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Taylor v. Taylor

A-4363-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

PARTNERSHIPS — Because New Jersey’s partnership law requires a judicial determination as a pre-requisite to a judicial dissolution and therefore where this is the dominant issue, a jury trial is not warranted although the claimant may have asked for money damages as well.

A family incorporated a fitness center business. It was owned equally by the two parents and their two sons. A real estate partnership was also created between the parents and one of the sons. After the father passed away, the ownership interests in both the corporation and partnership were equally split between his surviving wife and the two brothers. After their mother passed away, one brother alleged that the other brother had unduly influenced their mother to transfer a property interest to him, violated his fiduciary duties under their real estate partnership, and diverted partnership income. The lower court dismissed the complaint, finding that there was no evidence that there had been any misappropriation of funds. The complainant appealed, arguing that the lower court erred in denying him a jury trial because, according to the claimant, he was entitled under the Uniform Partnership Act (UPA) to a judgment in his favor on the undue influence claim, and that he was entitled to damages from his brother and disassociation.

Under New Jersey law, a party is only entitled to a jury trial when the right is established under a statute or under the state’s constitution. Traditionally this right is only applied to legal actions and not equitable actions. Since many civil actions can have both legal and equitable claims, a court must determine whether the equitable issues are more or less dominant than the legal issues to decide if a jury trial is required. Here, the lower court found that the undue influence claim was equitable in nature. However, the complaining brother argued that his claims under the UPA required a jury trial. The lower court disagreed, finding that the case was mostly dominated by equitable issues and therefore did not require a jury trial.

On appeal, the Appellate Division reviewed the lower court’s ruling under an abuse of discretion standard and found that the lower court had not abused its discretion. Even though the complainant had asked for money damages, the allegations and the other requested relief showed that equitable claims were at the heart of the case. One of the counts of the third amended complaint sought an order expelling the other brother from the partnership under N.J.S.A. 42:1A-31. The relevant section of this statute explicitly requires a judicial determination and not a jury trial. Therefore, the Court agreed that the equitable issues were dominant in the case and did not require a jury trial.

Next, the Court addressed the undue influence claim. The lower court found that there was no showing of a confidential relationship. In matters of inter vivos gifts, a presumption of undue influence arises when the contestant proves that the donee dominated the will of the donor or when a confidential relationship exists between donor and donee. Thus, the complaining brother was required to show, by a preponderance of evidence, a confidential relationship between his brother and mother. Loosely defined, such a confidential relationship is where one side has superior knowledge of the details and effect of a proposed transaction based on a fiduciary relationship or has exerted over-mastering influence over the other or the donor is weak or dependent. The Court found no evidence of over-mastering influence or domination. Also, there was no evidence that the mother lacked the requisite mental capacity to exercise her independent will. There was testimony by the brother and the family’s attorney that the transfer was her mother’s idea, that the mother understood the legal implications, and that it was her voluntary act. Thus, the Court found that there was sufficient, credible evidence to support the lower court’s determination that the mother had not been dominated or controlled by her son and that the complaining son failed to meet his burden of proof of an existing confidential relationship by a preponderance of evidence.

Lastly, the complainant argued that he was entitled to damages for his brother’s violations of his fiduciary duties and entitled to disassociate his brother under the UPA. New Jersey law allows a court to expel a partner when: (1) the partner has engaged in wrongful conduct that adversely and materially affected the partnership’s business; (2) the partner willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners; or (3) the partner engaged in conduct relating to the partnership’s business which made it not reasonably practicable to carry on the business in partnership with the partner. Again, the Court found insufficient evidence to show that the brother had improperly influenced his mother to transfer her interest to him. Both mother and son were in agreement to conceal the transfer from the complaining brother. However, there was no evidence that this concealment violated any fiduciary duties. There was no evidence of any provision of the partnership agreement that had been breached by the brother’s conduct and there was no evidence of a breach of the fiduciary duties of loyalty and care afforded under New Jersey law. Just because a partner furthers his own interest does not make it a violation of the duty of loyalty or care. Therefore, the Court affirmed the lower court’s ruling that the complainant had failed to prove any significant loss suffered by the partnership as a result of any alleged misconduct by his brother.

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