Curley v. Brignoli Curley & Roberts Associates, 88 Civ. 5307 (MP).
| Decision Date | 04 August 1989 |
| Docket Number | No. 88 Civ. 5307 (MP).,88 Civ. 5307 (MP). |
| Citation | 746 F. Supp. 1208 |
| Parties | John J. CURLEY, James Karanfilian and Duane Roberts, individually and on behalf of Brignoli Curley & Roberts, Associates, a Delaware limited partnership, Plaintiffs, v. BRIGNOLI CURLEY & ROBERTS ASSOCIATES, a limited partnership, Brignoli & Curley Inc. and Richard Brignoli, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Fulbright Jaworski & Reavis McGrath, New York City (Glen Banks and James Nespole, of counsel), for plaintiffs.
Welsh & Katz, Chicago, Ill. (Robert Breisblatt, of counsel) and Law Offices of Arie E. David, New York City (Arie E. David and Michael E. Plank, of counsel), for defendants.
This phase of the litigation between the parties seeks the equitable intervention of this Court in a partnership dispute. Plaintiffs, limited partners, claim defendants, the General Partner and its Chief Executive Officer, breached their fiduciary duties, misappropriated and mismanaged and misused partnership assets and facilities.
John J. Curley, James Karanfilian and Duane Roberts, limited partners of Brignoli, Curley & Roberts Associates ("BCR"), a Delaware partnership, sue for removal of the corporate General Partner or alternatively dissolution of BCR, an accounting and damages arising from various breaches of fiduciary duty to BCR and its limited partners. They name as defendants (1) Brignoli & Curley, Inc. ("BCI"), the General Partner of BCR and a Delaware corporation; (2) BCR as a necessary defendant; and (3) Richard Brignoli, the principal shareholder and Chairman and President of Brignoli Models, Inc. ("BMI"), a limited partner of BCR; Brignoli is also Chief Executive Officer and President of BCI.
Jurisdiction of this Court is posited on diversity of citizenship and requisite amount in controversy.
The corporate General Partner, BCI, and defendant Brignoli, denied liability and asserted an assortment of affirmative defenses as well as counterclaims for damages in favor of the partnership against those limited partners who are plaintiffs herein, for their alleged fiduciary and contractual breaches as such limited partners. In addition, the General Partner, BCI, asserted on behalf of the partnership, so-called "counterclaims" against third-parties, for damages arising from alleged misperformance of contractual obligations of the latter to the partnership.
Jury and non-jury issues were thus posed and the third-party "counterclaims" were bifurcated and were tried to a jury. A verdict of no liability in favor of the counterclaim-defendants was returned by the jury. Final judgment was entered thereon.
Thereafter, the principal claims asserted in the complaint as well as the defenses thereto, were tried at a Bench trial with the use of the record made before the jury. The counterclaims of the defendants against the plaintiffs were set apart to await a determination of whether there would be a dissolution of the partnership as demanded in the complaint and heard in the accounting among the partners to follow.
At the conclusion of the Bench trial, the Court finds as fact that inadequacy of legal remedies and irreparable harm have been adequately demonstrated and that it is not reasonably practicable or equitable to carry on the business in conformity with the BCR Partnership Agreement. See Del.Code tit. 6, § 17-803 (1985 Interim Supp.).
Briefly:
Richard Brignoli, who, late in 1987, assumed the title of Chief Executive Officer of the corporate General Partner, has been guilty of and has caused BCI to be guilty of such crass and autocratic conduct in the service of his selfish interest and in derogation of the interests of the limited partnership so as to affect prejudicially the carrying on of the business as a partnership. There are myriad facts and circumstances in evidence which warrant a Court of equity to remove the General Partner and to install in its place a receiver until the limited partners of BCR can determine whether they wish to continue the business under a trusteeship or to dissolve the business and have an accounting as the equitable solution of the controversy herein.
The evidence adduced at trial amply established glaring misconduct by Brignoli and BCI. The limited partners were denied access to the partnership books and records and the assets of BCR were grossly misused by BCI and Richard Brignoli, including the misuse and pledge of a $175,000 certificate of deposit ("CD") owned by BCR as security for a bank loan to pay the bills of BMI, an entity controlled by Richard Brignoli of which he is Chairman and President and principal owner. BCI and Richard Brignoli have attempted to confuse and cloud the facts of their administration of the partnership with extravagant counter-charges and criticisms of the business practices of the limited partners-plaintiffs. These are merely part and parcel of the mistaken notion that Richard Brignoli was not accountable to anyone in his autarchical control of BCI and the affairs of the BCR partnership.
The incriminations and recriminations as between the partners cannot offset or cause us to overlook the abuse of the partnership assets and the bad faith of and excesses to which Richard Brignoli has gone to the detriment of the interests of the other partners.
For the reasons shown hereafter, an interlocutory judgment installing a receiver for BCR to conduct the business pending a vote of the limited partners other than BMI whether to continue or dissolve the business, will be ordered herein. In the event dissolution is ordered thereafter, the counterclaims asserted by the present General Partner, BCI, in its pleading can then be considered to the extent appropriate in the accounting to follow. If no dissolution is to be ordered, a trustee can pursue such counterclaims as are not precluded by the judgment on the jury's verdict on the issues resolved in the jury trial.
BCR is a Delaware limited partnership with its principal place of business at 15 West 39th Street in New York City. BCR was formed in 1984 in order to engage in the business of providing investment advisory and management services, investment and merchant banking and securities placements. (BCR Partnership Agreement, § 1.4) There are thirteen limited partners.
The General Partner of BCR is BCI, a Delaware corporation whose principal place of business also is in New York City. The shareholders of BCI are Richard Brignoli, as trustee, and John Curley. Brignoli owns 50.1% of BCI's stock and Curley owns 49.9%. Under Section 2(b) of the BCI Shareholders' Agreement, Brignoli serves as Chairman of the BCI board of directors which "shall at all times consist of a majority of directors designated by Brignoli."
Brignoli Models Inc. ("BMI"), is a 54% investor in the BCR limited partnership. BMI is owned by approximately ten stockholders of whom Richard Brignoli is the majority stockholder. BMI develops and markets computer programs for trading securities. BCR licensed the Excess Growth System Program from BMI for trading equity portfolios. As of September 2, 1987, BCR had successfully marketed Excess Growth under the leadership of John J. Curley as CEO to approximately twenty pension fund clients for whom BCR was managing over $1.2 billion in assets using Excess Growth.
Curley acted as CEO and President of BCI, the General Partner, from October 1, 1984 to October 1, 1987, pursuant to a written employment agreement between himself and BCI. Curley managed the BCR partnership during that period and together with others he employed were largely responsible for the phenomenal growth of BCR during the next three years. BCI through Curley, hired Roberts on September 11, 1984 to serve as the director of marketing for BCR. Roberts also received an equity interest in BCR. From October, 1985 through January, 1988 BCR also through Curley, employed Karanfilian as an investment officer also with an equity interest in BCR. Curley, Roberts and Karanfilian collectively held approximately 36% of the equity of BCR.
From 1985 through the present, BMI was also a limited partner of BCR and held approximately 54% of its equity. Nine other limited partners hold the remaining equity of BCR together with BCI which holds 1%. The value of each plaintiff's limited partnership interest exceeds $10,000.
On October 1, 1984 Curley on behalf of BCR entered into a licensing agreement with BMI to market a computer program designed by BMI. The computer program was called Excess Growth.
The Excess Growth system produced on a trade blotter a list of trades of securities which were to be accomplished on a daily basis. The consolidated trade blotter contained the name of the security, the number of shares to be bought or sold, and a "limit" price for the shares to be bought or sold for BCR's client portfolio.
It was not anticipated that all of the trades designated by the blotter would be completed each trading day.
Each night, the Excess Growth computer program automatically recalculated and adjusted the portfolios. The program recalculated the appropriate mix of securities to be held in the portfolio by taking into account the dollar status of the portfolio as it existed at the conclusion of the previous day's trades. Only those trades which were called for on the new daily blotter were to be executed.
Some time during the summer of 1985 Curley began using Richard Bennett to do the trades called for by the daily blotter. Curley had known Bennett for a number of years. On or about June 9, 1985 Bennett formed Brick Securities, Inc. ("Brick"). BCR hired Brick and Brick's principal, Richard Bennett, to provide supervisory and trading functions for all of BCR's trading activities on behalf of BCR's clients. Brick was a licensed broker. Curley, Roberts, Karanfilian and Brignoli later became limited...
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