DATE: 20030401

DOCKET: C36509

COURT OF APPEAL FOR ONTARIO

RE: SAMUEL SKURECKI (in his capacity as Estate Trustee of the Estate of Murray Warsh, deceased), ARBORDALE LONE TREE INC., and CROYDON CONSULTANTS INC. (Plaintiff (Respondents)) – and – PHILLIP LITOWITZ, MARC GOLDENBERG, DUNBURY COLORADO INC., and STASHIVER COLORODA INC. (Defendants (Appellants))

BEFORE: WEILER, ROSENBERG and FELDMAN JJ.A.

COUNSEL: Ronald B. Moldaver Q.C. for the appellants

Robert A. Watson for the respondents

HEARD: March 4, 2003

On appeal from the judgment of Justice Gerald F. Day of the Superior Court of Justice dated May 18, 2001.

E N D O R S E M E N T

[1] Counsel for the appellants attacked virtually all of the findings of liability made against the appellants by the trial judge. We have not been persuaded, however, that the trial judge made any reversible error and accordingly the appeal must be dismissed. We briefly set out our reasons for that conclusion.

The Guarantee Fees on the Willow Pointe Project

[2] The Willow Pointe Agreement provided a mechanism for additional funding if it was necessary. Rather than acting in accordance with the agreement, Mr. Litowitz and Mr. Goldenberg withheld a 3% guarantee fee from the estate’s partnership share in Willow Pointe on behalf of the Warsh estate share. The trial judge noted a number of concerns with the appellants’ entitlement to this fee. First, contrary to what was implied in the letter to Mrs. Warsh, the appellants did not put up their guarantees in October 25, 1993. Second, the estate was prepared to try to make arrangements to provide its share of the additional financing in accordance with the agreement. Third, the guarantee fee was not a service for which the appellants were entitled to compensation under the agreement.

[3] We would not interfere with the trial judge’s conclusion that the appellants were not entitled to this fee on a quantum meruit basis. Mr. Litowitz was in a fiduciary relationship with Mrs. Warsh. He withheld these guarantee fees and yet did not make full and complete disclosure to Mrs. Warsh or to the administrator pendente lite for the estate. Further, Mr. Litowitz borrowed a substantial sum from the Willow Pointe Partnership without disclosing this fact to the Warsh estate or to the fourth partner and borrowed that amount at a rate substantially below any commercial borrowing rate. This money was still owing at the time that the appellants continued to withhold the 3% fee. The trial judge described the conduct of Mr. Litowitz and Mr. Goldenberg in this respect as “disgraceful”. It was open to the trial judge on those facts to refuse the appellants’ claim for quantum meruit.

MPW

[4] In late 1996, the estate trustee gave notice that the estate would no longer pay the monthly MPW charges after the expiration of the current lease in September 1996. Accountants retained by the estate later determined that beginning in March 1997, Mr. Litowitz and Mr. Goldenberg had appropriated to MPW 15% of the estate’s share of payments made by third parties to partnership entities of the three original partners, Warsh, Litowitz and Goldenberg. The appellants submit that the trial judge erred in law in giving judgment against the appellants for this amount and that MPW was the proper party.

[5] We do not accept this submission. Although the stated reason for withholding 15% of the estate’s share was to cover management services provided by MPW, it was open to the trial judge to find that the appellants had appropriated these monies by intercepting and transferring them to MPW and that accordingly, they were required to return the funds to the estate. The judgment was therefore properly entered against them.

[6] It is implicit in the trial judge’s findings that he was not satisfied that MPW or the appellants provided services that would justify the 15%. He found that the estate and Croydon “gave ample notice to MPW that it would not be continuing to share the overhead” and that the renewal of the lease would be at MPW’s “own peril without any further claim against the Warsh estate or Croydon”. The appellants were not entitled to resort to a self-help remedy in the absence of an agreement amongst all of the partners.

[7] In view of this conclusion, it follows that the estate is also entitled to the fees appropriated by the appellants following the trial judgment that were the subject of the order of Sharpe J.A. on July 17, 2002.

Legal Fees

[8] The appellant Litowitz submits that the trial judge erred in requiring him to return $7,729.73 of the $25,000 retainer paid by Mrs. Warsh. Counsel argues that only Mrs. Warsh could make this claim and she was not a plaintiff. However, the trial judge found as a fact that Mrs. Warsh retained Mr. Litowitz on behalf of the estate. There was ample evidence to support this finding. The pleadings were amended to include this part of the claim. We would therefore not give effect to this submission.

Willow Pointe Management Fees

[9] The appellants withheld a substantial portion of the Warsh estate’s share of the proceeds from the Willow Pointe partnership. The partnership agreement provides that “Unless specifically authorized no Partner shall receive any salary or compensation for services rendered to the Partnership except as set forth in this Agreement.” It is common ground that the agreement does not provide for any management fees to the appellants. They relied at trial upon a notation in the minutes of a partnership meeting held a few weeks after Mr. Warsh’s death as specific authorization. The trial judge found as a fact that Mrs. Warsh, although in attendance at that meeting along with her accountant, did not agree to the appellants being paid any management fee. That finding is supported by the evidence and is fatal to this aspect of the appellants’ submission.

[10] The appellants also rely upon s. 20 of the Partnerships Act, R.S.O. 1990 c. P.5 which provides as follows:

The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealings.

[11] However, as pointed out in R.C. Banks, Lindley & Banks on Partnership, Seventeenth Edition (London, 1995) at §10-10, “It goes without saying that no variation will be effective if the consent of all the partners is not forthcoming.” The trial judge’s findings of fact demonstrate that the Warsh estate did not consent.

[12] Finally, we would not give effect to the appellants’ submissions that apart from the agreement they should be entitled to a management fee on a quantum meruit or unjust enrichment basis. The appellants argue that with the death of Mr. Warsh they had to assume his share of the management responsibilities and were entitled to be compensated accordingly. This is a very difficult argument for the appellants given the findings by the trial judge about breach of trust by Mr. Litowitz. In any event, the agreement itself called for payment of management fees to an onsite manager. The appellants have failed to make out a claim that they should be paid additional management fees. The trial judge’s error in referring to one of the clauses of the Leslea-Colorado agreement is of no consequence. His conclusion and his findings of fact do not in any material way turn on that clause.

Leslea Colorado Management Fees

[13] Appellants’ counsel made no submissions concerning the trial judge’s findings that the estate was entitled to the 1994 and 1995 management fees for Leslea-Colorado and we see no basis for interfering with the trial judge’s conclusion.

CONCLUSION

[14] Accordingly, the appeal is dismissed with costs. The money standing in court under the Order of Sharpe J.A. should be paid out to the respondents.

[15] The respondents will have 7 days to submit a bill of costs of the appeal and to provide written submissions concerning the scale of costs. The appellants will have 7 days to respond to those submissions and to the bill of costs. Those submissions are to be filed with the Senior Legal Officer of the Court.

Signed: “K.M. Weiler J.A.”

“Marc Rosenberg J.A.”

“K. Feldman J.A.”