January 31, 2008
LOUIS TROMBETTA AND MARION TROMBETTA, HIS WIFE, PLAINTIFFS-APPELLANTS,
ANTHONY TROMBETTA AND RICHARD BASCIANO, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Camden County, Docket No. C-229-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 28, 2007
Before Judges Axelrad, Payne and Messano.
Plaintiffs Louis and Marion Trombetta, husband and wife, appeal from the January 17, 2007, order that dismissed their complaint against defendants Anthony Trombetta, Louis's brother, and Richard Basciano following a non-jury trial.*fn1 Plaintiffs raise the following points on appeal:
THE TRIAL COURT ERRED IN FAILING TO PERMIT THE FILING OF AN AMENDED COMPLAINT AND PERMIT DISCOVERY IN THE RELATED LAW DIVISION LAWSUIT INVOLVING THE CORPORATE ENTITIES, AND IN FAILING TO MAKE FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO THE CORPORATE ENTITIES
THE TRIAL COURT'S DISMISSAL OF APPELLANTS' PARTNERSHIP CLAIMS WAS AGAINST THE WEIGHT OF THE EVIDENCE AND CLEARLY ERRONEOUS AS A MISTAKE OF LAW
THE FINDING THAT THERE WAS NO FRANCHISE AGREEMENT IS SUPPORTED BY SUBSTANTIAL EVIDENCE AND SHOULD BE AFFIRMED
We have considered the arguments plaintiffs have made in light of the record and applicable legal standards. We affirm.
On December 13, 2005, plaintiffs filed their complaint in the Chancery Division, Camden County (the chancery action), alleging they were one-third owners of a "live and machine entertainment business (the business) located in the rear of Carnival Books, at 705 Crescent Blvd., . . . Brooklawn." They further alleged that defendants were the owners of the other two-thirds interest in the business. Marion alleged she was the owner of Carnival Books, an adult bookstore that Louis operated on her behalf from the front portion of the business premises. Plaintiffs claimed that they had entered into an "oral partnership agreement" with defendants to operate the business in the rear of the premises, but that the partnership was now "deadlocked" and should be dissolved pursuant to the Uniform Partnership Act (the UPA), N.J.S.A. 42:1A-1 through -56.
Plaintiffs further alleged that defendants had "engaged in a course of conduct in malicious, reckless, willful and/or wanton disregard of [their] rights," and had otherwise acted in "bad faith" and with "unclean hands." Plaintiffs sought equitable distribution of the partnership's assets, payment of their counsel fees from defendants' share, compensatory and punitive damages, and costs.
Defendants answered separately, denying generally the existence of any partnership and claiming there were no grounds to warrant dissolution of the business. Basciano also specifically denied being affiliated with the business since 1992, and Anthony claimed the business was operated "under a franchise agreement," and was not a partnership.
On April 27, 2005, New Hope Books, Inc. (New Hope), a corporation solely controlled by Anthony, filed suit in the Law Division (the law division action) naming Crescendo Books, Inc. (Crescendo), Louis, and Marion as defendants. New Hope alleged that it had entered into a franchise agreement with Crescendo, with New Hope as franchisor and Crescendo as franchisee, for the operation of the business. New Hope claimed that pursuant to the franchise agreement, Crescendo was responsible to pay one-third of the business expenses and the salary associated with one full-time employee of the business. The complaint alleged Crescendo, through the fraudulent efforts of Louis and Marion, had breached its agreement with New Hope and alleged damages in the amount of $23,347.15.
Following discovery in the chancery action, a pre-trial conference was held before Judge M. Allan Vogelson on June 1, 2006. Pursuant to the case management order that resulted, a trial date of September 13, 2006, was set; the order further reflected that neither side sought to amend their pleadings or consolidate the two actions.
However, on August 7, 2006, plaintiffs moved to amend their complaint in the chancery action and consolidate the two suits. The proposed amended complaint sought to add Crescendo as a plaintiff, and New Hope as a defendant, but in all essential allegations, it remained unchanged from the first complaint. In support of the motion, plaintiffs' counsel acknowledged that New Hope's complaint in the law division action alleged the relationship between the parties was a franchise between the two corporations. However, the proposed amended complaint still asserted the business relationship was a partnership and it sought relief under the UPA.
The motion to amend and consolidate was not heard until the day of trial. Judge Vogelson reasoned that the corporations that plaintiffs now sought to add to the suit were "in being for a number of years," and therefore could have been originally named as parties or otherwise sought to be added much earlier in the litigation. Regarding plaintiffs' request to gather discovery regarding the alleged franchise agreement, the judge noted that Anthony and Basciano had been deposed that morning, and that there was no need to further delay the trial since the trial date had been set months earlier.
With respect to the consolidation motion, Judge Vogelson noted that plaintiffs sought equitable relief that would require "a determination of whether there is or is not a partnership." He noted the law division action filed by New Hope essentially sought money damages only, and, if necessary, the pleadings in the chancery action could be amended "to conform to the evidence." He denied plaintiffs' motion.
The trial commenced with Louis as the first witness. Louis claimed that sometime "in the early 70's," he entered into an oral partnership agreement with Anthony and Basciano. According to Louis, defendants' business of "peep shows and dancing girls" that operated out of the rear of the premises was not doing well financially. Louis claimed that he and Marion formed a corporation, Crescendo, paid off defendants' debt of $7500 to a book distributor, and took over the front of the premises, continuing its operation as an adult bookstore with him and Marion keeping all the proceeds.
Louis never spoke to Basciano, but he claimed that Anthony was "talking to" him, and that the agreement was for the three men to "split it three ways." Over the years, Anthony would take all the proceeds from the peep shows and dancing girls, and then split the net profits with one third going to Louis. Louis claimed that he never saw a franchise agreement, although there was talk between him and Anthony about signing one. Louis ran the entire business on a day-to-day basis and Marion "didn't know anything about it."
Louis claimed there was no written partnership agreement, though the business operated under the acronym, TRL, "Tony, Richie, and Louis." Louis also testified that Anthony maintained business relationships with their other brothers, and that at least one such arrangement was subject to a written franchise agreement. Despite years of operating successfully, Louis testified that his brother began to change the terms of their agreement. For example, Anthony would subtract additional employee hours from Louis's share of the net proceeds and he increased the rent Crescendo paid for the front portion of the premises. When Louis asked why, Anthony would simply claim, "This is my place, I own everything, you don't own nothing."
Plaintiffs called Anthony as a witness on their direct case, and he testified again later in his defense.*fn2 Anthony claimed that he first acquired the business in 1970 or 1971 and operated it through a corporation he formed, Carnival Books Inc. Eventually, the interests in that corporation were conveyed to New Hope which was owned by Anthony and Basciano, though the bookstore maintained the use of Carnival's name.
New Hope operated the business as a franchise with at least two other people before Anthony invited Louis, through Crescendo, to enter into a franchise agreement to take over the operation of Carnival and the business. His invitation to Louis "[w]as a favor" because of his brother's financial difficulties. As part of the business agreement between the parties, plaintiffs paid the existing balance for the bookstore inventory, took over the operation of the bookstore, and were to receive one hundred percent of the profit from its sales. The written franchise agreement for the other portion of the business, which was to be executed by Marion as president of Crescendo, was never signed, though the parties operated in accordance with its terms.
Some years later, the parties' business arrangement was altered in response to plaintiffs' complaints that they were having difficulty making money under the terms of the unsigned written agreement. Anthony testified that under the new arrangement, New Hope would be responsible for two-thirds of the expenses for the live entertainment and peep show business, while being entitled to two-thirds of the income; similarly, Crescendo would become responsible for one-third of the costs and receive one-third of the income. Anthony claimed that during the ensuing thirty years plaintiffs operated Carnival, all payments were made from New Hope to Crescendo and he characterized the payments as commissions.
Anthony also testified that Basciano had no interest in the business since 1992 when he conveyed all his stock in New Hope to Anthony. Although plaintiffs were in charge of the day-today operations of the business and he appeared there only a few days per month, Anthony testified that he exercised the ultimate control over the business.
Anthony maintained that the business was quite profitable and was operating as it always had. He acknowledged sending an eviction notice to Crescendo, but claimed he did so out of anger after plaintiffs had initiated this litigation. He testified that if Louis acknowledged the continued existence of the franchise agreement, he would rescind the notice and continue the operation of the business as it had for the last thirty years.
A third Trombetta brother, Robert, testified as plaintiffs' next witness. He too operated an adult bookstore, peep show, and live entertainment business with Anthony. Robert also shared the profits with Anthony on a one-third, two-thirds basis and had no formal written agreement with his brother. Robert acknowledged that he received all payments for his share of the business' profits from another corporate entity owned by Anthony, and he funneled all payments and receipts from the operation through his own corporation that filed income taX returns. He never filed any partnership tax returns nor received any K-1 partnership schedule for inclusion in his filings.
Plaintiffs called Basciano as a witness. He claimed to have been out of the business entirely for many years and that he had conveyed any interest he had in New Hope to Anthony. Basciano testified that he believed the business arrangement was a franchise, although he was surprised when he was told that no signed franchise agreement was in existence. Basciano also testified that Crescendo, Louis, and Marion never operated the business with New Hope as a partnership.
Defendants called Jenny Cataldo as their first witness. She worked for Brighton Management, a company that managed "the records, the bookkeeping, [and] the payroll" for Crescendo and New Hope, as well as other companies affiliated with Anthony. Cataldo described the business relationship as a franchise in which Crescendo operated the business and received a commission based upon the gross receipts. She herself had operated two such franchises with Anthony. Cataldo described the bookkeeping associated with the businesses and further testified that Louis never described the operation as partnership to her.
Christopher Oshtry was called as a defense witness and testified that he operated an adult entertainment business with Anthony and that it operated as a franchise, not a partnership. Robert Strom was called as plaintiffs' witness. He testified that Louis told him that he was a "partner with [Anthony]," though Strom also knew "[a]ll of the stores that Anthony  owned were franchised and I assume[d] that [Carnival] was a franchise operation." Strom collected the monies from Carnival "on a weekly basis," and turned them over to Anthony. Carl Scaggs testified as plaintiffs' witness that he managed the business operation at Carnival and he described the various roles, responsibilities and hours of employment for the employees of the business.
In his oral decision placed on the record on January 17, 2007, Judge Vogelson initially noted that plaintiffs had failed to introduce any testimony regarding Basciano's involvement in the alleged partnership. He dismissed the complaint against Basciano with prejudice.*fn3
The judge then noted that plaintiffs had "not produced nor presented any evidence or any document whatsoever . . . [o]ver the period of thirty-some years they claim the partnership  existed . . . which would indicate the business to be a partnership." He noted "no tax return, [and] no partnership taX return . . . were filed which indicate the subject business to be a partnership." The judge noted that while "there can be an oral partnership . . . there needs to be some indicia of the fact that there is a partnership to prove the oral partnership." Finding that the business agreement was neither a partnership nor a franchise, Judge Vogelson concluded "there was a contractual agreement as to the operation of the business, which is supported by the conduct of the parties as well as their testimony . . . ."
The judge also reasoned that the business relationship was between the corporations, Crescendo and New Hope. Finding it incredible that plaintiffs could not properly identify the membership of an alleged partnership they had participated in for more than thirty years, the judge concluded "that's . . . because such a partnership did not exist." He also found that plaintiffs had failed to prove "a value" for the business, "or alleged damages, or a means to determine alleged damages." Judge Vogelson entered an order dismissing plaintiffs' complaint and this appeal ensued.
Plaintiffs first argue the judge mistakenly exercised his discretion by refusing their request to amend their complaint and consolidate the two lawsuits. They claim the denial of their motion was prejudicial because the judge concluded that there was a "partnership as to the two corporations," but not as to the individual plaintiffs and individual defendants. Because their motion to amend was denied, they were unable to prove the existence of an actual partnership between two corporate entities controlled by the plaintiffs and Anthony. We disagree.
Leave to amend is to be "freely given in the interest of justice," R. 4:9-1, without consideration of the ultimate merits of the amendment. See Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 456-57 (1998)(holding that liberality is the guiding principle in considering motions for leave to amend, even where the merits of the amendment are uncertain). Nevertheless, the decision as to whether to permit an amendment is left to the sound discretion of the trial judge. Fisher v. Yates, 270 N.J. Super. 458, 467 (App. Div. 1994). We have noted that "[i]t is well settled that an exercise of that discretion will be sustained where the trial court refuses to permit new claims and new parties to be added late in the litigation and at a point at which the rights of other parties to a modicum of expedition will be prejudicially affected." DuWel Products v. U.S. Fire Ins., 236 N.J. Super. 349, 364 (App. Div. 1989), certif. denied, 121 N.J. 617 (1990). Similarly, a motion to consolidate is addressed to the trial judge's discretionary authority, Kaselaan & D'Angelo Assocs. v. Soffian, 290 N.J. Super. 293, 299-301 (App. Div. 1996), and the judge's decision should not be set aside unless the judge pursued a "manifestly unjust course" in reaching it. Gittleman v. Cent. Jersey Bank & Trust Co., 103 N.J. Super. 175, 179 (App. Div. 1967), rev'd on other grounds, 52 N.J. 503 (1968).
With respect to the motion to consolidate, we note the two actions involved fundamentally different issues. Discovery had not commenced in the law division action and it was not ready for trial. In contrast, the chancery action was subject to a pre-trial order that provided a schedule for discovery and a trial date months in advance. Although the law division action had been pending for more than a month before the pre-trial conference occurred, plaintiffs did not seek to consolidate the actions at that point.
Nor did they seek to amend their complaint at that time. Plaintiffs were well aware of Crescendo's involvement in the business arrangement when they filed their complaint and they knew after New Hope had filed its complaint that it claimed the relationship was a franchise, not a partnership. Louis acknowledged at trial that the financial records accumulated over the years referenced Crescendo and New Hope, and that checks were paid out through Crescendo's account, and checks were received from New Hope's account. Plaintiffs' inordinate delay in seeking amendment was never explained.
Most importantly, however, plaintiffs were not prejudiced in any way by the refusal to permit amendment or consolidation. Discovery was ongoing until the day of trial itself. Plaintiffs had the opportunity to depose defendants regarding the claim that the business was operated as a franchise. Contrary to plaintiffs' assertion, Judge Vogelson clearly determined that the business relationship between plaintiffs and Anthony was contractual in nature and was not a partnership between any individuals or corporations. We cannot find any mistaken exercise of discretion under these circumstances.
Plaintiffs next argue that Judge Vogelson's factual findings were against the weight of the evidence and led to erroneous legal conclusions. When reviewing the factual findings of a judge sitting without a jury, our review is limited in scope. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). We will not disturb those findings if they were reached on sufficient, credible evidence present in the record. Id. at 483-84.*fn4 In particular, we accord the trial judge's findings "substantial deference" given his ability to judge the credibility of the witnesses. Id. at 484.
Plaintiffs claim that the judge found that the business relationship was not a partnership because the UPA, which became effective December 17, 2000, did not apply retroactively to the agreement.*fn5 They maintain that Judge Vogelson should have applied the Uniform Partnership Law of 1919 (UPL), N.J.S.A. 42:1-1 to 1-49,*fn6 to this case and that statute, not common law, should have informed the judge's decision. They contend that under the terms of the UPL, they produced sufficient, credible evidence that their relationship with Anthony was a partnership.*fn7
However, plaintiffs' argument must fail because the trial judge's conclusions are consistent with developed jurisprudence under the UPL. A partnership is defined, under the UPL, "as an association of at least two or more persons to carry on as co-owners of a business . . . ." N.J.S.A. 42:1-6; Kozlowski v. Kozlowski, 164 N.J. Super. 162, 171 (Ch. Div. 1978), aff'd, 80 N.J. 378 (1979). Under the UPL, plaintiffs have the burden of establishing that a partnership exists. Tuxedo Beach Club, Corp. v. City Fed. Savings Bank, 749 F. Supp. 635, 646 (D.N.J. 1990). In determining whether a business relationship was indeed a partnership under the UPL, courts have considered several factors, including 1) the intention of the parties; 2) control of the business and partnership property; 3) how profits and losses are shared; and 4) the conduct of the parties towards third parties. Id. at 646-47; Kozlowski, supra, 164 N.J. Super. at 171. The record indicates that sufficient, credible evidence existed as to each of the above factors to conclude that plaintiffs failed to meet their burden.
First, Judge Vogelson determined that when the parties entered into business with each other, the intention was not to form a partnership. He accepted Anthony's testimony that he did not intend to form a partnership with plaintiffs in 1978. Instead the judge accepted as credible Anthony's assertions that Carnival had been an ongoing, fully stocked and equipped business that had no need of additional investment. The judge found that Anthony was motivated to extend an offer to plaintiffs to enter into the business "as a favor" because of his brother's financial difficulties. Judge Vogelson also found that plaintiffs were unable in 1978 to qualify as partners either financially through investment in Carnival or through "sweat equity."*fn8 Instead, the judge concluded Anthony intended to allow plaintiffs to make a living in his "ongoing, successful business," "no more, no less."
The judge also found that business decisions regarding Carnival were not made by the parties on a collaborative or consensus basis. While plaintiffs exercised control of the dayto-day operation, Anthony maintained over-all decision-making power. Under the UPL, owners may delegate management responsibility without ceding their claim of sole ownership. See Yonadi v. Yonadi, 21 F.3d 1292, 1297-98 (3rd Cir. 1994)(discussing the elements of partnership under the UPL).
While the UPL recognized profit sharing as prima facie proof of a partnership, Farris v. Farris Engineering Corp., 7 N.J. 487, 502-03 (1951), not every business arrangement that provides for the sharing of profits is a partnership. Ibid.; Tuxedo Beach, supra, 749 F. Supp. at 647; Presten v. Sailer, 225 N.J. Super. 178, 191 (App. Div. 1988)(holding that a partnership need not have been formed under the UPL to allow for the sharing of profits). Without proving the additional elements of a partnership, plaintiffs had not proven that their receipt of one-third of the profits was anything more than compensation for their management services. See Gingarelli v. Gingarelli, 124 N.J.L. 299, 300-01 (Sup. Ct. 1940) (noting that without proof of control of the business, a "manager" who receives a share of the profits as compensation is not a partner).
Judge Vogelson also found that payments to the plaintiffs were always in the form of commissions and that this was not indicative of partnership status. See N.J.S.A. 42:1-7(3)(providing that share of gross returns does not establish a partnership). True partners are co-owners of a business and, as the judge noted, do not receive commissions.
In addition, plaintiffs utterly failed to demonstrate that the disputes between Louis and Anthony made the business inoperable. We have noted that judicial dissolution is a drastic remedy that should not be used absent severe circumstances, such as the inability of the partnership to operate, the existence of fraud, or the economic non-viability of the business. See Muscarelle v. Castano, 302 N.J. Super. 276, 284-85 (App. Div. 1997)(holding that the court may intervene in the dissolution of a business where the interest of the minority partner is jeopardized by a breach of fiduciary duty). Anthony testified, and Judge Vogelman found, that the business continues to operate profitably as it has for many years. Louis did not ever dispute this.
Furthermore, plaintiffs failed to provide any evidence as to the value of the business. Judge Vogelson found that gross receipts were not a satisfactory or permissible standard upon which to value the business. Such methodology has been characterized as unreasonable, speculative, and conjectural. Wasserman's, Inc. v. Township of Middletown, 137 N.J. 238, 256 (1994).
In sum, Judge Vogelson's factual determinations were supported by substantial credible evidence including his determinations of the credibility of the various witnesses. We find no reason to disturb those findings. Moreover, the legal conclusions he reached as a result were not erroneous but were appropriately derived from the facts at hand.
Because we affirm the order under review, we do not reach plaintiff's third point regarding the judge's conclusion as to whether the parties' relationship was or was not a franchise. It is moot.*fn9