Case Title: Russell Realty Assocs. v. Russell

Citation: 

Docket Number: 110380

State: virginia

Court: Virginia Supreme Court

Date: 2012-04-20T00:00:00Z

Document:
Present:  Kinser, C.J., Lemons, Millette, Mims, McClanahan and 
Powell, JJ., and Lacy, S.J. 
 
RUSSELL REALTY ASSOCIATES,.ET AL. 
 
v.  Record No. 110380 
 
 
   OPINION BY SENIOR JUSTICE 
 
 
 
 
 
 
 
       ELIZABETH B. LACY 
C. EDWARD RUSSELL, JR.,  
 
 
    April 20, 2012 
INDIVIDUALLY AND AS  
CO-TRUSTEE 
 
FROM THE CIRCUIT COURT OF THE CITY OF CHESAPEAKE 
Randall D. Smith, Judge 
 
In this appeal we consider whether the circuit court erred 
in granting judicial dissolution of Russell Realty Associates 
(RRA or the Partnership) pursuant to Code § 50-73.117(5) based 
on its findings that the economic purpose of RRA is likely to be 
unreasonably frustrated and that the business can no longer 
practicably operate in conformity with the partnership 
agreement.  Because we find that there is sufficient evidence to 
support the circuit court’s findings, we will affirm that 
judgment. 
FACTS 
 
In October of 1978, Charles E. Russell, Sr. created an 
irrevocable trust which he divided into two separate trust 
shares.  One-half of the trust was for the benefit of his 
daughter, Parthenia Russell Randolph (Nina), and one-half for 
the benefit of Nina’s children, Robert and Isham.  The 
children’s trust was subsequently divided into equal shares.  
Nina and her brother C. Edward Russell, Jr. (Eddie) were named 
trustee (co-trustees) of Nina’s trust, Robert’s trust and 
Isham’s trust.  The trust estate consisted of the interests held 
by Nina and Eddie as co-trustees in RRA. 
Charles Russell created RRA at the time he created the 
irrevocable trust.  The purpose of RRA was to acquire, hold, 
invest in, lease and sell investment properties, including but 
not limited to real property.  The original capital of the 
Partnership consisted of real property which Charles Russell 
deeded to the Partnership.  The partnership interests were held 
by Charles Russell, Eddie, individually, and Eddie and Nina as 
co-trustees of the trusts created for the benefit of Nina and 
her two sons.  Between 1978 and 1985, Charles Russell decreased 
his partnership interest.  Following Russell’s complete 
withdrawal from the Partnership in 1985, Eddie had a 50 percent 
interest in the Partnership, Eddie and Nina as co-trustees for 
Nina’s trust had a 25 percent interest, and Eddie and Nina as 
co-trustees for Robert and Isham’s trusts had a 12.5 percent 
interest for each trust. 
The Partnership Agreement, as relevant here, provided that 
7. 
Management.  The partnership business shall be 
managed by all partners, but in the event of any 
disagreement between them the decision of Edward 
Russell shall be controlling.  As a matter of 
convenience, Edward Russell, shall have the authority, 
by his sole act, to borrow, execute, and deliver 
instrument[s], including any deed or lease, on behalf 
of the partnership. 
 
. . . . 
 
 
10.  Withdrawal.  No partner shall have the right to 
withdraw from the partnership. 
 
 
. . . . 
 
 
11.  Admission.  Additional partners may be admitted 
to the partnership by the unanimous vote of all the 
partners.  
 
 
Eddie increased his active involvement in the operation of 
RRA over the years, and by the time Charles Russell withdrew 
from the Partnership, Eddie conducted RRA’s business.  For many 
years Nina had not been actively involved in the management of 
RRA but was kept informed of RRA business matters and 
participated in business meetings electronically.  During most 
of this time she lived in Seattle, Washington.  Nevertheless, 
issues of communication and trust existed between Nina and 
Eddie.  For example, the financing and development of property 
which Eddie and Nina jointly owned, known as the Crossroads, was 
jeopardized because Nina delayed and vacillated in reaching 
decisions and executing necessary documents.  When Charles 
Russell died in 1992, leaving a number of properties to Eddie 
and Nina as tenants-in-common, the siblings engaged in strenuous 
disagreements over whether the properties should be developed or 
sold.  Nina and Eddie each hired separate legal counsel and 
finally reached an agreement on property division to avoid a 
partition suit. 
 
In 1989, Harry R. Pollard, IV was engaged to act as a 
mediator and consultant to facilitate the relationship between 
Nina and Eddie and advance RRA partnership affairs.  Pollard’s 
involvement continued throughout the years up to and including 
the time of trial. 
 
In 2003, Nina and Eddie began discussions about trust 
distributions because Nina’s son, Rob, would be entitled to 
distributions in August 2004.  These discussions also included 
issues relating to whether Rob would be admitted as a partner of 
RRA and whether the Partnership should be converted into a 
limited liability company (LLC).  Nina and Rob’s intentions and 
goals for Rob’s admission as a partner and the conversion of RRA 
to a LLC differed from Eddie’s intentions and goals on the 
future of RRA, particularly with regard to management control, 
liability issues and succession.  Nina and Rob also disagreed 
with Eddie’s recommendation that Rob’s trust distribution be 
paid partly in cash and partly in property to ensure that Isham 
could receive an equal trust distribution.  During the course of 
these discussions Nina, Rob and Eddie each retained separate 
counsel to represent their individual interests. 
 
Over the next few years, negotiations concerning Rob’s 
distribution from the trust, operational control of the 
Partnership, liability, and succession continued, by and through 
counsel and Pollard, but the parties’ differences and conflicts 
escalated. 
 
By January 2006, the parties still were divided on these 
issues.  Eddie sent a proposal to Nina and Rob in which he 
agreed to vote for Rob as a partner, conceded to Nina and Rob’s 
demands on succession and liability issues, but continued to 
insist that he maintain management control of the business.  
Nina and Rob did not respond to Eddie’s proposal.  Months later, 
Eddie received a counter-proposal with different terms that were 
not responsive to Eddie’s proposal.  Further discussions were 
unsuccessful and Eddie ultimately told Nina that he would not 
agree to add Rob as a partner.  This decision created more 
conflict and distrust among Eddie, Nina and Rob. 
 
Following the stalemate on the restructuring of RRA and 
Rob’s status as a partner, Nina increased her involvement in 
RRA’s management, insisting that she, as well as Rob, be 
informed and involved in any and all RRA communications, 
including meetings, telephone calls, and written and electronic 
communications.  During these communications she continually 
questioned or objected to Eddie’s business management proposals 
or decisions.  In addition, Nina began editing the minutes of 
the quarterly partnership meetings, asserting that they did not 
accurately reflect the substance of such meetings.  RRA staff 
complained that the resulting minutes did not contain sufficient 
narrative and were not objective or helpful in describing the 
business affairs conducted.  Nina also insisted on two tape-
recordings of all RRA meetings and meetings with third parties 
who were interested in purchasing RRA properties.  Nina and Rob 
disputed the amount of the office overhead and, despite RRA’s 
accountant’s recommendations, opposed the continued employment 
of certain RRA staff members.  Nina and Rob continued to insist 
that it was “critical” that RRA be converted into a LLC and 
claimed that Eddie was breaching his fiduciary duty by not 
accomplishing the conversion.  
 
During negotiations for the sale of a parcel of land 
referred to as the “Manning property,” Nina and Rob opposed 
obtaining an appraisal of the property and asserted that Eddie 
did not have the authority to sell the parcel.  This 
disagreement created a stalemate and almost two years in delays 
regarding zoning and other city planning issues necessary for 
the disposition of the property.  Even though Eddie had the 
authority under the Partnership agreement to proceed with the 
appraisal without Nina’s concurrence, he filed a lawsuit “to 
avoid continuous opposition and problems in doing so.”  A 
lucrative offer for the sale of property known as the “Sam’s 
Club property” was unrealized due to Nina’s objection, even 
though she had initially agreed to the sale.  Her change of 
position apparently was in response to Rob’s objection to the 
sale. 
PROCEEDINGS 
 
In January 2008, Eddie, individually and as co-trustee, 
filed a complaint seeking judicial dissolution and winding up of 
RRA pursuant to Code § 50-73.117(5).  Eddie’s complaint 
generally alleged that despite his ultimate decision-making and 
management authority under RRA’s partnership agreement, 
“[s]erious and irreconcilable conflicts” exist between him, 
Nina, and Rob, and that the conduct and demands of Nina and Rob 
had frustrated RRA’s economic purpose and made management of its 
assets and affairs not reasonably practicable. 
 
Nina filed an amended intervenor complaint against Eddie, 
individually and as co-trustee, seeking an equitable accounting 
of certain legal and personal fees billed to RRA or the trusts.  
Nina alleged that Eddie breached his fiduciary duty as RRA’s 
partner and as a co-trustee.  Nina sought aid, guidance, and 
declaratory relief regarding her sons’ rights to distributions 
from the trusts, and whether the trusts should reimburse RRA for 
certain sums.  Nina also sought Eddie’s removal as co-trustee 
based on, among other things, this lawsuit to force RRA’s 
dissolution, his use of RRA assets to pay his legal fees, and 
his decision to withhold partnership assets payable to the 
trusts. 
 
Eddie’s complaint and Nina’s intervenor complaint were 
tried together in a 13-day bench trial before the Circuit Court 
of the City of Chesapeake.  The court denied Nina’s claim for an 
equitable accounting, finding all RRA decisions, actions, and 
expenditures were adequately explained or addressed.  The court 
further found that Eddie had not violated any fiduciary duty to 
the trusts or its beneficiaries.  
 
The court granted Eddie’s complaint for dissolution, 
stating that “[c]onsidering all of the evidence . . . the 
economic purpose of Russell Realty Associates is likely to be 
unreasonably frustrated” and that “the business can no longer 
practicably operate in conformity with the Partnership 
Agreement.”  The circuit court asked the parties to schedule a 
hearing “to discuss the mechanics of winding up” pursuant to 
Code § 50-73.119.  Based on Nina’s indication that she intended 
to appeal, the circuit court granted a stay of the dissolution 
order pending this appeal.  
DISCUSSION 
 
The sole assignment of error before us in this appeal is 
whether the trial court erred in holding that Eddie “met the 
strict standards for judicial dissolution of a partnership under 
Va. Code § 50-73.117(5).”  That section provides that a 
partnership “is dissolved” if, upon an application by a partner, 
there is a judicial determination that: 
a. The economic purpose of the partnership is likely to 
be unreasonably frustrated; 
b. Another partner has engaged in conduct relating to 
the partnership business which makes it not 
reasonably practicable to carry on the business in 
partnership with that partner; or 
c. It is not otherwise reasonably practicable to carry 
on the partnership business in conformity with the 
partnership agreement. 
 
Code § 50-73.117(5).  The parties have referred to these 
statutory bases for judicial dissolution as the economic purpose 
test, the partner conduct test, and the business operations 
test, respectively.  We also will use these terms in referring 
to the various statutory bases for judicial dissolution. 
 
Judicial dissolution of a partnership occurs if a court 
finds that any one of the three statutory bases exists.  Code 
§ 50-73.117.  In this case, the trial court dissolved RRA based 
on the first and third statutory bases: the economic purpose test 
and the business operations test. 
 
We have not previously considered dissolution of a 
partnership under this provision.  However, in The Dunbar Group, 
LLC v. Tignor, 267 Va. 361, 593 S.E.2d 216 (2004), we considered 
Code § 13.1-1047, which addresses judicial dissolution of a LLC.1   
                                                          
 
1 Code § 13.1-1047(A) provides: 
On application by or for a member, the circuit court of 
the locality in which the registered office of the 
limited liability company is located may decree 
dissolution of a limited liability company if it is not 
reasonably practicable to carry on the business in 
In that case, we held that the General Assembly imposed a strict 
standard for judicial dissolution of a limited liability company, 
deferring to the contractual agreement of the parties and 
allowing judicial dissolution only under the specific 
circumstances identified in the statute.  In this case, the 
circuit court concluded, and Nina asserts, that given the 
similarities in the statutes governing dissolution of limited 
liability companies and partnerships, the same strict standard 
applicable to limited liability companies should be applied to 
partnership dissolution.  We agree and will apply the same 
standard here. 
 
Nina argues that the circuit court ordered dissolution of 
RRA on grounds not correlated to the statutory bases.  Pointing 
to comments to the Revised Uniform Partnership Act (RUPA), Nina 
first argues that dissolution based on the economic purpose prong 
requires a showing of “truly poor financial performance.”2  That 
requirement was not met in this case, she asserts, because the 
record shows that RRA was a profitable, ongoing business, making 
distributions to the partners.  According to Nina, the circuit 
                                                                                                                                                                                           
conformity with the articles of organization and any 
operating agreement.  
2 The Virginia General Assembly enacted Code § 50-73.117(5) 
in 1996 as part of the Virginia Uniform Partnership Act (1996) 
(the Act), Code §§ 50-73.79, et seq.  See 1996 Acts ch. 292.  
The Act was based on the RUPA promulgated by the National 
Conference of Commissioners on Uniform State Laws in 1994. 
court’s conclusion that dissolution was appropriate under this 
prong was based solely on the court’s observation that the 
partnership was not a “model of business efficiency” which does 
not qualify as a justification for dissolution of a profitable 
business under the statute.  
 
The plain language of the statute and the comments to the 
RUPA that Nina relies upon do not support the standard Nina 
advocates for judicial dissolution under the economic purpose 
prong of Code § 50-73.117(5).  The statute speaks of frustrating 
the “economic purpose” of a partnership, but does not define the 
term.  Nina’s construction would define the “economic purpose” of 
a partnership solely as the financial success of the entity, thus 
limiting judicial dissolution under this prong to poor financial 
performance of a partnership.  The comment to the section of the 
RUPA corresponding to subsection 5 of Code § 50-73.117 states 
that the RUPA specifically deleted former § 32.1(e) of the 
Uniform Partnership Act, that allowed dissolution only when a 
business was carried on at a loss.  RUPA § 801, cmt. 8.  This 
requirement, the comment stated, could result in dissolving a 
partnership contrary to the partners’ expectations due to the 
start-up or tax shelter nature of the business in which book or 
tax losses may not signify a business failure.  The comment goes 
on to say that “[t]ruly poor financial performance may justify 
dissolution . . . as a frustration of the partnership’s economic 
purpose.”  (Emphasis added).  This reference to poor financial 
performance explains only that such performance could be the 
basis for dissolution under the economic purpose prong, but it 
does not establish economic loss as the sole basis for 
dissolution under that prong.  Indeed, the purpose of the change 
was to allow continuation of a partnership that was not 
financially profitable based on an inquiry into the partners’ 
expectations in determining the economic purpose of the 
partnership.  Neither the language of Code § 50-73.117(5) nor the 
RUPA comment relevant to that section requires that a partnership 
be a financial failure to sustain a judicial dissolution under 
the economic purpose prong. 
 
Although in its letter opinion the circuit court referenced 
certain evidence when discussing its conclusions, both the letter 
opinion and order of the court stated that its decision was 
reached after consideration of all the evidence.  The circuit 
court’s judgment is entitled to the same weight as a jury verdict 
and its findings will not be set aside unless those findings are 
plainly wrong or without evidence to support them.  The Dunbar 
Group, 267 Va. at 366-67, 593 S.E.2d at 219.  Furthermore, we 
consider the evidence in the light most favorable to Eddie, the 
prevailing party.  Id. at 367, 593 S.E.2d at 219.  Accordingly, 
we will review the entire record to determine whether it supports 
the circuit court’s holding that the economic purpose of RRA 
could be unreasonably frustrated. 
 
The purpose of RRA was to acquire, hold, invest in, and 
lease and sell investment properties.  The partners’ expectations 
for realizing these purposes included not only expectations of 
economic success, but also the ability to undertake these 
activities in an efficient and productive manner to maximize 
return to the partnership.  The record shows, however, that not 
only did significant distrust and disagreement exist between the 
partners, but as relevant here, this relationship frustrated the 
ability of the Partnership to take advantage of a lucrative offer 
for the sale of the Sam’s Club property and to secure certain 
zoning and appraisals for the Manning property in a timely 
manner.  The record also demonstrates that the disruptive 
relationship between the partners has resulted in the Partnership 
incurring substantial added costs relating to the conduct, 
recording, and transcribing of meetings and minutes of the 
Partnership meetings, as well as the costs incurred in addressing 
litigation filed or threatened to be filed aside from the instant 
case.  Additional costs have been incurred over the years by the 
need for Pollard’s intervention, and in some cases, additional 
attorneys to facilitate communication and decision-making between 
the partners.  
 
This record further shows that, despite the provision of the 
Partnership Agreement giving Eddie decision-making authority, the 
relationship between the partners imposed additional and 
unnecessary economic costs on the Partnership in a number of ways 
including preventing the Partnership from taking advantage of and 
conducting its business in a timely and efficient manner.  The 
relationship also imposed significant additional costs in terms 
of the time spent resolving issues directly and indirectly 
affecting the purposes of the Partnership.  The relationship 
between the partners has deteriorated over the years and nothing 
in the record suggests that it will improve.  For these reasons, 
we conclude that the record supports the circuit court’s holding 
that the economic purpose of the Partnership is likely to be 
unreasonably frustrated. 
 
Accordingly, for the reasons stated, we will affirm the 
judgment of the circuit court.3  
Affirmed. 
                                                          
 
 
3 A partnership is dissolved if there is a judicial 
determination that any one of the statutory bases for dissolution 
contained in Code § 50-73.117(5) is established.  In light of our 
holding on the economic purpose prong, we need not address Nina’s 
arguments regarding the trial court’s holding under the business 
operations test.