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Fortugno v. Hudson Manure Co.

Decided: July 23, 1958.

ANTHONY FORTUGNO, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
HUDSON MANURE COMPANY, ET AL., DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS, AND ARTHUR FORTUGNO, DEFENDANT-APPELLANT AND CROSS-RESPONDENT. ARTHUR FORTUGNO, THIRD-PARTY PLAINTIFF-APPELLANT AND CROSS-RESPONDENT, V. HUDSON MANURE COMPANY, ET AL., THIRD-PARTY DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS



Goldmann, Freund and Conford. The opinion of the court was delivered by Goldmann, S.j.a.d.

Goldmann

This proceeding began as an action for the dissolution of a family partnership when Anthony Fortugno, one of the partners, filed his complaint and order to show cause on January 4, 1956 against the partnership and his co-partners. By the time of trial the pleadings, motions, exceptions and other papers numbered almost 200 pages. The trial itself lasted ten days and developed a record of over 1,400 pages, together with numerous and voluminous exhibits.

Defendants are the partnership, Hudson Manure Company, and Anthony's seven co-partners: Sylvia Fortugno (mother of the seven other partners), Daniel, Arthur, Alfred and Adeline Fortugno, Connie (Fortugno) Ruble, and Ann (Fortugno) Campanella. After defendants had filed their answer and a counterclaim alleging unlawful diversion of partnership funds, and plaintiff his reply, the Chancery Division

entered judgment on February 17, 1956 declaring the partnership dissolved and appointing Anthony's attorney, James A. McTague, Esquire, and defendant Daniel Fortugno, who was an attorney-at-law, as trustees "to handle the liquidation and distribution of the assets after collection and disposition of all claims and the payment of all debts * * *."

Subsequent to the entry of that judgment defendant Arthur Fortugno changed his position from that of the other defendants and filed a separate answer and counterclaim. He later filed an amended answer, counterclaim and cross-claim, and a third-party complaint in which he named all the partners, as well as Clinton Ruble, Ann's husband, third-party defendants. The trustees filed an inventory and accounting through August 31, 1956, to which Arthur took numerous exceptions -- he also sought, unsuccessfully, to have the trustees removed -- and a supplemental report for the period September 1, 1956 to March 20, 1957, to which Arthur took no exceptions.

By the time of the trial on April 29, 1957 Anthony had reached an accord with all the defendants except Arthur. The action thus became a contest between Arthur on one side and Anthony and the remaining partners on the other. The basic dispute concerned the distribution of partnership assets. The question was whether certain corporations, five in number, were assets of the partnership or owned by the individual partners. If they were assets of the partnership, were they to be distributed equally among the partners by means of shares of capital stock, or were the assets of each corporation to be treated as partnership property and (a) liquidated and the proceeds distributed, or (b) divided in their then form and distributed equally? Arthur claimed the corporations were assets of the partnership and that he was entitled upon dissolution of the partnership to his proportionate share in cash, rather than to be forced to exchange his position as an equal partner for that of a minority shareholder in the family-controlled corporations whose shares would have no value on an open market. The other partners contended that distribution should be of the shares of stock,

relying on a partnership agreement executed in 1940, discussed below. The corporations involved are: Fortugno Realty Company, C. & C. Trucking, Inc., Lescarboura Mushroom Company, Oxford Royal Mushroom Products, Inc., and Hudson Farms, Inc.

The trial court, by its interlocutory order of July 18, 1957, in addition to disposing of other claims to be discussed hereinafter, held that the first four of the above-named corporations were not assets of the partnership, and ordered the equal distribution of their stock to the partners. The fifth corporation, Hudson Farms, Inc., was held to have been fraudulently formed with partnership funds; it belonged to the partnership, and was ordered sold. Arthur appeals this order (as well as all other interlocutory orders), particularly with respect to the finding that the first four corporations were not assets of the partnership. Defendants Sylvia, Daniel, Alfred, Connie, Adeline and Ann cross-appeal from the order with regard to the sale of Hudson Farms, Inc. Anthony filed a notice of cross-appeal from the order for the sale of Hudson Farms as well as from a determination that he had diverted $65,000 from the partnership which he had to repay. We dismissed his appeal on March 20, 1958, so that it requires no further consideration.

Arthur's present position, essentially, is that he is entitled to have the partnership pay him for his one-eighth interest. He does not necessarily demand that the various businesses be liquidated, recognizing the possible disastrous effects that such an order would have on the family. He does ask for a complete accounting of all the Fortugno enterprises for the purpose of determining the dollar value of his partnership interest and receiving cash payment therefor -- this as an alternative to complete liquidation. He also challenges the court's finding that Anthony diverted only $65,000 from the partnership, claiming the amount to be $93,891.79; seeks to reverse the court's denial of certain salary and automobile claims; and wants new trustees, having no interest in the litigation, appointed.

I.

Hudson Manure Company was founded about 1896 by Paul Fortugno, husband of Sylvia and father of the other parties. The business prospered, but in 1929 or 1930 he became less active due to poor health. The slack was taken up by the eldest son, Anthony, who at that time was the only child active in the management of the business. Anthony expanded the operation of the company, which theretofore had been limited to the collection of manure in Jersey City for sale to mushroom growers, to include collection from various areas in and about New York City. The father died March 5, 1934. By his will he gave his estate to his widow and seven children, share and share alike, and recited his desire that Anthony support the family in the manner to which they had become accustomed, from the income of Hudson Manure Company. The will stated, and Anthony so testified, that the testator had given the business to him in 1930 subject to support of the family, in consideration of the work he had performed for the company without consideration.

Whether Paul Fortugno had actually given Hudson Manure to Anthony in 1930 or had effected that result by will is of no moment. Shortly after the father's death, the widow and children orally agreed to form a partnership, with each owning a one-eighth interest in the business and property left by him. No consideration passed to Anthony, nor did he ask for any. This oral agreement controlled until January 2, 1940, when it was reduced to writing. In addition to providing that each partner would share equally in profits and losses, that each would enter on the partnership books a full and accurate account of all his transactions on behalf of the family enterprise, and that the partnership should last indefinitely, the agreement stated in paragraph IX:

"That at the termination of this partnership, by reason of any cause, a full and accurate inventory shall be prepared, and the assets, liabilities and income, both gross and net shall be ascertained; that the debts of the partnership shall be discharged; and all the moneys

and other assets of the partnership, then remaining, shall be divided in specie, between the parties, share and share alike." (Italics ours)

The partners who oppose Arthur rely upon the italicized portion of the paragraph in their claim that distribution should be of the corporate shares.

Following the written agreement the partnership affairs were carried on much as before. Anthony unquestionably was the mainstay and directing force of the family enterprise. He, in effect, did what he considered was in the best interests of the business; his was the final word in all decisions. His operations were obviously successful. While he managed the partnership its income provided ample support for the entire family, as well as a college education for the three younger brothers and at least two of the sisters. All of the children had, as youngsters, worked in the business, helping out when any of the regular employees failed to report for work. In 1937 Daniel, already admitted to the Bar of this State, began to work full-time for the partnership; and in 1949 Alfred, the youngest brother, started working full-time, interrupted only while he was in the armed services from August 1954 to May 1956. Adeline worked full-time in the office, and Connie also helped out -- though apparently not as much as Adeline.

Brief reference to Arthur's activities appears appropriate. Except for the mother and sister Ann, who did no work for the business, Arthur contributed the least to the partnership. This was due partly to his contracting tuberculosis and partly to his attitude of "passive resistance," apparently adopted because of his inability to get along with his brothers. Although Anthony was the prime target of his antipathy, Arthur at various times did not speak to the others. He finished college in 1939, and was sick from 1940 to the middle of 1945. He then began working for the partnership in Pennsylvania and stayed on until January 1946, when he contracted pneumonia for six weeks. From June 1946 to October 1948 he again worked in Pennsylvania; because of a series of arguments with Anthony he became ill and went away until 1950. There followed the period of

"passive resistance," from 1950 to 1954, when he would go to the Jersey City office daily but do no work. In August 1954 he took Alfred's place in Pennsylvania and stayed until May 1956. During all his periods of inactivity Arthur continued to receive wages from the partnership. Although he claims the source of this money was his mother and Adeline, it seems quite clear that he was paid by the partnership, the money being deposited regularly in his checking account. As the trial court found, he fairly well knew the various activities of the partnership. Arthur asserts that he has wanted to get out of the partnership since 1948. He delayed in 1948 because of his illness, and in 1950 he did not want to start dissolution proceedings because of family tax difficulties about to be mentioned.

The partnership's original business was, as noted, the collection and sale of manure. Headquarters were in Jersey City, New Jersey. The partnership sold the manure to mushroom growers in southeastern Pennsylvania; it also derived an income from race tracks and other sources of supply for removing the manure. In the course of its operations the partnership found it convenient to put certain of its activities in corporate form. The first such corporation, Fortugno Realty Company, was established in 1935, about a year after the oral partnership agreement among the members of the family, to hold the real estate formerly owned by the father. The primary reason however -- prompted by several accidents on the properties -- was to limit the liability of the individual partners.

Anthony had in 1936 purchased an interest in the Lescarboura Spawn Company, a Delaware corporation, and turned it over to the partnership in 1943. That company operated in Pennsylvania; it was engaged in the business of growing and selling mushroom spawn and mushrooms, canning mushrooms and marketing the canned product. In 1946 the partnership increased its interest in the company to 50%, and the corporate name was changed to Lescarboura Mushroom Company. Lescarboura not only served the purpose of being a user of part of the manure collected by Hudson

Manure Company, but also acted as selling agent for the manure to ...


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