Depasqaule v Daniel Realty Assoc.

[*1] DePasquale v Daniel Realty Assoc. 2004 NY Slip Op 50855(U) Decided on May 11, 2004 Supreme Court, Suffolk County 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 11, 2004
Supreme Court, Suffolk County

JOHN A. DEPASQUALE, individually, and on behalf of Daniel Realty Associates, a general partnership Plaintiff(s),

against

DANIEL REALTY ASSOCIATES, a general partnership, and KENNETH KATZMAN, individually, KENNETH KATZMAN and GILBERT KING, as co-executors of the estate of Jerry Krinsky, MORTON H. KAPLAN and HOWARD F. KURFIST, general partners, Defendant(s).



012259 / 1997



BART & SCHWARTZ, L.LP.

Attorneys for Plaintiff(s) LPP Mortgage Ltd.,

One Huntington Quadrangle Suite 2S12

Huntington, New York 11747

HARTMAN & CRAVEN, LLP.

Attorney for Defendant(s) Katzman & King

460 Park Avenue

New York, New York 10022

LAZER, APTHEKER, ROSELLA & YEDID, P.C.

Attorneys for Defendant(s) Daniel Realty Associates, Kaplan & Kurfist

255 Old Country Road

Melville, New York 11747

Edward D. Burke, J.

In this action commenced by the plaintiff for a judgment declaring the rights and interests of the parties under certain partnership agreements and for an accounting and damages for breach of said agreements, a non-jury trial was held before the undersigned for three days commencing on November 24, 2003. The parties having stipulated to certain agreed facts, further stipulated to limit the issue to be determined by this court upon the evidence adduced by the parties to the following: whether the defendants had the right to terminate the plaintiff's partnership interest under the facts presented. Based upon the credible evidence adduced by the parties, the court finds that the defendants wrongfully terminated the plaintiff's partnership interest in the defendant, Daniel Realty Associates.

The joint pre-trial factual statement submitted by the parties reads as follows:

The Formation of Daniel Realty Associates and Plaintiff's Admittance Into The Existing Partnership.

On or about November 9, 1983, plaintiff DePasquale was given a 9.9% equity interest in Daniel Realty Associates ("Daniel"), an existing general partnership that owned commercial property in Farmingdale including an approximate 150,000 square foot building on approximately 8 acres of land, and 10 acres of vacant land.

Among the partners, DePasquale made no capital contribution. The original partners in Daniel were Wilbur Breslin (50%), Jerry Krinsky (16.66%), Howard Kurfist (16.66%) and Morton Kaplan (12.66%). Upon Jerry Krinsky's death, Kenneth Katzman and Gilbert King, as co-executors of the Krinsky estate, assumed the position of a general partner.

Paragraph 6 of the Amended Partnership Agreement recites that:

"A consideration for the admission of John DePasquale as a partner in Daniel Realty Associates has been the anticipation by the partners of the construction in the future of a building for either John DePasquale, The Direct Marketing Group Inc. or its affiliates or subsidiaries, on terms [*2]and conditions to be agreed to by the Partners, as Partners in a transaction to be negotiated between said parties in respect to such new building. In the event that John DePasquale, The Direct Marketing Group or its affiliates or subsidiaries, constructs a building without an ownership interest in said building being acquired by Messrs. Kaplan, Krinsky, Kurfist and Breslin, then and in that event, Messrs. Kaplan, Krinsky, Kurfist and Breslin either jointly or severally shall have the right to purchase John DePasquale's interest in Daniel Realty Associates upon the payment to Mr. DePasquale of an amount equivalent to his actual cash investment in the Partnership reduced by any return of capital which he may have received. Upon payment of such amount, Mr. DePasquale's interest shall devolve unto the other Partners in proportion to their interest in the Partnership provided they shall have made payment of their proportionate share of the purchase price, if any."

By the early 1990's, plaintiff's company DMG, had difficulties meeting its rent obligations to the partnership, with the result that it fell behind in its rental payments. In early 1993, the partnership renegotiated the terms and conditions of DMG's lease with the partnership, forgiving approximately $550,000 of unpaid rent, and executed a new lease as of February 1, 1993 which by its terms was to continue until July 31, 1995. The new lease also provided that should the tenant as defined therein hold over beyond the expiration or termination of the lease, the monthly rental would become 150% of the monthly installment of the minimum annual rent as set forth within the lease. The new lease would also be binding upon the administrators, executors, heirs, assigns and successors to the respective parties to the lease.

A little over a year after the new lease was executed, DMG sold its assets and business as a "going concern" to the entity known as DIMAC Direct, Inc. ("DIMAC"), a publicly traded Missouri based direct marketing company. DIMAC also agreed to assume certain liabilities of DMG, including the Daniel lease, as well as certain personally guaranteed liabilities of the Plaintiff. DIMAC thereafter assumed the terms and conditions of the lease agreement between DMG and the partnership, paid rent at the monthly amount as set forth herein to the partnership, and proceeded to occupy the entire premises that was previously occupied by DMG.

Plaintiff's Sale of DMG to DIMAC Direct, Inc. in May, 1994.

In or about May, 1994, plaintiff told defendant Kaplan that he was selling his company DMG to DIMAC. Plaintiff also advised Kaplan that this would give Daniel Realty a financially solid tenant.

By letter dated May 13, 1994, plaintiff formally advised the partnership of the sale of the DMG business to DIMAC, and requested Daniel's consent pursuant to paragraph 6.02of the February 1, 1993 lease to assign the lease to DIMAC Direct, stating:

"DMG has agreed to sell its business to DIMAC, and a condition of the sale is the assignment of the lease and your written consent thereto. Plaintiff's May 13, 1994 letter enclosed a copy of DIMAC's SEC form 10-K for 1993, and indicated that, at DIMAC's option, an existing letter of [*3]credit by IBJ Schroder Bank or cash security would be maintained ."

The letter contained a consent line for Daniel's approval of the assignment of the lease to DIMAC. The parties cannot determine whether or not this letter was signed by Daniel, yet Daniel began to accept rent checks each month from DIMAC. DIMAC took over Daniel' s premises that had been demised to DMG and became bound by the terms of the lease between Daniel Realty and DMG. By June, 1994, rent payments began to be received and accepted by the partnership from DIMAC.

DIMAC succeeded to DMG's leasehold and remained in possession through its expiration in July, 1995, as well as for approximately two years thereafter as a holdover tenant. During the period that it was a hold over tenant, Daniel accrued the hold over rent as a receivable until some point in time when it was paid in part or full, which was after DIMAC vacated Daniel's premises and moved into its new building in Central Islip, New York.

The "Asset Purchase Agreement"

The May, 1994 "Asset Purchase Agreement" between DIMAC Direct Inc. as "Purchaser" and DMG as the "Company" provided, among other things, the following:

(a) it is the intention of the parties that the transaction would result in DIMAC owning "all of the DMG Assets defined as "all of the assets, properties and rights of every type and description, real, personal and mixed, tangible and intangible, of the Company other than assets which are Retained Assets" [Sec. 1.1, p. 3] , acquire certain rights in the Additional Assets [defined at Sec. 2.8], assume the Assumed Liabilities [defined at Sec. 2.2] and be in a position to operate the DMG Business [a defined term] as a going concern" [p. 1, "Whereas"];

(b) the "DMG Assets" sold to DIMAC "specifically include[d] all of the Company's right and interest in and to the use of the Names" [Sec. 2.1(b)];

(c) the defined "Names" sold to DIMAC specifically included, among others, "The Direct Marketing Group, Inc., and "DMG" [Sec. 5.7]. Among other things. Section 5.7 also obligated the Company to cease to use all Intellectual Property included in the DMG assets, to cease to use the defined "Names", and within 90 days following the closing to amend its certificate of incorporation to change its corporate name to a name that is not "a Name";

(d) The DMG Assets and the Additional Assets are all the assets necessary to conduct the DMG Business in substantially the same manner as it was conducted by the Company in the period immediately prior to the Closing (Sec. 3.5[a]). The "Retained Assets" excluded from the sale are defined at Sec. 2.1 and set forth on Schedule 2.1. The Retained Assets of DMG consisted of

about 2 items of office furniture, four sculptures, an 8-year old limousine, and "one small refrigerator" (Schedule 2.1); [*4]

(e) the "DMG Business" that DIMAC was to be in a position to operate as a going concern is defined as "the direct marketing service business (including all agency business) of the Company as conducted as of the date of the Agreement]" (Sec. 1.1, p. 3) ;

(f) the "Assumed Liabilities" assumed by DIMAC were "the liabilities (including executory contracts and leases) of the Company set forth on Schedules 2.2(a) and 2.2(b)" (Sec. 2.2). Schedule 2.2(a) liabilities included accounts payable, revenues on jobs in progress, shorterm deferred rent, accrued fringe benefits, accrued costs on jobs in progress, other accrued liabilities, postage advances, sales tax payable, accrued payroll and commissions, capital lease obligations, and overdrawn cash. Schedule 2.2(b) liabilities included " [obligations arising after the Closing under executory contracts entered into in the ordinary course of business (including capital lease obligations and other leases set forth in Schedule 3.7)]", excluding one particular agreement not relevant here, but including the Company's obligation to make certain payments to its officers, William Marano and William Forlenza. The leases assumed by DIMAC specifically included the lease for Daniel Realty's premises ending July, 1995 (Schedule 3.7);

(g) the Purchase Price of $9,320,000 (Sec. 2.3), subject to certain adjustments, was to be paid as follows: $7,658,000 to IBJ Schroder Bank; $900,000 to the Direct Marketing Group Employee Stock Ownership Trust; $346,000 to John A. DePasquale, $316,000 to Mark Manski (then-president of DMG), only $100,000 to Direct Marketing Group, Inc. (Schedule 2.3);

(h) DMG represented with respect to its leases including the lease from Daniel Realty that "there exists no default or event of default or event, occurrence, condition or act (including the purchase of the DMG Assets hereunder) which . . . would become a default or event of default thereunder" (Sec. 3.7);

(i) DIMAC was assigned all Intellectual Property needed to conduct the DMG Business (Sec. 3.13);

[** No subparagraph (j) was set forth in the parties original joint statement of facts]

(k) The Company also provided DIMAC with assurances respecting litigation (Sec. 3.10), taxes (Sec. 3.11), insurance (Sec. 3.12), compliance with laws (Sec. 3.14), employment relations (Sec. 3.16); employee benefit plans (Sec. 3.17), and environmental laws (Sec. 3.18),

among other things; (1) "[o]n the Closing Date, the Purchaser will offer employment to all persons (other than Manski) employed by the Company" (Sec. 5.(a)) ;

(l) "[o]n the Closing Date, the Purchaser will offer employment to all persons (other than Manski) employed by the Company" (Sec. 5.5(a)) ;

(m) with limited exceptions, on the Closing Date, the Company was to transfer to DIMAC all records and information pertaining to the DMG Assets or DMG Business (Sec. 5.8);

[*5]

(n) "DePasquale and Manski shall have entered into termination of employment agreements with the Company, in consideration of the payment of $346,000 and $316,000, respectively, and copies of such resignations shall have been delivered to the Purchaser" (Sec. 6.9);

(o) DePasquale and three other DMG officers entered into Noncompetition Agreements with DIMAC (Sec. 6.10; see Ex. F thereto), and DePasquale entered into a "Consulting Agreement" with DIMAC (Sec. 6.10; Ex. E thereto). The earn-out provision in the Non-Competition Agreement refers to the "assets of DMG" as "the Company's [DIMAC's] New York division" (id. at p. 5). DIMAC's filings with the Securities and Exchange Commission refer to the May 1994 transaction with DMG as the acquisition of that company. In DIMAC's S-4 filing as of November 12, 1998, its "business unit" named "DIMAC Marketing-East" is identified as "[f]ormerly Direct Marketing Group, Inc.". Also see, tables listing recent acquisitions of DIMAC Marketing, and identifying "Direct Marketing Group, Inc." as one such "entity acquired", in May 1994; DIMAC obtained the right to use the DMG name, and DMG was required to and did change its own name, to "HFG&M, Inc." (also see Asset Purchase Agreement, Sec. 5.7); In connection with the DMG/DIMAC transaction, plaintiff DePasquale was required to terminate his employment with DMG (Asset Purchase Agreement, Sec. 6.9), and enter into a non-competition agreement in favor of DIMAC (id., Schedule F) .

HFG&M, Inc. had no employees other than DePasquale, and had no officers, directors or shareholders other than DePasquale; "HFG&M, Inc.", the corporation formerly known as "DMG", became inactive after it merged into Transact Inc., another corporation owned and operated by plaintiff; All but "a handful" of former DMG employees became DIMAC employees.

The Defendants' Claimed Exercise of the Paragraph 6 Option

Before the underlying lease expired in July, 1995 and efforts had failed to persuade DIMAC to remain Daniel's tenant in a substantially expanded building that the partnership would have constructed for it, the holding-over DIMAC committed to construct its own building at another location. Daniel's partners were aware in April of 1995 that DIMAC contemplated constructing its own building, and in fact vacated Daniel's building upon completion of its own construction in 1997.

The defendant partners understood that DIMAC's construction of the Central Islip building began around July, 1996. At approximately the same time in a July 26, 1996 memorandum to Mr. Katzman and Mr. Kaplan, plaintiff requested that his partnership share be increased from approximately 18% to 25% Plaintiffs' 9.9% interest had previously been increased to approximately 18% when original partner Breslin had withdrawn in connection with a legal settlement agreement and Breslin's interest was pro-ratedly distributed among the remaining partners. [*6]

In a July 26, 1996 memorandum to the other partners, plaintiff suggested that the other partners had agreed that the "efforts" of DePasquale regarding Breslin, DIMAC, and other things should be rewarded by making DePasquale one of four equal partners.

In addition to requesting another 7% equity interest, DePasquale requested in his July 26 memorandum that 75% of the partners would have to concur for any future partnership action. Plaintiff also requested that redistribution of the interests with respect to the partnership's then undeveloped land take place forthwith, but that redistribution of the partners' interests with respect to Daniel's existing building would not occur if it were in foreclosure so that the partners would face no "disadvantage" from tax recapture, except that any distributions as result of DIMAC rent or other charges were to be distributed, 25% each. Plaintiff's requests were made at a time when Daniel was being faced with the prospect of an empty building and income shortfalls.

DIMAC ultimately did construct a building without an ownership interest in said building being acquired by the Daniel partners. On November 6, 1996, the defendant partners notified DePasquale by letter of their decision that their failure to obtain equity interests in the Central Islip building constructed by DIMAC triggered their rights under paragraph 6 of the Amended Partnership Agreement to buy out DePasquale's interest for the sum of $0, being the amount of his cash investment.

Procedural History:

Plaintiff commenced this action in 1997 approximately six (6) months after having received the November 6, letter, demanding, inter alia, reinstatement as a partner in defendant Daniel, an accounting, and damages (see Amended and Supplemental Complaint). Justice D'Emilio of Supreme Court, Suffolk County held in his December 18, 1997 Order denying plaintiff's first motion for preliminary injunction that "it may turn out that the transaction between DMG and DIMAC constituted a de facto merger of the two entities, thereby possibly triggering the above mentioned disputed clause". Plaintiff never appealed that order, and his subsequent motion in 1998 to renew that motion was denied.

By notice of motion dated July 27, 2001, plaintiff moved for summary judgment. In response, defendants cross-moved for partial summary judgment dismissing the complaint and severing and continuing their counterclaims. Defendants argued, among other things, that the buy-out option was properly exercised upon DIMAC 's construction of a new building with no equity participation by the partners, and that DePasquale lost any rights he may have had to continued partner status in Daniel Realty when he allegedly breached his fiduciary duty to the partnership by the asset sale of DMG to DIMAC. Defendants also argued that DePasquale came to the court of equity with unclean hands and should, therefore, be precluded from the equitable relief he is seeking.

In a six-page short form order dated December 19, 2001, the Hon. Edward D. Burke, [*7]Justice Assigned, held that none of the moving parties had met his initial burden to establish entitlement to summary judgment. Accordingly, Justice Burke denied plaintiff's motion and both cross-motions.

In so holding, Justice Burke noted that whether an agreement is ambiguous or susceptible to more than one interpretation is a question of law for the court, and declared the Partnership Agreement to be "unclear and ambiguous as to the reasonable expectations of the respective parties [citations omitted]" (id.). Paragraph No.5 [of the Amended Partnership Agreement] states that plaintiff and his company's leasing of space were contemplated as an on going consideration in his partnership interest; Paragraph #6 contemplates that the partnership would have an "ownership interest" in some "future" building. What is meant by an "ownership interest" and whether the agreement contemplated that plaintiff retain an interest in the "future" building cannot be resolved by the submissions. The terms in the agreement do not lend themselves to a clear directive in the event that plaintiff's company was bought and then operated by another company (as evinced by the intent of the purchase agreement with DIMAC).

Plaintiff appealed, and the Appellate Division affirmed the lower Court's denial of summary judgment.

At the trial of this action, which was limited by the parties with the consent of the court to the issue of whether the defendants rightfully terminated the plaintiff's partnership interest in Daniel Realty Associates, the parties adduced documentary and testimonial evidence is support of their claims and defenses. Upon consideration of such evidence and the post-trial submissions of the parties, the court finds and concludes as follows:

1. In 1983, defendant, Daniel Realty Associates (hereinafter "DRA"), a general partnership, owned an 18 acre parcel of realty on Daniel Street in Farmingdale, New York which was improved with a 148,000 square foot commercial building, hereinafter referred to as the subject premises. In 1983, DRA had four partners, Jerry Krinsky, Morton H Kaplan, and Howard Kurfirst and Wilbur Breslin.

2. The plaintiff, John A. Depasquale, was then the sole-owner of a direct marketing business known as Direct Marketing Group (hereinafter DMG) and was looking for a larger facility from which to operate his business.

3. The plaintiff began negotiating, on behalf of DMG, with Wilbur Breslin, the managing partner of DRA, with respect to leasing the subject premises in their entirety. As part of those negotiations, the plaintiff suggested that DRA afford him an equity interest in the DRA in light of the fact that plaintiff's company would be the sole occupier of DRA's premises under the terms of the fifteen (15) year lease term proposed by DRA. The plaintiff also indicated that the existing building might not suit all of the needs of DMG in that the plaintiff envisioned that his company would require a larger, more modern building in the future. Defendant partner Kaplan viewed [*8]such circumstances as an incentive for doing business with DMG as DRA "would have to put up a larger building at some point" and DRA "would have two buildings rather than one."

4. Wilbur Breslin, the managing partner of DRA, while initially adverse to granting the plaintiff any equity interest in DRA, continued to actively negotiate with the plaintiff as managing partner of DRA as it had no prospective tenants for the building on Daniel Street other than DMG. The plaintiff told Mr. Breslin that he was considering leasing a building in Mitchell Field in Nassau County and was offered by the owners a ten percent equity interest therein. Ultimately, Mr. Breslin determined, and his partners agreed, that the plaintiff should be granted an equity interest in DRA without requiring the plaintiff to make any initial payments or capital contributions because of his control over the prospective long-term tenant and that tenant's execution of the 15 year term lease. Mr. Breslin's testimony that so long as DMG was locked in by a long term lease, it's future vacatur of the subject premises for a larger more modern building elsewhere was inconsequential because DMG would remain obligated under the terms of the lease, was not controverted at trial. Breslin reported to the plaintiff, however, that there was some concern and that any partnership interest in DRA granted to the plaintiff should terminate if DRA were not granted an equity interest in a new building constructed for DMG.

5. A lease between DRA as landlord and DMG as tenant and an Amended Partnership Agreement to reflect the admission of the plaintiff, John Depasquale, into DRA were drafted by DRA's attorneys in the fall of 1983 and signed by all parties on November 9th of that year. The Amended Partnership Agreement provided two circumstances under which the plaintiff's partnership interest in DRA could be terminated and acquired by the other partners. The first of such circumstances is set forth in Paragraph 5 of said Amended Partnership Agreement which provides in relevant part as follows: in the event that the partnership, as Landlord in that

certain lease dated November 9, 1983, legally terminates

the rights of the Tenant, the Direct Marketing Group, to

occupy the premises, 40 Daniel Street, based upon a default

by said tenant, then the interest of John Depasqaule in this

partnership shall be deemed to be conveyed to the other partners

in proportion to their interest in the partnership as of the date of termination.....

The second circumstance under which the plaintiff's partnership interest in Daniel Reatly could be terminated, and the one at issue here, is set forth at Paragraph 6 of the Amended Partnership Agreement which provides in relevant part as follows:

A consideration for the admission of John D . Pasqaule [sic]

as a partner in Daniel Realty Associates has been the anticipation [*9]

by the partners of the construction, in the future, of a building

for either John Depasqaule, the Direct Marketing Group Inc. or

its affiliates or subsidiaries on terms and conditions to be agreed to by

the Partners, as partners in a transaction to be negotiated between

said parties in respect to such new building. In the event

that John Depasquale, The Direct Marketing Group

or its affiliates or subsidiaries constructs [sic] a building

without an ownership interest in said building being acquired

by Mssrs. Kaplan, Krinsky, Kurfist and Breslin, then and in

that event Mssrs. Kaplan, Krinsky Kurfirst and Breslin in either

jointly or severally shall have the right to purchase John DePasquale's

interest in Daniel Realty Associates .....

6. DMG occupied the Daniel Street property under the terms of the November 9, 1983 lease between DMG and DRA until a renegotiated lease was executed on February 1,1993. The renegotiated lease was an arm's length deal between DMG and DRA, both of which were experiencing financial difficulties. DMG was in default of its obligation to pay rent due under the original lease at the time of the signing of the 1993 lease. The new lease term commenced on February 1, 1993 and ended on July 31, 1995. DMG was granted an option to extend same for an additional two and one-half year term, provided it was not in default. DMG paid DRA some $870,000.00 towards the rent arrears leaving a balance of approximately $120,000.00 at the time of the execution of the new lease.

7. Notwithstanding the default of DMG under the terms of the original 1983 lease, DRA did not exercise the right to terminate DRA's leasehold under the terms of said lease nor did the original partners opt to terminate plaintiff's partnership interest in DRA pursuant to Paragraph 5 of the Amended Partnership Agreement.

8. In the latter part of 1993, a secured creditor of DMG and the plaintiff gained control of DMG's Board of Directors. The plaintiff testified that the DMG"S new Board ordered DMG to sell its assets so as to repay the controlling secured lender, IBJ Shroeder, the 7.6 million dollar debt due it from DMG and the plaintiff, the individual guarantor of such debt.

9. In May of 1994, DMG sold its assets and business as a "going concern" to the entity known as DIMAC Direct, Inc. ("DIMAC"), a publicly traded Missouri based direct marketing company. DIMAC also agreed to assume certain liabilities of DMG, including the DRA lease, as well as certain personally guaranteed liabilities of the Plaintiff. DIMAC agreed to assume the terms and conditions of the lease agreement between DMG and DRA. DIMAC proceeded to occupy the entire premises previously occupied by DMG and DIMAC paid rent to DRA at the monthly amount as set forth in the 1993 lease with DMG. In or about May, 1994, plaintiff told defendant Kaplan that he was selling his company DMG to DIMAC. Plaintiff also advised Kaplan that this would give DRA a financially solid tenant. [*10]

10. By letter dated May 13, 1994, plaintiff formally advised the partnership of the sale of the DMG business to DIMAC and requested DRA's consent, pursuant to paragraph 6.02 of the February 1, 1993 lease to assign the lease to DIMAC Direct. Plaintiff's May 13, 1994 letter included a copy of DIMAC's SEC form 10-K for 1993, and indicated that, at DIMAC's option, an existing letter of credit by IBJ Schroder Bank or cash security would be maintained.

11. The letter contained a consent line for DRA approval of the assignment of the lease to DIMAC. No proof was offered at trial regarding whether the consent letter was signed by DRA, but it is not disputed that DRA began to accept rent checks each month from DIMAC, as it took possession of all of the premises that had been demised to DMG and DIMAC undertook performance of the obligations of DMG under the terms of the lease 1993 lease executed by DRA and DMG. DRA accepted rent payments from DIMAC in June of 1994. DRA thus consented to the assignment of the lease to DIMAC as tenant in the place of the original tenant, DMG.

12. After DIMAC succeeded to DMG's leasehold, DIMAC remained in possession through the leasehold''s expiration in July of 1995 and for approximately two years thereafter as a holdover tenant. During that holdover term, DRA accrued the holdover rent as a receivable until it was paid in full after DIMAC vacated Daniel's premises and moved into its new building in Central Islip, New York. DRA thus consented to DIMAC's status as a holdover tenant after the expiration of the 1993 lease term as DRA ultimately accepted the rents due from DIAMAC during it hold over tenancy.

13. Prior to the July 31, 1995 expiration of the lease pursuant to which DIMAC occupied the subject premises, DIMAC rejected DRA's attempts to keep DIMAC as a tenant by offering to build a substantially expanded building, as DIMAC had already committed to construct its own building at another location. DRA partners were advised by the plaintiff as early as April of 1995 that DIMAC contemplated constructing its own building.

14. DIMAC's construction of the Central Islip building began around July of 1996. By a July 26, 1996 memorandum to Mr. Katzman and Mr. Kaplan, plaintiff requested that his partnership interest be increased from approximately 18% to 25% Plaintiffs' 9.9% interest had previously been increased to approximately 18% when original partner Breslin had withdrawn in connection with a legal settlement agreement and Breslin's interest was distributed equally among the remaining partners. In a July 26, 1996 memorandum to the other partners, plaintiff suggested that the other partners had agreed that the efforts of the plaintiff regarding Breslin, DIMAC, and other things should be rewarded by making the plaintiff one of four equal partners.

15. On November 6, 1996, the defendant partners rejected the plaintiff's proposals and notified him by letter of their decision to terminate his partnership interest in DRA pursuant to the buy-out provisions of paragraph 6 of the Amended Partnership Agreement. Therein, the defendant partners advised that their failure to obtain equity interests in the Central Islip building constructed by DIMAC triggered their rights under paragraph 6 of the Amended Partnership Agreement to buy out the plaintiff's interest for the sum of $0.00, as such amount was the total [*11]amount of his cash investment.

17. Meanwhile, DIMAC's construction of its new building continued and no equity or ownership interest in said building was negotiated with and/or granted to DRA's partners. DIMAC ultimately vacated the subject premises in July of 1997 and moved into its newly constructed building in Central Islip, NY.

18. The purported termination of the plaintiff's interest in DRA by the defendant partners in November of 1996 was wrongful as the sale of DMG's assets to DIMAC was not a defacto merger or other transaction pursuant to which, DIMAC became a subsidiary or affiliate of DMG as provided for in paragraph 6 of the Amended Partnership Agreement and/or as contemplated by the parties to said Amended Partnership Agreement at the time of its execution. The provisions of paragraph 6 of the Amended Partnership Agreement were drafted by counsel for DRA and thus are construed strictly against DRA and in favor of the plaintiff (151 West Assocs. V. Printsiples Fabric Corp., 61 NY2d 732, 472 NYS2d 909; Jacobsen v Sassower, 66 NY2d 99, 499 nYS2d 381; Platsky v. Island Hills Golf Club, Inc., 260 AD2d 640, 687 NYS2d 272). While the Agreement could have provided the defendant partners with a remedy, such as termination of plaintiff's partnership interest, in the event of a sale of the assets of DMG to a separate business entity such as the sale to DIMAC, the Amended Partnership Agreement did not so provide. Accordingly, the asset sale by DMG to DIMAC, its leasehold in the subject premises and its departure therefrom upon its move into the new building in Central Islip without the acquisition of equity interests in such building by the defendant partners did not trigger the buy-out termination of plaintiff's partnership interest under the provisions of paragraph 6 of the Amended Partnership Agreement and the defendant partners' purported buy-out termination of the plaintiff's partnership interest pursuant to that paragraph was wrongful.



19. The terms of the Amended Partnership Agreement imposed no affirmative obligations on the part of the plaintiff to provide the defendant partners of DRA with any equity interest in any building constructed by DIMAC or other like entity. Rather, the Amended Partnership Agreement, by the terms thereof as construed by their meaning as gleaned from a reading of the Agreement in its entirety and the reasonable expectations of the parties thereto and the circumstances at the time of the execution of said agreement in 1983 parties (see, Uribe v Merchants Bank of New York, 91 NY2d 336, 670 NYS2d 393), obligated the plaintiff to provide the defendant partners of DRA with an opportunity to become equity owners in a building constructed in the future by the plaintiff, DMG, its affiliates or subsidiaries "on such terms and conditions to be agreed to by the partners as partners in a transaction to be negotiated in respect to such new building". Since no new building was constructed for the plaintiff, DMG or an affiliate or subsidiary of DMG, the contingent remedies afforded the defendant partners in the event that they did not acquire an ownership interest in new building constructed for the plaintiff, DMG, its affiliates or subsidiaries never ripened into fruition. There was no credible evidence adduced that it within the reasonable expectations or purposes of the that the plaintiff would be required to provide the defendant partners with an opportunity to acquire an equity interest in a building constructed by an independent entity such DIMAC and the court finds that the plaintiff had no such obligation. The language of paragraph six of the Amended Partnership Agreement [*12]confirms this finding since any equity interest granted to the defendant partners would be the subject of future negotiations between those defendant partners and the independent entity (such as DIMAC), which was not a party to the Amended Partnership Agreement. The defendant partners' purported buy-out termination of the plaintiff's partnership interest pursuant to paragraph 6 of the Amended Partnership Agreement was thus improper.

20. The plaintiff did not violate any fiduciary duties owing to the defendant partners or the terms of the Amended Partnership Agreement. The plaintiff kept one or more of the DRA partners apprised of the financial difficulties DMG was experiencing for several years prior to the renegotiation of the 1983 lease in1993. Indeed, the defendant partners knew first hand of the financial difficulties DMG was experiencing in the early 1990's since DMG fell behind on its obligation to pay rent to DRA under the terms of the original lease. The default by DMG was forgiven, however, in 1993 when the lease between DMG and DRA was renegotiated, and no action to buy out the plaintiff's partnership interest under the terms of paragraph 5 of the Amended Partnership Agreement were undertaken by the defendant partners.

21. The 1993 lease was an arms length deal negotiated by the parties, each of whom accepted the obligation and benefits thereof. DRA and the defendant partners thereof were apprised of the asset sale by DMG to DIMAC and they accepted the benefits of DIMAC's assumption of DMG's 1993 lease. The record is devoid of any evidence tending to establish that the conduct of the plaintiff in negotiating and consumating the asset purchase agreement on behalf of DMG and the plaintiff, individually, as the guarantor of DMG's financial obligations, or in negotiating on behalf of DRA with DIMAC after it took possession of the subject premises violated fiduciary duties owing from the plaintiff to the defendant partners or constituted a breach of the Amended Partnership agreement and is thus actionable as a kind of self-dealing on the part of the plaintiff or other breach of fiduciary duties and/or contractual obligations as alleged by defendants Daniel, Kaplan and Kurfirst.

22. The evidence adduced at the trial failed to establish that the plaintiff breached the Amended Partnership Agreement by failing to make capital contributions or otherwise.

23. All demands for relief set forth in the first, second and third counterclaims asserted in the amended answer of defendants, Daniel, Kaplan and Kurfirst are denied and such counterclaims are dismissed. The demand for declaratory relief set forth as the fourth and final counterclaim of these answering defendants for a declaration of the rights of the parties under the terms of the Amended Partnership Interest is granted to the extent that the Court declares that the defendant's wrongfully terminated the plaintiff's partnership interest.

The parties are directed to jointly contact chambers regarding the scheduling of the trial on the issue of damages and other relief, if any, to which the plaintiff is entitled.

Dated: May 11, 2004__________________________

EDWARD D. BURKE, A.J.S.C