People v. Zinke

• Citation: 520 N.Y.S.2d 703,137 Misc.2d 463
• Parties: The PEOPLE of the State of New York v. Philip Walker ZINKE, Defendant.
• Decision Date: 14 October 1987
• Court: United States State Supreme Court (New York)

Page 703

520 N.Y.S.2d 703

137 Misc.2d 463

The PEOPLE of the State of New York v. Philip Walker ZINKE, Defendant.

Supreme Court, New York County,

IAS Part 74.

Oct. 14, 1987.

Ronald Kliegerman, for defendant.

Robert Morgenthau, Dist. Atty. (John Nolan, of counsel), for plaintiff.

EDWARD J. McLAUGHLIN, Justice:

The court is called upon to decide whether a general partn may ever be convicted of stealing funds held by a limited partnership.

Philip W. Zinke, the sole general partner ¹ of the SIN I Limited Partnership, was convicted after a jury trial of two counts of grand larceny in the third degree (Penal Law § 155.35) for embezzling $1,050,000.00 in mid-1984 from SIN I.

At the end of the People's case and again at the close of the entire evidence, defendant moved for trial orders of dismissal (CPL 290.10, subd. 1). The court reserved decision (People v. Brown, 40 N.Y.2d 381, 386 N.Y.S.2d 848, 353 N.E.2d 811) on whether a distinction should be made in the analysis of intra-partnership thefts between ordinary partnerships (see Partnership Law, §§ 1-82) and limited partnerships (id., at § 90-120-l ).

New York long ago adopted the rule that "a partner who appropriates partnership property is not guilty of larceny from his co-partners" (McKinney's Practice Commentary, Bk. 39, Penal Law § 155.00, p. 104). The rationale is that "[s]ince one who holds a joint or common interest in property does not have an interest therein superior to that of another joint or common owner ... one cannot legally 'steal' from the other" (id., citing People v. Hart, 114 App.Div. 9, 100 N.Y.S. 1134; People v. Dudley, 97 N.Y.S.2d 358; and People v. Dye, 134 Misc. 689, 236 N.Y.S. 357).

Under each theory of larceny in New York, no theft is committed unless the taking, obtaining, or withholding of the property of another person is from the owner of the property (Penal Law § 155.05, subd. 1). An owner means any person who has a right to possession superior to that of the taker, obtainer, or withholder (Penal Law § 155.00, subd. 5). The term "person" includes a partnership (Penal Law § 10.00, subd. 7). No joint or common owner of property has a right of possession superior to that of any other joint or common owner (Penal Law § 155.00, subd. 5, para. 3). In sum, co-partners have co-ownership interests, and one cannot steal his own property (People v. O'Brien, 102 Misc.2d 246, 423 N.Y.S.2d 135) [one party to joint bank account cannot criminally misappropriate funds].

Differing theories have been employed to give substance to the argument, persuasive on public policy grounds, that it is both illogical and unreasonable to say that ordinary partners cannot steal from one another simply because they have undivided interests in partnership assets. After all, "stealing that portion of the partners' shares which does not belong to the thief is no different from stealing the property of any other person" (82 A.L.R.3d 822, 828).

But most of those states that allow partners to be prosecuted for embezzlement do so based on larceny statutes that differ from those promulgated in New York (see, e.g., California [People v. Sobiek, 30 Cal.App.3d 458, 106 Cal.Rptr. 519 [Ct. of App., 1st Dist., 1973], cert. den. 414 U.S. 855, 94 S.Ct. 155, 38 L.Ed.2d 104; and People v. Mellor, 161 Cal.App.3d 32, 207 Cal.Rptr. 383 [Ct. of App., 4th Dist., 1984]] and New Jersey [State v. Sasso, 20 N.J.Super. 158, 89 A.2d 489 [1950]]; see 82 A.L.R.3d 822, 832-839).

The court holds, however, that the common law rule in virtue of which a partner cannot be found guilty of embezzling partnership property (see generally, Embezzlement of Larceny by a Partner, 82 A.L.R.3d 822, 829-832) should not insulate general partners in a limited partnership from criminal liability in New York. Three related but independent grounds compel the court's conclusion.

First, the balance of powers, rights, and liabilities between a general partner and a limited partner is so unequal that the two partners do not necessarily share that indivisible communality of interest that is the hallmark of co-ownership. For instance whereas ordinary partners "have equal rights in the management and conduct of the partnership business" (Partnership Law, § 40, subd. 5), the limited liability itself of a limited partner (id., at § 106) is contingent upon his or her lack of control of the business (id., at § 96; e.g., Sloan v. Clark, 18 N.Y.2d 570, 227 N.Y.S.2d 411, 223 N.E.2d 898).

Interference with management decisions or commercial transactions with third parties is wholly inconsistent with the dormant role of limited partners, whose lack of liability is premised on lack of knowledge, capacity to shape events, and ability to contain wrongdoing (cf. Lichtyger v. Franchard Corp., 18 N.Y.2d 528, 537-538, 277 N.Y.S.2d 377, 223 N.E.2d 869). A limited partner, accordingly, has but few rights, such as the right akin to a corporate shareholder to sue derivatively (Partnership Law, § 115-a), that a general partner does not have, and the consequence is disparity of status rather than equality.

On the other hand, the management of the partnership property and the business of the firm are vested exclusively in the hands of the general partner (Id., at § 98; e.g., Durant v. Abendroth, 97 N.Y. 132). As the instant Limited Partnership Agreement authorized, ² Zinke, the general partner, had the sole discretion to control and decide virtually everything of relevance to the partnership, including what the name of the partnership should be (Art. 1.01), where its office should be located (Art. 1.02), whether to admit additional limited partners (Art. 4.04), under what circumstances to "retire" a limited partner (Art. 5.01) and whether to postpone the payment of liquidated shares (Art. 5.08), and what investments consistent with the purposes of the partnership should be made (Art. 2.01)--including permissible self-dealing between Zinke and SIN I (Art. 2.01(b); see Riviera Congress Associates v. Yassky, 18 N.Y.2d 540, 548, 277 N.Y.S.2d 386, 223 N.E.2d 876)--to name but a few general partnership powers.

It is beyond cavil that an unscrupulous general partner can take advantage of a limited partner. Because the former is so "responsible" for the latter's contribution that the latter loses direct control over his investment, "a managing or general partner of a limited partnership is bound in a fiduciary relationship with the limited partners" (Riviera Congress Associates v. Yassky, supra, p. 547, 277 N.Y.S.2d 386, 223 N.E.2d 876). The general partner must retain a standard of behavior upholding "the punctillio of an honor the most sensitive" (Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545). "A breach of fiduciary duty adversely affects in the same way the interests every investor who has no voice in the operation of the business" (Lichtyger v. Franchard Corp., supra, 18 N.Y.2d pp. 536-537, 277 N.Y.S.2d 377, 223 N.E.2d 869), those being the limited partners. The limited partner, who often stands to profit from his silent investment, is nonetheless on such a different and unequal footing from a general partner that one cannot denominate the two as co-owners at all.

The more appropriate analogy, and the one that accounts for the court's second reason in upholding Zinke's conviction, is that a limited partnership is more a corporate entity than a jointly held general partnership. It has been held numerous times, for example, that a limited partner should be equated to a corporate shareholder since both are investors who have limited liability and authority (see, e.g., Lichtyger v. Franchard Corp., supra, p. 536, 277 N.Y.S.2d 377, 223 N.E.2d 869; Leibert v. Clapp, 13 N.Y.2d 313, 247 N.Y.S.2d 102, 196 N.E.2d 540; Ruzicka v. Rager, 305 N.Y. 191, 197-198, 111 N.E.2d 878; Lanier v. Bowdoin, 282 N.Y. 32, 38, 24 N.E.2d 732, rearg. denied, 282 N.Y. 611, 25 N.E.2d 391; Matter of Brandt, 81 A.D.2d 268, 279- 282, 440 N.Y.S.2d 189; Strain v. Seven Hills Associates, 75 A.D.2d 360, 365, 429 N.Y.S.2d 424). The Federal courts, describing New York's limited partnership law, also view limited partners as the functional and juridical equivalent of shareholders (Klebanow v. New York Produce Exchange, 344 F.2d 294, 297...