MAS Assocs., LLC v. Korotki - 465 Md. 457, 214 A.3d 1076 (2019)

Rule:

In the absence of formal agreement, the existence of a partnership depends on the intent of the purported partners. As between the parties, partnership is a matter of intention, to be proved by their express agreement or inferred from their acts and conduct. The 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. The evidence demonstrating partnership must rise above surmise or speculation and reach the level of reasonable probability.

Facts:

In August 2009, with both of their businesses losing money, Harry Korotki and Joel Wax 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 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, a member of MAS Associates, LLC who held a 9% share of interest, and Mark Greenberg, expressed interest in "getting involved" in the merger. 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. Harry, Joel, and Mark held a meeting on October 13, 2009 to discuss their proposed business structure. The summary of the meeting indicated that the potential arrangement structured the deal into an "Interim Period" and a "Post-Interim Period. 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 March 2011, Harry resigned from his position with Equity Mortgage Lending. 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." 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 found that a partnership existed between the parties. 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."

Issue:

Did competent material evidence exist in the record to support the trial court's conclusion that the parties intended to form a general partnership?

Answer:

No.

Conclusion:

 The court held that Harry had the burden of producing sufficient facts to conclusively demonstrate the parties' intent to form a partnership. 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.