In re Lamb, Bankruptcy No. 1-81-02256
| Decision Date | 23 December 1983 |
| Docket Number | Adv. No. 1-82-0424.,Bankruptcy No. 1-81-02256 |
| Citation | 36 BR 184 |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
| Parties | In re Gary Steven LAMB & Charles Granville Lamb, partners d/b/a Rubenstein's, Debtors. Richard P. JAHN, Jr., Trustee, Plaintiff, v. Charles Granville LAMB, Defendant. |
Patrick C. Taintor & Harold L. North, Jr., Tanner, Jahn, Atchley, Bridges & Jahn, Chattanooga, Tenn., for plaintiff.
Henry K. Jarrett, III, Hanish, Davenport, Rosenberg & Weiner, Louisville, Ky., for defendant.
Despite the caption of this bankruptcy case, the main question is whether Charles Lamb and Gary Lamb were partners in the business known as Rubenstein's. The bankruptcy petition commenced a case only for the alleged partnership and not for Gary Lamb and Charles Lamb as individuals.
The partnership's case was converted from a chapter 11 reorganization to a chapter 7 liquidation. Under chapter 7, the trustee in bankruptcy may recover from the general partners' individual assets any deficiency of the partnership's assets to meet its liabilities. 11 U.S.C. § 723. Since the partnership's assets appeared to be less than its liabilities, the trustee brought this suit to collect the deficiency from Charles and Gary Lamb. Gary Lamb in effect removed himself from this proceeding by filing a personal bankruptcy case and obtaining a discharge. The question here is whether Charles Lamb was a partner in Rubenstein's with his brother Gary Lamb.
In 1979 Gary had been involved in the retail clothing trade in and around Chattanooga for several years. Charles Lamb lived in Louisville, Kentucky, where he practiced law, specializing in patent and trademark law. Charles Lamb was already involved in two business ventures. He was a partner-owner of an apartment building and owned an interest in a coffee farm in Costa Rica.
Henry Rubenstein owned a retail clothing business in Chattanooga. The business was known as "Rubenstein's for Men and Young Men" or simply "Rubenstein's". He and Gary Lamb were passing acquaintances. Gary became interested in buying the business. He asked his brother, Charles, to become involved. The negotiations for the sale were conducted between Gary Lamb and Henry Rubenstein. Charles Lamb didn't generally participate, but Mr. Rubenstein knew he was involved. At one time, Gary told Mr. Rubenstein that he would have to talk to his brother. Mr. Rubenstein knew that Charles was "going to go in with" Gary, as an owner or partner or at least to help borrow the purchase money. Mr. Rubenstein did not know what agreement Gary and Charles had made as to their interests in the business.
The sale contract was executed in July, 1979. Both Gary and Charles Lamb were named as purchasers. Both executed a promissory note for $85,000 of the purchase price. Both executed a lease of the business premises and a contract to employ Mr. Rubenstein as a consultant.
Mr. Rubenstein and Charles Lamb both thought that Charles suggested the requirement that Mr. Rubenstein work at least 100 hours in any three months in order to keep the job as a consultant.
Charles Lamb contributed $25,000 toward the purchase price. He and Gary both testified that the contribution was a loan to Gary to be repaid whenever he could. Charles Lamb's testimony also indicated that he thought the money gave him an interest in the business's assets.
Charles Lamb said he signed the documents to help Gary acquire the business. Gary had told him that the business didn't generate enough profit for two people. Charles didn't consider himself a partner in the business. He thought of himself more as a surety for Gary. Charles didn't know anything about the clothing business. The parties understood that Gary would operate the business. The sale contract required life insurance only on Gary as security for the $85,000 note. Gary maintained the bank accounts and he was the only person authorized to make withdrawals.
Gary and Charles Lamb and Mr. Rubenstein all testified in effect that Charles did not take part in the day-to-day or routine operation of the business. Charles came by the store when he was in Chattanooga but mostly to visit Gary. On these visits, Charles's business discussions were limited to generalities.
Gary Lamb testified that he considered that he and Charles were operating the business as partners. Charles, of course, testified that he didn't consider them to be partners.
Gary also testified that he and Charles never discussed whether they were partners. Charles never specifically said he was a partner but also never objected to being held out to be a partner.
About a year after the purchase of the business, Gary Lamb and Henry Rubenstein called Charles Lamb and told him that the business needed some cash. They asked him if he could borrow money in Louisville at a lower interest rate than was available in Chattanooga. He got the money in Louisville at a lower rate.
Roy Gallaher is a certified public accountant who was employed by the law firm that represented Mr. Rubenstein in the sale. After the sale, Mr. Gallaher continued to do the accounting for Rubenstein's. In September, 1979, he wrote a letter to Charles Lamb in response to his suggestion that the business be incorporated. The letter said in part:
Mr. Gallaher set up the books for the business as a partnership, apparently because the purchase agreement and other documents were executed by both Gary and Charles Lamb. He was never told to change the books.
Mr. Gallaher also prepared the tax returns for 1979 and 1980. The returns showed the business as a partnership comprised of Charles and Gary Lamb. On his personal tax returns for those years, Charles Lamb claimed his share of the business's profit for 1979 and loss for 1980. He never amended his personal returns. He did not seek to have the business's returns amended. He said that he didn't have authority to amend the business returns. He didn't claim a loss from the partnership on his personal return for 1981.
Gary Lamb testified that Charles said there were problems with the business's tax returns, but the problems related to the amounts not to filing as a partnership.
Mr. Gallaher continued as accountant for the business until May, 1981, when Jerry Rutherford assumed the accounting duties. He treated the business as a partnership when he set up the books. He filed a partnership tax return for 1981, because the business had been treated as a partnership before. In October or November, 1981, Mr. Rutherford first met with Charles Lamb. They did not discuss whether Charles Lamb was or was not a partner. The partnership's bankruptcy petition was filed in November, 1981. Mr. Rutherford said that Charles Lamb first denied he was partner in 1982. Lamb testified that he told Mr. Rutherford he wasn't a partner, but his testimony wasn't clear as to when he told him.
Gary Lamb filed state business tax reports in 1980 and 1981. The forms did not ask whether the business was a corporation, partnership, or individually owned. The forms did not require the signer to state whether he signed as owner, partner, or corporate officer. Gary Lamb signed the forms without indicating whether he was a partner or the sole owner. Charles Lamb did not sign.
In June, 1981, Gary Lamb filed an application for a new business tax license. He identified himself as the individual owner of Rubenstein's.
In early 1981, Gary Lamb considered buying the building in which Rubenstein's was located. He asked Charles to join in the venture, which was to be separate from Rubenstein's. Charles sent a personal financial statement to the bank. The amounts with respect to Rubenstein's were furnished by Gary. The statement showed Charles as owner of a one-half interest in Rubenstein's and liable for one-half of its debts. Charles testified in effect that he was a part owner of the business's assets but was not a partner in or an officer of the business.
In early and middle 1981, Gary Lamb borrowed money for the business from American National Bank. Two promissory notes were executed. The first was signed by Gary Lamb as a partner in Rubenstein's. The other note showed the debtor as Gary Lamb doing business as Rubenstein's even though the loan officer, Jerry Crigger, had been told that Charles Lamb was connected with the business. Mr. Crigger testified that he did not prepare the note; a clerk prepared it. Charles Lamb did not sign either note.
The financial reports that were used in acquiring the loan showed Charles Lamb as an equal partner with Gary. Charles denied ever seeing or knowing about these reports. He testified that he had no dealings with banks in Chattanooga. Gary Lamb testified that Charles knew the business had short term loans, such as these, to buy inventory.
Jerry Crigger testified that he obtained the necessary information for the second loan from Gary Lamb and Jerry Rutherford, the accountant. Mr. Crigger testified that he was told about Charles Lamb and saw a financial report showing Charles Lamb as a partner. However, he did not ask for Charles Lamb's signature on the promissory note. He did not notify Charles Lamb of the note. Since this was a business loan, he was not required to make any truth-in-lending disclosure.
Gary Lamb also borrowed money from Commerce Union Bank and executed a promissory note. The note showed ...
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