Mishkin v. Willoner

• Decision Date: 16 May 1977
• Docket Number: No. 875,875
• Citation: 36 Md.App. 111,373 A.2d 630
• Parties: Howard H. MISHKIN et al. v. Ronald WILLONER and Jacob Sheeskin, Trustees, et al.
• Court: Court of Special Appeals of Maryland

Page 111

36 Md.App. 111

373 A.2d 630

Howard H. MISHKIN et al. v. Ronald WILLONER and Jacob Sheeskin, Trustees, et al.

No. 875.

Court of Special Appeals of Maryland.

May 16, 1977.

Sheldon H. Braiterman and James D. Johnson, Baltimore, for appellants.

Lance W. Billingsley, Riverdale, with whom were Meyers & Billingsley, P. A., Riverdale, and William C. Brennan, Jr., with whom were DePaul, Willoner & Kenkel, P. A., College Park, on the brief for appellees Ronald Willoner and Jacob Sheeskin.

Robert A. Klein, Washington, D.C., with whom were Danzansky, Dickey, Tydings, Quint & Gordon, Washington, D.C., on the brief for other appellee.

Argued before THOMPSON, MENCHINE and LOWE, JJ.

MENCHINE, Judge.

This is McCully v. Radack, 27 Md.App. 350, 340 A.2d 374 (1975), revisited, but now entitled Mishkin et al. v. Willoner and Sheeskin, Trustees. ¹

At issue in McCully was the standing of limited partners, alleging collusion between a general partner and the trustees for a third party detrimental to a limited partnership, to intervene in deed of trust proceedings to foreclose upon property of the limited partnership. We vacated the trial court's order denying standing to the limited partners and remanded the case for further proceedings. We thus explicated the course to be followed on remand:

'We vacate the order of the circuit court granting the appellees' motion to dismiss appellants' exception, and remand the case for further proceedings. The chancellor shall determine whether there are 'strong allegations and proof' of collusion between the trustees and the general partner, or whether the interest of the general partner in protecting his own financial welfare is so in conflict with the interest of the limited partnership as to render the general partner 'disqualified.' In order to determine whether the allegations are 'strong', and if so, whether supported by strong 'proof', the chancellor may conduct, if he deems it necessary, an evidentiary hearing relative thereto.' 27 Md.App. at 360, 340 A.2d at 380.

On remand, the limited partners offered numerous witnesses in person or by deposition in the course of a hearing conducted over a three day period. At the close of the evidence presented by the limited partners, motions to dismiss were made and were granted by the chancellor. ²

Thereafter the following orders were passed:

1. Dated April 27, 1976, reading as follows:

'Testimony taken At the end of the Plaintiffs case the Trustees moved to dismiss the issue of collusion. Motion granted. The General Partner moved to dismiss the issue that he had disqualified himself. Motion granted.'

2. Dated May 17, 1976, reading as follows:

'ORDERED that the Decrees of this Court dated April 27, 1976 granting the motions to dismiss the issues delineated by the Court of Special Appeals be, and they are hereby, suspended until such time as the exceptions to the Report of the Auditor filed by the West River Marina Limited Partnership are either heard and decided by this Court or withdrawn by the General Partner.'

3. Dated June 9, 1976, reading as follows:

'ADJUDGED, ORDERED, and DECREED: That the General Partner be, and he is hereby, granted leave to withdraw the Exceptions to the Auditor's Report; and

That the Decree dated 17 May 1976 and filed 18 May 1976 be, and it is hereby, vacated.'

We hasten to explain the necessity for the passage of three orders in the case.

In McCully, supra, we noted that the issue of the standing of the limited partners arose in connection with the propriety of a proposed settlement acceptable to the general partner but alleged to be detrimental to the limited partnership. Under the proposed settlement the limited partnership would have received the sum of $46,646.69 ³ as an agreed net surplus due the limited partnership from the foreclosure sale. The general partner, in turn, agreed to the withdrawal of exceptions to the auditor's report that had shown a net surplus of $20,822.21.

During the course of the trial on remand it became apparent that the initial offer and acceptance of the proposed settlement of the dispute between trustees and the limited partnership had not been formally consummated. Indeed, there was doubt that such a compromise was a continuing or subsisting possibility.

Accordingly, subsequent to the passage of the order of April 27, 1976, the appellants filed a petition directing the attention of the court to this circumstance and pointed out, inter alia, (a) that exceptions to the auditor's report had not been withdrawn; (b) that the settlement offer of approximately $26,000.00 more than the surplus shown by the auditor's report was of doubtful continuing effect; and (c) that, absent such an offer, a withdrawal by the general partner of exceptions to the auditor's report would be 'void and unenforceable for lack of consideration.' The petition further pointed out that in the absence of offer, acceptance and withdrawal of the exceptions to the auditor's report, a hearing upon such exceptions must follow. In the latter case, the petition suggested, the dispute between the general partner on the one hand and the limited partners on the other, would be moot.

The chancellor then passed the suspending order of May 17, 1976.

Thereafter, however, the offer of $46,669.00 to the West River Marina Limited Partnership was formally repeated; was accepted by the general partner on behalf of the partnership; and the general partner was authorized to withdraw the exceptions to the auditor's report.

On June 9, 1976, the suspension order of May 17, 1976, was vacated and the order of April 27, 1976, thereby effectively restored.

The limited partners have appealed to this Court asking:

'Does the evidence, taken in the light most favorable to Appellants, demonstrate collusion between the Trustees and the general partner or that the interest of the general partner in protecting his own financial interest is in conflict with the interest of the partnership so as to render him disqualified from pursuing the partnership litigation?'

COLLUSION

The chancellor found that '(t)here are certainly strong allegations but in my opinion the amount of proof is nil of collusion between the trustees and the general partner.'

The Law

In this appeal we are required carefully to examine the evidence from the viewpoint most favorable to the appellants, and to do so in the light of the circumstance that the relationship of the general partner with the limited partners is a fiduciary one. In Allen v. Steinberg, 244 Md. 119, 128, 223 A.2d 240, 246 (1966), Chief Judge Hammond, speaking for the Court of Appeals, said:

'Further, the partnership relationship is a fiduciary one, a relation of trust. A partner is a trustee to the extent that his duties bind him, a cestui que trust as far as the duties that rest on his copartners. 1 Rowley, Modern Law of Partnership, §§ 341-42; Restatement, Restitution §§ 166 comment d, 190 comment a; 68 C.J.S. Partnership § 76; 40 Am.Jur. Partnership § 128; Hagan v. Dundore, 187 Md. 430, 50 A.2d 570. These authorities which consider the matter also hold that generally the principle of utmost good faith covers not only dealings and transactions occurring during the partnership but also those taking place during the negotiations leading to the formation of the partnership. See also Knapp v. First National Bank and Trust Co. (10th Cir.), 154 F.2d 395, 398; Stephens v. Stephens, 298 Ky. 638, 183 S.W.2d 822, 824. Managing partners particularly owe a fiduciary duty to inactive partners. Corr v. Hoffman, 256 N.Y. 254, 176 N.E. 383; Einsweiler v. Einsweiler, 390 Ill. 286, 61 N.E.2d 377.'

Judge Digges, specially assigned, speaking for this Court in Green v. Lombard, 28 Md.App. 1, at 12, 343 A.2d 905, at 913 (1975), cert. denied, 276 Md. 743 (1975), declared:

'Fraud is a generic term and in equity embraces 'all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another.' 1 Story, Equity Jurisprudence, § 187 (6th ed. 1853). It is not necessarily a single fact but a conclusion which is drawn from all the circumstances of the case, Brogden v. Walker's Ex'r, 2 Harr. & J. 285 (1805), and includes constructive as well as actual fraud. Mead v. Gilbert, 170 Md. 592, 606, 185 A. 668 (1936). It taints and vitiates all that it touches. Figinski v. Modrak, 151 Md. 140, 146, 134 A. 130 (1926).'

The Evidence

There is not the slightest direct evidence of collusion between Radack, the general partner, and the trustees or the cestui que trust under the deed of trust. We are not permitted, however, to end our consideration of the issue with such a statement.

We must as well compare the settlement surplus figure-$46,669.00-with the appellants' claimed surplus figure-about $100,000.00-and examine the evidence relating to calculation of the latter figure. We then must consider whether that comparison and that examination reasonably would permit a conclusion that strong proof of collusion inferentially has been shown.

The auditor's report had shown trustees' receipts of foreclosure purchase price, interest and tax refund totaling $859,363.92. ⁴ The report recommended disbursements as follows:

The exceptions ⁵ filed on behalf of the limited partnership alleged the following errors in the report:

The witness Harold Rosenblatt, a certified public accountant, ⁶ testified that 'the errors in the report of the auditor were sixty-five thousand eight hundred and eighty-four dollars plus interest, and the attorney's fees which may be disallowed.' He supplemented his testimony with an accounting document that delineated the suggested errors as follows:

Other witnesses who contended that the auditor's report was erroneous did so substantially on the basis of the Rosenblatt testimony and accounting.

Items 5 and 7 in the Rosenblatt accounting, supra,...