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Sanzari v. Fisher

BER-C-420-97 (N.J. Super. Ch. Div. 2004) (Unpublished)

PARTNERSHIPS; DISSOLUTION; RECEIVERSHIPS—A receiver has wide latitude in dissolving the partnership and its reasonable charges must be paid by the partnership or by any partner who has interfered with the operation of the partnership or with the receiver’s actions.

The relationship between two partners, who were involved together in three businesses, deteriorated. This, in turn, caused one of them, the principal of the businesses, to file a verified complaint seeking dissolution of the businesses, an accounting of partnership affairs, and the appointment of a receiver. The lower court denied the request for appointment of a receiver, but appointed a Special Fiscal Agent (SFA) to monitor the operations of the businesses to make sure that their operations were consistent with law and consistent with the best interests of the business’s principals.

The SFA issued a report addressing the business’s significant delinquent tax obligations. Nine months later, because the non-principal partner had still failed to cure the tax problems, the SFA notified the parties of his intention to hire an accountant. The accountant submitted a report to the SFA showing continuing, substantial outstanding delinquent taxes. Shortly thereafter, the SFA rendered a decision, noting the non-principal partner’s disregard of prior directives and affording him a final chance to comply. That partner was advised that his continued non-compliance might result in the SFA taking control of the businesses until the tax liabilities were satisfied. The non-principal partner failed to comply, and a full time business manager took over the day-to-day control of the businesses. At that time, not only were there extensive, outstanding tax obligations, but the way the businesses were conducted, including the non-principal partner’s destruction of records, made analysis of economic realities problematic and distributions to the principals impossible.

After a trial, the Court found that the non-principal partner lacked credibility. It held that all three businesses were partnerships, that the non-principal partner had failed to distribute profits to the principal partner, and that the principal partner was entitled to a dissolution and a judgment for his share of the undistributed profits. The Court concluded that each partnership was equally owned. It also appointed a receiver, vested title to all assets of the business entities in him, and directed that the partnerships be dissolved and the assets sold with half of the proceeds given to the principal partner after payment of outstanding liabilities. The assets of the businesses were then sold to other companies owned by the principal partner.

About a year and a half later, the SFA sent a final accounting to both parties. The principal partner requested that his partner pay all the costs for the receiver and pay the legal fees. In response, the non-principal partner claimed that the receiver improperly paid himself without court approval, that the receiver’s payments violated R.4:42-9(b) and RPC 1.5(a), and that the receiver’s billing was exorbitant. He also claimed that the SFA breached his fiduciary duty and the duty of fairness in the manner by which he conducted the sale of the assets.

The Court held that the non-principal partner’s exceptions to the accounting were precluded by reason of equitable and judicial estoppel. It held that the complaints came too late. Furthermore, the non-principal partner had previously acknowledged, during a hearing, that he took advantage of the challenged deductions and fees on his personal tax returns. According to the Court, it would have been inequitable to permit an examination of what occurred so long ago after so long a silence. This was especially true where the SFA took over a business that was in shambles and turned it into a profitable enterprise in a short time. Although the Court agreed that it would have been preferable for the SFA to use increments smaller than one quarter of an hour for billing purposes, this was not a problem that required redress. The Court also rejected the non-principal partner’s attacks against the business manager and the accountant because it was improper for him to wait so long to claim that the business manager was overqualified and paid too much. The SFA had been given authority to hire a business manager on the terms he found reasonable and necessary.

Finally, the Court noted that much of the activity required by the professionals, and therefore their costs, were due to the complaining partner’s conduct, which included his destruction of business records. For those reasons, the Court accepted the receiver’s accounting and denied the complaining partner’s exceptions.

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