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Tully v. Mirz

Superior Court of New Jersey, Appellate Division

November 29, 2018

RICHARD W. TULLY, JR., Plaintiff-Appellant,
v.
PETER MIRZ, Defendant-Respondent.

          Submitted October 16, 2018

          On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5951-16.

          Philip E. Mazur, attorney for appellant.

          The Weinstein Group, PC, attorneys for respondent (Lloyd J. Weinstein, on the brief).

          Before Judges Fisher, Hoffman and Geiger.

          OPINION

          GEIGER, J.A.D.

         Plaintiff Richard W. Tully, Jr. and defendant Peter Mirz were the sole shareholders of a closely-held corporation they jointly started known as Interstate Fire Protection, Inc. (IFP). Plaintiff and defendant, who are brothers-in-law, did not initially sign a written agreement stating how profits and losses would be shared, though for the first five years of the business they took an equal salary. When IFP began experiencing financial difficulties, plaintiff contributed significant funds to pay its expenses. Eventually, IFP defaulted on a loan from TD Bank, N.A., and judgment was entered against it in the State of New York.

         After the parties were unable to reach an agreement concerning their respective contributions to IFP's debts, plaintiff filed suit to recover fifty-percent of the "substantial contributions" he and his other company made to IFP to cover its shortfalls. Plaintiff appeals from an August 28, 2017 order dismissing his complaint against defendant without prejudice following a one-day bench trial. For the following reasons, we affirm in part and reverse and remand in part.

         In 2005, plaintiff and defendant formed IFP, a fire protection contractor serving primarily commercial customers, as a partnership. Two years later they incorporated the business in New York. Each party made an initial $35, 000 investment in IFP, and were paid equal salaries during IFP's first five years.

         The parties did not initially enter into a written agreement as to how IFP losses would be shared individually. However, they eventually entered into a Shareholders-Partners Agreement (Agreement) on January 15, 2009.[1] Under the Agreement, plaintiff and defendant are equally responsible for IFP's liabilities, "unless the losses are occasioned by the willful neglect or default, and not the mere mistake or error, of any of the parties."

         Plaintiff had substantial prior experience in the construction industry and had previously formed Interstate Mechanical Services, Inc. (IMS), which provided HVAC-related mechanical contracting services to its clients. Plaintiff brought his name, reputation, and client contacts to IFP. He continued to own and operate IMS in conjunction with IFP. Defendant had no role in IMS.

         Defendant worked in the fire protection field prior to forming IFP, and was licensed to perform that trade, but had no prior experience owning a business. Defendant was responsible for running IFP's day-to-day operations.

         In 2008, IFP received a $250, 000 line of credit from TD Bank. The line of credit was later increased to $750, 000. However, financial difficulties eventually led the parties to reduce IFP's line of credit to $450, 000 in 2011. Plaintiff, defendant, and IMS each guaranteed repayment of the line of credit when it was initially opened and each time it was modified.

         IFP's financial difficulties led it to default on its obligation to TD Bank. Plaintiff alleges IFP's financial difficulties were caused by defendant's mismanagement and willful neglect, including failure to estimate projects properly and failure to properly mobilize and coordinate IFP's forces. On January 7, 2015, TD Bank filed a collection action against IFP, IMS, plaintiff, and defendant in the Supreme Court of New York, and in April 2016, secured a judgment in the amount of $530, 687.40 plus statutory interest (IFP judgment).

         Although the IFP judgment held the debtors jointly and severally liable, plaintiff and IMS entered into a settlement agreement with TD Bank, which discharged them from the obligation in exchange for payment of $300, 000. Plaintiff and IMS performed and were formally released on October 20, 2016. Defendant and IFP remained liable to TD Bank for the remaining balance of $226, 469.40. TD Bank receives payment from defendant through a wage garnishment.

         Plaintiff alleges he and IMS extended loans to IFP, or made payments on its behalf, for which they expected to be repaid by IFP. Although payment has been demanded, it has not been remitted.

         Plaintiff also alleges that in 2012, defendant sold the assets of IFP to Pace Plumbing Corp. without fully disclosing the terms of the sale to plaintiff, or by misrepresenting the terms of the sale. These claims were withdrawn by plaintiff during the bench trial.

         Plaintiff also alleges defendant misappropriated IFP funds by falsifying the time sheets of former IFP employee James Gould in an alleged kickback scheme wherein Gould was paid for overtime he did not perform, with the unearned income being applied to the debt defendant owed Gould on a personal loan from 2010. Plaintiff further alleges defendant converted IFP funds through Gould's bank account in 2012. Finally, plaintiff alleges defendant misused IFP funds for personal expenses, such as excessive payments for company vehicles that were used personally by defendant.

         Plaintiff filed a six-count Chancery action against defendant alleging: breach of fiduciary trust (count I); breach of contract (count II); mismanagement (count III); breach of the covenant of good faith and fair dealing (count IV); conversion (count V); and fraud (count VI). Plaintiff demanded judgment against defendant: (1) compelling repayment to IFP of monies wrongfully converted by defendant or compelling defendant to repay to plaintiff his proportionate share; (2) compelling repayment of loans made to IFP or payments made on its behalf or compelling defendant to repay to plaintiff his proportionate share; (3) compelling defendant to comply with all obligations imposed by the Agreement, including ...


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