Congel v. Malfitano

• Decision Date: 18 May 2016
• Citation: 141 A.D.3d 64,2016 N.Y. Slip Op. 03845,32 N.Y.S.3d 264
• Parties: Robert J. CONGEL, etc., et al., respondents-appellants, v. Marc A. MALFITANO, appellant-respondent.
• Court: New York Supreme Court — Appellate Division

141 A.D.3d 64
32 N.Y.S.3d 264
2016 N.Y. Slip Op. 03845

Robert J. CONGEL, etc., et al., respondents-appellants,
v.
Marc A. MALFITANO, appellant-respondent.

Supreme Court, Appellate Division, Second Department, New York.

May 18, 2016.

32 N.Y.S.3d 266

Bousquet Holstein PLLC, Syracuse, N.Y. (James L. Sonneborn and Michael D. Gadarian of counsel), for appellant-respondent.

Goodwin Procter LLP, New York, N.Y. (Anthony S. Fiotto of counsel; Kristen A. Kearney on the brief), and Corbally, Gartland and Rappleyea, LLP, Poughkeepsie, N.Y. (Vincent L. DeBiase of counsel), for respondents-appellants (one brief filed).

MARK C. DILLON, J.P., THOMAS A. DICKERSON, L. PRISCILLA HALL and HECTOR D. LaSALLE, JJ.

DICKERSON, J.

141 A.D.3d 67

Introduction

Partnership Law § 69(2)(c)(II) entitles a partner who has wrongfully caused the dissolution of a partnership to be paid the “value” of his or her interest in the partnership less any damages caused to his or her copartners by the dissolution. Among other things, this appeal requires us to consider whether, in determining the value of a partnership interest for purposes of Partnership Law § 69(2)(c)(II), a “minority discount” may be applied to reflect the lack of control a minority partner has in the operations of the partnership. This issue is one of first impression in the Appellate

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Division, Second Department. We conclude that such a discount may be applied, and that it should have been applied under the facts of this case.

Factual and Procedural Background

In 1985, the parties entered into a written agreement to form the Poughkeepsie Galleria Company Partnership. The purpose of the partnership was to own and operate the Poughkeepsie Galleria Shopping Center, a 1.2 million square foot shopping mall with tenants including major department stores such as Macy's and JCPenney. The defendant was a general partner who owned a 3.08% interest in the partnership. In a letter dated November 24, 2006, the defendant advised his fellow partners that he had unilaterally elected to dissolve the partnership, claiming that there had been a “fundamental breakdown in the relationship between and among us as partners.”

In 2007, the plaintiffs, as members of the partnership's executive committee, commenced this action against the defendant alleging that he had wrongfully elected to unilaterally dissolve the partnership in violation of the partnership agreement, and that he had done so in order to force the partnership “to buy out ... his interest at a steep premium.” The plaintiffs sought, inter alia, to recover damages for breach of contract, and a judgment declaring that the defendant wrongfully dissolved the partnership. As relevant to this appeal, in his answer the defendant asserted a counterclaim pursuant to Partnership Law § 69. Subdivision (2)(c)(II) of that statute provides that in the event of a wrongful dissolution, if the partners who have not caused the wrongful dissolution elect to continue the partnership's business in the same name, the

141 A.D.3d 68

partner who has caused the wrongful dissolution shall have “ the value of his interest in the partnership, less any damages caused to his copartners by the dissolution, ascertained and paid to him in cash ... but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered” (Partnership Law § 69[2][c][II] ).

Shortly after the commencement of this action, the defendant moved pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action. In support of his motion, the defendant contended that he was free to dissolve the partnership under Partnership Law § 62(1)(b) because the partnership was at-will and of indefinite duration. The Supreme Court rejected the defendant's contention, and denied his motion to dismiss. In a decision and order dated April 21, 2009, this Court concluded that the Supreme Court had properly denied the defendant's motion (see Congel v. Malfitano, 61 A.D.3d 807, 808–809, 877 N.Y.S.2d 443 ). In doing so, this Court concluded that the partnership was not at-will since the partnership agreement, which indicated that the partnership shall dissolve upon an election of a majority of the partners, provided for a “definite term” within the meaning of Partnership Law § 62(1)(b) (see id. at 808, 877 N.Y.S.2d 443 ).

Meanwhile, in an order dated May 29, 2008, the Supreme Court granted the plaintiffs summary judgment on their first cause of action, which was for a judgment declaring that the defendant wrongfully dissolved the partnership, and on their second cause of action, which was to recover damages for breach of contract. In a separate prior decision and order, also dated April 21, 2009, this Court concluded that the plaintiffs had properly been granted summary judgment on those claims, noting that the terms of the subject partnership agreement were clear and unambiguous, and reiterating its conclusion that the partnership created by the partnership

32 N.Y.S.3d 268

agreement was not an at-will partnership (see Congel v. Malfitano, 61 A.D.3d 810, 811, 877 N.Y.S.2d 441 ). This Court also determined that the plaintiffs demonstrated that the defendant dissolved the partnership in contravention of the partnership agreement, and that the defendant failed to raise a triable issue of fact in opposition (see id. at 811, 877 N.Y.S.2d 441 ).

The Supreme Court subsequently conducted a nonjury trial on the issue of the damages incurred by the plaintiffs as a result of the wrongful dissolution of the partnership, and the issue of the value of the defendant's interest in the partnership,

141 A.D.3d 69

for the purpose of determining the amount that the defendant was entitled to recover on his counterclaim pursuant to Partnership Law § 69. At the outset of the trial, the parties stipulated that the unadjusted value of the defendant's total interest in the partnership was $4,850,000 as of November 24, 2006, the date of the wrongful dissolution of the partnership. The plaintiffs and the defendant both offered expert testimony on issues including whether the stipulated value of the defendant's interest in the partnership included a component of goodwill for which a deduction would be required pursuant to Partnership Law § 69(2)(c)(II), and whether the defendant's interest should be reduced to account for marketability and the defendant's status as a minority partner. At the conclusion of the trial, the Supreme Court determined that the value of the defendant's interest in the partnership, minus the damages to the plaintiffs caused by the defendant's wrongful dissolution of the partnership, was $857,164.75. In reaching its determination as to value, the court, inter alia, applied a 15% discount for goodwill, and a 35% discount to account for the limited marketability of the defendant's interest. However, the court declined to apply a minority discount, concluding that it was not permitted to do so based upon case law involving valuation of a minority shareholder's stock in a close corporation. The court also reduced the award by the amount of legal expenses it determined had been reasonably incurred by the plaintiffs due to the defendant's wrongful dissolution of the partnership. The parties now appeal and cross-appeal from an amended judgment in favor of the defendant and against the plaintiffs in the principal sum of $857,164.75.

Analysis

Whether to Revisit the Wrongfulness Determination

Initially, the defendant contends that this Court should overturn its prior determination that he wrongfully dissolved the partnership in light of the Court of Appeals decision of Gelman v. Buehler, 20 N.Y.3d 534, 964 N.Y.S.2d 80, 986 N.E.2d 914, which was decided after this Court made its determination on this issue. In Gelman, the parties allegedly entered into an oral agreement to continue a partnership until the partners found a business with growth potential, acquired it, and increased its value until it could be sold at a profit (see id. at 536, 964 N.Y.S.2d 80, 986 N.E.2d 914 ). The Court of Appeals held that this alleged agreement did not contain a “definite term” of duration or a “particular undertaking” to be

141 A.D.3d 70

achieved within the meaning of Partnership Law § 62(1)(b), and was thus dissolvable at will (see Gelman v. Buehler, 20 N.Y.3d at 537–539, 964 N.Y.S.2d 80, 986 N.E.2d 914 ).

Contrary to the defendant's contention, Gelman does not require this Court to depart from the law of the case and revisit its prior determination that he wrongfully dissolved the partnership. “[A]n appellate court's resolution of an issue on a prior appeal constitutes the law of the case and is binding on the Supreme Court, as well as on the appellate court”

32 N.Y.S.3d 269

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