Case Title: Jennings v. Kay Jennings Ltd. Partnership

Citation: 

Docket Number: 070498

State: virginia

Court: Virginia Supreme Court

Date: 2008-04-18T00:00:00Z

Document:
Present:  Hassell, C.J., Keenan, Koontz, Lemons, Agee, and 
Goodwyn, JJ., and Lacy, S.J. 
 
MICHAEL F. JENNINGS 
 
v.  Record No. 070498 
 
OPINION BY SENIOR JUSTICE 
 
 
 
 
 
 
    ELIZABETH B. LACY 
 
 
 
 
 
 
 
 April 18, 2008 
KAY JENNINGS FAMILY  
LIMITED PARTNERSHIP, ET AL. 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Michael P. McWeeny, Judge 
 
In this appeal we consider whether the trial court erred 
in dismissing Michael Jennings’ derivative suit because 
Michael, a limited partner in the Kay Jennings Family Limited 
Partnership, did not “fairly and adequately represent the 
interests” of the limited partners and the partnership and 
therefore lacked standing to bring a derivative suit pursuant 
to Code § 50-73.62. 
FACTS and PROCEEDINGS 
Louis Allen Jennings operated a car dealership, 
Springfield Toyota, Inc. (the dealership), in Springfield, 
Virginia on land which he owned.  In 1964, Louis Jennings and 
his wife, Minnie K. Jennings (Kay) executed a 99-year lease 
with Avis and Mary R. Boothe (the Boothe lease) for an 
adjacent parcel of land for use in the operation of the 
dealership.  Following her husband’s death, Kay formed the 
Jennings Family Limited Partnership to own and lease property.  
Kay was the sole general partner.  She and her five children, 
Michael, Louis, Katherine, Mary and Beverly, were limited 
partners.  In August of 1985, the Jennings Family Limited 
Partnership and the dealership executed an Agreement of Lease 
under which the dealership subleased the Boothe land from the 
partnership. 
In 1994 the dealership was reorganized.  The dealership 
redeemed Kay’s stock and that of all the siblings except 
Michael, leaving Michael as the sole stockholder of the 
dealership.1  In that same year, the Jennings Family Limited 
Partnership was renamed the Kay Jennings Family Limited 
Partnership (the Partnership) and Kay withdrew as general 
partner.  Louis, Katherine, Mary and Beverly were substituted 
as general partners of the Partnership and all five siblings 
retained their interests as limited partners.  The 
reorganization of the Partnership was contingent on the 
execution of a new lease between the Partnership and the 
dealership for the land on which the dealership operated.  The 
new lease, executed March 29, 1994, provided that the 
dealership pay the Partnership $50,000 a month for 15 years 
with options to extend the lease for additional five-year 
periods. 
                                                 
1 It appears in the record that at some point after Michael 
took control of the dealership, the entity operating the 
dealership was changed from Springfield Toyota, Inc. to 
Jennings Motor Co., LLC.  
 
2
In 2004, Michael and representatives of Toyota met with 
the general partners to discuss an expansion of the 
dealership.  The expansion involved extensive improvements 
that were projected to increase the dealership’s sales.  To 
finance the improvements, Michael proposed that the 
Partnership subordinate the lease to the construction loan.  
When the general partners declined to do so, Michael offered 
to buy his siblings’ interests in the Partnership for 
$2,000,000 each, so that “he could control the partnership and 
control the land.”  His sister Mary sold her Partnership 
interest to Michael, but the remaining three siblings refused 
Michael’s offer.  Consequently, Louis, Katherine, and Beverly 
each retained a 5% general partnership interest and a 15% 
limited partnership interest, and Michael had a 40% limited 
partnership interest. 
In July 2005, Katherine and Beverly, as general partners 
of the Partnership, wrote a “To Whom It May Concern” letter 
stating that “no one general partner could unilaterally make 
decisions for the [P]artnership or . . . bind [it] to specific 
courses of action.”  The letter was written in response to 
Michael’s complaints about Louis’ actions including an 
incident in 2003 involving Louis’ suggestions to Toyota Motor 
Sales USA, Inc., an importer of Toyota motor vehicles, and 
Central Atlantic Toyota Distributors, Inc., a distributor of 
 
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Toyota motor vehicles and Springfield Toyota’s franchisor, 
that the lease between the dealership and the Partnership was 
not valid. 
On August 18, 2005, Michael filed a derivative suit 
pursuant to Code § 50-73.62, against the Partnership and Louis 
Jennings.2  In the suit, Michael recited a number of actions 
taken by Louis which Michael claimed breached Louis’ fiduciary 
duties to the Partnership, endangered the Partnership, and 
possibly left the Partnership vulnerable to Louis’ creditors.  
Michael also claimed that Louis intentionally interfered with 
Michael’s business relationship with Toyota Motor Sales USA, 
Inc. and Central Atlantic Toyota Distributors, Inc., when he 
contacted the Toyota companies and suggested, among other 
things, that the lease between the dealership and the 
Partnership was invalid.  Michael asked the trial court to 
expel Louis from the partnership and substitute Michael as a 
general partner in Louis’ stead.  Although Michael provided a 
courtesy copy of the suit papers to Katherine and Beverly, 
Louis and the Partnership were not served for approximately 
one year. 
During the pendancy of the derivative suit, DAMN, LLC, a 
business owned and operated by Michael and his wife, Diane, 
                                                 
2 Jennings Motor Co., LLC was also listed as a plaintiff 
in this suit. 
 
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purchased the Boothe’s property and notified the Partnership 
that the rent would increase from $2,500 a month to $10,500 a 
month based on their interpretation of the lease rent 
calculation index.  The Partnership challenged the rent 
increase, and the dispute was arbitrated as provided in the 
lease. 
 
When Michael’s derivative action was served on the 
Partnership in 2006, the Partnership filed a demurrer and plea 
in bar.  The trial court sustained the demurrer with leave to 
amend, ruling that Michael’s individual claims against Louis 
could not be joined with the derivative suit and that the 
trial court had no authority to replace Louis with Michael as 
a general partner.  Michael filed an amended bill of 
complaint, limiting his claims to those held by the 
partnership in general and requesting, among other things, 
that the trial court convert Louis’ general partnership 
interest into a limited partnership interest.  
The Partnership again filed a plea in bar and motion to 
dismiss.  In the plea in bar, the Partnership asserted that 
Michael lacked standing to maintain a derivative suit, because 
he did not “fairly and adequately represent the interests” of 
the limited partners and the Partnership as required by Code 
§ 50-73.62.  At the conclusion of an ore tenus hearing held on 
the plea in bar, the trial court found that Michael did not 
 
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fairly and adequately represent the interests of the 
Partnership or the limited partners because he (1) “has 
economic interests that are directly adverse to those of the 
partnership” (2) “maintained as a manager of the DAMN, LLC, an 
arbitration adverse interest to the partnership as well,” and 
(3) “is pursuing remedies that are not supported by the other 
parties.”  The trial court dismissed the derivative proceeding 
for lack of standing, and also ordered recovery of attorneys’ 
fees against the plaintiff.  Michael timely appealed to this 
Court asserting that he did have standing to pursue the 
derivative action because as a matter of law he had no 
interests that were directly economically antagonistic to the 
interests of the Partnership. 
DISCUSSION 
On appellate review of a ruling on a plea in bar based on 
an ore tenus hearing, the trial court’s factual findings will 
not be set aside unless plainly wrong or without evidence to 
support them.  Cooper Indus., Inc. v. Melendez, 260 Va. 578, 
595, 537 S.E.2d 580, 590 (2000).  Whether the facts found by 
the trial court in this case rendered Michael unable to fairly 
and adequately represent the interests of the other limited 
partners and the Partnership is a mixed question of fact and 
law which we review de novo.  See Purce v. Patterson, 275 Va. 
 
6
190, 194, 654 S.E.2d 885, 887 (2008), Grandison v. 
Commonwealth, 274 Va. 316, 320, 645 S.E.2d 298, 300 (2007). 
Code § 50-73.62 allows a limited partner to bring an 
action “in the right of a limited partnership . . . to the 
same extent that a stockholder may bring an action for a 
derivative suit under the Stock Corporation Act, Chapter 9 
(§ 13.1-601 et seq.) of Title 13.1.”  A derivative action may 
be pursued if the general partners with authority to bring an 
action asserting the rights of the partnership have refused to 
do so or if an effort to cause the partners to bring such an 
action “is not likely to succeed.”  Code § 50-73.62.  A 
limited partner cannot maintain a derivative action, however, 
if “it appears that the plaintiff does not fairly and 
adequately represent the interests of the limited partners and 
the partnership in enforcing the right of the partnership.”  
Id.  We have not previously addressed the factors a court 
should consider when determining whether the plaintiff “fairly 
and adequately” represents the limited partners and 
partnership in a derivative action, nor have we construed a 
similar standing requirement for shareholder derivative suits.  
See Code § 13.1-672.1 (shareholder in derivative action must 
fairly and adequately represent corporation’s interests in 
enforcing rights of corporation). 
 
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Both parties suggest that we consider the factors set out 
in Davis v. Comed, Inc., 619 F.2d 588, 593-94 (6th Cir. 1980).  
That case involved the application of Rule 23.1 of the Federal 
Rules of Civil Procedure, which contains a requirement of fair 
and adequate representation that is substantially similar to 
the Virginia requirement.3 
In Davis, the United States Court of Appeals for the 
Sixth Circuit reviewed other cases that addressed the standing 
requirement of fair and adequate representation in derivative 
suits.  The Court stated that, in making this determination, 
a court should examine any indications that there 
are extrinsic factors which render it likely that 
the representative may disregard the interests of 
the class members.  Indeed, while a plaintiff is not 
necessarily disabled to bring suit simply because 
some of his interests extend beyond that of the 
class, the court may take into account outside 
entanglements that render it likely that the 
representatives may disregard the interests of other 
class members.  
 
Id. at 593 (citations and internal quotation marks omitted).  
The court then identified the following factors as relevant to 
determining whether the plaintiff meets the representational 
requirements: (1) economic antagonisms between the 
representative and members of the class; (2) the remedy sought 
by the plaintiff in the derivative action; (3) indications 
                                                 
3 The federal rule refers to shareholders or members who 
are “similarly situated.”  The omission of this phrase in the 
Virginia statute is not at issue in this case.  
 
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that the named plaintiff is not the driving force behind the 
litigation; (4) plaintiff’s unfamiliarity with the litigation; 
(5) other litigation pending between the plaintiff and 
defendants; (6) the relative magnitude of plaintiff’s personal 
interests as compared to his interests in the derivative 
action itself; (7) plaintiff’s vindictiveness toward the 
defendants; and (8) the degree of support plaintiff is 
receiving from the shareholders he purports to represent.  Id. 
at 593-94. 
These factors have been utilized in many jurisdictions, 
see Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir. 1990), 
Vanderbilt v. Geo-Energy, Ltd., 725 F.2d 204, 207 (3d Cir. 
1983), Elgin v. Alfa Corp., 598 So.2d 807, 818-19 (Ala. 1992), 
Fink v. Golenbock, 680 A.2d 1243, 1256 (Conn. 1996), Woods v. 
Wells Fargo Bank, 90 P.3d 724, 735-36 (Wyo. 2004), and the 
trial court’s factual findings here indicate that it 
considered the Davis factors in reaching its holding.4  We 
agree that these factors are relevant in determining whether a 
limited partner can adequately and fairly represent the 
interests of the partnership and the other limited partners in 
a derivative action.  These factors, however, are not 
exclusive and must be considered in the totality of the 
                                                 
4 The trial court’s three factual findings corresponded to 
Davis factors 1, 5 and 8 set out above. 
 
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circumstances found in each case.  As the court in Davis 
commented, 
it is frequently a combination of factors which 
leads a court to conclude that the plaintiff does 
not fulfill the requirements of [fair and adequate 
representation] (although often a strong showing of 
one way in which the plaintiff’s interests are 
actually inimical to those he is supposed to 
represent fairly and adequately, will suffice in 
reaching such a conclusion). 
 
Id. at 593. 
 
While suggesting that the Davis factors are relevant, 
Michael argues that the trial court misapplied them.  First, 
citing G.A. Enterprises, Inc. v. Leisure Living Communities, 
Inc., 517 F.2d 24 (1st Cir. 1975), Michael contends that 
economic antagonism must exist between the plaintiff’s 
economic interest and the claims raised in the derivative 
action.  Here, Michael argues, the claims raised involve 
Louis’ actions that Michael alleges have impacted or can 
adversely impact the Partnership’s income stream.  According 
to Michael, he has no economic interest antagonistic to the 
claims made in the derivative action.  We disagree with 
Michael’s premise and his reading of G.A. Enterprises. 
 
Although the United States Court of Appeals for the First 
Circuit Court in G.A. Enterprises stated that “it is sometimes 
said” that the adverse economic interest must be antagonistic 
to the subject matter of the derivative action, the court went 
 
10
on to explain that “these principles have not been read to 
prevent a court from taking account of outside entanglements 
making it likely that the interests of the other stockholders 
will be disregarded in the management of the suit,” citing 
other state and federal cases.  Id. at 27.  The court observed 
that such “outside influences are not hypothetical but 
constitute a present threat to the conduct and indeed to ‘the 
subject matter’ of the suit.”  Id. 
We agree with the First Circuit Court of Appeals.  
Economic interests that may not be directly antagonistic to 
the claims made in the derivative suit may, nevertheless, have 
an impact on the derivative plaintiff’s ability to fairly and 
adequately maintain the litigation in the best interests of 
the partnership and the other limited partners.  Accordingly, 
in applying the Davis factors, it is appropriate to consider 
economic interests that may influence the derivative 
plaintiff’s judgment in the management of the litigation in a 
manner antagonistic to the interests of the partnership or 
other partners. 
 
The trial court did not identify the specific economic 
interests it considered to be antagonistic to the Partnership.  
However, the record contains a number of circumstances 
suggesting economic antagonism between Michael and the 
Partnership.  For example, as a principal in DAMN, LLC, 
 
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Michael had an adverse economic interest in securing as much 
rental income as possible from the Partnership under the 
Boothe lease.  Additionally, as president of the dealership, 
Michael had an economic interest in maintaining the lease with 
the Partnership and paying as little rent as possible to the 
Partnership under that lease.  Another example of economic 
antagonism is Michael’s desire to expand the dealership by 
subordinating the Partnership’s lease to obtain a construction 
loan and the Partnership’s conflicting desire to avoid such a 
monetary risk.  Furthermore, Michael’s expressed desire to 
“control the partnership and the land” can be viewed as 
antagonistic to the interests of the Partnership and the other 
partners.  Accordingly, we conclude that the trial court’s 
finding that Michael had economic interests antagonistic to 
the interests of the Partnership is supported by sufficient 
evidence and we will not reverse that finding. 
 
The trial court’s second finding, that Michael maintained 
an arbitration proceeding antagonistic to the Partnership, is 
also supported by the record.  Upon purchasing the Boothe 
property and becoming the Partnership’s lessor in March of 
2006, DAMN, LLC immediately informed the Partnership that the 
index by which the rent was to be calculated was no longer in 
existence and that based on new indices, the monthly rent 
should be set at $10,500 commencing in May 2006.  DAMN, LLC 
 
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further informed the Partnership that any dispute regarding 
the rent would have to be submitted to arbitration and if the 
Partnership pursued such a course of action, DAMN, LLC would 
seek allegedly past-due rent of over $3,000,000 and assert 
that the current rent should be $12,740 per month. 
Michael argues that his involvement in the arbitration 
proceeding is an inadequate basis to deny him standing because 
“the importance of the arbitration paled in comparison with 
the necessity of the relief from the tortious conduct of Louis 
Jennings.”5  Furthermore, Michael claims that the arbitration 
“could have only modestly affected the net income” of the 
Partnership by “possibly raising the rent.”  We disagree with 
Michael’s characterization of the effect of the arbitration 
proceeding.  The impact of the increase in rent DAMN, LLC 
sought amounted to additional rental payments totaling $96,000 
on an annual basis, more than a “modest” impact on the 
Partnership’s net income.  Furthermore, DAMN, LLC’s threat to 
seek more than $3,000,000 in unpaid back rent from the 
Partnership if arbitration was pursued cannot be considered 
anything other than an act adverse to the Partnership.  
Accordingly, we conclude that the trial court’s factual 
                                                 
5 Michael also argued the arbitration proceeding was 
irrelevant to the issues in his derivative suit; however, as 
stated above, economic antagonism is not limited to claims 
raised in the derivative suit. 
 
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finding that Michael maintained an arbitration proceeding 
antagonistic to the Partnership was supported by the record. 
 
The final factual finding by the trial court that the 
other partners did not support the derivative suit is also 
supported by the record and is not disputed by Michael.  
Michael asserts, however, that the lack of support by the 
other partners in pursuing the derivative action should not be 
a basis for concluding he could not fairly and adequately 
represent the interests of the partners and the Partnership.  
Michael contends that the lack of support from other partners 
is the “very essence of a derivative claim.”  Michael argues 
that the statutory predicate for bringing the derivative suit 
– that the general partners have refused to bring it or would 
not bring it if asked – means that, in situations like the 
instant case where there are only a few partners in the 
partnership, the lack of support from the other partners “is 
not a preclusion to the derivative claim, but a requirement.” 
We agree with Michael that the number of limited partners 
involved in the partnership may be relevant when considering 
the level of support a plaintiff receives from other partners 
and its impact on the ability to provide fair and adequate 
representation.  But Michael’s position elevates the number of 
partners available to file a derivative action above the other 
Davis factors and precludes the court from considering the 
 
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circumstances which influenced the actions of the other 
partners in supporting or not supporting the derivative 
action.  As we mentioned above, the Davis factors are not 
exclusive factors and, in making the determination whether a 
plaintiff in a derivative action can fairly and adequately 
represent the interests of the other partners and the 
partnership, the court should look at all the circumstances.  
The fact that there are a limited number of potential partners 
to bring a derivative suit, while relevant, does not 
overshadow all other factors.  
CONCLUSION 
In summary, the factual findings of the trial court are 
supported by the record and those findings are relevant 
factors in determining whether Michael could adequately and 
fairly represent the interests of the Partnership and partners 
in this derivative suit.  Based on these factual findings we 
find no error in the trial court’s judgment.  Michael’s 
economic interests as both landlord and lessee of the 
Partnership created a direct conflict, particularly in light 
of the fact that Michael’s income from the Partnership was 
substantially less than the income from his dealership.  
Michael’s attempt to obtain higher rent from the Partnership 
through DAMN, LLC’s purchase of the Boothe property and lease 
was in direct conflict with the interests of the Partnership.  
 
15
 
16
And throughout the record Michael made it clear that his 
actions were inspired by his desire to “control” the 
partnership.  We conclude that these circumstances preclude 
Michael’s ability to maintain this derivative action in the 
best interests of the Partnership and other partners.  
Accordingly, we will affirm the judgment of the trial court. 
Code § 50-73.65 provides that a defendant in a derivative 
action may recover reasonable expenses including attorney’s 
fees “if the plaintiff did not fairly and adequately represent 
the interests of the limited partners and the partnership in 
enforcing the right of the partnership.”  In their brief 
before this Court, Louis and the Partnership have asked that 
the case be remanded to the trial court for an award of 
attorneys’ fees incurred in this appeal.  Accordingly, this 
case will be remanded to the trial court for that purpose 
only. 
Affirmed and remanded.