Burns v. Equitable Associates

• Decision Date: 18 April 1980
• Docket Number: No. 780655,780655
• Citation: 220 Va. 1020,265 S.E.2d 737
• Parties: Estelle B. BURNS, Administratrix, etc. v. The EQUITABLE ASSOCIATES et al. 1 Record
• Court: Virginia Supreme Court

Page 737

265 S.E.2d 737

220 Va. 1020

Estelle B. BURNS, Administratrix, etc. v. The EQUITABLE ASSOCIATES et al. ¹

Record No. 780655.

Supreme Court of Virginia.

April 18, 1980.

E. Leslie Cox, Norfolk (Edward L. Breeden, Jr.; Breeden, Howard & MacMillan, Norfolk, on briefs), for appellant.

A. C. Epps, Richmond, Gordon E. Campbell, Norfolk (Robert C. Nusbaum; Hofheimer, Nusbaum & McPhaul, Norfolk, Christian, Barton, Epps, Brent & Chappell, Richmond, Campbell, Lustig & Hancock, Norfolk, on brief), for appellees.

No brief or argument for The Equitable Associates, Peoples Bank of Virginia Beach and Virginia National Bank, appellees.

Before I'ANSON, C. J., and CARRICO, HARRISON, COCHRAN, POFF, COMPTON and THOMPSON, JJ.

POFF, Justice.

Estelle B. Burns, formerly Estelle B. Batleman, administratrix d. b. n. c. t. a. of the estate of her late husband, Dr. Bernard B. Batleman, appeals from a decree determining, inter alia, Dr. Batleman's interest in an investment venture named the Equitable Associates. We are asked to review the chancellor's rulings as to the nature and extent of that interest.

The Equitable Associates was formed in 1963 when Dr. Batleman and others decided to purchase a leasehold estate in land in Norfolk. Created in 1903, the leasehold was a 20-year term perpetually renewable so long as the lessee fulfilled certain covenants. Pursuant to the requirements of the lease, an office building, known as the Equitable Building, had been built and maintained by a previous lessee. The lessor held a power of termination conditioned upon the lessee's breach of any covenant that remained uncured for sixty days after notice from the lessor.

Instead of acquiring the leasehold in their own names, the investors had the leasehold conveyed by deed from the seller to Robert C. Nusbaum as trustee. Citing Code § 55-17.1, ² the recorded conveyance did not name the beneficiaries of the trust.

An unrecorded agreement among the trustee, the investors, and S. L. Nusbaum and Company, Incorporated (the Nusbaum Co.), detailed the investment plan. The Nusbaum Co. was appointed management agent to lease the office space and to attend to the daily operation of the building. In addition, the Nusbaum Co. supplied 25 percent ($5000) of the original cash invested. Dr. Batleman and his brother-in-law, Dr. Harold A. Epstein, each invested $2500 or 12.5 percent of the total. The remaining 50 percent was divided among three individuals named Belkov, Myers, and Burton. The agreement specified that the investors would hold their fractional beneficial interests as tenants in common. Each beneficial owner was entitled upon demand to a deed from the trustee conveying legal title to his undivided interest.

Shortly after the venture was formed, the Nusbaum Co. declared that it was holding its 25 percent interest as nominee for V. H. Nusbaum, Jr., Robert C. Nusbaum, Stanley L. Harrison, and Henry A. Shook (collectively, the Nusbaum Group), each of whom had an equal stake in the venture. Within a few months, H. H. B., Inc. (HHB), a corporation formed and owned by Dr. Batleman, Dr. Epstein, and Dr. Batleman's father, had purchased the 50 percent originally held by Belkov, Myers, and Burton. This brought to 75 percent the total interest of the Batleman Group, i. e., HHB and Drs. Batleman and Epstein. With Epstein's approval, Dr. Batleman, who was president of HHB and who routinely made investment and financial decisions for his brother-in-law, represented the Batleman Group in all its dealings with the Nusbaum Co.

Rental income from the office building usually was insufficient to cover operating expenses, taxes, insurance, and mortgage payments. Consequently, the Nusbaum Co. advanced money to fund the deficits and then called upon the investors for reimbursements according to their respective interests. Dr. Batleman made reimbursements greater than one eighth of the losses in 1966, 1970, and 1972. For those years, he paid 75 percent of the deficits, or the entire amount owed by the Batleman Group. Financial records of the Equitable Associates reveal that Dr. Batleman's disproportionate payments increased his share of the total "capital", or equity, while the shares of HHB and Dr. Epstein decreased ratably. The Nusbaum Group always paid 25 percent of the losses, and its share of capital remained constant at 25 percent. The Equitable Associates' financial statement for the year ending December 31, 1972 allocated to Dr. Batleman approximately 61 percent of the total capital account.

Dr. Batleman died on December 19, 1972. In his will, he left one third of his net personal estate to his wife. The residue of his estate was devised and bequeathed to his parents "for . . . their joint lives, with the remainder to the survivor of them." Dr. Batleman's father qualified as executor, but he died on July 1, 1973. His widow passed away shortly thereafter, leaving a daughter, Beatrice B. Epstein (Dr. Epstein's wife), as sole beneficiary. Thus, Mrs. Epstein became entitled to that portion of Dr. Batleman's estate willed to his parents.

Estelle Batleman elected to renounce her husband's will and to claim her statutory share of his estate. Accordingly, she is entitled, under Code § 64.1-16, to one half of the surplus of Dr. Batleman's personal estate. After the death of Dr. Batleman's father, she qualified as administratrix d. b. n. c. t. a. of Dr. Batleman's estate.

In November 1974, Mrs. Batleman, in her individual capacity and as administratrix, filed a bill of complaint requesting, inter alia, a determination of the "extent and character of Decedent's interest in the Equitable Associates and its liability to pay this estate the value of Decedent's share . . . as well as any unrepaid advances". Among defendants named were Dr. Epstein, Mrs. Epstein, and the Equitable Associates; HHB and the individual members of the Nusbaum Group were not included.

Mrs. Batleman contended that Dr. Batleman's interest in the Equitable Associates was personalty. It appears from the report of the commissioner in chancery that this contention was premised upon the theory that the trust res, a leasehold, was personal property. Mrs. Batleman also claimed that the Equitable Associates was a partnership and that Dr. Batleman's contributions, insofar as they exceeded one eighth of the venture's losses, had increased his ownership interest from the original 12.5 percent. Deciding that the Equitable Associates was not a partnership and that the leasehold was realty, the commissioner ruled that Dr. Batleman's interest was that of a tenant in common with an undivided interest in real estate. Because not all the investors were before the court, the commissioner refrained from deciding the extent of Dr. Batleman's interest. These rulings were affirmed by the chancellor who, by decree entered April 27, 1977, declared that Dr. Batleman's interest in the leasehold "was not a partnership interest, but was an undivided interest of a tenant in common in real estate". The decree continued the cause to allow interested parties to intervene, but purported to be final "as to the matters adjudicated".

In the meantime, the leasehold had been sold in 1976 for $175,000. Pursuant to agreement among all interested parties, the net proceeds were placed in escrow. This proceeding subsequently focused upon distribution of the escrowed fund.

In May 1977, HHB and all members of the Nusbaum Group intervened. Mrs. Batleman asserted a dower interest in her husband's one-eighth share and, as administratrix, claimed an "equitable lien" for $58,279.54, which she alleged was the amount of Dr. Batleman's "excess contributions". The other investors maintained that such contributions had increased Dr. Batleman's share of the equity in the venture. Members of the Nusbaum Group contended they were entitled to compensation for more than $87,000 they allegedly had paid to cover the venture's losses after Dr. Batleman's death.

Concerning the Nusbaum Group's claim for funds advanced, V. H. Nusbaum testified that, by May 1975, the Nusbaum Co. had advanced almost $82,000, not including $5,480.31 members of the group had repaid the company since Dr. Batleman died. In July of 1975, the members of the Nusbaum Group borrowed $80,000 in order to further reimburse the Nusbaum Co. According to V. H. Nusbaum, $60,000, or 75 percent of the loan, was applied to "the collective interest of" the Batleman Group. Nusbaum further testified that, through December 1975, the Batleman Group owed $87,689.16 excluding any interest on the $80,000 loan. The Nusbaum Co. did not charge the investors interest on the funds it advanced.

Evidence regarding the nature of Dr. Batleman's "excess contributions" consisted of financial records and the testimony of Dr. Epstein and Louis Wasserman, accountant for the Equitable Associates and the three members of the Batleman Group. As noted earlier, the Equitable Associates' financial statements showed that Dr. Batleman's payments increased his percentage of the equity in the venture. Dr. Batleman's share of the net profits or losses did not always correspond with his proportion of equity. For income tax purposes, Dr. Batleman claimed the losses stated in the records of the Equitable Associates. According to Wasserman, Dr. Batleman's payments of the Batleman Group's entire obligation increased his share of total capital while the shares of HHB and Dr. Epstein decreased. Wasserman also testified that the financial records of the members of the Batleman Group did not show that the other members were indebted to Dr. Batleman as a result of his disproportionate payments. Dr. Epstein testified that his brother-in-law had "handled" HHB's affairs until he died, that "whatever (Dr. Batleman) wanted to do was fine with me", and that Dr. Batleman had never demanded payment from either him or HHB for any funds paid on their behalf. Dr. Epstein, who succeeded Dr. Batleman as president of HHB, explained...