How a Family Partnership’s Manager Ended Up Owing $1.68 Million

Two versions of one lease

In 2015, Rick Berkshire signed two versions of the same lease. Both covered a commercial building in Omaha rented by a law firm, Berkshire & Burmeister, P.C. Both set the rent at $10,000 a month. Both carried his signature twice: once as manager of the company that owned the building, and once as managing partner of the law firm renting it. One version gave the firm a $2,000 monthly credit for managing the building. The other did not.

That year, Rick took out a $975,000 loan on behalf of the building’s owner. The parties stipulated that he presented the version without the credit to the bank.

At trial, Rick testified that whatever the paper said, the law firm in practice paid $8,000 a month and managed the building. The legal document used to write this article says the two leases are a useful entry point into what the Nebraska Supreme Court has now affirmed: a manager with control of a family partnership’s money for more than three decades, books that relatives say they could not get, and a trial judge who concluded that the manager’s account of events was “largely not credible.”

Who owned what

The cast shares a surname, so the court uses first names. Rick, Leslie J. Berkshire and Laurie B. Meyers are siblings, children of Joanne and Robert “Bob” Berkshire. Paul Meyers is Laurie’s husband. Other plaintiffs are grandchildren. The structure matters, because the money moved between entities:

The year-end meetings stopped

The family met around Christmas time each year until Bob’s death in February 2011! After his death, those meetings ceased. Leslie and Laurie testified that they received no “annual updates” or “year-end summaries” for 2010 through 2015. Information covering those years reached them in 2016, and information about 2016 and 2017 arrived in 2018. In their view, it was “disorganized” and incomplete.

That, along with certain withdrawals Rick made from his mother Joanne’s accounts while holding power of attorney over them, contributed to his removal as managing partner in 2019. Paul replaced him, though Rick disputed the validity of the replacement. The district court later granted the plaintiffs partial summary judgment that Paul was the duly elected managing partner, and Rick didn’t challenge that ruling on appeal.

Four categories of money, one total

The trial court found that Rick was liable to the partnership in four categories. The court recorded the total as $1,683,268.05, which matches the sum of the four figures. The $798,659 capital account balance is a separate finding, discussed below. The awards were lower than the expert’s figures in three of the four categories, and the opinion does not detail how the trial court arrived at each number.

More than a million dollars with thin paper

Korth identified $1,291,326.97 in “questionable transfers” from the building company between 2013 and 2017, many involving Rick’s “friends and business partners.” Leslie testified that the $975,000 loan Rick took out “coincide[d] with” large transfers to Rafael, Great Deal and RBS. Paul described transfers ranging from $15,000 to $95,000 to Rafael, Great Deal, RBS Management or unrecorded payees. He said no documents showed those payees did work or received loans, and the transfers did not appear in the ledger where business expenses would be expected.

The plaintiffs’ evidence had limits, and the opinion records them. Paul conceded that several transfers in Korth’s report appeared valid and were not being questioned, and that it was “possible” the payees had worked on the properties. Rick and a person who helped him manage the buildings testified that some transfers paid for work that was never invoiced and others were loans, since repaid, that were never documented. They said that level of documentation was not necessarily to be expected. The court awarded $1,014,960.18 on this category, less than Korth’s figure.

A separate set of withdrawals came directly from the partnership: Korth counted $270,932.95 in “unreported transfers,” with the plaintiffs stipulating that two transactions totaling $8,643.67 were legitimate. The court awarded $253,645.61. Rick’s defense was that the amounts and dates appeared in the accountings, so there was no problem. But the issue, Korth testified, was not whether the transfers could be found. It was that there was “no explanation” for them. Rick conceded that every transaction in that part of the report was something he could have found himself in the bank’s records.

“[H]ad Rick performed his duties as managing partner over the years, it would have been much easier for him to explain the nature of particular transactions.”

Nebraska Supreme Court, Berkshire v. Berkshire

How credit card draws erased an ownership stake

A partner’s capital account is a running tally of what the partner has put in and taken out. The partnership agreement valued each unit of ownership by dividing the partnership’s net asset value by the number of units outstanding. A partner whose account goes deeply negative has, in effect, taken out more than he owned.

The plaintiffs’ evidence came from two sources. Partnership tax returns prepared by a certified public accountant showed Rick’s ending capital account between negative $414,939 and negative $758,178 in every year from 2011 to 2017. In September 2017, the accountant told Rick that “distributions over the years from credit card charges reflected as draws” had created a “significant negative capital balance.” Korth went further, concluding that Rick had fully liquidated his share through distributions up to and including 2005, was owed no share of the partnership’s growth from 2005 to 2019, and owed it $798,659.

Rick said the tax returns for 2011 to 2017 were all mistaken and that he corrected the error on the 2018 return, which showed an ending capital account of $224,548. He pointed to his own balance sheets showing 76 units with that net value. He also argued that charges on the partnership’s margin account, which lets an owner borrow against stock holdings, were not distributions until the stock was sold to pay the debt.

The district court found Korth credible and Rick not. The Supreme Court reviews this kind of case from scratch on the record, but when witnesses conflict it may weigh the fact that the trial judge watched them testify. It did so here and noted that even one of Rick’s own exhibits showed negative units of ownership at various dates. The result: Rick’s capital account stood at negative $798,659, and with it, he no longer owned any interest in the partnership. Rick also argued that this ruling contradicted the partnership agreement, but the court said he did not explain that argument beyond a brief reference.

The burden-of-proof rule that decided most of it

Much of Rick’s appeal assumed the plaintiffs had to prove what each withdrawal was for. The court rejected that premise. A managing partner who has exclusive control of a partnership’s business is responsible for keeping its records and books, and is required to account for any benefit or profit connected with it. When someone else controls the books and has managed the business, that person is in the position of a trustee and must make a proper accounting.

“[I]t was Rick, and not the appellees, who had the burden to account for the withdrawals here.”

Nebraska Supreme Court, Berkshire v. Berkshire

That rule explains why gaps in the plaintiffs’ proof did not sink their case. Evidence that no one could say what a transfer was for counted against the manager. Of the unreported transfers, the court said Rick “failed to [account for them] in any meaningful fashion.”

Rick also blamed Laurie, arguing she was a manager of the building company with ample chances to notice problems. The court found conflicting evidence on who managed it, and noted that while some documents may have been on a shared drive at the law firm, nothing showed the other general partners could see that drive. Some documents, it said, were simply not available to Leslie and Laurie.