Silverstein v. Last

• Decision Date: 07 February 1978
• Citation: 383 A.2d 718,156 N.J.Super. 145
• Parties: Herman C. SILVERSTEIN, Plaintiff-Appellant, v. Aaron LAST and Amber Corporation, a corporation of New Jersey, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 145

156 N.J.Super. 145

383 A.2d 718

Herman C. SILVERSTEIN, Plaintiff-Appellant, v. Aaron LAST and Amber Corporation, a corporation of New Jersey, Defendants-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued Dec. 12, 1977.

Decided Feb. 7, 1978.

Joel N. Kreizman, Rumson, for plaintiff-appellant (Evans, Koelzer, Marriott & Osborne, Rumson, and Clapp & Eisenberg, Newark, co-attorneys).

Francis X. Kennelly, Jersey City, for defendants-respondents (Schumann, Hession, Kennelly & Dorment, Jersey City, attorneys; Kenneth J. Quinn, Jersey City, on the brief).

Before Judges CONFORD, MICHELS and PRESSLER.

The opinion of the court was delivered by

PRESSLER, J. A. D.

Plaintiff Herman C. Silverstein brought this accounting action complaining of various breaches of the fiduciary duty owed him by his joint adventurer, defendant Aaron Last, with whom he owned as tenant in common five apartment houses in Jersey City, all of which were managed by defendant Amber Corporation (Amber), a corporation wholly owned and operated by Last. The trial court, after a fifteen-day trial, disallowed all of plaintiff's claims. We are constrained to reverse.

The historical and relational facts as opposed to the financial facts may be briefly stated. Silverstein and Last, both attorneys-at-law of this State, had been close friends from boyhood, their relationship enduring until early 1971 when Silverstein believed that he had good reason to suspect Last's probity in respect of the manner in which Amber had managed their joint property interests for the 35 years last past. Up until that point Silverstein, an experienced real estate lawyer, had left the management of the properties to Last, who was the real estate management expert of the two, pursuant to an oral agreement whereby Last, through Amber, was to charge a management fee, which rose through the years from three to five per cent of gross rents received. It was their practice for Amber to provide Silverstein with an annual year-end financial report consisting of a one-page statement of assets and liabilities and a one-page statement of income and expenses, broken down as to each property. The expense statement was abbreviated and categorical, simply noting the total amounts for each of the customary categories, such as maintenance and repairs, taxes, insurance, the various utilities, janitorial services, mortgage costs, depreciation and management. Silverstein, who reposed special trust and confidence in Last not only because of Last's expertise but also because of their personal relationship, generally accepted these statements without question and certainly without himself or others on his behalf auditing the Amber books or otherwise corroborating their accuracy and correctness. Early in the joint venture relationship, which began in 1946, Silverstein's accountants had apparently from time to time reviewed Amber's books, but that practice had been long since discontinued. Silverstein's active participation in the affairs of the joint venture was to provide legal services required in the acquisition and sale of the properties themselves and in their financing and refinancing. It is clear that neither his legal services nor his direct participation extended to matters of day-to-day management.

As the personal relationship between Silverstein and Last began to disintegrate in 1971, so did their business relationship and after various unsuccessful attempts to compromise their differences and to disengage amicably, their affairs reached a point of hopeless impasse and this action was accordingly commenced. Silverstein originally sought not only a full accounting of the rents, issues and profits of the five properties, two of which had been sold prior to the rupture, but also an operating receiver of the three properties they continued to hold. He also demanded punitive damages. Last counterclaimed, seeking reimbursement for a variety of alleged property expenses incurred by Amber over the years which Amber allegedly had inadvertently neglected to charge against Silverstein's account. ¹ Prior to trial the parties agreed to retain a named managing agent for the properties at a management fee of four percent of gross rentals, rendering the receivership application moot. Also on pretrial application, an order was entered on May 3, 1974 directing Last and Amber to accord plaintiff's accountant full access to the books and records relative to the five properties. Partition sale of the three properties still owned by them was also directed, but not to take place until "after this Court had determined the amount, if any, due plaintiff by defendants in connection with the said five properties and the mortgages thereon." Extensive auditing of Amber's records by plaintiff's representatives ensued, a process made inordinately burdensome and time-consuming, so plaintiff alleges, as a result of the refusal of Last and his representatives to reasonably cooperate. In any event, trial commenced in November 1975 before final completion of plaintiff's ongoing audit.

Despite the magnitude and number of the specific charges made by both Silverstein and Last against each other, we must observe at the outset that these ventures were generally quite profitable to both participants, that Silverstein received regular periodic distribution, and that there is neither allegation nor proof of gross defalcation on Last's part. Rather, the picture which ultimately developed at trial was, if anything, one of relatively minor overreaching by Last. We do not make that observation to deprecate any degree of overreaching by a fiduciary but rather to clarify the proportion and dimension of the controversy. The asserted wrongdoing was alleged to be wrong, not because the conduct was necessarily commercially unreasonable or resulted in gross mismanagement of the properties or in substantial prejudice to plaintiff's financial interests but rather because it failed to comport with the standard of conduct imposed by law on a fiduciary, who is not merely prohibited from making an inordinate profit from his fiduciary position but from making any undisclosed profit at all therefrom. It is essentially Last's alleged undisclosed profiting at the expense of the joint venture for which this action seeks vindication and damages.

Out of the great number of specific claims of violation of fiduciary duty raised by plaintiff at trial, some ten categories of improper charging by defendants to the account of the joint venture are being pursued on this appeal. Since for the reasons hereafter stated we are satisfied that the trial court's "no-cause" conclusion must be reversed and that there must be a retrial as to these ten categories as well as the issue of punitive damages, we will deal with each of them hereafter with specificity. Suffice it to say at this point that plaintiff at least prima facie did prove some degree of overreaching by defendants and that the trial judge's denial of relief to plaintiff despite these proofs proceeded from a misconception of the nature of the joint adventurer relationship which was so fundamental as to infect all its subsequent findings and to render them, in the appellate context, unreliable and unsustainable.

The basic error of the trial judge lay in his apparent failure to appreciate that while the Last-Silverstein relationship was, as a matter of technical classification, indeed a joint adventure or a series of joint adventures rather than a partnership, nevertheless, in terms of the fiduciary obligations owed by one participant to another and particularly by the managing participant to the other, the classification is immaterial. A joint adventurer owes no less a fiduciary duty to his co-adventurer than does one partner to the other. As expressed in Bowne v. Windsor, 106 N.J.Eq. 415, 416, 151 A. 124 (Ch.1930), aff'd o. b. 108 N.J.Eq. 274, 154 A. 768 (E. & A. 1931), "The relation of joint adventurers, like that of co-partners, is fiduciary, one of trust and confidence, calling for the utmost good faith, permitting of no secret advantages or benefits." That principle of law continues with undiminished vitality. See, e. g., Wiley v. Wirbelauer, 116 N.J.Eq. 391, 392, 174 A. 20 (Ch.1934); Cooperstein v. Shapiro, 118 N.J.Eq. 337, 340, 179 A. 29 (E. & A. 1935); Stein v. George B. Spearin, Inc., 120 N.J.Eq. 169, 184 A. 436 (Ch.1936); Plant-Erickson v. Ditter, 131 N.J.Eq. 163, 165, 24 A.2d 379 (Ch.1942); Wittner v. Metzger, 72 N.J.Super. 438, 444, 178 A.2d 671 (App.Div.1962), certif. den. 37 N.J. 228, 181 A.2d 12 (1962); Grober v. Kahn, 47 N.J. 135, 149, 219 A.2d 601 (1966); 68th St. Apts., Inc. v. Lauricella, 142 N.J.Super. 546, 559, fn. 2, 362 A.2d 78 (Law Div.1976), aff'd 150 N.J.Super. 47, 374 A.2d 1222 (1977). See Stark v. Reingold, 18 N.J. 251, 261, 113 A.2d 679 (1955). It is also a necessary corollary of this rule that the managing joint adventurer, like the managing copartner, has concomitantly the strictest possible obligation to a coadventurer since the mutual affairs are delegated to his supervision and control without expectation or anticipation by either of routine inference or monitoring on the part of the nonmanaging venturer.

It is evident that the trial judge did not purport to assess Last's conduct by the required fiduciary standard. In appraising plaintiff's proofs the judge concluded, virtually unsupported by findings of fact as to specific claims of Last's personal profiteering, as follows:

I am satisfied from all of the evidence before me and so find that Last and Amber did not use or misuse funds from the corporate general account for the personal benefit of Last. Furthermore, there is no convincing evidence of mismanagement or waste on the part of defendants.

Reference to Amber's general corporate account is not responsive to the claim of excess billing to the joint venture, and the concept of waste and mismanagement is not responsive to the...