KWOK LI and CUI YAO WU v. JING HUANG and QING (Tina) ZHONG.

Introduction

This is a partition case. The property at issue is the two-unit commercial building at 1299-1301 River Street in the Hyde Park neighborhood of Boston. One unit was occupied by a Chinese restaurant operated by Mr. Li, [Note 1] and the other was retail space rented to a third-party tenant as a hair salon. The parties (two married couples — one older (Mr. Li and Ms. Wu) and one younger (Mr. Huang and Ms. Zhong), all members of the same extended family) [Note 2] purchased the building together on September 20, 1999 for $235,000 — $164,500 from a mortgage loan and the rest in equal contributions from each. Title was placed in the couples' names as tenants in common, Mr. Li and Ms. Wu with a 50% interest and Mr. Huang and Ms. Zhong with the other 50%.

This much is agreed, but little else. It is no exaggeration to say that each side feels profoundly betrayed by the other, primarily on the underlying business aspects of their relationship. Those are beyond this court's jurisdiction, [Note 3] the subject of other litigation, [Note 4] and unnecessary to resolve the partition issues.

The partition itself occurred on October 6, 2014 through the defendants' buyout of the plaintiffs' 50% interest for the agreed sum of $213,750, placed in escrow, subject to whatever G.L. c. 241, §23 adjustments the court deemed appropriate before that money was released. [Note 5] Those "adjustment" issues were then tried before me, jury-waived.

In a partition case, the presumptive division is in accordance with the parties' respective percentage interests. See Canepari v. Pascale, 78 Mass. App. Ct. 840 , 844 (2011). Here, that would be 50 – 50, an even split. This presumption is rebuttable (the record interest may not accurately reflect the true beneficial ownership), but the burden of proving any difference is on the party asserting it. Id.

The partition statute also allows credits and adjustments ("credits") for disproportionate contributions to (1) physical improvements that increase the property's fair market value (measured by that increase), or (2) such things as insurance, property taxes, or mortgage payments that preserved that value. See G.L. c. 241, §23; Chiminiello v. Chiminiello, 8 Mass. App. Ct. 806 , 808 (1979); Stylianopoulos v. Stylianopoulos, 17 Mass. App. Ct. 64 , 69-70 (1983). Both are evaluated in the discretionary judgment of the court and to be applied if, but only if, the court deems them appropriate "to make the portions just and equal, i.e. just and equitable." See Stylianopoulos, 17 Mass. App. Ct. at 68-69. Here again, the party asserting such a credit has the burden of proving it. See Stylianopoulos. 17 Mass. App. Ct. at 71; Asker v. Asker, 8 Mass. App. Ct. 634 , 638-639 (1979).

No other credits or adjustments may be made in a partition proceeding. Stylianopoulos, 17 Mass. App. Ct. at 66, n.4 ("Petitions for partition are comprehensively governed by [G.L.] c. 241…[which] embrace[s] the whole subject, superseding previous provisions of the statutory and common law.") (internal citations and quotations omitted). [Note 6] Importantly, even though a credit might otherwise have been appropriate, the court must determine if the parties, either expressly or implicitly, made a different agreement, and then rule accordingly. See Stylianopoulos, 17 Mass. App. Ct. at 66-67, 66 n.4 (noting that, while "accountings" for a co-tenant's occupancy of a property are not appropriate absent ouster of the other tenant(s), the parties' agreement that such rent be paid controls).

Neither side challenges the underlying 50-50 ownership. That is what they agreed, and that is what it is. Each, however, at various points in these proceedings, asserted claims for G.L. c. 241, §23 credits, although the particulars of those claims and the evidence offered to support them frequently changed. Indeed, by the time of closing arguments, the plaintiffs [Note 7] asserted that the evidence on those credits was such — confused, contradictory, or unsupported by anything truly persuasive [Note 8] — that the only fair way of resolving the partition case was by following the presumption of 50-50 division, with no credits to either side. In large part (with one major exception) I agree, primarily because the parties' own contemporaneous individual tax returns [Note 9] reflect an exact 50-50 receipt of the building's rents (including rent paid, or deemed paid, by Mr. Li's restaurant), a 50-50 payment for expenses and repairs, and a 50-50 sharing of the benefit of its depreciation and other deductions. This either (1) undercuts their subsequent assertions that one made the actual payments without contribution from the other, that one did not pay the other their fair share of net building receipts, and certainly that this was done without the other's knowledge, or (2) reflects a contemporaneous agreement that, whoever was paying or receiving something, from whatever source of funds, both were satisfied that it be credited 50-50 between them. The exception is the post-2003 mortgage payments — a mortgage not on this building but rather on the defendants' personal residence, used to pay off the building mortgage with a lower-rate obligation — which are not reflected on the parties' tax returns but the parties agreed were for this building. Those payments were made by the defendants, and whether Mr. Li reimbursed them his share in cash is a matter of credibility, which I discuss below.

Based on the testimony and exhibits admitted at trial and my assessment of the credibility, weight, and appropriate inferences to be drawn from that evidence, I find and rule as follows.

Facts and Discussion

These are the facts as I find them after trial, and the rulings I base on those facts.

As noted above, the parties are all members of the same extended family. Plaintiff Kwok Li is defendant Qing Zhong's uncle and her oldest male relative. Both Mr. Li and Mr. Huang have had long, successful careers in running Chinese restaurants and are nobody's fools. No one is successful in the restaurant business without paying careful attention to all aspects of its operations. I thus find that, whatever actions or inactions either took, it was what they knowingly chose to do and reflected either an express or implied agreement between them. They may presently claim otherwise, but cannot change the past.

Their relationship with respect to the property at issue — 1299-1301 River Street in Hyde Park — began as follows. Mr. Li had been operating a restaurant, Liane's Kitchen, at another location in partnership with his brothers. The restaurant was damaged by fire, and Mr. Li had an acquaintance who was willing to sell him this building, close by, to move to. Mr. Li's brothers were not interested in continuing in the business — they no longer wished to work the long hours required by the restaurant — so Mr. Li approached Mr. Huang to see if he wanted to join in the purchase of the building. He was. It is unclear whether Mr. Huang initially wanted to participate in running the restaurant as well as jointly owning the building — he had another restaurant which required most of his time, and Mr. Li was clearly going to insist on having the dominant say in how this restaurant was operated — but both sides agree that he never did so. Instead, Mr. Li moved Liane's Kitchen to the new location, found a tenant for the rental space (a hair salon), negotiated and signed the lease with the tenant, and opened bank accounts in joint name in which the rents were to be deposited and the mortgage and other building-related bills were intended to be paid. Both sides signed the $164,500 note and mortgage, and both contributed equally to the equity part of the $235,000 purchase.

What happened subsequently was the subject of sharply conflicting testimony. Both sides agree that Mr. Li ran the restaurant, handled tenant relations, and paid the mortgage, property tax, and insurance at least through 2003. [Note 10] The source of the funds he used to do so is disputed and cannot presently be tracked other than as reflected on the parties' tax returns. Mr. Li did not always deposit the tenant checks in the joint account, did not always (and perhaps never) deposit in that account the rents his corporate tax returns indicated Liane's Kitchen was paying to the building owners (the plaintiffs and the defendants) for the space it was occupying, [Note 11] did not always pay building expenses from that account, and on occasion paid completely unrelated expenses from it. The defendants claim they contributed to alleged "deficiencies" whenever asked, and at various times received distribution checks, but nowhere near their one-half share. The plaintiffs, for their part, claim that the defendants were paid what they were owed, and anything not currently reflected in a writing or bank account record was dealt with in cash. The parties concede that much occurred in cash, but disagree on the occasions and amounts. As best I can understand it, the plaintiffs' overall argument is that they were left on their own to run the restaurant, and any discrepancies in income and expense sharing were either paid in cash or were compensation for their assuming this extra burden. For their part, the defendants claim that they left Mr. Li in charge, pretty much unmonitored, because of his position of trust in the family (the eldest male) and his alleged promise (allegedly later broken) that he would convey them his interest in the building, cost free, after a certain number of years during which he would keep everything the building generated.

I find neither of these competing narratives credible [Note 12] and, in any event, I find and rule that neither of them controls how the partition should be addressed. As noted above, their contemporaneous tax returns tell a different story and, with the exception noted below, those returns indicate a straight-up 50-50 split of building income, expenses (including insurance), and depreciation. [Note 13] In any event, with the following exception, I find and rule that neither the plaintiffs nor the defendants carried their burden of proving anything different.

The exception is this. The parties agree that the amount still remaining on the initial $164,500 mortgage on the building was refinanced in 2003 through a $130,000 equity line mortgage on the defendants' home and an additional $5,000 the defendants paid by check. Up to that point, the parties' tax returns show a 50-50 split of the mortgage interest expense.

Afterwards, no mortgage interest attributed to this property is reflected on either's returns.

However, other records indicate that the monthly payments on this re-financing mortgage were, in fact, paid, and paid by the defendants. [Note 14] Mr. Li claims that he reimbursed the defendants for his share, in cash or with an occasional check, but I do not believe him. I find that such checks as he points to were for other things, and (here) give no credit to his claim of cash transfers. Had he made such payments, their interest component would have been reflected on his tax returns. There is no such reflection on anything post-2003, and I find that he is too sophisticated a businessman to have ignored or forgotten them had they been made.

The defendants' bank records show that a total of $56,094.56 in interest and $85,179.21 in principal was paid on the equity line mortgage from its beginning in October 2003 through the time the defendants bought out the plaintiffs' interest in the building in October 2014. [Note 15] They are thus entitled to a one-half reimbursement of those sums from the plaintiffs (the interest because it was owed on the mortgage, and the principal because each payment increased the parties' equity in the property by that amount), plus one-half of the $5,000, since the plaintiffs (as 50% owners) received that benefit. This totals $73,136.89, which shall be paid from the escrow as a credit for the defendants. The defendants shall also receive a credit for one-half of the remaining principal due on the loan as of the October 2014 buy-out date ($22,410.40). [Note 16] This is because the net to the parties from a fair market value sale in October 2014 (the basis of the $213,750 the defendants paid into escrow for the plaintiffs' interest) would have been reduced by the amount needed to pay-off the mortgage on that date. The defendants are not entitled to a credit for any interest paid on the loan from and after the buy-out date because, as of that date, the plaintiffs no longer had any interest in the property and thus had no obligation to continue paying on the mortgage obligation. [Note 17] Whether to continue with the loan or pay it off was entirely at the discretion of the defendants.

Conclusion

For the foregoing reasons, the defendants shall receive $95,547.29 from the escrow, the plaintiffs shall receive $118,202.71, and the interest that accrued on the $213,750 sum during the period of the escrow shall be paid 44.7% to the defendants and 55.3% to the plaintiffs. [Note 18] If they have not done so already, the plaintiffs must formally deed their entire interest in the property to the defendants. All other partition-based claims between the parties are DISMISSED, WITH PREJUDICE.

Judgment shall enter accordingly.

SO ORDERED.