Court Opinion

ID: 9723379
Source: CourtListenerOpinion
Date Created: 2023-08-26 10:13:00.024804+00
Date Added: 2024-06-11T18:24:48.002715
License: Public Domain

JUSTICE CUNNINGHAM, dissenting in part: I respectfully dissent from the majority on the sole issue of indemnification of Menora for his attorney fees in defending this action. I would affirm the trial court’s ruling barring the use of partnership assets by Menora to finance his defense against his own mismanagement, probable negligence and breach of fiduciary duty. A review of the language of section 14.8 of the partnership agreement leads me to a different construction of its meaning than that of the majority. It states in relevant part: “The partnership shall indemnify and hold harmless the General Partners and their employees and agents *** from and against any loss, expense, damage or injury suffered or sustained by them by reason of any act, omissions *** arising out of their activities on behalf of the partnership, including but not limited to any judgement, award, settlement, reasonable attorney’s fees and any other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim *** provided that the acts, or alleged acts or omissions upon which such actual or threatened action, proceeding or claim are based were in good faith and were not performed or omitted fraudulently or in bad faith or as a result of wanton and willful misconduct or gross negligence ***.” (Emphasis added.) I believe that the intent of section 14.8 is to indemnify Menora against actions by third parties when he is acting on behalf of the partnership. “Implicit in a partnership agreement is a fiduciary duty between partners to act in the best interest of the partnership.” Cronin v. McCarthy, 264 Ill. App. 3d 514, 524, 637 N.E.2d 668 (1994). “Under a partnership, a fiduciary relationship is created whereby the partner assuming control of the business is obligated to manage it in the interest of all the partners.” Rizzo v. Rizzo, 3 Ill. 2d 291, 302, 120 N.E.2d 546, 552 (1954). “Where one *** is the senior or managing partner, his obligation to deal fairly and openly and disclose completely is heightened.” Cronin, 264 Ill. App. 3d at 524. The record shows that Menora was the managing partner with the expertise and Mermelstein was a silent partner who relied upon Menora to provide appropriate management for the enterprise. Menora’s obligation to properly manage the business free from negligence and uphold his fiduciary duty is inherent in the partnership agreement. Indemnification of the managing partner for acts committed by him against the partnership is not a reasonable construction of the agreement in this case since the trial court has found a breach of fiduciary duty by the managing partner. It is significant that the trial court found that Menora acted in a manner that breached his fiduciary duty to the partnership. For example, with respect to the allocation of assets following the sale of the Oklahoma property, the court found that Menora used a method that financially benefitted himself to Mermelstein’s detriment. He offered no satisfactory explanation for choosing that method. Additionally, Menora conceded that he had engaged in certain other irregularities regarding the assets of the partnership. This was certainly not in the interest of the partnership or Mermelstein. Allowing Menora to use the partnership assets in this manner is contrary to the implied duty of care and loyalty which is inherent in the agreement. While it is true the court did not make a specific finding of fraud, bad faith, willful misconduct or gross negligence on the part of Menora, it did find that Menora breached his fiduciary duties to the partnership and Mermelstein and also that he breached the partnership agreement. Further, the trial court found that Menora acted in a way contrary to Mermelstein’s interest and that Mermelstein was entitled to relief. I disagree with the majority’s conclusion that the breach of duty is insufficient to bar Menora’s indemnification. The language of the agreement states that partners should be indemnified for “activities on behalf of the partnership.” A partner’s breach of duty, loyalty or care to the partnership cannot be construed as acting “on behalf of the partnership” and therefore should not be financed by the partnership assets. Thus, in my view, construction of the language of the agreement does not provide indemnification against a legal challenge by one partner against another where the challenged partner is not acting in a manner consistent with his fiduciary obligation. Additionally, I interpret differently the specific language of the partnership agreement cited by Menora in support of his assertion that the language is clear, unambiguous and provides him with the right to use the partnership’s assets to defend himself against his own mismanagement of those assets. The contract is ambiguous if it is susceptible to more than one interpretation. Ford v. Dovenmuehle Mortgage, Inc., 273 Ill. App. 3d 240, 244, 651 N.E.2d 751, 754 (1995). Ambiguous contracts are generally construed against the drafter. Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 493, 505 N.E.2d 314, 319 (1987). Mermelstein’s challenge to Menora’s use of the partnership funds to defend himself in this way provides another fact from which to infer that such a construction was not intended by the parties when they entered into the agreement. The primary goal in construing a contract is to give effect to the intent of the parties. Premier Title Co. v. Donahue, 328 Ill. App. 3d 161, 164, 765 N.E.2d 513, 516 (2002). Mermelstein’s objection to the use of his money by Menora to defend against legitimate allegations of mismanagement by Menora underscores that each partner interprets the language and intent of the partnership agreement differently on that point. The disparate interpretations by Mermelstein and Menora underscore the ambiguous nature of the indemnity provision. Under these circumstances, I cannot construe the language of the agreement as providing Menora with a right to use more of the partnership assets to defend against his own inappropriate management and wrongdoing. Construing the language against the drafter, Menora, would yield a different result than that reached by the majority. Construing the language of the agreement so that Mermelstein in effect is obligated to pay a portion of Menora’s legal fees has a unique impact on the trial court’s finding. Indemnifying Menora dilutes the compensation to which the trial court found Mermelstein is entitled and rewards Menora for breaching his fiduciary duties and the partnership agreement. I think this could not and should not be the interpretation of section 14.8 of the partnership agreement. Under the facts of this case, I would affirm the trial court and bar Menora from using partnership assets to finance his defense.