Rosen Trust v. Rosen

• Decision Date: 12 July 1976
• Citation: Rosen Trust v. Rosen, 53 A.D.2d 342, 386 N.Y.S.2d 491 (N.Y. App. Div. 1976)
• Parties: Harold J. ROSEN TRUST, Respondent-Appellant, v. Maurice L. ROSEN and Herbert S. Rosen, as surviving partners doing business under the name Rosen Brothers, Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 491

386 N.Y.S.2d 491

53 A.D.2d 342

Harold J. ROSEN TRUST, Respondent-Appellant, v. Maurice L. ROSEN and Herbert S. Rosen, as surviving partners doing business under the name Rosen Brothers Appellants-Respondents.

Supreme Court, Appellate Division, Fourth Department.

July 12, 1976.

Hancock, Estabrook, Ryan, Shove & Hust, Syracuse, for appellants-respondents (Donald J. Kemple, Syracuse, of counsel).

Bond, Schoeneck & King, Syracuse, for respondent-appellant (John J. Dee, Syracuse, of counsel).

Before MARSH, P.J., and MOULE, SIMONS, GOLDMAN and WITMER, JJ.

MOULE, Justice.

The issues presented on this appeal involve the validity of an interlocutory judgment and certain subsequent intermediate orders made in connection with the dissolution of a partnership as well as the propriety of the final judgment determining plaintiff's share in the assets and profits of the business.

On October 1, 1958 plaintiff's decedent, Harold J. Rosen, and defendants, Herbert S. and Maurice L. Rosen, three brothers, formed a partnership with offices in Syracuse for the purpose of engaging 'in the business of purchasing, selling, leasing and managing real estate and constructing buildings thereon.' While all three partners initially made contributions to capital, they contemplated that Harold and Herbert, who were both highly paid executives with the Helene Curtis Cosmetic Co., Inc., would contribute the necessary money to operate the business and that Maurice, a licensed real estate broker, would be responsible for managing the partnership.

To reflect this arrangement, the partnership agreement provided that net profits or net losses would be divided equally even though one partner's capital or income account might be considerably greater than another's and that no partner would receive any salary for services rendered to the partnership. It further provided that, upon the death of a partner, the partnership would not terminate but rather would continue under the management of the surviving brothers. The deceased partner's legal representative could participate in the profits and losses of the business or, at his option and with notice to the surviving partners, he could elect to withdraw. If such election was made, the surviving partners were required either to purchase the deceased partner's interest or else to terminate the business with reasonable promptness. In any event, however, the agreement provided that no compensation would be paid to the surviving partners for their services in liquidation of the partnership.

Throughout the next six years, the partnership either purchased or leased six pieces of income-producing real estate, four of which were located in Syracuse, one in Buffalo and one in Skokie, Illinois. Office buildings were constructed on these properties and the premises were then leased to various tenants.

Thereafter, on August 24, 1964 Harold J. Rosen died and, pursuant to the terms of the partnership agreement, his estate notified defendants on November 8, 1964 that it intended to withdraw from the partnership as of December 31 of that year. Herbert and Maurice did not purchase the estate's share of the business and, in accordance with Article 11 of the partnership agreement, they were under a duty to liquidate the business promptly and to distribute the assets.

On October 9, 1967 plaintiff commenced an action alleging, inter alia, that defendants had breached their fiduciary duties in failing to liquidate and distribute the assets of the partnership with reasonable promptness; that Maurice Rosen had received management fees and leasing commissions in violation of the partnership agreement; and that the estate was entitled to the return of $50,000.00 which Harold Rosen had deposited with the partnership prior to his death. On the basis of these allegations, plaintiff sought a judicial dissolution of the partnership, an accounting, the appointment of a receiver, liquidation and distribution of the partnership assets, and a separate recovery of the $50,000.00 deposit.

Although this action was commenced in 1967, it did not come to trial until April, 1970. Prior to the start of the trial, plaintiff and defendants stipulated that an independent valuation of the partnership properties should be undertaken and designated Harvey Jeffers to appraise four of the partnership properties and James Foley to appraise another. These appraisals are hereinafter designated as the 'Jeffers appraisal'. The Jeffers appraisal, according to defendants, was designed to assist the parties in possible settlement negotiations but, inasmuch as it was completed just prior to the trial, no settlement was reached and the case was presented to the court.

Thereafter, in an interlocutory judgment entered on October 8, 1970, the court made the following determinations:

1. That the partnership was legally dissolved as of December 31, 1964;

2. That the 'extraordinarily lengthy delay' in liquidating the partnership constituted a breach of defendants' fiduciary duties and necessitated an accounting;

3. That defendants were required to submit an accounting within 60 days of the entry of the judgment to establish plaintiff's share in the assets as of December 31 1964 as well as its share in post-dissolution profits up to the entry of the judgment;

4. That the payment of leasing commissions and management fees, except those management fees paid prior to Harold Rosen's death, constituted a violation of the partnership agreement;

5. That plaintiff had failed to establish its exclusive right to the $50,000.00 and

6. That, upon submission of the accounting, plaintiff could elect to receive a one-third interest in the partnership assets valued as of December 31, 1964 either with interest on that amount up to the date of the entry of judgment or with one-third of the post-dissolution profits up to the same date. In lieu of electing the 1964 valuation of the assets, plaintiff could alternately elect to take a one-third share in the partnership assets valued as of the date of the entry of judgment.

Defendants subsequently failed to submit their accounting within the specified 60-day period and, in a letter to the court dated December 11, 1970, plaintiff requested an order permitting it instead of defendants to prepare and file an accounting. The court declined to grant this order immediately and, in its discretion, granted defendants an extension until January 4, 1971. Defendants, however, failed to submit their accounting before the expiration of the extension and, on January 11, 1971, the court issued a supplementary order in which it foreclosed defendants from submitting an accounting, permitted plaintiff to do so instead, and assessed attorneys' and accountants' fees against defendants. Defendants subsequently appealed from this order.

While the appeal was pending, however, plaintiff submitted its accounting in which its share of the partnership was valued at $429,180.71. Thereafter, on May 6, 1971 plaintiff moved for confirmation of its accounting and for recovery of its specified share from defendants. Plaintiff also sought various fees and expenses as well as the right to retain the option of receiving a share in net worth of the partnership as of the date of the interlocutory judgment.

This motion was heard by Special Term on May 18, 1971 and on October 20, 1971 it entered an order declining to confirm plaintiff's accounting. Instead the court directed that all contested matters in the account should be submitted to a referee. However, it also held that, inasmuch as plaintiff's accounting relied primarily upon the Jeffers appraisal which was prepared before the original trial of this action and, inasmuch as defendants had previously stipulated to the preparation of that appraisal, plaintiff's computations as to the fair market values of the partnership assets would be binding on the parties in the trial before the referee. Defendants also appealed from this order.

Prior to the submission of this case to the referee, defendants' appeals from this order and from the supplementary order of January 11, 1971 were heard and decided by this court. In a unanimous decision made February 25, 1972 (Rosen v. Rosen, 38 A.D.2d 881, 329 N.Y.S.2d 507) we ruled that the motion requesting that defendants be foreclosed from submitting an accounting and that plaintiff be permitted to submit an accounting instead failed to conform to the notice requirements of CPLR 2214 and that the resulting supplementary order of January 11, 1971 must be reversed. Since there was, therefore, no legal authorization for plaintiff's submission of an accounting, the subsequent order of October 20, 1971 which referred the accounting to a referee was held to be a 'nullity'. Accordingly, we denied plaintiff's motion to foreclose, thus permitting defendants to submit their own accounting as originally directed in the interlocutory judgment, setting forth the value of the partnership assets as of December 31, 1964 as well as the profits of the partnership inclusive from 1965 to 1970. Inasmuch as this decision nullified Special Term's order that the previous appraisals would be controlling, the issue of the fair market value of the partnership assets was again opened to litigation.

Thereafter, on March 9, 1972 defendants submitted their accounting. Prior to the service of its objections plaintiff moved to compel defendants also to submit an accounting for 1971, including the production of income statements and tax returns for that year. Additionally, plaintiff sought the appointment of a receiver and the immediate payment of a part of its claim. Defendants, in turn, cross-moved for confirmation of their accounting or, in the alternative, for an order requiring plaintiff to elect a recovery option and to produce the estate tax returns in which the value of Harold Rosen's share in the partnership had been set forth.

These motions were argued on June 27, 1972. In...