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Haseotes v. V.S. Haseotes and Sons Limited Partnership

Superior Court of Rhode Island, Providence

April 4, 2019

GEORGE HASEOTES, individually, and derivatively in his capacity as a General Partner and a Limited Partner of the V.S. HASEOTES & SONS LIMITED PARTNERSHIP, Plaintiff,
v.
V.S. HASEOTES & SONS LIMITED PARTNERSHIP; and LILY H. BENTAS, individually and in her capacity as Managing General Partner of V.S. HASEOTES & SONS LIMITED PARTNERSHIP, Defendants.

          Providence County Superior Court

          For Plaintiff: Michael A. Kelly, Esq.; Matthew J. McGowan, Esq.; Randall L. Souza, Esq.

          For Defendant: Richard G. Fallago, Esq.; Melissa L. Curley, Esq.; Michael S. Marino, Esq.

          DECISION

          SILVERSTEIN, J. (RET.)

         Before the Court for decision following a nonjury trial is this matter brought by George Haseotes (Haseotes or Plaintiff), individually and derivatively as a General Partner and a Limited Partner of the hereinafter referred to Limited Partnership, against V.S. Haseotes and Sons Limited Partnership (the Partnership) and Lily H. Bentas (Bentas or Defendant), individually and in her capacity as Managing General Partner of the Partnership. Haseotes seeks this Court's Order effecting the removal of Bentas as Managing General Partner, supervision of the winding up of the business affairs of the Partnership, and other remedies in equity as well as money damages to compensate for Bentas's alleged mismanagement of the Partnership. By order of the Court the question of money damages, if any, for Plaintiff individually and derivatively is to be the subject of subsequent litigation. This Court exercises jurisdiction pursuant to G.L. 1956 § 8-2-13 and Super. R. Civ. P. 39(b).

         I

         Facts and Travel

         This matter arises from a dispute between general partners of the Partnership, an entity formed in 1976 under the laws of Rhode Island by the descendants of the founding family of Cumberland Farms, Inc. The original purpose of the Partnership was to farm agricultural property owned by the Partnership. The Partnership, however, ceased its farming activities approximately twenty years ago at which time the Partnership's purpose shifted principally to liquidating its real estate holdings. The Partnership's assets primarily consist of hundreds of acres of undeveloped land in eastern Massachusetts, comprised, at the time of trial, of approximately 87 parcels worth an estimated $45 million. At all times relevant to this action, the Second Amended and Restated Agreement of Limited Partnership (the Partnership Agreement), together with a Delegation of Authority Agreement, governed the Partnership.

         The Partnership was originally made up of four general partners and seven limited partners, all of whom are siblings. General partners included Plaintiff, Defendant, Demetrios B. Haseotes, and Byron Haseotes, each holding a 1.00% interest in the Partnership as general partners. The original limited partners consisted of each of the General Partners other than Bentas, each holding a 24.00% interest as limited partners, along with Bentas, Hytho H. Pantazelos, Anastasia H. Marty, and Jo Ann Tambakis, holding interests of 5.25%, 6.25%, 6.25%, and 6.25% as limited partners, respectively. Two of the partners are now deceased: Byron Haseotes having died in 2009 and Demetrios B. Haseotes in 2017.[1]

         The Partnership is not a stranger to this Court having been before it in a receivership proceeding from 2004 through 2012.[2] During the receivership, the Partnership sold twenty-five properties and had a total of $13, 899, 449.93 in gross receipts. However, the expenses totaled $13, 470, 412.16, leaving the Partnership with $400, 000 at the close of the receivership. One liability that contributed to Partnership costs was a promissory note (the Note) executed in 2002 in favor of the Bay Colony Partners (Bay Colony), a former Massachusetts partnership, in consideration of the conveyance of certain real estate to the partnership. The outstanding balance on the Note, including interest, was approximately $7 million at the time of trial. The four original partners of Bay Colony are the same four individuals as the general partners of the Partnership, each holding a 25% interest in Bay Colony. Although none of the partners as partners of the Partnership received cash distributions from the Partnership directly between 2004 and the date of trial, the Partnership made a distribution of $600, 000 to Bay Colony in 2016, $300, 000 of which was distributed to Plaintiff. Further, by Consent Order dated April 27, 2018, an additional $2, 000, 000 was ordered to be paid to Bay Colony, of which $1, 000, 000 was to be distributed to Plaintiff.

         In 2010, the general partners sought to end the receivership to reduce costs and appointed Defendant to the role of Managing General Partner, as set forth in the Delegation of Authority Agreement, executed by all general partners. The receivership was terminated on November 2, 2012, pursuant to a Consent Order Regarding Petition to Dismiss Proceeding and a Conditional Dismissal Order.

         Defendant thereafter assumed the role of Managing General Partner of the Partnership, responsible for the management of all Partnership affairs, with the exception of the power to determine the selling price of Partnership real property, which requires a majority vote of general partners.[3] However, Defendant testified that she "didn't devote a lot of time to the Partnership," due to the fact that she "went back to being the interim CEO of Cumberland Farms for approximately a year" after the receivership ended. Defendant delegated the responsibility for sales and management of Partnership property to John Peck (Peck), a cousin of the general partners who served as "property manager" of the Partnership.[4] Defendant testified that "there wasn't really a lot to do except for the sales and things of that nature that [she] got involved with and if there was money in the accounts and so forth." Defendant further testified that Peck was the only person practically trying to sell the Partnership properties on behalf of the Partnership, and that she did not know whether it would cost more to list the properties with a real estate brokerage than the $10, 000 per month the Partnership paid to Peck to sell the properties.

         Sales of Partnership property were limited in the years following the receivership, and Partnership expenses subsumed most of the sale proceeds. These sales essentially occurred through word-of-mouth efforts on the part of Peck. In 2013, the Partnership sold seven properties and had a total of $1, 385, 000 million in gross sales, but had a negative net income of $1, 072, 931.66. In 2014, the Partnership sold six properties and had a total of $1, 996, 000 in gross sales, but had a net income of only $388, 734.26. In 2015, the Partnership sold five properties and had a total of $2, 430, 000 in gross sales, but had a net income of $1, 066, 973.58. In 2016, the Partnership sold seven properties and had a total of $4, 257, 500 in gross sales, but had a net income of only $2, 829, 431.70. At the time of trial, the Partnership property constituted approximately 87 parcels of land with an estimated value of $45 million.

         Plaintiff began to express his discontent with the lack of Partnership property sales after the receivership ended, first verbally, then through written communications to Defendant. On May 14, 2013, Plaintiff sent a letter to Defendant and the other general partners requesting a discussion to formulate a plan to divest Partnership property. However, none of the general partners responded. Plaintiff continued to express concerns regarding the mismanagement of the Partnership in the years that followed. On April 13, 2016, after several unsuccessful attempts to schedule a Partnership meeting, Plaintiff requested a list of the Partnership properties that were currently for sale, but he did not receive a response.

         On April 18, 2016, Plaintiff sought further information from Defendant and expressed concern with respect to Defendant's "lack of diligence in seeking to sell the VS Haseotes properties, many of which [had] been for sale for decades." Plaintiff also expressed his dissatisfaction regarding the dumping of processed sewage (or "sludge") onto Partnership property. This material was produced by a company called EarthSource, Inc. (EarthSource), and was periodically dumped upon Partnership property between 2008 and 2015. Peck received $1000 per month from EarthSource in consideration for the agreement-for which there was no written contract and was instead governed by a "handshake"-although the Partnership itself received no compensation. In May 2016, Plaintiff made multiple unsuccessful attempts to gain access to records regarding Partnership real property, financial information, and the sludge being dumped upon the land.

         In June 2016, Plaintiff filed a sealed Complaint, seeking, inter alia, access to Partnership records. On October 26, 2016, this Court ordered that certain documents that Defendant had previously withheld be made available to the Plaintiff. On December 23, 2016, Plaintiff filed a Third Amended Complaint. Plaintiff alleged that Defendant breached her statutory and fiduciary duties as Managing General Partner, and sought her removal from that position, along with other monetary and equitable remedies. This Court held a non-jury trial on February 20, 2017, from May 15, 2017 through May 25, 2017 and following the grant of a motion to reopen from February 22 through February 26, 2018.

         II

         Standard of Review

         The justice in a nonjury trial acts as the trier of both fact and law. Hood v. Hawkins, 478 A.2d 181, 185 (R.I. 1984). This role involves the consideration of evidence, the determination of the credibility of the witnesses, and the eventual drawing of proper inferences, all of which need not be done in the light most favorable to the plaintiff. Id. at 184-85. Indeed, "[t]he task of determining the credibility of witnesses is peculiarly the function of the trial justice when sitting without a jury." Parella v. Montalbano, 899 A.2d 1226, 1239 (R.I. 2006). '"It is also the province of the trial justice to draw inferences from the testimony of witnesses."' Id. (quoting Walton v. Baird, 433 A.2d 963, 964 (R.I. 1981)). These "findings of fact by a trial justice sitting without a jury are entitled to great weight and will not be disturbed on appeal absent a record showing that the trial justice overlooked or misconceived material evidence or was otherwise clearly wrong." Donnelly v. Cowsill, 716 A.2d 742, 747 (R.I. 1998) (citing Thomas v. Ross, 477 A.2d 950, 953 (R.I. 1984)).

         The Rhode Island Superior Court has broad powers, and exclusive original jurisdiction, over matters in equity. Roch v. Garrahy, 419 A.2d 827, 830 (R.I. 1980); § 8-2-13; see also Ret. Bd. of Emps.' Ret. Sys. of City of Providence v. Corrente, 111 A.3d 301, 306 (R.I. 2015). Furthermore,

"[i]f an action is brought in the [S]uperior [C]ourt which represents an attempt in good faith to invoke [] jurisdiction [in equity], the [S]uperior [C]ourt shall have jurisdiction of all other actions arising out of the same transaction or occurrence, provided the other actions are joined . . . and the [C]ourt may retain jurisdiction over the other actions even though the initial action fails for want of equity jurisdiction." Sec. 8-2-13.

         The removal of a general partner from a limited partnership is a remedy in equity. See, e.g., Miltland Raleigh-Durham v. Myers, 807 F.Supp. 1025, 1059-60 (S.D.N.Y. 1992).

         III

         Analysis

         Haseotes brings this action seeking, inter alia, remedies for economic injuries suffered individually and by the Partnership resulting from Bentas' alleged mismanagement in her role as Managing General Partner. Sec. 8-2-13. The Third Amended Complaint includes four counts: (1) violation of G.L. 1956 § 7-13-21 (against the Partnership and Bentas); (2) breach of fiduciary duty (against Bentas in her capacity as Managing General Partner of the Partnership); (3) a derivative claim pursuant to the Rhode Island Uniform Limited Partnership Act (against Bentas); and, (4) a petition for dissolution of the Partnership under the Rhode Island Uniform Limited Partnership Act. As relief, Haseotes requests that this Court declare the Partnership dissolved as of 2009;[5] order the immediate winding up of the Partnership's affairs; relieve Bentas of her powers as Managing General Partner or remove her as Managing General Partner; appoint a competent, regional broker to formulate a plan for and to comprehensively market, list, and sell all remaining Partnership properties; order that any properties unsold within six months of the appointment of the broker be sold at auction; and, award damages and attorney's fees to Haseotes. With regard to Haseotes' request for damages, this Court shall hold an additional trial; all other relief Haseotes seeks is addressed herein.

         A

         Violation of § 7-13-21

         Haseotes contends that Bentas wrongfully denied him access to records of the Partnership in violation of § 7-13-21, entitled "Information." Specifically, Haseotes asserts that Bentas failed to respond to numerous written and verbal communications by or on behalf of Haseotes requesting access to Partnership records. Haseotes argues that when Bentas did respond, Bentas's requirement that Haseotes pay for the Partnership's attorney to supervise Haseotes' inspection of the records additionally amounted to ...


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