214 A.3d 1076
Md.2019Background
- Three mortgage-industry principals (Korotki, Wax, Greenberg) negotiated from 2009–2011 to combine operations under MAS Associates, LLC (d/b/a Equity Mortgage Lending) and to make Korotki and Wax members of MAS via an Interim Agreement and amended Operating Agreement that were drafted but never signed.
- During an "interim period" Korotki and Wax worked as employees/managers of MAS, received W-2 compensation (including twice-monthly payments and year-end distributions), and were added as signatories on MAS bank accounts; the parties continued negotiating membership while operating together.
- Korotki made payments ($150,000 then $125,000) to Saralee Greenberg, which she then caused to be contributed to MAS; promissory notes were drafted but unsigned; Korotki sought repayment after resigning in March 2011 and later sued in October 2011.
- The trial court found no enforceable written agreement but concluded a general partnership existed among Korotki, Wax, and Mark Greenberg (and MAS to some extent) and awarded Korotki damages; the Court of Special Appeals affirmed; the Court of Appeals granted certiorari.
- The Court of Appeals reviewed whether competent material evidence supported a finding that the parties intended to form a partnership given (1) ongoing negotiations to amend MAS’s operating agreement to admit members, (2) characterization/treatment of payments as wages or loans, and (3) Maryland statutory limits on treating an entity governed by other formation statutes as a partnership.
Issues
| Issue | Plaintiff's Argument (Korotki) | Defendant's Argument (Wax/Greenberg) | Held |
|---|---|---|---|
| Whether competent material evidence shows intent to form a general partnership | Parties acted and referred to each other as partners, shared control and profits, and Korotki contributed capital — so a partnership existed | Parties were negotiating to become members of MAS (an LLC); their conduct was consistent with manager roles and employment pending admission; payments were loans/wages or capital to MAS via member | Reversed — insufficient competent material evidence of partnership intent; parties intended and continued to pursue membership in MAS rather than form a partnership |
| Whether payments to Saralee were capital contributions to a partnership or loans/capital to MAS | Payments were capital contributions evidencing ownership and risk sharing | Payments were loans to Saralee for her to make capital contributions to MAS under MAS’s operating agreement; characterized/documented and treated as loans/wages | Error of law to treat payments as capital contributions to a partnership; they were loans or contributions routed through a member to MAS, not partnership capital |
| Whether receipt of profit-like distributions gave rise to a presumption of partnership | Receipt of share of profits triggers presumption of partnership | Distributions were W-2 wages/bonuses/commissions and reported as wages; Interim Agreement contemplated W-2 compensation — statute excepts wages from presumption | Any presumption of partnership from profit-sharing was rebutted: payments were treated/documented as wages/compensation, so presumption does not apply |
| Whether an LLC (or conduct to join an LLC) can coexist with a partnership finding | Korotki: parties abandoned LLC-membership path in practice and formed an informal partnership | Ongoing, unabandoned negotiations to amend MAS’s operating agreement show intent to become LLC members; RUPA bars treating an entity created under another statute as a partnership | Parties’ clear, contemporaneous, and unabandoned intent to become members of MAS (an LLC) undercuts a finding of a separate partnership; an LLC cannot simultaneously be a partnership under RUPA |
Key Cases Cited
- Miller v. Salabes, 225 Md. 53 (party asserting existence of partnership bears burden of proving intent to form partnership)
- Southern Can Co. v. Sayler, 152 Md. 303 (distinguishing loans from disguised partnerships; control and participation are relevant in characterization)
- Webb v. Nowak, 433 Md. 666 (competent material evidence standard for appellate review of bench findings)
- Garner v. Garner, 31 Md. App. 641 (partnership requires mutuality, meeting of the minds, and intent inferred from agreement or conduct)
- Ingram v. Deere, 288 S.W.3d 886 (distinguishing salary/gross returns from profit distributions for partnership presumptions)