By Marcus Fields

            Today in Lee Graham Shopping Center, LLC v. Estate of Diane Z. Kirsch, a published opinion, the Fourth Circuit determined that the relevant Partnership Agreement was unambiguous in its prohibition of gift transfers of partnership interests to non-family members. Therefore the late Kirsch’s transfer of her partnership interest to Wayne Cullen via a revocable trust was invalid and the District Court was correct in granting summary judgment to the Partnership.

The Partnership Agreement and Contested Transfer of Kirsch’s Interest

In 1984, Dr. Paul Zehfuss and Eugene Smith converted the Lee Graham Shopping Center partnership, which they had founded in 1969, to a limited partnership – adopting a partnership agreement at the same time. Dr. Zehfuss died the following year and through his will, as well as gifts before his death, twenty one percent interest in the Partnership ultimately passed to his daughter, Diane Kirsch. In 2011, Kirsch was diagnosed with terminal cancer and in the process of estate planning assigned her limited partnership interest to the Kirsch Trust. The Kirsch Trust provided that the limited partnership interest would pass to the Cullen Trust, established for her long-term companion Wayne Cullen. Kirsch died the following year and in February 2013 the Partnership filed suit claiming that the Partnership Agreement prohibited the transfer of Kirsch’s interest to the Cullen Trust. The District Court for the Eastern District of Virginia granted summary judgment for the Partnership.

Jurisdiction was Proper:  Case does not Fall Within Probate Exception to Federal Diversity Jurisdiction

Cullen, a Maryland citizen, challenged the subject matter jurisdiction of the District Court claiming that the case fell within the probate exception to federal diversity jurisdiction. Citing the 2006 Supreme Court Case Marshall v. Marshall, the Fourth Circuit explained that this exception was to be construed narrowly and was limited to two types of cases: “(1) those that require the court to probate or annul a will or to administer a decedent’s estate, and (2) those that require the court to dispose of property in the custody of a state probate court.” The Fourth Circuit pointed out that the present case did not require the court to interpret or act on Kirsch’s will and that the property in question was in the custody of the Cullen Trust, not the probate court. Thus the probate exception does not apply and the court has subject matter jurisdiction under 28 U.S.C. § 1332.

The Partnership Agreement Does Not Permit Gift Transfers to Non-Family Members

The 1984 Partnership Agreement addresses the “Assignment of Limited Partner’s Interest,” in Section 6.02. The introductory clause to that section states that “[t]he interest of each Limited Partner in the Partnership shall be assignable subject to the following terms and conditions.” Cullen argues that this clause generally allows for the transfer of a Limited Partner’s interest unless restricted by the subsequent subsections (6.02(a)-(e)). Section 6.02(a) is titled “Limitations on Assignment,” and essentially creates a right of first refusal for the Partnership and all current partners. 6.02(e), titled “Family Transfers” provides that “[t]he sale or other transfer by a Partner, whether inter vivos or by will, of his Partnership interest … shall not be subject to the restrictions or limitations of Section 6.02(a)” if made to a family member.

The Fourth Circuit found that “[t]he clear reading of Section 6.02 as a whole is that interests may only be assigned pursuant to the terms of either 6.02(a) or 6.02(e).” It reasoned that to find otherwise would render the introductory clause and the clause in 6.02(e) – dealing with “other types of transfers between family members – superfluous. If transfers other than sales were generally allowed without restriction based on the introductory clause, as Cullen argues, then there would be no need to explicitly allow for non-sale transfers to family members in 6.02(e). The Fourth Circuit was also persuaded by the fact that both 6.02(a) and 6.02(e) served to provide favored treatment of family members because at the time the agreement was written the interests were held by the original partners or their family members.

Judgment of the District Court is Affirmed

In addition to the two issues discussed above, Cullen raised 10 additional issues as part of this appeal. The Fourth Circuit dispensed with these in a footnote, stating that “We have independently reviewed the record and we find that each of these contentions has either been waived or has no merit.” Thus the District Court’s grant of summary judgment was appropriate.