Lawson v. Rogers
| Decision Date | 06 January 1993 |
| Docket Number | No. 23923,23923 |
| Citation | 312 S.C. 492,435 S.E.2d 853 |
| Court | South Carolina Supreme Court |
| Parties | Walter N. LAWSON and C. Weston Houck, Appellants, v. Mandeville F. ROGERS, III; Hugh K. Leatherman; Frank M. Rogers, IV; Alan Ray Harrison; and The South Carolina National Bank, Respondents. . Heard |
Patrick Michael Duffy, of McNair Law Firm, P.A., Charleston, for appellants.
Gerald M. Finkel, of Finkel, Goldberg, Sheftman & Altman, P.A.; and A. Camden Lewis, of Lewis, Babcock & Hawkins, Columbia, for respondents.
This is an appeal of an accounting action between partners in which the wrongful appropriation of partnership assets was alleged. We affirm in part and reverse in part.
In 1981, Walter N. Lawson (hereinafter "Lawson"), Mandeville F. Rogers (hereinafter "Rogers"), and Hugh K. Leatherman (hereinafter "Leatherman") formed a partnership called Howard Johnson's Riverfront Enterprises (hereinafter "partnership") for the purpose of operating a hotel in Charleston, South Carolina. In 1982, Lawson conveyed one-half of his interest to C. Weston Houck (hereinafter "Houck"), giving Houck and Lawson one-sixth interest each.
In April of 1990, Lawson and Houck brought this action against Rogers, Leatherman, Frank Rogers (the son of Rogers and the accountant for the partnership), and Alan Harrison (hereinafter "Harrison," the general manager of the hotel), alleging civil conspiracy, breach of contract, breach of contract with a fraudulent act, fraud, breach of fiduciary duty, breach of the covenant of good faith, and violations of the Unfair Trade Practice Act. Houck and Lawson alleged Harrison, Leatherman, and Rogers were retaining various sources of the partnership's cash for their own purposes. Houck and Lawson's complaint included a prayer for a formal accounting. Leatherman and Rogers counterclaimed, alleging Houck converted partnership assets by staying in the hotel as a guest without paying for the room. Leatherman and Rogers also sought a formal accounting.
The legal actions were stayed while the hearing on the accounting was held. After hearing the evidence presented by both sides related to the accounting action, Judge Lockemy issued a decree. Judge Lockemy's findings are the subject of this appeal.
An accounting action between partners is an equitable action. Accordingly, we review the facts and make findings based upon our view of the preponderance of the evidence. Townes Associates Ltd. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976).
Two separate types of misappropriation are alleged in this action. First, Lawson and Houck allege that Harrison, at the direction of Leatherman and Rogers, withheld cash revenues from various sources from the hotel accounts and divided the money equally between Rogers, Leatherman, and Harrison. Second, Lawson and Houck allege that several cash disbursements which had been sent to the hotel from the partnership shortly after Hurricane Hugo, were misappropriated. We deal with the facts relevant to each of the types of alleged misappropriation separately.
With the consent of Lawson and Houck, Rogers and Leatherman acted as the hands-on managing partners. Rogers and Leatherman made regular trips to the hotel to check on the hotel business. The partnership agreement provided that no partner would receive a salary. The original agreement provided that the profits and losses were to be shared equally. All partnership funds were to be deposited in the partnership bank account. The partners were also given equal votes in the management of the partnership. Leatherman and Rogers agreed to Lawson's conveyance to Houck and the original partnership agreement was amended to incorporate all four partners.
Harrison was hired as the general manager of the hotel in November of 1988. With Rogers' authorization, Harrison began retaining all revenues from the hotel's soda machines shortly after he began working at the hotel. However, in March of 1989, according to Harrison, Rogers and Leatherman met with him and told him to collect all miscellaneous cash revenues and split the money in cash three ways between Harrison, Rogers, and Leatherman. These miscellaneous revenues (hereinafter the "cash" fund) were not recorded in the partnership books and consisted of everything but room rentals and the proceeds of the sale of food and beverages in the hotel's lounge and restaurant. Thus, the "cash" fund included commissions from telephone calls, VCR rentals, revenues from the rental of the hotel's parking to employees of nearby office buildings, revenues from the arcade machines, video poker machines, soda and snack machines. The "cash" fund also included miscellaneous revenues including a refund received from a yellow page ad and proceeds from the sale of furniture.
A host of other proceeds were allocated to a so-called "slush" fund. The "slush" fund included insurance proceeds for a damaged vehicle, a fee collected from damage done to one of the rooms, and a refund for a telephone system. Harrison maintained he did not divide the "slush" fund between Rogers, Leatherman, and Harrison but used some of it for a family vacation, allegedly with Rogers' consent. Harrison kept only a cryptic account of some of the slush and cash funds which did not include the source of most of the funds listed. Some of the sums listed were estimates. None of the "slush" funds were reflected on the books of the partnership.
The cash was collected by the hotel's bookkeeper. The bookkeeper testified she began bringing cash to Harrison in February 1989. She did not keep a record of the money at that time. In November 1989, Harrison questioned whether she was giving him all the cash she collected from the various sources. At that point, the bookkeeper began recording the amounts given to Harrison and continued to do so until April of 1990. According to her records, during the period from November 1989 and April 1990, $24,115.90 in cash was given to Harrison from the miscellaneous sources listed above. The bookkeeper also testified that Harrison asked her, allegedly at Leatherman's request, whether it was possible to run the room bill through on a charge card then convert the amount to cash. She explained to Harrison that withdrawing the cash from the room charges would cause the register to come up short. The bookkeeper also testified that she had never given the previous manager cash from any source.
Both Leatherman and Rogers admit they received cash from Harrison on more than one occasion. Both maintain the money was intended to be reimbursement for their expenses incurred in managing the hotel. However, the money was not tied to any specific expenses nor were Leatherman and Rogers able to give an accounting of exactly how much money they had received in this manner. Harrison admits he did not know how much extra compensation he received from these sources either, other than his "gut feeling" estimate. He did not claim the money on his income tax returns. No cash was ever given to Lawson or Houck. In fact, Harrison was told by Leatherman and Rogers not to discuss hotel operations with Lawson or Houck.
A court-appointed accountant estimated the unrecorded partnership cash revenues collected from January 1989 to April 1990 to be $39,278.87. This figure was arrived at by contacting outside suppliers of the merchandise and interviewing hotel employees. The bookkeeper's record of the amounts given to Harrison and the accountant's estimates for the same time period correlated well.
In the Decree of Accounting, the trial court rejected the accountant's estimated figures and used only the bookkeeper's figures of recorded cash disbursements between November 1989 to April 1990, minus the amounts retained by Harrison, to compute a figure representing a sum unaccounted for in the partnership assets. The trial court ordered Leatherman and Rogers to each return one-half of this amount to the partnership, as they were unable to provide any documentation or justification for this disbursement to them. The trial court found the cash retained by Harrison, however, was proper additional compensation and within Leatherman and Rogers' power to authorize.
In September of 1989, the hotel sustained severe damage from Hurricane Hugo. The hotel was open for business within a week but had extensive water and wind damage which took several months to repair. Rogers and Leatherman went to Charleston immediately after the hurricane to begin restoring the hotel. Both men made many trips to Charleston that fall during the restoration.
Over $46,030.00 of the partnership funds was spent in cash disbursements. There were very few receipts for most of the cash expenditures and no other records kept. Harrison, Leatherman, and Rogers all maintain that the cash was used for the restoration of the hotel including...
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