Spector v. Realty Capital Co.

Decision Date02 December 2015
Docket NumberNo. 2178,2178
CourtCourt of Special Appeals of Maryland


*Zarnoch, Reed, Kenney, James A., III (Retired, Specially Assigned), JJ.

Opinion by Zarnoch, J.

* Zarnoch, Robert A., J., participated in the conference of this case while an active member of this Court; he participated in the adoption of this opinion as a retired, specially assigned member of this Court.

** This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

This dispute between members of inter-related business entities comes to us from the Circuit Court for Montgomery County. Appellants/Cross-Appellees Jack Spector ("Spector") and Roslyn Spector ("Roslyn") ("the Spectors") owned, as tenants by the entirety, a majority interest in Appellees/Cross-Appellants Realty Capital Company II, L.L.C. ("RCC II") and RCC Asset Management Company, L.L.C. ("RCCAMC") ("the Entities"). Appellee/Cross-Appellant Elliot Liffman ("Liffman") owned a minority interest in both RCC II and RCCAMC.

In February 2003, Spector and Liffman created RCC II, a private equity commercial real estate investment firm that participated in certain real estate ventures. They also created RCCAMC in January 2007 to provide management services to RCC II's real estate ventures. The parties entered into separate operating agreements with identical terms for both RCC II and RCCAMC. Spector was President, Liffman was Vice President, and both were on the management committees of each entity.

Spector was an experienced real estate developer with an extensive knowledge of Real Estate Investment Trusts (REITs)1 and other real estate investment vehicles. At some point prior to 2005, however, Spector incurred more than $750,000 in tax liability to the Internal Revenue Service. The substance of this appeal from the circuit court concerns what happened afterwards.

In September 2005, Liffman discovered that Spector "had been paying himself alot more than he should have been paying himself" out of RCC II's accounts (the "Cash Transactions") and that Spector was using the company American Express credit card more than expected (the "Credit Card Transactions"). Liffman drafted a memorandum to him expressing his concerns and recommending certain actions. Spector claims to have disputed these allegations orally and in writing. In a meeting with company counsel Joel Silver on October 3, 2005, Liffman drafted a handwritten document reflecting the parties' discussions.

Liffman later testified that in October 2007, he discovered that Spector "had authorized the company to take an advance from its line of credit in the amount of $150,000," wrote himself a check in that amount, deposited it in his personal account, and then, recorded the transaction in RCC II's books and records (the "Line of Credit Transaction"). The parties met to discuss the dispute. Appellees contend that Spector "apologized, admitted it was wrong, said he wouldn't do it again, and said he would pay it back as soon as he could, and explained why he did it, which was because he needed money."

In 2010, Liffman discovered that Spector "had written a series of checks . . . drawn on [an] account that RCC maintained . . . for various ventures." Liffman also found that "these were checks that were in the main made payable to RCC II [or RCCAMC]. They were recorded on the books of the respective ventures as being generally for consulting fees." Spector wrote these checks from the ventures' accounts, endorsed them to himself, and deposited them into his personal Eagle Bank checkingaccount (the "Check-Writing Transactions"). On January 29, 2010, the parties met to discuss the Check-Writing Transactions and Spector apologized, explaining, "I just needed the money."

On February 1, 2010, Liffman received an unsigned email that appeared to have been written by Roslyn Spector:

First of all, if it weren't for Jack, you wouldn't have a job or the knowledge of the business. I am sure that you do your share, but nobody is indispensable. We are having some very hard times now. We are not as fortunate as you to have wealthy relatives to help us out in times of need. For you to disrespect Jack the way you do is sickening. He is not taking anything away from you, nor would he ever. You get what you deserve. Yes, maybe he should have told you first, but the manner in which you treated him in the beginning was out of line, especially to someone who is much older than you. He, of all people, is not a criminal and to treat someone like that is horrific. There are people that you personally know that would fend for themselves first and not care about anybody but themselves. You forgot how much of the company he gave to you at first. NOBODY WOULD EVER DO THAT. PEOPLE TOLD JACK HE WAS CRAZY FOR DOING THAT!! How quickly we forget. I think you should reflect on where you have come since the onset of the company. You may be book smart, but you need to learn how to deal with people and be more considerate to those who have helped you. You can't learn that in books. This is also a business dealing with people, not just dealing with a computer all day. If I were you, I would really think about all the progress the company has made and how Jack played and plays a major part. Frankly, my one and only concern is my husband.

Liffman forwarded the email to Spector, who responded, "I'm sorry about that. Listen, you know what she's like."

Liffman subsequently secured a third-party audit, and also conducted a personal audit, to investigate Spector's alleged misuse of company funds. He reviewed the Cash Transactions, the Credit Card Transactions from February 13, 2003 to March 22, 2010,the Line of Credit Transaction, and the Check-Writing Transaction. Liffman stated that he determined whether a Credit Card Transaction was personal in nature based "on the date, the location, and just the general context." During this period in 2010, Liffman did not sign Spector's "monthly check" for officer compensation. Liffman explained this denial to Spector, saying: "You owe the company a ton of money. I'm not paying you." In February 2010, Spector received his final officer compensation check of $14,583; Liffman received $10,416 at that time.

Liffman, Silver, and Spillman Short, an attorney for RCCII, held a meeting on April 27, 2010 with Spector in which they summarized their findings. Spector denied the allegations that he had spent funds without authorization and he "declared war." Over the next few weeks, Liffman stated that he received a call and a subsequent voicemail from Roslyn, both "filled with general profanities."

In September 2010, Liffman requested that Spector stop initiating Automated Clearing House transactions ("ACH Transactions") from RCC II's bank accounts. Liffman testified that Spector had initiated these ACH Transactions to pay his RCC II credit card bills, which he had incurred for allegedly "personal" charges.

On November 19, 2010, Appellees filed a Complaint against the Spectors in the circuit court, which was followed by the filing of an Amended Verified Complaint seeking a preliminary and permanent injunction, a declaratory judgment, and damages. The ten-count complaint alleged constructive fraud, civil conspiracy, and breach of operating agreement as related to both RCC II and RCCAMC. The complaint alsosought declarative and injunctive relief removing Spector from his management position and stripping him of his rights under the operating agreement. Effective January 1, 2011, Spector resigned from the Management Committee.

On January 10, 2011, Circuit Judge Ronald B. Rubin granted Appellees a preliminary injunction, which, among other things, enjoined Spector from taking part in the management of the entities; appointed his son, Adam Spector, as a member of the committee in Spector's place; and appointed Theodore P. Stein as Special Fiscal Agent. After the injunction was entered, the court noted that "conflicts between Spector and Liffman continued even after Stein was appointed." Among other things, the court found that Adam Spector lacked the business acumen to make decisions on the Management Committee, and that he had sent emails written by Jack Spector and "passed them off as his own." Additionally, the court found that Spector "attempted to divert company opportunities and leverage business opportunities for his own personal advantage, even after the [c]ourt entered the preliminary injunction."

On June 16, 2011, the court granted Appellees' motion for a modified preliminary injunction.2 This injunction prohibited Spector from "taking any part in the management of RCCII and RCCAMC in any capacity or for any purpose," including authorizing debts or writing checks on behalf of the entities. The injunction also "restrained and enjoined" the Spectors from having any contact with Liffman or any of his family members.Furthermore, the court appointed Joel Silver and Spillman Short to the Entities management committees of the entities, and removed Stein from his role as Special Fiscal Agent.

On December 29, 2011, Spector was indicted on eight counts of felony theft, Md. Code (2002, 2012 Repl. Vol.), Criminal Law Article ("CL") § 7-104, and one count of embezzlement, CL § § 7-113, for the same actions underlying this case. On July 20, 2012, Spector pled guilty in the circuit court to one count of felony theft of $108,500.00 from the Ventures. The facts upon which the plea was based were the same as those offered by the entities in support of their constructive fraud claim and, in particular, the "Check Writing Transactions" allegations. On October 17, 2012, the court sentenced Spector to 12 years of incarceration, with all but 18 months suspended, conditioned on 4 years of supervised...

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