Plaintiffs seek damages for defendants' alleged mismanagement, as general partners, of a residential apartment building owned by nominal defendant, Wonforo Associates (Wonforo). Plaintiffs assert causes of action for breach of fiduciary duty, breach of partnership agreements, diversion of partnership opportunities, wrongful conversion of partnership assets, and mismanagement and waste of partnership assets. Among the relief sought by plaintiffs was that defendants be required to provide an accounting of the business activities of Wonforo.

By order dated September 30, 2002 (filed October 4, 2002) (Order), this court directed defendants, among other things, to provide plaintiffs with a full, complete and accurate accounting of Wonforo.^[FN1] Defendants now claim to have provided an accounting, which they submit with their instant motion, requesting an order judicially settling their account as general partners of Wonforo, and granting them a discharge and release with respect to the period of the account, from January 1, 1999 to June 30, 2003.

Facts

Wonforo is a New York limited partnership in which plaintiffs are limited partners, and defendants are general partners. Wonforo owns and operates a 47-unit residential apartment building located at 140 West 86th Street, New York, New York (Building). The Building was purchased over 40 years ago by Wonforo's predecessor, and ownership interests were divided between the Cooper family (owning 45%) and the Tomback family (owning 55%).

When Wonforo was converted to a limited partnership, in 1976, there were two general [*2]partners, Harry Tomback and Murray Cooper. Murray Cooper resigned as general partner in September 1991. At that time, Harry Tomback (now deceased) designated his nephew, defendant Peter Tomback, and his brother-in-law, George Horwitz, as general partners, leaving no one from the Cooper family in any formal management position.^[FN2] Plaintiffs, Wonforo's limited partners, assented to the designation of the new general partners.

Pursuant to an agreement dated September 1, 1991, Peter Tomback is also the managing agent of the Building. Under this agreement, the total amount to be paid out for management services was 5% of the Building's gross rents: Peter Tomback was to be paid 4%, for managing the Building; and Stuart Schachter, Wonforo's accountant, was to be paid 1%, for performing "management and accounting" services for the Building. Cooper Aff., Ex. D, ¶ 11.

Harry Tomback's son, Stephen Tomback, became a general partner of Wonforo in April 1999, after the death of Harry Tomback. On April 8, 1999, the three general partners entered into a new management agreement (Management Agreement) that replaced and superseded the September 1, 1991 agreement.^[FN3] The Management Agreement increased Peter Tomback's compensation, as follows: his percentage of gross rents was increased from 4% to between 4½% and 5%, depending on the net annual income of the Building; in the event that the Building were sold, and Peter Tomback did not vote in favor of the sale, he would receive a termination fee in the amount of 5% of the gross annual rents; and if an apartment became vacant and were upgraded, Peter Tomback would receive a supervisory fee equal to 15% of the total cost of construction, renovation and upgrade, provided that no independent general contractor were used. Plaintiffs claim that the general partners consummated the Management Agreement without the consent of the limited partners, and that plaintiff William Cooper expressly objected to Peter Tomback's alleged unexplained and unsupported increase in compensation.

In addition, plaintiffs allege that Peter Tomback engaged in a pattern of self-dealing and mismanagement by acting as Wonforo's general partner, attorney, managing agent, and general contractor. For instance, plaintiffs claim that Peter Tomback renovated vacant apartments at excessive cost and expense to Wonforo, without using an independent general contractor, thereby triggering his receipt of the supervisory fee; had the general partners and their relatives loan funds to Wonforo at interest rates in excess of those available from third-party lenders; took one of Wonforo's apartments for himself, purportedly as a tenant, though not actually occupying the apartment, and paying a rent that is below market value, thereby denying Wonforo the economic benefit of this apartment; and performed legal services for Wonforo in drafting the Management Agreement, and drafting notes for loans to Wonforo from Wonforo's general partners, including Peter Tomback himself, without advising the partnership of the alleged conflict of interest.^[FN4]

In the instant motion, defendants submit an "Account of the Defendants, The General Partners of Wonforo Associates" (Accounting), for the period January 1, 1999 through June 30, 2003, which is comprised of schedules A - I.^[FN5] Stephen Tomback claims that he and his wife used the "QuickBooks Professional Software program" to enter Wonforo's check stubs, cancelled [*3]checks, bank statements, deposit slips and bills into their computer, reconciling these computer entries with Wonforo's checkbook and bank statements on a monthly basis. Tomback Reply Aff., ¶ 3. According to Stephen Tomback, he and his wife prepared the Accounting "in consultation with and under the guidance of the defendants' attorney." Id., ¶ 4.

Defendants' counsel, Mr. Fairstein, claims that he entered into an agreement with plaintiffs' counsel, which allegedly provided that defendants "need not separately enter every rent check and other income item" in the Accounting (Id., ¶ 5); as a result, the Accounting does not disclose each of the 47 rent checks received for each of the 54 months of the Accounting.^[FN6] Rather, the Accounting lists "each deposit in its gross amount." Id.

Stephen Tomback claims that he delivered the Accounting to Wonforo's accountant, Mr. Schachter, who orally approved the Accounting. Mr. Schachter submits no affidavit in support of the accuracy or completeness of the Accounting. However, according to defendants, the Accounting may be corroborated by plaintiffs, because, in discovery, plaintiffs received bank statements, deposit slips, cancelled checks, the rent register, invoices paid by Wonforo (Fairstein Aff., ¶ 9), and all transactional documents in Wonforo's files, defendants' personal files and Mr. Schachter's files (Fairstein Reply Aff., ¶¶ 9-10).

Peter Tomback, Stephen Tomback and Nancy Lerner submit affidavits in support of defendants' instant motion.^[FN7] The affidavits state that all transactions involving the assets of Wonforo were processed through Wonforo's checking account, and that Wonforo maintained no other cash fund or account during the time period of the Accounting. In addition, the affidavits attest to the truth and accuracy of the Accounting.

In opposition, plaintiffs submit the affidavit of David Gutwetter, a certified public accountant. According to Mr. Gutwetter, the Accounting provides "[n]o detail as to deposits," and "[e]ach check is posted with a brief memo although without a clear allocation to category. Essentially, these exhibits [A through E of the Accounting] are check registers and nothing more." Gutwetter Aff., ¶ 4. Mr. Gutwetter states that exhibit F of the Accounting "is a re-shuffling * * * of the information provided in Exhibits 'A' through 'E,' although in Exhibit 'F' the checks are grouped by expense category rather than in chronological order. Again, there is no detail given as to deposits." Id. Mr. Gutwetter also concludes that the Accounting's summaries of statements of assets, liabilities, and partner capital are incomplete; that no explanation is provided regarding how the partners' capital accounts were calculated; and that no detail is provided regarding increases and decreases in Wonforo's cash position, rendering exhibits G, H and I unverifiable without reviewing the underlying partnership records. Id. Mr. Gutwetter states that the Accounting is not in standard accounting form, does not meet GAAP standards applicable to preparation of accounting reports, contains no profit and loss statement, and the information "schedules" provided by defendants "are inadequate to be called an 'accounting'." Id., ¶¶ 4-5. Significantly, Mr. Gutwetter concludes that "there is simply no ability to express an opinion as to whether [the Accounting] accurately reflect[s] even that limited information [it] purport[s] to present." Id., ¶ 5.

Plaintiffs also claim that discovery has not been completed: non-party depositions have not been taken; and expert reports have not been completed. For instance, Mr. Gutwetter's affidavit states that he was retained to review Wonforo's books and records, but that his firm has not yet completed its review or issued a report. Gutwetter Aff., ¶ 1. Plaintiffs maintain, and Mr. Gutwetter's affidavit states, that defendants' alleged self-dealing loans, and Peter Tomback's [*4]alleged lease to himself of a rent-stabilized apartment, are not disclosed in the Accounting. Cooper Aff., ¶¶ 8-9; Gutwetter Aff., ¶ 5. According to plaintiffs and Mr. Gutwetter, the Accounting also fails to reflect the method of calculating Peter Tomback's alleged excessive compensation (Cooper Aff., ¶ 12; Gutwetter Aff., ¶ 5); to address Wonforo's selection of Peter Tomback as an alleged unlicensed general contractor for renovations to the Building (Cooper Aff., ¶ 13; Gutwetter Aff., ¶ 5); or to provide the details necessary to address the economic justifications for the alleged inflated costs of apartment renovations (Cooper Aff., ¶ 16 and n 9; Gutwetter Aff., ¶ 5).

Discussion

Defendants move for an order granting them a release and discharge for the period of the Accounting, arguing that plaintiffs have not objected to any item disclosed in the Accounting. In opposition, plaintiffs object to the Accounting as incomplete and unverified. Plaintiffs also argue that defendants' motion should be denied, because discovery has not been completed, and plaintiffs' experts have not completed and issued their report.

The party submitting the Accounting has the burden of proving that the Accounting is proper. Matter of Kaszirer v Kaszirer, 298 AD2d 109 (1st Dept 2002) (cause of action for accounting upheld on summary judgment where accountant's cash-flow analysis and affidavit did not specify the documentation underlying the accountant's opinion, and, for the most part, were hearsay; accordingly, "burden never shifted to petitioners to submit evidence in opposition"). "[T]he objectant has the initial burden of coming forward with evidence to establish that the amounts set forth are inaccurate or incomplete. Upon satisfaction of that burden, the fiduciary has the ultimate burden of proving that the account is accurate and complete." Matter of Robinson, 282 AD2d 607, 607 (2d Dept 2001) (internal citations omitted).

Here, defendants Peter Tomback, Stephen Tomback and Nancy Lerner submit affidavits in support of defendants' motion, stating that the computer software-generated Accounting is complete and accurate. However, in opposition, the evidence submitted by plaintiffs demonstrates that the Accounting was inaccurate or incomplete. In his affidavit, Mr. Gutwetter, a certified public accountant, objects to the Accounting, because it fails to provide sufficient detail and explanations with respect to the information contained in its schedules. Therefore, he concludes that the Accounting is unverifiable and incomplete. Thus, Mr. Gutwetter's affidavit shifts the burden back to defendants to demonstrate that the Accounting is, in fact, accurate and complete.

In their reply papers, defendants argue that plaintiffs failed to object to any item disclosed in the Accounting. However, the basis for plaintiffs' inability to object to specific transactions is implicit in Mr. Gutwetter's affidavit. Specifically, according to Mr. Gutwetter, the accuracy of the Accounting cannot be determined due to the Accounting's lack of transparency and detail. Therefore, plaintiffs objected to the entire Accounting, not to specific transactions.

Moreover, while the court need not make a determination as to whether the Accounting must be made, approved or reviewed by an accountant, Mr. Schachter's alleged verbal approval of the Accounting is insufficient to overcome the evidence presented by plaintiffs through the affidavit of Mr. Gutwetter. Mr. Schachter's alleged verbal approval of the Accounting is hearsay, and defendants' submit nothing to substantiate Mr. Schachter's statements. Nor do defendants submit any other non-party expert affidavit attesting to the accuracy or completeness of the Accounting, in order to rebut Mr. Gutwetter's affidavit.

Instead of presenting evidence that the Accounting is accurate and complete, defendants argue that Mr. Gutwetter "either misstates or fails to understand the functional and informational purposes of each schedule [of the Accounting]." Def. Reply Mem. of Law, at 7. However, defendants do not explain how Mr. Gutwetter misapprehended, or failed to understand, the Accounting. To the contrary, Mr. Gutwetter's affidavit states that the Accounting fails to explain the transactions contained in the various exhibits to the Accounting. As a result, the Accounting lacks transparency, making it impossible to determine whether defendants' alleged self-dealing transactions are contained in the Accounting, and, if so, how to evaluate them. Significantly, [*5]despite defendants' urging to the contrary, based on the uncontradicted affidavit of Mr. Gutwetter, "there is simply no ability to express an opinion as to whether [the Accounting] accurately reflect[s] even that limited information they purport to present." Gutwetter Aff., ¶ 5. Defendants have not submitted any evidence to rebut plaintiffs' objections to the Accounting, or to establish that the Accounting was accurate and complete.

Furthermore, at the heart of the relief sought by defendants is defendants' contention that the conduct that plaintiffs complain of, which is the subject matter of this action, involves transactions that are purportedly included, although not expressly identified, in the Accounting. Thus, accepting the Accounting in its entirety would require plaintiffs to accept that the transactions that are the subject of their complaint are contained, albeit not identifiably, within its bounds. For the forgoing reasons, defendants motion for an order judicially settling the account is denied.

Because the court has denied defendants' motion based upon defendants' failure to prove the accuracy and completeness of the Accounting, the court need not address plaintiffs' opposition arguments relating to incomplete discovery and expert reports.

Accordingly, it is hereby

ORDERED that defendants' motion for an order judicially settling the account, granting them a discharge and release with respect to the entire period of the Account, is denied; and it is further

ORDERED that, in accordance with this decision, defendants are directed to furnish plaintiffs with an accounting of Wonforo, in accordance with generally accepted accounting principles, within 60 days.

Dated: March 15, 2004

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J.S.C.