Court Opinion

ID: 2775598
Source: CourtListenerOpinion
Date Created: 2015-02-02 20:01:15.632879+00
Date Added: 2024-06-11T11:27:58.059877
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 13-2348

LEE GRAHAM SHOPPING CENTER, LLC,

                Plaintiff – Appellee,

                              and

LEE GRAHAM SHOPPING CENTER LIMITED PARTNERSHIP; PAUL           V.
ZEHFUSS; SITTA M. ZEHFUSS; NICOLE M. ZEHFUSS; PAUL             H.
ZEHFUSS; T. EUGENE SMITH,

                Third Party Defendants – Appellees,

                               v.

ESTATE OF DIANE Z. KIRSCH; DIANE Z. KIRSCH FAMILY TRUST;
SEPARATE TRUST FOR THE BENEFIT OF WAYNE CULLEN,

                Defendants – Appellants.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.   Liam O’Grady, District
Judge. (1:13-cv-189-LO-TCB)

Argued:   December 9, 2014                 Decided:   February 2, 2015

Before WILKINSON, SHEDD, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge Shedd wrote the opinion in
which Judge Wilkinson and Judge Thacker joined.

ARGUED: Roger Alexander Hayden, II, PASTERNAK & FIDIS, P.C.,
Bethesda, Maryland, for Appellants. Kerr Stewart Evans, Jr.,
EVANSSTARETT PLC, Fairfax, Virginia, for Appellees.     ON BRIEF:
Nathan S. Brill, PASTERNAK & FIDIS, P.C., for Appellants.

                                2
SHEDD, Circuit Judge:

      In    May     2011,      Diane    Z.        Kirsch      assigned     her    limited

partnership       interest      (“Interest”)        in    the    Lee    Graham   Shopping

Center Limited Partnership (“Partnership”), 1 a business closely

held by members of two families, to the Diane Z. Kirsch Family

Trust (“Kirsch Trust”). By the terms of the Kirsch Trust, the

Interest    was    to    pass    to    another      trust,       established      for    the

benefit     of    her      long-term      companion           Wayne    Cullen    (“Cullen

Trust”), upon Kirsch’s death. Kirsch died in January 2012, and

at   that   time,       the    Interest      passed      to     the    Cullen    Trust    as

provided by the Kirsch Trust. In February 2013, the Partnership

filed    suit     in    the   Eastern     District         of   Virginia,       seeking   a

declaratory judgment that the Partnership Agreement forbids the

transfer of the Interest to the Cullen Trust. Cullen asserted a

number     of    related      counterclaims.        The    district      court    granted

summary judgment to the Partnership on all claims, and Cullen

now appeals. For the reasons that follow, we affirm.

                                             I.

1
  Following the events underlying this dispute, the Lee Graham
Shopping Center Limited Partnership was converted to an LLC. For
ease of reference and to avoid confusion, we use the term
“Partnership” to refer to this entity in both its past and
present forms.

                                             3
       The     Lee    Graham      Shopping           Center       partnership,        in     Falls

Church, Virginia, was founded as a general partnership between

Dr.    Paul    E.    Zehfuss      and       T.   Eugene         Smith   in   1969.     In    1984,

Zehfuss and Smith converted the general partnership to a limited

partnership         and    adopted      a    partnership          agreement     (“Agreement”)

memorializing the change. Dr. Zehfuss then gifted interests of

four    percent       in    the   Partnership              to    several     family       members,

including      his    daughter,         Diane        Kirsch.      He    died   in     May   1985,

leaving       additional       interests          in       the    Partnership        to     Kirsch

through his will.

       By 2011, Kirsch had been diagnosed with terminal cancer and

began the process of estate planning. In May 2011, she assigned

her limited partnership Interest to the Kirsch Trust, which she

retained the right to alter, amend, or revoke until her death.

When she died on January 22, 2012, the Kirsch Trust held a 21

percent Interest in the Partnership, and it provided for the

transfer of that Interest to the Cullen Trust upon her death.

Acting in his capacity as trustee of the Kirsch Trust, Cullen

transferred the Interest to the Cullen Trust. Kirsch’s will was

subsequently probated in Maryland in June 2012.

       In February 2013, the Partnership filed suit in the Eastern

District       of    Virginia,       seeking           a    declaratory        judgment       that

Kirsch’s transfer of the Interest to the Kirsch Trust became

void as of the date of her death, because the Agreement forbids

                                                 4
gift   transfers     to   non-family     members,     and    the   Kirsch        Trust

provided for transfer of the Interest to a non-qualifying person

– the Cullen Trust. The suit was filed in federal court on the

basis of diversity jurisdiction, because Cullen is a resident of

Maryland    and    the    Partnership    is    a    Virginia    entity.      Cullen

asserted a number of defenses and related counterclaims. The

parties    filed    cross-motions       for   summary       judgment,      and     the

district court granted summary judgment to the Partnership on

all counts. Cullen appealed that decision to this court.

                                        II.

       Cullen     first   argues    that      the    district      court     lacked

jurisdiction       because   this    case     falls     within     the      probate

exception to federal diversity jurisdiction. 2 Determining whether

2
  In addition to challenging the district court’s rulings on
jurisdiction and the construction of the Agreement, Cullen
raises a number of other issues on appeal. These are: (1) the
transfer restrictions in the Agreement are unlawful restraints
on alienation in violation of Virginia law; (2) the general
partners either waived their right to challenge the transfer of
the Interest to Cullen or consented to that transfer by failing
to contest it in a timely fashion; (3) a genuine dispute of
material fact exists as to whether Paul V. Zehfuss, a general
partner and Kirsch’s brother, intentionally deceived Kirsch into
believing that the Partnership would accept the transfer to
Cullen as valid; (4) the district court erred in denying Cullen
the opportunity to conduct discovery; (5) the Partnership’s
later conversion to an LLC was unlawful because Cullen did not
vote on the conversion; (6) Cullen was wrongfully denied an
accounting and the right to inspect the Partnership’s books and
records; (7) the Partnership has converted at least $37,800.00,
(Continued)
                                         5
subject matter jurisdiction exists is a question of law that we

review de novo. In re Kirkland, 600 F.3d 310, 314 (4th Cir.

2010).

     The Supreme Court has recently spoken to the scope of the

probate exception in Marshall v. Marshall, 547 U.S. 293 (2006).

In that case, the Court held that

     the probate exception reserves to state probate courts
     the   probate   or  annulment   of   a   will   and  the
     administration   of a    decedent’s   estate;   it  also
     precludes federal courts from endeavoring to dispose
     of property that is in the custody of a state probate
     court. But it does not bar federal courts from
     adjudicating   matters  outside    those   confines  and
     otherwise within federal jurisdiction.

Id. at 311-12. Thus, after Marshall, the probate exception is

limited to two categories of cases: (1) those that require the

court to probate or annul a will or to administer a decedent’s

estate,   and   (2)   those   that   require   the   court   to   dispose   of

property in the custody of a state probate court.

plus interest, in partnership distributions that rightfully
belong to Cullen as the owner of the Interest; (8) Paul V.
Zehfuss’s misrepresentations regarding Kirsch’s rights with
respect to the Interest constitute negligence, fraud, and
intentional interference with contract; (9) the district court
lacked personal jurisdiction over Cullen; and (10) the district
court should have ordered Paul V. Zehfuss joined as a necessary
party to this lawsuit. We have independently reviewed the record
and we find that each of these contentions has either been
waived or has no merit.

                                      6
      The parameters of the probate exception cannot be read so

broadly as to include this case. In Marshall, the Supreme Court

clarified that the proper scope of the exception is “narrow.”

Id.   at   305,    307.    Thus,    it   applies      only   if       a   case    actually

requires a federal court to perform one of the acts specifically

enumerated in Marshall: to probate a will, to annul a will, to

administer a decedent’s estate; or to dispose of property in the

custody of a state probate court. A case does not fall under the

probate    exception       if      it    merely      impacts      a       state   court’s

performance of one of these tasks. See, e.g., Three Keys Ltd. v.

SR Util. Holding Co., 540 F.3d 220, 227 (3d Cir. 2008) (“Insofar

as    [prior      cases]   interpreted         the    probate         exception     as   a

jurisdictional bar to claims ‘interfering’ with the probate, but

not seeking to probate a will, administer an estate, or assume

in rem jurisdiction over property in the custody of the probate

court, that interpretation was overbroad and has been superseded

by Marshall.”) (internal citation omitted). 3

      This case requires the court to interpret the terms of the

Agreement and the Kirsch and Cullen Trusts, not the terms of

Kirsch’s will. The declaratory judgment requested in this case

3
  Other circuits have also recognized that Marshall sharply
curtailed the scope of the probate exception. See Curtis v.
Brunsting, 704 F.3d 406, 407 (5th Cir. 2013); Jimenez v.
Rodriguez-Pagan, 597 F.3d 18, 24 (1st Cir. 2010); Lefkowitz v.
Bank of New York, 528 F.3d 102, 105 (2d Cir. 2007).

                                           7
will not order a distribution of property out of the assets of

Kirsch’s estate, although it may affect future distributions.

Further, the Interest at issue is currently held by the Cullen

Trust, and thus is not property in the custody of the Maryland

probate court. Accordingly, this case falls into neither of the

narrow   classes   of   cases    defined         in   Marshall. 4   The    probate

exception therefore does not preclude federal court jurisdiction

in this case, and it was properly before the district court

under normal principles of diversity jurisdiction pursuant to 28

U.S.C. § 1332.

                                   III.

     Having   established       that       the    district     court      properly

exercised jurisdiction over this case, we turn now to review its

decision on the merits. We review the district court’s grant of

summary judgment in favor of the partnership de novo. Henry v.

Purnell, 652 F.3d 524, 531 (4th Cir. 2011). We view the evidence

4
  Indeed, Cullen’s argument for the application of the probate
exception in this case resembles the argument rejected in
Marshall itself. There, the Supreme Court held that a claim of
tortious interference with the expectancy of an inheritance did
not fall within the probate exception. Marshall, 547 U.S. at
314. Like the tortious interference claim in Marshall, the
contract interpretation question involved here may affect the
outcome of the distribution of estate assets, but that question
itself requires neither an interpretation of a will nor a
distribution of estate assets.

                                       8
and    all    reasonable     inferences         from   it     in   the        light    most

favorable to Cullen, the non-moving party. Id. The parties agree

that the interpretation of the Agreement is governed by Virginia

contract law. See Agreement Section 9.09 (“[A]ll questions with

respect to the interpretation or construction of this Agreement

and the rights and liabilities of the parties hereto shall be

determined in accordance with the laws of the Commonwealth of

Virginia.”); Donnelly v. Donatelli & Klein, Inc., 519 S.E.2d

133,    138     (Va.     1999)     (Virginia      partnership        agreements        are

interpreted as contracts between the parties).

       We must decide whether the Agreement permitted Kirsch to

transfer her Interest to Cullen as a gift through the Kirsch

Trust and the Cullen Trust. Cullen argues that the transfer is

permissible      because     the       introductory    clause      of    Section       6.02

creates a default rule that all limited partnership interests

are    freely    assignable.       The    Partnership,        on   the    other       hand,

argues that the transfer is prohibited because Sections 6.02(a)

and    6.02(e)     provide       the    exclusive      mechanisms        by    which    an

interest may be transferred. For the reasons below, we believe

that the Partnership’s reading of the Agreement is correct.

       The central interpretive question in this case is whether

the    Agreement       permits    gift    transfers      to   non-family         members.

Although far from a model of clarity, the Agreement permits only

one    reasonable       interpretation       on   this      point.      Section       6.02,

                                            9
titled “Assignment of Limited Partner’s Interest,” provides at

the outset that “[t]he interest of each Limited Partner in the

Partnership shall be assignable subject to the following terms

and conditions.” J.A. 34. That introductory clause is followed

by    Sections   6.02(a)–(e),      which      then   set   out   those     terms     and

conditions.

       Section    6.02(a),      titled        “Limitations       on     Assignment,”

governs the circumstances under which a limited partner may sell

his partnership interest to a person making a “bona fide written

offer” to purchase it. J.A. 34-35. Before a limited partner may

accept such an offer, he must offer to the Partnership itself

the opportunity to repurchase his interest on the same terms as

those contained in the offer. If the Partnership refuses, he

must then offer the same opportunity to all current partners. In

essence,    6.02(a)    creates     a    right    of    first     refusal       for   the

Partnership and for current partners when there is an offer to

purchase. Sections 6.02(b), (c) and (d) further elaborate on

6.02(a)’s purchase offer framework by describing, respectively,

the    circumstances       under    which      an     assignee     of     a    limited

partnership interest may become a limited partner, the effect of

the    assignment     of   a   limited     partnership       interest,         and   the

definition of the term “bona fide offer.”

       Section   6.02(e),      titled   “Family       Transfers,”       then    removes

transfers to family recipients from the framework of 6.02(a).

                                         10
Under   6.02(e),       “[t]he    sale    or       other   transfer      by    a   Partner,

whether inter vivos or by will, of his Partnership interest ...

shall   not    be     subject    to    the    restrictions         or   limitations      of

Section 6.02(a)” if the sale or transfer is made to a member of

a certain group of family recipients, defined as the partner’s

“spouse, parent, descendant, or spouse of a descendant, or to a

trust of which any of said persons are beneficiaries.” J.A. 37.5

Thus, 6.02(e) extends favorable treatment to family members in

two ways: a purchase offer transfer to a family recipient of the

type authorized in 6.02(a) is not subject to 6.02(a)’s right of

first refusal provisions, and a non-purchase offer transfer to a

family recipient is permitted.

     The      clear    reading    of    Section       6.02    as    a   whole     is   that

interests may only be assigned pursuant to the terms of either

6.02(a) or 6.02(e). Any broader right of assignability renders

6.02’s introductory        stipulation            that    interests     are   assignable

“subject to the following terms and conditions” superfluous. See

TM Delmarva Power, L.L.C. v. NCP of Virginia, L.L.C., 557 S.E.2d

199, 200 (Va. 2002) (“[N]o word or clause in a contract will be

treated as meaningless if a reasonable meaning can be given to

it, and parties are presumed not to have included needless words

5
  Although Cullen had been Kirsch’s companion for many years
prior to her death, she and Cullen had never married. Therefore
Cullen is not a family recipient as defined in 6.02(e).

                                             11
in the contract.”) This statement is immediately followed by

6.02(a)’s purchase process and the limitations and explanations

of that process in 6.02(b)–(d). 6.02(e) is the only Section in

6.02    that    contemplates         any    transfer       outside      of     the   6.02(a)

process, and it does so by explicitly removing itself from the

terms of 6.02(a). The resulting inference, therefore, is that a

transfer may take place only under the purchase offer process

outlined in 6.02(a) or as a family transfer pursuant to 6.02(e).

       Cullen,       however,      argues       that    the      operative      clause     of

Section      6.02    is   the    introductory          clause,    which      reads     “[t]he

interest of each Limited Partner in the Partnership shall be

assignable” (emphasis added). The subsequent phrase “subject to

the following terms and conditions,” he argues, exists only to

denote       that    in   certain     special          cases     involving      offers    to

purchase, additional strictures apply. Finally, he argues that

6.02(e)       governs     only     the      special      case     of     purchase      offer

transfers       among     family     members         because     the    only    change     it

effects is to exempt those transfers from the 6.02(a) framework.

In     the     absence     of    a    purchase          offer,     he     concludes,       no

restrictions are applicable and interests are freely assignable

to anyone under the introductory clause of 6.02.

       A     close    examination          of    Section       6.02(e)       reveals     that

Cullen’s reading is not correct. 6.02(e) covers both purchase

offers and other types of transfers between family members. If

                                                12
these other transfers were allowed under Cullen’s reading of

6.02, there would be no need for 6.02(e) to exempt them from the

provisions of 6.02(a). Such a reading would render these words

in    6.02(e)    superfluous,     and    thus   we   must   reject    it.   See    TM

Delmarva Power, 557 S.E.2d at 200; Roanoke Marble & Granite Co.

v. Standard Gas & Oil Supply Co., 154 S.E. 518, 520 (Va. 1930)

(it is a “settled rule of construction ... that contracts must

be construed so as to give effect to every part thereof”).

       This favored treatment of family is further evidenced by

who    benefits    from    the   right    of    first   refusal      contained     in

6.02(a).    At    the     time   the    Agreement    went    into    effect,      all

interests in the Partnership were held by its three partners:

Smith and Dr. Zehfuss, the founders of the Partnership, and Paul

V. Zehfuss, the founding partner’s son. Section 6.02(a) protects

this family ownership by providing that before an outsider can

purchase a Partnership interest, a right of first refusal must

be given first to the Partnership and then to existing partners.

The effect of this provision is thus to enable the families who

own the Partnership to retain ownership if they so desire. The

only exception to this right of first refusal for family members

appears in 6.02(e), where a family right of first refusal is not

                                         13
needed     because       only   family      members     are      eligible      to     obtain

partnership interests under 6.02(e). 6

       Finally, because we find that the Agreement unambiguously

prohibits      gift     transfers      of   interests      to    non-family         members,

there is no need to remand for discovery on the meaning of the

Agreement. See Pocahontas Mining Ltd. Liab. Co. v. CNX Gas Co.,

LLC,     666    S.E.2d       527,     531   (Va.    2008)       (“When   the        writing,

considered as a whole, is clear, unambiguous, and explicit, a

court asked to interpret such a document should look no further

than the four corners of the instrument.”). As a result, we

conclude       that    the    Agreement      prohibits      the     transfer         of   the

Interest       to     the    Cullen    Trust,      which    benefits     a     non-family

member.

                                            IV.

       For the foregoing reasons, the judgment of the district

court is

                                                                                AFFIRMED.

6
  Not only does Cullen’s reading ignore the favorable treatment
the Agreement provides for family members, it in fact favors
non-family members. Under his view, family members receiving
gift transfers would, under 6.02(e), be explicitly required to
obtain the written permission of the general partners to become
full limited partners, while there would be no such explicit
requirement for non-family members.

                                            14