Stainton v. Tarantino

• Decision Date: 25 June 1986
• Docket Number: No. 84-5619.,84-5619.
• Parties: Edward STAINTON and Christine Stainton, Plaintiffs, v. Thomas TARANTINO and Morgan Jones, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

637 F. Supp. 1051

Edward STAINTON and Christine Stainton, Plaintiffs, v. Thomas TARANTINO and Morgan Jones, Defendants.

No. 84-5619.

United States District Court, E.D. Pennsylvania.

June 25, 1986.

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John M. Elliott, Baskin, Flaherty, Elliott & Mannino, Philadelphia, Pa., for plaintiffs.

Seymour I. Toll, Philadelphia, Pa., for Thomas Tarantino.

Allen D. Black, Philadelphia, Pa., for Morgan Jones.

MEMORANDUM, ORDER AND JUDGMENT

KATZ, District Judge.

This case illustrates what happens when ordinary contract and professional malpractice claims are dressed in the costume of RICO. A simple claim that a wealthy investor in real estate tax shelters and his difficult wife were frozen out of future deals by a parvenu becomes an exaggerated struggle between good and evil. A marginal claim that an overly busy lawyer out to get business neglected a matter becomes a vast conspiracy between a lawyer and his client to retire on the money of a rich investor. What is portrayed as the grand opera of racketeering turns into a dreary Chestnut Hill soap opera with thin jury questions.

After a three week trial, the jury bought none of it. There was ample evidence to support the jury's verdict for defendants. Now I am left to decide whether to dissolve some of the partnerships in which the parties were involved. I will not.

In Counts VIII and Count IX of their Second Amended Complaint, plaintiffs ask this Court to dissolve the Epictetus Associates and Highland Partners partnerships. Plaintiffs allege that Tarantino breached fiduciary duties he owed the plaintiffs and breached provisions of the partnership agreements in question. Plaintiffs contend that Tarantino's conduct constitutes circumstances requiring a judicial decree of dissolution of the two partnerships pursuant to 59 Pa.Cons.Stat.Ann. § 354(a)(4) and § 354(a)(6) (Purdon 1985).

Plaintiffs also ask this Court to rescind an amendment to the Epictetus Associates General Partnership Agreement, to dissolve Epictetus Associates and Highland Partners, order an accounting of these partnerships and appoint a receiver for the purposes of winding up the affairs of these partnerships.

In their Proposed Findings of Fact and Conclusions of Law, plaintiffs, for the first time, ask this Court to dissolve the Epictetus I and Blair Hall partnerships, order an accounting of these partnerships and appoint a receiver for the purposes of winding up partnership affairs. Plaintiffs base their demand for dissolution on alleged breaches of fiduciary duty, fraud, and violations of Pennsylvania partnership law.

Defendant Tarantino, in his Proposed Findings of Fact and Conclusions of Law, for the first time, asks this Court to dissolve Epictetus Associates. Tarantino contends that Mr. Stainton wrongfully dissolved the partnership by his express will to end his business relationship with Tarantino. See 59 Pa.Cons.Stat.Ann. § 353(2). Tarantino requests that he be allowed to buy out Mr. Stainton's interest in Epictetus Associates and continue to run the partnership, pursuant to 59 Pa.Cons.Stat.Ann. § 360(b)(2).

For the reasons set forth below, judgment will be entered against plaintiffs and for defendants on Counts VIII and Count IX of plaintiffs' Second Amended Complaint. All other relief is denied.

The following are my Findings of Fact and Conclusions of Law with respect to Count VIII and Count IX of plaintiffs' Second Amended Complaint.

FINDINGS OF FACT

1. Plaintiff Edward Stainton (hereafter "Mr. Stainton") is a very wealthy investor of an inherited fortune and chairman of the Creative Arts Department at a private school in Philadelphia. N.T. 5-19 to 5-20; 5-153 to 5-154; 5-159 to 5-167; 6-27 to 6-34.

2. Plaintiff Christine Stainton (hereafter "Mrs. Stainton"), Mr. Stainton's wife, is active in volunteer groups. N.T. 5-56.

3. Defendant Thomas Tarantino (hereafter "Tarantino") is a real estate promoter and also educated as a certified public accountant and an attorney. N.T. 1-88; 5-159 to 5-160.

4. Defendant Morgan Jones (hereafter "Jones") is a partner in a large Philadelphia law firm. N.T. 6-105; 6-148; 14-81 to 14-83.

5. The original Complaint in this matter was filed on November 15, 1984 and demands a jury trial. The First Amended Complaint was filed on April 12, 1985 and demands a jury trial. The Second Amended Complaint was filed on October 1, 1985 and demands a jury trial.

6. The Second Amended Complaint includes in Counts VIII and IX a demand for dissolution of two of the partnerships in which the parties were involved, Epictetus Associates and Highland Partners. Plaintiffs also demand that the Court rescind an Amendment to the Epictetus Associates General Partnership Agreement on the grounds that it was obtained by fraud. Dissolution is demanded pursuant to 59 Pa.Cons.Stat.Ann. § 354(a)(4) and § 354(a)(6) (Purdon 1985).

7. Plaintiffs' demands for dissolution of Epictetus Associates and Highland Partners are premised on allegations that Tarantino breached fiduciary duties to plaintiffs and that such breaches constituted violations of the partnership agreements as well as violations of Pennsylvania law. Plaintiffs also contend that defendants violated various provisions of the Racketeer Influenced and Corrupt Organizations Act (hereafter "RICO") (18 U.S.C.A. § 1961 et seq.) (West 1984) and committed professional malpractice.

8. In their Proposed Findings of Fact and Conclusions of Law, plaintiffs ask this Court to dissolve the Epictetus I and Blair Hall, Ltd. partnerships. Plaintiffs allege that Tarantino misappropriated partnership funds and fraudulently reduced Mr. Stainton's interest in the Blair Hall partnership.

9. Plaintiff also allege that Tarantino has failed to provide the Staintons with any financial information regarding the partnerships since October, 1984.

10. In addition plaintiffs request a judicial decree of dissolution on the grounds that Tarantino's conduct has prejudicially affected the carrying on of the partnership business and because the differences between the parties are unreconciliable. 59 Pa.Cons.Stat.Ann. § 354(a)(3).

11. Plaintiffs did not request dissolution of the Blair Hall or Epictetus I partnerships in their Second Amended Complaint.

12. None of the partnerships involved are named as parties to this lawsuit.

13. Defendant Tarantino first met the Staintons in 1978 while he was employed as a certified public accountant by a large accounting firm in Philadelphia. N.T. 3-13, 5-18.

14. While employed by the accounting firm, Tarantino prepared the plaintiffs' tax returns (N.T. 1-99 to 1-101; 3-11); Mrs. Stainton's will (N.T. 1-96); codicils for Mr. Stainton's will (N.T. 1-96); trust agreements for their daughter (N.T. 1-96; 1-127, 5-158 to 5-159); and the partnership agreements for Epictetus Associates and Highland Partners (N.T. 1-104; 1-121; 2-66; 5-167). Tarantino also reviewed an offering memorandum on Mr. Stainton's behalf. N.T. 1-109 to 1-111; 5-159 to 5-160.

15. Tarantino denied that he was the Staintons' attorney. See e.g., N.T. 1-92; 1-109; 2-12; 2-16. Tarantino claimed he acted as the Staintons' business partner in the real estate transactions at issue and that he performed legal and accounting services for the partnerships in question as part of his duties as general and managing partner. N.T. 1-94; 1-100; 1-109; 2-12; 2-16; 2-19; 2-26; 2-51 to 2-52.

16. Tarantino also discussed investment and other financial matters with Mr. Stainton (N.T. 1-89 to 1-90; 1-98 to 1-99) in addition to other financial services he performed for the Staintons. N.T. 3-9 to 3-12; 5-158 to 5-167.

17. Some time after meeting the Staintons, Tarantino recommended that plaintiffs invest in real estate as a tax shelter for their unearned income. N.T. 5-23. Defendant Tarantino advised plaintiffs to purchase an apartment building in Philadelphia called Highland Court. N.T. 5-62; 5-163 to 5-167.

18. Tarantino created a two-tiered partnership structure to purchase Highland Court. N.T. 2-26 to 2-32.

19. Tarantino and Mrs. Stainton formed a general partnership called Epictetus Associates. Epictetus Associates then became one of the limited partners in an existing limited partnership, Highland Partners, which owned Highland Court at the time of purchase. N.T. 2-62 to 2-68.

20. One of the limited partners in Highland Partners continued in the partnership after the sale of the building in order to keep the partnership from dissolving and thus avoid the imposition of realty transfer taxes. N.T. 2-62 to 2-63.

21. This "carryover" limited partner is not named as a party to this suit.

22. Plaintiffs contended at trial that the two-tiered partnership structure was a device Tarantino used to exclude Mr. and Mrs. Stainton from participating in the partnership business and to gain control of Highland Court while misrepresenting to the Staintons that they would be owners of Highland Court. See N.T. 2-27 to 2-28; 2-36.

23. However, I credit Tarantino's testimony in this matter. Tarantino testified that the two-tier partnership structure was designed to protect the Staintons' assets from potential liability and to give Tarantino, as general partner of Epictetus Associates and Highland Partners, the authority to conduct the partnership business. Mr. Stainton had advised Tarantino that he wanted to minimize his tax liability and also protect the Staintons' assets from potential liability. The Staintons also wanted their interest in the partnerships kept from public knowledge. N.T. 2-28 to 2-30; 2-43; 2-64; 5-70; 5-96; 5-99 to 5-100; 6-64 to 6-65.

24. The lack of any sinister motive on Tarantino's part for devising the two-tier partnership structure is also demonstrated by the fact that Tarantino gave Mr. Stainton a general power of attorney to act in the former's stead as the general partner of both Highland Partners and Epictetus Associates. N.T. 2-29 to 2-30; 2-64 to 2-65; 2-68;...