Court Opinion

ID: 9699873
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:54:29.404434+00
Date Added: 2024-06-11T18:20:59.153765
License: Public Domain

Dissenting opinion by BATTAGLIA, J-, which GREENE, J. joins.
I respectfully dissent.
In the present case, the Circuit Court for Calvert County concluded in an opinion and order that Thomas L. Clancy, Jr., Petitioner, Managing Partner of Jack Ryan Limited Partnership (“JRLP” or “the Partnership”), breached his fiduciary duty to Wanda T. King, Respondent, his ex-wife and partner in JRLP, when he attempted to withdraw his name from the “Tom Clancy’s Op-Center” book series; the Op-Center series was created by Mr. Clancy and Dr. Steve Pieczenik under the auspices of the Op-Center Joint Venture between JRLP and S & R Literary, Inc. (“S & R”), a company owned by Dr. Pieczenik and his wife. As a result of Mr. Clancy’s breach, the judge appointed Ms. King as Managing Partner of JRLP with respect to the Op-Center Joint Venture; subsequently, in a second order, the judge awarded Ms. King attorneys’ fees and expenses. The Court of Special Appeals agreed that Mr. Clancy breached his fiduciary duty to Ms. King and JRLP, but remanded the case for clarification of the scope of Ms. King’s role as Managing Partner of JRLP. The majority herein disagrees with both the trial court and the intermediate *574appellate court and concludes that Mr. Clancy did not owe a fiduciary duty to Ms. King and JRLP; I dissent.1
Mr. Clancy and Ms. King’s relationship with respect to the Partnership is governed by the JRLP Partnership Agreement, dated, February 26, 1992, Section 5.5, “Rights, Powers and Duties of Partners,” of which prescribes the duties owed by the partners:
A. ... The General Partners or their Affiliated Persons may act as general or managing partners for other partnerships engaged in businesses similar to that conducted by the Partnership. Nothing herein shall limit the General Partners or their Affiliated Persons from engaging in any such business activities, or any other activities which may be competitive with the Partnership or the Property, and the General Partners or their Affiliated Persons shall not incur any obligation, fiduciary or otherwise, to disclose or offer any interest in such activities to any party hereto and shall not be deemed to have a conflict of interest because of such activities.
E. The General Partners shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership, including the safekeeping and use of all Partnership funds and assets and the use thereof for the benefit of the Partnership. The General Partners shall at all times act in good faith and exercise due diligence in all activities relating to the conduct of the business of the Partnership.
Section 5.7 of the Partnership Agreement provides:
Neither the Partnership nor any Partner shall have any rights or obligations, by virtue of this Agreement, in or to any independent ventures of any nature or description, or the income or profits derived therefrom, in which a Partner *575may engage, including, without limitation, the ownership, operation, management, syndication and development of other businesses, even if in competition with the Partnership’s trade or business.
The Op-Center Joint Venture is governed by the Op-Center Joint Venture Agreement, a letter agreement signed by Mr. Clancy, on behalf of JRLP, and Dr. Pieczenik, on behalf of S & R; the letter agreement contains a provision specific to Mr. Clancy and Dr. Pieczenik, which explains the process of decision-making for the Op-Center Joint Venture:
All decisions with respect to the development, use and exploitation of the proposal shall be made by mutual agreement between Steve R. Pieczenik and Tom Clancy; provided, however, that if, after discussion, no agreement is reached, the decision of Tom Clancy shall prevail.
The bottom of the letter contained the notation, “AGREED TO (insofar as I am concerned),” and was signed by Mr. Clancy and Dr. Pieczenik individually.
The gravamen of the instant case is what fiduciary duty is owed by Mr. Clancy to Ms. King in light of the JRLP Agreement and the Op-Center Joint Venture Agreement. The majority concludes that because Mr. Clancy reserved for himself, individually, in the Op-Center Joint Venture Agreement, management and control of the Op-Center series, Mr. Clancy owed no fiduciary duty to Ms. King and JRLP, and that the pertinent inquiry is whether Mr. Clancy’s actions in attempting to withdraw his name from the Op-Center series were in good faith. The issue is not whether good faith existed, however, even though Mr. Clancy did not prove his bona fides, but whether he could, for his own purposes, violate an agreement under which he had fiduciary obligations.
Professor Reed Rowley, in his treatise Rowley on Partnership, states that “[o]ne of the essentials or results of the partnership relation” is that a general partner “is the agent for the other partners and the partnership in partnership business,” with the right to incur obligations and execute instruments on behalf of the partnership. 1 Reed Rowley, *576Rowley on Partnership 287-38 (2d ed. 1960). See also 4 Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership at Section 14.01(b) (“A general [partner] has the power to act as agent in binding the limited partnership.”). The relationship of a general partner to the other partners, therefore, is “a fiduciary one, a relation of trust.” Della Ratta v. Larkin, 382 Md. 553, 578, 856 A.2d 643, 658 (2004); Herring v. Offutt, 266 Md. 593, 597, 295 A.2d 876, 879 (1972); Allen v. Steinberg, 244 Md. 119, 128, 223 A.2d 240, 246 (1966). See also Klein v. Weiss, 284 Md. 36, 59, 395 A.2d 126, 139 (1978) (“The relationship between the general and limited partner is a fiduciary one—a relation of trust—similar to that existing between a corporate director and a shareholder.”); J. William Callison & Maureen A. Sullivan, Partnership Law and Practice Section 12:1 (1996, 2004 Supp.) (“The status of partners as fiduciaries with respect to the partnership and each other is an established principle of partnership law.”).
In the present case, Section 5.5E of the JRLP Partnership Agreement establishes the general fiduciary relationship owed by Mr. Clancy to Ms. King, providing that, “The General Partners shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership.” (emphasis added). The fiduciary duty referred to in the JRLP Partnership Agreement has been explored by commentators, including Professor Rowley:
The law imposes upon each partner the duty of exercising toward his copartner the utmost integrity and good faith in all partnership affairs. In transactions concerning the interests of the firm he must consider their mutual welfare, rather than his own private benefit.
* * *
The relationship between partners being fiduciary, the highest degree of good faith between the partners is required. “There can be no question but that the law holds each member of a partnership to the highest degree of good faith in his dealings with reference to any matter which concerns the business of the common engagement, and that each partner, being the agent of the firm, must be held, during *577the existence of the relation, to the same accountability as other trustees, in all matters which affect the common interest.” “There is no stronger fiduciary relation known to the law than that of a copartnership, where one man’s property and property rights are subject to a large extent to the control and administration of another.”
1 Rowley, Rowley on Partnerships at 516-17 (footnotes omitted). See also 2 Bromberg & Ribstein, Bromberg and Ribstein on Partnership at Section 6.07 (stating that generally, “partners owe fiduciary duties to each other and to the partnership”); Callison & Sullivan Partnership Law and Practice at Section 12:1 (“The status of partners as fiduciaries with respect to the partnership and each other is an established principle of partnership law.”). In Della Ratta, 382 Md. at 578, 856 A.2d at 658, we had occasion to explore the fiduciary duty of general partners:
The partnership relationship is a fiduciary one, a relation of trust. Allen v. Steinberg, 244 Md. 119, 128, 223 A.2d 240, 246 (1966). Managing or general partners particularly owe a fiduciary duty to inactive partners. Id. Moreover, the partnership relationship carries with it the requirement of utmost good faith and loyalty. Herring v. Offutt, 266 Md. 593, 597, 295 A.2d 876, 879 (1972). As Justice Cardozo, then Chief Judge of the New York Court of Appeals, stated:
“Many forms of conduct permissible in a workaday world for those acting at arm’s length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions.... Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.” *578Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928) (quoted in Herring, 266 Md. at 597, 295 A.2d at 879).
Clearly, under the JRLP Partnership Agreement, General Partners of JRLP, Mr. Clancy and Ms. King, owed each other a fiduciary duty to conduct the affairs of the Partnership, including the Op-Center Joint Venture, in the best interests of the Partnership. The fact that under the Partnership Agreement Mr. Clancy and Ms. King could each pursue independent business ventures similar to, or even in competition with, the business conducted by the Partnership, does not change this basic tenet of partnership law, which Mr. Clancy and Ms. King adopted in the JRLP Agreement.
The majority circumvents the fiduciary duty owed by Mr. Clancy to Ms. King by referencing the Op-Center Joint Venture Agreement, which includes a provision specific to Mr. Clancy and Dr. Pieczenik explaining that, essentially, Mr. Clancy reserved for himself, individually, management and control of the Op-Center series. That clause, which pertains only to that agreement, however, does not eviscerate the fiduciary duty owed to Ms. Kang and JRLP under a different agreement. As both the trial court and the Court of Special Appeals recognized, even though Mr. Clancy reserved to himself, individually, in the Joint Venture Agreement, the management and control of the development, use and exploitation of the book series, that agreement was signed by Mr. Clancy as general partner of JRLP. The trial court concluded that “as an agent of the partnership, [and] also as managing partner, Mr. Clancy has the duty to act in the best interests of JRLP by informing Ms. King of any matters that are to the benefit or detriment of JRLP and any related projects”:
It is clear that Mr. Clancy no longer wanted to be associated with the Op-Center series, but there is evidence that indicates that he had no problem continuing with the other products in the Clancy line.
Mr. Clancy was aware that not only was the Op-Center series declining in sales, but also the sales in the other *579products in the Clancy brand. There is nothing to indicate that he wished to prevent the use of his name on the other Clancy brand products, even those books he does not personally author.
Tom Clancy is a name synonymous with the techno-thriller genre and because Mr. Clancy’s name is significant in the publishing world and carries such a name brand recognition, it would have been damaging to the partnership and the joint venture to have had his name removed from the Op-Center series. The purpose of the partnership and the joint venture would become frustrated for the reasons that the parties would not be able to contract, obtain the dollar values for the books and enjoy the fan base it enjoys now.
In the case at bar, even though Dr. Pieczenik and Mr. Clancy reserved to themselves, each individually, the management and control over the Op-Center series, Mr. Clancy signed the agreement on behalf of JRLP to carry out the business of JRLP which is to pursue activities relating to writing and the sale of books. Not only was the agreement made in the usual course of the partnership business, it was prepared by the attorney for JRLP and signed by the managing partner of JRLP, with the partnership name on the agreement.
While there is evidence that Mr. Clancy wants to end the Op-Center series because sales are going down and it is hurting his literary reputation, there is proof to the contrary that the books in the “Clancy” brand are going down in sales no more than the general decline in book sales. Penguin Group USA cannot be too concerned with the expansion of the “Clancy” brand because they just agreed to add two (2) books to a new branded series: Splinter Cell, a computer game. Therefore, this Court is not persuaded that the Op-Center series is damaging Mr. Clancy in any way because there is evidence to show that the sales of the other series of books not authored by Mr. Clancy are declining as well. Further, the evidence that Mr. Clancy *580does not want Mrs. King to benefit in any way from the Op-Center series further supports the contention that he was not acting in the best interest of JRLP in requesting his name be withdrawn from the series and that there should not be any further publications with his name. It is this Court’s opinion that Mr. Clancy breached his fiduciary duty not only to JRLP and his partner, Mrs. King, but also to the joint venture formed for the development of the Op-Center series.
The Court of Special Appeals agreed and noted that although it “is possible that [Mr. Clancy] could have withdrawn permission to use his name without breaching a duty to the Op-Center Joint Venture,” Ms. King’s “complaint, however, raised the issue of whether appellant had breached his fiduciary duty to Ms. King and JRLP, not to the Op-Center Joint Venture”:
Tom Clancy’s Op-Center is an asset of JRLP. The evidence before the circuit court leads to the reasonable conclusion that any acts that diminish the sales of Op-Center products, and thus income, will adversely effect the income of its co-owners—JRLP and S & R. Thus, our inquiry is whether appellant upheld his ... contractually imposed (JRLP limited partnership agreement) fiduciary duties to JRLP and appellee to protect and exploit the Op-Center asset.
We find no error in the court’s legal rulings that appellant was subject to a fiduciary duty, and that duty was not superceded by the partnership agreements.
We, therefore, affirm the circuit court’s conclusion that appellant breached his fiduciary duty to appellee and JRLP.
In the case sub judice, there are two extant partnership agreements which the majority, apparently, conflates, although Ms. King was not a signatory to the Op-Center Joint Venture Agreement but only the JRLP Agreement. The JRLP Agreement predated that Joint Venture Agreement, which was executed by Mr. Clancy, Managing Partner of JRLP, on the Partnership’s behalf, to carry out its business, *581i.e., to pursue activities relating to the writing, publishing, and sale of books. Thus, Ms. King could not have adopted the Op-Center Joint Venture Agreement’s individual terms as part of the Partnership Agreement, but Mr. Clancy, acting on behalf of JRLP with the Op-Center Joint Venture, was bound by the fiduciary duty specified in the JRLP Agreement.
Moreover, the majority errs in stating that because Clancy could control the management of the Op-Center Joint Venture, “[tjhere is no reason ... that he could not contract for less of an interest in the Op-Center activities for himself individually,” and “[tjhus, the terms of the Op-Center Joint Venture contract were permitted by the terms of the JRLP Partnership Agreement.” Majority op. at 562, 954 A.2d at 1104. By attempting to remove his name from the Op-Center series, consequently, Mr. Clancy also was adversely affecting Ms. King’s interest in the book series, to whom he owed a fiduciary duty, although Ms. King did not authorize such an action.
Nevertheless, the majority cites to our decision in Storetrax. com, Inc. v. Gurland, 397 Md. 37, 915 A.2d 991 (2007), as well as to Waterfall Farm Systems, Inc. v. Craig, 914 F.Supp. 1213 (D.Md.1995), for the proposition that an individual occupying a fiduciary relationship with a corporation or partnership may properly obtain and enforce legal rights against the corporation or partnership without breaching the fiduciary duty. That reading, however, extends the reach of those two cases beyond the realm of what was presented.
In Waterfall Farm Systems, 914 F.Supp. at 1213, two corporate directors sought to terminate a lease with the corporation; the corporation objected and filed suit. Judge Alexander Harvey, II of the United States District Court for the District of Maryland noted that the director’s “interest were adverse to those of the Corporation, and that they had every right to take proper and lawful steps to protect the substantial investment which they had in the real property owned by them,” and “the mere fact that the Craigs were officers and directors of Waterfall did not impose on them a legal obligation to accede to demands of the Corporation *582which were adverse to- their personal financial interest.” 914 F.Supp. at 1228 (emphasis added). Thus, proof would be required of adverse effect on personal financial interests, which was not provided by Mr. Clancy.
We found Judge Harvey’s reasoning persuasive in Storetrax.com, 397 Md. at 37, 915 A.2d at 991, where a member of the board of directors of a corporation, and a former employee, brought a lawsuit against the corporation to recover severance pay due him and to enforce a garnishment order against the corporation. We concluded that the director did not breach his fiduciary duty because the director could maintain a cause of action against the corporation and “had no legal obligation to accede to the demands of [the corporation] to relinquish a judgment to which he then had a colarable right merely because the corporation asked him to do so.” Id. at 69, 915 A.2d at 1010.2 Again, adverse effect was required.
In the present case, the Circuit Court, however, found as a matter of fact, uncontested before us, that Mr. Clancy had not proven that the use of his name in the Op-Center book series was adverse to his personal interests:
Tom Clancy is a name synonymous with the techno-thriller genre and because Mr. Clancy’s name is significant in the publishing world and carries such a name brand recognition, it would have been damaging to the partnership and the joint venture to have had his name removed from the Op-Center series. The purpose of the partnership and the joint venture would become frustrated for the reasons that the *583parties would not be able to contract, obtain the dollar values for the books and enjoy the fan base it enjoys now.
While there is evidence that Mr. Clancy wants to end the Op-Center series because sales are going down and it is hurting his literary reputation, there is proof to the contrary that the books in the “Clancy” brand are going down in sales no more than the general decline in book sales. Penguin Group USA cannot be too concerned with the expansion of the “Clancy” brand because they just agreed to add two (2) books to a new branded series: Splinter Cell, a computer game. Therefore, this Court is not persuaded that the Op-Center series is damaging Mr. Clancy in any way because there is evidence to show that the sales of the other series of books not authored by Mr. Clancy are declining as well. Further, the evidence that Mr. Clancy does not want Mrs. King to benefit in any way from the Op-Center series further supports the contention that he was not acting in the best interest of JRLP in requesting his name be withdrawn from the series and that there should not be any further publications with the name.
JRLP’s interests, the court found, were not adverse to those of Mr. Clancy, and therefore, Mr. Clancy was not relieved of his fiduciary duty to Ms. King and JRLP. The Court of Special Appeals agreed when it noted,
Most significant on the question of whether a glut of Op-Center books was damaging to the sales and income, of Tom Clancy’s books, was testimony of David Shanks, the Chief Executive Officer of Penguin Books, the publisher of Tom Clancy’s books. From Shanks’s wide-ranging testimony the court was able to conclude that the Op-Center brand was not a significant cause of decreasing Tom Clancy sales.
Pieczenik testified as to his disagreements with Clancy about the future of Op-Center and concluded that the proposal to withdraw the Clancy name from the Op-Center brand was not put forward until Clancy and King began their divorce proceedings. He opined that Clancy, together *584with his literary agent, undertook to subvert the Op-Center products. There existed throughout the trial the undercurrent that Clancy’s motive in withdrawing his name from the Op-Center venture, and effectively crippling it, was to harm the financial interests of King.
Moreover, what Mr. Clancy, and the majority, fail to recognize is that Mr. Clancy’s interests in the Op-Center book series, in fact, are consistent with those of Ms. King and JRLP. As JRLP partners, Mr. Clancy and Ms. King owned rights to several of Mr. Clancy’s literary works, in addition to the Op-Center series, including “Without Remorse,” “Debt of Honor,” “Executive Orders,” and “Rainbow Six.” Had Mr. Clancy proven that the decline in sales in the Op-Center series had had a negative affect on the “Tom Clancy” brand, including the other works under the purview of JRLP, he could have acted within his fiduciary obligation, in his, Ms. King’s and JRLP’s interests, should he have attempted to withdraw his name from the book series. I agree with the Circuit Court and-the Court of Special Appeals, however, that Mr. Clancy did not prove adverse effect. To say absent adverse effect, that a general partner can withdraw an asset vital to the Partnership without breach, not only offends the terms of the JRLP Partnership Agreement,3 but, offends the notion of fiduciary duty.
I dissent.4
*585Judge GREENE authorizes me to state that he joins in this dissenting opinion.

. Because of the majority’s holding, the issue regarding Ms. King’s role as managing partner of JRLP is not reached, although I do agree with the Court of Special Appeals that a remand for clarification of Ms. King's role as managing partner of JRLP would be necessary.

. The majority also cites Manufacturers Trust Co. v. Becker, 338 U.S. 304, 70 S.Ct. 127, 94 L.Ed. 107 (1949), for the proposition that an individual occupying a fiduciary relationship with a corporation may ordinarily purchase debt of the corporation at a discount and recover face value. Manufacturers Trust, however, did not involve a breach of fiduciaiy duly claim, as the Supreme Court noted that "Petitioner does not here contend that respondent’s claims should be limited because of conduct by the Becker directors or by respondents amounting to bad faith or abuse of fiduciary advantage.” Id. at 309, 70 S.Ct. at 130, 94 L.Ed. at 113. Even so, in that case the fiduciary proved that acceding •to the demands of the corporation would have constituted an adverse effect on his personal financial interests.

. Section 5.3 of the JRLP Agreement states:

Restrictions on Authority

A. With respect to the Partnership and the Property, the General Partners shall not have any authority to perform any act in violation of any applicable laws or regulations thereunder, nor shall any General Partner as such, without the Consent of the Limited Partners, have any authority:
(i) to do any act in contravention of this Agreement.
(ii) to do any act which would make it impossible to carry on the ordinary business of the Partnership; or
(iii) to possess Partnership property, or assign its rights in specific Partnership property, for other than a Partnership purpose.

. Mr. Clancy’s and Ms. King’s divorce was finalized on January 6, 1999. “Incorporated but not merged” into the divorce decree was a Marital *585Property Agreement, which did not alter the ownership of the interests of Mr. Clancy and Ms. King in JRLP, but appointed Mr. Clancy as the Partnership's Managing Partner. The Marital Property Agreement also contained a provision which stated that "[e]ach party shall indemnify and hold the other harmless from all damages, liabilities, losses, costs, fees and expenses (including attorneys and accountants fees and expenses) resulting from such party's breach of this Agreement.” I agree with the majority in that the only basis for the trial court’s award of attorney's fees to Ms. King was a finding that Mr. Clancy breached the Marital Property Agreement, and that the Circuit Court, if confronted with the same motion on remand, should resolve expressly whether the Marital Property Agreement was breached.