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Hughes v. Mainka

Superior Court of New Jersey, Appellate Division

June 14, 2013

DANIEL J. HUGHES, THOMAS LONDRES, and S&J LIMITED PARTNERSHIP, INC., Plaintiff-Respondents,
v.
ALBERT MAINKA, STEVEN MUSHINSKI, SUNSET/SALEM, L.P., & HILSON CAPITAL GROUP, INC., Defendants-Appellants.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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.

PER CURIAM

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 for the withholding of the [p]laintiffs['] net profits to fund the "reserve" account and the reasons that other limited partners are not subject to the same withholding.

Meanwhile, unbeknownst to plaintiffs, while their summary judgment motion was pending and before defendants filed their cross-motion for summary judgment in October 2010, Beneficial Bank issued a commitment letter to the partnership for a $2 million loan, $1.3 million of which was to be used to pay off the 1997 partnership loan. The Beneficial Bank loan closed, the funds were disbursed, and the 1997 partnership loan was paid off on December 16, 2010. Under the terms of the refinancing, Mainka and Mushinski continued as the sole guarantors of the Beneficial Bank loan. Defendants did not present this information to the court prior to the court issuing its March 24, 2011 decision denying both parties' summary judgment motions.

On November 2, 2011, plaintiffs filed a motion for reconsideration of the March 24, 2011 order, arguing the "entire issue is now moot because while the summary judgment motions were pending, [d]efendants refinanced and paid[]off the [p]artnership [l]oan . . ., and in this [p]artnership loan refinance, the [l]imited [p]artners were not required to execute loan guarantees." Defendants filed opposition, arguing the loan refinancing did not undermine their prior position, was not material to the court's prior decision, and not a basis for reconsideration. Judge Hogan disagreed.

By orders dated December 20 and 21, 2011, Judge Hogan granted plaintiffs' motion for reconsideration and entered summary judgment in their favor, directing defendants to release to plaintiffs the partnership distributions contained in the reserve account. In his written decision appended to his order, Judge Hogan reasoned:

Here, there is new evidence available to the [c]ourt which changes the landscape of the case: the [r]efinanced [l]oan. The [c]ourt chooses to consider this new evidence given that the [p]laintiffs are the only ones who have not received their payout from the proceeds of the [r]efinanced [l]oan. The [r]efinanced [l]oan is new information that the [c]ourt did not have at its disposal when ruling on the parties' previous summary judgment motions with the resulting March 24th decision. Had the [c]ourt known that the [d]efendants had refinanced their [l]oan, with only the [p]laintiffs' share of the loan disbursement and their share of the profits supporting the reserve account, it would have most likely caused another outcome on the motions.

In this situation, in effect[, ] the [p]laintiffs are forced into a [g]eneral [p]artner role rather than serving as [l]imited [p]artners. Presently, theirs is the only money that will be subject to payout if the [p]artnership's tenant defaults on the lease because the [r]eserve [a]ccount is funded entirely by their undistributed share of the [p]artnership's [p]rofits and the [r]efinanced [l]oan disbursement.
Even more telling is that the Original Partnership Agreement and the Amended Partnership Agreement differ in what obligations must be met before distributions to the [l]imited [p]artners can occur. In the Amended Partnership Agreement, the only subtractions that are made before distribution to the [l]imited [p]artners are cash disbursements and a "reasonable reserve for company operations and obligation." Under the present circumstances of the [r]efinanced [l]oan, those proceeds of this loan no longer qualify for retention by the [l]imited [p]artners. The [d]efendants admitted at oral argument that all other [l]imited [p]artners except for the [p]laintiffs had been paid. The [d]efendants refinanced the loan without the knowledge or consent of the [p]laintiffs. While the [d]efendants do retain the right to make such decisions as [g]eneral [p]artners, [ ] the [d]efendants cannot reap the benefit of the refinanced loan on the backs of the [p]laintiffs. A [g]eneral [p]artner owes a fiduciary obligation to all [l]imited [p]artners. See Heller v. Hartz Mountain [Indus.], Inc., 270 N.J.Super. 143, 150 (Law Div. 1993) ("[E]ach partner stands in a fiduciary relationship to every other partner.") As in this case, "where a managing partner controls the partnership's business, that partner is held to the "strictest possible obligation" to his or her co-partner since the affairs of all partners are delegated to the manager without interference or monitoring on the part of the non-managing partners." Id. [(]citing Silverstein v. Last, 156 N.J.Super. 145, 152 (App. Div. 1978)[)]. The [p]laintiffs are bearing the financial burden of a [g]eneral [p]artner with the unrepresentative title of [l]imited [p]artner.

The present appeal followed. On appeal, defendants raise the following points for our consideration:

POINT I[1]
BASED ON THE RECORD[, ] EVIDENCE[, ] FINDINGS AND DECISION IN THE TRIAL COURT'S OPINION DATED JULY 23, 2009, THE DENIAL OF THE DEFENDANTS' MOTION TO DISMISS THE PLAINTIFF[S'] CLAIM FOR AN ORDER COMPELLING THE DEFENDANTS TO FILE AMENDED PARTNERSHIP DOCUMENTATION UNDER COUNT I AND A DISTRIBUTION UNDER COUNT III WAS CLEAR ERROR, REQUIRING REVERSAL.
2. THE RECORD EVIDENCE AND THE JULY 23, 2009 OPINION UNEQUIVOCALLY RESOLVED THE ISSUE OF WHETHER THE PLAINTIFF WAS ENTITLED TO AN ORDER COMPELLING THE FILING OF CERTAIN PARTNERSHIP DOCUMENTATION AND A DISTRIBUTION IN THE NEGATIVE, REQUIRING DISMISSAL OF THE CLAIMS.
POINT II
BASED ON THE RECORD, EVIDENCE[, ] FINDINGS AND DECISION IN THE TRIAL COURT'S OPINION DATED JULY 23, 2009, THE DENIAL OF THE DEFENDANTS' CROSS[-]MOTION FOR SUMMARY JUDGMENT WAS CLEAR ERROR, REQUIRING REVERSAL.
2. THE DEFENDANTS WERE ENTITLED TO JUDGMENT AS A MATTER OF LAW ON ALL THREE COUNTS OF THE COMPLAINT BECAUSE THE RELIEF SOUGHT THEREIN WAS MOOT OR OTHERWISE ALREADY DENIED BY THE TRIAL COURT.
a. AN AMENDMENT TO THE 1996 LP AGREEMENT HAD BEEN FILED.
b. HUGHES HAD BEEN GIVEN UNFETTERED ACCESS TO THE PARTNERSHIP'S BUSINESS FINANCIAL RECORDS AND ACCOUNTING INFORMATION.
c. THE PLAINTIFF WAS NOT ENTITLED TO A DISTRIBUTION OF CERTAIN PROFITS.
i. THE 1996 LP AGREEMENT AND AMENDED PARTNERSHIP AGREEMENT GIVE THE GENERAL PARTNER THE AUTHORITY AND DISCRETION TO CREATE A RESERVE ACCOUNT FROM ALLOCATED BUT UNDISTRIBUTED PROFITS PARTICULARLY WHEN, AS HERE, A DISPARITY EXISTS BETWEEN THE LIMITED PARTNERS.
POINT III
BASED ON THE RECORD, EVIDENCE[, ] FINDINGS AND DECISION IN THE TRIAL COURT'S OPINION DATED JULY 23, 2009, THE GRANT OF THE PLAINTIFF[S'] MOTION FOR RECONSIDERATION WAS AN ABUSE OF DISCRETION, REQUIRING REVERSAL.
2. THE FACT THERE WAS A REFINANCING IS NOT A BASIS FOR RECONSIDERATION.

We have considered the arguments advanced in light of the record, the briefs submitted, arguments of counsel, and governing legal principles. We reject each of the points advanced. Moreover, because we conclude plaintiffs were entitled to summary judgment as a matter of law, we need not address defendants' contention the court committed reversible error by denying their motion to dismiss and their cross-motion for summary judgment.

I.

Defendants argue the trial court abused its discretion in granting plaintiffs' motion for reconsideration because the only additional evidence brought before the trial court was evidence of the refinancing, a fact known to plaintiffs since June 2011 and which was not in any way material to the court's prior decision nor a basis for reconsideration because loan refinancing merely substituted one lender for another. Additionally, defendants argue they continue to guarantee the bank debts, and the disparity the court recognized in its July 23, 2009 written decision continues among the limited partners.

The decision to grant or deny a motion for reconsideration is addressed to the motion judge's sound discretion. Fusco v. Bd. of Educ. of Newark, 349 N.J.Super. 455, 462 (App. Div.), certif. denied, 174 N.J. 544 (2002); D'Atria v. D'Atria, 242 N.J.Super. 392, 401 (Ch. Div. 1990). "Motions for reconsideration are granted only under very narrow circumstances[.]" Fusco, supra, 349 N.J.Super. at 462. Reconsideration is reserved for those cases where "either (l) the [c]ourt has expressed its decision based upon a palpably incorrect or irrational basis, or (2) it is obvious that the [c]ourt either did not consider, or failed to appreciate the significance of probative, competent evidence." Ibid. (quotation and citations omitted).

Alternatively, if a litigant wishes to bring new or additional information to the [c]ourt's attention which it could not have provided on the first application, the [c]ourt should, in the interest of justice (and in the exercise of sound discretion), consider the evidence. Nevertheless, motion practice must come to an end at some point, and if repetitive bites at the apple are allowed, the core will swiftly sour.
[Cummings v. Bahr, 295 N.J.Super. 374, 384 (App. Div. 1996) (citations omitted).]

We are satisfied Judge Hogan did not abuse his discretion in granting plaintiffs' motion for reconsideration. It is undisputed that there was no evidence before the court that plaintiffs were aware of defendants' refinancing efforts prior to June 2011. Nor is it disputed that defendants failed to advise the court of the refinancing efforts while the motions were pending. Of greater significance, however, was the fact that the refinancing plan did not require the limited partners to execute loan guarantees. Had defendants' refinancing efforts and the terms of the refinancing been known to the court prior to reaching its decision, this new development would have impacted the court's decision, as it subsequently did.

II.

"An appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court[.]" Chance v. McCann, 405 N.J.Super. 547, 563 (App. Div. 2009); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J.Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). The court must first determine whether the moving party has demonstrated that there is no genuine dispute as to any material fact; if there is none, the court next decides whether the motion judge correctly applied the law. Atl. Mut. Ins. Co. v. Hillside Bottling Co., Inc., 387 N.J.Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104 (2006). In making this determination, the court must view the evidence in a light most favorable to the non-moving party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). "Only when the evidence is utterly one-sided may a judge decide that a party should prevail as a matter of law." Posey v. Bordentown Sewerage Auth., 171 N.J. 172, 188 (2002) (quotations and citations omitted).

A.

As to Counts I and II of the complaint seeking to compel defendants to file an amendment to the Certificate and Agreement of Limited Partnership of Sunset/Salem, LP reflecting the admission of Hughes and others as limited partners and to provide an accounting as to the partnership business, these issues are moot as defendants have already performed the actions requested. Defendants filed an amendment to the Certificate of Limited Partnership on May 14, 2009, and have provided an accounting to plaintiffs. We are satisfied the original issues challenged on appeal have been resolved, rendering the matter moot and any decision on the merits of no practical effect. See DeVesa v. Dorsey, 134 N.J. 420, 428 (1993) (holding that courts generally refrain from rendering advisory opinions or exercising jurisdiction in the abstract); Oxfeld v. N.J. State Bd. Of Educ., 68 N.J. 301, 303-04 (1975) (recognizing it is firmly established that controversies which have become moot or academic prior to judicial resolution ordinarily will be dismissed).

B.

Turning to Count III, in which plaintiffs, among other relief, sought distribution of their share of the partnership distributions transferred to the cash reserve account, "relations among the partners and between the partners and the partnership are governed by the partnership agreement." N.J.S.A. 42:2A-5(i). It is well settled that where a partnership agreement does not fully address the relationship between and among the partners, the Uniform Limited Partnership Act, N.J.S.A. 42:2A-1 to -73, governs. See Estate of Cohen, ex rel Perelman v. Booth Computers, 421 N.J.Super. 134, 156 (App. Div.), certif. denied, 208 N.J. 370 (2011); see also N.J.S.A. 42:1A-4.

As Judge Hogan noted, the transfer of the partnership distributions to the cash reserve account was the "crux of the case." It is undisputed that plaintiffs were the only limited partners whose distributions were being withheld. Both the Original Partnership Agreement and the Amended Partnership Agreement contemplated the creation of a cash reserve and conferred upon the general partner power to create a cash reserve account. However, although the general partner was authorized to create the underlying cash reserve account, this power was, at all times, subject "to the other provisions of [the] agreement . . . and the requirements of the applicable law". In that regard, Section 2.4 of the Original Partnership Agreement provides:

The liability of each [l]imited [p]artner, as such, shall be limited to the amount of capital contributions to the [p]artnership which he or she has made and/ or has agreed to make in accordance with, and subject to, the provisions of this Article . . . . No [l]imited [p]artner shall have any further obligation to contribute other monies to or in respect of liabilities or other obligations of the [p]artnership except as agreed upon, nor shall any [l]imited [p]artner be personally liable for any liability or other obligation of the [p]artnership or any other limited partner.

The Amended Partnership Agreement similarly provides "[n]o [l]imited [p]artner shall be required to contribute any additional capital to the Company" and reiterates that "[a] [l]imited [p]artner shall not be personally liable for any debts or losses of the Company beyond the [l]imited [p]artner's respective capital contributions[.]" Section 4.1(b) of the Original Partnership Agreement provides "no [l]imited [p]artner shall have priority over any other [l]imited [p]artner with respect to any right or duty contained in this Agreement." Section 6(d) of the Amended Partnership Agreement reiterates "[n]o [l]imited [p]artner shall have priority over any other [l]imited [p]artner either for the return of capital contributions or for distributions or allocations of profits or losses[.]"

Thus, a cash reserve funded solely from plaintiffs' distributions is contrary to the Original and Amended Partnership Agreements. The fact that defendants, prior to plaintiffs' admission into the limited partnership, personally guaranteed a loan to the partnership did not authorize defendants to force plaintiffs to do the same, even if the absence of a similar guarantee from plaintiffs created a "disparity" between the limited partners. Section 4.1 of the Original Partnership Agreement speaks to equality between the limited partners with respect to any "right or duty" contained in the agreement. However, neither the Original nor Amended Partnership Agreements required limited partners to personally guarantee a partnership loan. On the other hand, receipt of partnership distributions is a right under both agreements. In withholding distributions from plaintiffs only, and not from the other limited partners, defendants violated Section 6(d) of the Amended Partnership Agreement and Section 4.1(b) of the Original Partnership Agreement which prohibit one limited partner from having priority over another. Consequently, plaintiffs were entitled to summary judgment as a matter of law on Count III.

Affirmed.


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