Altebrando v Gozdziewski

[*1] Altebrando v Gozdziewski 2006 NY Slip Op 52206(U) [13 Misc 3d 1241(A)] Decided on October 17, 2006 Supreme Court, New York County Heitler, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 17, 2006
Supreme Court, New York County

Nicholas J. Altebrando, Plaintiff,

against

Charles J. Gozdziewski, Andrew W. Herrmann, Paul M. Skelton, Andrew C. Coates, Robert S. Moses, and Hardesty & Hanover, LLP, Defendants.



603003/05

Sherry Klein Heitler, J.

Motion sequence numbers 001 and 002 are hereby consolidated for disposition. In motion sequence number 001, plaintiff Nicholas Altebrando moves this court for a preliminary injunction restraining defendants from terminating or impairing plaintiff's interest as an equity partner of Hardesty & Hanover, LLP and requiring defendants to perform an accounting of the partnership's affairs. Thereafter, defendants filed motion sequence number 002 in which they ask this court to dismiss plaintiff's amended complaint, pursuant to CPLR 3212, on the ground that the parties' partnership agreement governs the rights and remedies sought in this action. Plaintiff opposes defendant's motion for summary judgment, and cross-moves for discovery pursuant to CPLR 3212(f).

In 1994, plaintiff became an equity partner in the firm of Hardesty & Hanover, LLP (H&H or the Firm), a civil engineering firm that specializes in building bridges, railroads and highways. In 1994, the Firm organized as a New York limited liability partnership. In 2004, H&H had six equity partners plaintiff and defendants Gozdziewski, Herrmann, Skelton, Coates and Moses. In January of that year, all of the equity partners, including plaintiff, executed a new written Partnership Agreement, revising their prior agreement in order to include a category for non-equity partners to be added on a renewable contract basis for select members of the Firm.

Article II, paragraph 6 of the Partnership Agreement provides for expulsion of an equity partner without cause by the unanimous vote of all other active equity partners with at least three years in the partnership and all active withdrawing equity partners. The terms of a buyout for an expelled partner is set out in Article VII, paragraphs 9 and 13, and Article VIII of the Partnership Agreement. Under those provisions, an expelled partner receives an entitlement equal to 35% of a full partner's equity share of the Firm's profits for a number of years corresponding approximately to half of his years as a full equity partner. Article VII, paragraph 6 provides that "it is also agreed that the distribution provided in paragraphs 13 of this Article reasonable and fairly represents an expelled equity partner's interests in the firm at the time of expulsion ...". [*2]Under Article VII, paragraph 9 of the Partnership Agreement, an expelled partner receives back his capital account in four quarterly installments. During the buy-out period, the expelled partner is under no employment restriction and can work elsewhere within the engineering industry.

It is undisputed that, in early 2004, the Firm retained a consulting firm to analyze the Firm's business and recommend areas of improvement. The consultant concluded that the Firm needed an organized management structure to take charge of the business. A committee was set up of sixteen engineers, including all of the equity partners, to figure out who should fill what roles in a proposed organizational chart. Defendants contend, and plaintiff does not dispute, that disagreements arose when plaintiff was not put in any part of the top management structure. Defendants further contend that they attempted throughout the rest of 2004 to find a way to keep plaintiff integrated into the partnership, but those efforts were unavailing.

By letter dated December 27, 2004, plaintiff was notified that he would be expelled from the Firm effective January 1, 2005 pursuant to Article II, paragraph 6 of the Partnership Agreement, unless he agreed to withdraw as a full equity partner effective January 1, 2005 and become a contract partner with a fixed salary and the right to a percentage of H&H's profits, the latter being his partners' preferred choice. The letter is signed by Gozdziewski, Herrmann, Skelton, Coates and Moses.

Thereafter, during the remaining days of December and into January of 2005, the parties exchanged a series of e-mails that addressed the terms of defendants' proposal, and attempted to reach a negotiated resolution of a buy-out of plaintiff's equity interest and set up a contract partner arrangement. On January 12, 2005, plaintiff sent his partners an e-mail in which he claimed that an impasse had been reached. Plaintiff further stated that he "cannot consider an offer that does not include an increase in the buy-out provisions because in my view the sweat equity that I have earned by years of service in this firm is not being fairly compensated by your offer." He further states his belief that his "30 years of dedicated service and equity in the firm, has been earned, . . . and should not be confiscated without cause or mediation." Defendants responded by e-mail later that day, advising plaintiff that his expulsion was in effect, because defendants had not yet received plaintiff's written agreement to withdraw and accept a contract partnership as outlined in their December 27, 2005 letter. However, defendants proposed that plaintiff take "a paid (partner's draw) leave of absence until March 1, 2005 to allow time to discuss [plaintiff's] status, job description, and terms."

On February 1, 2005, plaintiff submitted a counterproposal to defendants' proposal. Defendants contend that this counterproposal was unrealistic, because plaintiff would receive greater compensation than any other partner at H&H, plus he would receive a buy-out over 6 years that would greatly exceed the buy-out over 10 years due to fully retired partners with 40 years at the firm. Defendants advised plaintiff of their rejection of his counterproposal by e-mail on February 3, 2005.

In mid-February 2005, plaintiff returned to the office from his leave of absence. Defendants contend that he made intermittent appearances over the ensuing months in the capacity of a contract partner, but did not account to H&H for much of the time he spent out of the office. Plaintiff alleges that, despite the e-mails regarding his alleged expulsion, defendants requested that he continue to act and perform as if nothing had changed. Plaintiff was asked to assist with and provide input and advice for various H&H projects and to manage many of the [*3]Firm's major projects, and that he did so up until he filed this action in August 2005.

Throughout the first eight months of 2005, H&H continued to pay plaintiff the same draw that he had received in 2004. H&H also began repaying plaintiff his capital account. As of December 31, 2004, there was $288,000 in plaintiff's capital account. Pursuant to Article VII, paragraph 9 of the Partnership Agreement, this capital had to be repaid in four quarterly installments. In April, July and October of 2005, H&H sent plaintiff a check for $72,117 and plaintiff accepted and deposited these checks without complaint or protest.

Both sides agree that negotiations continued into the Summer of 2005, but ended when plaintiff was given a final ultimatum in August, and responded by filing this lawsuit on August 22, 2005 in which he claims that defendants had been pressuring him to give up his equity interest in the Firm for less than fair value.

Plaintiff's amended complaint alleges six causes of action. In the first and second causes of action, plaintiff seeks an accounting pursuant to New York Partnership Law § 44 and common law, respectively. In the third cause of action, plaintiff claims that the defendants have breached their fiduciary duties to him. The fourth cause of action requests that the court direct an "equitable" buy out of plaintiff's partnership interest. The fifth cause of action asserts that there has been a breach of the Partnership Agreement through defendants' demand that plaintiff be presented as, and perform as, a full equity partner of the Firm and through defendants' attempt to wrongfully squeeze him out of the partnership without offering him fair value for his partnership interests. The sixth cause of action alleges that defendants have breached the covenant of good faith and fair dealing.

Defendants argue that summary judgment is warranted dismissing all of the plaintiff's claims on the ground that his expulsion was pursuant to the term of the Partnership Agreement. In accordance with that agreement, plaintiff will receive the return of his capital (and has already received over $210,000) and 35% of a full partner's share of H&H's profits for five consecutive years. Defendants contend that plaintiff commenced working for STV, Inc., one of H&H's principal competitors, sometime in August of 2005.

"While there is no common-law or statutory right to expel a member of a partnership, partners may provide, in their agreement, for the involuntary dismissal, with or without cause, of one of their number (citations omitted)." Gelder Medical Group v Webber, 41 NY2d 680, 683 (1977). The provisions of the Partnership Agreement permitting expulsion of a partner without cause are "clear, unequivocal and understandable," and thus the Partnership Agreement "must be enforced without resort to extrinsic evidence." Non-Linear Trading Co., Inc. v Braddis Associates, Inc., 243 AD2d 107, 114 (1st Dept 1998). The Partnership Agreement specifically states in Article III, paragraph 6 that "[t]he decision for the expulsion of a partner from the Partnership requires the full agreement of the remaining active equity partners with more than three years as a partner and active withdrawing equity partners."

Plaintiff claims that this provision is ambiguous because the word expulsion is undefined, and because the provision does not specifically say expulsion "without cause" and is silent as to the reasons that would justify expulsion. However, it is well settled law that a contract must be "read as a whole to determine its purpose and intent." W.W.W. Associates, Inc. v Giancontieri, 77 NY2d 157, 162 (1990). Here, plaintiff would have this court ignore the paragraph preceding the expulsion provision, which clears up any alleged ambiguity concerning a "for cause" [*4]requirement in Article III, paragraph 6. This preceding paragraph provides:

5. The decision for the dismissal of a partner from the Partnership for cause such as gross negligence, personal bankruptcy, criminal (felony) actions, or sexual harassment requires the three-quarters affirmative vote of the B shares to dismiss of the remaining active equity partners with more than three years as a partner and active withdrawing equity partners.

Thus, the two provisions - dismissal for cause (Article III, paragraph 5) and expulsion (Article III, paragraph 6) have different voting requirements and provide different economic results. Pursuant to Article VIII, paragraph 14, partners dismissed for cause are only entitled to the return of their capital. Expelled partners, on the other hand, not only receive a return of their capital, but also receive a share of future profits in accordance with the schedule set forth in the Partnership Agreement. "When the terms of a contract are clear and unambiguous, the intent of the parties must be found within the four corners of the document, and the Court must enforce it without recourse to parol evidence." ABS Partnership v Airtran Airways, Inc., 1 AD3d 24, 29 (1st Dept 2003); see also W.W.W. Associates, Inc. v Giancontieri, 77 NY2d 157, 162 (1990); Mercury Bay Boating Club, Inc. v San Diego Yacht Club, 76 NY2d 256, 269-270 (1990); Judnick Realty Corp. v 32 West 32nd Street Corp., 61 NY2d 819, 822 (1984). Accordingly, plaintiff's testimony, that the expulsion provision was intended to apply solely to address situations in which a partner (by which he means Gozdziewski) was chronically absent and not carrying his share of the work load, cannot defeat summary judgment in defendants' favor.

Plaintiff next argues [FN1] that he was fraudulently induced to sign the 2004 Partnership Agreement, because Herrmann said he was consulting with lawyers on plaintiff's behalf to ensure that their interests were protected vis-a-vis Gozdziewski's chronic absences; according to plaintiff, because Herrmann did not consult with any lawyers, plaintiff was improperly led to believe that expulsion could only be used to expel an absentee partner.

In order to establish a claim for fraudulent inducement, the plaintiff must allege and prove that "a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury." Pope v Saget, 29 AD3d 437, 441 (1st Dept 2006), citing Channel Master Corp. v Aluminum Ltd. Sales, Inc., 4 NY2d 403, 406-407 (1958). Plaintiff fails to raise a triable issue of fact that he justifiably relied on any misrepresentations by Herrmann as to the legal effect of the expulsion provision. The expulsion provision plainly states that any partner may be expelled by unanimous vote of the remaining partners; it does not require cause and is not limited to absentee partners, as now claimed by plaintiff. See Coutts Bank (Switzerland) Ltd. v Anatian, 261 AD2d 307 (1st Dept 1999), lv dismissed 94 NY2d 875, lv denied 95 NY2d 753 (2000); Daily News, L.P. v Rockwell Intl. Corp., 256 AD2d 13, 14 (1st Dept 1998), lv denied 93 NY2d [*5]803 (1999).

Plaintiff argues that, under New York law, a partner cannot be expelled if the decision was not made in good faith and asserts that the record supports the inference that defendants' purported expulsion of him was not made in good faith. At a minimum, plaintiff urges the court to deny defendants' motion for summary judgment pending discovery regarding the defendant partners' motivations in seeking to oust plaintiff.

In Gelder Medical Group v Webber, supra, the Court of Appeals expressly acknowledged that expulsion provisions in partnership agreements are both "common and acceptable." 41 NY2d at 683. The expelled partner in that case had argued that even when a partnership agreement expressly provides for involuntary expulsion, public policy requires that the other members of the partnership show good cause or good faith. A majority of the Appellate Division rejected that argument, and the Court of Appeals affirmed. In addressing the issue of "bad faith," the Court of Appeals stated: When, as here, the agreement provides for dismissal of one of their number on the majority vote of the partners, the court may not frustrate the intention of the parties at least so long as the provisions for dismissal work no undue penalty or unjust forfeiture, over-reaching, or other violation of public policy [citation omitted]. Assuming, not without question, that bad faith might limit the otherwise absolute language of the agreement, the record does not reveal bad faith.

41 NY2d at 684. However, the Court made absolutely clear that Even if bad faith on the part of the remaining partners would nullify the right to expel one of their number, it does not follow that under an agreement permitting expulsion without cause the remaining partners have the burden of establishing good faith. To so require would nullify the right to expel without cause and frustrate the obvious intention of the agreement to avoid bitter and protracted litigation over the reason for the expulsion. Obviously, no expulsion would ever occur without some cause, fancied or real, but the agreement provision is addressed to avoiding the necessity of showing cause and litigating the issue. On the other hand, if an expelled partner were to allege and prove bad faith going to the essence, a different case would be presented. As with any contractual agreement, in the time-honored language of the law, there is an implied term of good faith (citations omitted).

Id. The Court of Appeals then ruled that the defendant had failed to show "even a suggestion of evil, malevolent, or predatory purpose in the expulsion." Id.; see also Levy v Nassau Queens Medical Group, 102 AD2d 845 (2d Dept 1984) ("While bad faith may be actionable, there must be some showing that the partnership acted out of a desire to gain a business or property advantage for the remaining partners.") Thus, plaintiff has the burden of alleging and proving bad faith by his partners.

Here, plaintiff has failed to raise a triable issue of fact that his partners had some evil, malevolent or predatory purpose in his expulsion. It is undisputed that the plaintiff and his [*6]fellow partners had policy disagreements about the future management structure of H&H. "[P]olicy disagreements do not constitute bad faith since at the heart of the partnership concept is the principle that partners may chose with whom they wish to be associated.'" Levy, 102 AD2d at 845. The use of an otherwise valid expulsion provision cannot itself be evidence of bad faith. Reid v Bickel & Brewer, 1990 WL 129199, *5 (SD NY 1990).

Finally, plaintiff contends that an issue of fact has been raised as to whether defendants' conduct following plaintiff's expulsion constituted a waiver or modification of the Partnership Agreement. More specifically, plaintiff argues that the defendant partners' requirement that plaintiff continue to perform his functions as an equity partner, following his purported expulsion, constituted a waiver or modification of the 2004 Partnership Agreement. Plaintiff, however, does not claim to have extrinsic evidence showing a waiver or modification of the terms of the expulsion provisions of the Partnership Agreement, but rather claims that defendants waived the expulsion itself and reinstated plaintiff as a full equity partner. However, the documentary evidence before the court contradicts plaintiff's claim that the defendants waived his expulsion as an equity partner.

While defendants expressed their willingness to engage in further negotiations with plaintiff during 2005, there is no evidence that they treated him as a full equity partner after January 1, 2005; rather the evidence is clear that he was expelled and that any work he performed was as a contract partner with no say in management. The December 27, 2004 letter and defendants' January 4, 2005 e-mail to plaintiff clearly state that his expulsion as an equity partner was effective as of January 1, 2005. Prior to the commencement of this action, H&H made the first two quarterly payments of plaintiff's capital account, which were accepted and deposited by plaintiff without protest. Plaintiff's own pleading states that the defendants excluded plaintiff from certain critical partnership meetings and votes concerning the direction of the Firm and its approach to client service and development, and meetings concerning staffing and projects. Amended Complaint ¶ 25. Finally, defendants unequivocally expelled plaintiff from the Firm by notice dated September 29, 2005, after plaintiff accepted employment with a competitor of the Firm.

Accordingly, the court finds that plaintiff has failed to raise a triable issue of fact as to his claim that defendants wrongfully expelled him from the Firm effective January 1, 2005. Consequently, defendants are entitled to summary judgment dismissing paragraphs 38(a) and (b) of the third cause of action alleging a breach of fiduciary duty, as well as the fourth, fifth and sixth causes of action, which are all based on the claim that defendants acted wrongfully with respect to plaintiff's expulsion from the Firm.

In the first and second causes of action, plaintiff seeks an accounting pursuant to New York Partnership Law § 44 and common law, respectively. However, plaintiff has been expelled pursuant to the Partnership Agreement, and he has failed to raise a triable issue of fact that he was "wrongfully excluded from the partnership business or possession of its property by his copartners." Partnership Law § 44(1). His rights are limited to receiving what he is entitled to receive under the Partnership Agreement as an expelled partner. Hand v Kenyon & Kenyon, 227 AD2d 137 (1st Dept 1996); Raymond v Brimberg, 99 AD2d 988, 988-89 (1st Dept 1984), appeal dismissed 64 NY2d 775 (1985). Plaintiff, expelled after 10 years as a full equity partner, is entitled to 35% of a full partner's share of H&H's profits for five years after expulsion. Article X, [*7]paragraph 2 of the Partnership Agreement provides that "[a]n audit shall be made by a Certified Public Accountant as of the closing date, copies of which audit will be available to each partner, and to ... expelled equity partners ... sharing in the profits of the firm." Thus, plaintiff's claim for an accounting is dismissed, without prejudice to commencement of an action for an accounting at a later date if plaintiff can show that the yearly audits are deficient. See CCG Associates I v Riverside Associates, 157 AD2d 435, 441-42 (1st Dept 1990).

In the third cause of action, plaintiff claims that the defendant Moses breached his fiduciary duties to plaintiff by working for another company two days a week and not devoting his efforts to the Firm for this period. See Amended Complaint, ¶ 38(c). Likewise, defendant Gozdziewski is accused of improperly billing the Firm for his non-business travel expenses and by being absent from the Firm's offices for extended periods of time without warning, and thereby failing to perform his obligations as a partner of the Firm. Id., ¶ 38(d). However, these alleged breaches of fiduciary duty by Moses and Gozdziewski are wrongs that give rise only to a derivative suit on behalf of the partnership, and do not justify a private cause of action belonging to plaintiff, even though plaintiff's interest in the partnership was allegedly diminished. Sterling v Minskoff, 226 AD2d 125 (1st Dept 1996); Shea v Hambro America Inc., 200 AD2d 371, 371-72 (1st Dept 1994).

In addition, plaintiff has failed to raise a triable issue of fact that Moses breached any fiduciary duties to plaintiff or his other partners. Defendants offer a written Memorandum Agreement, dated April 28, 2005, signed by all then active partners. In that agreement, Moses assumed a temporary, part-time status from May 16, 2005 to August 12, 2005 in exchange for a reduced share of profits.

Plaintiff's cross motion for discovery pursuant to CPLR 3212(f) is denied. Whether defendants had "good cause" to expel plaintiff from the Firm, his performance as a partner of the Firm, and the parties' discussions regarding, or understanding of, the expulsion provision of the Partnership Agreement, are not issues in this case, and thus plaintiff is not entitled to discovery as to the defendants' motives or understandings. Having failed to raise a triable issue of bad faith, plaintiff may not avoid summary judgment by arguing for the need to conduct additional discovery. "To speculate that something might be caught on a fishing expedition provides no basis to postpone decision" on summary judgment under the authority of CPLR 3212(f). Auerbach v Bennett, 47 NY2d 619, 636 (1979); see also Banque Nationale de Paris v 1567 Broadway Ownership Associates, 214 AD2d 359, 361 (1st Dept 1995).

Accordingly, it is hereby

ORDERED that plaintiff's motion for a preliminary injunction (seq. no. 001) is denied; and it is further

ORDERED that defendants' motion for summary judgment dismissing the amended complaint (seq. no. 002) is granted and the amended complaint is dismissed with costs and disbursements as taxed by the Clerk of the Court upon submission of an appropriate bill of costs; and it is further

ORDERED that plaintiff's cross motion for discovery pursuant to CPLR 3212(f) is denied; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

This shall constitute the decision and order of the court.

DATED: October 17, 2006



SHERRY KLEIN HEITLER

J.S.C. Footnotes

Footnote 1:While plaintiff claims in opposition to summary judgment that Article III(6) was not intended to apply to him, the court notes that this claim was not made in any of the numerous e-mails exchanged between the parties before this litigation started. Indeed, plaintiff's January 4, 2005 e-mail to Skelton states "You are within your rights to expluse [sic]." The claim is also missing from the original complaint, the amended complaint and plaintiff's affidavit in support of his motion for a preliminary injunction.