Court: District Court of Appeal of Florida; June 18, 2014; Florida; State Appellate Court
Gwendolyn Fernandez and Sheldon and Lucille Barnes appeal a judgment dissolving the Professional Institute of Hialeah (PIH), a partnership in which they hold a 50% interest, with Basil Yates, M.D. and Kathleen Yates, and the Travis Family holding the remaining 50%. Yates and Travis cross-appeal, seeking the dissolution of Dabama, Inc., a corporation owned by the same parties. The court affirms the dissolution of PIH but reverses the decision not to dissolve Dabama.
The dispute centers on a six-story medical office building in Hialeah, constructed in 1969 by the four doctors. Dabama, Inc. owns the building, while PIH manages it through a 99-year lease. No formal agreements exist for either entity. Currently, only Dr. Yates, aged 85, continues to practice in the building, while the others have retired or passed away. Dr. Fernandez managed the building until 1996, when management transitioned to Richard, the son of Gwendolyn Fernandez, under a Management Agency Agreement (MAA) effective from 1996, automatically renewing unless cancelled.
The Yates/Travis group seeks to terminate the management agreement, citing Richard's mismanagement as the cause of the building's deterioration, making it unsuitable for medical practice. Dr. Yates describes various issues, including a malfunctioning elevator hindering access for disabled patients, inadequate seating for waiting patients, lack of access to an ADA compliant bathroom, and poor climate control due to centralized air conditioning management. Additionally, the building's parking lot is chained, complicating access for visitors.
The Fernandez/Barnes group has refused to engage with the Yates/Travis group since 2007 regarding the management of Dabama, which is currently only 40% occupied. No corporate or partnership meetings have occurred during this time. In May 2012, the Yates/Travis group initiated legal action to dissolve Dabama, appoint a receiver, partition real property, and clarify rights related to a 99-year lease and management agreement. The Fernandez/Barnes group's inaction has obstructed partnership and corporate operations, while they permitted over $70,000 in partnership funds to be used for Richard’s legal defense without proper majority approval. The trial court granted dissolution of the partnership but denied dissolution of Dabama, noting the detrimental state of the parties' relationship due to a complete lack of communication and decision-making. According to Section 620.8801(5)(b) of the Florida Statutes, a partnership can be dissolved if a partner's actions make it impractical to continue business. The court found the defendants' actions, including entering a joint defense agreement with Richard Fernandez and failing to provide necessary financials, contributed to an unmanageable partnership environment. Therefore, the court dissolved the PIH partnership, affirming the Yates/Travis group's entitlement to relief under Florida statutes. However, the court erred by not dissolving Dabama, as Section 607.1480 of the Florida Statutes permits dissolution when there is a deadlock in management and potential irreparable harm to the corporation.
In Freedman v. Fox, the court established a high standard for the dissolution of a corporation, stating that such action is justified only when the corporation can no longer fulfill its intended purposes. In the case examined, four physicians originally established a partnership and corporation to manage a medical arts building. However, following the death, retirement, and divorce-related exit of three of the partners, only one partner remained actively involved. Despite the potential for the building's original purpose to be met, factors such as its deteriorating condition, a 60% vacancy rate, and a deadlock among the shareholders rendered the continuation of its purpose increasingly unlikely. The remaining partners were unable to reach agreements, leading to operational decline and potential irreparable injury to the corporation. Expert testimony confirmed the necessity of capital investment to improve the building's occupancy, which could not occur due to the deadlock. Consequently, the trial court's decision to grant dissolution under Florida Statutes was upheld, as the evidence demonstrated an irreparable frustration of the corporation's purpose and a persistent shareholder deadlock. Gwendolyn Fernandez, Dr. Sheldon Barnes, Dr. Basil Yates, and the Travis Family Partnership hold varying interests in both the corporation and partnership involved. The appellate court affirmed the dissolution of Dabama, Inc. but reversed the denial of dissolution for PIH.
Individuals and entities are categorized as the Fernandez/Barnes group and the Yates/Travis group, both representing aligned interests. PIH pays nominal rent to Dabama to circumvent double taxation. Certain claims against Richard were severed and are not relevant in this context. The management agreement between Dabama/PIH and Richard Fernandez includes an indemnification clause requiring the partnership and corporation to reimburse the manager for defense costs related to claims. Fernandez and Barnes, as 50% shareholders/partners, lack the authority to act independently on behalf of Dabama or PIH, preventing them from agreeing to any manager demands. The excerpt outlines the conditions under which a partnership may be dissolved and liquidated, specifically noting that dissolution occurs if a partner can demonstrate that the partnership's economic purpose is likely to be frustrated or if another partner's conduct makes partnership operations impractical, as stipulated in Florida Statute 620.8801 (2012).
