Shapiro v. Greenfield Et Al.

764 A.2d 270 (2000)

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Nature of the Case

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Facts

(Sorry but there is really no way to shortcut these facts). In 1961, College Park acquired approximately 68 acres of land in Prince George’s County, on which it constructed the 72,000 square foot Clinton Plaza shopping center. By 1991, Clinton Plaza was only 50% leased and generating insufficient cash flow. It was decided that the best use of the land was redevelopment of the property into a substantially larger shopping center. The directors explored suitable partnerships or joint ventures, but for some time did not find any. Charles Shapiro (D), the operating officer of College Park, subsequently developed a joint venture with S. Bruce Jaffe, an occasional business partner of his with experience developing retail space. The joint venture required the creation of three entities: 1) Clinton Crossings Limited Partnership which was to own the redeveloped Clinton Plaza shopping center; 2) Clinton Crossings, Inc., which was to be a one percent owner and the general partner of Clinton Crossings Partnership; and 3) TSC/Clinton Associates Limited 2 Partnership (“Clinton Associates”), which was to own forty-nine percent of Clinton Crossings Partnership. College Park was to transfer its fee simple interest in Clinton Plaza to Clinton Crossings Partnership in exchange for a fifty percent limited partnership interest in Clinton Crossings Partnership, the owner of the redeveloped center. Clinton Associates was to contribute everything necessary for the shopping center’s redevelopment with the exception of the land. As a limited partner, College Park would have no rights to manage, direct or control the affairs of Clinton Crossings Partnership. Clinton Crossings Partnership and Clinton Associates, on the other hand, would assume the risk associated with the redevelopment, while College Park would assume none. Moreover, College Park would not be obligated to transfer its interest in Clinton Plaza until Clinton Associates had obtained a construction loan, pre-leased at least eighty percent of Phase I space and obtained a debt coverage ratio of 1 to 1. The agreement further provided that, if Phase II of the development was not completed within five years, any unused portion of the land would revert to College Park. A capital account in Clinton Crossings Partnership was to be established for College Park, in the amount of $4.00 per square foot for land used in the redevelopment. With Phase I expected to utilize 36 acres, College Park’s capital account was funded at $6,272,640. A special meeting of College Park’s shareholders was called for the purpose of “considering and approving a resolution authorizing the corporation to enter into a limited partnership agreement with Clinton Crossings, Inc., ... and TSC/Clinton Associates Limited Partnership...” Advance notice of the meeting included documents that described the joint venture in detail. The notice also provided: The transaction to be considered at the Special Meeting is an interested director transaction within the meaning of Section 2-419 of the Corporations and Associations Article of the Code of Maryland because (i)Charles S. Shapiro, and Michael Shapiro are each directors of the Corporation, (ii) Charles S. Shapiro is the sole shareholder of Clinton Crossings, Inc., and (iii) it is expected that Charles S. Shapiro and Michael Shapiro will each have an interest, directly or indirectly, as a limited partner in TSC/Clinton Associates Limited Partnership. Marvin and Betty Greenfield (P) did not attend this special meeting. At the meeting, the shareholders present unanimously voted for the proposal. Ps contend that following the October 26, 1991 meeting, they protested that the votes taken at the meeting were not valid as none of the directors could be considered disinterested directors and thus their votes as shareholders could not be counted. Ps also asserted their right to inspect the corporation’s books and records. The directors met to ratify actions taken by the corporation at the special meeting and other occasions. On April 3, 1993, Ps visited the College Park offices and sought inspection of the corporate books and records. When they requested other documents relating to the transactions described in the April 2, 1992 minutes, they were refused. Ps filed a derivative lawsuit on July 15, 1992, against College Park and its directors, Charles S. Shapiro, Michael Shapiro, and Joan Smith, requesting “damages, an accounting, the appointment of a receiver, the imposition of a constructive trust, the dissolution of the corporation, attorneys’ fees, costs and other legal and equitable relief.” By 1994, Jaffe had secured leases with Safeway, Caldor, Fashion Bug, Baskin Robbins, and others, had fulfilled all conditions for the construction loan commitment, and had satisfied the debt ratio and pre-leasing requirements. Without further shareholder action, on April 20, 1994, College Park conveyed the land to Clinton Crossings Limited Partnership in exchange for a fifty percent interest in Clinton Crossings Partnership and the establishment of a capital account in the amount of $6,272,640. Charles Shapiro and Jaffe both personally guaranteed Clinton Crossings Partnership’s $21.5 million construction loan with NationsBank. Upon completion of Phase I of the redevelopment, the project would have a value of $36.5 million and immediately realize an annual positive cash flow of approximately $1 million. As a result, College Park’s cash flow was expected to go from negative to approximately $500,000 annually. Ps amended their complaint adding CCI, Clinton Crossings Partnership, and Clinton Associates as defendants and alleged that the Clinton Crossings redevelopment was a corporate opportunity that belonged to College Park and was usurped by the appellants. The trial court granted Ps' request for an accounting, and appointed a special master to determine specific factual issues. The court concluded that there were not disinterested directors, that the transactions were not fair and reasonable to [College Park] and that the transactions constituted improper interested director transactions and usurpations of corporate opportunities. Ds appealed.