United States District Court, E.D. Virginia, Alexandria Division
Katherine R. Dauphin, Plaintiff,
Louis A. Jennings and Beverly L. Hennager, Defendants.
O'Grady, United Stales District Judge
matter comes before the Court on Defendants Louis Jennings
and Beverly Hennager's Motion for Stay of Action on the
Proposed Assignment of the DAMN Lease Pending Hearing. Dkt.
No. 287. The Court conducted a hearing on the Motion on March
10, 2017 during which John Ryan, representative of CBRE,
engaged by the Special Master to sell the leasehold, provided
testimony on the process of achieving the maximum value of
the DAMN Leasehold to the Kay Jennings Family Limited
Partnership. For the reasons discussed below, Defendants'
Motion is hereby DENIED. The Court authorizes the Special
Master to enter into the assignment agreement with DAMN, LLC
as of today's date.
judicially-administered distribution of property in this
matter arises out of Plaintiff Kathleen Dauphin's
Complaint filed on December 31, 2014 in the Circuit Court of
Fairfax, Virginia seeking dissolution of the partnership, of
which Plaintiff and Defendants are general and limited
partners. Dkt. No. 1, Exh. A; Dkt. No. 181. Michael Jennings,
an interested party in the litigation is also a limited
partner in the partnership. Defendants removed the case to
this Court. Dkt. No. 1. On August 10, 2015, the parties
entered into a settlement agreement whereby a Special Master,
the Honorable Paul Sheridan, was appointed to, among other
things, obtain a valuation of the partnership property,
account for money due to the partnership, and investigate the
best course of action to maximize the value of the
partnership assets. Dkt. No. 133, Exh. 1; Dkt. No. 67.
Pursuant to that authority, on April 7, 2016, die Special
Master retained John Ryan of CBRE, a commercial real estate
firm, to market the partnership real estate holdings for sale
or lease. The Special Master also retained JMSP, Inc. to
conduct an appraisal of the properties. The appraisal was
issued on December 7, 2015.
August 29. 2016, after considering multiple reports from the
Special Master and taking testimony from John Ryan, the Court
approved the sale of three parcels of partnership property
(the "D, E, & F" parcels). Dkt. No. 217. In the
same order, the Court instructed the Special Master and CBRE
to continue accepting and considering offers for the
remaining partnership property asset, a long-term lease on
the DAMN Property. Id.
complicated ownership structure of the Leasehold and the
underlying DAMN Property complicated marketing efforts.
Michael Jennings owns 40% of the DAMN Leasehold and each of
die general partners (the plaintiff and the two defendants)
own 20%. The DAMN Property, which is subject to the
Leasehold, is held entirely by DAMN, LLC, a corporation owned
by Michael Jennings. Put simply, Michael Jennings has an
ownership stake in the Leasehold and the Property. He was not
obligated to sell the DAMN Property pursuant to the
settlement agreement. Nevertheless, Michael Jennings
expressed a willingness to sell the DAMN Property in
conjunction with a sale of the DAMN Leasehold and he retained
CBRE to market the DAMN Property for sale during the same
time that the DAMN Leasehold was advertised by CBRE acting on
behalf of the partnership.
Defendants expressed a strong desire to purchase the DAMN
Leasehold. The Court held that the Defendants were permitted
to submit an offer but their doing so did not exclude the
Special Master from soliciting and considering additional
bids. Dkt. No. 281. Defendants submitted an offer which was
initially recommended by CBRE and the Special Master.
See Special Master's Status Report dated
December 22, 2016. Ultimately, the agreement was deemed not
acceptable by CBRE and the Special Master for reasons
discussed infra. After considering numerous
additional offers, CBRE advised the Special Master that the
maximum value of the DAMN Leasehold would be achieved by
assigning the leasehold to DAMN, LLC. Upon review, the
Special Master accepted CBRE's findings, negotiated the
terms of a proposed assignment of the lease and advised the
Court via email on February 10, 2017 that it should authorize
a transfer of the DAMN Leasehold to DAMN, LLC for an agreed
upon value of $2.4 million.
moved to stay action on the Special Master's proposed
assignment. Dkt. No. 288. Defendants object that the proposed
transaction violates the partnership agreement and the value
of the transaction is less than the amount set forth in the
real estate appraisal. Id. at ¶ 3. DAMN, LLC,
as an interested party, filed an objection to the stay. Dkt.
No. 294. By letter to CBRE, Defendants requested the
production of certain communications by CBRE and documents
the firm relied upon in recommending the transaction with
DAMN, LLC. The Court permitted the release of this
documentation, Dkt. No. 297, after which Defendants submitted
"Objections to Proposed Assignment" which
identified additional grounds upon which Defendants believed
that the stay should be granted. Dkt. No. 334. The Court
conducted a hearing in this matter on March 10, 2017. Dkt No.
336. During the hearing, the Court elicited testimony from
John Ryan as to the process by which he recommended the
transaction with DAMN, LLC. Id. In response to
issues left unresolved during the hearing, the Special Master
issued a report dated March 22, 2017 and distributed the
report to the parties via email. The Special Master also
distributed to the parties a report by CBRE describing the
process of marketing the DAMN Leasehold in further
settlement agreement authorizes the Special Master to obtain
"a valuation of all property of the partnership by
independent appraisal(s), .. [and] recommend to the court
as expeditiously as possible, as to how to maximize the value
of the partnership assets[.]" Dkt. No. 133, Exh. 1,
¶¶ 1-2. "Sale or other disposition of the
property must be approved by the Court." Mat ¶ 5.
rendering its findings on the Motion and the transfer of the
Partnership Leasehold to DAMN, LLC, the Court considers the
Motion, objections thereto, the testimony of Mr. Ryan, his
email correspondence relating to the transaction,
the reports of the Special Master and CBRE. Based on this
evidence, the Court finds that the proposed transaction does
not violate the partnership agreement, maximizes the value of
the asset for the partnership, and that Defendants'
remaining objections are without merit. These findings are
Application of the Partnership Agreement to the
contend that the assignment of the lease to DAMN, LLC
violates the partnership agreement because the transaction
entails an assignment of a limited partner's interest in
the partnership without satisfying the requirements of
Section 9 of the agreement. Section 9 requires that any
limited partner's offer to sell their interest in an
asset must first "ha[ve] been offered to the Partnership
and Partners" and if the transaction results in a
substitute limited partner the General Partner must consent
to such substitution. Dkt. No. 1, Exh. A at 23-25. If the
offer for the interest is made in cash, "the Partnership
shall have an option ... to purchase all but not less than
all of the partnership interest" within thirty days of
the proposed sale. See Dkt. No. 1, Exh. A at 28.
Defendants aver that proposed transaction will transfer