On 26 February 1992, Thomas L. Clancy, Jr, perhaps best known as the author of many popular "techno-thriller" novels, and Wanda King,
Section 5.7 of the JRLP Partnership Agreement provides that:
JRLP, in furtherance of its purpose, contracted with S & R Literary, Inc., in a 23 March 1993 letter agreement, forming a joint venture known as "Tom Clancy's Op-Center" (Op-Center).
The signature page of the Joint Venture Agreement appears as follows:
To develop the paperback book series, Pieczenik assembled a team including Martin Greenberg, a book "packager,"
The Op-Center paperback books proved to be successful. Every book appeared on the New York Times Paperback Bestseller list. As of July 2003, the Op-Center book series generated over $28 million in domestic and foreign profits, after deducting writers' fees, commissions, and other expenses.
In 1996, in the midst of the Op-Center series of books, Clancy and King, as husband and wife, separated. Their divorce was finalized by the Circuit Court for Calvert County on 6 January 1999. Leading up to the divorce, Clancy and King entered into a Marital Property Agreement.
After a total of 10 books were published in the Op-Center series, and Books 11 and 12 slated for publication, Clancy set the stage for the possible removal of his name from the Op-Center series. JRLP and S & R Literary agreed, in a jointly signed letter dated 23 October 2001, that Clancy's name would be used in connection with Books 13 and 14 in the series. Clancy signed on behalf of JRLP; Pieczenik on behalf of S & R Literary. The letter agreement provided further that, after the publication of Book 14, JRLP could withdraw permission to use Clancy's name in connection with future books in the series.
King filed a Complaint in the Circuit Court for Calvert County on 3 July 2003 alleging that Clancy breached his fiduciary duty to her and JRLP by, inter alia, stating
It was not until 19 January 2004 that Clancy "pulled the trigger" on his announced intent to withdraw his name prospectively from the Op-Center series. Through counsel in a 19 January 2004 letter, he expressed his refusal to permit the Op-Center joint venture to use his name in connection with the series beyond Book 14. Specifically, the letter stated:
On 20 January 2004, Clancy filed in the case initiated by King a Counterclaim for Declaratory Relief. Clancy sought a declaration holding:
Clancy later filed a motion for summary judgment.
In consideration of arguments made on the first day of trial, the trial court vacated its summary judgment ruling in King's favor to the extent that it held that Clancy breached his fiduciary duty to JRLP and King.
The Circuit Court bifurcated the trial. The object of the first portion of the trial was to determine whether Clancy breached his fiduciary duty to JRLP and King. The second part of the trial was to determine, if necessary, equitable relief and damages due to King. On 5 August 2005, the Circuit Court concluded that Clancy breached his duty to JRLP and the Op-Center
Clancy noted a timely appeal to the Court of Special Appeals. The intermediate appellate court affirmed, in an unreported opinion, the Circuit Court's judgment. The Court of Special Appeals, however, expressed its view that the scope of the trial court's order as to King's authority as managing partner of JRLP with regard to the Op-Center project was not sufficiently clear. The court remanded the case to the Circuit Court for clarification.
Where, as in the present case, an action has been tried without a jury, we "review the case on both the law and the evidence." Maryland Rule 8-131(c). "We will not disturb the judgment on the facts, however, unless the trial court's findings are clearly erroneous." Goff v. State, 387 Md. 327, 338, 875 A.2d 132, 139 (2005). "The deference shown to the trial court's factual findings under the clearly erroneous standard does not, of course, apply to legal conclusions." Nesbit v. Gov't Employees Ins. Co., 382 Md. 65, 72, 854 A.2d 879, 883 (2004). Where a case involves "the application of Maryland statutory and case law, our Court must determine whether the lower court's conclusions are `legally correct' under a de novo standard of review." Walter v. Gunter, 367 Md. 386, 392, 788 A.2d 609, 612 (2002).
Clancy concedes that, contract law aside,
Section 9A-103(a) of the Maryland Code, Corporations and Associations Article notes that "relations among the partners and between the partners and the partnership are governed by the partnership agreement." Section 9A-103(b)(3)(i) permits partnerships to "identify specific types or categories of activities that do not violate the duty of loyalty."
Thus, the first step in the proper analysis of the questions presented by the instant case is to examine the contracts governing the operation of JRLP and the Op-Center Joint Venture. See Sonet v. Timber Co., 722 A.2d 319, 324 (Del.Ch.1998) (noting that under limited partnership law "a claim of breach of fiduciary duty must first be analyzed in terms of the operative governing instrument—the partnership agreement—and only where that document is silent or ambiguous, or where principles of equity are implicated, will a Court begin to look for guidance from the statutory default rules, or other extrinsic evidence"); Stephen M. Bainbridge, Much Ado About Little? Directors' Fiduciary Duties in the Vicinity of Insolvency, 1 J. BUS. & TECH. L. 335, 337 (2007) ("[F]iduciary duties . . . can be understood as gapfillers that complete the contract. . . .").
The rules of contract interpretation are well-settled. "The interpretation of a contract, including the determination of whether a contract is ambiguous, is a question of law, subject to de novo review." Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157, 163, 829 A.2d 540, 544 (2003). "Maryland adheres to the principle of the objective interpretation of contracts." Cochran v. Norkunas, 398 Md. 1, 16, 919 A.2d 700, 710 (2007). The court will "`giv[e] effect to the clear terms of the contract regardless of what the parties to the contract may have believed those terms to mean.'" United Servs. Auto. Ass'n v. Riley, 393 Md. 55, 79, 899 A.2d 819, 833 (2006) (quoting Towson Univ. v. Conte, 384 Md. 68, 78, 862 A.2d 941, 946-47 (2004)). "Thus, our search to determine the meaning of a contract is focused on the four corners of the agreement." Cochran, 398 Md. at 17, 919 A.2d at 710 (citing Walton v. Mariner Health, 391 Md. 643, 660, 894 A.2d 584, 594 (2006)). "[E]ffect must be given to each clause so that a court will not find an interpretation which casts out or disregards a meaningful part of the language of the writing unless no other course can be sensibly and reasonably followed." Sagner v. Glenangus Farms, Inc., 234 Md. 156, 167, 198 A.2d 277, 283 (1964).
There are essentially two contracts of concern in the present case.
In short, these provisions trumped the usual duty not to compete with the limited partnership and, to a large extent, the duty not to usurp partnership opportunities. See Kahn v. Icahn, No. Civ. A. 15916, 1998 WL 832629, *3, 24 DEL. J. CORP. L. 738 (Del.Ch.1998), aff'd, 746 A.2d 276 (Del.2000) (table)
Thus, Clancy was under no obligation to allow JRLP to participate in the Op-Center Joint Venture. Clancy was free to retain all profits and management of the Op-Center Joint Venture for himself as an individual.
In other words, "Tom Clancy" has final authority over "[a]ll decisions" regarding the "development, use, and exploitation" of the Op-Center project.
The contract is in the form of a letter from JRLP to S & R Literary. Thus, where the contract refers to "you," it refers to S & R Literary.
There would be no reason for Clancy's and Pieczenik's signatures to appear twice on the signature page unless they also were signing in their individual capacities. JRLP and S & R Literary already and objectively had indicated their intent to be bound by the contract as evidenced by the signatures earlier on the page. The phrase "AGREED TO (insofar as I am concerned)" also indicates that Clancy signed individually. Throughout the contract, JRLP is referred to in the first person plural as "we" or "us." The use of the word "I" shows that those signatures were of individuals.
If traditional common law and statutory fiduciary duty principles were paramount to the analysis and outcome of the present case in the posture in which it reaches us, portions of this contract clearly would be improper self-dealing and a usurpation of a partnership opportunity. Clancy reserved control of the project to himself, not the entity to which he owed fiduciary duties. Instead, the JRLP Partnership Agreement clearly contemplates that Clancy may compete with JRLP. In fact, Clancy, under the JRLP Partnership Agreement, may contract to control individually the entire management and profits of the Op-Center Joint Venture. There is no reason, therefore, that he could not contract for less of an interest in the Op-Center activities for himself individually. In essence, Clancy agreed to retain full and final management authority for himself individually, while assigning the profits and ownership of the venture to JRLP. Thus, the terms of the Op-Center Joint Venture contract were permitted by the terms of the JRLP Partnership Agreement.
A fiduciary, under appropriate circumstances, may acquire and enforce legal rights against the firm for which he or she serves as a fiduciary. In Waterfall Farm Systems, Inc. v. Craig, 914 F.Supp. 1213, 1215 (D.Md.1995), the Craigs, minority shareholders and directors of a corporation, owned real property upon which a
In Storetrax.com, Inc. v. Gurland, 397 Md. 37, 45, 915 A.2d 991, 996 (2007), a director brought a breach of contract action against the corporation seeking payment of a severance package. He obtained a default judgment against the corporation and enforced the judgment by attaching the corporation's bank account. Storetrax.com, 397 Md. at 46, 915 A.2d at 996. The director refused to voluntarily relinquish the default judgment upon the corporation's request. Storetrax.com, 397 Md. at 47, 915 A.2d at 996. The corporation sued, arguing that the director breached his fiduciary duty to the corporation. Storetrax.com, 397 Md. at 47-48, 915 A.2d at 997. We held that the director did not breach his fiduciary duty by obtaining a judgment against the corporation and enforcing a writ of garnishment against the corporate bank account. Storetrax.com, 397 Md. at 67, 915 A.2d at 1009. Waterfall Farm Systems and Storetrax.com stand for the proposition that a fiduciary properly may enforce a validly obtained legal right against the firm to which he or she stands in a fiduciary relationship.
Similarly, in Manufacturers Trust Co. v. Becker, 338 U.S. 304, 308, 70 S.Ct. 127, 130, 94 L.Ed. 107 (1949), fiduciaries and their family members purchased, at arm's length from third parties but at a tremendous discount from their face value, notes of the corporation in which they served as directors. Another creditor sued to stop the payment of the notes. Mfrs. Trust, 338 U.S. at 305-06, 70 S.Ct. at 128-29, 94 L.Ed. 107. The creditor argued that notes held by the fiduciaries should be paid, if at all, only up to the amount that the fiduciaries paid for them on the open market. Id. The Supreme Court held that fiduciaries could recover more than the amount they paid to acquire the notes. Mfrs. Trust, 338 U.S. at 314-15, 70 S.Ct. at 133, 94 L.Ed. 107.
Manufacturers Trust stands for the proposition that where there is "no component of unfair dealing or bad faith," fiduciaries may recover beyond their personal financial exposure on fairly purchased corporate notes. Id. Thus, a fiduciary does not need to show a potential personal financial loss in order to enforce a valid and fairly obtained contractual right that is adverse to the firm. See In re Philadelphia & W. Ry. Co., 64 F.Supp. 738, 739 (E.D.Pa.1946) ("[T]he relationship has never been held to deny a director the right to purchase outstanding corporate obligations at a discount and enforce them against the company for their full amount. . . ."); In re McCrory Stores Corp., 12 F.Supp. 267, 269 (D.C.N.Y.1935) ("Under ordinary conditions a director may purchase claims against his corporation at a discount and enforce them for their full amount." (citing Seymour v. Spring Forest Cemetery Assoc., 144 N.Y. 333, 39 N.E. 365 (1895) and Glenwood Mfg. Co. v. Syme, 109 Wis. 355, 85 N.W. 432
Thus, a fiduciary may enforce validly obtained legal rights against his or her firm, even if that transaction results in a profit for the fiduciary at the firm's expense. In the present case, Clancy contracted in both the JRLP Partnership Agreement and the Op-Center Joint Venture Agreement regarding an intellectual property right, namely, control over the use and exploitation of "Tom Clancy's Op-Center." He now seeks to enforce that contracted-for-right, just as the director in Storetrax.com sought to enforce his contract for a severance package. The rationale for reserving such a right is obvious. Clancy is a commercially successful and highly-franchised artist. It is perfectly legitimate and rational for such an artist to seek to retain creative control over a project which bears his or her name, regardless of the degree of artistic contribution he or she actually contributes to the endeavor.
The fact that Clancy validly reserved the right to control the use and exploitation of the Op-Center project does not end the inquiry. According to the terms of the JRLP Partnership Agreement and contract law generally, Clancy must exercise his discretion in good faith. Section 5.5E of the JRLP Partnership Agreement states that "[Clancy and King] 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."
Even if the contract did not contain this general good faith term, Maryland contract law implies such an obligation. See Maryland Code (1975, 2007 Repl. Vol.), Corporations & Associations Article, § 9A-103(b)(5) (noting that the partnership agreement may not "[e]liminate the obligation of good faith and fair dealing"); id. § 9A-404(d) ("A partner shall discharge the duties to the partnership and other partners under this title or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing."); Julian v. Christopher, 320 Md. 1, 9, 575 A.2d 735, 739 (1990) ("`[T]here exists an implied covenant [in a contract] that each of the parties thereto will act in good faith and deal fairly with the others.'" (quoting Food Fair v. Blumberg, 234 Md. 521, 534, 200 A.2d 166, 174 (1964))); Port E. Transfer, Inc. v. Liberty Mut. Ins. Co., 330 Md. 376, 385, 624 A.2d 520, 524 (1993) ("Even when the parties are silent on the issue, the law will impose an implied promise of good faith."); Automatic Laundry Serv., Inc. v. Demas, 216 Md. 544, 551, 141 A.2d 497, 501 (1958) (holding that a party to a contract could not, in good faith, "render valueless"
In Della Ratta, 382 Md. at 558, 856 A.2d at 646, the general partner in a limited partnership announced that, as permitted in the partnership agreement, he would be requiring capital contributions from the limited partners in order pay off an outstanding loan. Several of the limited partners opposed the capital call because the general partner had not made any distributions of profits, and the capital call represented a financial hardship. Della Ratta, 382 Md. at 561, 856 A.2d at 647. They exercised their statutory right to withdraw from the limited partnership. The general partner responded by accelerating the due date of the capital call to antedate the withdrawal. Della Ratta, 382 Md. at 560, 856 A.2d at 647. We summarized the findings of fact of the trial court in the subsequent litigation:
Della Ratta, 382 Md. at 577, 856 A.2d at 657. We held that the general partner acted in bad faith. Della Ratta, 382 Md. at 579-80, 856 A.2d at 659.
In Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199 (Del.1993), the Supreme Court of Delaware held that a limited partner/plaintiff may maintain a claim for breach of fiduciary duty where it alleged that the general partner exercised its contractual discretion, granted in the limited partnership agreement, in bad faith. The limited partnership agreement permitted the general partner to bar the limited partners from participating in new business opportunities (leveraged buyout investments) "if the General Partner delivers a written notice to such Limited Partner that the making of such Capital Contribution or portion thereof might have a Material Adverse Effect. Any Capital Contribution by a Limited Partner might have a `Material Adverse Effect' if: . . . the General Partner, in its discretion, determines . . . . participation by such Limited Partner is such LBO Investment would . . . have a material adverse effect on the Person that is, directly or indirectly, the subject of the proposed LBO Investment, the Partnership or Morgan Stanley." Desert Equities, 624 A.2d at 1202 n. 4. The general partner, exercising its rights under the partnership agreement, did not permit a limited partner to participate in three new business opportunities. Desert Equities, 624 A.2d at 1202. The limited partner barred from participating sued, arguing that the exclusion by the general partner was in bad faith
The Supreme Court of Delaware reversed. The court held that the limited partner may recover if it could prove that the general partner acted in retaliation against the limited partner.
The requirements of good faith in contract law are similar to the good faith doctrine in partnership law. In First Nat. Realty Corp. v. Warren-Ehert Co., 247 Md. 652, 657, 233 A.2d 811, 813-14 (1967), we surveyed "a number of Maryland cases which have dealt with the question of the performance of a contract to the satisfaction of one of the parties." The Court concluded that, in "matters essentially affecting personal taste," "the purchaser's opinion as to satisfaction controlled in the absence of fraud or bad faith." First Nat. Realty, 247 Md. at 657, 233 A.2d at 814-15 (emphasis added); see also SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS §§ 38:23, 38:24 (4th ed. 2000) (noting the distinction between the subjective test applied to matters of personal taste, such as art, and the objective test applied to "matters of mechanical fitness, utility or marketability"). The rule articulated in First Nat. Realty Corp. seems apt for application to the present case. In matters of personal discretion in contract, the party with the discretion is limited to exercising that discretion in good faith. See also Volos, Ltd. v. Sotera, 264 Md. 155, 171, 286 A.2d 101, 109 (1972) (holding that, in employment contracts for definite term subject to the satisfaction of the employer, the employer may discharge an employee only for an honest, good faith dissatisfaction with the employee's performance); Wilmington Leasing, Inc. v. Parrish Leasing Co., L.P., Civ. A. No. 15202, 1996 WL 752364, *15, 22 Del. J. Corp. L. 1337 (Del. Ch.1996) (holding that limited partners discretion granted in the partnership agreement to remove the general partner was limited by reasonableness and good faith); Arvida/JMB Partners, L.P. v. Vanderbilt Income & Growth Assocs., No. Civ. A. 15238-NC, 1997 WL 294440, *5, 23 Del. J. Corp. L. 666 (Del.Ch.1997) (holding that although a partnership agreement provision granted rights to the general partner to be exercised in its "sole and absolute discretion," such discretion must be used in good faith); Fitzgerald v. Cantor, No. Civ. A. 16297-NC, 1999 WL 182571, *1 (Del.Ch.1999) ("As a matter of equity, however, a managing general partner cannot use, adversely to the interests of a partner
If a significant motive for Clancy exercising his contractual right to withdraw his name from the Op-Center series was to decrease the profitability of the series, thereby denying his JRLP partner and ex-wife revenue, because he desired to spite or punish King for or as a consequence of their divorce, it reasonably could be maintained that he acted in bad faith towards both the Op-Center Joint Venture and JRLP. One certainly breaches the promise of good faith owed in contract and as fiduciary in a partnership by working actively to decrease directly the profits of the business venture.
"Good faith ordinarily is a question of fact. . . ." David A. Bramble, Inc.
Although it is not strictly necessary for us to comment also on the issue of attorneys' fees and expenses in light of our holding on the first question presented, we nonetheless note an analytical consideration in that regard as means to offer limited guidance to the trial court in the event it becomes appropriate to consider that subject anew on remand. See Maryland Rule 8-131(a). The Circuit Court previously awarded attorneys fees to King, despite the fact that the court did not determine that or how Clancy violated the parties' Marital Property Agreement. The only apparent basis for an award of attorneys' fees and expenses in these circumstances would (or could) have been a breach of the Marital Property Agreement. See Friolo v. Frankel, 403 Md. 443, 456, 942 A.2d 1242, 1250 (2008) ("Maryland generally adheres to the common law, or American rule, that each party to a case is responsible for the fees of its own attorneys, regardless of the outcome." (citing Montgomery v. E. Corr. Inst., 377 Md. 615, 637, 835 A.2d 169, 183 (2003))); Thomas v. Gladstone, 386 Md. 693, 699, 874 A.2d 434, 437 (2005) ("Under the common law `American Rule' applied in Maryland, the prevailing party in a lawsuit may not recover attorneys' fees as an element of damages or costs unless . . . the parties to a contract have an agreement to that effect.. . ."). If the Circuit Court were to
BATTAGLIA, J., dissents and files opinion joined by GREENE, J.
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 appellate court and concludes that Mr. Clancy did not owe a fiduciary duty to Ms. King and JRLP; I dissent.
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:
Section 5.7 of the Partnership Agreement provides:
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:
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, Rowley on Partnership 237-38 (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
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
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 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. King 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":
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":
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, i.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, "[t]here is no reason . . . that he could not contract for less of an interest in the Op-Center activities for himself individually," and "[t]hus, 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
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 which 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.
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:
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,
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,
Judge GREENE authorizes me to state that he joins in this dissenting opinion.
The fact that the present case deals with a limited partnership rather than a corporation provides even greater reason to defer to the provisions of the various contracts. Limited partnership agreements are more likely to be the result of extensive arm's-length negotiations and thus involve business venturers in a better position to bargain for various terms modifying fiduciary duties than the purchasers of mere stock in a corporation, especially a publicly-traded one. Larry E. Ribstein, Unlimited Contracting in the Delaware Limited Partnership and its Implications for Corporate Law, 16 J. CORP. L. 299, 305 (1991).
If Clancy and Pieczenik were not signatories individually, the non-breaching entity would not be able to recover directly from the individuals for their failure to perform. This illustrates one of the purposes of limited liability entities such as the closely-held corporation, limited partnership, and limited liability company. Much of the motivation behind forming such a business entity is to shield the individual from the liabilities of the business entity.
Seinfeld: The Wig Master (NBC original television broadcast 4 April 1996).
In attempting to exercise his contractual discretion out of "spite," Jerry breached his duty to act in good faith towards the other party to the contract. Jerry would have been authorized to return the jacket if, in his good faith opinion, it did not fit or was not an attractive jacket. He may not return the jacket, however, for the sole purpose of denying to the other party the value of the contract. Jerry's post hoc rationalization that he was returning the jacket because he did not "want it" was rejected properly by Bob as not credible.
Although the trial court discussed some of the evidence indicating as much, it made no discernable, reviewable finding that Clancy made the decision to withdraw his name in bad faith.