June 28, 2012
DEBARON ASSOCIATES (A PARTNERSHIP) AND RONALD A. DURANTE, PLAINTIFFS-APPELLANTS,
BARBARA R. VAN SLOOTEN AND DEBRA S. SCHEIBEL, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-0034-10.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 27, 2012
Before Judges Reisner and Simonelli.
Plaintiffs DeBaRon Associates (the partnership) and Ronald Durante (plaintiff),*fn1 appeal from the August 4, 2011 Law Division order for judgment, which appointed a receiver for the partnership and ordered its dissolution, among other things. We affirm.
We derive the facts from the evidence presented at a bench trial.*fn2 The parties' father, John Durante (Durante), was a successful builder and real estate investor. For estate-planning purposes to avoid negative tax consequences after his death, Durante formed the partnership in 1977, transferred title to his substantial real estate assets to the partnership, and made his children, plaintiff and defendants Barbara Van Slooten (Van Slooten) and Debra Scheibel (Scheibel),*fn3 equal one-third partners.*fn4 Durante was not a named partner; however, from 1977 until his death in 1999, he controlled the partnership with support staff that included operations manager, John Mazza, who was employed by Durco Services, Inc. (Durco Services), the partnership's management company.*fn5
At the time of Durante's death, the partnership owned twenty-three condominium units and one commercial property in Ramsey, New Jersey, and four commercial properties in Albany, New York. The partnership also owned property in Lake George, New York, consisting of a vacant lot, a tennis court lot, a building lot with a large dock (the Lake George building lot), and two small boathouse docks (the Lake George boathouse docks).
The Lake George building lot abuts the Durante family home, which the parties jointly inherited after their father died. Because Durante wanted Scheibel and her husband to have the building lot, in 1989 he assisted, albeit unsuccessfully, in their application to local zoning and planning boards for approval to build a house on the lot. Plaintiff admitted in his deposition that his father told him about the application and that his father said "[h]e would like to get a house approved for the lot so that [Scheibel] could have a house[,]" and he "was making peace as a father, so that was his way of working out the long-term peace of the family."
In October 1984, the parties signed an Amended and Restated Partnership Agreement (the partnership agreement). Article III states that the partnership's purpose is to acquire, own, mortgage, develop, improve, maintain, lease and sell real and personal property, to invest in partnerships, corporations and other entities which may be engaged in such activities, and to do such other business as the partners may determine from time to time and which is allowed by law.
Article IV provides that the partnership's term "shall commence on the date of this agreement and shall continue until terminated as hereinafter provided." Article XI provides, in pertinent part, that "[t]he partnership may be dissolved upon the vote of all of the partners," and establishes the procedures for such voluntary liquidation.
After Durante's death, Scheibel advised plaintiff and Van Slooten that she wanted to withdraw as a partner and have her partnership interest purchased. The parties consulted the partnership's accountant, Tony Torso, to determine how to dissolve the partnership. Torso advised that they had to wait five years in order to avoid negative tax consequences, and provided a dissolution plan. The parties agreed at that time to dissolve the partnership in five years.
Plaintiff later refused to dissolve the partnership. He also refused to conduct any partnership business or participate in any partnership matters unless defendants agreed to give him the Lake George boathouse docks, as well as their interest in the Durante family home. Also, except for a partnership meeting in October 2007, beginning in 2006, plaintiff refused to attend any partnership meetings. The parties could not unanimously agree on any partnership matters, as required by Article V of the partnership agreement, and plaintiff only communicated with defendants through Mazza or Durco Services' accountant, Maria Bushman. In May 2006, defendants advised plaintiff that they would seek judicial dissolution of the partnership.
In addition, the partnership had not acquired or sold any real estate since Durante's death, and had no plans to do so. Although the partnership continued to operate profitably primarily through Mazza's efforts, it lacked direction, and it was at a stalemate because the parties could not agree on anything. The discord between the parties also affected Bushman, as it made her job more stressful and difficult.
At the October 2007 partnership meeting, the parties agreed that Scheibel would submit an application for approval to build a house on the Lake George building lot, and she would purchase the property from the partnership if she obtained the approval.
Plaintiff and Van Slooten later authorized Scheibel to use $15,000 of partnership funds for the application, and the parties agreed that any excess sums would be paid from her personal funds.
Scheibel incurred $35,000 to obtain the approval. The additional $20,000 was charged to her partnership capital account because plaintiff later refused to sell the Lake George building lot to her unless she agreed to transfer the Lake George boathouse docks to him. The capital accounts became unequal, which violated Article VII of the partnership agreement. As a result, plaintiffs filed a complaint against defendants in December 2009, to equalize the capital accounts. Scheibel filed a counterclaim seeking, in part, a declaration that the partnership was an at-will partnership subject to dissolution pursuant to N.J.S.A. 42:1A-39a, or a partnership subject to judicial dissolution pursuant to N.J.S.A. 42:1A-39e.
Scheibel eventually obtained a permit to build a home on the Lake George building lot and asked plaintiff to consent to her purchasing the property but he refused. Despite plaintiff's refusal, Scheibel began clearing the lot and digging the foundation, allegedly because the building permit would expire if construction did not commence within one year. Plaintiff obtained a temporary stop work order, which was subsequently vacated; Scheibel completed construction of the house, expending approximately $600,000 of her own funds to do so.
Plaintiffs voluntarily dismissed the complaint prior to trial and agreed to a bench trial on Scheibel's counterclaim for dissolution of the partnership. The trial judge rendered an oral decision on July 6, 2011. He found that this matter was "a family dispute between three parties who can't get along on anything. They are at loggerheads[,] . . . they will obstruct everything[,] . . . they haven't gotten along or agreed" since their father died, they were "incapable of agreeing or managing anything[,]" and "there have been ongoing contretemps between [them] for years." The judge found that the partnership had only survived because of Mazza and Durco Services, and that it was necessary to appoint a receiver because the partnership needed someone to take control of it "since the parties cannot agree on anything, or any operation and . . . [Durco Services's] personnel appear to be in [desperate] fear of which master to [heed]." The judge concluded that continuing the parties' control of the partnership was not in the partnership's best interest, the partnership was being harmed, the management was being disturbed, and the "chaos in terms of ownership and title of the [partnership] properties . . . has erupted, certainly in Lake George[.]"
The judge also ordered the partnership's dissolution, permitted Scheibel to purchase the Lake George building lot at the price of the unimproved lot, and ordered the sale or division of the remaining properties among the partners. This appeal followed.
On appeal, plaintiffs contend that the judge erred in appointing a receiver for the partnership and ordering its dissolution. They argue that the judge's decision contravenes the terms of the partnership agreement requiring partner unanimity for dissolution, and does not comport with the dissolution requirements of N.J.S.A. 42:1A-39e. Plaintiffs also contend that the judge erred in awarding the Lake George building lot to Scheibel for the price of the unimproved lot. Defendants counter that the partnership is an at-will partnership subject to dissolution pursuant to N.J.S.A. 42:1A-39a, or a partnership subject to judicial dissolution pursuant to N.J.S.A. 42:1A:39-39e.
Our review of a trial court's fact-finding in a non-jury case is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). "'The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence. Deference is especially appropriate when the evidence is largely testimonial and involves questions of credibility.'" Ibid. (quoting Cesare v. Cesare, 154 N.J. 394, 411-12 (1998)). We "should not disturb the factual findings and legal conclusions of the trial judge unless [we are] convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Ibid. (internal quotation omitted). Similarly, we should affirm a trial court's order or judgment on appeal if it is correct, even though the judge gave wrong reasons for it. Isko v. Planning Bd. of Twp. of Livingston, 51 N.J. 162, 175 (1968).
"However, '[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference[,]'" and are subject to de novo review. Mountain Hill, L.L.C. v. Twp. Comm. of Middletown, 403 N.J. Super. 146, 193 (App. Div. 2008) (first alteration in original) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)), certif. denied, 199 N.J. 129 (2009). The question of whether a partnership is at-will is a legal one, which this court can answer de novo, as well as sua sponte. See Ibid.; McGrogan v. Till, 327 N.J. Super. 595, 598 (App. Div. 2000) (noting the court had raised issues sua sponte), aff'd in part, modified in part on other grounds, 167 N.J. 414 (2001).
Pursuant to the revised Uniform Partnership Act of 1997 [RUPA], adopted in the New Jersey Uniform Partnership Act (2000), N.J.S.A. 42:1A-1 to -56, an at-will partnership will be dissolved, and its business will be wound up upon notice by a partner of an "express will to withdraw as a partner." N.J.S.A. 42:1A-39a. An "at-will partnership" under RUPA can be dissolved by any partner at any time. See A. Bromberg & L. Ribstein, Bromberg and Ribstein on Partnership § 7.20 (1988). "The term 'at-will' is normally defined in the negative to refer to partners who have not agreed to remain together either for a fixed term or until a particular undertaking is completed. The term either can be expressed or inferred from the circumstances." See Donald J. Weidner, Cadwalader, RUPA and Fiduciary Duty, 54 Wash & Lee L. Rev. 877, 886 & n.38 (1997). Unless the agreement requires the partners to stay in the partnership "for a specific term or undertaking," a partner can dissolve a partnership at will at any time. Id. at 885-86 (interpreting RUPA 801(1)).*fn6 N.J.S.A. 42:1A-39a adopts the "at-will" dissolution provision in RUPA 801(1).
We conclude that the partnership in this matter was an at-will partnership subject to dissolution under N.J.S.A. 42:1A-39a because it did not have a fixed term and no longer had a particular undertaking. Durante had formed the partnership solely for estate-planning purposes to transfer his assets to his children inter vivos in order to avoid negative tax consequences after his death. Since the time of his death was uncertain at the time the parties executed the partnership agreement, the partnership did not have a definite, fixed term.
In addition, despite the purpose statement in the partnership agreement, the partnership's real purpose was to allow Durante to protect his substantial assets from unfavorable tax consequences upon death. Because the partnership could no longer serve this purpose after he died and the tax-related five-year period expired, the partnership's "particular undertaking" ceased to exist, and the partnership continued after his death only by the will of the partners. As a result, a partner's decision to withdraw from the partnership would cause it to be dissolved, by the operation of the law. See N.J.S.A. 42:1A-39a. Accordingly, dissolution was proper under N.J.S.A. 42:1A-39a.
Alternatively, dissolution was proper under N.J.S.A. 42:1A-39e, which adopted RUPA 801(5).*fn7 A partnership not at-will is subject to judicial dissolution where the court finds that "it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement[.]" N.J.S.A. 42:1A-39e(3). Although there is no New Jersey caselaw interpreting N.J.S.A. 42:1A-39e(3), other jurisdictions that have adopted RUPA 801(5) permit judicial dissolution where, such as here, partner discord renders it impracticable to carry on partnership business. See Karber v. Karber, 701 P.2d 1, 2-3 (Ariz. Ct. App. 1984) (finding that the partnership agreement did not prevent judicial dissolution, made necessary in this case under the "not reasonably practicable" provision where the judge "had an opportunity to observe the parties and had concluded that the parties could not get along since there was an air of suspicion, recrimination and a feeling of ill will among them"). Cf. Fuller v. Brough, 411 P.2d 18, 21 (Colo. 1966) (holding that dissolution was not equitable based on trifling causes or temporary grievances that do not render it impracticable to carry on partnership business). While "trifling causes or temporary grievances" have been found to be insufficient to dissolve a partnership, at some point, such causes accumulate and tip the scale in favor of dissolution. See Owen v. Cohen, 119 P.2d 713, 715-16 (Cal. 1941), holding that:
[C]courts of equity may order the dissolution of a partnership where there are quarrels and disagreements of such a nature and to such extent that all confidence and cooperation between the parties has been destroyed or where one of the parties by his misbehavior materially hinders a proper conduct of the partnership business. It is not only large affairs which produce trouble. The continuance of overbearing and vexatious petty treatment of one partner by another frequently is more serious in its disruptive character than would be larger differences which would be discussed and settled. For the purpose of demonstrating his own preeminence in the business one partner cannot constantly minimize and deprecate the importance of the other without undermining the basic status upon which a successful partnership rests. In our opinion the court in the instant case was warranted in finding from the evidence that there was very bitter, antagonistic feeling between the parties; that under the arrangement made by the parties for the handling of the partnership business, the duties of these parties required cooperation, coordination and harmony; and that under the existent conditions the parties were incapable of carrying on the business to their mutual advantage. As the court concluded, plaintiff has made out a cause for judicial dissolution of the partnership[.]
See also Brennan v. Brennan Assocs., 977 A.2d 107, 120-22 (Conn. 2009) (applying "not reasonably practicable" standard to dissociate a partner whose conduct had caused "irreparable deterioration" of partners' relationship). See also id. at 121 n.14 (conducting extensive survey of recent case law on judicial dissolution).
It is clear from the above caselaw that the court has a role to play where a partnership agreement requires unanimity to take action, including dissolution, or where partners otherwise have equal rights, and they find themselves in a deadlock and cannot move forward on any partnership matters. While partners vested with an equal voice in the management of the partnership's affairs cannot force each other to act, in cases of an impasse, when there is no provision in the partnership agreement to resolve such contingency, judicial dissolution is the appropriate remedy. See Covalt v. High, 675 P.2d 999, 1002-03 (N.M. Ct. App. 1983). In such situations, the fact that the partnership can function and may even be generating profit is not solely determinative. See Ferrick v. Barry, 68 N.E.2d 690, 694-95 (Mass. 1946) (affirming judicial dissolution where an "atmosphere of non-cooperation, suspicion, and distrust" generated by a dominating partner interfered with equal management and realization of partnership aims, "even though substantial profits were being made").
Based on the above caselaw, as well as the overwhelming credible evidence of partner discord and impasse in this case, on which the trial judge relied, judicial dissolution was an appropriate remedy under N.J.S.A. 42:1A-39e(3).
We also discern no error in the award of the Lake George building lot to Scheibel for the price of the unimproved lot. The record contains legally competent evidence that the partners agreed to sell the property to Scheibel if she obtained approval to build a house on it. She is only required to pay for the unimproved land as a building lot, and not the improvements, which she paid for with her personal funds.