In this action, two former partners assert against each other various causes of action and counterclaims including fraud, fraudulent concealment, breach of fiduciary duty, breach of contract, conversion and unjust enrichment. Plaintiff, G. Chris Andersen ("Andersen"), and defendant, Stephen Weinroth ("Weinroth"), were partners in a merchant banking partnership called Andersen Weinroth & Co., LP ("AWLP"). Plaintiff James Rawlings ("Rawlings") was a "nominal" partner of AWLP, one without any ownership interest in the firm, who invested with Andersen and Weinroth in certain opportunities.

The extensive array of claims arise from conduct by Andersen and Weinroth that occurred during the operation of AWLP, from 1996 to the end of 2002, and after the firm began dissolution. The disputes fall into three general categories: (1) those relating to capital contributions paid into, or not paid into, the partnership and related oral agreements; (2) disputes over the accounting of and distributions from an investment known as the Essar investment, including related oral agreements; and (3) other oral agreements purportedly made between the partners relating to other investments or the winding-up of the partnership.

A fourth category of dispute included the payment into the firm of compensation earned by the partners and employees of AWLP in their positions as directors on the boards of directors at various corporations. Under AWLP's Directors Compensation Policy, all such fees were property of the firm. Although those portions of the claims related to this issue were previously dealt with by way of summary judgment and referred to a special referee to report and recommend,^[FN1] the parties dispute the referee's findings and both move to confirm in part and reject in part the report and recommendation.^[FN2]

Over the span of five days, I held a non-jury trial during which the following witnesses testified: Michael Halpern, an accountant who performed work for AWLP and its partners; Paul Higbee, a former employee of AWLP; Virginia West, Weinroth's former secretary; Rawlings; Andersen; Bernard Kleinman, an expert witness for plaintiffs; Weinroth; and Gary Karlitz, an expert witness for the defendant.

A seasoned investment banker, Andersen holds a Bachelor of Science in business finance, a Master of Business Administration in finance, and is a chartered financial analyst. (Tr. at 287-88). He began his career as a securities analyst but changed to investment banking in 1970 and worked for several firms until 1976, when he joined a firm known then as Drexel Burnham. (Tr. at 287-88).

At Drexel, Andersen rose to the position of managing director. (Tr. at 287-88). He sat on the executive committee and the underwriting assistance committee. (Tr. at 287-88). Andersen [*2]also ran the investment banking group. (Tr. at 287-88). He played a great role in creating new products and strategies. (Tr. at 287-88). Until Drexel ceased to function in 1990, Andersen spent much of his time generating new business and developing client relationships. (Tr. at 287-88).

After Drexel, Andersen served as vice chairman of Paine Webber until 1996, when he formed AWLP with Weinroth. (Tr. at 288-89, 595).

Andersen first met Weinroth at Drexel, in the late 1970s, when Weinroth joined that firm. (Tr. at 287-88, 593-94). Weinroth had an expertise in underwriting, finance and commercial paper. (Tr. at 593-94). At Drexel, Weinroth started the firm's commercial paper subsidiary, ran the international investment business, and sat on the board of directors. (Tr. at 593-94). He also participated in the same executive committee as Andersen and headed Drexel's commitment committee. (Tr. at 593-94).

As the head of the commitment committee, Weinroth reviewed the credit and "numbers" of some of the most sophisticated transactions at Drexel. (Tr. at 287-88; see Tr. at 593-94). He critiqued the financial details of these transactions and helped determine whether each deal should be approved or denied. (Tr. at 287-88). His role required much financial expertise. (Tr. at 287-88).

Weinroth left Drexel during 1989, just before the firm ceased operations. (Tr. at 287, 593-94). In various subsequent positions, he continued to rely on his financial expertise. (Tr. at 594). Until 1993, he managed a company called Integrated Resources while it underwent bankruptcy proceedings. (Tr. at 599). During this time he also worked with a mezzanine financing venture, first started while he was at Drexel. (Tr. at 594). Through his activities with the mezzanine finance venture, he became chairman of the board of Core Labs in 1994. (Tr. at 594).

Andersen and Weinroth maintained professional contact throughout the period after Drexel dissolved. (Tr. at 288-89). Eventually, in 1995, Weinroth suggested to Andersen that they form a merchant banking partnership of their own. (Tr. at 289-90). At first, Andersen declined Weinroth's proposition out of concern over Weinroth's health, but Andersen gave serious consideration to the idea after Weinroth successfully completed bypass surgery in late 1995. (Tr. at 289-90).

Formation of The Partnership; Responsibilities and Management

On January 29, 1996, they formed a limited partnership, AWLP, to carry on the business of merchant banking. (Jt. Ex. 1A; see Tr. at 288-90 and 595-96). As a merchant banking partnership, the partners put some of their own capital at risk and supported the costs of operations with funds from their capital accounts. Within a few months, AWLP executed a lease for office space at 1330 Avenue of the Americas. (Pl. Exs. 57, 58 and 59). The partnership employed a few support staff at first, including Weinroth's assistant Esther Balenzano. (Tr. at 595-96, 609-10). Only Andersen and Weinroth held proprietary interests in AWLP, with each owning 49.5% of the partnership. (Jt. Ex. 1A; Tr. at 609-10).

The partnership agreement designated as the general partner a corporation called A.W. & Co., GP. Inc, which held the remaining 1% interest in the partnership ("general partner"). (Jt. Ex. 1A). Andersen and Weinroth were equal shareholders of the general partner and the sole limited partners in AWLP. (Jt. Ex. 1A; see Tr. at 31).

The agreement states that both partners made equal initial contributions of $99,000 to the partnership and that "[n]o partner is required to make any additional capital contribution to the [*3]Partnership." (Jt. Ex. 1A at ¶¶ 8, 9). Thus, the partnership agreement did not require that any partner make further contributions or that any further contributions be equal. The parties offered conflicting views regarding purported oral agreements made at or near the time the partnership was formed, which governed how future contributions would be made and how responsibilities would be divided among the two partners.

According to Andersen, whose testimony I credit, he and Weinroth agreed that Andersen would act as "Mr. Outside," spending most of his time interacting with clients and investors, while Weinroth would act as "Mr. Inside," reviewing and analyzing the financial details of the firms' investments. Andersen also testified that the partnership would use capital contributions to share expenses in a "50/50" fashion and that to do so each partner would contribute as necessary to maintain an equal amount of capital for any given year. However, there was no agreement requiring that all future contributions occur at exactly the same time and be made in equal amounts. (See Tr. at 190-91, 193-96, 293-97, 608-09). Rather, the partners understood that they would contribute as necessary so "that in any year . . . the differences between the two [partners] would be no more than $25,000," a difference which Andersen considered to be "close enough" to equal. (Tr. at 293-94).

During the first several years of operations, the partners' engaged in a pattern of contributing equal amounts of capital and dividing responsibilities between "inside" and "outside" activities. (Tr. at 597, 600-01).

They did not work equally to find, analyze and pursue investment opportunities for the firm. (Tr. at 597, 604). The partners' actions reveal that they operated their firm's investments in a loose, informal manner, where each partner exercised a great deal of independence. They made "off-balance sheet" investments, engaged in transactions without keeping accurate records, and neither partner thoroughly investigated or understood the activities of the other. Rather, they authorized each other to engage in investments with limited understanding of the full details of the transaction. As Weinroth put it, "there were instances where each of us went separately" to investigate opportunities. (Tr. at 597).

As part of this loose, informal style, there was no common practice by which they accounted for investments. (Tr. at 290-91, 293-96, 457, 598, 605, 622-23, 625, 638-39, 644, 710, 712-13, 731, 911, 974). Many times, only the partner or employee who directly managed an investment would know of its specific details. When the time came to account for such investments, the firm's accountants would need to obtain the details from the relevant partner or employee. (Tr. at 204-06).

As for the firm's finances, Weinroth managed and controlled this aspect of the partnership. (Tr. at 29-31, 40, 205, 227, 597, 604). It matters not whether this role fell to him by default or by his own volition, it was understood that Weinroth looked after the firms' accounting. (Tr. at 597, 604). His assistants, first Esther Balenzano and then Virginia West, operated the QuickBooks software used to account for the partnership's activities. (Tr. at 600). Other partners had access to the accounting software and paper records, but requests for accounting information inevitably flowed through either Weinroth or West. (Tr. at 29-31, 40). And, West regularly discussed such requests with Weinroth. (Tr. at 205).

Weinroth also controlled the year-end preparation of the firm's taxes, a process which followed the same pattern year after year. (Tr. at 29-31, 36-40, 98). Sometime between August and October after the tax year in question, Michael Halpern, C.P.A., the accountant who prepared the returns, would ask West for a "trial balance" of the firm's profit and loss statement from the prior [*4]year. (Tr. at 29-31, 36-40, 98). He would then prepare draft returns and meet with Weinroth to discuss any questions and finalize the details of the tax returns. (Tr. at 29-31, 36-40, 98). Even though the firm's tax returns designated Andersen as the tax matters partner, Halpern met only with Weinroth when preparing tax returns, and never spoke with Andersen regarding the preparation of tax returns. (Tr. at 29-31, 36-40, 98). Halpern relied only on records supplied by Weinroth and West. (Tr. at 29-31, 36-40, 98).

Furthermore, Weinroth authorized the initiation of calls for contributions to the firms capital. West, who wrote checks to pay operating expenses and monitored the firm's checking account, would notify Weinroth when the checking account became low. (Tr. at 192-93). Then, Weinroth would either instruct West to inform Andersen that Weinroth had decided to make a capital call or notify West that Weinroth had already notified Andersen and she should expect money to be wired from Andersen's account. (Tr. at 192-93). Weinroth decided how much capital should be requested from Andersen. While Weinroth was a partner of AWLP, Andersen never initiated a capital call on his own but would always receive notice from Weinroth or West that a contribution was required in a specified amount. (Tr. at 297).

AWLP's records show that, in 1996, Andersen and Weinroth contributed more capital to the firm, and they each contributed the same amount - $50,000 - at the same time. (Pl. Exs. 105Q, 1000M). In a series of nine contributions made during the first four years, both partners contributed equal amounts of capital, establishing a pattern of maintaining an equal amount of capital in the firm. (Pl. Exs. 105Q, 1000M; see Tr. at 505, 694). Given Weinroth's control over the firm's finances and capital accounts, Andersen trusted Weinroth to make capital calls as necessary, and, for most of the duration of the partnership, Andersen believed that Weinroth was maintaining an equal amount of capital.

I find that, from the beginnings of AWLP, Weinroth managed the finances and each partner shared equally in the contribution and distribution of capital. Andersen trusted, and reasonably relied on, Weinroth to manage the capital accounts, and to ensure that the partners maintained an equal amount of capital in their respective capital accounts.

Early Investment Activity

In the early years of the partnership, the partners' engaged in investment activity that would later give rise to many of the disputes in this action.

In 1997, a company called Capital Investment Partners, L.L.C. ("CIP") approached AWLP for help in the search for an investor or group of investors for Green Mountain Energy Resources, LLC. (Tr. at 462-65). Green Mountain sought enough financing to fund the company until it made an initial public offering ("IPO"), an investment of approximately $30 million. (Tr. at 462-65). Andersen conducted all negotiations between AWLP and CIP and Green Mountain. (Tr. at 462-65).

In April 1997, AWLP and CIP agreed to act as finders for Green Mountain and to split a finders fee to be paid for their services. (Jt. Ex. 19S; Tr. at 462-65). Andersen negotiated a fee structure where the finders would receive in cash a maximum of 3% of the amount invested, plus warrants for the purchase of Green Mountain stock. (Jt. Ex. 19S; Tr. at 462-65). Andersen and CIP also specified how the finders fee would be split among the two finders. (Jt. Ex. 19S; Tr. at 462-65). [*5]For finding a $30 million investment, AWLP would receive $705,000 in cash upon closing and stock warrants then valued at $785,000, but contingent upon the success of Green Mountain's IPO. (Jt. Ex. 19S; Tr. at 462-65).

Andersen signed the engagement agreement on behalf of AWLP and verbally notified Weinroth. Weinroth did not object to the terms that Andersen had accepted and did not read the engagement letter. (Tr. at 790).

Andersen worked with CIP to find an investor for Green Mountain, but they found only one, Sam Wyly, who was willing to invest the full $30 million required by Green Mountain; however, he demanded that the finders fee arrangement be re-structured before he would close on the investment. (Tr. at 464-67).

Wyly requested that AWLP and CIP defer a portion of their cash fee until after Green Mountain successfully completed an IPO. (Jt. Ex. 21U; Tr. at 465-67). The total amount of compensation remained the same, but CIP and AWLP agreed to receive on closing $375,000 and $125,000 respectively, and to defer the remaining portions of their cash fee, $330,000 and $70,000, until after an IPO. (Jt. Ex. 21U; Tr. at 465-67). The finders would receive the same amount of stock warrants as before. The deferred portions of the cash fee, like the stock warrants, were to be contingent upon a successful IPO. (Jt. Ex. 21U; Tr. at 465-67).

Once again, Andersen performed all negotiations with CIP and Wyly, and he signed the new fee agreement on behalf of AWLP. (Jt. Ex. 21U; Tr. at 465-67). Soon thereafter, Andersen informed Weinroth. Weinroth did not object to this revised agreement. (Tr. at 465-67, 946-48). Weinroth acknowledged that he had read the Green Mountain engagement letters only after this litigation began. (Tr. at 703, 711).

AWLP hired additional employees during this time. Weinroth hired West, as an assistant, and Andersen hired an assistant of his own, Anne Macedonia. (Tr. at 184). In February 1998, AWLP hired Rohit Phansalker, a long-time friend of Andersen, as a nominal partner. (Tr. at 363). The firm also hired as nominal partners Alan Brumberger and James Rawlings, former colleagues from Drexel. (Tr. at 241, 363). Like the partners, AWLP's nominal partners also "brought in deals" for the firm. (Tr. at 241, 299).

During that same year, Andersen and Weinroth began work on an "off-balance sheet" investment in Essar floating rate notes ("Essar FRNs" or "Essar"). (Tr. at 225-26, 611, 584, 974). Essar, an Indian steel company, was owned and operated by Ravi Ruia, with whom Andersen had a friendship. (Tr. at 611). After discussing the investment with the Ruia family, and traveling to Mumbai, India, both Andersen and Weinroth believed the notes to be a good investment opportunity and decided to purchase Essar notes on margin. (Tr. at 611). Weinroth executed all the trades and wire transfers, but initially did not direct that the Essar investment be recorded in AWLP's books and records; rather, he relied on copies of wire transfers receipts and bank and brokerage statements as records of the investment. (Pl. Ex. 35-51; Tr. at 227, 237-39, 306-07, 833).

Although the notes soon declined in value, Andersen and Weinroth made a second investment in Essar notes accompanied by a small investment by Ravi Ruia, who participated with Andersen and Weinroth to reassure them of his confidence in the company. (Jt. Ex. 5E; Tr. at 228-30, 612-14). Weinroth knew that the investors had purchased on margin approximately $8 million worth of Essar notes during 1998, and that the total capital invested amounted to approximately $2.559 million. (Tr. at 874-75). [*6]

Andersen, Weinroth and two other AWLP employees also invested in Millennium Cell ("MCEL"), a company that developed fuel cell technology. (Tr. at 267-69). AWLP did not contribute its own money; rather, it acted as representative of a group of investors seeking to finance the company and prepare it for an initial public offering. (Pl. Ex. 66; Jt. Ex. 22V; Df. Ex. BL; Tr. at 267-69, 745). The group of AWLP investors, Andersen, Weinroth, Brumberger, Rawlings, George Van Kampen, who is Andersen's uncle, a friend of Andersen named Randy Lenz, and a group of investors known as the GPS investors, included six of MCEL's seven directors. (Jt. Ex. 22V; Df. Ex. BL; Tr. at 271). The GPS group consisted of a company called General Physics, and two individual investors, Jerome Feldman and M. Pollack (Tr. at 273-75). All of these investors were represented by AWLP and made an initial equity investment of over $1 million in MCEL. (Jt. Ex. 22V; Df. Ex. BL). Even though AWLP played a role in organizing the initial investment in MCEL, each investor, including Andersen and Weinroth, invested individually. (Tr. at 745).

The partners also engaged in individual investment activity that was completely independent of the partnership, even though some of these personal investments involved similar assets. In May of 1998, Weinroth purchased 100,000 shares of a company called Headway, holding the shares in his personal brokerage account. Through the end of 1998, Weinroth purchased, on three separate occasions, additional shares of Headway. Andersen, who served on the board of Headway, also held shares of the company in his personal accounts. Each partner's investment in Headway shares were personal and independent of their partnership.

Further Investment Activities and The Seeds of Dispute

During the earlier years, the firm made money and, at first, neither Andersen or Weinroth complained of the other. By the end of 1998, AWLP had been in operation for approximately two years, and in each of those years the partners had contributed equal amounts of capital and maintained a balance between their capital accounts. (Jt. Ex. 105Q, 1000M). The partners continued to operate the firm in an informal manner.

In January 1999, when Essar was still an "off-balance sheet" investment, Andersen and Weinroth informally offered Rawlings an opportunity to participate in the next purchase of Essar notes. (Tr. at 226-27, 244).

Weinroth explained that all proceeds of the Essar investment would be distributed in accordance with the proportions invested by each investor. (Tr. at 227, 230-31, 525-26, 617). Andersen, Weinroth and Rawlings agreed to these terms and also that $407,000 of proceeds recently returned to Andersen and Weinroth would be treated as a return on capital. (Tr. at 227, 230-31, 525-26, 617). In addition, AWLP reached an understanding with Ruia that he would receive no return on his investment in the notes until the AWLP investors achieved a 25% rate of return on their capital. (Tr. at 227, 230-31, 525-26, 617).

Rawlings decided to participate, and he invested a small amount along with Andersen, Weinroth, and AWLP. (Tr. at 226-27, 244). Together they invested $1.9 million in Essar during 1999, with Andersen and Weinroth investing equal amounts. (Pl. Ex. 33).

Problems began to appear in early 1999. Green Mountain failed to successfully make an initial public offering. (Tr. at 636). Because of the failed offering, AWLP did not receive the [*7]deferred portion of its fee. (Pl. Ex. 67; Tr. at 469). In June of 1999, the firm filed suit, but it never recovered from Green Mountain the unpaid portion of its fee. (Pl. Ex. 67; Tr. at 469).

Although not a point of contention at first, difficulties arose with the Essar transaction. At the end of 1999, Andersen, Weinroth and Rawlings anticipated liquidating the Essar investment, and Weinroth asked Halpern, who would be preparing the firms' 1998 tax returns, to transform the investment from an "off-balance sheet" investment to an on-balance sheet investment. (Tr. at 34-35, 620-22, 795-97).

Andersen, Weinroth and Rawlings had previously agreed to distribute the Essar proceeds in the same proportion as their respective investments, but further accounting was necessary to determine the exact amounts invested by each party and whether Ruia would receive any proceeds under his deal with the AWLP investors. Under the deal, if the total return for the AWLP investors exceeded 25%, Ruia's share would need to be calculated and paid from the distribution, reducing the amounts paid to Rawlings, Andersen and Weinroth.

Halpern met with Weinroth to learn the details of the investment and to obtain records. (Tr. at 34-35, 620-22, 795-97, 802). At that time, Weinroth and Halpern determined that in 1998 the partners had invested approximately $2.559 million in Essar notes. (Df. Ex. BJ; Tr. at 34-35, 620-22, 795-97, 802, 874-75). Weinroth provided Halpern with his records of the investment, consisting of various brokerage statements, margin balances and trade confirmations. (Df. Ex. BJ; Tr. at 34-35, 620-22, 795-97, 802, 874-75).

Working only with information and documents provided by Weinroth, Halpern, after his initial review, could find supporting documentation for approximately $1.86 million of the $2.559 million invested in 1998. (Df. Ex. BJ; Tr. at 34-35, 620-22, 795-97, 802, 874-75). The "gap" remained unsupported by documentation.

Halpern discussed this with Weinroth, who stated that he remembered making a margin call himself, when Andersen was out of the office, and that the margin call amounted to approximately $638,952 - nearly the same amount lacking documentation. (Df. Ex. BJ; Tr. at 34-35, 620-22, 795-97, 802, 874-75). Weinroth was unable to provide any margin statements, wire-transfer receipts or any other records of the margin call, and, at Weinroth's request, Halpern and West continued to examine the bank and brokerage statements provided by Weinroth, looking for records of Weinroth's alleged margin call. (Df. Ex. BJ; Tr. at 34-35, 620-22, 795-97, 802, 874-75). But, towards his co-investors, Weinroth acted as if the missing documentation for the $638,952 was not a problem and never explained to his co-venturers in Essar the details of the margin call or that he was unable to provide any documents supporting the existence of such a margin call.

Andersen and Weinroth continued to participate together in other forms of investments. Despite the failure of the plan to make an IPO for Green Mountain, and the Essar accounting inconsistency, which only Weinroth knew of at the time, the firm seemed to be operating well and making money. The partners continued to maintain equal capital accounts through 1999. (Pl. Ex. 105Q).

In December 1999, Phansalker "brought in" a large project where AWLP facilitated the placement of shares in Osicom, an Indian telecommunications company. (Tr. at 299-300, 389). AWLP received a large fee for the Osicom placement and decided to re-invest it into a subsidiary of Osicom called Sorrento. (Tr. at 299-300, 389).

Because Phansalker sat on the board of directors of Osicom and Andersen sat on the board [*8]of directors of Sorrento, AWLP was also allowed the opportunity to directly invest in Sorrento. (Tr. at 299-300, 389). The firm borrowed money from the Connecticut Bank of Commerce ("CBC") to purchase shares of the company on margin. (Pl. Ex. 134Q; Tr. at 299-300, 389). The Sorrento investment was an "on-balance" sheet investment, held directly by AWLP. (Tr. at 299-300, 389).

Continued Accounting Inconsistencies; Market Meltdown

Sometime near the end of 1999, or after, Weinroth informed Andersen that there was an accounting discrepancy in Essar and that Weinroth believed that an undocumented portion of the Essar investment, an amount of over $638,000, consisted of a margin call made solely by Weinroth. (Tr. at 308-09, 625, 622-23). Throughout this period of time, Halpern and West continued a fruitless search for records of Weinroth's claimed individual $638,952 investment in Essar from 1998. (Tr. at 47, 53-54, 139-40, 157-58, 318, 524-25, 626, 809). Weinroth, himself, never provided any documentary evidence of a margin call. Near the end of 1999, Weinroth began to liquidate the investors' holdings in Essar. (Jt. Ex. 2B; Pl. Ex. 32-51).

In January 2000, MCEL required additional capital. (Jt. Ex. 22V; Df. Ex. BL; Tr. at 271). Andersen, Weinroth and the group of investors represented by AWLP worked to raise an additional $500,000 for a second equity investment into the company, so that it could be brought public. (Jt. Ex. 22V; Df. Ex. BL; Tr. at 271).

On February 8, 2000, Halpern sent a fax to Weinroth, stating that he had found documentation to account for virtually all of the $2.559 million Essar investment from 1998, but there were no documents to support a margin call in the amount of $638,952 paid only by Weinroth. Rather, the documents showed that Andersen and Weinroth had contributed equally during 1998. (Pl. Ex. 33; Tr. at 33, 809, 822-25). Halpern noted that even though he had found these documents, which failed to show Weinroth's margin call, West continued to look for documentation of the margin call, in accordance with Weinroth's prior request.

I find that Weinroth never made a margin call of $638,952, and he knew that he had not made the call when he received Halpern's February 8, 2000 fax. Halpern proved that the margin call never existed by showing that the documentary support for the entire amount invested in 1998 did not include any documentation of a $638,952 margin call. It is simply incredible that Weinroth, a highly sophisticated businessman, would have made a $638,952 margin call without causing the creation of some form of notation on a margin balance statement, a wire-transfer receipt or any other form of written record. The ineluctable inference is that no such margin call was made.

Nevertheless, Weinroth continued to claim that he had made the additional investment of $638,952. (Pl. Ex. 88; Tr. at 824-26, 954). He changed his position as to the amounts invested in 1998 and claimed that it must have been a little over $3.1 million, a sum roughly calculable by adding $638,952 to the amounts documented by Halpern. However, no records were produced by Weinroth to support this new representation.

Using this new amount, Weinroth wrote a memo, dated April 17, 2000, and sent it to Andersen and Rawlings. The memo specified the proportion invested by each investor and explained how Weinroth planned to distribute the Essar proceeds. (Pl. Ex.88; Tr. at 197). [*9]Weinroth's memo states that Andersen made 36.02%, Rawlings 11.20%, AWLP 2.52%, and Weinroth 50.26% of the capital investment in Essar. (Pl. Ex. 88; Tr. 809, 838-39). Thus, he planned to make the distribution based on his representation that he made a $638,952 margin call in Essar, a representation he knew to be false, and Wienroth intended Andersen and Rawlings to rely on his representations by accepting the amounts distributed to them.

With shares calculated to two decimal points and a supporting spreadsheet, Weinroth's memo presented his conclusions as if they were facts, which had been fully supported by detailed documentation. The spreadsheet included an entry listing an individual investment by Weinroth of $638,952; however, Weinroth failed to disclose that this entry had absolutely no documentary support, and that partnership records and the opinion of Halpern showed that this margin call never occurred.

Weinroth then distributed the Essar proceeds in accordance with this false calculation, retaining for himself the largest share of the proceeds. (Pl. Ex. 33; Tr. at 809-11, 819, 830-39).

After the distribution of the Essar proceeds, which concluded on August 9, 2000, Rawlings raised with Weinroth an issue regarding whether Weinroth had incorrectly counted $1.2 million used to pay a margin loan separate from the Essar investment. (Tr. at 245-46, 819). Weinroth quickly agreed to distribute an additional $143,000 to Rawlings, who dropped this complaint. (Tr. at 245-46). Meanwhile, Andersen and Rawlings accepted their Essar distributions, relying on Weinroth's representations.

Problems increased during 2000. The internet bubble burst, which affected AWLP. (Tr. at 277). Although everyone at AWLP had believed Osicom and Sorrento were great successes, those investments now seemed imperiled. (See Tr. at 199-300). Weinroth had begun complaining to Andersen about Phansalker, asserting that Phansalker did not know how to properly structure deals. (Tr. at 640-41).

In April 2000, the banks underwriting the MCEL IPO objected to certain actions taken by the group of investors represented by AWLP. (Tr. at 277-78). On April 14, 2000, the board of directors, a majority of which were represented by AWLP, had agreed to execute a plan created by Weinroth where the second equity investment of $500,000 would be converted to a loan payable from proceeds anticipated from an initial public offering. (Jt. Ex. 22V; Tr. at 276-77).

But, at a meeting held shortly thereafter, the underwriters refused to proceed unless the investors agreed to convert their $500,000 investment back to equity, arguing that the market would not support the repayment of such a loan to insiders who had invested in the company at a low basis and immediately before the IPO. (Tr. at 277-78, 284). Attending this meeting were five of the seven directors of MCEL, including Andersen, Rawlings, Brumberger and the two individual investors constituting the GPS investor group. (Jt. Ex. 22V; Df. Ex. BL). Weinroth knew of the meeting but chose not to attend. (Tr. at 457-59, 362-63).

The investors present at the meeting agreed to rescind the conversion. (Tr. at 278-79, 284, 457-60). Weinroth, who was informed by the next day, complained to Andersen, arguing that he had successfully performed a similar conversion in a prior IPO. (Tr. at 285). But, when he called Mr. Harris, one of the underwriters, Weinroth "accepted" the decision to rescind the conversion. (Tr. at 46-47, 747, 942). After rescinding the decision, MCEL successfully made its initial public offering on May 25, 2000. (Pl. Ex. 66).

In June 2000, Rohit Phansalker left AWLP to take a position as the chief executive officer [*10]of Osicom. (Tr. at 299-301). AWLP soon learned that Phansalker had concealed from AWLP directors fees he earned from Osicom and which belonged to the partnership. (Tr. at 299-301). In September 2000, AWLP filed a federal lawsuit against Phansalker to recover the directors fees that belonged to the firm. (See Phansalker v. Andersen Weinroth & Co. L.P., 344 F.3d 182 [2d Cir. 2003]).

In the Fall of 2000, Rawlings asked Halpern for information on the Essar transaction so that Rawlings could prepare his tax returns. (Df. Ex. FO; Tr. at 84-86, 104-109). Halpern prepared a draft of a letter, dated October 4, 2000, which detailed only the documented amounts invested in Essar. (Df. Ex. FO; Tr. at 84-86, 104-109). Before sending the letter to Rawlings, Halpern gave it to Weinroth for review. (Df. Ex. FO; Tr. at 84-86, 104-109). Weinroth directed Halpern to omit a supporting schedule and to re-calculate the amounts invested and the expected returns in Essar, changes which showed an additional investment by Weinroth of $638,952. (Df. Ex. FO; Tr. at 84-86, 104-109). Of course, the $638,952 investment had never been made by Weinroth. Nevertheless, Weinroth directed Halpern to send to Rawlings the revised letter referring to the non-existent investment. (Df. Ex. FO; Tr. at 84-86, 104-109).

In the later part of 2000, the value of AWLP's holdings in Osicom had "vaporized," and the firm's holdings in Sorrento appeared to be endangered by what Andersen believed to be "crooks running [that] company." (Tr. at 301).

During 2000, Andersen contributed a total of $650,000 in capital to AWLP through four capital calls, and he believed that Weinroth was maintaining an equal amount of capital in the firm. (Pl. Ex. 105Q; Tr. at 296-98, 312-13). In fact, the pattern of maintaining equal capital balances had ceased in early 2000. (Pl. Ex. 105Q; Jt. Ex. 1000M). Weinroth made no capital contributions in 2000. (Pl. Ex. 105Q; Jt. Ex. 1000M).

The Partners' Relationship Deteriorates Further; Confrontation

2001 proved to be an even tougher year for Andersen, Weinroth and AWLP, and the relationship between the partners continued to deteriorate. Costs rose rapidly in the Phansalker litigation . During the first seven months, there were more contribution calls than in any of the previous years. (Pl. Ex. 105Q; Jt. Ex. 1000M). Weinroth resumed contributing capital to the firm, but he contributed less than Andersen did during 2001. (Pl. Ex. 105Q; Jt. Ex. 1000M). The partners' capital accounts remained out of balance because of Weinroth's failure to contribute capital during 2000 and his contribution of less capital during 2001.

Weinroth complained to Andersen about the high cost of the Phansalker lawsuit, which they agreed to split equally. (Pl. Exs. 52-58; Tr. at 199-200, 313, 643, 735-36).

Another dispute arose over the management of MCEL. Disappointed with the share price, Weinroth and Brumberger believed that Andersen, as chairman of the board of directors, should have installed new management. (Tr. at 650-53). Andersen and Rawlings supported the existing management. (Tr. at 650-53). Andersen and Weinroth argued over this issue, and, by mid-year, Weinroth decided to vote his MCEL shares against Andersen's shares. (Tr. at 650-53).

In August 2001, an entry was made in the AWLP's accounting journal, having the net effect of adjusting the capital contribution balance in favor of Weinroth by $1.3 million. (Pl. Ex. 105Q; Jt. Ex. 1000M). The entry, number 6538, contains a note stating that it was made "per MH." (Pl. [*11]Ex. 105Q; Jt. Ex. 1000M). Even though this record was entered in August of 2001, it adjusted the 2000 capital accounts. (Pl. Ex. 105Q; Jt. Ex. 1000M). The journal entry did not reflect the contribution of new capital to the firm; rather, it had a purely accounting effect of making Weinroth's capital account appear almost equal to Andersen's.

Later that fall, in October 2001, Weinroth asked Andersen for a $300,000 loan because much of his money was tied up in the renovation of a house in Nantucket. (Pl. Ex. 97; Tr. at 302, 370-71, 440-41, 445, 913). Despite the recent tension, Andersen agreed to the loan because he still trusted Weinroth and was unaware of Weinroth's conduct.

After lending the money to Weinroth, however, Andersen became concerned about the circumstances in which he found himself. He remembered the complaint by Rawlings of being underpaid on the proceeds from Essar, the many capital calls throughout 2001 and the liquidity problems Weinroth had mentioned. As a result, Andersen approached Weinroth, and asked for a reconciliation of the Essar project. (Tr. at 302-09). Weinroth said that he did not have complete records. (Tr. at 302-09). Andersen then asked Halpern to perform a complete analysis of the Essar project. Halpern did not immediately follow-up on this request; Weinroth was his main contact at AWLP. (Tr. at 302-09).

In November 2001, the federal court ruled against AWLP and Phansalker was awarded $4.4 million on his counterclaims. The partners argued over the decision to appeal, which would require the posting of a large bond. (Tr. at 309-10). Andersen wanted to appeal; Weinroth argued that the firm should pay the judgment. (Tr. at 309-10).

Eventually, the partners agreed to file an appeal and that each would contribute one-half of the required $5.4 million appeal bond. (Tr. at 309-10). Andersen was able to fund $2.7 million in cash, but Weinroth had only a little more than $1 million and sought to borrow the remainder from Andersen. (Tr. at 310-11). Andersen would not lend any more money to Weinroth and directed him to other contacts who might lend the money. (Tr. at 311-12).

In February 2002, further difficulties arose when AWLP's loan from CBC came due. By this time, the partners had successfully extended the loan four times. (Pl. Ex. 133). But now CBC was the subject of a federal investigation, and the bank would not extend the term of the loan without personal guarantees from both partners. (Tr. at 391-93).

The Sorrento shares purchased with the CBC loan proceeds had become worthless, and could not be used to pay down the loan. (Jt. Ex. 11K; see Tr. at 300-02). Both Weinroth and Andersen decided to follow a strategy of delay, planning to wait until the value of the Sorrento shares rose to a value sufficient to pay off the loan. (Tr. at 938-42).

In May, Andersen signed a personal guarantee and CBC agreed to extend the loan. (Jt. Ex. 16P, 17Q; Tr. at 391-93). Weinroth never signed a guarantee. During the Phansalker litigation, however, he claimed that he did guarantee the loan and deserved compensation for his purported guarantee. (Tr. at 764-769). In June 2002, CBC was dissolved and the loan to AWLP was sold to LINC Acquisitions. (Jt. Ex. 18R).

In August 2002, Weinroth borrowed enough money to fund one-half of the Phansalker appeal bond (Tr. at 310-12, 737, 927).

On September 5, 2002, Weinroth wrote a letter to Andersen, in which Weinroth claimed that Andersen had asked Weinroth in 1998 to purchase shares of Headway in his personal account and that the partners would share the profit or loss on the investment. (Pl. Ex. No. 78). Weinroth [*12]claimed to be holding, in his personal account, 126,000 shares he purchased in 1998 pursuant to this alleged agreement with Andersen. (Pl. Ex. No. 78). Weinroth later changed his position, claiming that only 100,000 of these shares had been held jointly. (Answer at ¶ 211; Tr at 655, 879).

Andersen replied by letter dated September 10, 2002, in which he denied ever making such a request or agreement and pointed out that, if he had done so, the purchase would have constituted an improper undisclosed transaction. (See Pl. Ex. 79). Andersen also pointed out that Weinroth had already sold many of the shares which he claimed to be holding jointly. (See Pl. Ex. 79; Jt. Ex. 23W). An analysis by Halpern would eventually show that in 2000 Weinroth had, in fact, sold many of the Headway shares which he purchased in 1998. (Jt. Ex. 23W).

After this, Andersen refused to contribute to AWLP any further capital without confirmation from Weinroth that he also had contributed an equal amount to the firm. (Pl. Ex. 25; Tr. at 302-05). In one specific instance occurring in October of 2002, Weinroth sent a fax to Andersen in which he claimed to have contributed $53,000 in capital. (Pl. Ex. 25; Tr. at 303-304, 854). Andersen responded to Weinroth's fax, stating that, upon receipt of Weinroth's fax, Andersen had contributed $55,000. (Pl. Ex. 25; Tr. at 303-304, 854). When Andersen contributed this capital to the firm, he relied on Weinroth's faxed representation that he had contributed $53,000 of his own capital. (Pl. Ex. 25; Tr. at 303-304, 854).

But, Andersen later learned that the $53,000 contributed by Weinroth was actually directors fees from a firm called Hovnanian.^[FN3] Copies of Weinroth's 1099 forms from Hovnanian and [*13]testimony from Mr. Kleinman, Anderson's expert witness, confirmed that this $53,000 was Hovnanian directors fees, (Jt. Ex. 3C; Pl. Exs. 81, 136; Tr. at 52, 530-31, 577-79, 1042), which under AWLP's Directors' Compensation Policy could not be counted as a capital contribution. (Tr. at 588).

Soon thereafter, Halpern spoke with Andersen about the Essar transaction and the capital accounts. He explained that there were no documents to support Weinroth's claimed $638,952 investment in Essar and that a significant difference existed between each partner's capital account. (Tr. at 312-13). Halpern followed up this conversation with a letter dated November 18, 2002, which he sent to both Andersen and Weinroth. (Jt. Ex. 2B; Tr. at 313). In his letter, Halpern addressed entry number 6538 in the firm's accounting journal, the entry which adjusted the 2000 capital accounts in favor of Weinroth by $1.3 million and had the effect of covering-up most of the disparity between the partners' capital accounts. Halpern was unable to determine how the entry was placed in AWLP's books. He disavowed this entry and sought permission from Andersen or Weinroth to remove it from the firm's books. (Jt. Ex. 2B; Tr. at 48). The revelation of this journal entry caused a great dispute between the partners, who never agreed to grant Halpern permission to remove entry 6538. The entry remains on AWLP's books and records. When preparing AWLP's 2001 tax return later that fall, Halpern indicated a disparity between the amount of capital contributed by each partner. (Jt. Ex. 11-K).

Although there is no clear evidence of who made journal entry 6538, that entry falsely modified the partners' capital accounts. When Halpern identified this entry as one which he had not made and did not accurately reflect the real contribution of capital, this revealed that Weinroth had, by contributing less capital than Andersen, caused the partners' capital accounts to become imbalanced. Thus Andersen had, by contributing more capital than Weinroth, been paying a greater [*14]portion of the partnership's expenses while Weinroth paid less.

Andersen confronted Weinroth several days later and asked about the discrepancies in the Essar transaction and the capital contributions. (Tr. at 314-15). Weinroth replied that Halpern's letter was based on faulty accounting. But, not only did he dispute the validity of Andersen's claims, he claimed that Andersen owed him money because of various unilateral actions taken by Andersen in the past, including Andersen's negotiations with Green Mountain over the deferral of a portion of AWLP's fee and the reversal of the loan conversion of the second equity investment in MCEL. (Tr. at 314-15). At no time did Weinroth disclose that he had not made the $638,952 margin call in Essar, which had the effect of increasing his share of the Essar proceeds, to the detriment of Andersen and Rawlings.

After decades of professional relations, the partners now "were unable to conduct social commerce. . . ." (Tr. at 316). The dissolution of the firm was imminent. Andersen, Weinroth and the nominal AWLP partners, however, discussed forming a new partnership, one where AWLP's nominal partners would have equity stakes and accounting would be more "transparent." (Tr. at 316). The partners agreed to dissolve AWLP by December 31, 2002, but had yet to agree on how to resolve their disputes, including whether Halpern should be allowed to remove journal entry 6538.

Winding Up of Affairs; Lingering Obligations

Andersen assumed responsibility for winding up the affairs of AWLP and hired West to assist him. (Tr. at 206-07).

In January 2003, Andersen, Weinroth and the former AWLP nominal partners formed a new entity, Andersen, Weinroth & Partners LLC ("AW2"), which took over the office space formerly occupied by AWLP and assumed the obligations under AWLP's lease. (Pl. Ex. 59; Tr. at 133, 242, 320). The members of the new entity set a condition upon formation, requiring Andersen and Weinroth to resolve all remaining financial issues relating to AWLP. (Tr. at 133-34, 450-51, 674-75). Some of the other members attempted to assist Andersen and Weinroth in the settlement of their disputes.^[FN4] (Tr. at 134-39).

Other AWLP problems continued to linger. In February 2003, LINC Acquisitions sued Andersen, Weinroth, and AWLP on the CBC loan and Andersen's guaranty under the loan. (Pl. Ex. 134; Jt. Ex. 18R). Even though the partners, by this time, were not talking to each other, they were represented by the same counsel. (Pl. Ex. 135; Tr. at 676-77). Weinroth maintained contact with counsel, and had knowledge of the proceedings in the CBC case. (Pl. Ex. 135; Tr. at 676-77). The partners continued throughout the litigation to follow a strategy of delay with regard to the money owed under the CBC loan, even though Andersen had signed a personal guarantee. (Pl. Ex. 132; Tr. at 680-81, 775-761, 940).

Ultimately, the mediation efforts of the members of AW2 failed to lead to a resolution between Andersen and Weinroth. Weinroth left the new entity in May 2003, taking a few possessions and some pieces of art. (Tr. at 174-75, 181-82). AW2 dissolved and the remaining [*15]members formed a third entity, Andersen & Co. LLC, which occupied the same space and assumed the obligations under the lease. (Pl. Ex. 60; Tr. at 174-75). Andersen retained possession of AWLP's books and records.

The final chapter of AWLP involves the actions of the partners to resolve their legal fees incurred in litigating against Phansalker and the litigation arising from the CBC loan.

In September 2003, the Second Circuit reversed the judgement in the Phansalker litigation, and awarded judgment to AWLP. (Phansalker v. Andersen Weinroth & Co., L.P., supra). By this time, AWLP owed $1.8 million in legal fees incurred in the litigation. (Tr. at 425).

Andersen, as the partner in charge of winding up, engaged in negotiations to reduce the amount of legal fees. (Tr. at 425). He reached an agreement under which AWLP would pay only $900,000, so long as this amount was paid on or before December 31, 2003. (Tr. at 425). Through counsel, Weinroth consented to these terms. (Pl. Ex. 128, 129; Tr. at 427).

AWLP did not have the funds to pay $900,000 by December 31, 2003, and, communicating through counsel, Andersen and Weinroth forged an understanding as to how each party would fund the payment of these fees. (Pl. Ex. 128, 129; Tr. at 414). Weinroth agreed to contribute proceeds from the exercise and sale of Core Labs options, proceeds which belonged to AWLP but were still in Weinroth's possession. (Pl. Ex. 128, 129; Tr. at 414). The cost to exercise those options would be treated as a capital contribution. (Df. Ex. FE-Q). Andersen agreed to sell some of his Terex shares and use those proceeds to help pay the settlement by December 31, 2003. (Pl. Ex. 128, 129; Tr. at 414).

Andersen did not directly contribute the proceeds of his Terex sale, which would not be available in time to meet the December 31 deadline. Instead, he caused AWLP to borrow $675,000 from Harch Capital, while simultaneously lending $675,000 of his personal assets to Harch. (Df. Ex. FQ; Tr. at 406-07, 427-34). Andersen executed these transactions so he would not have to put more cash into AWLP and because Harch demanded some sort of security for its loan to AWLP. (Df. Ex. FQ; Tr. at 406-07, 427-34).

Weinroth did not contribute the proceeds from the sale of his Core Labs shares before December 31, 2003. (Tr. at 406-07, 427-34). However, Weinroth's partial performance of his obligations under the December 31, 2003 agreement merited a capital contribution on his behalf of $169,888. (See Tr. at 967-98). To raise enough money to pay the remainder of the Phansalker legal fees, Andersen caused AWLP to issue a promissory note in the amount of $225,000.

With these funds, AWLP successfully paid its legal fees. When the proceeds from Andersen's Terex shares became available to AWLP, he caused AWLP to repay its debt to Harch Capital with those proceeds. (Df. Ex. FQ; Tr. at 406-07, 427-34). Harch, in turn, repaid Andersen the $675,000 it had borrowed from his personal assets. (Df. Ex. FQ; Tr. at 406-07, 427-34). Andersen gained no personal benefit from the Harch transactions.

In March 2004, LINC obtained a judgment against AWLP and Andersen, jointly and severally, on the CBC loan. (Jt. Ex. 18R). No judgment issued against Weinroth. (Jt. Ex. 18R). Andersen negotiated a settlement with LINC in May 2004, when it became possible to satisfy the judgment with proceeds from the sale of AWLP's Sorrento shares. (Pl. Ex. 130; Tr. at 401). Neither Andersen or Weinroth contributed any personal assets to settle with LINC.

I. Plaintiffs' Fourth Cause of Action For Fraud

In their fourth cause of action, Plaintiffs allege that Weinroth committed a fraud by making false representations regarding the Essar investment and AWLP's capital accounts, misrepresentations upon which Plaintiffs relied to their detriment.

A. Fraud In The Essar Distribution

Plaintiffs claim that Weinroth misrepresented the true circumstances of the Essar accounting so that he could direct to himself a greater proportion of the Essar proceeds.

To prevail on a cause of action "for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury." (Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413, 421 [1996]). Fraud must be proven by clear and convincing evidence; "loose, equivocal or contradictory evidence" will not suffice to prove fraud. (Abrahami v. UPC Const. Co., Inc., 224 AD2d 231, 233 [1st Dep't 1996] [quotations omitted]).

I am satisfied that the evidence, clearly and convincingly, demonstrates that Weinroth committed a fraud against Andersen, Rawlings and AWLP: When Weinroth issued his April 17, 2000 memorandum, he presented to his partners a false calculation of each investor's share of the Essar proceeds. Not only did Weinroth know that a significant portion of the investment, his alleged margin call, lacked documentary support, he also knew that this margin call never existed. Yet, he presented his calculations as fact, representing in absolute and unqualified numerical terms, that he was due 50.62% of the proceeds. These statements implied that Weinroth's calculations were firmly supported by bank statements, brokerage statements and other written documentation of the purchases when his claimed $638,952 margin call enjoyed no such documentary support whatsoever, a fact that he knew and concealed from his partners. When the Essar investment was liquidated, Andersen and Rawlings knew none of these facts and reasonably relied on Weinroth to properly and fairly distribute the proceeds to each investor. This was not done; rather, Weinroth received a substantially larger share of the proceeds than that to which he was entitled. As a result, Andersen and Rawlings received less than they should have, to their detriment and damage.

i. Weinroth knew he never made a $638,952 margin call, knew there was no documentary support for such a claim but misrepresented this to Andersen and Rawlings.

Throughout the investment in Essar, Andersen and Rawlings relied on Weinroth to keep track of the purchases and sales of Essar notes and to distribute the proceeds in proportion to amounts invested. Weinroth maintained the brokerage and bank statements and wire transfer records of the [*16]Essar note holdings. He executed the purchases and sales of the notes. It was Weinroth who worked with Halpern to move the transaction onto the books of AWLP. Weinroth determined what portion of Essar proceeds would be distributed to each investor, and he made this known to Andersen and Rawlings in the April 17, 2000 memo.

Nevertheless he never disclosed that he had not made the margin call, a fact discovered by Halpern who was unable to locate any record of such a margin call. Rather, Weinroth misrepresented in his April 17, 2000 memo to Andersen and Rawlings the truth behind his distribution calculations.

In support of his position, Weinroth claimed that, although he had no documentation to support it, there was no proof that the margin call did not occur because there existed a $638,952 "gap" between the amount invested during 1998 and the amount supported by documentation reviewed by Halpern. Not only do I reject the incredible claim that this margin call could have been paid without any documentation of payment, but Halpern eventually found documentation to fill the gap, and the newly-found documentation conclusively established that there was no such margin call. Weinroth then changed his position and claimed that there must have been more money invested in Essar, despite documentary evidence to the contrary. The only rational conclusion is that Weinroth, himself, knew that the margin call never existed. Even in the face of such proof to the contrary, Weinroth continued to assert to his partners that he had made this non-existent margin call.

To Andersen and Rawlings, Weinroth presented only his own version of the Essar accounting. In his April 17, 2000 memo, he specified to the nearest hundredth of a percent the proportion invested by each investor, calculations that were made by Weinroth to increase substantially his share of the distribution.

Weinroth intended Andersen and Rawlings to rely on his accounting of Essar. The memo notified Andersen and Rawlings how Weinroth intended to distribute the proceeds of the investment. By issuing his memo, Weinroth intended that Andersen and Rawlings would accept his false statements concerning the Essar accounting and accept, without objection, less than their fair share of Essar proceeds. Again, there is only one conclusion here: That Weinroth knew that inclusion of the false margin call in the distribution calculations would cause him to receive significantly more of the Essar proceeds.

ii. Andersen and Rawlings reasonably relied on Weinroth's representations.

Andersen and Rawlings trusted Weinroth to accurately calculate the distribution of Essar proceeds. Given their relationship with Weinroth as co-investors, Andersen's and Rawlings' reliance was reasonable.

Even where a representation is made by a fiduciary, reliance upon such a representation must be reasonable to support a finding of fraud. (General Elec. Capital Corp. v. U.S. Trust Co. of New York, 238 AD2d 144, 145 [1st Dep't 1997]; Gaidon v. Guardian Life Ins. Co. of America, 255 AD2d 101, 102 [1st Dep't 1998]). Typically, "a sophisticated plaintiff cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it." (Valassis Communications, Inc. v. Weimer, 304 AD2d 448, 449 [1st Dep't 2003] [quotations omitted]). Failure to use available [*17]"means to discover the true nature of the transaction by the exercise of ordinary intelligence" may preclude justifiable reliance. (Stuart Silver Associates, Inc. v. Baco Development Corp., 245 AD2d 96, 98 [1st Dep't 1997]).

However, in certain circumstances, a person who is owed a fiduciary duty may rely on the "representations and [] complete, undivided loyalty" of the fiduciary. (TPL Associates v. Helmsley-Spear, Inc., 146 AD2d 468, 471 [1st Dep't 1989]). A fiduciary owes a duty to disclose fully to its principal, the details of a transaction. (Blue Chip Emerald LLC v. Allied Partners Inc., 299 AD2d 278, 279-80 [1st Dep't 2002]). Thus, a relationship of trust or confidence may be considered as a factor in determining justifiable reliance. (Kimmell v. Schaefer, 89 NY2d 257, 264 [1996]).

Because Weinroth kept all the Essar records and controlled the accounting of the investment, Andersen and Rawlings knew that Weinroth had the most detailed knowledge of the financial details of the Essar transaction. Andersen and Rawlings did have some knowledge of the facts of Essar, but they would have had to go through Weinroth to obtain the documentary details required to learn of the falsity of the margin call.

Moreover, a special relationship existed between Weinroth and Andersen and Rawlings. Not only did Andersen and Weinroth owe fiduciary duties to each other, but Weinroth also owed a duty of loyalty to Rawlings. These individuals initiated the Essar transaction outside of AWLP and for the purpose of sharing the profits or losses in proportion to the amount of capital invested by each investor. Under these circumstances, each investor was a partner, owing to the others a fiduciary duty. (See Partnership Law § 11 [4]; M.I.F. Securities Co. v. R.C. Stamm & Co., 94 AD2d 211, 214 [1 Dept. 1983] aff'd 60 NY2d 936 [1983]).

Given Weinroth's control over the accounting of Essar and the fiduciary relationship between the Essar investors, Andersen and Rawlings justifiably relied on Weinroth to fairly and accurately apportion the Essar proceeds.

iii. Weinroth unreasonably claimed his representation to be true.

Weinroth testified that he reasonably and honestly believed that, at some point in time, he had contributed $638,952 in response to a margin call in the Essar investment.

It may be that an honest and reasonable belief in the truth of the representation will defeat a cause of action for fraud. (See Grill v. Driad Const. Corp., 34 NY2d 593, 598 [Sup. 1942]). However, based on my observations of Weinroth during trial, and the credible evidence to the contrary, I reject Weinroth's testimony that his belief in the existence of the margin call was honest or reasonable

iv. Weinroth's fraud caused damage to Andersen and Rawlings.

Turning to the issue of damages, on a cause of action for fraud, damages are measured by actual pecuniary loss, the loss resulting from the defendant's fraudulent behavior. (Morris v. Lewis, 75 AD2d 840, 844 [2d Dep't 1980]).

Here, Weinroth's fraud caused pecuniary loss to plaintiffs by re-routing a portion of the Essar [*18]proceeds to himself. Plaintiffs' damages are the difference between the amount of proceeds they should have received and the amount they did receive.

Had Weinroth truthfully distributed the Essar proceeds in proportion to each investors' actual stake in the investment, including the Ruia investment, Andersen would have received a total of $2,786,641. Instead, he received only $2,416,483. Thus, Andersen suffered damages in the amount of $370,158. Rawlings should have received $959,290 but received only $740,248, suffering damages in the amount of $219,042.

Plaintiffs' total damages resulting from Weinroth's fraudulent activity in the Essar project amount to $589,200, with Andersen suffering $370,158 in damages and Rawlings suffering $219,042.

B. Fraud In Weinroth's Management Of The Capital Accounts

Plaintiffs claim that Weinroth fraudulently represented to Andersen that each partner had contributed an equal amount of capital to the firm and that Andersen relied on those representations to his detriment. As examples of fraudulent management of the capital accounts, Plaintiffs highlight the placement of journal entry 6538 in the firm's books and Andersen's reliance on Weinroth's representation that he had contributed $53,000 of capital when that money was actually director's fees.

As discussed above, liability for fraud requires clear and convincing evidence of "a representation concerning a material fact, falsity of that representation, scienter, reliance and damages." (Stuart Silver Assocs. v. Baco Dev. Corp., 245 AD2d at 98; see Abrahami v. UPC Const. Co., Inc., 224 AD2d at 233).

Here, Andersen claims that Weinroth misrepresented the true imbalance of the partners' capital accounts, that he intended to misrepresent this fact so that Andersen would continue contributing to the firm and that Andersen relied on Weinroth's misrepresentations. However, Andersen failed to recall specific instances when Weinroth made such misrepresentations. He testified that Weinroth had showed him a balance sheet indicating that the partners' accounts were only out of balance by $300,000 when, in fact, there existed a disparity of $1,300,000. But, Andersen could not produce a copy of that balance sheet or remember when Weinroth showed it to him.

Andersen pointed out entry number 6538, which had the accounting effect of increasing the amount of capital in Weinroth's account by approximately $1.3 million when he had not actually contributed that amount of money. However, Andersen produced no evidence that he had relied on journal entry number 6538; rather, he testified that he never really examined AWLP's books and, instead, relied on Weinroth, his partner, to manage the capital accounts.

With regard to the $53,000 Weinroth paid to AWLP in the fall of 2002, as indicated earlier, this money clearly was directors fees, not a capital contribution. Yet, Weinroth misrepresented this fact to Andersen by claiming that the $53,000 was Weinroth's own capital. In reality, Weinroth had not contributed $53,000 of his own capital but $53,000 in directors fees he had earned from Hovnanian, which could not, under AWLP's Directors Compensation Policy, be counted as a capital contribution. Andersen relied on Weinroth's misrepresentation to his detriment and damage when [*19]he contributed $55,000 to the firm.^[FN5] Thus, there exists clear and convincing evidence of Weinroth's fraudulent misrepresentation of his contribution of capital to the firm.

Plaintiffs have proven that Weinroth fraudulently misrepresented that he had contributed $53,000 of capital, which Andersen relied upon to his detriment and damage in making a $55,000 contribution of capital.

II. Plaintiffs' Fifth Cause of Action For Fraudulent Concealment

Plaintiffs' fifth cause of action, alleges that Weinroth fraudulently concealed relevant information about his management of the Essar investment and his management of AWLP's finances and capital accounts. Plaintiffs allege that Weinroth owed a fiduciary duty to Andersen, Rawlings and AWLP, and, pursuant to that duty, he had a duty to disclose to Rawlings and Andersen relevant information about Essar and to disclose to Andersen relevant information about AWLP's finances and capital accounts.

A. Fraudulent Concealment During The Essar Project

Plaintiffs claim that Weinroth fraudulently concealed from Andersen, Rawlings and AWLP the fictitious nature of the $638,952 margin call, because, as the co-venturer in Essar who controlled the documentation of the investment, Weinroth had a duty to disclose this information to Andersen and Rawlings.

Liability for fraudulent concealment requires a plaintiff to prove elements similar to fraud except that, instead of making an affirmative misrepresentation, the defendant must have failed to fulfill a duty to disclose to the plaintiff. (P.T. Bank Central Asia v. ABN AMRO Bank N.V., 301 AD2d 373, 376 [1st Dep't 2003]; Kaufman v. Cohen, 307 AD2d 113, 119-20 [1st Dep't 2003]). Such a duty to disclose arises in a confidential or fiduciary relation. (See Kaufman, 307 AD2d at 120; National Union Fire Ins. Co. of Pittsburgh, P.A. v. Red Apple Group, Inc., 273 AD2d 140, 141 [1st Dep't 2000]).

Weinroth held a fiduciary duty with respect to the other Essar investors, Andersen and Rawlings. Pursuant to this duty, Weinroth had an obligation to disclose to Andersen any information regarding the accuracy of the apportionment and distribution of Essar proceeds. (See Kaufman, 307 AD2d at 119-20). He failed in that duty.

Weinroth failed to disclose to Andersen and Rawlings that the margin call never occurred. Furthermore, he never disclosed that Essar documentation disproved the existence of the margin call. Rather, it is clear that Weinroth intended to conceal this information and took steps to deceive [*20]Andersen and Rawlings. He presented his accounting of Essar in a very detailed and precise manner, a manner which added credibility to his false statements. In the Essar memos and spreadsheets issued to Andersen and Rawlings, Weinroth ensured that the margin call appeared as an investment made by himself. When Rawlings asked Halpern to generate a report so that Rawlings could prepare a tax return, Halpern created a report which accurately reflected the Essar accounting, and therefore did not include the margin call. But, Weinroth instructed Halpern to include in his report an entry showing a $638,952 margin call by Weinroth and to remove another part of the report before it was sent to Rawlings. At Weinroth's direction, Rawlings received only the modified report.

I am satisfied that it has been proven by clear and convincing evidence that Weinroth fraudulently concealed from Andersen and Rawlings the truth about the Essar distributions.

Damages for Weinroth's fraudulent concealment are identical to the fraud damages, which total $589,200, the amount of distributions Weinroth fraudulently kept for himself at Andersen's and Rawlings' expense. Andersen's share of these damages amounts to $370,158 and Rawlings share amounts to $219,042.

B. Fraudulent Concealment Regarding The Capital Accounts

Plaintiffs also claim that Weinroth fraudulently concealed the disparity between the partners' capital accounts by, among other things, causing a false journal entry to be placed on the partnerships books. Plaintiffs assert that Weinroth had a duty to disclose to Andersen the existence of a disparity between the capital accounts.

Weinroth owed a fiduciary duty to Andersen; and, therefore, had an obligation to disclose to his partner any actions affecting the capital of their partnership. (See Kaufman, 307 AD2d at 119-20). Failure to disclose such actions constitutes fraudulent concealment. (See P.T. Bank Central Asia, 301 AD2d at 376; Kaufman, 307 AD2d at 119-20; National Union Fire Ins. Co. of Pittsburgh, P.A. v. Red Apple Group, Inc., 273 AD2d at 141).

Here, Andersen and Weinroth were partners, and owed each other fiduciary duties. Andersen trusted Weinroth to request capital as necessary for each partner to maintain equal stakes in the firm.

In 2001, however, a journal entry was entered into AWLP's electronic bookkeeping software, which had the effect of concealing a large disparity between the partners' capital accounts. Journal entry 6538 effectively eliminated Weinroth's capital deficit of $1,300,000 without requiring the contribution of any actual capital. This entry greatly benefitted Weinroth by allowing him to continue to participate as an equal partner without paying an equal portion of the firm's mounting expenses. Andersen never knew there existed such a disparity between the partners' capital and was never informed of that fact or of journal entry 6538 when it was made 2001.

While there is no direct evidence that Weinroth made journal entry 6538, there is circumstantial evidence that he did cause this entry to be placed on the firm's books. Weinroth managed the firms books and accounts and controlled the partners' capital accounts. Andersen never reviewed the books himself, but relied on Weinroth or West for financial information. Even though Weinroth could not operate Quickbooks, the firm's accounting software, he regularly relied on West and others to operate the software at his direction. Furthermore, his denial regarding journal entry 6538 has no probative value, because I find that Weinroth's testimony lacks credibility. [*21]

Weinroth caused journal entry 6538 to be entered onto AWLP's books but failed to disclose to Andersen the creation of the entry or the fact that Weinroth had not maintained an equal stake in the firm. Andersen learned of the capital deficit and the entry only when Halpern informed him near the end of 2002. In addition, Weinroth had failed to disclose that $53,000 he had contributed to the firm was not his own capital but was actually Hovnanian directors fees.

As a fiduciary, Weinroth had a duty to notify Andersen of the capital deficit, the journal entry 6538 and that Weinroth's $53,000 was actually Hovnanian directors fees. Weinroth failed to notify Andersen of any of these facts and intended to conceal from him the imbalance of the capital accounts.

Weinroth's fraudulent concealment of journal entry 6538, the capital deficit and the $53,000 of Hovnanian directors fees caused damage to Anderson. The evidence demonstrates that Weinroth concealed a capital difference of $1,555,000. Given Weinroth's partial performance of the December 31, 2003 agreement regarding the payment of the Phansalker litigation fees, which resulted in a capital contribution by Weinroth of $169,888, the remaining capital difference between the partners amounts to $1,385,112.

Andersen contributed this amount believing that making such contributions was required to maintain a capital position in AWLP that was equal to that of Weinroth. Had Weinroth made contributions as necessary to maintain an equal amount of capital, Andersen would have needed to contribute only half of the capital difference, or $692,556. Weinroth's fraudulent concealment caused Andersen to contribute twice the capital that was necessary for him to maintain an equal amount of capital from 2000 to 2002; and, therefore, damages for Weinroth's fraudulent concealment amount to one-half of the capital difference or $692,556.

III. Plaintiffs' Third Cause of Action For Breach of Fiduciary Duty and Weinroth's Second and Fourth Counterclaims For Breach of Contract and Breach of Fiduciary Duty

In Plaintiffs' third cause of action, they allege that Weinroth breached his fiduciary duty to Andersen and Rawlings, i.e., Weinroth breached his duty to Andersen and Rawlings by engaging in self-dealing while managing the Essar investment, and Weinroth breached his duty to Andersen by engaging in self-dealing while managing the finances and capital accounts of AWLP.

Weinroth alleges in his second counterclaim that he did not engage in self-dealing during his management of the capital accounts; rather, that the capital imbalance exists because Andersen contributed additional capital in accordance with several oral agreements between the partners. Weinroth claims that Andersen agreed to contribute this capital because he engaged in unilateral activity during the Green Mountain and Millennium Cell projects and agreed to pay two-thirds of the Phansalker litigation costs.

Also, Weinroth, in his fourth counterclaim, alleges that Andersen breached his fiduciary duty to Weinroth by engaging in self-dealing while settling the litigation with LINC Acquisitions and by causing AWLP to borrow money from Harch Capital.

A. Plaintiffs' Third Cause of Action Against Weinroth for Breach of Fiduciary Duty

Andersen claims that Weinroth breached his fiduciary duty by unfairly using his knowledge of the firms' capital accounts and the Essar transaction to engage in self-dealing at the expense of Andersen and AWLP, with respect to the capital accounts, and at the expense of Andersen, Rawlings and AWLP, with respect to Essar.

Members of a partnership owe to each other a fiduciary duty, a duty of "undivided and undiluted loyalty" and "sensitive . . . fidelity" that bars partners from entering into "situations in which [their] personal interest possibly conflicts with the interest of" the other partners. (Birnbaum v. Birnbaum, 73 NY2d 461, 465-66 [1989]). The fiduciary duty bars self-interested actions. (Gibbs v. Breed, Abbott & Morgan, 271 AD2d 180, 184 [1st Dep't 2000]). Meinhard v. Salmon, 249 NY 458 [1928]). (Graubard Mollen Dannet & Horowitz v. Moskovitz, 86 NY2d 112 [1995]).

Weinroth improperly caused Andersen to contribute a greater share of capital to AWLP by initiating capital calls when Weinroth knew that he was contributing nothing and that the capital accounts were already out of balance, which caused Andersen to pay a larger portion of the firm's operating costs. Later on, Weinroth failed to provide Andersen, when requested, truthful and complete information about the firm's financial circumstances and the details of its transactions. Weinroth managed the accounts and records of the firm and knew that Andersen relied on him to fairly and accurately manage the capital accounts and initiate capital calls.

Here, the evidence shows that: (1) Weinroth managed the books and records for AWLP, and he owed Andersen and AWLP a high standard of fair dealing; (2) Weinroth engaged in self-dealing by using his position of trust to avoid paying for the firm's liabilities; and (3) no oral agreement existed between Weinroth and Andersen which required Andersen to make contributions to the firm, beyond these made by Weinroth.

Although the partnership agreement does not designate each partners' specific responsibilities, it was Weinroth who exercised managerial control over the books and records of AWLP. West, Weinroth's assistant, controlled the firm's expense account and she notified Weinroth when funds became low. It was also Weinroth who decided whether a capital call would be necessary and how much capital would be required. Once he made such a decision, either Weinroth himself or West, acting under Weinroth's direction, contacted Andersen regarding his contribution of the specified amount.

Furthermore, Weinroth managed the capital accounts of the firm, and, as a partner, he owed a fiduciary duty to Andersen, who was entitled to trust that Weinroth was properly exercising loyalty and fairness when requesting further capital infusions. Andersen reasonably understood that each partner had an equal stake in the firm by maintaining an equal amount of capital in their respective capital accounts. He relied on Weinroth to maintain an equal amount of capital and to request capital from Andersen only when necessary to maintain the balance of the capital accounts, while sharing equally the expenses of operating AWLP. Weinroth knew that Andersen trusted him to request capital based on an accurate determination of the firm's capital needs.

Weinroth exploited this trust. Through his control of the capital call process, and his management of the firm's accounting, Weinroth engaged in self-dealing. He did so by requesting capital from Andersen during 2000, 2001 and 2002, when Weinroth knew that he had a capital deficit. Causing Andersen to contribute more capital to the firm constituted self-dealing, because [*22]it forced an unknowing Andersen to pay a greater share of the firms' mounting liabilities. Weinroth benefitted by participating as an equal partner while paying a smaller share of the high costs of operating the firm during the later years of the partnership. By engaging in self-dealing and using his position of control to request capital from Andersen, Weinroth breached the fiduciary duty owed to Andersen.

Turning to the damages resulting from Weinroth's breach of fiduciary duty, Andersen's damages are equivalent to the loss caused by Weinroth's self-dealing. (105 East Second Street Assoc. v. Bobrow, 175 AD2d 746, 746-47 [1st Dep't 1991]), which includes some of the same damages already calculated under the Plaintiff's Fourth Cause of Action, such as the damages caused by the improper accounting of Weinroth's $53,000 in Hovnanian directors fees.

Andersen suffered a loss by unknowingly funding a greater portion of AWLP's expenses through his capital contributions. The evidence at trial shows that the capital difference between Andersen and Weinroth amounts to $1,385,112.

If Weinroth had contributed as necessary to maintain an equal capital stake in AWLP, rather than manipulate the capital call process in his favor, Andersen would have contributed only one-half of the capital difference, or $692,556. Through self-dealing Weinroth avoided contributing $692,556, and this amount constitutes the damages suffered by Andersen.

Weinroth also breached his fiduciary duty by engaging in self-dealing in the Essar investment. He engaged in self-dealing by using his position of trust, as the partner in control of accounting for the transaction and the calculation of distributions, to distribute to himself more Essar proceeds than those to which he was entitled. As described above, he fraudulently claimed that he had made a $638,952 margin call, when he had not. Including this fraudulent margin call in the distributions calculations caused $531,559 worth of Essar proceeds to be distributed to Weinroth when those proceeds actually belonged to Andersen and Rawlings. When Weinroth used his position of trust to steer to himself more Essar distributions than he was rightfully due, he benefitted at the expense of his partners, to whom he owed a fiduciary duty. Thus, he breached the fiduciary duty he owed to Andersen and Rawlings. Andersen and Rawlings suffered $589,200 worth of damages from Weinroth's breach of fiduciary duty during the Essar project, with Andersen incurring $370,158 of damage and Rawlings suffering $219,042 in damages.

B. Weinroth's Second Counterclaim Against Plaintiffs For Breach of Contract

Weinroth alleges that the capital imbalance can be explained by the existence and breach of several oral agreement between himself and Andersen, agreements which purportedly required Andersen, alone, to contribute additional capital to AWLP. Weinroth asserts that Andersen engaged in unilateral actions during the Green Mountain and Millennium Cell investments and that Andersen agreed to compensate the firm for alleged losses resulting from those unilateral actions. Furthermore, Weinroth alleges that Andersen agreed to pay for two-thirds of the costs of the Phansalker litigation. According to Weinroth, the capital imbalance exists because Andersen agreed, through these alleged oral agreements, to contribute more capital to the firm than Weinroth.

I find that the alleged oral agreements never existed. Rather, I find that Weinroth knew of, and acceded to, Andersen's actions with regard to the Green Mountain and MCEL investments. Moreover, Andersen never agreed to repay AWLP for the lost commissions in Green Mountain or [*23]the loan conversion in MCEL. Additionally, no agreement existed calling for Andersen to pay two-thirds of the costs arising from the Phansalker litigation. I also reject, as not credible, Weinroth's contention that the unequal contributions resulted from Anderson acting on various oral agreements with Weinroth.

The self-serving "memos" offered by Weinroth in support of his counterclaim, memos which purportedly explain his complaints about Andersen's actions and vent Weinroth's frustrations are just that: self-serving and not credible. Although all the memos were typed and dated after the appearance of a disparity in the capital accounts, the occurrence of which is supposedly evidence of the alleged agreements, none of the memos acknowledge the existence of any agreement. Rather, they all specify allegedly unilateral actions and state that Andersen owes money to the firm.

Weinroth's attempt to explain away this inconsistency demonstrates the untrustworthiness of the memos. When examined on this subject, Weinroth claimed to have written the memos by hand at, or near, the times of the alleged unilateral actions and that the dates noted on the memos reflect merely the date at which West typed the memo. No hand-written copies of the memos were produced. During cross-examination, Weinroth testified that the basis for this belief came "from the context of the memo." I have read the memos and find Weinroth's testimony on this matter to be incredible.

C. Weinroth's Fourth Counterclaim Against Plaintiffs For Breach of Fiduciary Duty

Weinroth also counterclaims for breach of fiduciary duty: He alleges that Andersen breached his fiduciary duty to Weinroth by using proceeds from the sale of Sorrento shares, property of AWLP, to settle the judgment obtained by LINC Acquisitions against AWLP and Andersen. Weinroth also claims that Andersen breached his fiduciary duty by engaging in self-dealing when he caused AWLP to borrow money from Harch Capital during the settlement of legal fees from the Phansalker litigation.

As already stated, members of a partnership owe to each other a fiduciary duty, a duty of "undivided and undiluted loyalty" and "sensitive . . . fidelity" that bars partners from entering into "situations in which [their] personal interest possibly conflicts with the interest of" the other partners. (Birnbaum, 73 NY2d at 465-66; See Gibbs, 271 AD2d at 184; Meinhard v. Salmon, 249 NY 458; Graubard Mollen Dannet & Horowitz, 86 NY2d 112). To prevail on a claim for breach of fiduciary duty, it must be "establish[ed] that the offending . . . actions were a substantial factor in causing an identifiable loss." (Gibbs, 271 AD2d at 189 [quotations omitted]).

In March 2004, LINC Acquisitions obtained a judgment against AWLP and Andersen, jointly and severally. The judgment was based on the CBC loan taken out by AWLP years earlier for the purchase of Sorrento shares. Andersen and Weinroth had always agreed to prolong payment of the CBC loan, and later to prolong settlement of the LINC litigation, until payment could be made with proceeds from the sale of the Sorrento shares.

By May 2004, the Sorrento shares had risen to a value sufficient to settle the judgment. In accordance with their agreement, Andersen sold the Sorrento shares and used the proceeds to reach a settlement with LINC. Andersen used none of his personal funds to settle the litigation.

When Andersen settled the LINC judgment with AWLP property, he not only extinguished one of AWLP's liabilities but he benefitted by extinguishing his personal liability arising from that [*24]judgment.

However, neither Weinroth nor AWLP were damaged by Andersen. Weinroth knew of, and authorized, a strategy of delaying payment of the CBC loan until it was possible to pay off the loan using proceeds from the sale of AWLP's Sorrento shares. Weinroth, who maintained contact with joint counsel during the LINC litigation, knew that this strategy continued to be employed throughout the LINC defense. Because the LINC judgment was settled only with assets to which Andersen and Weinroth had designated for that purpose, Weinroth suffered no identifiable loss from Andersen's self-dealing in the LINC settlement. Therefore, the counterclaim for breach of fiduciary duty fails.

Weinroth also claims that Andersen breached his fiduciary duty by engaging in self-dealing during transactions with Harch Capital in late 2003, while settling AWLP's legal bills in the Phansalker litigation. Andersen caused AWLP to borrow $675,000 from Harch Capital so that the firm could pay the legal fees arising from their litigation. Harch Capital loaned the money to AWLP only because Andersen secured that loan with $675,000 of his own capital. When AWLP repaid the $675,000 loan, Harch Capital released Andersen's money. Clearly, Andersen received no personal benefit from those transactions; rather it was AWLP which benefitted from the transactions, in that the transactions permitted it to settle the legal fees issue. Thus, there was neither self-dealing, nor a breach of a fiduciary duty.

IV. Plaintiffs' First And Second Causes of Action For Breach of Contract

Plaintiffs allege, in their first cause of action, that Weinroth breached the partnership agreement. In their second cause of action, Plaintiffs allege that Weinroth breached an oral agreement which required the Essar proceeds to be distributed in proportion to each investors' investment; a second oral agreement requiring Andersen and Weinroth to make equal capital contributions; and a loan agreement whereby Andersen loaned $300,000 to Weinroth.

To prevail on a breach of contract claim, a plaintiff must allege the terms and existence of a contract between the parties, performance by plaintiff, breach by defendant, and damages incurred by plaintiff. (See Pernet v. Peabody Engineering Corp., 20 AD2d 781, 781-82 [1st Dep't 1964]). With regard to the terms of the contract, the pleader should "plead its legal effect, as he [or she] understands it and purposes to maintain it. . . ." (United States Printing & Lithograph Co. v. Powers, 183 A.D. 513 [1st Dep't 1918]; Murphy v. New York Yellow Cab Co. Sales Agency, 207 A.D. 820, 821 [2nd Dep't1923]; Rosenthal-Block China Corp. v. Johann Haviland China Corp., 12 AD2d 915, 915 [1st Dep't 1961]).

Regarding Plaintiffs' claim based on the partnership agreement, they failed to specify the provision or provisions of the partnership agreement which they claim Weinroth breached during his management of AWLP's capital accounts. To the extent plaintiffs complain that Weinroth breached the agreement by failing to make equal contributions, there is no provision which requires that the partners' future capital contributions to be made in equal amounts at the same time; rather, the agreement merely states that no partner shall be required to contribute further capital.

Furthermore, Weinroth did not breach any oral agreement relating to contributions to the partnership. There is no evidence that the partners entered into an enforceable agreement requiring [*25]that all future contributions be made in equal amounts or at the same time. Rather, Andersen and Weinroth understood that each would make whatever contributions were necessary so that their respective capital accounts would hold equal amounts of capital for any given year.

There was an oral agreement, however, between Andersen, Rawlings and Weinroth, which governed the distributions of Essar proceeds. I find that the investors entered into an agreement to distribute all proceeds from Essar in proportion to the amounts invested by each person who invested in the Essar project.

Weinroth breached this agreement when he caused a distribution to be paid to himself in excess of the amount to which he was entitled. By falsely adding $638,952 to the actual amount he had invested in Essar, Weinroth skewed the calculation so that he would receive a disproportionate amount of proceeds. This, of course, was a breach of the contract with Andersen and Rawlings.

As discussed above, Andersen and Rawlings suffered damages amounting to $589,200, the amount Weinroth received at the expense of Andersen and Rawlings.

Weinroth also had an agreement with Andersen to borrow $300,000 during 2002. Andersen lent this amount to Weinroth based on Weinroth's representations that he needed liquid assets because his capital was tied up in the renovation of a house in Nantucket. Both parties understood that the money would be repaid to Andersen. Weinroth failed to repay Andersen and, therefore, breached the contract. I reject Weinroth's testimony that this money was owed him for losses incurred in a joint investment in Headway. Rather, I find that Andersen suffered damages in the amount of $300,000 because of Weinroth's breach of contract.

V. Plaintiffs' Sixth Cause of Action For Conversion And Weinroth's Fifth Counterclaim for Conversion

In Plaintiffs' sixth cause of action, a cause of action for conversion, they allege that Weinroth wrongfully exercised ownership over monies distributed from the Essar investment and capital from AWLP and Andersen.

Weinroth asserts conversion in his fifth counterclaim, arguing that Andersen, AW2 and Andersen & Co. took unauthorized possession of AWLP's leasehold improvements.

A. Plaintiffs' Sixth Cause of Action For Conversion

An action for conversion must allege facts independent from a mere breach of contract. (Yeterian v. Heather Mills N.V. Inc., 183 AD2d 493, 494 [1st Dep't 1992]).

Because I have already found that a contract between the parties governed the distribution of Essar proceeds, the cause of action for conversion based on the Essar investment merely restates Andersen's causes of action for breach of the Essar contract and, therefore, is dismissed.

Regarding that portion of Andersen's claim based on the capital accounts, conversion requires "an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." (Peters Griffith Woodward, Inc. v. WCSC, Inc., 88 AD2d 883, 883 [1st Dep't 1982]). Goods may include "[m]oney, if specifically identifiable." (Id.). Weinroth did not convert any portion of the capital account, because he assumed possession of none of AWLP's capital. After the last distribution of capital, in early 2000, all of the firm's capital [*26]remained it its possession. Without possession of any of the firm's capital, Weinroth cannot be liable for conversion. Thus, this cause of action has not been proven and is dismissed.

B. Weinroth's Fifth Counterclaim For Conversion

Weinroth asserts a counterclaim against Plaintiffs, alleging that Andersen, AW2 and Andersen & Co. have converted AWLP's leasehold improvements by taking possession, without authorization, of leasehold improvements, including the installation of artwork, furniture and office equipment. Weinroth contends that when AWLP's lease was transferred to AW2, and later to Andersen & Co., the successor entities were never authorized to take possession of AWLP's leasehold improvements.

However, the evidence shows that Weinroth authorized Andersen, AW2, and, eventually, Andersen & Co. to take possession of the leasehold improvements. Weinroth actively participated in the design and startup of AW2, an event which included the use by AW2 of the same offices and equipment as AWLP. Weinroth consented to the transfer to AW2 of all leasehold improvements to AWLP's offices.

The second transfer of the leasehold improvements, from AW2 to Andersen & Co., also was not a conversion. Weinroth voluntarily left AW2 and consented to the transfer of the improvements to Andersen & Co. And, when offered the opportunity, he took the items he wanted from his office. None of the leasehold improvements were transferred to Andersen & Co. without the authorization of Weinroth.

Therefore, this counterclaim is dismissed.

VI. Plaintiffs' Seventh Cause of Action For Unjust Enrichment And Weinroth's Sixth and Seventh Counterclaims for Unjust Enrichment

A. Plaintiffs' Seventh Cause of Action Against Weinroth For Unjust Enrichment

Plaintiffs assert, in their seventh cause of action, that Weinroth was unjustly enriched by his calculation and distribution of the Essar proceeds, his failure to repay the $300,000 loan and his management of AWLP's capital accounts.

A claim for unjust enrichment cannot stand when based on subject matter governed by a contract. (The Limited, Inc. v. McCrory Corp., 169 AD2d 605, 607 [1st Dep't 1992]). The evidence shows that contracts govern the Essar distributions and the $300,000 loan; therefore, those portions of the unjust enrichment claim must be dismissed.

Weinroth did, however, obtain an unjust enrichment from the disparity in the partners' capital accounts.

Unjust enrichment occurs where a defendant enjoys a benefit bestowed by plaintiff, but without adequately compensating the plaintiff. (Sergeants Benevolent Ass'n Annuities Fund v. Renck, 19 AD3d 107, 111 [1st Dep't 2005]). "[R]eceipt of a benefit alone . . . is insufficient to establish a cause of action for unjust enrichment." (Weiner v. Lazard Freres & Co., 241 AD2d 114, 120 [1st Dep't 1998]). Rather liability requires that "under the circumstances and as between the two parties to the transaction the enrichment be unjust." (McGrath v. Hilding, 41 NY2d 625, 629 [*27][1977]).

Weinroth did enjoy a benefit by contributing less capital to AWLP than Andersen. By causing Andersen to contribute more capital than himself, Weinroth avoided responsibility for a greater portion of the firm's liabilities. This allowed him to pay a lesser portion of the firm's liabilities and shifted to Andersen the bulk of the costs arising from AWLP's operations. He obtained this benefit by manipulating Andersen's trust, which, under these circumstances, constitutes an unjust enrichment.

Through his unjust manipulation of Andersen, Weinroth escaped the need to contribute as necessary to maintain equal capital in AWLP. If he had made such contributions, he would have had to contribute one-half of the $1,385,112 difference in capital, or $692,556. The difference in capital caused Andersen to unfairly bear a greater portion of the firm's expenses during the later years of the partnership. Because Weinroth avoided contributing towards this portion of AWLP's liabilities, damages on Plaintiffs' cause of action for unjust enrichment amount to $692,556.

B. Weinroth's Sixth And Seventh Counterclaims For Unjust Enrichment

Weinroth also asserts against Plaintiffs counterclaims for unjust enrichment. In his sixth counterclaim, he claims that Andersen, AW2 and Andersen & Co. were unjustly enriched by retaining possession of the leasehold improvements. In his seventh counterclaim, Weinroth alleges that Andersen unjustly benefitted Weinroth's Headway investment, because Andersen agreed to participate in that investment and Weinroth had to make payments from his personal funds to carry out the investment.

There was no unjust enrichment in the transaction between AWLP and AW2 that resulted in AW2 taking possession of artwork, furniture and equipment. Both Andersen and Weinroth intended to structure the transaction so that AWLP would cease functioning as a merchant bank and AW2 would begin to function as such. Both partners intended AW2 to take over AWLP's lease, offices and equipment, while leaving AWLP an inactive entity undergoing dissolution. Furthermore, Weinroth intended to participate in AW2, an activity that would require the use of the leasehold improvements transferred from AWLP. The evidence shows that Andersen and AW2 were not unjustly enriched by the transfer of the leasehold improvements.

In addition, no unjust enrichment occurred during the transfer of the same leasehold improvements from AW2 to Andersen & Co. This transaction was similar to the previous one in that the members of AW2 dissolved the firm with no intention of continuing an active business and transferred the improvements to Andersen & Co., which began operating as a merchant bank. Weinroth left AW2 without the intention of participating in Andersen & Co.; however, he assented to the transfer to Andersen & Co. of the leasehold improvements. And, when offered the opportunity to take things from his office, he selected a few items before he left. Thus, Weinroth failed to prove that Andersen, AW2 or Andersen & Co. were unjustly enriched by the second transaction of the leasehold improvements.

Furthermore, Andersen was not unjustly enriched by Weinroth's use of his personal funds to invest in Headway. Andersen never agreed to share profits and losses with Weinroth in a joint Headway investment. Weinroth's losses from that investment are his own.

Thus, Weinroth failed to prove his sixth and seventh counterclaims, and these counterclaims [*28]are dismissed.

VII. Plaintiff's Eighth Cause of Action For An Accounting And Weinroth's Ninth Counterclaim For An Accounting

Plaintiffs, in their eighth cause of action, and Weinroth, in his ninth counterclaim, seek an accounting of AWLP's assets and liabilities. These causes of action are hereby severed and referred to a Special Referee to report and recommend. I respectfully request that Special Referee Leslie S. Lowenstein be assigned to this case, to whom the earlier reference was made and who prepared a comprehensive Report and Recommendation, dated January 5, 2006.

VIII. The Motions to Modify and Confirm the Referee's Report and Recommendation (motion sequence No.009 [Weinroth] and motion sequence #010 [Andersen])

By order dated July 5, 2005 (motion sequences #006 and #007), I granted in part Plaintiffs' motion for summary judgment, finding that directors compensation was owed to AWLP and that the partnership was entitled to an accounting for, and receipt of, the economic value of all directors compensation owed to AWLP that was in the possession of Weinroth, Andersen and other AWLP employees. I referred to a Special Referee the following issues: What is the effective time period of AWLP's Directors Compensation Policy? Did Weinroth's Core Labs retirement benefit package fall under the Directors Compensation Policy and belong to AWLP? What directors fees and options did Andersen, Weinroth or any other AWLP employee separately receive or earn during the effective time period of the partnership? What is the value of those fees and options? And, what amount is owed to AWLP by each party?

Beginning on September 20, 2005, the Special Referee held a five day hearing and on January 5, 2006, issued his Report, concluding that the Directors Compensation Policy was effective from June 1, 1996 until December 31, 2002, when AWLP was dissolved. Considering all the evidence produced during the hearing, the Special Referee found that Weinroth's Core Labs retirement benefits, known as the Supplementary Employee Retirement Plan ("SERP"), did not fall under the Directors Compensation Policy and therefore did not belong to AWLP.

With regard to the directors fees and options earned by Andersen, Weinroth and other AWLP employees, and the value of that compensation, the Special Referee found that Weinroth owed to AWLP the sum of $2,304,490 comprising Weinroth's directors compensation from Hovnanian (which, as calculated, did not include Weinroth's $53,000 payment to AWLP discussed above) and Financial Federal. The Special Referee found that Andersen owed to AWLP the sum of $1,087,388, which consisted of Andersen's directors compensation from Terex. The valuation of the partners' directors compensation was based on the July 5, 2005 date of the referral.

Finally, the referee "recommend[ed] in dicta that the court if it deems appropriate and necessary . . . appoint a receiver to oversee the winding up and liquidation of AWLP."

Weinroth moved to confirm in part and reject in part the referee's report and recommendation (motion sequence #009). Weinroth argues that I should confirm that part of the referee's report concluding that his SERP benefit is not the property of AWLP. He seeks to reject that part of the referee's report which values his directors compensation and the part that determines what directors' [*29]compensation is owed by Andersen. Weinroth argues that the referee should not have used July 5, 2005 as the valuation date for directors compensation, because that date results in an unfair valuation for Weinroth. Weinroth also contends that the referee excluded from his conclusions certain directors compensation earned by Andersen and improperly included compensation earned by Weinroth.

Andersen also moved to confirm in part and reject in part the report and recommendation (motion sequence #010), arguing that all of the findings should be confirmed, except that I should reject the finding that Weinroth's SERP benefit was not subject to the Directors Compensation Policy and property of AWLP. Andersen also contends that prejudgment interest should be awarded on the directors compensation.

It is fundamental that a referee's report and recommendation should generally be confirmed so long as it is substantially supported by the record. (Mayer v. National Arts Club, 223 AD2d 440, 440 [1st Dep't 1996]; Kardanis v. Velis, 90 AD2d 727, 727 [1st Dep't 1982]). In particular, where issues of fact and credibility are referred to a referee, the referee's findings should be upheld. (See Rezzadeh v. Lucas, 253 AD2d 698, 698 [1st Dep't 1998]; Kardanis, 90 AD2d at 727). But, if the record fails to substantiate the referee's findings, those findings may be rejected. (Kardanis, 80 AD2d at 727).

Here, the record substantially supports the Special Referee's findings and the report is confirmed, except as to the recommendation that a receiver be appointed.

Regarding Weinroth's SERP benefit, the record shows that Core Labs, which issued the SERP, did not issue it as a form of directors compensation. The Special Referee credited the testimony of Richard Bergman, Chief Financial Officer of Core Labs, who testified that Weinroth's SERP was not directors compensation. Thus, the record substantially supports the referee's finding that the SERP was not directors compensation and did not belong to AWLP.

The record also substantially supports the finding that the Directors Compensation Policy became effective on June 1, 1996 and, therefore, did not control any directors compensation earned before that date. The Special Referee found that both parties agreed that the Directors Compensation Policy was in effect on June 1, 1996 and that it was confirmed in a writing dated June 8, 1996. Based on the lack of written evidence, the Special Referee rejected Weinroth's contention that the Directors Compensation Policy had been effective as early as March 22, 1996 and that directors compensation earned between March 22, 1996 and June 1, 1996 should have been included in the calculation of the amounts owed AWLP.

As to the forms of directors compensation covered, the record supports the findings with regard to what compensation was subject to the Directors Compensation Policy. The Special Referee reviewed a large number of documents and the testimony of the partners and other witness, all relevant to the directors compensation earned by the partners. In his report, the Special Referee catalogues the type and value of all directors compensation owed to AWLP and not already paid to the firm. A review of the report, and the underlying documents, reveals that there is substantial evidence to support these findings as to which compensation is owed to AWLP under the Directors Compensation Policy and the value of that compensation.

The record also substantially supports the finding that July 5, 2005 was the proper valuation date for the directors compensation. The Special Referee appropriately used this date because that was when it was decided that Andersen and Weinroth owed AWLP the economic value of any [*30]directors compensation earned during the Directors Compensation Policy's effective period but not yet turned over to AWLP's possession. The record does not support Weinroth's argument to the effect that the proper valuation date should be one closer to when the hearing was held. The Special Referee did not determine that the partners were liable to AWLP for their directors compensation, he merely cataloged and valued the directors compensation that remained in the partners' possession.

Thus, I confirm the report and recommendation that Andersen owes AWLP the sum of $1,087,388 and Weinroth owes AWLP the sum of $2,304,490. However, I deem it unnecessary, at this time, to appoint a receiver to oversee the winding up and liquidation of AWLP, inasmuch as the accounting causes of action will be severed and referred to a Special Referee to report and recommend. In essence, the winding up and liquidation of AWLP will consist of the distribution of monies between Andersen and Weinroth, and it would be premature to appoint a receiver until the accounting causes of action are resolved.

IX. Conclusion

Plaintiffs have prevailed on the following causes of action; the second cause of action for breach of contract, the third cause of action for breach of fiduciary duty, the fourth cause of action for fraud, the fifth cause of action for fraudulent concealment and the seventh cause of action for unjust enrichment. They failed, however, to prove by a preponderance of the evidence their first cause of action for breach of the partnership agreement and the sixth cause of action for conversion.

By his fraudulent representations regarding the Essar investment and other Essar-related misconduct, Weinroth caused Andersen to suffer damages in the amount of $370,158.00. Wienroth caused further damage to Andersen from his fraudulent concealment and breach of fiduciary duty in manipulating the capital call process, including the improper accounting of Weinroth's $53,000 in Hovnanian directors compensation, misconduct which caused Andersen additional damages in the amount of $692,556.00. Additionally, based on Weinroth's failure to repay the $300,000 loan, Andersen also suffered $300,000.00 in damages. Thus, Andersen is awarded a total of $1,362,714.00 plus prejudgment interest and shall recover this amount from Weinroth.

Rawlings suffered damages of $219,042.00 from Weinroth's misconduct with respect to the Essar investment, and he shall recover this amount from Weinroth along with prejudgment interest.

The CPLR provides that prejudgment interest "shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with . . . possession or enjoyment of[] property. . . ." (CPLR § 5001 [a]). Causes of action such as fraud, breach of fiduciary duty, conversion and unjust enrichment qualify for the recovery of prejudgment interest under this section. (See Gibbs v. Breed, Abbott & Morgan, 181 Misc 2d 346, 354 [Sup.Ct 1999] reversed on other grounds 279 AD2d 887 [1st Dep't 2001]; Flamm v. Noble, 296 NY 262, 268 [1947]; Eighteen Holding Corp. v. Drizin, 268 AD2d 371, 372 [1st Dep't 2000]). Prejudgment interest shall run "from the earliest ascertainable date the cause of action existed." (CPLR § 5001 [b]). But, "[w]here such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single intermediate date." (Id.).

With regard to the damages caused to Andersen and Rawlings from Weinroth's misconduct [*31]in managing the Essar investment, April 17, 2000, the date when Weinroth made his fraudulent misrepresentation, was the earliest ascertainable date when Plaintiffs cause of action for fraud existed. Thus, prejudgment interest on the Essar damages, in the amounts of $370,158.00 for Andersen and $219,042.00 for Rawlings, shall be calculated from April 17, 2000 until the date of judgment.

Turning to the prejudgment interest to be recovered on the damages caused by Weinroth's misconduct in managing the capital accounts, Andersen's causes of action for fraudulent concealment and breach of fiduciary duty first became viable in 2000, when Weinroth failed to inform Andersen that there existed an imbalance in the capital accounts for that year. However, the damages arising from this misconduct were incurred in several instances over a long period of time. Weinroth initiated numerous capital calls throughout 2000, 2001 and 2002, the years during which he failed to maintain an equal amount of capital. On August 14, 2001, Weinroth caused entry number 6538 to be entered into AWLP's books and subsequently concealed this fact from Andersen. Weinroth's misconduct continued until December 31, 2002, the date on which the partners had agreed to begin the dissolution of AWLP. Considering that Andersen incurred damages on many occasions from early 2000 until the end of 2002, a reasonable intermediate date would be June 1, 2001, a date that falls during the middle of the relevant period of time. Thus, for the $692,556.00 in damages incurred from Weinroth's misconduct in managing the capital accounts, prejudgment interest shall run from June 1, 2001.

Finally, for the damage incurred by Andersen on the $300,000 loan agreement with Weinroth, prejudgment interest shall run from the time when the damages were incurred, which was when Weinroth failed to timely repay the loan. The partners' agreement did not specify a set time for repayment; therefore, repayment was due in a reasonable amount of time. (See Boone Associates, L.P. v. Leibovitz, 13 AD3d 267, 267 [1st Dep't 2004]; Senerchia Realty Corp. v. Yonkers Development Agency, 80 AD2d 888, 890 [2d Dep't 1981]). What constitutes a reasonable time "depends upon the facts and circumstances of the particular case." (Escobar v. Gonzalez, 277 AD2d 93, 93 [1st Dep't 2000]).

Considering the facts and circumstances of the agreement regarding this loan agreement, a reasonable time for repayment would have been within one-year of the loan. In October 2001, Weinroth asked for the loan because his money was tied up in the renovation of a home in Nantucket. The circumstances of the loan show that Andersen lent the money as a friendly gesture, one intended to help a friend and long-time business partner during a short period of illiquidity. It is reasonable to expect that the cause of Weinroth's illiquidity, his home improvements, would be alleviated in less than one year and that such a loan between friends and partners would also be repaid within one year. Thus, prejudgment interest on the $300,000 in damages to Andersen shall run from October 31, 2002, one year after Weinroth borrowed the money from Andersen.

Turning to the remaining claims and motions, Weinroth failed to prove any of the first through seventh counterclaims, to the extent portions of those claims were not already determined in my July 5, 2005 decision on the motion for summary judgment and referred to referee to report and recommend.

The motions to confirm in part and reject in part the Special Referee's report and recommendation of January 5, 2006 (Motion Sequence #009 [Weinroth] and Motion Sequence #010 [*32][Andersen]) are granted in part and denied in part. The referee's report is confirmed in its entirety, except that no receiver shall be appointed to oversee the winding up of AWLP. Weinroth's eighth counterclaim, for an accounting of directors' compensation, is dismissed in accordance with the referee's report and recommendation.

As found in the confirmed report and recommendation of January 5, 2006, Weinroth's failure to turnover directors compensation caused AWLP to suffer damages in the amount of $2,304,490.00. AWLP also suffered damages in the amount of $1,087,388.00 from Andersen's failure to turn over certain portions of his directors compensation. Thus, AWLP shall recover $2,304,490.00 from Weinroth and $1,087,388.00 from Andersen, plus prejudgment interest.

Given the various occurrences of damages resulting from the breaches of the Directors Compensation Policy, and the fact that a large quantity of compensation currently remains in the partners' possession, prejudgment interest on the amounts found by the referee shall be calculated from "a single reasonable intermediate date." The damages from the breach of the Directors Compensation Policy were incurred at various times, ranging from the early years of the partnership up to the present time, because the partners continue to hold in their possession a large amount of directors compensation earned during the Directors Compensation Policy's effective period. The most reasonable intermediate date for the calculation of prejudgment interest is July 5, 2005, the date when it was determined that the partners owed AWLP directors compensation and the date used to value the greatest portion of the partners' directors compensation remaining in their possession and owed to AWLP.

Plaintiffs' eighth cause of action and Defendant/Counterclaim-Plaintiffs' ninth counterclaim, both of which seek an accounting of AWLP's assets and liabilities, shall be severed and continued. The issue of an accounting of the assets and liabilities of AWLP (Plaintiffs' eighth cause of action and Defendant/Counterclaim-Plaintiffs' ninth counterclaim) is referred to a Special Referee, preferably Special Referee Leslie S. Lowenstein,^[FN6] to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation by the parties, as permitted by CPLR § 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine this issue.

Finally, Plaintiffs' motion to strike certain paragraphs in Defendants' Proposed Findings of Fact (Motion Sequence #011) and Defendants' motion to strike Plaintiffs' Supplemental Proposed Findings of Facts (Motion Sequence #012) are denied as moot in light of this decision.

Plaintiffs shall settle an Order and Judgment on 10 days notice to Defendants, accompanied by affidavits detailing the calculation of prejudgment interest on the amounts awarded.

Dated: ____________ENTER:

_________________________

J.S.C.