Facts

In April 1990, plaintiff Margaret McNelly and her late husband contributed two apartment buildings, separately owned in a larger complex to a then newly formed limited partnership known as V.G. Partners Limited Partnership. Their equity in the two buildings at the time was $442,044. In exchange, they received 10.83 percent of the limited partnership interests in the partnership. There were nine other limited partners. Upon formation, the limited partnership owned all of the buildings in the apartment complex in Concord, then known as Village Green and later renamed Palm Terrace.

V.G. Partners was restructured in January 1997, after experiencing financial difficulties. As a result of the restructuring, Merle D. Hall Company became the general partner. In addition, a second class of partnership interests was created, deemed "Class A" interests, which were allocated 50 percent of the total equity in the limited partnership, while the original 10 limited partners' interests were deemed "Class B" interests, and allocated the other 50 percent of the total equity in the company. The general partner brought in new money and was allocated 50 percent of the Class A interests (25 percent of the total equity). Another company majority owned and controlled by Merle Hall, known as Greencourt Partners, that brought in new money as a limited partnership investment, was allocated 42 percent of the Class A interests (21 percent of the total equity in the company). The remaining 8 percent of Class A interests were allocated to nine of the 10 original partners, with plaintiff holding the largest share of Class A interests (2.32 percent) not owned and controlled directly or indirectly by Merle Hall. Plaintiff continued to own 10.83 percent of what were then called "Class B" interests. Accordingly, she effectively owned almost 7 percent of the total equity in the company.

By 2013, a new entity formed and wholly owned by Merle Hall, known as MDH VG LLC, had taken over the general partner's role and ownership of 50 percent of the Class A interests. Additionally, by then, Hall's other entity, Greencourt Partners, had acquired 63 percent of the Class B interests. Plaintiff remained the largest holder of Class B interests not owned or controlled directly or indirectly by Merle Hall.

In the summer of 2013, Hall began promoting a proposal to merge V.G. Partners with Greencourt Partners, the limited partner majority owned and controlled by him. Greencourt Partners at the time owned a shopping center known as Palm Court. As the proposal was developed over the ensuring months, Hall essentially gave the limited partners of V.G. Partner LP the choice to either sell their interests in V.G. Partners to Greencourt Partners at a price determined by Merle Hall, or "rollover" into the post-merger entity, to be known as Greencourt LLC. By November 2013, most of the holders of small interests in V.G. Partners LP had sold out to Hall at the price determined by him. Of the three original limited partners remaining, plaintiff's percentage of interest was larger than the combined share of the rest, making her the majority limited partner after excluding partnership interests owned directly or controlled by Merle Hall. Plaintiff refused a proposal to sell her interests at the price determined by Merle Hall because she believed it was artificially deflated, and did not reflect the value she would receive under a "put option" contained in the limited partnership agreement.

In December 2013, the terms of the merger agreement and proposed operating agreement for Greencourt LLC were formally reduced to writing and submitted for approval by the 87 percent of interests owned directly or indirectly by Merle Hall. The effective seven percent owned by plaintiff, and the effective six percent collectively owned by the two other original limited partners that had not previously been bought out. Plaintiff rejected the merger proposal for various reasons.

On Jan. 1, 2014, Merle Hall announced that the merger had been consummated despite the fact the plaintiff's "no" vote comprised a majority of votes cast by disinterested limited partners. Plaintiff filed suit seeking to rescind the merger or recover damages for conversion of plaintiff's interest in V.G. Partners LLC.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that in 2013, she had duly exercised her rights under the "put option" contained in the V.G. Partners LP agreement, which required a forced purchase of her limited partnership interest on favorable terms to her or, failing the purchase of her interest by the limited partnership, a forced dissolution and wind-up of V.G. Partners LP. She contended that the Merle Hall controlled general partner and majority limited partner (Greencourt Partners) breached that term by refusing to purchase her interest and refusing to dissolve the partnership. She contended that, if the breach had not occurred, her limited partnership interest would have been purchased by the partnership for at least $1,590,970, or she would have received that sum via dissolution of the partnership, instead of the $699,000 offered by Hall for buyout of her interest prior to the merger. Plaintiff further contended that the vote to approve the merger was compromised by irregularities and should be rescinded, because the Merle Hall controlled entities had a conflict of interest and should not have been allowed to vote, making plaintiff's "no" vote as the majority owner of interests not owned or controlled by Merle Hall the prevailing vote.

Plaintiff further contended that the merger in essence comprised a conflict of interest transaction that was not approved by a majority of the disinterested partnership interests. Therefore, the ostensible consummation of the merger by Merle Hall and his controlled entities comprised a breach of fiduciary duty by the then operative general partner (MDH VG LLC, a company wholly owned by Merle Hall).

Plaintiffs named Merle Hall as a defendant in his individual capacity under an "aiding and abetting" theory, and sought punitive damages against him.

DEFENDANT'S CONTENTIONS:
Defendants contended that plaintiff's interest in V.G. Partners LP was only worth about $700,000, so the pre-merger buy out price and the stated book value of her interest in the proposed Greencourt LLC, post-merger, was fair. Defendants further contended that the vote of the entities owned and controlled by Merle Hall in favor of the merger were sufficient to approve the merger. Defendants further contended that the interests of limited partners bought out by Greencourt Partners (majority owned and controlled by Merle Hall) in 2013, before the merger agreement and Greencourt LLC operating agreement had been formally presented for approval, should nevertheless be counted as independent, non-conflicted "yes" votes in favor of the merger, and by counting those bought-out interests as "yes" votes in favor of the merger, a majority of disinterested limited partnership interests had approved the merger.

Settlement Discussions

The case settled with a CCP 664.6 oral settlement on the record in open court after two days of mediation. The oral settlement was superseded by a written settlement agreement entered into on Dec. 22, 2016 and consummated via an escrow on Dec. 23, 2016.

Result

Greencourt LLC and Merle Hall agreed to pay plaintiff $1,350,000, in exchange for an assignment by plaintiff to Greencourt LLC of the amount of interest she owned in V.G. Partners LP.

Other Information

Hall agreed to pay plaintiff $1,350,000, in exchange for an assignment by plaintiff to Greencourt LLC of whatever interest she owned in V.G. Partners LP and/or Greencourt LLC, thereby, in effect, purchasing her interest for that price. EXPERT TESTIMONY: Plaintiff's expert testified in deposition that the Palm Terrace Apartments had a fair market value of $35,300,000 on Dec. 31, 2013. That would indicate plaintiff's interest in V.G. Partners on that date, after paying partnership debts, would have been worth approximately $1,105,135 under the "put option" contained in the V.G. Partners LP agreement. Defendants' expert testified in deposition that Palm Terrace was worth $29,910,000 as of Aug. 7, 2013. FILING DATE: Feb. 5, 2014.