ROBERT BORTECK VS. THOMAS N. TORZEWSKI VS. ROBERTD. BORTECK, PC(C-0006-13, ESSEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3501-15T2
ROBERT BORTECK,
Plaintiff-Respondent/
Cross-Appellant,
v.
THOMAS N. TORZEWSKI,
Defendant/Third-Party Plaintiff-
Appellant/Cross-Respondent,
and
JENNIFER L. MCINERNEY,
Defendant,
v.
ROBERT D. BORTECK, PC,
Third-Party Defendant-Respondent/
Cross-Appellant.
____________________________________________
Submitted September 11, 2017 – Decided September 25, 2017
Before Judges Messano and O'Connor.
On appeal from Superior Court of New Jersey,
Chancery Division, General Equity Part,
Essex County, Docket No. C-0006-13.
Thomas N. Torzewski, LLC, attorneys for
appellants (Jennifer L. McInerney, of
counsel and on the brief).
Nagel Rice, LLP, attorneys for
respondents/cross-appellants (Jay J. Rice,
of counsel and on the brief; Randee M.
Matloff, on the brief).
PER CURIAM
Plaintiff/third-party defendant Robert Borteck and
defendant/third-party plaintiff Thomas Torzewski practiced law
in the same law firm.1 Defendant asserted he was an equity
partner in the firm. Plaintiff disputed that contention and,
after the parties filed competing motions for summary judgment
on this question, the court determined defendant was not an
equity partner. Defendant appeals from the March 11, 2016 order
memorializing that decision, as well as from another provision
establishing defendant's compensation as a non-equity partner.
We affirm.
Plaintiff cross-appeals from a provision in the order
compelling him to reimburse defendant $9,950 in FICA taxes
defendant paid on plaintiff's behalf. We affirm this provision
as well.
1
For simplicity, we refer to Borteck as plaintiff and
Torzewski as defendant for the balance of the opinion. Defendant
Jennifer L. McInerney was dismissed from this matter on summary
judgment, a decision that is not at issue in this appeal.
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I
A
We recount each party's version of the material facts,
starting with defendant. In February 2010, defendant joined
plaintiff's firm as a non-equity partner. Defendant brought
with him a number of clients and acquired a one-percent capital
interest in the firm, and the firm was renamed Borteck, Sanders
& Torzewski, LLP. However, only plaintiff was an equity
partner. Defendant did not seek to be an equity partner when he
joined because his relationship with plaintiff was still in its
early stages.
In 2011, Sanders left the firm, which was promptly renamed
Borteck & Torzewski, LLP. Defendant continued as a non-equity
partner for the rest of that year. In his motion papers,
defendant claimed he became an equity partner in 2012; the
record does not provide any details of the circumstances under
which plaintiff agreed defendant would be an equity partner.
Defendant did admit the parties never agreed upon the terms of
their partnership arrangement.
The only evidence upon on which defendant relied in support
of his claim he became an equity partner was the firm issued to
him a schedule K-1 form for tax year 2012, and it commenced
paying for his health insurance. The K-1 form indicates
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defendant received $233,326 in calendar year 2012, which was
23.8% of the firm's net profits. For tax years 2010 and 2011,
when he was undisputedly a non-equity partner, the firm issued
defendant a W-2 form for each year.
In addition to receiving the K-1 form and health insurance
from the firm, defendant contended the following privileges or
responsibilities were indicia signaling he was an equity
partner. These indicia were he: (1) had the authority to sign
checks and contracts on behalf of the partnership; (2) had
complete access to all financial information of the partnership;
(3) was a co-trustee of the partnership's 401k; (4) possessed
and used a partnership credit card; and (5) was involved in
management decisions of the firm, such as hiring and
establishing the salaries of employees, purchasing equipment,
and negotiating the terms of an office lease. Significantly, we
note it is not contested defendant had these same privileges and
responsibilities when even he admits he was a non-equity
partner.
In December 2012, the parties met to discuss year-end
bonuses and compensation. Because he had originated one-third
of the firm's net profits that year, defendant proposed he get
one-third and plaintiff two-thirds of the firm's net income.
Plaintiff rejected this proposal and countered with a separation
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agreement. By the end of the month, the partnership ended and
defendant left the firm. Litigation ensued shortly thereafter.
B
Plaintiff asserted defendant never became an equity
partner. According to him, in January 2012, defendant
approached plaintiff and inquired whether he could acquire an
equity interest in the firm. Plaintiff replied the issue could
be addressed at a later time but, in the meantime, the
compensation agreement into which the parties entered when
defendant started with the firm remained in place.
That compensation agreement, the terms of which were set
forth in a series of emails exchanged between the parties, was
that defendant was to receive an annual base salary of $260,000,
conditioned on him generating working attorney receipts of
$525,000. If defendant failed to meet such goal, his
compensation was to be reduced by $3,000 for every $10,000 he
failed to attain $525,000 in receipts. Defendant was also
entitled to certain conditional bonuses and perquisites.
Then, in December 2012, defendant announced to plaintiff he
became an equity partner as of January 1, 2012, and inquired
what his 2012 compensation would be. Plaintiff disputed
defendant was an equity partner and, a few days later, plaintiff
presented defendant with a separation agreement. Plaintiff did
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not want defendant in the firm because of his claim he was an
equity partner when he was not. Defendant refused to sign the
agreement and left the firm days later.
Plaintiff acknowledged defendant received a K-1 form for
tax year 2012, but explained defendant did so at his own
request, preferring to receive his full salary and to be
responsible for paying his own taxes. In addition, the firm's
accountant recommended defendant be issued a K-1 form so the
partnership, which required at least two individuals to survive,
could continue. Otherwise, plaintiff would have been forced to
create a corporation.
Plaintiff acknowledged the 2012 K-1 form reflected a profit
distribution or draw of $233,326 and that this latter figure was
23.8% of the firm's net income. However, the sum of $233,326
was not in fact tied to or calculated upon the firm's net
income. This sum was merely defendant's salary for 2012, the
same salary he received the previous two years and was based
upon defendant's compensation agreement. Knowing defendant's
annual salary, the accountant determined $233,326 was 23.8% of
the firm's net income, and entered these two figures on the K-1
form, accordingly.
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C
The court found there were no material issues of fact in
dispute, see R. 4:46-2(c), and determined the absence of a
partnership agreement providing defendant was an equity partner
and the terms of the agreement was fatal to defendant's claim.
The court thus granted plaintiff's and denied defendant's
motions for summary judgment. The issues remaining after these
motions were decided were the amount of compensation owed to
defendant in 2012, and whether he was entitled to the return of
$9,950 FICA taxes defendant paid in 2012, which plaintiff as an
employer was obligated to pay.
The parties were unable to settle these remaining disputes
and the court conducted a bench trial. During the trial
plaintiff claimed defendant's compensation was as outlined in
the emails exchanged between the parties. Defendant challenged
this contention, and alleged the parties agreed he would receive
an annual salary of $254,000, a discretionary bonus, an annual
car allowance of $6,000, and the payment of certain
miscellaneous expenses, such as Bar Association dues.
At the conclusion of the trial, the court found the emails
comprised the parties' agreement on defendant's compensation,
and determined plaintiff owed defendant $3,282 in additional
pay. Further, the court found plaintiff owed defendant $9,950
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for a portion of FICA taxes defendant paid in 2012 that were, as
employer, plaintiff's obligation to pay.
II
On appeal, defendant's principal challenges are: (1) he
established under the Uniform Partnership Act (UPA), N.J.S.A.
42:1A-1 to -56, that he became an equity partner in 2012; (2) he
established under the common law he was an equity partner; (3)
the court failed to appreciate there were material issues of
fact that precluded summary judgment; (4) there was insufficient
evidence the emails exchanged between the parties comprised
their agreement on defendant's compensation as a non-equity
partner; and (5) even if the emails did contain the terms of the
parties' agreement, the court failed to properly apply those
terms.
In his cross-appeal, plaintiff asserts the court erred when
it determined he owed defendant $9,950 for FICA taxes.
Summary judgment must be granted if "the pleadings,
depositions, answers to interrogatories and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact challenged and that the
moving party is entitled to a judgment or order as a matter of
law." R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am.,
142 N.J. 520, 528-29 (1995). When deciding a summary judgment
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motion, the court "must accept as true all evidence which
supports the position of the party defending against the motion
and accord him the benefit of all legitimate inferences which
can be deduced therefrom." Id. at 535 (internal quotation marks
omitted). If reasonable minds could differ, the motion must be
denied. Ibid. Raising mere issues of fact is insufficient to
defeat a motion for summary judgment. In order to defeat an
adversary's motion for summary judgment, a party must offer
facts in opposition that are material. Judson v. Peoples Bank &
Trust Co. of Westfield, 17 N.J. 67, 75 (1954). Disputed issues
that are of an insubstantial nature cannot overcome a motion for
summary judgment. Brill, supra, 142 N.J. at 530. If the moving
papers show there is no material issue of fact, then summary
judgment can be granted. Judson, supra, 17 N.J. at 75. We
review the trial court's grant of summary judgment de novo,
employing the same standard used by the trial court. Davis v.
Devereux Found., 209 N.J. 269, 286 (2012).
The burden of proving a partnership is on the party
asserting its existence. See Fenwick v. Unemployment Comp.
Comm'n, 133 N.J.L. 295, 300 (E. & A. 1945). We first address
defendant's claim he established he was an equity partner under
the UPA and, thus, his motion for summary judgment should have
been granted and plaintiff's motion denied. Defendant relies
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upon certain language in three provisions of the UPA. These are
N.J.S.A. 42:1A-10(a), N.J.S.A. 42:1A-10(c)(3), and N.J.S.A.
42:1A-21(b). We address each provision and why none is availing
to defendant.
The language upon which defendant relies in N.J.S.A. 42:1A-
10(a) states, "the association of two or more persons to carry
on as co-owners a business for profit forms a partnership,
whether or not the persons intend to form a partnership."
(emphasis added). Here, there is no evidence plaintiff and
defendant were ever co-owners of the firm. Although he acquired
a capital interest of one-percent in the firm when he joined,
that interest did not make defendant a co-owner. After all, as
even he concedes, defendant was a non-equity partner in 2010 and
2011 despite that minimal acquisition, and there is no evidence
he later acquired a greater ownership interest in the firm.
The particular language in N.J.S.A. 42:1A-10(c)(3)
defendant claims supports the premise he was an equity partner
states, "[a] person who receives a share of the profits of a
business is presumed to be a partner in the business[.]"
However, there is no evidence defendant was entitled to or
received a share of the profits.
In addition to some perquisites, defendant received
compensation in accordance with an agreement that based his pay
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upon a fixed formula that was tied to his and not the firm's
performance. His compensation was neither related to nor
dependent upon the firm's profits or losses. To be sure,
defendant was paid out of firm's profits, but there was no
agreement defendant was entitled to receive a share of those
profits. Defendant received his compensation in accordance with
an employment agreement he entered into with an equity partner
of the firm, not as a consequence of an agreement that permitted
him to share in and receive the firm's profits.
Further, the fact defendant received a K-1 form in 2012 did
not create a genuine issue of material fact that is sufficient
to defeat plaintiff's motion for summary judgment. Defendant
continued to be compensated in accordance with the agreement the
parties had entered in 2010. The percentage of income set forth
on the K-1 form as defendant's "draw" was deliberately
calculated to be consistent with the salary defendant received
pursuant to the parties' 2010 compensation contract. Further,
there was no evidence defendant shared in the firm's profits –
other than as any other creditor of the firm – or losses.
Finally, defendant relies upon N.J.S.A. 42:1A-21(b), which
provides, "[e]ach partner is entitled to an equal share of the
partnership profits and is chargeable with a share of the
partnership losses in proportion to the partner's share of the
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profits." This provision governs when there is a partnership
agreement. Because defendant did not establish there was such
an agreement, this provision is not implicated.
Defendant next asserts, under the common law, he
established he was an equity partner. The parties are in accord
the UPA is not the exclusive authority governing when a
partnership is formed, that resort to the common law is
permitted to determine a party's relationship to a partnership.
Both parties rely upon Fenwick, supra, 133 N.J.L. 295.
In this matter, our then highest court established the
factors that are to be considered when determining whether one
is an equity partner in a partnership. See id. at 297-300.
These factors are: (1) the intention of the parties; (2) the
sharing of the partnership's profits; (3) the sharing of the
partnership's losses; (4) the ownership and control of the
partnership's property and business; (5) the "community of power
in administration and the reservation in the agreement of the
exclusive control of the management of the business"; (6)
whether the language of the agreement excludes one party from
"most of the ordinary rights of a partner"; (7) the conduct of
the parties toward third persons, including taxing authorities,
clients, and others; and (8) the rights of the parties on
dissolution. Ibid.12 A-3501-15T2
After considering these factors, we reject defendant's
contention he established he was an equity partner and, thus,
the court erred when it granted plaintiff's but denied his
motion for summary judgment. We briefly address these factors.
As for the intent of the parties, the record is devoid of
any details about how defendant allegedly became an equity
partner in January 2012. There is no evidence of the
circumstances under which plaintiff allegedly assented to
defendant acquiring an equity interest in the firm. Certainly,
it is uncontested the parties never entered into an agreement
setting forth the terms of the partnership arrangement.
Defendant's primary argument is the fact the firm issued
the K-1 form to him and commenced paying for his health
insurance constitutes evidence he became an equity partner. We
previously addressed the weight to be accorded the K-1 form; in
context, the K-1 is not evidential defendant became an equity
partner in the firm. That the firm paid for defendant's health
insurance is insignificant; providing such a benefit is often
afforded to employees in the workplace. There is simply an
absence of evidence plaintiff intended to make defendant an
equity partner.
Turning to the second and third factors, there is no
evidence defendant shared in the partnership's profits and
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losses. As for the fourth and fifth factors, while defendant
enjoyed certain privileges and had various administrative and
managerial responsibilities, he had those same privileges and
responsibilities when he was undisputedly a non-equity partner.
The sixth factor is inapplicable because there was no
partnership agreement.
As for the seventh factor, plaintiff concedes defendant
was held out as a partner; however, there was no evidence
defendant was held out as an equity partner to the public. The
final factor, the rights of the parties on dissolution, does not
apply as there was no agreement.
After analyzing these factors, none of which supports
defendant's position but for, arguably, the seventh one, we are
satisfied the court did not err because it failed to find
defendant to be an equity partner under the common law, and thus
granted summary judgment in plaintiff's favor.
We have examined defendant's remaining arguments, as well
as plaintiff's arguments in support of his cross-appeal, and
determine they are without sufficient merit to warrant
discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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