Zee-Bar, Inc.-NH v. Kaplan

• Decision Date: 15 May 1992
• Docket Number: Civ. No. 88-60-D.
• Parties: ZEE-BAR, INC. — N.H., et al. v. Gerald N. KAPLAN, et al.
• Court: U.S. District Court — District of New Hampshire

792 F. Supp. 895

ZEE-BAR, INC. — N.H., et al. v. Gerald N. KAPLAN, et al.

Civ. No. 88-60-D.

United States District Court, D. New Hampshire.

May 15, 1992.

COPYRIGHT MATERIAL OMITTED

Phyllis McCoy, Rutland, Vt. and Randolph Reis, Manchester, N.H., for all plaintiffs.

Warren Nighswander, Concord, N.H., for Kaplan & Shuman and Stanley L. Shuman.

James Bassett, Concord, N.H., for Gerald Kaplan, and Lynne C. Norton.

ORDER

DEVINE, Chief Judge.

In this consolidated civil action, individual plaintiff Robert Zabarsky and corporate plaintiffs Zee-Bar, Inc. — N.H.; T & Z Realty, Inc.; R.Z., Inc.; and Zee-Bar, Inc., of Vermont seek damages for alleged violations of the civil Racketeer Influenced and Corrupt Organizations (RICO) statute by defendants Gerald N. Kaplan, Stanley L. Shuman, and Lynne C. Norton. Plaintiffs also assert violations of New Hampshire's Consumer Protection Act, fraud, and negligence by defendants Kaplan and Kaplan and Shuman, C.P.A. ("K & S").¹

Presently before the court are three motions: (1) motion of defendant K & S to dismiss all claims against it for lack of subject matter jurisdiction; (2) motion of defendants Kaplan and K & S to dismiss plaintiffs' Consumer Protection Act claim; and (3) motion of all defendants for summary judgment on the RICO claims. The pertinent facts of this controversy follow.²

Background

In 1971 Robert Zabarsky hired Gerald Kaplan, his first cousin, to provide accounting services for his corporation, R.Z., Inc. Prior to that time, Mr. Kaplan had earned his MBA in accounting and was an accountant certified by the Commonwealth of Massachusetts. As Mr. Zabarsky expanded his enterprise, Mr. Kaplan advised him in the creation of plaintiff corporations Zee-Bar, Inc. — N.H. and T & Z Realty, assuming the responsibility of the accounting duties for each.

Mr. Kaplan entered into a partnership with defendant Stanley L. Shuman on November 1, 1983. As a partner in K & S, Mr. Kaplan continued his role as accountant for all of the plaintiffs.

The relationship between Zabarsky and Kaplan began to sour in early August 1985. On August 16, after several weeks passed during which Kaplan avoided Zabarsky's frequent telephone calls, Kaplan resigned from his position, notifying Zabarsky of this turn of events via mailgram. Upon Kaplan's resignation, Zabarsky requested his files. A portion of these were delivered to him days later by Lynne Norton, the office manager of K & S. The balance of the files, including checking account statements and canceled checks, were returned in June 1986. Subsequent perusal of these files led to the allegations upon which this dispute is based.

Plaintiffs allege a web of neglect, deceit, and fraud. Federal and state tax returns in many instances were filed late, and at times not at all. And on several occasions, Kaplan signed Zabarsky's name to the returns filed. Kaplan controlled Zabarsky's and the corporations' check books, and paid, with plaintiffs' funds, bills which plaintiffs did not incur. Kaplan paid himself with those funds for services which he had not performed and billed plaintiffs for preparation of tax returns not filed. Upon a request to reduce a balance in question, Kaplan diverted funds requested from Zabarsky to a mutual fund money market account in his name. Finally, both Kaplan and Shuman let their licenses lapse, and were unlicensed practicing CPAs from 1983 to 1986.

Motions to Dismiss

In considering a Rule 12 motion to dismiss, the issue the court must address is whether, based on the claims contained in the complaint, the plaintiff is entitled to offer evidence. V.S.H. Realty v. Texaco, 757 F.2d 411, 414 (1st Cir.1985) (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)). The court's consideration is limited to the allegations contained within the complaint, Litton Indus. v. Colon, 587 F.2d 70, 74 (1st Cir.1978), and those allegations are to be "construed in the light most favorable to plaintiff and taken as admitted, with dismissal to be ordered only if the plaintiff is not entitled to relief under any set of facts he could prove," Chasan v. Village Dist. of Eastman, 572 F.Supp. 578, 579 (D.N.H. 1983) (and citations therein), aff'd without opinion, 745 F.2d 43 (1st Cir.1984); see also Knight v. Mills, 836 F.2d 659, 664 (1st Cir.1987). This is not to say that an erstwhile plaintiff has unfettered discretion; the court is not required to give weight to "bald assertions, unsupportable conclusions, or opprobrious epithets." Royal v. Leading Edge Prod., 833 F.2d 1 (1st Cir. 1987) (citing Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st Cir.), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 765 (1987)). Motion of Defendant K & S to Dismiss (document no. 64)

The thrust of this motion is that the movant, a New Hampshire partnership with only two partners, lacks the capacity to be sued.

Rule 17(b), Fed.R.Civ.P., mandates that the "capacity to sue or be sued shall be determined by the law of the state in which the district court is held...." In the event that "a partnership or other unincorporated association" has no capacity to sue or be sued under that state's law, the rule provides that that entity "may sue or be sued in its common name for the purpose of enforcing for or against it a substantive right existing under the Constitution or laws of the United States...." Id.

All parties concur that pursuant to this rule New Hampshire law determines whether K & S may be sued as an entity, separate from its partners, on the state law claims of violation of the Consumer Protection Act, fraud, and negligence. It is K & S's position, however, that under New Hampshire law a partnership is subject to suit only in instances where the partnership has more than four partners.

To support the premise that it lacks capacity for suit, defendant partnership relies on New Hampshire Revised Statutes Annotated (RSA) 510:13, which states:

510:13 Associations. Service of writs or other process against unincorporated associations, joint stock companies, syndicates, orders or any mutual association of persons, other than a partnership having not more than 4 members, within this state may, except when otherwise provided, be made upon any officer thereof, or, if it has no officer, then upon any 2 members thereof.

As further support, K & S cites Rosenblum v. Judson Eng'g Corp., 99 N.H. 267, 109 A.2d 558 (1954), which summarized relevant New Hampshire partnership law at that date as follows:

In this state, a partnership is `a relation or status between individuals.' Sulloway v. Rolfe, 94 N.H. 85, 87 47 A.2d 109. Where it has not more than four members, it is not itself subject to suit in the firm name. (R.L. c 387, s. 14) but the action must be brought against the partners individually (Restatement, Conflict of Laws, s. 86, comment a; see Kaffenberger v. Kremer, 63 F.Supp. 924), and they must be served individually (Matson v. Mackubin, 57 F.(2d) 941) D.C.Cir. except when otherwise specifically authorized (supra s. 14).

Id. at 269, 109 A.2d 558.

This view was reiterated in Donald Manter Co. v. Davis, 543 F.2d 419 (1st Cir. 1976). Citing RSA 510:13, the First Circuit stated, "New Hampshire law ... treats partnerships as entities subject to suit in their own name only when there are more than four partners; otherwise the partners must be sued individually." Id. at 420 (citation omitted) (citing Judson, supra).

Plaintiffs argue that under the Uniform Partnership Act (UPA), adopted by the New Hampshire Legislature in 1973 and codified as RSA 304-A, a partnership may be sued as an entity by any individual who is not a partner. The basis of this argument lies in the language of RSA 304-A:13.

Partnership Bound by Partner's Wrongful Act. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

Taking as their cue "the partnership is liable", plaintiffs first contend that Judson is inapplicable because it was decided twenty-two years before the adoption of the UPA. Next, while acknowledging Manter's reliance upon RSA 510:13, plaintiffs argue that the court there failed to address the applicable provisions of the UPA, and instead looked only to Judson. Citing other jurisdictions which have interpreted the UPA as enabling a partnership to be sued as an entity, plaintiffs contend that had the Legislature intended to limit partnership liability to partnerships consisting of more than four members, it would have included that restriction in the statute.

Finally, plaintiffs find no inconsistency between the UPA and RSA 510:13 because the latter is concerned solely with service of process, not the issue of partnership liability. There is no logical basis, plaintiffs conclude, for authorizing suit against a partnership of five partners and not against a partnership of four.

Plaintiffs are correct in their assessment that RSA 510:13 is concerned solely with process. As such, that statute has little to do with the issue at hand. See Shortlidge v. Gutoski, 125 N.H. 510, 484 A.2d 1083 (1984) (RSA 510:13 relieves a plaintiff of the task of having to name and personally serve process on each and every partner). The UPA, however, as applied in New Hampshire, appears no more helpful to plaintiffs. Under New Hampshire law, "the Uniform Partnership Act does not make a legal partnership an independent juristic entity, and whatever recognition is given therein to the entity theory is solely for procedural or conveyancing purposes." Swiezynski v. Civiello, 126 N.H. 142, 146, 489 A.2d 634 (1985) (quotations and citations omitted). See also Mercier v. Saber, Inc., 888 F.2d 1459, 1461-62 (1st Cir.1989). Cf. Tanguay v. Marston, ...