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Claim for Undistributed Goodwill Re: Dissolved Partnership Dismissed

The Fourth Department determined that Supreme Court should have granted summary judgment on a counterclaim which sought damages for undistributed goodwill of a partnership.  The partnership had been dissolved after the death of one of the partners and did not continue under the same structure. The Fourth Department explained:

Here, even assuming, arguendo, that the partners’ course of dealings or partnership agreement provided that goodwill is a distributable asset of the partnership, we conclude that defendants met their initial burden on that part of the motion for summary judgment dismissing the complaint to the extent it sought damages for undistributed goodwill.  Indeed, defendants established that there is no goodwill to distribute because the partnership has been dissolved and no longer exists.  In the circumstances presented here, it is incomprehensible that the partnership’s goodwill could survive the demise of the partnership, and the Court of Appeals decision in Dawson does not suggest otherwise.  In Dawson, although the Court of Appeals indicated that a dissolving partnership may have distributable goodwill, the partnership in that case was dissolved but was immediately reformed with the same partners, minus one, with the same firm name, using the same offices and servicing the same clients. Thus, in essence, the partnership was dissolved in name only. Here, in contrast, the same partnership did not reform after dissolution. Instead, two entirely new partnerships were formed.  Thus, plaintiffs failed to raise an issue of fact with respect to the existence of goodwill after the dissolution of the partnership… .  Moore… v Johnson…, 744, 4th Dept 7-5-13

 

Proceeds of Sale of Property After Dissolution of Partnership Not “Profits”

The Second Department determined that the appreciation in the value of commercial real estate owned by a partnership after the date of dissolution did not constitute “profits” within the meaning of Partnership Law 73:

Partnership Law § 73 provides, in relevant part, “[W]hen any partner retires or dies, and the business is continued . . . he or his legal representative . . . shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership.” * *

…[T]he Appellate Division, [4th] Department, held that the plaintiff’s share of the fair market value of a parcel of real property was fixed as of the date the partnership dissolved, and thus determined that the profits the plaintiff was entitled to in that case did not include increases in the value of real property after the date of dissolution. Here, since the partnership dissolved on April 12, 2000, the plaintiffs were not entitled to a share in the appreciation of partnership assets after that date… . Breidbart v Wiesenthal, 2013 NY Slip Op 05040, 2nd Dept 7-3-13

 

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Oral Partnership Agreement Dissolvable at Will Because of Lack of Specificity

In finding that an oral partnership agreement was dissolvable at will because no “definite term” or “particular undertaking” was included, the Court of Appeals, in a full-fledged opinion by Judge Graffeo, wrote:

…[W]e believe that [the] complaint lacks a fixed, express period of time during which the enterprise was expected to operate. Instead, the complaint alleges a flexible temporal framework: the parties were to solicit investments for an indefinite length of time; conduct an open-ended (possibly two-year) search for an unidentified business in an unknown business sector or industry; secure additional capital investments over the course of an unspecified period of time; and then purchase and operate the enterprise for an indeterminate duration (perhaps four to seven years) until a liquidity event would hopefully occur. Since the complaint does not set forth a specific or even a reasonably certain termination date, it does not satisfy the “definite term” element of [Partnership Law] section 62 (1) (b). * * *

Furthermore, when the entire scheme is considered, the alleged sequence of anticipated partnership events detailed in the complaint are too amorphous to meet the statutory “particular undertaking” standard for precluding unilateral dissolution of a partnership. The stages of the plan … were to: (1) raise money; (2) identify a business to buy; (3) raise more money to purchase the business; (4) “operate the business to increase its value”; (5) “achieve the liquidity event”; (6) “sell the business”; and (7) secure profit from the sale. But these objectives are fraught with uncertainty and are less definitive than the declarations referring to specific industries that have been found to be inadequate by other courts *  *  *.  In the absence of a definite term of duration or a particular undertaking to be achieved, the partnership agreement at issue, however well-intended, was dissolvable at will by either partner under Partnership Law § 62 (1) (b). Gelman v Buehler, 37, Ct.App. 3-26-13

 

 

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