MAS Associates v. Korotki

MAS Associates, LLC, et al. v. Harry S. Korotki, No. 57, September Term, 2018, Opinion by Adkins, J. CORPORATIONS AND ASSOCIATIONS – PARTNERSHIPS – INTENT TO FORM A PARTNERSHIP – COMPETENT MATERIAL EVIDENCE: The party asserting the existence of a partnership bears the burden of producing sufficient facts to conclusively demonstrate the parties’ intent to form a partnership. See Miller v. Salabes, 225 Md. 53, 55 (1961). Intent can be explicit or based on the parties’ conduct and the surrounding circumstances. Sharing profits and losses, equal management authority, making capital contributions, and whether the parties were concurrently seeking to form another type of business entity can all be factors the courts consider when evaluating intent.

Here, the trial court made an error of law when it concluded that Harry Korotki’s $275,000 in payments to Saralee Greenberg were capital contributions for a new entity, and to the extent that it applied a presumption of partnership based on receipt of profits, it also made an error of law. As for the other factors and evidence, taken together, the record lacks competent material evidence to conclude the parties formed a partnership and the trial court was clearly erroneous in concluding that they did. Circuit Court for Baltimore County Case No.: 03-C-11-010759 Argued: March 1, 2019 IN THE COURT OF APPEALS OF MARYLAND No. 57 September Term, 2018 MAS ASSOCIATES, LLC, et al. v. HARRY S. KOROTKI Barbera, C.J. *Greene McDonald Watts Hotten Getty, Adkins, Sally D., (Senior Judge, Specially Assigned) JJ. Opinion by Adkins, J. Filed: August 8, 2019 *Greene, J., now retired, participated in the hearing and conference of this case while an Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. active member of this Court; after being recalled pursuant to the MD.

Constitution, Article IV, 2019-10-01 09:51-04:00 Section 3A, he also participated in the decision and adoption of this opinion. Suzanne C. Johnson, Clerk Those who run small businesses must engage in the complex concerns competing for attention that will affect the bottom line. They have little time to focus on the legal structure of their business entity, and often even less interest in doing so. But the need for clarity regarding legal structure and financial relations between parties can become acute, and business people who ignore these needs live to regret ignoring their lawyer’s advice.

This case can be viewed as either a business lawyer’s nightmare—or a poster child for such lawyer’s public relations messaging. Today we examine the dealings of three men engaged in mortgage lending who, after initially recognizing the need for legal structure in their business relationship, failed to consummate plans for acquiring membership interests in a long-existing Limited Liability Company—and the unfortunate fall-out from that failure. The question presented is whether competent material evidence exists in the record to support the trial court’s conclusion that the parties intended to form a general partnership.1 We conclude that the evidence cannot sustain the simultaneous intent to form both an LLC and a partnership, and Respondent failed to provide competent material evidence demonstrating intent to form a partnership. Thus, we reverse the trial court’s determination. 1 We have slightly rephrased the question presented from the precise question granted: “Did the trial court misinterpret and misapply the Revised Uniform Partnership Act, in conflict with the LLC Act, by creating a partnership among three non-member employees of a longstanding LLC after their attempts to negotiate an amendment to the LLC’s 2004 Operating Agreement with its members failed?” FACTUAL OVERVIEW AND PROCEDURAL POSTURE Factual Background Three Separate Entities Harry Korotki (“Harry”),2 the plaintiff in the trial court, has worked in the mortgage industry in various capacities since 1991.

In 1999, after the company he worked for suffered a “financial crisis,” Harry had to “start over” and opened Savings First Mortgage, LLC with another individual. In 2002, this individual dissociated from Savings First, and Harry became the sole owner. By 2009, business was “very challenged,” with banks “not as liberal with [credit] lines,” which resulted in it becoming more difficult for “loan officers to go out and sell loans,” and thereby negatively impacting profitability. Joel Wax (“Joel”), a defendant in the trial court proceeding, was the sole owner of Greentree Mortgage Corporation.

Greentree also experienced “economic difficulties” beginning around 2009. Mark Greenberg (“Mark”), also a defendant, had also been in the mortgage industry for a significant amount of time. In 1999, after working for various other mortgage companies, Mark and his wife, Saralee Greenberg (“Saralee”), started MAS Associates, LLC (“MAS”). Saralee became a member of MAS, with a controlling 91% share of interest, and Mark became the manager and CEO and held no ownership interest.

MAS was involved in three different lines of business: originating home purchase and 2 In their briefs, the parties have referred to each other using first names only. For the sake of consistency and clarity, we do the same. 2 refinancing loans, selling home improvement loans, and servicing high-risk loans. MAS was also struggling with business losses in 2009. Initial Conversations About Combining Entities In August 2009, with both of their businesses losing money, Harry and Joel engaged in negotiations with the intent to merge their companies and increase profitability.

At one point, Joel mentioned drafting a “partnership agreement” and it seems the parties anticipated sharing profits, with Harry stating that “50% of what we can generate together is a whole lot more money that [sic] 100% of what we are making individually.” During these conversations, Joel also stated that, “as partners,” he “agree[d] that everything should be equitable.” Nevertheless, Harry and Joel’s planned merger was put on hold when, in September 2009, Ken Venick (“Ken”), a member of MAS Associates, LLC who held a 9% share of interest, and Mark, expressed interest in “getting involved” in the merger. While Saralee never authorized Mark to sign for her regarding ownership decisions nor did she give him power of attorney, he “represented [her] full interests” in the management of MAS. Under this newly proposed scenario, it was suggested that Equity Mortgage Lending, a registered tradename for MAS Associates, LLC, was the optimal entity for “everyone to fall into . . . .” The parties concluded that Equity Mortgage Lending was the ideal surviving entity because it had a “good track record” in the industry and fewer “legacy liabilities.” The four men then embarked anew on discussions regarding how their three companies might sensibly “merge as one business” and the potential ramifications of such an action. A September 30, 2009 letter from Gordon, Feinblatt, Rothman, Hoffberger & 3 Hollander, LLC (“Gordon Feinblatt”), a law firm serving as “regulatory counsel” to all three entities, described this plan as one “to join forces and establish a business together in some to-be-determined manner.” As part of this initial effort, Harry sent an October 1, 2009 email to a large mortgage loan originator seeking to apply for a warehouse credit line3 for Equity Mortgage Lending.

Harry characterized his interest in this new association as being a “[one-third] owner along with two other partners.” Attempt to Become Members of MAS Associates, LLC Harry, Joel, and Mark held a meeting on October 13, 2009 to discuss their proposed business structure. They were joined by Elliott Cowan (“Cowan”) and Marjorie Corwin (“Corwin”), the regulatory attorneys from Gordon Feinblatt, who had taken on the task of creating a “neutral” draft of the parties’ business arrangement. After the meeting, Cowan prepared and circulated a summary of the meeting for review by Harry, Joel, Mark, and their personal legal representatives. This document represents the first unambiguous indication that Harry, Joel, and Mark intended to become members of MAS Associates, LLC, d/b/a Equity Mortgage Lending, replacing Saralee and diminishing Ken’s ownership percentage. 3 Warehouse lending is “a line of credit given to a loan originator.

The funds are used to pay for a mortgage that a borrower uses to purchase property.” Warehouse Lending, Investopedia (last updated May 23, 2019), https://www.investopedia.com/ terms/w/warehouse_lending.asp [archived at https://perma.cc/72VA-94YB]. “In warehouse lending, a bank handles the application and approval of a loan but obtains the funds for the loan from a warehouse lender.” Id. Thus, it is “a means for a bank or similar institution to provide funds to a borrower without using its capital.” Id. 4 During the meeting, the parties discussed the “goal” of ownership in MAS, and contemplated ownership percentages consisting of Harry at 33 1/3%, Joel at 33 1/3%, Mark at 30 1/3%, and Ken at 3%. Functionally, this would mean that Saralee, and to a lesser degree Ken, would transfer their interest in MAS to Mark, who would in turn transfer membership interest to Harry and Joel. The MAS Associates, LLC Amended and Restated Operating Agreement, adopted in April 2004 (“2004 Operating Agreement”), controlled the operation of MAS during this time.

According to Section 9.1 of the 2004 Operating Agreement, such a transfer required a majority vote of the members. The summary of the meeting indicated that the potential arrangement structured the deal into an “Interim Period” and a “Post-Interim Period.” During the Interim Period, Harry and Joel were to be “employees of the Company” subject to for-cause termination and “entitled to receive W-2 compensation equal to 1/3 of the profits of the ‘origination division’ of the Company . . . .” Their respective companies—i.e., Savings First and Greentree—were to be liquidated and their mortgage lending licenses surrendered. Significantly, the parties never discussed “what would happen if the conditions for Harry and Joel to obtain substantial ownership [were] not obtained by the end of the Interim Period.” According to Joel, the Interim Period was intended to be a time during which transitional issues, such as licensing and operations, could be ironed out. In November 2009, Equity Mortgage Lending arranged to purchase much of Savings First’s physical inventory.

The parties also made plans to combine staff, and, in December 2009, they moved under one roof. During this time, Saralee authorized Harry, Joel, and Mark to be signatories on five Equity Mortgage Lending bank accounts. The 5 Bank of America paperwork formalizing this transaction denotes Mark as MAS’s President and lists both Harry and Joel as Vice Presidents. Harry, Joel, and Mark also agreed to split the legal fees incurred as a result of combining their companies.

On November 25 and 27, 2009, Cowan emailed new drafts of the agreements to Harry, Joel, Mark, and their respective attorneys. The first document, which Cowan termed the “definitive agreement,” outlines the interim period, before Harry, Joel, and Mark were to become members. We will refer to this agreement as the Interim Agreement. The second document—which we term the Operating Agreement Outline—contemplates each of the parties’ obligations post-membership.

This draft of the Interim Agreement, similar to the provisions outlined in the initial meeting summary, provided that, as of November 30, 2009, Savings First and Greentree would surrender their licenses and discontinue originating loans and that Harry and Joel would be employees of the company for the “duration of the Approval Period.” Again, the agreement stated that Harry and Joel were “entitled to receive W-2 compensation”; “one- third (1/3) of the total economic benefits enjoyed in the aggregate by Mark, Saralee, Ken, Harry, and Joel”; equivalent benefits; and “commission splits on loan originations.” The nature of the parties’ relationship to MAS d/b/a Equity Mortgage Lending during this interim period is central to the litigation. Harry characterizes their association as a partnership. And it is true that, at various times via email and in other documents, the parties referred to each other as partners, and Harry’s description of the parties as partners regularly went unchallenged. Still, during his testimony, Joel described himself as an “employee of MAS Associates.” In fact, he understood that one of the reasons Harry and 6 he were employees, and not owners, was to prevent personal creditors from going after company assets.

Cowan also testified that it was his “understanding that Harry and Joel were to be employees during the interim period.” He stated that “the entire concept of the interim period was built around an employment relationship that[,] after the approvals were obtained and whatever other conditions there were[,] would change into a different relationship.”4 Each party was to make a $150,000 payment to Mark, who would then gift the $450,000 to Saralee, who would make a capital contribution to MAS d/b/a Equity Mortgage Lending in that amount. The 2004 Operating Agreement defines “capital contribution” as “the total amount of cash and the fair market value of any other assets of value contributed . . . to the Company by a Member . . . .” (Emphasis added.) Thus, Harry, Joel, and Mark, not being MAS members, could not make direct capital contributions under the terms of the operating agreement, making an indirect route necessary to complete such a transaction. The parties indeed made these payments, although not necessarily in the precise manner described above. On December 1, 2009, Cowan encouraged the parties to come to a final agreement by pressing them to meet.

He again circulated amendments to the final documents on December 15, 2009 and recommended that the parties finalize and sign each of the 4 A November 2010 warehouse credit line application to Consumers Bank lists Mark as the CEO of MAS and Harry and Joel as managers of the company. Neither Harry, Joel, nor Mark are listed as having any ownership interest. Harry was also listed as a MAS manager in the Nationwide Licensing System Consumer Access database, a national licensing system that tracks mortgage companies and loan officers. 7 documents by December 22, 2009. As of late-January 2010, no agreement had been reached and Ken’s attorney was still raising significant areas of disagreement between the parties.

In response to these comments, Mark’s attorney circulated amended agreements on January 20, 2010, stating that “so far as we are concerned, you may circulate all documents for signature.” On February 8, 2010, Cowan again circulated the most recent versions of the various agreements—including the Interim Agreement, the Operating Agreement Outline, and various indemnity agreements. Nevertheless, the documents remained unsigned.5 Harry testified that, after receiving the February 8 email from Cowan, Mark approached Harry and Joel to discuss setting the Interim Agreement “on the side” and focusing on the Operating Agreement Outline. Harry stated that “as of that date going forward we treated each other as owners and members.” Around this same time, the business began experiencing losses, and Harry testified that Joel, Mark, and he “agreed that [they] were in it for a third no matter what,” referring to potentially covering quarterly business shortfalls. During their testimony, Joel and Mark disputed the notion that the parties ever agreed to conduct themselves per the Operating Agreement Outline.

They claimed to have agreed to operate under the Interim Agreement until they were making enough money to pay for the lawyers to finish the Operating Agreement Outline. All agree 5 The only agreement that was ever signed between the parties was a lease agreement. Only Mark and Joel signed the lease—Joel as the owner of the property. Harry claims he did not know about this agreement until the present litigation. 8 that, over the course of the next several months, the parties looked for ways to “make [the business] work” by cutting overhead expenses and closing more loans.

After two months with no action on the matter, Cowan again emailed Harry, Joel, Mark, and their attorneys on April 13, 2010. Cowan stated that he wanted to “take this opportunity to urge everyone to finalize and sign the transaction documents.” He also presciently noted that in “the absence of signed documents, sorting out everyone’s respective rights and obligations will be very difficult, to say the least.” Harry testified that he was “not aware” of any action taken as a result of this email. Mark testified that the reason the Interim Agreement was never signed was because the business was not doing well, and the parties did not want to spend more money on attorney’s fees. Joel attributed the failure to finalize the Interim Agreement largely to Ken and his attorney.6 The warehouse lines persisted as a source of friction.

The parties seem to have intended to share exposure for these credit lines to some degree, but there was disagreement as to how to achieve equity. In late-October 2010, Harry emailed Mark and Joel to “remind” them that he could not “put [his] name on anything more than [one-third] of [a] [$]7.5 million” credit line. Again, in mid-November 2010, the parties had a conversation regarding another warehouse credit line. Via email, Harry once more expressed his discomfort with signing jointly and severally with Joel and Mark, as Harry believed this 6 Cowan speculated that the parties might have wanted “some passage of time” before signing the agreements because they worried that Harry’s creditors from Savings First might take action against him.

Mark disagreed with this characterization, as Harry’s issues had been resolved by April 2010. 9 would expose his greater assets to creditors. Harry stated that he would be willing to indemnify one-third of all business liabilities, but nothing more. Mark responded to Harry’s concerns by insisting that any “obligations need to be the same for all,” and reminded the parties that there must be “equity regarding potential liabilities or the structure can not be equal.” Joel characterized Harry’s refusal to co-sign the credit lines as “chang[ing] the game in the middle” by refusing to join the others in guaranteeing these lines. Still, the parties looked for a way around this issue by asking Harry to set aside sufficient assets as collateral for his one-third indemnity share, or alternatively finding a non-member ongoing role for Harry.

Cowan opined that, while it would be unusual for a typical employee to be expected to guarantee a line of credit, such a circumstance might not be unusual when that employee is expected to become an owner. By the end of June 2010, Equity Mortgage Lending had begun to turn a profit and the parties decided to begin drawing a salary of $10,000 per month each. Harry described this distribution as an “advance on year end profits.” Profits continued into the months of July, August, September, and October. At the end of the year, Harry, Joel, and Mark received W-2 forms from MAS.

Harry was paid a total of $325,552 in 2010—Harry characterized this amount as a combination of salary, various profit distributions, and commissions. Though there is some disagreement as to the details regarding the negotiations, it appears the parties eventually settled on a 25/12.5/12.5 percentage split for commissions—with the party originating the loan receiving the larger portion. The other half of the gross profit was paid to the company. 10 After the year-end distribution of commissions and other income, Harry and Joel agreed to each contribute an additional $125,000 to increase Equity Mortgage Lending’s net worth to $1,000,000. These payments were again paid to Saralee as a loan, who would in turn make a capital injection into the company in the same amount.7 The loans were to be paid back in 30 days, or at the completion of the audit for which the capital injection was made.

In a February 15, 2011 email, Harry requested to be reimbursed for this loan, and Mark replied that the parties needed to “sit down and discuss.” Harry explained that he agreed to allow the money to remain in the company and maintains that he still has not been repaid for his $275,000 in contributions. Yet, according to Mark, the parties made these loans “as managers” and he testified there was no agreement that the money would be paid back. Likewise, Joel thought of these loans as “the cost of admission” into the company. Promissory notes for these loans were drafted but never signed.

As of November 22, 2010, the parties still contemplated becoming members, or “owners,” of MAS and anticipated signing the Interim Agreement by the end of the year. In a December 10, 2010 email to Joel and Mark, Harry asserted that he had no problem signing the various agreements that had gone unsigned, but again brought up his dissatisfaction with the warehouse loans. In late-January 2011, Saralee, Ken, Joel, and Mark opened a $10 million warehouse line of credit. Once again, Harry refused to sign onto a joint-and-several obligation and only agreed to indemnify the parties for up to one- 7 The purpose of this multistep process appears to be so that MAS would not have to report the payments as liabilities and could instead count them as capital contributions from Saralee and part of the equity of the company. 11 third of the obligation.

Around this time, Harry began frequently missing work and other obligations, such as scheduled meetings with Joel and Mark. This made it difficult for the parties to make decisions about the business, especially regarding the warehouse line and potential indemnification agreements for Harry. Harry’s Resignation In March 2011, Harry resigned from his position with Equity Mortgage Lending. He indicated that this was pursuant to his doctor’s recommendation following months of mental health concerns, including depression and severe anxiety.

In an email dated March 20, 2011, Harry set forth an accounting of his requested compensation given his resignation—$275,000 reimbursement for loans paid to Saralee, commission from an in- progress loan closing, payment of health insurance premiums for two years, and, in the case of the sale of the company, 25% of the proceeds in year one and 15% in year two. He did not think it would be “fair” to ask for any additional cut of sale profits. Harry testified that he subsequently met with Joel and Mark, who agreed to repay the $275,000 in loans, but the terms of such a repayment remained unresolved. Harry spent the first half of April 2011 attempting to arrange a meeting with Joel and Mark to discuss the specifics of his departure.

Eventually, Harry became frustrated with their inability to meet, and, on April 13, he emailed Mark and Joel stating that he was “retracting” his initial offer and turning the issue “over to [his] attorneys.” Harry’s attorneys filed a complaint on October 28, 2011 in the Circuit Court for Baltimore County. While none of the agreements were ever signed, Joel and Mark both testified that they 12 ultimately signed an extension of the Interim Agreement before it was set to expire on November 30, 2012 and that it governed their conduct at the time of the hearing. Procedural Posture In his complaint, Harry raised multiple claims. Most relevant here, however, are his claims for breach of contract and his request for a declaratory judgment asking for, inter alia, a determination of “the buyout price of his partnership interest” and a demand that the partners pay such price.

The trial court first issued its opinion from the bench. Regarding the breach of contract claim, the court stated that there could be no breach because there was no contract. Specifically, the court held that “there was never any meeting of the minds as to either the interim agreement or the operating agreement.” Nonetheless, the trial court found that a partnership existed between the parties. It determined that the parties’ conduct “exhibited what a partnership is” when they made management decisions together and contributed money equally.

Consequently, the court awarded Harry $1,097,866—$793,000 base value, $260,712 in interest,8 and $44,154 for commissions without interest. In response to the defendants’ February 20, 2015 Motion to Alter, Amend, or Revise Judgment, the trial court attempted to clarify its ruling. The court stated that the partnership “consisted of the combined mortgaged [sic] lending business, which was equally operated and owned by” Harry, Joel, and Mark. Yet, it also stated that there was “substantial 8 The Circuit Court for Baltimore County later amended this award so that the ultimate interest paid would reflect a “rate of 10% per annum from the date of dissociation, March 10, 2011, until the date the payment is made.” 13 evidence” that the partnership comprised “(1) Mr. Greenberg, (2) Mr. Wax, (3) Mr. Korotki, and (4) MAS Associates, LLC.” It distinguished Harry, Joel, and Mark’s role from MAS’s role by stating that MAS provided its license in exchange for “rent, utility bills, and . . . additional funds necessary to operate the excluded businesses.” Mark and Joel appealed the decision to the Court of Special Appeals.

In an unreported opinion, the intermediate appellate court affirmed the trial court’s ruling, holding that Harry, Joel, and Mark “entered into a joint venture for the short period of time between not signing the Agreement, and when they could not agree on the terms of a merger, or sign a new interim agreement.” MAS Assocs., LLC v. Korotki, No. 228, Sept. Term 2015, 2018 WL 4575140 , at ²⁰ (Md. Ct. Spec. App. Sept. 21, 2018). Joel and Mark petitioned for certiorari in this Court, and we granted their petition. DISCUSSION Standard of Review Pursuant to Maryland Rule 8-131(c), “[w]hen an action has been tried without a jury, the appellate court will review the case on both the law and the evidence.” We will “not set aside the judgment of the trial court on the evidence unless clearly erroneous,” giving “due regard” to the trial court’s opportunity to “judge the credibility of the witnesses.” Id. “If any competent material evidence exists in support of the trial court's factual findings, those findings cannot be held to be clearly erroneous.” Webb v. Nowak, 433 Md. 666, 678 (2013) (citations omitted).

The “competent material evidence” standard has never required that the record lack even a modicum of evidence in support of the trial court’s finding, as a literal reading of the words might suggest. See Cassell v. Pfaifer, 243 14 Md. 447 , 454 (1996) (concluding that the evidence offered “lack[ed] that degree of substantiality which would require us to affirm the trial court” and the court’s factual finding was, therefore, clearly erroneous); Fuge v. Fuge, 146 Md. App. 142 , 180–82 (2002) (reversing a trial court’s factual conclusion that a father lacked the “ability” to contribute to his children’s private school tuition); Banks v. State, 8 Md. App. 182 , 186–87 (1969) (reversing a trial court’s factual conclusion where there was no “legally sufficient evidence” to support its determination). See also Clearly-Erroneous Standard, Black’s Law Dictionary (11th ed. 2019) (“Under this standard, a judgment will be upheld unless the appellate court is left with the firm conviction that an error has been committed.”). Rather, it is simply a highly deferential evidentiary review.9 The existence of a partnership based on the intent of the parties is an issue of fact, and, thus, it is reviewed using the clearly erroneous standard.

See Parkinson v. Parkinson, 42 Md. App. 650, 657 (1979) (“A determination as to the intention of the parties is a determination of fact, which an appellate court is not at liberty to set aside or ignore unless it concludes that the finding is clearly erroneous.”) (citation omitted). We review the evidence “in a light most favorable to the prevailing party.” Geo. Bert. Cropper, Inc. v. 9 This view is not only supported in our case law, but it is also the leading view in United States courts, most prominently articulated by the United States Supreme Court in United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948) (“A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.”).

This case was based on the Court’s interpretation of the clearly erroneous standard as outlined in Federal Rule of Civil Procedure 52(a)(6), which provides: “Findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.” 15 Wisterco Invests., Inc., 284 Md. 601, 620 (1979). Still, the party alleging that the parties intended to form a partnership has the burden of proving that intent. See Miller v. Salabes, 225 Md. 53, 55 (1961) (citations omitted). When a trial court decides legal questions or makes legal conclusions based on its factual findings, we review these determinations without deference to the trial court.

See Ins. Co. of N. Am. v. Miller, 362 Md. 361, 372 (2001) (citation omitted). “Where a case involves the application of Maryland statutory and case law, our Court must determine whether the lower court’s conclusions are legally correct under a de novo standard of review.” Spaw, LLC v. City of Annapolis, 452 Md. 314, 338 (2017) (citations omitted). Maryland Partnerships and Limited Liability Companies In Maryland, Limited Liability Companies are creatures of statute formed in accordance with the Limited Liability Company Act (“LLC Act”). See Maryland Code Ann. (1992, 2014 Repl.

Vol.), §§ 4A-101–1303 of the Corporations and Associations Article (“Corps. & Ass’ns”). The LLC Act was enacted to “give the maximum effect to the principles of freedom of contract and to the enforceability of operating agreements.” Id. § 4A-102(a). To form an LLC, parties must execute articles of organization and place them on file with the relevant Maryland department. Id. § 4A-202(a).

In practice, LLCs are governed by an operating agreement adopted by the members that specifies, inter alia, how the LLC shall be “managed, controlled, and operated”; how profits and losses are to be shared; rights of assignment; procedures for admission and dissociation of members; and meeting and voting procedures. Id. § 4A-402(a)(1)–(8). 16 The owners of an LLC are known as “members.” Id. § 4A-101(m). Individuals can become members of an LLC only in the manner specified in the operating agreement or in Corps. & Ass’ns § 4A-601. In general, LLCs are either “member-managed”—meaning that the members retain active management duties—or “manager-managed”—meaning that the members delegate management authority to a manager or group of managers who are employees of the LLC.

Unlike a partnership, no LLC member “shall be personally liable for the obligations of the [LLC], whether arising in contract, tort or otherwise, solely by reason of being a member” of the LLC. Id. § 4A-301. A partnership is another form of business association, defined as “the unincorporated association of two or more persons to carry on as co-owners a business for profit . . . .” Id. § 9A-202(a). The provisions of the Maryland Revised Uniform Partnership Act (“RUPA”) govern partnerships, unless these provisions are displaced in accordance with the title—typically through a written partnership agreement.

See id. § 9A- 104(a). Unlike LLCs, there are no formal requirements for the establishment of a partnership, as they can result whether the individuals expressly “intend[ed] to form a partnership and whether or not the association is called ‘partnership,’ ‘joint venture,’ or any other name.” Id. § 9A-202(a). Still, an “unincorporated association or entity created under a law other than” RUPA or another state’s partnership law “is not a partnership.” Id. § 9A-202(c). In the absence of formal agreement, “the existence of a partnership depends on the intent of the purported partners.” Christine Hurt, D. Gordon Smith, Alan R. Bromberg & Larry E. Ribstein, Bromberg & Ribstein on Partnership § 2.04[A], at 2-29 (2d ed. 2019). 17 “As between the parties[,] partnership is a matter of intention[,] to be proved by their express agreement or inferred from their acts and conduct.” Morgart v. Smouse, 103 Md. 463, 468 (1906).

See also Garner v. Garner, 31 Md. App. 641, 647 (1976) (“A partnership inter sese cannot exist against the consent and intention of the parties, and their intention must be gleaned from proof in the case.”) (citation omitted); Queen v. Schultz, 747 F.3d 879, 887 (D.C. Cir. 2014) (“Whether a partnership exists is an issue of fact, turning less on the presence or absence of legal essentials than on the intent of the parties gathered from their agreement, conduct, and the circumstances surrounding their transactions.”) (citation omitted). Again, “[t]he existence of a partnership will not be presumed, but must be proved, with the burden of proving such existence resting upon the party having the affirmative of that issue,” Miller, 225 Md. at 55 (internal citations omitted)—here, that means Harry. The evidence demonstrating partnership must “rise above surmise or speculation and reach the level of reasonable probability.” Geo. Bert.

Cropper, 284 Md. at 623 (citations omitted). The Court of Special Appeals, in Garner v. Garner, 31 Md. App. at 648–49, approvingly quoted the trial court stating “a partnership, like any other contract, requires mutuality, a meeting of the minds and agreement, and it requires definite terms and specific intent among other things . . . .” Such an agreement, however, need not be written. See id. at 647 . To determine whether a partnership was formed we observe the following rules: (1) joint tenancy or ownership of property “does not by itself establish a partnership”; (2) sharing “gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest” in the property generating the returns; and 18 (3) any person receiving “a share of the profits of a business is presumed to be a partner,” unless such share is received in the payment of debt, wages or services rendered, rent, annuity or benefit, interest on a loan, or sale of a business or property.

Corps. & Ass’ns § 9A-202(d)(1)–(3). Harry, Joel, and Mark’s Intent to Form a Partnership The trial court concluded that there was no enforceable written agreement and the parties do not challenge that determination here. Thus, we must decide, given the entirety of evidence produced at trial, whether there was competent material evidence for the trier of fact to fairly conclude that the parties formed a general partnership, according to Corps. & Ass’ns § 9A-202(a). As discussed above, this question is one of either overtly expressed intent, or actions that courts deem sufficient to establish such intent.

As a general matter, Joel and Mark argue that the trial court’s ruling conflates two distinct forms of business entities: LLCs and partnerships. They state that the court erred in ruling that a lawfully formed LLC could simultaneously be the vehicle for operating a separate unnamed “combined mortgage lending business” partnership. In other words, they maintain that the court ignored