Friedman v Ocean Dreams, LLCAnnotate this Case
Decided on June 11, 2007
Supreme Court, Kings County
Saul Friedman, Plaintiff,
Ocean Dreams, LLC, et al., Defendants.
Counsel for Plaintiff:
Matthew Dollinger, Esq.
Dollinger Gonski & Grossman
One Old Country Road
Carole Place, NY 11514
Co-Counsel for Plaintiff:
Jay B. Solomon, Esq.
Klein & Solomon, LLP
275 Madison Avenue
New York, NY 10016
Counsel for Defendants:
Joseph Zelmanovitz, Esq.
Stahl & Zelmanovitz
767 Third Avenue
New York, NY 10017
Carolyn E. Demarest, J.
In this action by plaintiff Saul Friedman (plaintiff) against defendants Ocean Dreams, LLC (Ocean Dreams) and David Weisz (Weisz) (collectively, defendants) seeking the imposition of a constructive trust for a 50% interest in real property, an accounting, and damages for Weisz's alleged breach of fiduciary duty, breach of a partnership agreement, and conversion of his partnership interests, defendants move for summary judgment dismissing plaintiff's complaint.
Beginning in 1986, plaintiff, his brother Morris Friedman (Morris) and defendant David Weisz, made several real estate investments as partners. Each of these properties was the subject of a separate written partnership agreement. In or about 1990, Morris introduced the Wechslers to the other partners. In 1990, plaintiff and Weisz, along with Joseph and Samuel Wechsler ( Wechsler), and Morris entered into a written "master"partnership agreement (the 1990 agreement), under which they agreed to invest monies provided by the Wechslers in real properties.[FN1]Plaintiff held a 15% interest, Weisz held a 10% interest, Wechsler held a 60% interest, and Morris held the remaining 15% interest in this partnership. Paragraph 6 of the 1990 agreement provided that "[a]ll [*2]partners are required to offer all potential properties in the U.S.A. that come to their attention to the partnership." This document clearly appears to be the original agreement defining the terms of the partnership known as Whitney Jordan Equities ("WJE").[FN2]
By an Amended and Restated Partnership Agreement of WJE and Agreement with respect to the Affiliate Entities dated 1993 (the WJE agreement), plaintiff, Morris, Weisz, and Samuel Wechsler entered into a more formal 48-page partnership agreement to restate their entire partnership agreement in full. While plaintiff claims that the 1990 agreement remained, separately, in effect, defendants claim that the WJE agreement modified and replaced the 1990 agreement. Paragraph 13.3 of the WJE agreement states: "This Agreement and the documents referred to herein constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreements or understandings with respect to such matters". The plain language of this provision indicates that the 1993 Amended Agreement replaced the earlier 1990 agreement and governs the relationship of the parties.[FN3] Paragraph 7.1 of the WJE agreement vests the management of the partnership in "a Majority-in-Interest of the Partners" effectively placing control in Samuel Wechler as the holder of a 60% interest. Morris Friedman was designated as responsible for day to day administration although Morris, plaintiff and defendant David Weisz are referred to as "Managing Partners". The amended WJE agreement further provided, in section 4.2, that upon approval of the acquisition of a project, a new limited partnership (i.e., an affiliated entity) would be created in which a corporation owned by Samuel Wechsler would own 1% of this partnership and would be the general partner. The limited partners would be Samuel Wechsler, Morris, plaintiff, and Weisz, who would own respective interests of 59%, 15%, 15%, and 10%. Section 4.3 of the WJE agreement provides as follows: [*3]
"4.3. Partnership Opportunity . . . [D]uring the Commitment Period, no Managing Partner nor any of its Affiliates shall directly or indirectly acquire any Project (other than for use by such Partner or his immediate family as his personal residence) located in the United States other than through the Partnership or an Affiliated Entity."[FN4]
Plaintiff and Morris subsequently had disputes unrelated to the other partners, resulting in an arbitration award dated July 1, 1999, which lowered plaintiff's interest with respect to acquisitions made by WJE to 7 1/2% during the five years following the date of the award, and after such five-year period, provided that plaintiff would no longer be entitled to an interest in such acquisitions. The award was altered by an agreement entered into on November 15, 1999 (the November 15, 1999 agreement) between plaintiff and Morris which recites that Samuel Wechsler, Morris, plaintiff, and Weisz had entered into a partnership agreement "relating to the acquisition and management of real estate in the United States and have operated and done business as [WJE]" and references the various partnerships in which plaintiff held an interest. Noting that the WJE partners were in the process of negotiating their rights and obligations, the November 15, 1999 agreement further states: "Morris Friedman hereby releases Samuel Friedman from his obligation to offer any real estate opportunity located in the United States to the Whitney Jordan Partnership and he may pursue any and all business ventures, including real estate investment without any right of participation by the other parties to this Agreement and he shall obtain an identical release from the partners of the Whitney Jordan Partnership and from the Whitney Jordan Partnership." According to defendants, plaintiff, thereafter, no longer participated in any ventures with his former partners through WJE. Plaintiff claims that despite the terms of this agreement, he never agreed to withdraw from the business, and that it was his brother, Morris, who withdrew from the business. There is no evidence of a formal termination of the partnership pursuant to Article VIII although the partnership may have been de facto dissolved based upon subsequent events.
Ocean Dreams was organized pursuant to a May 16, 2000 Limited Liability Company Agreement as a Delaware limited liability company for the purpose of acquiring real property in Brooklyn, New York. The original members of Ocean Dreams were the Samuel Wechsler 2000 Grandchildren's Trust (the Wechsler Trust), which made a capital contribution of $2,625,000 and held a 75% interest in Ocean Dreams, and Weisz, who made a capital contribution of $875,000 and held a 25% interest in Ocean Dreams. In June 2000, Ocean Dreams acquired title to certain real properties in Brooklyn, including 3616 Surf Avenue, 3602 Surf Avenue, 3033 West 36th Street, 3514 Surf [*4]Avenue, and 3501-3511 Boardwalk a/k/a 3002-3038 West 35th Street (collectively, the Surf properties).
Plaintiff ,who is a certified public accountant, claims that he was unaware of the purchase of the Surf properties until July 2, 2001, when, in the course of preparing tax returns for Weisz, he discovered a Schedule K-1 prepared by another accountant, which reflected Weisz's interest in Ocean Dreams and the Surf properties. Insisting that plaintiff was fully aware of this acquisition earlier, Weisz has submitted financial projections (Exhibit G to Weisz's affidavit) with respect to the Surf properties, dated September 11, 2000, nearly a year before plaintiff claims to have discovered Weisz's purchase of the Surf properties, which were allegedly printed out by plaintiff in connection with discussions concerning the tax implications of the acquisition of Ocean Dreams. Plaintiff claims that Exhibit G is a forgery. Resolution of this factual dispute is not critical to the determination of the instant motion. Critical to plaintiff's suit, however, is his assertion that when he first learned of, and confronted Weisz about the investment, Weisz represented that he was acting as plaintiff's nominee and that Weisz's 25% interest included Weisz's own 10% interest and plaintiff's 15% interest, consistent with the allocated interests in the WJE agreement. It is this alleged oral exchange that serves as the predicate for plaintiff's claims of an entitlement to a fifty percent interest in Ocean Dreams.
In 2002,allegedly as a result of a disagreement between Wechsler and Weisz relating to their separate relationship in a diamond business, Weisz was bought out of WJE and all its affiliated entities and Wechsler Trust divested itself of all interest in Ocean Dreams. This was accomplished through a series of transactions in which the Wechsler Trust first transferred a 58% interest in Ocean Dreams to WJE, which, in turn transferred such interest to Weisz in exchange for Weisz's 10% interest in the various assets of WJE and affiliated entities, thereby terminating Weisz's interest in all the partnerships. In order to eliminate the Wechsler Trusts's 75% interest completely so as to acquire 100% ownership of Ocean Dreams, Weisz also paid to Wechsler $600,000 plus the repayment of the funds advanced to Weisz by Wechsler upon the formation of Ocean Dreams which had enabled Weisz's participation. Plaintiff claims that he offered to contribute the necessary capital to purchase the Wechsler Trust's interest in Ocean Dreams, so that he and plaintiff would share equally as 50% partners in Ocean Dreams following liquidation of the Wechsler Trust's interest. Plaintiff asserts, however, that in order to avoid substantial tax liabilities and to hide his involvement in Ocean Dreams from Samuel Wechsler, he did not swap his own 15% interest in WJE or contribute any capital to purchase the Wechsler Trust's remaining interest in Ocean Dreams. Instead, plaintiff merely consented to the transfer of WJE's transient interest in Ocean Dreams, derived from the temporary transfer to WJE of Wechsler Trust's interest, to Weisz, who, pursuant to Internal Revenue Code (26 USC) § 731, swapped his 10% interest in WJE and other affiliated partnerships for 58% of Ocean Dreams. Together with Weisz's [*5]original 25% interest and the portion of the Trust's 75% interest which he purchased for cash, Weisz acquired 100% ownership in Ocean Dreams.
Through a Partnership Redemption Agreement dated October 3, 2002 (the Redemption Agreement), WJE and the affiliated entities distributed their interests in Ocean Dreams to Weisz in complete redemption of Weisz's interest in WJE and the affiliated entities. Plaintiff executed the Redemption Agreement, consenting to this transfer. Weisz also allegedly paid $1,600,000 to buy the remaining portion of the Wechsler Trust's interest in Ocean Dreams and reimburse Wechsler for the advance of funds on the original purchase. Plaintiff did not contribute any cash to the 2002 transactions, but retained his 15% interest in each partnership, valued by plaintiff himself at $3.2 million. As a WJE partner, plaintiff also executed a Release dated October 3, 2002 (the Release), under which he gave up all claims against Ocean Dreams or Weisz with the exception of claims "which arise by reason of, any one or all of the transaction documents executed by [him]." According to the operative documents involved in the 2002 transactions, plaintiff retained no interest in Ocean Dreams. Plaintiff claims, however, based upon the alleged oral agreement, that he and Weisz secretly agreed that he would be a silent 50% partner in Ocean Dreams. Such contention is clearly not supported by any of the numerous documents in evidence and is, in fact, contradicted by the evidence.
Ocean Dream's 2002-2004 tax returns, prepared by plaintiff, reflect that Weisz owns 98% of Ocean Dreams and that Weisz's wife owns the remaining 2% of Ocean Dreams. No mention is made of plaintiff's alleged interest in Ocean Dreams. Plaintiff asserts that this was done in order to protect the integrity of the Internal Revenue Code (26 USC) § 731 swap. Weisz and his wife also assumed 100% of the reported losses for Ocean Dreams on their personal tax returns.
Weisz's financial statements for 2004 and 2005, also prepared by plaintiff for purposes of presentation to HSBC as part of Weisz's continuing obligation to the bank for its extension of a $1 million line of credit to Weisz's business, stated that Weisz owned a 100% interest in Ocean Dreams. In addition, an income tax projection summary for Weisz, prepared by plaintiff in 2005, reflects the capital gains that Weisz would generate from a sale of his interest in Ocean Dreams to Seaview, premised upon a 100% ownership interest by Weisz in Ocean Dreams.[FN5] The schedule shows that Weisz's adjusted gross income would be $38,872,282, primarily derived from an anticipated capital gain of $38,500,018 on the sale of the Surf properties, which, Weisz asserts, would only be possible if he owned 100% (as opposed to 50%) of Ocean Dreams.
Plaintiff claims that it was not until August 2005, that Weisz disaffirmed his [*6]partnership with him with respect to Ocean Dreams, when Weisz refused to confirm such interests in writing. Plaintiff asserts that Weisz leased portions of the Surf properties to third parties for profit, and that, in September 2005, Weisz offered the Surf properties for sale without his consent thereby acting for his own profit and excluding plaintiff from the ownership and management of Ocean Dream, in breach of the fiduciary duty owed to him.
In January 2006, plaintiff brought this action against defendants, alleging four causes of action. Plaintiff's first cause of action seeks an adjudication that defendants hold his alleged 50% interest in the Surf properties in constructive trust for him. Plaintiff's second cause of action seeks an accounting by defendants of the business of Ocean Dreams and the Surf properties, and the turn over of all monies in their hands belonging to him. Plaintiff's third cause of action seeks damages for Weisz's alleged breach of a fiduciary duty owed to him and breach of his alleged partnership agreement. Plaintiff's fourth cause of action seeks damages for Weisz's conversion of his partnership interests in Ocean Dreams and the Surf properties.
With respect to plaintiff's first cause of action for a constructive trust, it is noted that the required elements for the imposition of a constructive trust are a confidential or fiduciary relationship, a promise, a transfer in reliance upon the alleged promise, and unjust enrichment (see Sharp v Kosmalski, 40 NY2d 119, 121 ; Osborne v Tooker, 36 AD3d 778, 779; Natasi v Natasi, 26 AD3d 32, 37 ; Eicker v Pecora, 12 AD3d 635, 636 ; Neos v Neos, 262 AD2d 467, 468 ). As to the required element of a transfer in reliance upon an alleged promise, plaintiff does not deny that he did not contribute any capital with respect to the purchase of the Surf properties, and that he made no direct payment in connection with the Surf properties. Moreover, since he had no knowledge of the purchases of the properties until some time after they occurred, he had no direct involvement in and made no other contribution to the acquisition of the property.
Plaintiff claims, however, that he contributed his time, knowledge, and expertise over many years, which allowed Weisz to "learn the techniques of investing in, owning, and managing real property in the United States," in consideration for their agreement to continue investing together as partners. Plaintiff also generally alleges that he made capital contributions to other investments with Weisz. Plaintiff argues that these contributions of funds, time, and effort, in reliance on the promise to share in the result, should qualify as a transfer sufficient to satisfy the pleading requirements of a cause of action for a constructive trust. These arguments have been previously addressed and rejected by this Court in its decision of June 22, 2006.
While the contribution of time and effort, as well as funds, could constitute the requisite transfer (see Matter of Bayside Controls, 295 AD2d 343, 345-346 ; Lester [*7]v Zimmerman, 147 AD2d 340, 341-342 ), plaintiff's argument must again be rejected here since none of these contributions specifically relate to Ocean Dreams or to the Surf properties. Plaintiff fails to allege, in his complaint, that he contributed expertise or effort of any kind in reliance upon a future transfer of an interest in Ocean Dreams. Rather, it appears that plaintiff's efforts and contributions to defendant Weisz as a partner in WJE and its affiliates were adequately and specifically compensated. There is no indication of unjust enrichment or that Weisz "may not in good conscience retain the beneficial interest" in Ocean Dreams acquired herein. See Sharp v. Komaski ; Osbourne v. Tooker.
Plaintiff further contends that he had acquired a 15% interest in the property of Ocean Dreams by operation of the WJE agreements which obligated Weisz to offer the Surf properties to WJE. He asserts that since he did not act to enforce WJE's right to take title to the Surf properties pursuant to section 4.3 of the WJE agreement and had relinquished a right he had pursuant to the partnership agreement in reliance upon Weisz's promise to share ownership of the Surf properties with him, such consideration should qualify as a transfer so as to support a cause of action for a constructive trust.
As this Court previously determined, plaintiff's reliance upon section 4.3 of the WJE agreement is misplaced. The right to enforce the WJE agreement belonged to WJE, not plaintiff, who was simply a partner in WJE. [FN6] WJE did not seek enforcement of section 4.3 of the WJE agreement or claim any ownership interest in Ocean Dreams prior to the 2002 buy-out transaction. As a result of the Wechsler Trust's transfer of its interest to WJE in 2002, WJE acquired only a transient interest in Ocean Dreams and never had a direct interest in the Surf properties, which were held solely by Ocean Dreams. Plaintiff's purported forbearance in not asserting his claimed rights against Ocean Dreams does not supply the requisite transfer of an existing property interest in reliance on defendant's promise, alleged to have been made at least two years after purchase of the properties, so as to entitle him to a constructive interest in Ocean Dreams' real property. Moreover, plaintiff expressly released Weisz from any obligation regarding the Ocean Dreams property when he consented to the 2002 asset exchange. Summary judgment dismissing plaintiff's first cause of action for a constructive trust is mandated.
With respect to plaintiff's remaining causes of action, for an accounting as to the assets of Ocean Dreams, breach of the fiduciary duty owed by Weisz to plaintiff pursuant to the various partnership agreements, breach of the alleged oral partnership agreement as to Ocean Dreams, and for damages resulting from Weisz's alleged conversion of plaintiff's interest in Ocean Dreams defendants contend that the Statute of Frauds bars any recovery and requires the dismissal of the complaint. The Statute of Frauds, set forth [*8]in General Obligations Law § 5-703, prohibits the granting of an interest in real property without a written contract subscribed by the party to be charged.
Here, the oral partnership agreement allegedly reached between plaintiff and Weisz in 2002 did not pertain to the direct conveyance of an interest in the Surf properties themselves since they had already been acquired two years earlier by Ocean Dreams. Rather, the alleged agreement between plaintiff and Weisz pertained to the conveyance of an ownership interest in Ocean Dreams and, thus, concerned the transfer of an interest in a limited liability company (LLC) whose primary asset was real property. Plaintiff contends that since the oral agreement with Weisz involved the transfer of an interest in Ocean Dreams and not an interest in the realty, such agreement only involved an interest in personal property to which the Statute of Frauds is not applicable to bar his claim. Support for this argument can be found in this Court's prior decision of June 22, 2006, in which the notice of pendency was vacated upon the finding that plaintiff's claim did not concern the direct ownership or title to real property so as to permit the filing of a notice of pendency. Such finding is not dispositive of the issue now before the Court, however.[FN7]
In Gora v Drizin (300 AD2d 139, 139 ), it was held that an oral agreement to convey an interest in an LLC owning real property so as to transfer a 50% beneficial ownership interest in the real property is barred by the Statute of Frauds (see also Chanler v Roberts, 200 AD2d 489, 490 ; Spodek v Riskin, 150 AD2d 358, 359 ; Najjar v National Kinney Corp., 96 AD2d 836, 836 ). Plaintiff alleges that Weisz acquired, through Ocean Dreams, title to the Surf properties in contravention of his rights. Subsequently, plaintiff alleges he entered into an oral agreement with Weisz in 2002,the purpose of which was the conveyance of a 50% interest in the Surf properties, through Ocean Dreams. As such, this agreement was subject to the Statute of Frauds (see Spodek, 150 AD2d at 359). It is noted that, in contrast to Spodek , here there is no evidence, documentary or otherwise, of any performance on plaintiff's behalf that would be unequivocally referable to the alleged oral contract so as to avoid the Statute of Frauds. (See also, Yenom Corp. V 155 Wooster Street, Inc., 38 AD3d 67, 71 ). The Statute of Frauds "may not be evaded by claiming that even though the agreement for the transfer of the property itself is unenforceable, the agreement to enter this business arrangement is valid" (Najjar, 96 AD2d at 836).
Plaintiff attempts to distinguish the holding in Gora (300 AD2d at 139) by pointing to the fact that Ocean Dreams was already in existence at the time of the alleged [*9]promise in 2001 and by claiming that he had been a 15% member in Ocean Dreams since 2000 based upon the 1990 agreement and the WJE agreement previously executed by the parties. He contends that the alleged oral agreement between him and Weisz therefore involved a beneficial transfer of an interest in real property by an existing partnership in which he already had an interest and not a contract by or on behalf of an entity in which he had no prior interest.
Plaintiff's attempt to distinguish Gora is unavailing. As in Gora, plaintiff alleges an oral agreement for the transfer of a 50% interest in an LLC after the LLC had obtained title to the real property. While plaintiff alleges a claim that the 1990 and WJE agreements which would entitle him to a 15% share of Ocean Dreams, had been breached, as previously noted, such a breach would not result in a direct 15% ownership interest in property purchased by Weisz. There is nothing in the 1990 agreement or the WJE agreement which creates an automatic 15% interest for plaintiff in any property purchased by another partner.[FN8] Indeed, plaintiff's complaint does not allege that he is entitled to a 15% interest in Ocean Dreams, but, instead, seeks a 50% interest in it based upon the oral agreement which, he alleges, he entered into with Weisz after the property had been purchased by the LLC. Thus, plaintiff's complaint, alleging a breach of an oral agreement to convey an interest in the Surf properties to him via the LLC vehicle, Ocean Dreams, is barred by the Statute of Frauds.
Moreover, even were plaintiff to prevail on his Statute of Frauds argument, his remaining claims, all of which are contingent upon the viability of his alleged oral partnership contract with Weisz, are otherwise barred by the Redemption Agreement and the Release executed by plaintiff. Section 2.1.5 of the Redemption Agreement provides that "[s]uch Partnership [each of WJE and the related partnerships] is the legal and beneficial owner of the Ocean Dreams Interest owned by such Partnership free and clear of any . . . commitments . . . conditions . . . or other encumbrances of any kind, but subject to the terms and provisions of the Ocean Dreams Agreement" of May 16, 2000 between Weisz and the Wechsler Trust. There is no mention or exception for plaintiff's alleged oral agreement under which he claims to possess some interest or encumbrance with respect to Ocean Dreams.
Furthermore, section 8.7 of the Redemption Agreement contains a standard "merger" or "integration" clause, which provides as follows:
"The Transaction Documents [Partnership Assignments, Weisz Assignment and [*10]the Redemption Agreement] contain the entire understanding of the parties with respect to their subject matter and supersede all prior agreements and understandings between the parties with respect to the transactions contemplated thereby."
Thus, all prior agreements among the parties were superseded by the Redemption Agreement, which, pursuant to section 8.3 thereof, required any modification to it to be in writing. Consequently, plaintiff cannot now assert an alleged oral agreement regarding the subject matter of the Redemption Agreement (i.e., Ocean Dreams) since any oral agreement was barred by the explicit terms of the Redemption Agreement to which plaintiff agreed.
The courts in New York give full effect to integration and merger clauses (see Afa Protective Systems v Lincoln Sav. Bank, FSB, 194 AD2d 509, 510 ; Citigifts, Inc. v Pechnik, 112 AD2d 832, 834 , affd 67 NY2d 774 ). Furthermore, even in the absence of an integration clause, "[u]nder New York law, a subsequent contract regarding the same subject matter supersedes the prior contract" (Independent Energy Corp. v Trigen Energy Corp., 944 F Supp 1184, 1195 [SD NY 1996]; see also Private One of NY, LLC v JMRL Sales & Serv., 471 F Supp 2d 216, 223 [ED NY 2007]). "Prior agreements and negotiations are deemed to merge and be subsumed in a later agreement"(Independent Energy Corp., 944 F Supp at 1195).
In order for a party to overcome the bar of parol evidence in the face of an integration clause in a contract, he or she must establish that the agreement is incomplete (see NAB Constr. Corp. v City of New York, 276 AD2d 388, 390 ) and that the parol evidence is consistent with and does not contradict the written agreement (see Thomas v Scutt, 127 NY 133, 142 ). Here, plaintiff has not shown that the Redemption Agreement is in any way incomplete or that the alleged oral agreement is consistent with the Redemption Agreement. Rather, plaintiff's claimed oral agreement concerning Ocean Dreams contradicts the provisions of the Redemption Agreement. Thus, sections 2.1.5 and 8.7 of the Redemption Agreement bar any claim of an oral agreement providing for an ownership interest by plaintiff in Ocean Dreams.
While plaintiff contends that the Redemption Agreement cannot bar his claims because he signed it only as a partner of WJE, and did not sign it in his individual capacity, such contention is devoid of merit. Plaintiff's claim that he received an ownership interest in Ocean Dreams is derived from his status as a partner in WJE. Thus, plaintiff has not shown any individual claim which arose outside of the WJE agreement, which was not encompassed in the Redemption Agreement and which would necessitate his execution of it in his individual capacity in order to effectuate the object of that agreement.
Plaintiff's further argument that his interest in Ocean Dreams was not the subject of the Redemption Agreement because his agreement with Weisz preceded the execution of the Redemption Agreement, must also be rejected. Section 8.7 of the Redemption [*11]Agreement (as quoted above) bars any prior agreements or understandings between the parties (see AFA Protective Systems, 194 AD2d at 510). The subsequent Redemption Agreement which pertains to, and addresses the same subject matter, would supersede any alleged prior agreement entered into between Weisz and plaintiff (see Independent Energy Corp., 944 F Supp at 1194-1195).
Moreover, pursuant to the October 3, 2002 Release, plaintiff broadly released and discharged Weisz from any claims whatsoever which he may have had against Weisz, except for claims arising from the 2002 transactions themselves. It is well established that "a valid release which is clear and unambiguous on its face and which is knowingly and voluntarily entered into will be enforced as a private agreement between parties" (Appel v Ford Motor Co., 111 AD2d 731, 732 ; see also Touloumis v Chalem, 156 AD2d 230, 231-232 ).
In disputing that the Release bars his claims herein, plaintiff repeats his argument that he only signed the Release in his capacity as a partner of WJE, and not in his individual capacity. He points to the fact that Morris signed the Release in his individual capacity in addition to signing it as a partner of WJE, and argues that since, unlike Morris, he did not sign the Release in his individual capacity, it is not binding upon him to defeat his claim of an interest in Ocean Dreams.
Plaintiff's argument is without merit. As discussed above, plaintiff's claim that he has an interest in Ocean Dreams is derived from the WJE or 1990 partnership with Weisz. The only consideration alleged by plaintiff to support the gratuitous transfer of a 50% interest in realty worth $42 million is the long-standing real estate partnership between the parties and plaintiff's contributions thereto. There is no support for plaintiff's suggestion that his instant claims arise outside of the partnership context. Furthermore, while it is true that Morris did execute the Release individually, as well as as a partner in WJE and as president of several other entities, this is explained by the fact that Morris' business association with Samuel Wechsler and Weisz extended to a diamond business venture with them in which plaintiff had no part. Notwithstanding plaintiff's suggestions to the contrary, any rights arising under the 1990 agreement were intended to be superseded or subsumed within the 1993 WJE agreement, and any claims thereunder were released and discharged by the Release and Redemption agreement.
In any event, the evidence adduced does not support plaintiff's claim that a partnership existed between himself and Weisz in which plaintiff was a 50% partner. It is well established that where losses are not shared, no partnership interest arises (see Mazur v Max E. Greenberg, Cantor & Reiss, 110 AD2d 605, 606 , affd 66 NY2d 927 ). The tax returns for Ocean Dreams and Weisz, which plaintiff himself prepared, show that the significant losses for the period of October 4, 2002 through December 31, 2004, were charged fully to Weisz, and no losses whatsoever were charged to plaintiff. Plaintiff does not dispute there was no sharing of losses between him and Weisz with respect to Ocean Dreams, but argues that the sharing of profits and losses is merely one [*12]factor of many in determining the existence of a partnership. Such argument lacks merit. While the mere sharing of losses and profits alone may not always be sufficient to establish the existence of a partnership, it is an indispensable element to showing that a partnership exists (see Steinbeck v Gerosa, 4 NY2d 302, 317 ; Mazur, 110 AD2d at 606).
Moreover, as defendants argue, a party is estopped from taking a position which is contrary to a position taken on his or her tax returns (see Naghavi v NY Life Ins. Co., 260 AD2d 252, 252 ; Zemel v Horovitz, 11 Misc 3d 1058 [A], *6 ). Plaintiff does not dispute that neither his own tax returns, nor those of Weisz or Ocean Dreams, which he prepared, reflect any ownership interest by him in Ocean Dreams. The Federal tax return prepared by plaintiff for Weisz and for Ocean Dreams set forth that Weisz owns 100% of Ocean Dreams.
Plaintiff's tax expert, Wayne M. Olson, Esq., opines that the ownership of capital, referred to in the Form K-1's, does not mean "economic ownership" so that plaintiff was justified in not reporting his ownership interest in Ocean Dreams. Such opinion, however, is refuted by the instructions to Item D on Form 1065 for partnerships, which expressly state:
" Ownership of capital' means the portion of the capital that the partner would receive if the partnership was liquidated at the end of the year by the distribution of undivided interests in partnership assets and liabilities."
Thus, if, as plaintiff claims, he is entitled, on liquidation of Ocean Dreams, to receive 50% of Ocean Dreams' net worth, this was required to have been reported on Form K-1.
Moreover, Wayne M. Olson, Esq. also ignores plaintiff's Form IT-204-ATT, the State counterpart to the Federal Form K-1, for the years 2002 through 2004. This form directs the entry of the partner's "percentage of ownership" in the partnership, and reflects a 98% ownership for Weisz and a 2% ownership for his spouse in Ocean Dreams. There is no ownership allocation for plaintiff.
Plaintiff additionally argues that Weisz acted as his nominee, and that, as a result, he owned a silent interest in Ocean Dreams derivatively through Weisz that was not required to be reflected on the tax returns. The 2005 instructions to Form 1065 for partnerships, however, state that Item K should be completed, disclosing whether the partner is a "nominee." The Schedule K-1's prepared by plaintiff for Weisz do not state that Weisz is a nominee, and plaintiff also did not comply with the tax reporting requirements for nominees (see Internal Revenue Code § 6031[c] ; Treasury Regulation § 1.6031 [c]-1T[h]; Publication 17). If Weisz were, in fact, a nominee, then plaintiff was required to have so stated in the returns, instead of using the label "individual." The fact that plaintiff designated Weisz's interest in Ocean Dreams as "individual," as opposed to as a "nominee", reflects a sole ownership interest in Weisz as an individual. [*13]
While plaintiff makes the conclusory allegation that his interest was kept secret to protect the Internal Revenue Code (26 USC) § 731 exchange, there has been no showing whatsoever that disclosure of plaintiff's interest on his tax returns would have invalidated the Internal Revenue Code (26 USC) § 731 exchange. Thus, plaintiff cannot avoid the fact that he failed to report any interest in Ocean Dreams on his own tax returns, and is estopped from contradicting the facts set forth on the tax returns of Ocean Dreams and Weisz, which he prepared and signed as "preparer," thereby certifying that the returns were "to the best of [his] knowledge and belief, true, correct and complete"(Treasury Reg. § 1.6065-1[b]).
Finally, plaintiff argues that summary judgment should be denied because there may be knowledge in possession of defendants which might be disclosed in discovery. Plaintiff, however, has failed to point to any specific factual information within the knowledge of defendants which would likely be discovered if such an opportunity for further discovery were afforded to him. Plaintiff cannot defeat summary judgment by mere hope and speculation that evidence sufficient to defeat the motion may be uncovered during discovery (see Mazzaferro v Barterama Corp., 218 AD2d 643, 644 ; Jones v Gameray, 153 AD2d 550, 551 ).
Consequently, summary judgment dismissing plaintiff's third cause of action for breach of the partnership agreement and breach of fiduciary duty must be granted (see CPLR 3212 [b]). Since plaintiff's second cause of action for an accounting seeks an account of the business of Ocean Dreams and the Surf properties and the turnover of profits allegedly belonging to him as a result of his partnership interest in Ocean Dreams, it is necessarily dependent upon plaintiff's establishment of the existence of such partnership interest. Since plaintiff has not established such an interest, he is not entitled to an accounting and the second cause of action must be dismissed (see CPLR 3212 [b]; Connolly v Napoli, Kaiser & Bern, LLP, 12 Misc 3d 530, 538 ), Similarly, inasmuch as plaintiff's fourth cause of action seeks damages for conversion of his alleged partnership interest in Ocean Dreams, the existence of which has not been established, it must also be dismissed (see CPLR 3212 [b]; Batsidis v Batsidis, 9 AD3d 343, 343 ; Ashley MRI Mgt. Corp. v Perkes, 12 Misc 3d 1185 [A], *4 ).
Accordingly, defendants' motion for summary judgment dismissing plaintiff's complaint as against them is granted. The Court's direction in its June 22, 2006 decision and order to create an escrow for plaintiff's claim upon sale of the Surf properties is hereby vacated.
This constitutes the decision, order, and judgment of the court.
E N T E R,[*14]
J. S. C.
Footnote 1: The 1990 agreement indicates that "Wechsler" refers to Samuel Wechsler and children. It is signed, however, by both Samuel and Joseph Wechsler, whose relationship to Samuel is not defined. Joseph Wechsler is not mentioned in the 1993 Amended WJE agreement. Since neither Wechsler is a party hereto the Court will treat the Wechsler interest as that of Samuel alone.
Footnote 2:On June 22, 2006, this Court entered a decision upon a prior motion by defendants to cancel a notice of pendency filed by plaintiff against the property owned by Ocean Dreams, LLC. Some of the factual statements contained therein are modified by the findings herein based upon a closer scrutiny of the relevant documents. Specifically, the documentation does not support plaintiff's contention that Whitney Jordan Equities was a separate partnership from that originally formed by the same parties in 1990 to invest in property throughout the United States. However, plaintiff's insistence that both the 1990 agreement and the 1993 WJE agreement remain in effect does not have any practical impact upon the decision herein as the two documents contain comparable provisions relevant to the issues herein.
Footnote 3: The Preliminary Statement contained in the WJE agreement of 1993 makes clear reference to the extant partnership established in 1990 and previously-established "Affiliated Entities", all of which were to be bound by the 1993 WJE agreement, and expressly notes the intent "to restate [the] entire agreement in full." Article I provides that the existing partnership is to "continue. . . under the name of Whitney Jordan Equities'"until 2042 unless sooner terminated under the agreement.
Footnote 4:This limitation applied only to plaintiff, defendant Weisz and Morris. Paragraph 10.1 expressly permits Samuel Wechsler and "any of his Affiliates" to independently engage in any other business venture, including real estate, without obligation to the WJE partners. Paragraph 11.2 permits the "Managing Partners" to transfer their interests exclusively to Samuel Wechsler.
Footnote 5:This suit was commenced following plaintiff's becoming aware of a contract for the sale of the Surf properties to Seaview for $42,000,000. The closing of that transaction has been delayed by the pendency of this action.
Footnote 6: Paragraph 4.3 of the WJE agreement, captioned "Partnership Opportunity" applied only to Managing Partners and not to Samuel Wechsler or the Wechsler Trust which owned the majority interest in Ocean Dreams.
Footnote 7:This Court is also aware of the Second Department authority Pisciotto v Dries, 306 AD2d 262 (2003), and Barash v Estate of Sperlin, 271 AD2d 558 (2000), in which the court found that a partnership interest is deemed personalty, not subject to the Statute of Frauds, even where the partnership property consists of realty. In Barash, unlike the case at bar, a written memorandum was available which satisfied the Statute of Frauds. No facts are articulated in Pisciotto to distinguish the broad finding of that court.
Footnote 8:Plaintiff's claim of an automatic 15% interest in Ocean Dreams, which was supposedly included in the 25% interest Weisz obtained initially in Ocean Dreams by the Wechsler Trust's advancing of the funds to cover Weisz's share of the acquisition, is belied by the fact that plaintiff did not pay back the Wechsler Trust for his 15% interest which was allegedly covered by that advance, and the fact that plaintiff did not pay one-half of the consulting fee and accounting fee charged by his firm to Ocean Dreams in 2002.