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Peskin v. Deutsch





Appeal from the Circuit Court of Cook County; the Hon. Anthony J. Scotillo, Judge, presiding.


Rehearing denied July 17, 1985.

In an action by plaintiff, Bernard M. Peskin, seeking an accounting of a law practice partnership, judgment was entered in favor of defendant, Earl A. Deutsch. Plaintiff appeals, contending that (1) the defendant's nondisclosure of the receipt of monies by him from clients of the partnership entitled him to an accounting as a matter of law; (2) that the trial court applied an improper standard of proof in construing the evidence; and (3) that plaintiff's claim was not barred by a release agreement between the parties, a later ratification of that agreement, nor by laches.

Plaintiff and defendant were partners in a law firm from 1954 until 1973. Their partnership agreement was an oral agreement until 1971, when Paul M. Levy was admitted to the partnership. In early 1971, the three partners entered into a written agreement. Paragraph 6 of that agreement required each of the partners to "devote his entire time" to the conduct of partnership affairs. Defendant's primary function in the partnership was contractual negotiation, defined by him as including the making of contracts and bringing people together. Both parties accounted to the partnership for earnings not specifically related to legal work. Defendant paid certain commissions received by him into the partnership as well as fees for his services as a master in chancery. Plaintiff accounted to the partnership for his salary as a State legislator.

The parties operated the partnership until July 1973, at which time the three partners entered into a written dissolution agreement under which plaintiff withdrew from the partnership. The dissolution agreement provided, inter alia, for the payment of $142,000 to plaintiff in liquidation of his interest in the partnership, to be paid out over approximately four years. Paragraph 9 of the dissolution agreement provided that each of the parties acknowledged "that they have no further claim whatsoever against the other rising from the old partnership." In 1973, plaintiff was indicted, and thereafter convicted, on various felony charges. Defendant was a government witness, testifying under a grant of immunity, at plaintiff's trial in March 1974. During the course of a meeting with the Federal prosecutors in their office during the end of his trial, plaintiff had occasion to see a copy of defendant's 1969 Federal income tax return, which contained an item of income labeled "legal fees — $5,000." The evidence is in dispute as to whether plaintiff ever later demanded of defendant an explanation as to why this sum was not disclosed or accounted to plaintiff. Following his conviction, plaintiff's license to practice law, since restored in 1979, was suspended. He was incarcerated from December 1976 until August 1977. During the period of his incarceration he was principally dependent on the funds he was receiving under the dissolution agreement.

In 1979, plaintiff filed this action requesting that defendant be required to account for all sums of money received during the years 1954 through 1973 by defendant. Specifically, plaintiff contended that 14 payments that had been received by defendant during the years 1969-1973, and reported on his Federal income tax returns as personal income for those years, was partnership income. None of the payments went to the partnership. The payments and their descriptions as stated in defendant's tax returns were:

Year Tax Return Description Amount

1969 Legal fee $ 5,000.00 1970 Legal fee - Fisher & Freed 639.12 Sales Commission from Joseph 45,000.00 Neibler, Two Penn Plaza 1971 Legal Fees - Michigan Avenue 25,000.00 Management Corporation Cost Control Association, 6,000.00 New York 1972 Illinois State Bank of 300.00 Chicago - Fees Jay Schiller - Forwarding Fees 14,375.00 Cost Control Associates, Inc., 9,250.00 75 E. 55th St., New York, N Y - Commission Fees Harry Busch - Forwarding Fees 1,557.00 1973 Commission Received: Illinois State Bank of Chicago 900.00 NII Metals Services 8,193.00 Quality Outdoor Lighting 7,500.00 Fees Received: 18,149.76 Knorle, Bender, Stone & Associates Maremont Foundation 5,000.00

The monies in question totaled $146,863.88. Plaintiff stated that he had no knowledge of the receipt of any of these items or what they represented prior to their disclosure after June 1978. While several of these payments were commissions or broker's fees, defendant labeled the payments as legal fees or in terms that might be construed as legal fees on his Federal income tax returns. Defendant stated he did this to avoid attracting Internal Revenue Service questions, since he was not a licensed broker.

The trial court held that the partnership agreement between the parties extended only to the sharing of legal fees and that plaintiff was entitled to an accounting only for payments for legal services. The court denied plaintiff's request for an accounting, finding that all but three items were non-legal fees and, accordingly, did not have to be included in the partnership account. The three payments in doubt were the $5,000 item shown as "legal fees" in defendant's 1969 tax return, the $639.12 received from the law firm of Fisher & Freed in 1970 and the "forwarding fee" of $1,557 received from attorney Harry Busch in 1972. The court concluded, however, that the evidence was not sufficient to grant the relief of an accounting as sought by plaintiff. The court also noted the length of time involved before the claim was made by plaintiff and the release language in the dissolution agreement as additional factors in denying relief.

Plaintiff initially contends that the is entitled to an accounting under the terms of the Uniform Partnership Act (Ill. Rev. Stat. 1983, ch. 106 1/2, par. 1 et seq.) as a matter of law. Defendant responds that the duty to account did not extend to the transactions in question because they were outside the scope of the partnership agreement.

The Uniform Partnership Act has long been in effect in Illinois, and its provisions govern the relationship between the parties to this dispute. The Act requires that partners render "true and full" information of all things affecting the partnership to their co-partners (Ill. Rev. Stat. 1983, ch. 106 1/2, par. 20), that each partner account to the partnership for any benefit and hold as trustee for it any profits derived by such partner from any transaction connected with the conduct of the partnership (Ill. Rev. Stat. 1983, ch. 106 1/2, par. 21(l)), and that any partner shall have a right to a formal accounting as to partnership affairs whenever circumstances render it just and reasonable (Ill. Rev. Stat. 1983, ch. 106 1/2, par. 22(d)).

In the case at bar, the parties testified to substantially different versions of their partnership relationship. Plaintiff testified that all of the questioned payments were partnership funds because the partnership agreement provided that all income earned by a partner, whatever the source, was partnership income unless the partners agreed otherwise. Defendant's position was that the questioned payments did not belong to the partnership because they did not involve the practice of law.

The record indicates that the parties shared income other than that strictly related to legal fees. Plaintiff accounted for his salary as a State legislator by crediting his salary to the partnership. Defendant paid certain commissions received by him into the partnership, as well as fees for his services as a master in chancery. Defendant admitted, however, that he had not disclosed the ...

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