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Hughes v. Mainka

Superior Court of New Jersey, Appellate Division

June 14, 2013



Argued September 20, 2012

On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. C-0050-08.

Melissa A. Bozeman argued the cause for appellants (Weir & Partners, LLP, attorneys; Ms. Bozeman and Daniel D. Haggerty, on the brief).

Peter A. Lesser argued the cause for respondents (Sirlin, Gallogly & Lesser, P.C., attorneys; Mr. Lesser and Lisa M. Rutenberg, on the brief).

Before Judges Axelrad, Sapp-Peterson and Nugent.


Defendants appeal three orders entered by the Law Division: (1) the October 30, 2009 order denying their cross-motion to dismiss plaintiffs' complaint; (2) the March 24, 2011 order denying their cross-motion for summary judgment; and (3) the December 20, 2011 order granting plaintiffs' motion for reconsideration of the court's March 24, 2011 order and granting summary judgment to plaintiffs. We affirm.

Defendants are the limited partnership, Sunset/Salem, L.P. (the "partnership"); the general partnership, Hilson Capital Group, Incorporated ("general partnership"); and the two shareholders and officers of the general partnership, Albert Mainka and Steven Mushinski. In 2001, plaintiffs Daniel Hughes and Thomas Londres, along with two other parties, initiated litigation in a separate but related matter, which resulted in the entry of a judgment declaring they are limited partners of the partnership with a combined interest of 19.565%. The partnership was originally formed in 1996. At that time, Mainka and Munshinski were the sole limited partners. Later, in 2006, four years after plaintiffs became limited partners, Mainka's wife and children also became limited partners in the partnership.

In February 1997, the partnership, which owned property in Burlington County, entered into a long-term development agreement and ground lease with Giant Foods. In December 1997, the partnership borrowed $1.4 million from Carnegie Bank, predecessor to Sovereign Bank. The loan was secured in part by an assignment of the Giant Foods lease and by the personal guarantees of Mainka and Mushinski. On March 25, 1999, the partnership, by way of a Note and Mortgage Extension Agreement, increased the loan to $2, 300, 000 and extended the term by three years. On the same date, Mainka and Mushinski reaffirmed their personal guarantees. When plaintiffs became limited partners, they were asked to sign personal guarantees in connection with the loan, but refused to do so. Mainka's wife and children, however, were not asked to sign personal guarantees in connection with the loan when they became limited partners. Because plaintiffs refused to execute the personal guarantees, defendants transferred the portion of the partnership distributions, which would have otherwise been distributed to plaintiffs, to a cash-reserve account in the event Giant Foods defaulted upon its lease.

In January 2008, Hughes and Londes filed a three-count complaint against defendants. The complaint sought to compel defendants to (1) amend and file the Certificate and Agreement of Limited Partnership to reflect their admission into the partnership as limited partners, (2) provide an accounting of the partnership, and (3) distribute certain profits to them and provide information necessary to prepare tax returns.

On June 10, 2009, plaintiffs filed their first summary judgment motion seeking to compel distribution of their share of the partnership which defendants had been depositing into the cash reserve account. Plaintiffs argued they were being subjected to disparate treatment because there were other limited partners who were not required to execute personal guarantees for the partnership and who were also receiving distributions from the partnership.

In a July 23 written decision, Judge Michael J. Hogan denied summary judgment, finding that because plaintiffs refused to execute personal guarantees for the existing loan, defendants acted reasonably in pursuing an "alternative course of creating a cash reserve account in an attempt to more similarly situate the limited partners." The court noted that "it would be patently inequitable to permit [p]laintiff[s] to extract the benefits of [their] position as limited partner[s], which [they] actively sought through litigation, while denying exposure to any obligations and liabilities that may otherwise be attached to that same position." The judge explained he believed this to be a "reasonable course of action in these circumstances, particularly upon [d]efendants' representation that the partnership distributions to [plaintiffs] will only be deposited into the cash reserve account in an amount up to their share of the outstanding loan balance for escrow purposes and that those amounts will be paid to [plaintiffs] upon the satisfaction of the loan obligation."

On September 28, 2009, plaintiffs filed a motion for reconsideration of the July 23 order. The next day, defendants filed a motion to dismiss. In an October 30, 2009 written opinion, Judge Hogan denied reconsideration, rejecting plaintiffs' contention that his decision had been premised upon three factual mistakes: "1) defendants have subjected themselves to significant personal liability; 2) defendants signed personal guarantees in their capacity as limited partners of Sunset/Salem, L.P.; 3) defendants have placed $51, 989.00 in cash reserve." The judge found these facts were being disputed by plaintiffs for the first time in the reconsideration motion but "were not in controversy" and that the court's "decision certainly does not hinge on any of these three facts." Nonetheless, sua sponte, the judge clarified his earlier ruling, noting that in the July 23 ruling, he afforded more relief than what had been sought and had proceeded as if defendants had cross-moved for summary judgment, which they had not done. He therefore made clear that all of the counts contained in plaintiffs' complaint remained "ripe for adjudication."

Thereafter, the parties engaged in the exchange of discovery, and in September 2010, plaintiffs filed their second summary judgment motion. The next month, defendants cross-moved for summary judgment. In a March 24, 2011 order, accompanied by a written decision, Judge Hogan denied both motions, explaining:

[1] Namely, neither party has produced evidence to resolve the apparent discrepancies between Section 2.4 of the Original Partnership Agreement and Sections 5(b) and 7(a) of the Amended Partnership Agreement regarding the appropriate methods for distributing net profits to, and withholding net profits from, the limited partners. [2] In addition, neither party has produced evidence with these motions to resolve the dispute of whether [d]efendants Mainka and Mushinski personally guaranteed the [p]artnership loans in their capacity as limited partners of the [p]artnership or as the shareholders and managers of the [g]eneral [p]artner. [3] Furthermore, there is still clearly a dispute as to the reasons ...

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