Birnbaum v. Birnbaum

• Citation: 139 A.D.2d 462,528 N.Y.S.2d 32
• Parties: Jay B. BIRNBAUM, Plaintiff-Respondent, v. Saul I. BIRNBAUM, Defendant-Appellant. Ilene L. FLAUM, etc., et al., Plaintiffs-Respondents, v. Saul I. BIRNBAUM, Defendant-Appellant, and Jay B. Birnbaum, Defendant-Respondent.
• Decision Date: 26 April 1988
• Court: New York Supreme Court — Appellate Division

Page 32

528 N.Y.S.2d 32

139 A.D.2d 462

Jay B. BIRNBAUM, Plaintiff-Respondent, v. Saul I. BIRNBAUM, Defendant-Appellant.

Ilene L. FLAUM, etc., et al., Plaintiffs-Respondents, v. Saul I. BIRNBAUM, Defendant-Appellant, and Jay B. Birnbaum, Defendant-Respondent.

Supreme Court, Appellate Division,

First Department.

April 26, 1988.

N.M. Spindelman, Rochester, for plaintiff-respondent.

R.H. Dolan, New York City, for defendant-appellant.

R.S. Browitz, Rochester, for plaintiffs-respondents.

Before KUPFERMAN, J.P., and SULLIVAN, ELLERIN and SMITH, JJ.

MEMORANDUM DECISION.

Defendant-appellant's motion for reargument granted and, upon reargument, the order of this court, entered on December 15, 1987, 135 A.D.2d 1154, 522 N.Y.S.2d 403, unanimously affirming a judgment of the Supreme Court, New York County (Martin Evans, J.), entered on January 15, 1987, is vacated and withdrawn and the judgment is modified, on the law, to grant partial summary judgment to the defendant-appellant on the countercla as to the payment due to his wife, and the matter remanded for a further hearing with regard to substantiation and justification of the amount paid and the amount due, and, as so modified, the judgment is affirmed, with costs and disbursements.

This is an internecine dispute between the plaintiffs, brother and sister Jay Birnbaum and Ilene Flaum, and their uncle Saul, the defendant-appellant herein. Telescoping the considerable background, the plaintiffs' father Bernard and Saul, were, for many years, partners in a real estate business and, upon Bernard's death in 1976, plaintiffs succeeded to their father's interests.

Among other things, there was a failing shopping center known as Fox Hills on Staten Island, which, after a complex series of transactions, Saul managed to exchange for a very successful operation at Cherry Hill Center in New Jersey.

After the previously loving familial relationship began deteriorating in 1980 and 1981, a multiplicity of suits ensued in Monroe and New York Counties and a referee was ultimately appointed in New York County to take an account. The referee called the consolidated action "but one battlefield in a litigation war" and his report was adopted by the Supreme Court. We affirmed, although on further reflection it has become apparent that one aspect of the referee's determination was in error.

Saul's wife Victoria Birnbaum was paid $345,000 from the partnership and is due, according to his counterclaim, an additional $623,000. She was initially Saul's girlfriend and later his wife. Although her services to the partnership are deprecated by plaintiffs, it is contended, with substantiation, that she handled the leasing at Cherry Hill, located the tenants, and was involved in coordinating the problems of zoning, site planning, construction supervision and the obtaining of permits, etc.

The referee brushed aside these activities in concluding:

She was either an employee (albeit without salary but on a purported commission basis), a close friend, or wife.

He decided she was acting as an "alter ego" for Saul, and that her services were those he should have rendered personally. Inasmuch as the plaintiffs rendered no services at Cherry Hill, it is somewhat specious to contend that Saul should have rendered all services. It is hornbook law that he was entitled to hire employees. Such a power is implied. See, Crane & Bromberg Law of Partnership, (West Pub.1968) § 50, p. 284. It is also provided for in New York Partnership Law § 40(2).

While the description of the services rendered by Victoria was considered by the referee to have been clothed in hyperbole, there can be no dispute that she did work. Moreover, the partnership agreement provided that no partner was required to devote his entire time and attention to the business of the partnership.

The referee's analysis is therefore based solely on the hopefully discarded notion, from an earlier era, that a woman could not be other than a shadow of her male partner.

Victoria's compensation was based on a contingent percentage arrangement. While in real estate leasing this would be normal, she did not have a real estate license. Accordingly, we remand for a determination as to the reasonable value of her services as an employee. Cf. Weckstein v. Breitbart, 111 A.D.2d 6, 8, 488 N.Y.S.2d 665; Steinberg v. Goodman, 27 N.Y.2d 304, 317 N.Y.S.2d 342, 265 N.E.2d 758.

All concur except SULLIVAN, J. who dissents in a memorandum as follows:

I would deny reargument, inasmuch as defendant Saul Birnbaum has failed to establish that we overlooked any significant fact or controlling principle of law. In fact, he fails even to advance any argument that was not previously considered. Nor were we in error, as the majority now contends, in deciding against Saul on the referee's disallowance of the charges for payments he made to his wife, Victoria, without Jay's and Ilene's consent.

At the outset it should be noted that Jay and Ilene have never argued that Victoria is not entitled to be compensated from any source for work she may have performed at the Cherry Hill property. They have quarreled only with having that work charged to the property, of which they are co-tenants. The referee, former Chief Judge Breitel, succinctly framed the issue:

Although Saul's brief speaks of Victoria's claim or her entitlement to recover, she is not a party to this action. The issue is whether Saul is entitled or will be entitled to reimbursement from monies paid or claims created in favor of Victoria on obligations binding on the co-owners. Whether Victoria has a legitimate claim or cause of action against Saul based on alleged agreements, oral or written, is not within the purview of this action or reference.

In that regard, Jay and Ilene concur in the referee's conclusion that Saul could not secretly employ Victoria to perform services he had agreed to perform without charge, and then obtain reimbursement from the property for her compensation. As the referee concluded, she must look to Saul, personall for compensation for any services she performed at his request.

The referee found that Saul is not entitled to reimbursement for the monies he paid Victoria because, as with the payments to himself, he failed to obtain the agreement of Jay and Ilene. It is well established that a co-tenant is not entitled to compensation for management or other services performed with respect to commonly-owned property. ( Meyers v. Bolton, 157 N.Y. 393, 52 N.E. 114.) The same rule applies by statute if the parties were, as Saul now claims, partners. (Partnership Law § 40[1].) Jay and Ilene did not object to the over $3,000,000 in charges for the development of the Cherry Hill property which were paid, not by Saul, but from revenues, 50% of which rightfully belonged to Jay and Ilene. These expenses, as Saul's account reflects, included such varied costs as architectural and engineers' fees, planning and zoning permits, attorneys' fees related to the project, legitimate payroll and related costs, and advertising costs.

On top of these, Saul seeks to have allowed some $612,500 in payments already made, and claims he asserts, to and for himself. When the payments were made, their purpose was never identified on the ledgers. Nor did they bear any relationship to any legitimate expenditure. From the date the accounting was filed, however, Saul has attempted to characterize them in many different ways, including "management fees", "administrative expenses", "administrative costs", "expenses", and "reimbursements."

The record is abundantly clear that Saul paid himself hundreds of thousands of dollars, which payments he has attempted, after the fact, to justify. His accounting, for example, characterized a substantial portion of the payments he made to himself through 1984 as "management fees." Beginning in 1984, he made additional substantial payments to himself (including one check for $262,500 immediately before this action was commenced), which he characterized in his account as "administration costs." It is undisputed, however, that Saul, and Jay before he was excluded by Saul, agreed to manage the property for no compensation at all. In his testimony at the hearing and in the brief to this court, he attempts to retrench and now claims that all of the payments that were made to him were to reimburse him for his out-of-pocket "expenses."

The referee further found that the services allegedly rendered by Victoria were those which Saul agreed to perform without a fee and should have or could have been rendered by him as a partner or tenant-in-common and in one or more of his various fiduciary capacities. The referee also found that Victoria was only Saul's "executive assistant" and "alter ego", and not the developer of the property.

The referee was clearly correct in finding that Saul could not, without the express consent of Ilene and Jay, hire Victoria on behalf of the project. ( See, e.g., Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545; see, also, Schnitzer v. Josephthal, 122 Misc. 15, 202 N.Y.S. 77, affd. 208 App.Div. 769, 202 N.Y.S. 952.) There was neither a written agreement nor any written communication of any kind reflecting that Jay and Ilene knew of the reputed arrangement with Victoria. Both Jay and Ilene testified that they had no knowledge of any such arrangement. While Saul and Victoria testified that Jay knew that Victoria was doing the leasing, they did not similarly testify that Ilene knew of or consented to Victoria's arrangement. Faced with such conflicting testimony, the referee stated:

[T]here is a grave insufficiency of documentary or record evidence on the critical issue of the understandings of the project co-owners. At this juncture, there is all the more reason to charge the party who resists or fails to supply the documentary proof, or even to keep and make records where business and accounting practice would require them. This is...