Verres Fin. Corp. v. Sowa
| Decision Date | 28 October 2013 |
| Docket Number | NO. 2009-CV-201,2009-CV-201 |
| Parties | Verres Financial Corporation v. Robert M. Sowa |
| Court | New Hampshire Superior Court |
The Plaintiff, Verres Financial Corporation ("VFC"), commenced a civil action against the Defendants, Robert M. Sowa ("Mr. Sowa") and his wife Joanne ("Mrs. Sowa") along with a number of other defendants1 in 2009, alleging conversion, civil conspiracy, fraud, violations of RSA 358-A, fraudulent misrepresentation, and constructive trust. Mr. Sowa asserted a number of counterclaims, including breach of partnership agreement, breach of contract, conspiracy to breach partnership agreement and or contract, tortious interference with partnership agreement, a petition for accounting from various entities, spoliation, unjust enrichment, breach of fiduciary duty, enhanced compensatory damages, fraud, and piercing the corporate veil. Both parties have asserted a number of affirmative defenses. This case was tried to the Court.
For the reasons stated in this Order, the Court finds for VFC and against Mr. Sowa in the net amount of $946,794.74. As explained in this Order, the Court finds thatMr. Sowa's liability to VFC exceeds VFC's liability to Mr. Sowa on Mr. Sowa's counterclaims in that amount. The Court finds against VFC and for Joanne Sowa on VFC's claims against her. The parties' claims and counterclaims are discussed and accepted or rejected as explained in the Order.
The sole shareholders of VFC are Adrienne and Peter Rolla, children of Mario Rolla a/k/a Mike Rolla, (collectively the "Rollas"). For many years Mario Rolla was a lawyer in the State of New York who focused on corporate and tax law. While practicing law, he established a number of manufacturing companies. He testified that his family controls VFC and a number of related companies. VFC is headquartered in New York but has locations all over the United States and China. According to Adrienne Rolla, the long standing secretary-treasurer of VFC, the Rolla-family companies have between 800 and 900 employees, with gross annual revenues of $150 million.
Mario Rolla met Mr. Sowa in the early 1980s. Mr. Sowa was an automobile salesman when they met. They began a business relationship in the 1980s by starting a business which purchased luxury automobiles and then leased them to consumers, a practice which was then unusual. To facilitate this business, essentially run by Mr. Sowa, Mr. Rolla established two divisions of VFC referred to as VFC-New Hampshire (or VFC-NH) and VFC-New York (or VFC-NY). Each division had separate accounting records. The money to run the VFC-NH business came from VFC-NY. VFC-NY would advance monies to VFC-NH as an open account; the New Hampshire books would show a debt to VFC-NY, and the VFC-NY division would accrue interest on a monthly basis.Monthly balance sheets and income statements were prepared and distributed to Mr. Sowa. Mr. Sowa was to be paid a monthly fee by VFC, and would receive 50% of the net profits of VFC-NH, that is, profits after the interest expense from funds advanced by VFC-NY were deducted.
As leasing automobiles became a common business practice, Mr. Sowa and Mario Rolla moved VFC-NH into other business ventures. During these years and into the 1990s, they continued to work together pursuant to an unwritten agreement that Mr. Sowa characterized as a partnership and Mario Rolla characterized as an independent consulting agreement. VFC continued to supply all of the money to fund New Hampshire operations. While Mr. Sowa was responsible for developing new businesses, he was unable to unilaterally pursue new business opportunities without Mario Rolla's approval. Mario Rolla described himself as the "gatekeeper" of the funds. (Trial Tr. Vol. 1, 20: 13-21:2, Dec. 7, 2011.) Mr. Sowa did not own an equity interest in any of the VFC corporations, (Tr. Vol. 1, 15:11-24; Trial Tr. Vol. 2, 224:4-20, Dec. 8, 2011), nor did he participate in absorbing any losses from VFC-NH. (Trial Tr. Vol. 6, 728:17-22, Dec. 19, 2011.)
By 2002, it had become clear that the structure of the operation was not a desirable one from the standpoint of Mr. Sowa. VFC-NH had begun acquiring real estate, and much of the real estate did not produce income. The current liabilities from VFC-NH to VFC-NY resulting from interest on funds advanced to purchase non-income producing properties exceeded $14 million.
Mario Rolla testified that the parties agreed to restructure their business operation so that Mr. Sowa would have the opportunity to achieve a bonus from theprofits generated. The agreement was memorialized in VFC's Exhibit 32, dated April 1, 2002 (the "Agreement"). However, neither party ever signed it. The Agreement is brief, and contains no merger clause; much of the testimony at trial concerned the parties' understanding of the rights and obligations under the Agreement.
Mario Rolla testified, in substance, that the Agreement was created to modify the existing agreement between the parties, and to provide Mr. Sowa with a greater opportunity to earn income. According to Mario Rolla, at the time the Agreement was drafted, the cash flow from VFC properties "was not sufficient to pay the real estate taxes and to pay interest" and Mr. Sowa felt "he could never see any performance bonus money." (Tr. Vol. 1, 23:15-22.) Under the Agreement, many of the non-income producing properties would be transferred to the New York books, reducing the debt service on the New Hampshire books. The debt was reduced from approximately $14 million to $2 million. (Tr. Vol. 1, 27:20-22.) In order to provide Mr. Sowa an incentive to sell properties being transferred to the New York books, it was agreed that Mr. Sowa would receive a commission of 5% of the selling price of all real estate held by VFC-NY when the property was sold.
The Agreement states that "[t]he purpose of these adjustments are to simplify, make more accurate and provide a real, immediate and fair incentive to the manager." (Pl.'s Ex. 32.) The document contains a section entitled "Compensation & Bonus plan for Manager (RMS)." (Id.) The document provides that the manager is entitled to "a) 50% of pretax profit of VFNH payable after year end closing[,] b) 5% of selling price on all real estate sold that was transferred to VFNY books[, and] c) 72K draw against #4a and 4b." (Id.) Mr. Sowa denies that he ever agreed to the terms of the 2002 Agreement.
While this case spanned 15 trial days, and the parties presented voluminous documentation in support of their respective positions, the parties' claims against each other can be stated succinctly. VFC claims that Mr. Sowa misappropriated its assets. Mr. Sowa claims that he had an equity right in VFC-NH, and that apart from that, the accounting between VFC-NY and VFC-NH was improper, and served to increase the amount of debt owed by VFC-NH and reduced its profit. VFC denies that a partnership existed, and denies that the accounting was improper.
To resolve the competing claims, the Court must first determine if a partnership existed. The Uniform Partnership Act, RSA chapter 304-A (2005), sets forth the law governing partnerships in New Hampshire. Swiezynski v. Civiello, 126 N.H. 142, 146 (1985). Whether a partnership exists is a mixed question of law and fact. Cadle Co. v. Bourgeois, 149 N.H. 410, 415 (2003). A partnership is defined as an "association of 2 or more persons to carry on as co-owners a business for profit and includes, for all purposes of the law of this state, a registered limited liability partnership." RSA 304-A:6, I. The association must be voluntary and must be based on an agreement between the parties. Hilco Prop. Servs., Inc. v. U.S., 929 F. Supp. 526, 536 (D.N.H. 1996). However, the agreement need not be reduced to writing, as the intent to form a partnership may be implied from the parties' actions. Higgins v. Higgins, 125 N.H. 806, 809 (1984); see also Stone & Michaud Ins. v. Bank Five for Savings, 785 F. Supp. 1065, 1069 (D.N.H. 1992) (applying New Hampshire law).
Mr. Sowa alleges that he formed a partnership with Mario Rolla sometime in 1982, for which no writing exists but, rather, was "signed with a handshake." (Tr. Vol. 6, 693:7-13.) Because the parties did not originally document their intentions in a written agreement, the Court first looks to "the conduct of the parties and the circumstances surrounding their relationship and transactions [to determine] the factual question of whether a partnership existed. . . ." Hilco Prop. Servs., 929 F. Supp. at 536 (citations omitted.) Although there is "no specific test to determine the existence of a partnership, courts consult a variety of factors including whether the parties intended to proceed as partners, have shared profits or losses, had the right to participate in the control of the enterprise, or commonly held real property." Id. at 537 (internal quotation marks and citations omitted). The Court considers each of these factors in turn.
The parties dispute whether Mario Rolla and Mr. Sowa ever intended to form a partnership. Mario Rolla testified that Mr. Sowa was hired as an independent consultant. (Tr. Vol. 1, 14:5-13.) Mr. Sowa claims that Mario Rolla told him he would be a managing partner and referred to him as a partner on several occasions. (Tr. Vol. 6, 695:3-10; Trial Tr. Vol. 10, 1241:3-7, Jan. 12, 2013.) However, Mr. Sowa admitted that he listed himself as a "consultant" and not a partner on his personal income tax returns from 2003 through 2008, (Tr. Vol. 6, 714:3-717:19.), and as a consultant on a residential real estate loan application. He never received an IRS form K-1, used to report partnership income from VFC, but instead received an IRS form 1099, which is a report of miscellaneous income. For 2003 through 2007, his tax returns, introduced as exhibits at trial, showthat he never filed a Schedule C, for income from a trade...
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