Opinion
No. CV 02-0471482 S
October 15, 2004
MEMORANDUM OF DECISION CONCERNING PAYMENT OF WINDUP EXPENSES
This case involves the dissolution of a partnership and disputes that have arisen during the windup process. Pursuant to § 34-374 of the general statutes a court can order and thus provide for judicial supervision of the windup of a partnership's business. Basically what is involved is the right of the court to provide equitable relief; this would include an accounting, the ability of the court to settle in one suit the rights and duties of the parties, cf Marucca v. Phillips, 139 Conn. 79, 8 (1952). It is also true that the "fiduciary obligation of partners to act with the utmost and candor and good faith in their dealings between themselves is not lessened by the existence of strained relations between them or the existence of any condition which may justify the firm's dissolution" Shuster v. Lyons, 1997 WL 472419. These principles would also apply to the actual windup which would necessarily include addressing partnership debts and obligations. Unless the latter are dealt with and the court has power to order payment of certain debts or reimbursement of partners who have met partnership obligations it is difficult to see how the court could conduct the windup of partnership affairs including the ultimate task of supervising the distribution of partnership assets. Also insofar as valid and uncontestable partnership obligations and debts are involved equity would seem to require these items be paid upon court order during the windup process if the economic waste of litigation by outside parties and such things as accruing interest charges and penalties, governmental or otherwise are to be avoided. All of this being the case it would also seem that as to such debts reimbursement of partners who have paid them is justified — why would it not be, considering ongoing fiduciary obligations even while the windup process is going on? Also such a position would encourage prompt payment of partnership obligations while a dispute over partnership assets exists. On the other hand it should be kept in mind that ". . . mere disagreement between partners with equal managerial rights is not a breach of fiduciary duty . . . each partner has a right to evaluate partnership business decisions and all partners, when there is a disagreement, have a fiduciary duty to each other — the duty cannot run solely to the partner proposing the particular course of action over which there is a dispute," Shuster v. Lyons, supra.
Several months ago the plaintiff filed a motion for the court to order the payment of certain partnership expenses which he alleged was required as part of the windup process. It was alleged that the defendant had refused to consent to the payments or cosign checks in payment. Several supplemental motions have been filed since the initial February 2003 motion. Hearings began and since then the defendant has agreed to certain payments; in fact there are only six items now in dispute. To date $81,315 has been paid out through this process. The unresolved items amount to $63,178 of which $39,054.73 represent claims for reimbursement by the plaintiff for amounts he personally paid for windup expenses. The court will review each of the remaining items in dispute.
1.
A bill from the law firm of Wiggin Dana in the amount of $7135.35 is at issue. Both sides agree that decision on this payment should be deferred.
2.
There is a bill in the amount of $11,025 asking for reimbursement to the plaintiff for amounts he paid to accountants for preparing partnership tax returns. The defendant already agreed to pay a certain portion of the fee owed to the accountant, Bailey, Shaffer and Errato. There is no dispute that the remainder of this bill which was paid by Mr. Gailey was for services provided to the partnership relative to preparation of tax returns. It is difficult to see why, at this point, the plaintiff shouldn't be reimbursed for payment for the same type of work for the partnership Mr. Tibbetts already has agreed should be paid.
A problem arises because in an August 10, 2004 document entitled "Status of Motions for Payment" and filed by the plaintiff the remainder of the Errato bill was not listed. It was only in an amended August 24th document that the plaintiff corrected this inadvertent error. But the parties' briefs were due August 25th and Mr. Tibbetts understandably thought this claim was being withdrawn since he only had the August 10, 2004 document to which to respond. Therefore I will allow Mr. Tibbetts seven days from the date of this opinion to respond to the Errato claim. If he does not respond I will proceed to decide this particular claim.
3.
The plaintiff makes a claim for $20,029.73 for dues he paid in behalf of the partnership to the Juniper Point Association. There seems to be no question that such dues had to be paid and that if the dues were not paid interest would be owing. Also because of the fact that dues were not paid a foreclosure action was filed by the Juniper Point Association.
There does not seem to be any dispute that dues that were actually owing, were a partnership obligation, and that it was advisable to pay them in light of mounting interest charges the foreclosure action, and the possibility that new lots could not be sold if the back dues were not paid.
Mr. Tibbetts' objection to reimbursing Mr. Gailey for his payment of any dues substantively seems to be based on two grounds (1) that the dues were not properly owing and somehow the Juniper Point Association demand was based on an improper audit and did not encompass the right time frame; and (2) some of the dues were for Lot 5 which is owned by Barbara Gailey and not the Zalia Group.
One of the problems faced by the court is that Mr. Tibbetts did not himself testify and on several issues in dispute did not present evidence. The court cannot rely on mere argument or the content of questions asked by a party which do not elicit the desired for answer. The court told Mr. Tibbetts that he could testify if he wished to on this issue but Mr. Tibbetts declined to do so and merely said that he thought the court had all the necessary information "for the most part," see August 3, 2004 transcript at pages 24-27.
The court will now try to deal with the various issues raised by Mr. Tibbetts. As to the claim regarding lot 5 even if it were established that the partnership did not owe dues on that lot through evidence, the demand for dues payment from the association Treasurer was for $20,854.13. The total dues claimed to be owing for lot 5 was only $616.28. (See Exhibit 4.)
As to the claim that the Juniper Point Association miscalculated the dues that were owing the court cannot speculate as to whether this was true in the absence of evidence. The partnership was represented by an attorney regarding the association's claims and finds it hard to believe Mr. Gailey would pay these expenses out of his own resources without ascertaining if the dues were actually owing. There was also some testimony from Mr. Gailey that the dues were audited on June of 1999. Also there seems to be a recognition that some dues were in fact owed to the association so that the foreclosure action had some merit in any event. If Mr. Tibbetts had objection to the amount of dues being claimed it behooved him as a partner to make this information available to his fellow partner and the attorney for the partnership. Mr. Gailey indicated the reasons Mr. Tibbetts had for not authorizing payment of the dues were never explained to him and the court heard no evidence to the contrary.
Mr. Tibbetts also seems to suggest that perhaps the dues were not in fact paid by Mr. Gailey and the court should make sure that all checks cleared. Copies of the checks have been introduced into evidence but they do lack the back portion which indicates bank activity. However, Mr. Gailey indicates he paid the dues by check and frankly both he and Mr. Tibbetts struck the court as being honest individuals despite their business differences and disputes about the interpretation of the agreement. Also it seems undisputed that a foreclosure suit was brought by the association but there was uncontradicted testimony that it was either settled or is being held in abeyance.
As to this claim and several of the claims by the plaintiff, the defendant asks the court to examine the current financial status of the partnership "to make sure there is money to run the Zalia group during the windup period." But no reason has been offered by the defendant as to why this is necessary. In fact, as noted, since hearings first began in the beginning of the year the court has ordered or Mr. Tibbetts has agreed to pay over $80,000 of amount claimed by the plaintiff that should be paid and this concern to the court's memory was never raised before the filing of the briefs or as noted by reference to any evidence. Mr. Gailey should be reimbursed for Juniper Point Association dues paid by him minus $616.28 for lot 5.
4.
There is no dispute that a nature trial was a condition of subdivision approval. Because of tidal wetland and ADA considerations it became necessary to move its path. Fill to do this would have cost $50,000. The plaintiff claims that an opportunity arose to save the partnership $25,000 by paying the Juniper Point Association $25,000 if they did the necessary work. As part of the "deal" the association agreed to furnish Zalia with a general release for all work required of Zalia on the portion of the property which involved the nature trial.
Mr. Gailey paid $8000 to hold the "deal" in place and association members paid $17,000 so work could begin. Now the plaintiff requests that he be reimbursed for the $8000 and that the court should order $17,000 to be paid to the association contingent upon the receipt of a "general release regarding land improvement on the eastern part of the property that (the association) previously offered and that was approved by Attorney Dowley," (the partnership lawyer).
The court has read Mr. Gailey's testimony on this matter and would make the general observation that it is true that partners have fiduciary obligations to each other during the windup period and a court must order certain disbursement during that period regarding clearly owed obligations such as tax payments which if not paid could lead to heavy interest changes and penalties or obligations to third parties such as the dues involved here which if not satisfied could lead to litigation and the possible cessation of partnership operations. But as to other more general partnership obligations as to which failure to comply with will not have necessarily immediate consequences, the court has to be absolutely sure that pay out of partnership funds before final settlement is absolutely necessary in the general interests of the partnership. In other words the court has not the slightest doubt that Mr. Gailey paid out this $8000 in good faith and in the belief that may prove to be well founded, that his doing so helped preserve an arrangement that would save the partnership a sizeable amount of money. However, the court has concerns which are underlined in the following exchange in the August 3, 2004 transcript at page 35.
The Court: So in other words, the balance they're claiming is owed is $17,000 and Mr. Gailey already paid $8000. CT Page 15347
Mr. Engelman: Yeah, but it's complicated because of the fact that the release has not been delivered and now we have to revisit the issue. So, that may not be an issue that can be resolved until final settlement.
Without the releases the proposed deal may be worthless to the partnership, or alternatives may present themselves. It would not seem appropriate to order the disbursement of partnership funds, at least at this juncture, for payments made by individual partners even though made in good faith, or to cement a "deal" by added outlays which may not ultimately benefit the partnership. From Attorney Engelman's comments as quoted and expanded on at this page of the transcript the court is not even left with the impression that time is even of the essence and that the proposed deal even if it were to go through eventually with releases, would be lost if the matter was not addressed until final settlement. The court at this point will not order the $8000 reimbursement or the payment of $17,000 to the association all in regards to the nature trial.
The foregoing addresses all the windup expenses being claimed at this point.
Although the defendant has not explicitly raised the issue in his brief, the court is not persuaded that the language of the so-called March 27, 1997 amendment should preclude reimbursing Mr. Gailey for the payment of partnership obligations during the windup process. It provides that "funds provided to the partnership by any partner after January 1, 1996 shall be deemed to be a capital contribution." A hypertechnical analysis would say that Gailey in making these payouts was not providing funds to the partnership but to entities who had a claim against the partnership. More practically fiduciary obligations of various sorts exist during the windup process. Because equity powers are being exercised it seems, at least to the court, that a provision such as this amendment should not be interpreted in such a way as to discourage partners from personally meeting partnership obligations during the windup process which might cause the partnership financial harm if not met. This is especially true when the breakdown of the partnership relationship prevents payment of such obligations by agreement. The court, however, in so ruling is not in any way concluding at this point that the amendment should have no force and effect in other proceedings and as to other issues involved in this case.
Corradino, J.