduce the value of the Property under the
income approach. Indeed, in his brief before this Court, appellant pointed only to his
Amended Complaint and his argument at the summary judgment hearing as evidence of
disputed material facts.8
A response to a motion for summary judgment must be supported by evidence that
would be admissible at trial. Injured Workers’ Ins. Fund v. Orient Express Delivery Serv.,
Inc., 190 Md. App. 438, 452 (2010). “‘Neither general allegations of facts in dispute nor a
mere scintilla of evidence will suffice to support the non-movant’s position; there must be
evidence upon which the jury could reasonably find for the moving party.’” Hams of S. Md.,
Inc. v. Nationwide Mut. Ins. Co., 148 Md. App. 534, 539 (2002) (quoting Fearnow v.
8
Appellant once referenced his answers to interrogatories to support his claim that the
rental rate had been artificially depressed. Although answers to interrogatories may be
sufficient to generate a genuine dispute of material fact, in the instant case they do not rise
to the necessary level to create that genuine dispute. See Bradley v. Fisher, 113 Md. App.
603, 610 (1997) (citing Lowman v. Consol. Rail Corp., 68 Md. App. 64, 70 (1986)). First,
appellant did not attach his answers to interrogatories to his response to appellees’ motion
for summary judgment. Second, even if the answers to interrogatories were before the circuit
court, appellant’s answers presented only the same assertions appellant set forth in his
complaint without supporting facts, and thus the interrogatories could not have altered the
trial court’s grant of summary judgment.
18
Chesapeake & Potomac Tel. Co., 104 Md. App. 1, 49 (1995)). Resisting a motion for
summary judgment based solely on allegations contained in the complaint will be insufficient
to create a dispute as to a material fact. Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338
Md. 131, 149-50 (1995).
Appellant’s assertions, without supporting facts that would be admissible into
evidence, did not rise to the level of creating a material dispute regarding the lowered rental
price of the Property. Moreover, appellant’s allegations of fraud, bad faith, and breach of
fiduciary duty regarding the reduction of the rent do not create a triable issue of fact in the
absence of any admissible facts that permit the inference of fraud, bad faith, or breach of
fiduciary duty.
The undisputed evidence before the circuit court in the form of Bozick’s affidavit and
the June 2011 appraisals demonstrated that the market rental value of the Property was much
lower than what GMB had been paying to GMB Plaza, even while appellant was the
managing member of both GMB and GMB Plaza. As the circuit court stated in its Opinion
and Order:
There is, quite simply, no evidence whatsoever of anything improper
about the reduction of the rent. To the contrary, the reduced rent was
reasonable given the market and the prior rent was inflated. This is
established, without dispute, by the Trice Group’s September 2010
appraisal.
Because appellant offered no admissible evidence to the contrary, the circuit court correctly
determined that the lowered rate was not a disputed material fact and that the rent reduction
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was appropriate.9
III. Fair Market Value and Sale of the Property
Appellant argues that the fair market value of the Property was a disputed material
fact. According to appellant, appellees breached the Operating Agreement by “disregard[ing]
the previously agreed upon formula to determine fair market value,” and by using a new
formula to determine the Property’s value that was based on the inappropriately reduced
rental rate. Appellant contends that, if the method appellees used to calculate the fair market
value could be construed as “reasonable,” as the circuit court concluded, then appellees could
set any price for the Property without appellant’s input, which clearly would violate the
Operating Agreement and the fiduciary duties appellees owed to appellant. Appellant
concludes that the lowered Property value “defraud[ed] [him] out of his fair share of the
value of the [P]roperty.”
Appellees respond that the circuit court correctly determined that the Operating
Agreement permitted appellees to sell the Property, and that the fair market value was not
a disputed fact. According to appellees, appellant failed to produce any evidence in response
to the motion for summary judgment to support his claim that the Property was sold for less
9
In a footnote in his brief to this Court, appellant stated that the reduction of rent was
made “despite an existing written long term lease.” Because no such lease was made part of
the record in the instant case, we are unable to assess the propriety of the reduction of the rent
under the terms of such lease. Moreover, in his affidavit, Bozick stated that (1) “the lease
between GMB and GMB Plaza in effect at the time contemplated amendments of terms by
mutual agreement of the parties,” (2) the reduction in rent “was unanimously approved by
the members of GMB Plaza and accepted by GMB,” and (3) GMB Plaza and GMB
“negotiated and agreed to various rent reductions and increases over the years.”
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than fair market value. Appellees contend that their determination of the Property’s value
based on the two appraisals was legally sufficient to demonstrate that they operated in good
faith, and appellant’s reliance on the purchase option price in the Operating Agreement as
a method of proof of fair market value was insufficient, especially without expert testimony.
The “previously agreed upon formula to determine fair market value” that appellant
contends should have been applied in determining the price of the Property is set forth in
Section 6.6 of the Operating Agreement and existed only to calculate the amount GMB Plaza
would have paid if it decided to exercise the option to purchase appellant’s interest under
Section 6.5.10 GMB Plaza did not exercise its option to purchase appellant’s interest, and
thus the “previously agreed upon formula” was not applicable to determining the fair market
value of the Property after the option to purchase expired.11
Instead, as the circuit court stated: “When the remaining members rejected the option,
they had the right under the Operating Agreement to (1) sell the building and (2) set the
price.” Under Section 5.1.3 of the Operating Agreement, “Extraordinary Transactions,”
10
Under Section 6.5, appellant is deemed to have offered to sell his interest in GMB
Plaza “at and for the Purchase Price determined in accordance with Section 6.6 and on the
Payment Terms set forth in Section 6.7.”
11
At oral argument before this Court, appellant claimed, for the first time, that
appellees breached the Operating Agreement by failing to follow the procedure for
determining the “Agreed Value” of the Property set forth in Section 6.6.3. Because Section
6.6 (and thus Section 6.6.3) establishes the procedure for determining the purchase price of
a Member’s Interest in the event that GMB Plaza exercises the option to purchase set forth
in Section 6.5, such procedure is inapplicable to the situation presented in the instant case
where GMB Plaza declined to exercise the option to purchase under Section 6.5.
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members of GMB Plaza may conduct “Capital Transactions,” which include the sale of the
Property. Section 4.5.2 allows distributions to interest holders of GMB Plaza, and states that
“[u]nless the Members otherwise agree, the fair market value of the assets shall be
determined by an independent appraiser who shall be selected by the Members.” Appellees
were thus operating within the bounds of the Operating Agreement when they sold the
Property, and when they asked The Trice Group, an independent appraiser, to determine the
present fair market value of the Property.
Appellant contends, nevertheless, that the method appellees used to determine the
Property’s fair market value, namely, averaging the appraisal amounts from the sales
approach and income approach, was unreasonable. As noted above, at the hearing on the
motion for summary judgment, appellees presented Bozick’s affidavit and the two June 2011
appraisals as evidence of the Property’s fair market value. The appraisals submitted to the
circuit court demonstrated that, as of June 2011, the sales approach valued the Property at
$830,000.00, and the income approach valued the Property at $700,000.00. Appellees
eventually sold the Property to GMB Properties for the average value of the two approaches,
at $765,000.00.
“The moving party is always required ‘to support his [or her] various contentions by
placing before the court facts that would be admissible in evidence or otherwise detailing the
absence of evidence in the record to support a cause of action.’” Washington Mut. Bank v.
Homan, 186 Md. App. 372, 390 (2009) (alteration in original) (quoting Bond v. Nibco, Inc.,
22
96 Md. App. 127, 134 (1993)). “To meet his burden, the movant must identify portions of
the record that demonstrate absence of a genuine issue of material fact.” Nerenberg v. RICA
of S. Md., 131 Md. App. 646, 660, cert. denied, 360 Md. 275 (2000). Appellees presented
sufficient evidence to meet this initial burden via the two June 2011 appraisals and Bozick’s
affidavit demonstrating that the Property’s fair market value was somewhere between
$700,000.00 and $830,000.00.
“Once the movant makes his showing, the burden shifts to the nonmoving party to
‘identify with particularity the material facts that are disputed.’” Id. (quoting Md. Rule
2-501(b) (1991)). As discussed above, general allegations and reference to the complaint are
insufficient for the non-moving party to meet this burden. See Hams of S. Md., Inc., 148 Md.
App. at 539; Chantel Assocs., 338 Md. at 149-50.
Having determined that the formula in Section 6.6 of the Operating Agreement does
not apply to the instant matter, and that appellant did not retain the right to participate in the
management of GMB Plaza after his retirement from GMB, appellant’s only remaining
“evidence” that $765,000.00 was not the fair market value of the Property was that the sale
price was based on an inappropriately reduced rental rate. As we discussed in Section II,
supra, however, appellees reduced the rental value based on an appraisal stating that the
rental price was 60% higher than prevailing market rates. Appellant adduced no admissible
evidence to dispute such appraisal or the resulting rental rate.
Based on the evidence presented to it, the circuit court concluded:
23
[A]ll actions of the [appellees] with regard to the sale were
reasonable. They obtained good faith appraisals from an independent
appraiser, utilizing two different methods of calculation. They then
averaged the two appraisals to arrive at a price. The only, and
undisputed evidence before this Court, is that the price for which
the building was sold represented fair market value.
Because appellees presented credible, admissible evidence that $765,000.00 was the fair
market value of the Property and appellant produced no evidence to the contrary, the circuit
court properly determined that no genuine dispute existed concerning the sale of the Property,
and properly granted appellees’ motion for summary judgment.
JUDGMENT OF THE CIRCUIT COURT
FOR WICOMICO COUNTY AFFIRMED;
APPELLANT TO PAY COSTS.
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