A New Jersey appeals court has upheld dismissal of a lawyer’s claim that he attained equity partner status when his law firm gave him a tax form listing his compensation as “partner’s share of income.”
The Appellate Division affirmed the dismissal of claims by attorney Thomas Torzewski that the schedule K-1 form issued by his former firm and assorted other indicia make him an equity partner. The appeals court affirmed the decision of a trial judge who said Torzewski is not an equity partner because he had no signed partnership agreement.
In claiming equity partner status, Torzewski relied on the K-1 form, which said he received $233,326 in 2012 and indicated his pay was 23 percent of the firm’s profits. He was issued the form for 2012 instead of the W-2 form listing his earnings that he received in 2010 and 2011. Torzewski also cited various other factors, such as his authority to sign checks on behalf of the partnership, his access to firm financial information, his status as co-trustee of the firm’s 401(k) plan, his use of a firm credit card and his involvement in firm management decisions, such as hiring employees and negotiating an office lease. But Judges Carmen Messano and Amy O’Connor rejected his argument, finding no evidence in the record of a partnership agreement.
Torzewski joined Robert Borteck’s Livingston firm in 2010 as a nonequity partner, bringing along a number of clients, and the firm’s name was changed to Borteck, Sanders and Torzewski. Torzewski was paid a base salary of $260,000 pursuant to a compensation agreement that was set forth in a series of emails between the parties, conditioned on his generating receipts of $525,000. In January 2012, Torzewski asked Borteck if he could obtain an equity interest in the firm. Borteck said the issue could be addressed at a later time but in the meantime the compensation agreement still applied.
At the end of 2012, Torzewski told Borteck he became an equity partner in January 2012, and asked what his compensation would be. Borteck disputed Torzewski’s assertion and presented him with a separation agreement. Torzewski left the firm without signing the separation agreement.
Borteck filed suit against Torzewski, seeking a declaration that his former colleague had no equity stake in the firm and also seeking the return of client files. He later added claims of breach of contract and breach of duty of loyalty and fair dealing, seeking compensatory damages.
Torzewski filed counterclaims against Borteck and the firm, alleging breach of their partnership agreement. He sought a distribution of partnership assets and appointment of a receiver.
Borteck, under the offer of judgment rule, proposed that Torzewski accept a $25,000 judgment against him, to which Torzewski ultimately agreed, and an order was entered in June 2013. The litigation, however, continued, as both sides filed motions. Borteck sought an accounting of all money collected by Torzewski from former firm clients, and Torzewski sought payment of the $25,000. Each contended that the June 2013 settlement agreement extinguished the other’s claims, according to the opinion.
Torzewski was ordered to produce an accounting and to turn over money collected from former firm clients. He appealed, and another Appellate Division panel vacated the $25,000 settlement in March 2015, reinstating each side’s claims in the partnership dispute. On remand, Essex County Superior Court Judge Donald Kessler granted Borteck’s motion for summary judgment on the equity partner issue. Kessler then conducted a bench trial on the amount of pay Torzewski was entitled to for 2012 and whether he should be reimbursed for $9,950 in withholding tax that he paid for that year. The judge ruled that Borteck owed Torzewski $3,282 in additional pay and another $9,950 in federal withholding taxes.
On the parties’ second trip to the Appellate Division, Torzewski claimed that the Uniform Partnership Act and common law made him a partner. Messano and O’Connor, applying Fenwick v. Unemployment Compensation Commission, a 1945 decision from the state Court of Errors and Appeals, a precursor to the present Supreme Court, found no evidence that Torzewski shared in the practice’s profits and losses, and noted that the various privileges and responsibilities held by Torzewski did not originate with his purported rise to equity partner.
Jay Rice of Nagel Rice in Roseland, who represented Borteck at the Appellate Division, notes that “Torzewski was never at risk—if there was a bad year, he still got the same [compensation]. If somebody wants to be an equity partner, you have to have an agreement that says that.”
Torzewski, who represented himself before the Appellate Division, did not return a call about the case.