Opinion ID: 754135
Heading Depth: 3
Heading Rank: 1

Heading: Plaintiff's Benefit from Use of Partnership Property

Text: 34 Defendants assert three alternative theories by which NCAS benefitted from contracting with identity-of-interest companies. Allegation (1) charges plaintiff with agreeing to less than reasonably competitive rates on behalf of the partnerships. The district court ruled that defendants did not establish this claim by a preponderance of the evidence. In reaching this conclusion, the trial court pointed to several examples where plaintiff had engaged in competitive bidding before awarding a contract to one of its own companies. Although the court's ruling runs contrary to the conclusions reached by Deloitte in its 1995 report--which the trial court accepted in its findings of fact--whether we agree with the resolution of this particular issue is irrelevant due to the magistrate's own findings of fact concerning the second and third allegations. 35 Allegation (2) avers that NCAS contracted with identity-of-interest companies for services never provided to the partnerships. The magistrate judge concluded as much. For example, the magistrate's findings expressly include the discovery by Deloitte that plaintiff caused Academy to overpay Noral Security Systems $265,724 in the years 1991, 1993 and 1994 for services not provided. This overpayment confirms defendants' allegation that the partnerships were billed and ultimately paid for services never rendered by plaintiff's identity-of-interest companies. Further, her findings reveal that plaintiff caused Buckingham to make a double payment to another of its companies, Durable Painting. 36 Allegation (3) involves miscellaneous instances of misconduct, which have a common thread of being in violation of HUD regulations. Such wrongdoings include plaintiff using partnership funds to pay: $26,045 in accrued sales tax interest by Noral Security Systems; bonuses to Noral Security Systems employees; itself an improperly calculated management fee; its own payroll account; payroll tax penalties incurred by NCAS in its own right; professional services that plaintiff should have paid out of its own business accounts; and civil penalties that it incurred separate and apart from partnership business. 37 Each of these findings illustrates that plaintiff benefitted financially at the expense of the partnerships. As defined in both partnership agreements, an identity-of-interest company is intimately related to at least one of the general partners--in this case, the plaintiff. As proof of this intimate relationship, one of the shareholders and officers of NCAS testified during cross-examination that he is an owner, officer and employee of both Noral Security Systems and Durable Painting. He also is the sole owner of Alpha Plumbing and Heating. All of these companies operate their businesses out of the same office as NCAS. Such a close relationship between the identity-of-interest companies at issue and plaintiff strongly supports the conclusion that the payments just listed benefitted NCAS. 38 Defendants' proof on allegations (2) and (3) therefore established the first part of their fiduciary duty claim, namely that plaintiff enjoyed a benefit from transaction[s] connected with the ... conduct ... of the partnership or from any use ... of its property. N.Y. Partnership Law § 43(1). Such conduct constitutes a breach of fiduciary duty, however, only if plaintiff acted without the consent of the National Partnership. See id. Discussion now passes to allegation (4), that plaintiff's conduct breached those sections of the partnership agreements requiring defendants' consent for contracts with identity-of-interest companies. 39