Knapp v. Neptune Towers Associates

892 N.E.2d 820, 72 Mass. App. Ct. 502
CourtMassachusetts Appeals Court
DecidedSeptember 2, 2008
DocketNo. 07-P-1744
StatusPublished
Cited by11 cases

This text of 892 N.E.2d 820 (Knapp v. Neptune Towers Associates) is published on Counsel Stack Legal Research, covering Massachusetts Appeals Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Knapp v. Neptune Towers Associates, 892 N.E.2d 820, 72 Mass. App. Ct. 502 (Mass. Ct. App. 2008).

Opinion

Smith, J.

In September, 2003, the plaintiffs, class A limited partners of Neptune Towers Associates (Neptune), filed an action in the Superior Court alleging four counts of breach of fiduciary duty against Neptune’s general partners (general partners) and its attorney, William Bailey. The defendants answered and filed a counterclaim in January, 2005, alleging abuse of process, civil conspiracy, and defamation.

In July, 2006, the parties filed cross motions for summary judgment, agreeing that there were no material facts in dispute. A Superior Court judge issued a decision on August 2, 2007, dismissing the complaint and all counterclaims. The plaintiffs appeal from the Superior Court judge’s determination that the general partners did not violate a duty to disclose; the defendants cross-appeal from the order dismissing their claims.

Facts. The undisputed facts are as follows. Neptune is a limited partnership that was formed in 1971 for the purpose of developing, owning, and managing the subject property, Neptune Towers Apartments (Neptune Apartments) in the city of Lynn. Pursuant to the partnership agreement, the partnership is managed by six general partners: Irene Bailey; her brother, Ricci LaCentra; his wife, Loretta LaCentra; Phyllis Kerr and Roy Cheever, long-time employees of the family business; and Irene Bailey’s mother, the late Irene LaCentra. Irene Bailey and Ricci LaCentra are the two “Managing General Partners” of Neptune. William Bailey (Bailey), Irene Bailey’s husband, is Neptune’s attorney.

The general partners hold a 60.5% capital ownership and profit sharing interest in Neptune. The remaining partnership shares are held by the limited partners, with the plaintiffs, the class A limited partners, holding 29.6875% of the partnership shares.4

The partnership agreement provides that the limited partners have no right to participate in the management of the partner[504]*504ship and further permits the general partners to hire, at their “sole discretion,” “brokers, agents or attorneys as the General Partners may determine (notwithstanding that any parties to this Agreement may have an interest in, or be one of, such brokers, agents or attorneys).” The agreement also explicitly permits the employment by Neptune of general partners or members of their families and obligates Neptune to reasonably compensate the partner or family members “in accordance with sound business practices.”5 However, two-thirds of the limited partners must approve any sale of partnership property.

In May, 1999, Neptune and Bailey entered into a real estate brokerage agreement for the sale of Neptune’s only asset, the apartment buildings. The agreement, signed on behalf of Neptune by Irene Bailey, Irene LaCentra, and Loretta LaCentra, authorized Bailey to find a buyer for the property, specified a price of $20 million, and set forth a six percent broker commission on the sale of the property. A few months later, in August, 1999, Neptune entered into a written agreement with Timothy Aluise, agreeing to compensate Aluise “like a broker” with a two percent commission if he found a buyer for the property. Aluise’s commission would be paid from Bailey’s commission.

In May, 2000, Community Development Trust (CDT) was identified as a likely buyer of the Neptune Apartments. Bailey sent a letter to Irene Bailey and Ricci LaCentra concerning issues raised by the potential sale, including the general partners’ fiduciary obligation to inform the limited partners about CDT’s interest. In his letter, Bailey asked what should “be in [the] letter” to the limited partners about the proposed sale. He also reiterated that the general partners required approval from two-thirds of the limited partners in order for the sale to proceed.

By July, 2000, it was nearly certain that CDT would buy the Neptune Apartments. On July 12, 2000, Bailey sent a letter to [505]*505the limited partners informing them that Neptune was preparing to sell the property. He identified members of the team working on the sale as accountant Joseph Stanton, attorney Jerrold Olanoff, and Aluise. He noted that Aluise “has introduced us to three prospective buyers” and that “[t]wo of these parties have expressed strong interest in buying the property.” Bailey did not describe his role as a broker and signed the letter as “Counsel to Neptune Tower Associates.”

Subsequently, Bailey sent the limited partners a form letter on September 26, 2000, announcing that the general partners had decided to sell the Neptune Apartments to CDT. The letter stated that it was “imperative” that each partner sign and return an enclosed authorization form. This letter did not disclose Bailey’s interest as a broker in the transaction; however, he offered to answer any questions or comments.6

By the end of October, 2000, two-thirds of the limited partners had authorized the sale. On October 31, 2000, Bailey informed the limited partners that a majority of the partners had authorized the managing general partners to proceed with the sale to CDT. He again signed the letter as “Counsel to Neptune Tower Associates.” Subsequently, Bailey and Aluise negotiated Aluise’s commission down from two percent of the sale price to a flat fee of $40,000.

CDT bought the Neptune Apartments in March, 2002, for $13.2 million.7 Neptune paid Bailey a $796,327.74 broker’s fee. Bailey then paid Ricci LaCentra a $398,163.87 “consultant fee,” one-half of his broker’s fee. Although one draft of Neptune’s closing statement specifically identified a broker’s fee paid to Bailey, the closing statement received by the limited partners contained a single entry for “brokerage, consultants, legal & accounting fees” in the amount of $950,828.

It was not until an October, 2002, letter, after two limited partners requested a breakdown of the brokerage fee line item, that Bailey was identified as the broker. The letter also identified payments of $8,280 to an accountant, $78,720 to Jerrold [506]*506Olanoff as counsel for Neptune, and a “Finder’s fee” of $40,000 to Aluise. Bailey was also paid $173,936.20 for separately billed legal services in connection with the sale. It was undisputed that the plaintiffs would not have consented to the sale if they had known that Bailey was to receive a $796,000 broker’s fee.

Although some distributions of the proceeds of the sale had already been made to the limited partners, the general partners refused to make further distributions unless the limited partners signed a release of all claims against the general partners. The plaintiffs refused, and this litigation ensued.

The plaintiffs contend that William Bailey and Neptune’s general partners violated fiduciary duties owed to them by failing to disclose, prior to the closing of the real estate sale, that a substantial portion of the sale proceeds “would be diverted” to LaCentra family members through payments to Bailey.8 The general partners and Bailey alleged counterclaims for abuse of process, defamation, and civil conspiracy against the limited partners.

On cross motions for summary judgment, the motion judge determined that the general partners, when selling the real estate, had unfettered authority to engage a real estate broker, even one who was a member of a general partner’s family, because such actions were authorized by the partnership agreement.

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Cite This Page — Counsel Stack

Bluebook (online)
892 N.E.2d 820, 72 Mass. App. Ct. 502, Counsel Stack Legal Research, https://law.counselstack.com/opinion/knapp-v-neptune-towers-associates-massappct-2008.