Sankin v. 5410 Connecticut Avenue Corporation, Civ. A. No. 1493-59

CourtUnited States District Courts. United States District Court (Columbia)
Citation281 F. Supp. 524
Docket NumberCiv. A. No. 1493-59,4002-60.
Decision Date18 January 1968




Edward L. Genn, Washington, D. C., for plaintiff Sankin.

Vail W. Pischke, Falls Church, Va., for defendant 5410 Connecticut Avenue Corporation and intervenor-defendant Pardo.

William H. Deck, Washington, D. C., for defendant James T. Benn.

Benjamin W. Dulany, Washington, D. C., for defendants Joseph A. Garfield and Janet Garfield.

John A. Beck, Washington, D. C., for intervenor-defendants Whiting, Betoff, Winn and Aileen A. Link, Executrix of the Estate of Harry W. Link.

Joseph Pardo, Miami, Fla., pro se.


WILLIAM B. JONES, District Judge.

This multiclaim action resulted from certain fraudulent dealings with respect to an apartment house property situated in the District of Columbia. At issue are the claims asserted by plaintiff Sankin in his complaint against all defendants in Civil Action No. 1493-59; claims asserted in a complaint in intervention; and claims asserted in two counterclaims, four cross-claims and plaintiff Benn's complaint in Civil Action No. 4002-60.1

From the evidence adduced at the trial of these actions I find the following facts:

Plaintiff Julius Sankin (Sankin) and defendant Joseph Garfield (Garfield) are related through marriage; Herman Mankes (not a party) being Garfield's uncle and Sankin's father-in-law. Prior to 1956, Mankes, Sankin and Garfield were interested in an apartment project in the District of Columbia known as the Livingston Apartments. That enterprise being successful, Sankin and Garfield entered into a partnership in 1956 for the purpose of purchasing a suitable site in the District of Columbia and constructing thereon another apartment building. That partnership was known as Garfield and Sankin. Sankin ascertained that property situated at 5410 Connecticut Avenue, N. W. could be purchased and in April 1956 that property was acquired in the name of Sankin and Garfield individually. The greater part of the funds necessary to effectuate the purchase was advanced by Garfield.

In August 1957 Garfield and Sankin entered into a written agreement for the purpose of defining their respective partnership rights and obligations in the property they proposed to develop. That agreement provided that while Garfield was to have a 2/3 interest with respect to the profits and losses and Sankin a 1/3 interest, the latter was to have an equal voice with Garfield in all decisions affecting the undertaking and property. Garfield was to advance such funds as might be required in excess of the mortgage financing for the construction of the proposed building. It was estimated that those advances would approximate $150,000.00. Garfield was to be paid 6% per annum on the money advanced with a minimum of $17,500.00. Sankin was obligated to plan the building, apply for a F.H.A. commitment, attempt to secure satisfactory mortgage money and to build the apartment building. For his contribution to the undertaking Sankin's services were to be valued at the rate of $300.00 per week from the date the land was acquired in April 1956 until the building was completed and, if the total of that sum together with the total of fees to be paid to building consultants did not exceed $45,000.00, Sankin was to receive an additional equity of $2,500.00.

In the latter part of 1957 an F.H.A. commitment was obtained but Sankin and Garfield concluded it was not feasible to construct the apartment building due to the unfavorable financing terms then available. The parties thereafter agreed to sell the property, together with an assignment of the F.H.A. commitment, building permits, and architectural and engineering plans. On that sale they received a $50,000.00 deposit, which in this case has been referred to as the "Woodner deposit." The purchaser thereafter breached the contract and Garfield and Sankin individually declared the deposit forfeited. The purchaser brought an action to recover the deposit but without success.

In the spring of 1958 Sankin and Garfield decided to proceed with the construction of the apartment building. For that purpose in April 1958 two corporations were incorporated under the laws of the District of Columbia. Garfield and Sankin, Inc. was the corporation created for the purpose of owning and operating the apartment property. Julius Sankin, Inc. was incorporated for the purpose of constructing the building. In the case of each corporation 100 shares of stock were issued, of which Garfield owned 66 2/3 shares and Sankin 33 1/3 shares. On May 1, 1958 Garfield and Sankin entered into a written stockholders' agreement with respect to each corporation. By the terms of those agreements Garfield and Sankin had an equal voice in the affairs of each corporation notwithstanding Garfield's ownership of 66 2/3 shares compared to Sankin's 33 1/3 shares. Moreover, Garfield and Sankin each agreed that he, his heirs and assigns would not dispose of any of his shares without first offering the same to the other. Although not incorporated in their written May 1, 1958 agreements, Garfield and Sankin contemporaneously orally agreed that, in the event either party wished to dispose of his stock, the other party in exercising his right of first purchase was to pay the seller either the reasonable value of the stock at the time of purchase or an amount equal to that offered the seller by a bona fide purchaser for value.

The stock certificates issued by each corporation to Sankin and Garfield set forth no restrictions as to voting rights nor notice of the right of first purchase by a stockholder. Counsel for the corporations advised Garfield and Sankin of the desirability to include such information on the stock certificates. However, Garfield requested that no such legend be placed on the certificates as he did not want his wife to be informed of the facts. Sankin consented.

Following the creation of the two corporations F.H.A. financing was obtained and the construction of the apartment building to be known as the Garfield Apartments was begun. Sankin was in charge of the work while Garfield, whose home was in Florida, intermittently came to Washington in connection with the project. Commencing with May 1, 1958, Sankin, with the consent of Garfield, began to draw the $300.00 a week compensation agreed to in their August 1957 agreement. Under that agreement $32,000.00 had accrued to Sankin from April 1956 (purchase of property) to May 1, 1958. Also there was $7,500.00 on the books of Garfield and Sankin, Inc. which Sankin had advanced at the time of the purchase of the property — the amount remaining after a $5,000.00 withdrawal by Sankin from the $12,500.00 originally advanced by him.

Prior to May 1, 1958, Garfield had advanced to the Garfield-Sankin partnership $164,500.00 for the purchase of the land on which to construct the building and to defray costs of development. On May 29, 1958 Garfield advanced $25,000.00 to Garfield and Sankin, Inc. for the apartment building purposes.

By late February or early March 1959 Garfield had become dissatisfied with his relations with Sankin. It was then for the first time that Garfield disclosed to his wife Janet that, while he owned 66 2/3 percent of the shares of Garfield and Sankin, Inc. and of Julius Sankin, Inc., he had agreed that Sankin should have an equal voice in the affairs of the corporations. The Garfields determined that Sankin's voting power should be limited to his one-third interest in each corporation, but they did not make known their intention to Sankin. Instead, Janet suggested to her husband that he confer with defendant James Benn in Miami, Florida. She described Benn as a person professing to understand legal technicalities and as an international business man. Garfield knew Benn having had prior unpleasant and unprofitable business dealings with him. But not known to Garfield was the fact that his wife Janet and Benn were at that very time involved in an affair and that they intended to divorce their respective spouses and marry once Benn had settled his income tax difficulties with the United States Government. Moreover, Garfield did not know that Benn had on several occasions asked Janet to obtain for him an interest in the Garfield apartment project.

On March 14, 1959 the Garfields met in Miami with Benn at the office of intervenor-defendant Joseph Pardo, Benn's attorney. During a two hour conference the Garfields explained to Benn the problem of the voting rights and showed him the May 1, 1958 agreements of Sankin and Garfield with respect to their stock interests in both Garfield and Sankin, Inc. and Julius Sankin, Inc. The Garfields also showed Benn all the other documents relating to the apartment project except Garfield's cancelled checks evidencing his advances to the corporations. Benn advised Garfield that he would investigate the situation and devise a plan for restoring to Garfield his full voting rights.

On April 4, 1959 Benn again met with the Garfields and told them that he had investigated Sankin and that Garfield's suspicions were well founded — that Sankin was a fraud and was robbing Garfield. He further stated that he, Benn, had devised a legal method of insuring Garfield his full voting rights. Benn further stated that he was advising and assisting Garfield to make up for the loss sustained by Garfield in their prior business transactions and that he would accept no pay for his services except possibly $500.00 with which he would buy a Government bond for the Garfields' daughter, Linda.

The plan conceived and urged upon the Garfields by Benn provided for the sale of Garfield's stock in Garfield and Sankin, Inc. to a corporation which Benn stated would be wholly owned by Garfield. This sale, Benn advised the Garfields, would...

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