Court Opinion

ID: 4423869
Source: CourtListenerOpinion
Date Created: 2019-08-08 15:05:26.700799+00
Date Added: 2024-06-11T14:50:42.925874
License: Public Domain

MAS Associates, LLC, et al. v. Harry S. Korotki, No. 57, September Term, 2018, Opinion
by Adkins, J.

CORPORATIONS AND ASSOCIATIONS – PARTNERSHIPS – INTENT TO
FORM A PARTNERSHIP – COMPETENT MATERIAL EVIDENCE: The party
asserting the existence of a partnership bears the burden of producing sufficient facts to
conclusively demonstrate the parties’ intent to form a partnership. See Miller v. Salabes,
225 Md. 53, 55 (1961). Intent can be explicit or based on the parties’ conduct and the
surrounding circumstances. Sharing profits and losses, equal management authority,
making capital contributions, and whether the parties were concurrently seeking to form
another type of business entity can all be factors the courts consider when evaluating intent.
Here, the trial court made an error of law when it concluded that Harry Korotki’s $275,000
in payments to Saralee Greenberg were capital contributions for a new entity, and to the
extent that it applied a presumption of partnership based on receipt of profits, it also made
an error of law. As for the other factors and evidence, taken together, the record lacks
competent material evidence to conclude the parties formed a partnership and the trial court
was clearly erroneous in concluding that they did.
   Circuit Court for Baltimore County
   Case No.: 03-C-11-010759
   Argued: March 1, 2019
                                                                             IN THE COURT OF APPEALS

                                                                                    OF MARYLAND

                                                                                          No. 57

                                                                                 September Term, 2018

                                                                            MAS ASSOCIATES, LLC, et al.

                                                                                            v.

                                                                                 HARRY S. KOROTKI

                                                                               Barbera, C.J.
                                                                               *Greene
                                                                               McDonald
                                                                               Watts
                                                                               Hotten
                                                                               Getty,
                                                                               Adkins, Sally D.,
                                                                                 (Senior Judge, Specially Assigned)

                                                                                          JJ.

                                                                                  Opinion by Adkins, J.

Pursuant to Maryland Uniform Electronic Legal Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document
is authentic.                                                                      Filed: August 8, 2019

                                2019-08-08                           *Greene, J., now retired, participated in the
                                10:39-04:00
                                                                     hearing and conference of this case while an
Suzanne C. Johnson, Clerk                                            active member of this Court; after being recalled
                                                                     pursuant to the MD. Constitution, Article IV,
                                                                     Section 3A, he also participated in the decision
                                                                     and adoption of this opinion.
       Those who run small businesses must engage in the complex concerns competing

for attention that will affect the bottom line. They have little time to focus on the legal

structure of their business entity, and often even less interest in doing so. But the need for

clarity regarding legal structure and financial relations between parties can become acute,

and business people who ignore these needs live to regret ignoring their lawyer’s advice.

This case can be viewed as either a business lawyer’s nightmare—or a poster child for such

lawyer’s public relations messaging.

       Today we examine the dealings of three men engaged in mortgage lending who,

after initially recognizing the need for legal structure in their business relationship, failed

to consummate plans for acquiring membership interests in a long-existing Limited

Liability Company—and the unfortunate fall-out from that failure. The question presented

is whether competent material evidence exists in the record to support the trial court’s

conclusion that the parties intended to form a general partnership.1 We conclude that the

evidence cannot sustain the simultaneous intent to form both an LLC and a partnership,

and Respondent failed to provide competent material evidence demonstrating intent to

form a partnership. Thus, we reverse the trial court’s determination.

       1
         We have slightly rephrased the question presented from the precise question
granted: “Did the trial court misinterpret and misapply the Revised Uniform Partnership
Act, in conflict with the LLC Act, by creating a partnership among three non-member
employees of a longstanding LLC after their attempts to negotiate an amendment to the
LLC’s 2004 Operating Agreement with its members failed?”
              FACTUAL OVERVIEW AND PROCEDURAL POSTURE

                                    Factual Background

                                   Three Separate Entities

       Harry Korotki (“Harry”),2 the plaintiff in the trial court, has worked in the mortgage

industry in various capacities since 1991. In 1999, after the company he worked for

suffered a “financial crisis,” Harry had to “start over” and opened Savings First Mortgage,

LLC with another individual. In 2002, this individual dissociated from Savings First, and

Harry became the sole owner. By 2009, business was “very challenged,” with banks “not

as liberal with [credit] lines,” which resulted in it becoming more difficult for “loan officers

to go out and sell loans,” and thereby negatively impacting profitability.

       Joel Wax (“Joel”), a defendant in the trial court proceeding, was the sole owner of

Greentree Mortgage Corporation. Greentree also experienced “economic difficulties”

beginning around 2009.

       Mark Greenberg (“Mark”), also a defendant, had also been in the mortgage industry

for a significant amount of time. In 1999, after working for various other mortgage

companies, Mark and his wife, Saralee Greenberg (“Saralee”), started MAS Associates,

LLC (“MAS”). Saralee became a member of MAS, with a controlling 91% share of

interest, and Mark became the manager and CEO and held no ownership interest. MAS

was involved in three different lines of business: originating home purchase and

       2
         In their briefs, the parties have referred to each other using first names only. For
the sake of consistency and clarity, we do the same.
                                               2
refinancing loans, selling home improvement loans, and servicing high-risk loans. MAS

was also struggling with business losses in 2009.

                      Initial Conversations About Combining Entities

       In August 2009, with both of their businesses losing money, Harry and Joel engaged

in negotiations with the intent to merge their companies and increase profitability. At one

point, Joel mentioned drafting a “partnership agreement” and it seems the parties

anticipated sharing profits, with Harry stating that “50% of what we can generate together

is a whole lot more money that [sic] 100% of what we are making individually.” During

these conversations, Joel also stated that, “as partners,” he “agree[d] that everything should

be equitable.”

       Nevertheless, Harry and Joel’s planned merger was put on hold when, in September

2009, Ken Venick (“Ken”), a member of MAS Associates, LLC who held a 9% share of

interest, and Mark, expressed interest in “getting involved” in the merger. While Saralee

never authorized Mark to sign for her regarding ownership decisions nor did she give him

power of attorney, he “represented [her] full interests” in the management of MAS. Under

this newly proposed scenario, it was suggested that Equity Mortgage Lending, a registered

tradename for MAS Associates, LLC, was the optimal entity for “everyone to fall

into . . . .” The parties concluded that Equity Mortgage Lending was the ideal surviving

entity because it had a “good track record” in the industry and fewer “legacy liabilities.”

       The four men then embarked anew on discussions regarding how their three

companies might sensibly “merge as one business” and the potential ramifications of such

an action. A September 30, 2009 letter from Gordon, Feinblatt, Rothman, Hoffberger &

                                              3
Hollander, LLC (“Gordon Feinblatt”), a law firm serving as “regulatory counsel” to all

three entities, described this plan as one “to join forces and establish a business together in

some to-be-determined manner.” As part of this initial effort, Harry sent an October 1,

2009 email to a large mortgage loan originator seeking to apply for a warehouse credit line3

for Equity Mortgage Lending. Harry characterized his interest in this new association as

being a “[one-third] owner along with two other partners.”

                   Attempt to Become Members of MAS Associates, LLC

       Harry, Joel, and Mark held a meeting on October 13, 2009 to discuss their proposed

business structure. They were joined by Elliott Cowan (“Cowan”) and Marjorie Corwin

(“Corwin”), the regulatory attorneys from Gordon Feinblatt, who had taken on the task of

creating a “neutral” draft of the parties’ business arrangement. After the meeting, Cowan

prepared and circulated a summary of the meeting for review by Harry, Joel, Mark, and

their personal legal representatives. This document represents the first unambiguous

indication that Harry, Joel, and Mark intended to become members of MAS Associates,

LLC, d/b/a Equity Mortgage Lending, replacing Saralee and diminishing Ken’s ownership

percentage.

       3
         Warehouse lending is “a line of credit given to a loan originator. The funds are
used to pay for a mortgage that a borrower uses to purchase property.” Warehouse
Lending, Investopedia (last updated May 23, 2019), https://www.investopedia.com/
terms/w/warehouse_lending.asp          [archived     at     https://perma.cc/72VA-94YB].
“In warehouse lending, a bank handles the application and approval of a loan but obtains
the funds for the loan from a warehouse lender.” Id. Thus, it is “a means for a bank or
similar institution to provide funds to a borrower without using its capital.” Id.
                                              4
       During the meeting, the parties discussed the “goal” of ownership in MAS, and

contemplated ownership percentages consisting of Harry at 33 1/3%, Joel at 33 1/3%, Mark

at 30 1/3%, and Ken at 3%. Functionally, this would mean that Saralee, and to a lesser

degree Ken, would transfer their interest in MAS to Mark, who would in turn transfer

membership interest to Harry and Joel. The MAS Associates, LLC Amended and Restated

Operating Agreement, adopted in April 2004 (“2004 Operating Agreement”), controlled

the operation of MAS during this time. According to Section 9.1 of the 2004 Operating

Agreement, such a transfer required a majority vote of the members.

       The summary of the meeting indicated that the potential arrangement structured the

deal into an “Interim Period” and a “Post-Interim Period.” During the Interim Period,

Harry and Joel were to be “employees of the Company” subject to for-cause termination

and “entitled to receive W-2 compensation equal to 1/3 of the profits of the ‘origination

division’ of the Company . . . .” Their respective companies—i.e., Savings First and

Greentree—were to be liquidated and their mortgage lending licenses surrendered.

Significantly, the parties never discussed “what would happen if the conditions for Harry

and Joel to obtain substantial ownership [were] not obtained by the end of the Interim

Period.” According to Joel, the Interim Period was intended to be a time during which

transitional issues, such as licensing and operations, could be ironed out.

       In November 2009, Equity Mortgage Lending arranged to purchase much of

Savings First’s physical inventory. The parties also made plans to combine staff, and, in

December 2009, they moved under one roof. During this time, Saralee authorized Harry,

Joel, and Mark to be signatories on five Equity Mortgage Lending bank accounts. The

                                             5
Bank of America paperwork formalizing this transaction denotes Mark as MAS’s President

and lists both Harry and Joel as Vice Presidents. Harry, Joel, and Mark also agreed to split

the legal fees incurred as a result of combining their companies.

       On November 25 and 27, 2009, Cowan emailed new drafts of the agreements to

Harry, Joel, Mark, and their respective attorneys. The first document, which Cowan termed

the “definitive agreement,” outlines the interim period, before Harry, Joel, and Mark were

to become members. We will refer to this agreement as the Interim Agreement. The

second document—which we term the Operating Agreement Outline—contemplates each

of the parties’ obligations post-membership.

       This draft of the Interim Agreement, similar to the provisions outlined in the initial

meeting summary, provided that, as of November 30, 2009, Savings First and Greentree

would surrender their licenses and discontinue originating loans and that Harry and Joel

would be employees of the company for the “duration of the Approval Period.” Again, the

agreement stated that Harry and Joel were “entitled to receive W-2 compensation”; “one-

third (1/3) of the total economic benefits enjoyed in the aggregate by Mark, Saralee, Ken,

Harry, and Joel”; equivalent benefits; and “commission splits on loan originations.”

       The nature of the parties’ relationship to MAS d/b/a Equity Mortgage Lending

during this interim period is central to the litigation. Harry characterizes their association

as a partnership. And it is true that, at various times via email and in other documents, the

parties referred to each other as partners, and Harry’s description of the parties as partners

regularly went unchallenged. Still, during his testimony, Joel described himself as an

“employee of MAS Associates.” In fact, he understood that one of the reasons Harry and

                                               6
he were employees, and not owners, was to prevent personal creditors from going after

company assets. Cowan also testified that it was his “understanding that Harry and Joel

were to be employees during the interim period.” He stated that “the entire concept of the

interim period was built around an employment relationship that[,] after the approvals were

obtained and whatever other conditions there were[,] would change into a different

relationship.”4

       Each party was to make a $150,000 payment to Mark, who would then gift the

$450,000 to Saralee, who would make a capital contribution to MAS d/b/a Equity

Mortgage Lending in that amount. The 2004 Operating Agreement defines “capital

contribution” as “the total amount of cash and the fair market value of any other assets of

value contributed . . . to the Company by a Member . . . .” (Emphasis added.) Thus,

Harry, Joel, and Mark, not being MAS members, could not make direct capital

contributions under the terms of the operating agreement, making an indirect route

necessary to complete such a transaction. The parties indeed made these payments,

although not necessarily in the precise manner described above.

       On December 1, 2009, Cowan encouraged the parties to come to a final agreement

by pressing them to meet. He again circulated amendments to the final documents on

December 15, 2009 and recommended that the parties finalize and sign each of the

       4
        A November 2010 warehouse credit line application to Consumers Bank lists Mark
as the CEO of MAS and Harry and Joel as managers of the company. Neither Harry, Joel,
nor Mark are listed as having any ownership interest. Harry was also listed as a MAS
manager in the Nationwide Licensing System Consumer Access database, a national
licensing system that tracks mortgage companies and loan officers.

                                            7
documents by December 22, 2009. As of late-January 2010, no agreement had been

reached and Ken’s attorney was still raising significant areas of disagreement between the

parties. In response to these comments, Mark’s attorney circulated amended agreements

on January 20, 2010, stating that “so far as we are concerned, you may circulate all

documents for signature.”

       On February 8, 2010, Cowan again circulated the most recent versions of the various

agreements—including the Interim Agreement, the Operating Agreement Outline, and

various indemnity agreements. Nevertheless, the documents remained unsigned.5

       Harry testified that, after receiving the February 8 email from Cowan, Mark

approached Harry and Joel to discuss setting the Interim Agreement “on the side” and

focusing on the Operating Agreement Outline. Harry stated that “as of that date going

forward we treated each other as owners and members.” Around this same time, the

business began experiencing losses, and Harry testified that Joel, Mark, and he “agreed that

[they] were in it for a third no matter what,” referring to potentially covering quarterly

business shortfalls. During their testimony, Joel and Mark disputed the notion that the

parties ever agreed to conduct themselves per the Operating Agreement Outline. They

claimed to have agreed to operate under the Interim Agreement until they were making

enough money to pay for the lawyers to finish the Operating Agreement Outline. All agree

       5
         The only agreement that was ever signed between the parties was a lease
agreement. Only Mark and Joel signed the lease—Joel as the owner of the property. Harry
claims he did not know about this agreement until the present litigation.

                                             8
that, over the course of the next several months, the parties looked for ways to “make [the

business] work” by cutting overhead expenses and closing more loans.

       After two months with no action on the matter, Cowan again emailed Harry, Joel,

Mark, and their attorneys on April 13, 2010. Cowan stated that he wanted to “take this

opportunity to urge everyone to finalize and sign the transaction documents.” He also

presciently noted that in “the absence of signed documents, sorting out everyone’s

respective rights and obligations will be very difficult, to say the least.” Harry testified

that he was “not aware” of any action taken as a result of this email. Mark testified that

the reason the Interim Agreement was never signed was because the business was not doing

well, and the parties did not want to spend more money on attorney’s fees. Joel attributed

the failure to finalize the Interim Agreement largely to Ken and his attorney.6

       The warehouse lines persisted as a source of friction. The parties seem to have

intended to share exposure for these credit lines to some degree, but there was disagreement

as to how to achieve equity. In late-October 2010, Harry emailed Mark and Joel to

“remind” them that he could not “put [his] name on anything more than [one-third] of [a]

[$]7.5 million” credit line. Again, in mid-November 2010, the parties had a conversation

regarding another warehouse credit line. Via email, Harry once more expressed his

discomfort with signing jointly and severally with Joel and Mark, as Harry believed this

       6
         Cowan speculated that the parties might have wanted “some passage of time”
before signing the agreements because they worried that Harry’s creditors from Savings
First might take action against him. Mark disagreed with this characterization, as Harry’s
issues had been resolved by April 2010.
                                             9
would expose his greater assets to creditors. Harry stated that he would be willing to

indemnify one-third of all business liabilities, but nothing more.

       Mark responded to Harry’s concerns by insisting that any “obligations need to be

the same for all,” and reminded the parties that there must be “equity regarding potential

liabilities or the structure can not be equal.” Joel characterized Harry’s refusal to co-sign

the credit lines as “chang[ing] the game in the middle” by refusing to join the others in

guaranteeing these lines. Still, the parties looked for a way around this issue by asking

Harry to set aside sufficient assets as collateral for his one-third indemnity share, or

alternatively finding a non-member ongoing role for Harry. Cowan opined that, while it

would be unusual for a typical employee to be expected to guarantee a line of credit, such

a circumstance might not be unusual when that employee is expected to become an owner.

       By the end of June 2010, Equity Mortgage Lending had begun to turn a profit and

the parties decided to begin drawing a salary of $10,000 per month each. Harry described

this distribution as an “advance on year end profits.” Profits continued into the months of

July, August, September, and October. At the end of the year, Harry, Joel, and Mark

received W-2 forms from MAS. Harry was paid a total of $325,552 in 2010—Harry

characterized this amount as a combination of salary, various profit distributions, and

commissions.     Though there is some disagreement as to the details regarding the

negotiations, it appears the parties eventually settled on a 25/12.5/12.5 percentage split for

commissions—with the party originating the loan receiving the larger portion. The other

half of the gross profit was paid to the company.

                                             10
      After the year-end distribution of commissions and other income, Harry and Joel

agreed to each contribute an additional $125,000 to increase Equity Mortgage Lending’s

net worth to $1,000,000. These payments were again paid to Saralee as a loan, who would

in turn make a capital injection into the company in the same amount.7 The loans were to

be paid back in 30 days, or at the completion of the audit for which the capital injection

was made. In a February 15, 2011 email, Harry requested to be reimbursed for this loan,

and Mark replied that the parties needed to “sit down and discuss.” Harry explained that

he agreed to allow the money to remain in the company and maintains that he still has not

been repaid for his $275,000 in contributions. Yet, according to Mark, the parties made

these loans “as managers” and he testified there was no agreement that the money would

be paid back. Likewise, Joel thought of these loans as “the cost of admission” into the

company. Promissory notes for these loans were drafted but never signed.

      As of November 22, 2010, the parties still contemplated becoming members, or

“owners,” of MAS and anticipated signing the Interim Agreement by the end of the year.

In a December 10, 2010 email to Joel and Mark, Harry asserted that he had no problem

signing the various agreements that had gone unsigned, but again brought up his

dissatisfaction with the warehouse loans. In late-January 2011, Saralee, Ken, Joel, and

Mark opened a $10 million warehouse line of credit. Once again, Harry refused to sign

onto a joint-and-several obligation and only agreed to indemnify the parties for up to one-

      7
         The purpose of this multistep process appears to be so that MAS would not have
to report the payments as liabilities and could instead count them as capital contributions
from Saralee and part of the equity of the company.
                                            11
third of the obligation. Around this time, Harry began frequently missing work and other

obligations, such as scheduled meetings with Joel and Mark. This made it difficult for the

parties to make decisions about the business, especially regarding the warehouse line and

potential indemnification agreements for Harry.

                                    Harry’s Resignation

       In March 2011, Harry resigned from his position with Equity Mortgage Lending.

He indicated that this was pursuant to his doctor’s recommendation following months of

mental health concerns, including depression and severe anxiety. In an email dated March

20, 2011, Harry set forth an accounting of his requested compensation given his

resignation—$275,000 reimbursement for loans paid to Saralee, commission from an in-

progress loan closing, payment of health insurance premiums for two years, and, in the

case of the sale of the company, 25% of the proceeds in year one and 15% in year two. He

did not think it would be “fair” to ask for any additional cut of sale profits. Harry testified

that he subsequently met with Joel and Mark, who agreed to repay the $275,000 in loans,

but the terms of such a repayment remained unresolved.

       Harry spent the first half of April 2011 attempting to arrange a meeting with Joel

and Mark to discuss the specifics of his departure. Eventually, Harry became frustrated

with their inability to meet, and, on April 13, he emailed Mark and Joel stating that he was

“retracting” his initial offer and turning the issue “over to [his] attorneys.” Harry’s

attorneys filed a complaint on October 28, 2011 in the Circuit Court for Baltimore County.

While none of the agreements were ever signed, Joel and Mark both testified that they

                                              12
ultimately signed an extension of the Interim Agreement before it was set to expire on

November 30, 2012 and that it governed their conduct at the time of the hearing.

                                    Procedural Posture

       In his complaint, Harry raised multiple claims, including an unjust enrichment and

wage payment claim. Most relevant here, however, are his claims for breach of contract

and his request for a declaratory judgment asking for, inter alia, a determination of “the

buyout price of his partnership interest” and a demand that the partners pay such price.

       The trial court first issued its opinion from the bench. Regarding the breach of

contract claim, the court stated that there could be no breach because there was no contract.

Specifically, the court held that “there was never any meeting of the minds as to either the

interim agreement or the operating agreement.” Nonetheless, the trial court found that a

partnership existed between the parties. It determined that the parties’ conduct “exhibited

what a partnership is” when they made management decisions together and contributed

money equally. Consequently, the court awarded Harry $1,097,866—$793,000 base value,

$260,712 in interest,8 and $44,154 for commissions without interest. The court also found

in favor of Harry on the unjust enrichment and wage payment claims.

       In response to the defendants’ February 20, 2015 Motion to Alter, Amend, or Revise

Judgment, the trial court attempted to clarify its ruling. The court stated that the partnership

“consisted of the combined mortgaged [sic] lending business, which was equally operated

       8
         The Circuit Court for Baltimore County later amended this award so that the
ultimate interest paid would reflect a “rate of 10% per annum from the date of dissociation,
March 10, 2011, until the date the payment is made.”
                                              13
and owned by” Harry, Joel, and Mark. Yet, it also stated that there was “substantial

evidence” that the partnership comprised “(1) Mr. Greenberg, (2) Mr. Wax, (3) Mr.

Korotki, and (4) MAS Associates, LLC.” It distinguished Harry, Joel, and Mark’s role

from MAS’s role by stating that MAS provided its license in exchange for “rent, utility

bills, and . . . additional funds necessary to operate the excluded businesses.”

       Mark and Joel appealed the decision to the Court of Special Appeals. In an

unreported opinion, the intermediate appellate court affirmed the trial court’s ruling,

holding that Harry, Joel, and Mark “entered into a joint venture for the short period of time

between not signing the Agreement, and when they could not agree on the terms of a

merger, or sign a new interim agreement.” MAS Assocs., LLC v. Korotki, No. 228, Sept.

Term 2015, 2018 WL 4575140, at *20 (Md. Ct. Spec. App. Sept. 21, 2018). Joel and Mark

petitioned for certiorari in this Court, and we granted their petition.

                                       DISCUSSION

                                    Standard of Review

       Pursuant to Maryland Rule 8-131(c), “[w]hen an action has been tried without a

jury, the appellate court will review the case on both the law and the evidence.” We will

“not set aside the judgment of the trial court on the evidence unless clearly erroneous,”

giving “due regard” to the trial court’s opportunity to “judge the credibility of the

witnesses.” Id. “If any competent material evidence exists in support of the trial court's

factual findings, those findings cannot be held to be clearly erroneous.” Webb v. Nowak,

433 Md. 666, 678 (2013) (citations omitted). The “competent material evidence” standard

has never required that the record lack even a modicum of evidence in support of the trial

                                             14
court’s finding, as a literal reading of the words might suggest. See Cassell v. Pfaifer, 243

Md. 447, 454 (1996) (concluding that the evidence offered “lack[ed] that degree of

substantiality which would require us to affirm the trial court” and the court’s factual

finding was, therefore, clearly erroneous); Fuge v. Fuge, 146 Md. App. 142, 180–82 (2002)

(reversing a trial court’s factual conclusion that a father lacked the “ability” to contribute

to his children’s private school tuition); Banks v. State, 8 Md. App. 182, 186–87 (1969)

(reversing a trial court’s factual conclusion where there was no “legally sufficient

evidence” to support its determination). See also Clearly-Erroneous Standard, Black’s

Law Dictionary (11th ed. 2019) (“Under this standard, a judgment will be upheld unless

the appellate court is left with the firm conviction that an error has been committed.”).

Rather, it is simply a highly deferential evidentiary review.9

       The existence of a partnership based on the intent of the parties is an issue of fact,

and, thus, it is reviewed using the clearly erroneous standard. See Parkinson v. Parkinson,

42 Md. App. 650, 657 (1979) (“A determination as to the intention of the parties is a

determination of fact, which an appellate court is not at liberty to set aside or ignore unless

it concludes that the finding is clearly erroneous.”) (citation omitted). We review the

       9
        This view is not only supported in our case law, but it is also the leading view in
United States courts, most prominently articulated by the United States Supreme Court in
United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948) (“A finding is ‘clearly
erroneous’ when although there is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a mistake has been committed.”).
This case was based on the Court’s interpretation of the clearly erroneous standard as
outlined in Federal Rule of Civil Procedure 52(a)(6), which provides: “Findings of fact,
whether based on oral or other evidence, must not be set aside unless clearly erroneous,
and the reviewing court must give due regard to the trial court’s opportunity to judge the
witnesses’ credibility.”
                                              15
evidence “in a light most favorable to the prevailing party.” Geo. Bert. Cropper, Inc. v.

Wisterco Invests., Inc., 284 Md. 601, 620 (1979). Still, the party alleging that the parties

intended to form a partnership has the burden of proving that intent. See Miller v. Salabes,

225 Md. 53, 55 (1961) (citations omitted).

       When a trial court decides legal questions or makes legal conclusions based on its

factual findings, we review these determinations without deference to the trial court. See

Ins. Co. of N. Am. v. Miller, 362 Md. 361, 372 (2001) (citation omitted). “Where a case

involves the application of Maryland statutory and case law, our Court must determine

whether the lower court’s conclusions are legally correct under a de novo standard of

review.” Spaw, LLC v. City of Annapolis, 452 Md. 314, 338 (2017) (citations omitted).

              Maryland Partnerships and Limited Liability Companies

       In Maryland, Limited Liability Companies are creatures of statute formed in

accordance with the Limited Liability Company Act (“LLC Act”). See Maryland Code

Ann. (1992, 2014 Repl. Vol.), §§ 4A-101–1303 of the Corporations and Associations

Article (“Corps. & Ass’ns”). The LLC Act was enacted to “give the maximum effect to

the principles of freedom of contract and to the enforceability of operating agreements.”

Id. § 4A-102(a). To form an LLC, parties must execute articles of organization and place

them on file with the relevant Maryland department. Id. § 4A-202(a). In practice, LLCs

are governed by an operating agreement adopted by the members that specifies, inter alia,

how the LLC shall be “managed, controlled, and operated”; how profits and losses are to

be shared; rights of assignment; procedures for admission and dissociation of members;

and meeting and voting procedures. Id. § 4A-402(a)(1)–(8).

                                             16
        The owners of an LLC are known as “members.” Id. § 4A-101(m). Individuals can

become members of an LLC only in the manner specified in the operating agreement or in

Corps. & Ass’ns § 4A-601. In general, LLCs are either “member-managed”—meaning

that the members retain active management duties—or “manager-managed”—meaning

that the members delegate management authority to a manager or group of managers who

are employees of the LLC. Unlike a partnership, no LLC member “shall be personally

liable for the obligations of the [LLC], whether arising in contract, tort or otherwise, solely

by reason of being a member” of the LLC. Id. § 4A-301.

        A partnership is another form of business association, defined as “the

unincorporated association of two or more persons to carry on as co-owners a business for

profit . . . .”   Id. § 9A-202(a).   The provisions of the Maryland Revised Uniform

Partnership Act (“RUPA”) govern partnerships, unless these provisions are displaced in

accordance with the title—typically through a written partnership agreement. See id. § 9A-

104(a).     Unlike LLCs, there are no formal requirements for the establishment of a

partnership, as they can result whether the individuals expressly “intend[ed] to form a

partnership and whether or not the association is called ‘partnership,’ ‘joint venture,’ or

any other name.” Id. § 9A-202(a). Still, an “unincorporated association or entity created

under a law other than” RUPA or another state’s partnership law “is not a partnership.” Id.

§ 9A-202(c).

        In the absence of formal agreement, “the existence of a partnership depends on the

intent of the purported partners.” Christine Hurt, D. Gordon Smith, Alan R. Bromberg &

Larry E. Ribstein, Bromberg & Ribstein on Partnership § 2.04[A], at 2-29 (2d ed. 2019).

                                              17
“As between the parties[,] partnership is a matter of intention[,] to be proved by their

express agreement or inferred from their acts and conduct.” Morgart v. Smouse, 103 Md.

463, 468 (1906). See also Garner v. Garner, 31 Md. App. 641, 647 (1976) (“A partnership

inter sese cannot exist against the consent and intention of the parties, and their intention

must be gleaned from proof in the case.”) (citation omitted); Queen v. Schultz, 747 F.3d

879, 887 (D.C. Cir. 2014) (“Whether a partnership exists is an issue of fact, turning less on

the presence or absence of legal essentials than on the intent of the parties gathered from

their agreement, conduct, and the circumstances surrounding their transactions.”) (citation

omitted). Again, “[t]he existence of a partnership will not be presumed, but must be

proved, with the burden of proving such existence resting upon the party having the

affirmative of that issue,” Miller, 225 Md. at 55 (internal citations omitted)—here, that

means Harry. The evidence demonstrating partnership must “rise above surmise or

speculation and reach the level of reasonable probability.” Geo. Bert. Cropper, 284 Md.

at 623 (citations omitted).

       The Court of Special Appeals, in Garner v. Garner, 31 Md. App. at 648–49,

approvingly quoted the trial court stating “a partnership, like any other contract, requires

mutuality, a meeting of the minds and agreement, and it requires definite terms and specific

intent among other things . . . .” Such an agreement, however, need not be written. See id.

at 647. To determine whether a partnership was formed we observe the following rules:

(1) joint tenancy or ownership of property “does not by itself establish a partnership”; (2)

sharing “gross returns does not by itself establish a partnership, even if the persons sharing

them have a joint or common right or interest” in the property generating the returns; and

                                             18
(3) any person receiving “a share of the profits of a business is presumed to be a partner,”

unless such share is received in the payment of debt, wages or services rendered, rent,

annuity or benefit, interest on a loan, or sale of a business or property. Corps. & Ass’ns

§ 9A-202(d)(1)–(3).

                 Harry, Joel, and Mark’s Intent to Form a Partnership

       The trial court concluded that there was no enforceable written agreement and the

parties do not challenge that determination here. Thus, we must decide, given the entirety

of evidence produced at trial, whether there was competent material evidence for the trier

of fact to fairly conclude that the parties formed a general partnership, according to Corps.

& Ass’ns § 9A-202(a). As discussed above, this question is one of either overtly expressed

intent, or actions that courts deem sufficient to establish such intent.

       As a general matter, Joel and Mark argue that the trial court’s ruling conflates two

distinct forms of business entities: LLCs and partnerships. They state that the court erred

in ruling that a lawfully formed LLC could simultaneously be the vehicle for operating a

separate unnamed “combined mortgage lending business” partnership. In other words,

they maintain that the court ignored the statutory language preventing organizations formed

under other statutes from being partnerships, as provided in Corps. & Ass’ns § 9A-202(c),

and treated MAS as a partnership. Harry responds that, under the trial court’s ruling, “MAS

was neither a partner nor the partnership.” Thus, Harry states, Joel and Mark’s argument

“is based entirely upon [a] false premise.”

       While we agree with Joel and Mark that an LLC, itself, cannot simultaneously be a

partnership, we also agree with Harry that it is not the overarching issue here. It is possible

                                              19
to construct a circumstance in which the existence of a partnership10 and an LLC are not

mutually exclusive phenomena. Most relevant here, one could imagine a scenario where

parties intend to become members of an existing LLC but abandon that attempt in favor of

a partnership. It is also not inconsistent with the statutory language, per se, for an

association conducting its operations in conjunction with an LLC to intend to form a

partnership. The question is whether the parties have done so in this case, and, accordingly,

we turn to a close analysis of the record.

                               Negotiations to Form an LLC

       Joel and Mark point to Ramone v. Lang, No. Civ.A. 1592-N, 2006 WL 905347 (Del.

Ch. Apr. 3, 2006),11 and various other out-of-state cases, to illustrate their contention that

parties should not be considered as having formed a partnership during ongoing

negotiations to form an LLC. They state that “the parties were always working toward

amending the 2004 Operating Agreement so that Harry, Mark, and Joel would eventually

       10
          Unlike the Court of Special Appeals, we use the term “partnership,” rather than
“joint venture,” because that was the term predominately used by the trial court. Moreover,
“there is no real distinction between a joint adventure and what is termed a partnership for
a single transaction.” Beard v. Beard, 185 Md. 178, 185 (1945) (cleaned up).
       11
         Pursuant to Maryland Rule 1-104(a), we do not rely on unreported opinions from
Maryland courts as “precedent within the rule of stare decisis [or] persuasive authority.”
But when appraising the persuasive value of unreported opinions from other jurisdictions,
we consider the value of these opinions in their local courts. In Delaware, unreported cases
have precedential value and are citable without limitation. See Del. Sup. Ct. Rule
14(b)(vi)(B)(2). We consider this case as persuasive authority, bolstered by that fact that
this Court frequently looks to Delaware cases in search of widely-regarded corporate legal
jurisprudence. See Shenker v. Laureate Educ., Inc., 411 Md. 317, 338 n.14 (2009) (“This
Court has noted the ‘respect properly accorded Delaware decisions on corporate law’
ordinarily in our jurisprudence.”) (citation omitted).
                                             20
become members of MAS . . . .” Thus, no partnership intent could have formed. Harry

asserts that Ramone is inapplicable to the present case because the current parties “agreed

to the material terms of their agreement and never had the stated intent to form their own

LLC when they formed their partnership.”

       In 2006, then-Vice Chancellor Leo Strine, current-Chief Justice of the Delaware

Supreme Court and noted corporate law scholar, authored Ramone v. Lang for the Court of

Chancery of Delaware.       In that case, two parties, Ramone and Lang, entered into

discussions about their mutual interest in purchasing and operating a swimming center.

See id. at *3. Ultimately, their discussions centered around the formation of an LLC and

resulted in the circulation of a draft LLC agreement. See id. During these negotiations,

the parties referred to each other as “partners,” but, in the end, they were unable to come

to agreement and Lang entered into an LLC agreement with other individuals to acquire

the property. See id. at *9. Ramone filed suit claiming that the parties, through their

conduct during negotiations, had formed a partnership and that he was entitled to a 50%

interest in the property. See id.

       The Court concluded that that there was no partnership between the parties in that

case because “to find that their failure to reach accord on an LLC agreement, without more,

left them as general partners would be inequitable and unprincipled, given the reality that

they never agreed on their obligations to one another.” Id. at *13. Rather, the parties’

agreement was merely an engagement “to get engaged,” which is not sufficient to form a

general partnership. See id. at *12–13. Indeed, the Court opined that “it would be very

odd to find that a general partnership existed because both Ramone and Lang seem to have

                                            21
agreed that any binding relationship they would form as co-fiduciaries (rather than as lessor

and lessee) would be as fellow members of an LLC.” Id. at *13. “[W]hen parties clearly

intend to effect a formal business relationship through a written [LLC] agreement rather

than through a general partnership, that reality serves as an important factor that cuts

against concluding that they had earlier formed a general partnership because their attempt

to forge an agreement on the material terms of a written LLC contract eventually came to

naught.” Id.

       The advent of the LLC as a business entity—part partnership and part corporation—

surely introduces some ambiguity into our interpretive process. Nevertheless, courts have

grappled with this issue and several have determined that it would be inequitable to

construe arms-length negotiations between sophisticated parties to form an LLC

concurrently as intent to form a partnership when those negotiations fail. See Grunstein v.

Silva, C.A. No. 3932-VCN, 2011 WL 378782, at *10 (Del. Ch. Jan. 31, 2011) (typically,

“a clear intention to form an entity other than a general partnership may strongly suggest

that the parties did not earlier form a partnership”); Hurt, Bromberg & Ribstein on

Partnership § 2.04[B], at 2-40 n.19 (listing Ramone v. Lang and other cases). Cf. Garner,

31 Md. App. at 644 (parties intended to form a partnership but could not be considered to

have done so until the agreed upon circumstances had occurred).

       Here, we see the same principle at play as in the cases above. During their first

meeting together on October 13, 2009, Harry, Joel, and Mark laid the foundation for a plan

that would result in each obtaining membership in MAS. Their goal to each obtain one-

third interest in MAS remained consistent throughout their negotiations. Indeed, the parties

                                             22
engaged in active negotiations regarding the Interim Agreement and the Operating

Agreement Outline throughout their relationship.        Their attorney circulated various

versions for feedback beginning in October 2009 and ending in April 2010. It appears

initially that Ken’s attorney held up the signing of the agreements due to issues concerning

Ken’s profit distribution. But, after May 2010, it seems that it was a combination of

anticipated financial woes and Harry’s unwillingness to indemnify the warehouse lines that

slowed negotiations. Still, the parties continued to negotiate. From July to December

2010, the parties discussed alternative arrangements for Harry’s ownership, given his

unwillingness to co-sign warehouse line guarantees. In December 2010, the parties stated

that they hoped to have the Interim Agreement signed by the end of the year. In January

2011, the parties again disagreed about another warehouse credit line, delaying any

potential deal. Around this time, Harry also began missing significant amounts of work

due to his mental health, culminating in his resignation in March 2011.12

       Harry makes much of the fact that MAS Associates, LLC already existed, but we

see no reason why the circulation of a new LLC operating agreement should be treated as

legally distinct from the circulation of an amended operating agreement. Both strongly

evidence the parties’ intent to acquire ownership of an LLC, not form a partnership. Harry,

Joel, and Mark sought to come to an agreement that would make them all members of

       12
         Though long, the timeline of the negotiations was anticipated by the parties.
Based on the testimony adduced at trial, the parties contemplated that the pre-membership
interim period could reasonably last for three years. This is supported by the parties’
testimony and the fact that the Interim Agreement included an expiration date of November
30, 2012, three years after negotiations started.
                                            23
MAS. In the meantime, they looked to form an Interim Agreement to regulate their

conduct. As discussed at length below, this agreement contemplated Harry and Joel as

being employees of MAS, not partners in a partnership operating through MAS. Harry

never performed the conditions precedent necessary for his membership in MAS because

he resigned before the agreement was complete. Nor did the parties ever agree to terminate

their pursuit of membership. The parties’ intent controls in such circumstances, and so

long as their intent is to negotiate membership in an LLC, it cannot simultaneously be to

form a partnership.

       The most important factor in the present case is that the parties never abandoned

their efforts to become members of MAS. Like in Ramone, “to find that their failure to

reach accord on an LLC agreement, without more, left them as general partners would be

inequitable and unprincipled . . . .” 2006 WL 905347, at *13. All evidence must be viewed

under the shadow of the least ambiguous evidence presented to the trial court: the parties

clearly expressed an unabandoned intent to become members of an LLC.                Actions

consistent with this mutual understanding cannot fairly contribute to an implied

partnership.

                                 Management and Control

       One factor courts commonly look at to evaluate partnership intent is the

management and control of the entity. See Hurt, Bromberg & Ribstein on Partnership

§ 2.06[C], at 2-81. Joel and Mark state that the parties’ roles were consistent with being

managers in a manager-managed LLC. They argue that referring to each other as partners,

in the colloquial sense, is not indicative of partnership. Additionally, they assert that MAS

                                             24
was the only entity through which the parties operated, as demonstrated by the fact that the

purported partnership was never named, and consequently holds no licenses or bank

accounts. Harry, of course, disagrees with these assertions. He states that the parties made

decisions only after consulting each other and each had equal control in the management

process. Harry points out that the parties were all signatories on the Equity Mortgage

Lending bank accounts and referred to each other as partners, and employees referred to

them as partners, to support his argument.

       The trial court partially based its partnership conclusion on its finding that “each

[party] maintained equal control over their business. No one made a decision without

everybody else agreeing to it.” Additionally, the court relied on its observation that Saralee

was not involved in MAS’s day-to-day operations and concluded that she “abandoned all

control” of the company. As an initial matter, we reject the trial court’s use of Saralee’s

non-existent management authority as a factor in favor of inferring partnership because

such a conclusion is contrary to the express terms of the LLC Act and the 2004 Operating

Agreement. Under the LLC Act, members can specify their intended LLC management

structure in the operating agreement. See Corps. & Ass’ns § 4A-402(a). Section 4.1 of the

2004 Operating Agreement provides that “[n]o Member may take part in, or interfere in

any manner, with the management, conduct or control of the business of the

Company . . . .” MAS was a manager-managed LLC and Saralee had no obligation to be

involved in the day-to-day operations of the company—in fact, she had an obligation to

the contrary. Acting in accordance with the operating agreement cannot be used to support

                                             25
intent to form a partnership, and the trial court’s conclusion that Saralee’s actions were

“wholly inconsistent with that of [an] owner[]” is incorrect as a matter of law.

       Indeed, the parties did make joint business decisions together, including:

communicating to the employees together, setting company policy, making hiring and

firing decisions, and making decisions regarding salary and bonuses for specific

employees. This is also evidenced by the numerous emails containing “agendas” for their

meetings together. Still, while equal control over the operations of an entity might be one

sign of partnership, it is not determinative in and of itself. This sort of behavior is equally

consistent with the typical high-level managerial duties of an LLC manager. As discussed

above, Harry, Joel, and Mark were actively engaged in negotiations to become members

of MAS—first becoming managers in accordance with the Interim Agreement. None of

the above-listed actions are inconsistent with this expressed intent and, therefore, do not

support a finding of an intent to form a partnership.

       Nor does the use of words like “partner” or “owner” magically transform a given

association into a partnership. See Garner, 31 Md. App. at 645 (parties’ descriptions of

their relationship as partners is more relevant to their relationship to third parties than their

relationship between themselves). While these terms may give some sense of the parties’

understanding about their relationship, here it is almost exclusively Harry who uses the

word partner and we have little evidence, beyond silent acquiescence, that Joel and Mark

referred to their relationship this way.13 For these statements to be meaningful, there should

       13
        There are two occasions for which we have evidence that Mark and Joel used the
word “partner.” In a September 2009 email, before Mark joined the negotiations, Joel used
                                               26
be some consistent mutual expression of partnership, rather than unilateral declarations or

informal uses of the word. Sewing v. Bowman, 371 S.W.3d 321, 334 (Tex. App. Ct. 2012)

(requiring that “there must be evidence that both parties expressed their intent to be

partners”) (citation omitted). The record does not contain sufficient evidence of such a

mutual understanding. Moreover, we recognize the now-frequent colloquial use of the

term “partner,” unconnected to any legal meaning or intention.14           Courts must be

particularly wary of relying on this single word to inform our conclusions about the nature

of a legal entity, when that word is used in common vernacular to refer to friends,

colleagues, and cowboys, alike.

       More significant than a colloquial use of the word partner is that the business

licenses remained under the name of MAS Associates, LLC, and not a separate partnership

entity, or the parties themselves. See F & K Supply, Inc. v. Willowbrook Dev. Co., 304

A.D.2d 918, 920 (N.Y. App. Div. 2003) (fact that parties filed business certificate

the word partner to reference Harry. Additionally, Mark used the word partner in a
November 2009 email. These two instances are insignificant in our view.
       14
          “Referring to a friend, employee, spouse, teammate, or fishing companion as a
‘partner’ in a colloquial sense is not legally sufficient evidence of expression of intent to
form a business partnership.” Ingram v. Deere, 288 S.W.3d 886, 900 (Tex. 2009) (citation
omitted). See also Hoss v. Alardin, 338 S.W.3d 635, 645 (Tex. App. 2011)

              [T]here was no evidence that using the word “partner” in the
              context of customer introductions like Alardin described would
              ordinarily be understood to have legal significance. Thus, we
              conclude that Alardin’s evidence that he introduced Hoss to
              customers as his “partner,” absent evidence to explain why the
              context of those introductions showed that the term carried
              legal significance, is no evidence of the second TRPA factor.
                                             27
indicating the entity was a sole proprietorship was evidence against partnership). Not only

were the parties not named in the business licenses, they actively surrendered their

individual licenses. Additionally, the mere act of doing business as Equity Mortgage

Lending, a registered tradename of MAS Associates, LLC, is evidence against the

formation of a partnership. The parties openly promoted themselves to lenders and others

as being part of MAS and Harry took no issue with doing so when he edited the “history”

section of a MAS document they were using to secure credit lines. None of the parties

protested holding out to the world that they were an LLC, and willingly operated under the

rules of such an entity. Both of the above facts provide significant evidence that the parties

did not intend to form a partnership separate from MAS.

       Finally, it is a point of contention between the parties whether they indeed “opened”

the Bank of America accounts, or were simply added as signatories. The trial court

concluded that Saralee and Ken were not “authorized to sign” for the new accounts, but the

evidence does not support this conclusion. In fact, the cover letter attached to the bank

paperwork indicates the opposite—that Saralee opened the accounts and “authorize[d]” the

parties “to be signers” on the MAS d/b/a Equity Mortgage Lending accounts. Even if

Saralee and Ken—as members in a manager-managed LLC—were not authorized to draw

from the accounts, we are hard-pressed to see how such an arrangement is indicative of

“abandonment” by a member. And given the terms of the 2004 Operating Agreement, we

conclude that it should not be.

       Together, the evidence relied on by the trial court fails to tilt the scale from

management duties to something suggestive of partnership. When the parties at issue are

                                             28
also actively engaged in the process of negotiating to become members of an LLC,

evidence of equal control and joint decision-making authority is not evidence of the parties’

intent to form a partnership.     Harry’s mere claim of partnership is not a sufficient

foundation for the trial court to find same.

                            Capital Contributions to the Entity

       Another common factor courts use to determine whether parties intended to form a

partnership is whether they made capital contributions to the endeavor.             See Hurt,

Bromberg & Ribstein on Partnership § 2.04[B], at 2.34. “[A] contribution to capital is

generally understood to be a more permanent contribution to the partnership than a debt

contribution, so that the capital contributor participates in the risks of the enterprise to a

somewhat greater extent than does a creditor.” Id. § 2.06[E], at 2-98. The trial court

concluded that neither Saralee nor Ken “made any capital contributions,” and that, while

the parties may have termed the payments “loans,” Harry, Joel, and Mark made “capital

contributions for purposes of funding a new venture . . . .”

       Harry uses his contributions of capital to argue that he is an “equal owner” of the

entity formed with Joel and Mark. Both he, and the Court of Special Appeals, point to a

quote from Southern Can Co. v. Sayler, 152 Md. 303 (1927), in which this Court quotes an

old treatise distinguishing a loan and a capital contribution.

              Care must therefore be taken to discriminate between the cases
              of an alleged loan, with a share of the profits by way of interest,
              and a real partnership disguised as a loan; for if it appears that
              the transaction is a mere device to obtain the advantages of
              a partnership, without the responsibilities, it will be held to
              be a partnership, whatever the parties may have called it. The
              interest is usually to be found, according to later cases, in the

                                               29
              powers of control of the alleged lender: Has he any voice or
              part in controlling the management of the business as a
              principal therein? Has he, by virtue of the arrangement, such
              an interest in the business that he can be regarded both as
              principal and agent for the others?

Id. at 320 (emphasis added). We are unconvinced by this language. Specifically, it is

unclear what “advantages of a partnership” the parties would have been intending to gain

when they characterized Harry’s contribution as a loan. Rather, they were taking advantage

of the LLC form when they did so, benefiting from its added liability protection and tax

treatment—a business form that did not exist in 1927, when Southern Can Co. was decided.

       Understanding the form of the payments at issue is essential to evaluating their

classification as either loans or capital contributions. The alleged partners did not make

three separate payments directly into a partnership account, or even directly to MAS.

Instead, in late-November 2009, both Harry and Joel issued checks to “Saralee Greenberg”

in the amount of $150,000 per person. Saralee then contributed $450,000 to MAS,

including Mark’s share. Again, in late-December 2010, Harry and Joel wrote $125,000

checks to Saralee, who, in turn, made a $250,000 contribution to MAS to increase its equity

to over $1,000,000. The trial judge, considering the above evidence, concluded that even

if the payment “was called a loan, . . . it was a capital contribution for purposes of funding

a new venture . . . .” (Emphasis added.) This cannot be correct.

       The form of the transactions belies the conclusion that the parties made capital

contributions to a new entity. It is uncontroverted that the payments were made to Saralee,

a MAS member, who then transferred them to MAS. This procedure is consistent with

MAS’s 2004 Operating Agreement, which requires capital contributions be made through

                                             30
a member. Such an arrangement would only have been necessary if the parties intended

to contribute capital to MAS, not to some new venture. Two conclusions are inescapable.

First, this action is consistent with Harry, Joel, and Mark’s expressed intention to become

LLC members—a goal they were actively working toward at the time of the payments.

These circumstances support a conclusion that the payments were made by expectant MAS

members, to a current member, for the purposes of that member making a capital

contribution to MAS.

       More importantly, to treat Harry, Joel, and Mark’s payments as capital contributions

made through Saralee and MAS to their alleged partnership would be to impermissibly blur

the lines between LLCs and partnerships in contravention of RUPA’s express terms. Under

RUPA, codified in Corps. & Ass’ns § 9A-202(c), “[a]n unincorporated association or entity

created under a law other than [RUPA, former-UPA, or another state’s partnership statute]

is not a partnership.” Thus, an LLC cannot simultaneously be a partnership, because it is

formed in accordance with the formalities outlined in the LLC Act. The alleged capital

contributions were made by Saralee, an LLC member, to “MAS Associates, LLC,” not to

a purported partnership. The trial judge treated these payments as if they were made to a

partnership under the guise of capital contributions to an LLC.         But to accept this

conclusion would be to treat a capital contribution to an LLC as a capital contribution to a

partnership—as if the entities were one-in-the-same—which is expressly prohibited by

                                            31
Corps. & Ass’ns § 9A-202(c). The court made an error of law when it concluded this was

possible.15

       In sum, the trial court erred as a matter of law when it characterized capital

contributions to MAS as capital contributions to an unnamed partnership.            Such a

conclusion is only possible if the LLC and partnership are considered the same entity, in

contravention of Corps. & Ass’ns § 9A-202(c). Thus, the evidence and law necessitate a

finding that Harry, Joel, and Mark’s payments were loans to Saralee, not capital

contributions to an alleged new entity. A loan is not evidence of partnership intent.

                              Sharing of Profits and Losses

       Joel and Mark argue that any profits Harry received should be characterized as

wages because “Harry was considered an employee of MAS Associates, LLC and received

a W-2 form showing his wages.” The evidence, they assert, is merely consistent with MAS

being a manager-managed LLC and Harry being a manager. Moreover, they testified that

the parties never agreed to share losses equally and that the evidence demonstrates Harry’s

       15
           We also consider Harry’s own subjective understanding of the nature of the
$275,000 in payments he made to Saralee. Both of Harry’s checks contain the word “loan”
in the memo line and they are both addressed to Saralee, not MAS or a partnership entity.
Additionally, Harry’s emails and testimony characterize the payments as loans and request
prompt repayment—within 30 days of sending the money. The short-term nature of the
contribution belies its characterization as a capital contribution. The parties also drafted
promissory notes for both loans that were to govern repayment, although neither note was
ever signed. On other occasions, Harry had made short-term loans to MAS, confirmed via
email, to MAS. Some of these loans were repaid on December 22, 2010, the same day
Harry made another $125,000 payment to increase MAS equity to over $1,000,000.
Moreover, Harry, a sophisticated operator in the world of mortgage lending, would be able
to identify a loan when he saw one. The evidence clearly establishes Harry’s subjective
understanding that the separate $150,000 and $125,000 transactions were loans, contrary
to the trial court’s conclusion.
                                            32
unwillingness to share MAS’s liabilities equally. Harry, on the other hand, states that he

received a share of profits, not wages, and, therefore, RUPA presumes him to be a partner.

He claims that the parties took “draws” on profits in the amount of $10,000 per month and

shared profits, though not commissions, equally. The fact that he was paid in W-2 wages,

states Harry, does not make the payments employment wages.

       The trial court concluded that Harry, Joel, and Mark shared profits equally. In total,

Harry received $325,552 in wages from MAS in 2010, as reported on his W-2 form and in

his Form 1040 tax filing.      This amount included the twelve $5,000 twice-monthly

payments, $81,052 in commissions, a December 15 payment of $120,000, and a December

30 payment of $64,500. Although it is unclear precisely which portion of his salary the

court determined to be “profit,” it likely based this conclusion on the latter two payments:

the $120,000 payment made to all three parties and the $64,500 payment made only to

Harry and Joel. Harry claimed that the $64,500 payment was made to Saralee in lieu of

Mark, but “it came up a little bit short.” Saralee indeed received a $58,695 check on

January 13, 2011 with “Year End Distribution” in the memo line.

       Again, Corps. & Ass’ns § 202(d)(3) states that a “person who receives a share of

the profits of a business is presumed to be a partner in the business,” unless the profits can

be alternatively characterized. One of those alternative characterizations is as payment for

“services rendered as an independent contractor or of wages or other compensation to an

employee[.]” Corps. & Ass’ns § 9A-202(d)(3)(ii) (emphasis added).

       Harry failed to establish that the $5,000 twice-monthly payments should be

considered profit sharing, rather than a salary, which can be a share of gross revenue,

                                             33
referred to as “gross returns” in Corps. & Ass’ns § 9A-202(d)(2).16 In Ingram v. Deere,

288 S.W.3d 886, 898–99 (Tex. 2009), the Supreme Court of Texas drew a distinction

between the two terms. To support its characterization of payments as coming from gross

revenue, as opposed to profits, the Court noted that “there [was] no evidence that Deere’s

share would have decreased if expenses grew or increased if expenses shrank.” Id. at 899.

Thus, the payments were more like normal salary and less like shares of profit. Likewise,

from July through December 2010, Harry, Joel, and Mark received twice-monthly $5,000

payments, notwithstanding the fluctuation in profits during that time. Additionally, these

payments were made regularly and denoted as “salary” on MAS’s payroll journal. These

payments were compensation and do not contribute to any presumption of partnership.

      Moreover, the evidence is overwhelming that the parties intended to become

employees of MAS during the interim period before membership, and such an arrangement

weighs heavily against a presumption of partnership. Even as of the first meeting between

the parties, as evidenced by the meeting summary prepared by neutral attorneys, they

contemplated Harry and Joel becoming MAS employees during the period before they

were to become members. The initial meeting summary specifically stated that Harry and

Joel were “entitled to receive W-2 compensation equal to 1/3 of the profits of the

‘origination division’ of the Company”—essentially what the parties ultimately received.

The Interim Agreement, drafted after this meeting, contained nearly identical terms. While

      16
          Profit is the “excess of revenues over expenditures in a business transaction.”
Profit, Black’s Law Dictionary (11th ed. 2019). Whereas revenue is the total “income from
any and all sources.” Revenue, Black’s Law Dictionary (11th ed. 2019).

                                           34
these documents were not binding, they evidence the parties’ thinking and intent. Joel,

Mark, and Cowan each testified that the employment relationship was to provide the parties

with protection against Harry’s creditors and to give the group time to change over

licensures and begin to make money. Joel also described himself as an “employee of MAS

Associates” at all times during the negotiations and during his testimony.

       Harry points to no other documents to support a determination that he and Joel were

partners in a partnership, and not MAS employees who were managers. Nor do we find

any. Rather, the documentary evidence supports the opposite conclusion. The paperwork

filed with Bank of America authorizing Harry, Joel, and Mark to be signatories on the

Equity Mortgage Lending accounts describes Mark as the President of MAS and Harry and

Joel as the Vice Presidents. A November 2010 Consumer Bank warehouse credit line

application also lists Mark as the CEO of MAS and Harry and Joel as managers of the

company. Moreover, Harry was listed as a “Manager” of MAS Associates, LLC in the

Nationwide Licensing System Consumer Access database.            Significantly, he is also

correctly described as the previous “President and Managing Member” of Savings First in

the same document. The above evidence severely undercuts the trial court’s determination

that the parties ever intended that Harry and Joel be anything but employees during the

interim period.

       Most importantly, both MAS and Harry, Joel, and Mark treated all payments as

wages, not profits. First, all payments were part of MAS’s wage calculation on the W-2s

sent to Harry, Joel, and Mark, which included all withholdings typical of wage payments.

Each party also reported the payments as part of their wages on their Form 1040 tax returns

                                            35
in 2010, and none of the men filed a K-1 schedule reporting any profits from MAS. On

MAS’s payroll system, the payments were classified as “commission,” and on November

22, 2010, Mark and his attorney referred to the payments as “bonuses.” Executive

compensation packages often include a percentage of profits, and, in fact, such an

arrangement was contemplated in the Interim Agreement, which states that the parties are

“entitled to receive W-2 compensation equal to 1/3 of the profits of the ‘origination

division’ of the Company.” According to MAS’s 2010 tax returns, the LLC made $160,234

in income, meaning that not all of the “profits” were distributed to the alleged partners.

Moreover, Saralee reported receiving $145,813 in profits from MAS Associates, LLC on

her K-1 schedule—exactly 91% of MAS’s profit. In short, both MAS and the parties

treated their income as wages, not profits, in line with the written contemplations of the

parties during their negotiations to become LLC members. Receipt of wages does not

support a finding of partnership.

       Additionally, Harry never intended to be equally liable for the debts of the purported

partnership, as demonstrated by his resistance to being held jointly and severally liable for

loans. Harry’s insistence on capping his liability at one-third is inconsistent with a general

partnership structure, in which, except in limited circumstances, “all partners are liable

jointly and severally for all obligations of the partnership.” See Corps. & Ass’ns § 9A-

306(a) (emphasis added). Parties can change this structure by agreement as it relates to the

                                             36
partners—i.e., substituting a one-third indemnity for joint and several liability17—but they

never reached such an agreement. Harry both refused to co-sign the warehouse line along

with the other parties—as well as rejecting other similar agreements—and never signed an

indemnity agreement covering his share of the liabilities from that line, or any other.

       In sum, while there is some competing testimony as to the nature of these payments,

the post hoc perception of the parties as to whether the payments should be now

characterized as profits or wages carries precious little weight. This is especially true when

considered in light of the abundant documentary evidence demonstrating that all payments

to the parties were treated as wages. To the extent that the trial judge applied any

presumption of partnership, it was an error of law to do so, because the payments were

“wages or other compensation to an employee,” according to Corps. & Ass’ns § 9A-

202(d)(3)(ii). Without such a presumption, the mere receipt of compensation tied to profits

is not indicative of partnership, nor does it demonstrate “co-owner[ship],” under Corps. &

Ass’ns § 4A-202(a). There is such meager evidence in support of the notion that these

payments were shares of profits that the trial court’s conclusion otherwise was clearly

erroneous—especially when considered in light of the parties’ ongoing efforts to become

members of the LLC.

       17
          This is possible, so long as the agreement does not “[r]estrict the rights of third
parties,” in violation of Maryland Code Ann. (1997, 2014 Repl. Vol.), § 9A-103(b)(10) of
the Corporations and Associations Article.
                                             37
                                      CONCLUSION

       Harry had the burden of producing sufficient facts to conclusively demonstrate the

parties’ intent to form a partnership. See Miller, 225 Md. at 55. Evidence of equal control

and joint decision-making authority, under these circumstances, does not support a

conclusion of partnership. Further, the trial court erred as a matter of law when it classified

Harry’s $275,000 in payments to Saralee as capital contributions, as opposed to loans. Nor

can the wages the parties received be considered profits, here. First, any presumption of

partnership based on profit sharing is undone by the parties’ expressed, simultaneous, and

unabandoned intent to become members of MAS and their treatment of the payments as

wages. Payments classified as wages are not supportive of partnership. Moreover, Harry

actively resisted being held jointly and severally liable for the debts of the purported

partnership. For these reasons, even reviewed in the light most favorable to Harry, the

record still lacks the necessary competent material evidence to conclude that the parties

intended to form a partnership.

       Thus, we hold that the trial court’s finding to the contrary was clearly erroneous,

and reverse and remand to the Court of Special Appeals, with instructions to remand to the

Circuit Court for Baltimore County to adjust the damage award in a manner consistent with

this Opinion.

                                           JUDGMENT OF THE COURT OF
                                           SPECIAL APPEALS REVERSED AS TO
                                           FINDING OF PARTNERSHIP.   CASE
                                           REMANDED TO THAT COURT WITH
                                           INSTRUCTIONS TO REVERSE THE
                                           JUDGMENT OF THE CIRCUIT COURT
                                           FOR   BALTIMORE   COUNTY   AND

                                              38
REMAND TO     THE CIRCUIT COURT
FOR    FURTHER       PROCEEDINGS,
CONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY RESPONDENT.

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