Robinson v. Brodsky

McWilliams, J., delivered the opinion of the Court. One might say with reasonable accuracy that Penn Gardens Section Two v. Melnick, 256 Md. 72 , 259 A. 2d 520 (1969), was a harbinger of this case. If Penn Gardens presented, as it did, a tangled skein, then this dispute falls just short of being a veritable Gordian knot. The chancellor, Moore, J., like Alexander, cut through it all with an able and incisive opinion upon which we shall draw liberally and whose conclusions we shall affirm.

In November 1960 Brodsky, an employee of Robinson Land Brokers, Inc., and himself a licensed broker, negotiated the sale of 25 acres of land in Prince George’s ¹⁴ County to one Bernard Katz and as a consequence he became entitled to a $9,000 commission. Some months later when appellants, Robinson and Melnick, bought Katz’s interest in the contract of sale Brodsky became entitled to an additional $2,250. He was to receive his commissions when the closing took place in July 1961. He had been persuaded, however, by Robinson and Mel-nick to go along with them in the development of the land so they retained the money due him.

A month or so later Robinson, Melnick, Jerry Wolman and Nick Basiliko, contemplating the construction of about 550 apartments on the land, entered into the “Penn 500 Joint Venture Agreement.” Each of them was allotted a 25 percent interest therein. Wolman and Basiliko agreed that Robinson and Melnick could assign their interests to a limited partnership they intended to form in which they (Robinson and Melnick) would be general partners. A few weeks later the “Penn 500 Limited Partnership” was formed. The general partners named were Robinson and Melnick.

The agreement provided that “all other parties [t] hereto . . . [would] be limited partners.” Robinson and Melnick contributed their respective 25 percent interests in the “Penn 500 Joint Venture.” They each took a 40 percent interest in the Limited Partnership. The balance (20 percent) was apportioned among 24 limited partners whose cash contributions amounted to a total of $140,000, or $7,000 for each of the 20 percentage points. Oxenburg became a limited partner. He paid $14,000 for a two percent interest.

The agreement provided that a limited partner would not be liable for losses “in excess of the amount of his share of partnership capital.” Robinson and Melnick contributed additionally the principal and interest of deeds of trust ($270,000) which they had assumed in connection with the purchase of the land. Also they guaranteed the payment of interest at ¹⁵ six percent to the limited partners on the amount of their contributions. Robinson and Melnick assigned to Brodsky, out of their 80 percent, a six percent interest in the partnership. The 80 percent was then held 37 percent by Robinson, 37 percent by Melnick, and six percent by Brodsky.

They agreed also with Brodsky that he “would in no event be required to make any part of the payment of principal and interest on the deeds of trust ($270,000) and that the guaranty of interest to the limited partners would remain “strictly” their obligation. About seven months later Brodsky, being in need of cash, sold to Oxenburg, for $14,000, one-third of the six percent interest he had acquired from Robinson and Mel-nick, both of whom consented to the sale. Oxenburg was now a $14,000 limited partner and a two percent general sub-partner. Brodsky’s interest was reduced, correspondingly, to four percent.

Oxenburg thought at the time, mistakenly of course, that he was increasing his interest as a limited partner. The Joint Venture built 276 apartment units in Section 1 and 323 units in Section 2. Public response, alas, was considerably less than enthusiastic; so much so that in mid-1963 about one-third of the units were vacant. Efforts to find a buyer for the project were unsuccessful.

Eventually a “sale and lease-back” arrangement was negotiated as a result of which the Limited Partnership realized proceeds slightly in excess of $465,000 in cash, $97,000 of which was distributable to the limited partners. The amount distributable to the general partners was $367,959.48. Oxenburg was paid his original contribution ($14,000), as were the other limited partners. Neither Brodsky nor Oxenburg, however, was paid any part of the $367,959.48.

Robinson and Melnick seem to have pocketed it but to what use it was put is not clear. There was testimony that they offered Brodsky $2,737.48, and that they offered Oxenburg $14,000 provided he could ¹⁶ persuade Brodsky to accept the $2,737.48 and sign a general release. Quite understandably Brodsky refused. In August 1964 Brodsky and Oxenburg sued Robinson and Melnick.

They claimed in their bill of complaint that they were limited partners and as such entitled to receive $28,000 and $14,000 respectively. Robinson and Mel-nick answered denying that Brodsky and Oxenburg were limited partners; they went on to allege they had sustained losses in excess of $250,000. Judge Moore agreed that Brodsky and Oxenburg had not become limited partners but, as he said in his opinion of 29 May 1967, he found himself “ . . . drawn ineluctably to the conclusion that Robinson and Melnick on the one hand and Brodsky on the other, contemplated that Brodsky would ‘ride’ with his employers, taking a 6% . . . part of their 80% holding, without obligation on the part of Brodsky to contribute in cash to the known cash commitments of the general partners and without concern on the part of Brodsky for the management of the enterprise which, by the terms of the limited partnership articles annexed to his agreement, was reposed in his employers. In legal effect, therefore, a sub-partnership relationship between Robinson and Melnick and their employee Brodsky, came into being. . . .

And upon this relationship, the fortunes of Brodsky (and of Oxenburg, by derivative right) in this enterprise rise or fall. “The relationship between them, it must quickly be added, however, is a fiduciary relationship. Clearly, the Plaintiff Brodsky (and through him, the Plaintiff Oxenburg) were entitled to more than appears to have been forthcoming at the hands of Robinson and Melnick. “For example (1) they were entitled to a pro rata distribution of cash (after reasonable ¹⁷ withholding for escrow purposes) at the time the sale-leaseback arrangements were finally consummated; (2) clearly, their participations are not to be reduced by the amounts voluntarily contributed, as a goodwill gesture, by the general partners to those named limited partners (over and above their pro rata distributions) who elected to withdraw; and (3) they are entitled to a full and faithful accounting of (a) the cash proceeds of the sale-leaseback arrangements and (b) of the profit and loss experience of the Joint Venture-Limited Partnership operation of the apartment properties since the inception of the leases. “In this connection, the court concludes that . . . the partnership itself has not been terminated either in accordance with the partnership articles or by operation of law. “Accordingly, the court will order that this matter be referred to one of the auditors of the court for the statement and settlement of an account between the parties in accordance with the findings of fact and conclusions of law above stated, upon the submission to the court of a proposed order by counsel, final decision being reserved until further order of the court, pending the filing of said account." (Emphasis added.) In his report, filed 18 November 1969, the auditor recommended to the court “that judgment be entered against the defendants” in favor of Brodsky for $16,-574.47 and in favor of Oxenburg for $8,287.23. Robinson and Melnick filed exceptions and after a hearing Judge Moore, in March 1970, vacated the order of ratification and ordered the matter “rereferred to . . . [the] auditor for hearings and for [a] determination of the matters set forth in the findings of fact and conclusions of law heretofore filed on June 1, 1967.” ¹⁸ On 30 September 1971 the auditor filed his supplemental report which, in part, is as follows: “Subsequent to filing an Auditor’s Report on November 18,1969, your auditor held two extensive hearings, at which hearings the parties hereto and their respective counsel were in attendance. The additional evidence obtained as a result of the hearings aforesaid further substantiated the opinion of your auditor as noted in his previous report. “It appears that one of the strong issues relied upon by the defendants was to the effect that the limited partnership had not been dissolved in 1964 but continued to operate for five years thereafter, and, accordingly, losses sustained during those five years would affect any distribution that might have accrued on behalf of . . . [Brodsky and Oxenburg].

This contention is spelled out . . . [in] the transcript of a hearing held on January 26, 1968 before . . . [Judge] Moore wherein Mr. Hilland, attorney for the defendants, stated that his clients were prepared to prove that the notation on the top of the 1964 tax return, “Final Return—Partnership Dissolved 11/30/64,” was the accountant’s error and that the partnership had not been dissolved. Evidence obtained at the two hearings held by your auditor showed that the partnership had been dissolved as of November 30, 1964, since no partnership returns for the later years were produced and further the testimony of the accountant for the defendant was to the effect that they couldn’t find any returns and it must have been a mistake. As to the issue of the existence of a limited partnership, your auditor feels from the evidence that the limited partnership was dissolved November 30, 1964. * * * ¹⁹ “It is therefore the opinion of your auditor that judgment be entered against the defendants on behalf of . . . [Brodsky] in the amount of $16,574.47 and on behalf of . . . [Oxenburg] in the amount of $8,287.23.....” Exceptions to the Supplemental Report were filed and there was a further hearing before Judge Moore. In his opinion overruling the exceptions he said, in part: “The auditor received extensive testimony in hearings before him on April 22 and May 1, 1970 at which times the depositions of . . .

Robinson and Peter R. Bagatti (Controller) were taken. The total transcript includes 250 pages. “Following the taking of this testimony the auditor filed a supplemental report dated September 30, 1971, adhering to his original recommendations based principally upon a finding that the limited partnership had in fact been dissolved. Upon this finding, the auditor concluded that there was no need for the stating of any account between the parties. “The matter is again before the court on defendants’ exceptions to the Auditor’s Supplemental Report filed herein on October 13, 1971. A hearing in open court was held on said exceptions on December 17, 1971. “The court has carefully reexamined its findings of fact and conclusions of law filed herein on June 1, 1967 and has also reviewed the papers filed subsequent thereto, has read the transcript of proceedings before the court on January 26, 1968 at the hearing on Plaintiff’s motion for judgment and