Opinion
16654-05.
Decided March 31, 2006.
Wolfe Yukelson, PLLC, Port Washington, New York, Counsel for Petitioners.
Greenberg Traurig, LLP, New York, New York, Counsel for Respondents.
Petitioners move for the judicial dissolution of Nassau Cedarhurst Co. ("Nassau"); the sale of the real property owned by the Nassau; and the appointment of a receiver to direct the dissolution, supervise the sale of Nassau's property, collect the money and distribute the assets; and to authorize the receiver to hire a forensic accountant to examine Nassau's books and records.
Respondents cross-move to dismiss the petition.
BACKGROUND
Nassau is limited partnership that was organized in 1972 for the purpose of owning real property known as 97 Cedarhurst Avenue, Cedarhurst. The ownership of this property has been Nassau's sole and only business since its formation.
At some point, the date of which is not stated, William Schlesinger, Petitioners' father, acquired a seven (7%) percent interest in Nassau as a limited partner. Ruth Schlesinger inherited William Schlesinger's interest in Nassau upon his death.
Petitioners, Peter Schlesinger ("Peter"), Fredric Schlesinger ("Fredric") and Richard Schlesinger ("Richard"), are the children the William and Ruth Schlesinger. They inherited their interest in Nassau upon Ruth Schlesinger's death.
The dates of death of William and Ruth Schlesinger are unknown since they are not stated in the papers and death certificates have not been provided.
Ruth Schlesinger's interest in Nassau was transferred to Peter, Fredric and Richard Schlesinger by the executor of the Estate of Ruth Schlesinger in 1997. Each of the Petitioners owns a 2.333% interest in Nassau.
The initial partners in Nassau executed a limited partnership agreement dated April 15, 1972 ("1972 Agreement"). The 1972 Agreement provided that Nassau would be dissolved on the earlier of April 15, 1997 or the date upon which Nassau sold the property. Nassau never sold the property and continues to own the property to the present.
Schlesinger's application for dissolution is premised upon the fact that, by the terms of the 1972 Agreement, the partnership was to dissolve on April 15, 1997.
The 1972 Agreement named Gilbert Schlesinger, Gilbert Schlesinger Corp., Bernard Alpren and Basic Consultants Corp. as Nassau's general partners. The 1972 Agreement further indicated that Gilbert Schlesinger and Bernard Alpren were the initial limited partners in Nassau.
The 1972 Agreement designated Gilbert Schlesinger and Bernard Alpren as the managing general partners. It provided that, upon the death of Gilbert Schlesinger or upon his being unable to participate in the management of Nassau, Gilbert Schlesinger Corp. would succeed to his position as managing partner. The 1972 Agreement further provided that, upon the death of Bernard Alpren or upon his being unable to participate in the management of Nassau, Basic Consultants Corp. would succeed to his interest as managing partner.
Paragraph 36 of the 1972 Agreement provides:
"Except as to provisions relating to rights or distributions to the limited partners, amendment of which requires written consent of all partners this Agreement may be amended by an instrument in writing executed by all the general partners and the holders of a majority of the limited partnership capital. Any amendments hereto may by counterparts. Each of the limited partners and the "non-managing general partners" and their successors and assigns do hereby irrevocably constitute and appoint the "managing general partners" their successors, or any of them, jointly and severally, his true and lawful attorney in his name, place and stead, to execute and acknowledge any and all instruments contemplated by this paragraph."
Between 1972 and 1989, several additional persons became limited partners in Nassau.
The 1972 Agreement has been amended at least three times. The limited partnership was amended by agreement of June 22, 1987 ("1987 Amendment") which was purportedly executed by all of the general and limited partners. The 1972 Agreement was amended and restated by agreement dated June 1, 1989 ("1989 Agreement"). The agreement was further amended by agreement dated August 1, 1992 ("1992 Agreement").
The Court has not been provided with a copy of the 1987 amendment.
Paragraph 4 of the 1989 Agreement extends the duration of the partnership to December 31, 2008 or until the property is sold, whichever is sooner.
The 1989 Agreement designated Richard Schlesinger, Schlesinger Management Corp., Joan Schlesinger Robey, Jason Schlesinger and Richard Schlesinger, as trustees of a trust established by agreement dated March 1, 1989 with Richard Schlesinger and Basic Consultants Corp. as Nassau's general partners. Richard Schlesinger and Basic Consultants would thereafter be the managing partners.
The Richard Schlesinger, who is the general partner, and the Richard Schlesinger, who is one of the Petitioners, are not the same person.
The 1989 Agreement provided that Nassau's limited partners as of June 1989 were Richard Schlesinger, Joan Schlesinger Robey, Basic Consultants Corp. as nominee for R.E. Corp., Basic Consultants Corp., Alexander Cohen, Lee Coffey, Sylvia Cole, Joseph Kaplan, Esther Kaplan, Irving Howard, Edna Howard, Richard Ohringer, Joseph Londin, Murray Poster, Sally Rosenbaum, Frank Stavin, the Aaron Kraus Trust, the Estate of Norman Turrell, David Einhorn, Asher Lans, Philip Hagler, Betty Kleefield, Norman Brody as trustee of the Hilda F. Brody Revocable Trust, Rita Kaplan, Mildred Stavin, Ruth Schlesinger, Helene Steinberger, Charlotte Underberg, Alan Yoblon, Jane Sherman and Richard Sherman. The 1989 Agreement did not indicate the percentage of ownership of either the general or the limited partners.
The 1989 Agreement was executed by all of the general partners and a majority of the limited partners. Alexander Cohen, Murray Poster, Sally Rosenbaum, David Einhorn, Asher Lans, Philip Hagler, Betty Kleefield, Ruth Schlesinger and Charlotte Underberg, all of whom are limited partners, did not sign the 1989 Amendment.
Schlesinger brings this proceeding on the grounds that Nassau was dissolved in accordance with the 1972 Agreement on April 15, 1997.
Respondents cross-move to dismiss on two seemingly irreconcilable bases; to wit: (1) the 1989 Agreement extended the duration of the partnership through December 31, 2008; and (2) the relief requested is barred by the statute of limitations or laches (CPLR 213).
DISCUSSION
A. Applicable Law
The first issue which must be addressed is which law applies to this proceeding.
New York adopted the Revised Limited Partnership Act effective July 1, 1991. The Revised Limited Partnership Act applies to all limited partnerships formed on or after the effective date of the statute. Partnership Law § 121-1201(a). The Revised Limited Partnership Act also governs any limited partnerships formed prior to its enactment, provided that such a limited partnership files with the Department of State and the County Clerk of the county in which the initial limited partnership certificate was filed a certificate indicating the limited partnership adopted the Revised Limited Partnership Act as its governing law. Partnership Law § 121-1202(a). See also, 16 NY Jur2d Business Relationships § 1832. Any limited partnership formed prior the July 1, 1991 which did not expressly adopt the Revised Limited Partnership Act as its governing statute continued to be governed by Article Eight of the Partnership Law.
Since Nassau was formed prior to July 1, 1991, and does not appear to have adopted the Revised Limited Partnership Law as its governing statute, this action is governed by Article Eight of the Partnership Law.
B. Statute of Limitations
A limited partner has such rights as are granted by law and the limited partnership agreement. Millard v. Newmark Co., 24 AD2d 333 (1st Dept. 1966). A limited partner has the statutory right to inspect and copy the partnership's books, to demand and receive a formal accounting and to have the partnership judicially dissolved and its business wound up. Partnership Law § 99(1)(a),(b) and (c). Therefore, Schlesinger has a statutory right to petition for the dissolution of Nassau.
Continuation of the partnership business after the expiration of the term fixed in the partnership agreement is prima facie evidence of a continuation of the partnership. Partnership Law § 45(2). In such circumstance, the partners become partners-at-will. Partnership Law § 45(1).
If the 1972 Agreement is still the agreement governing Nassau, Nassau was to dissolve on April 15, 1997. However, Nassau did not dissolve as of that date. It has continued to operate to the present time.
A partnership-at-will continues until a partner takes action to compel its dissolution. Wahl v. Barnum, 116 NY 87 (1889); and 15A NYJur2d Business Relationships § 1404. A partnership-at-will may be dissolved at any time when any of the partners manifests an unequivocal election to dissolve the partnership. 220-52 Assocs. v. Edelman, 241 AD2d 365 (1st Dept. 1997); Alessi v. Brozzetti, 228 AD2d 917 (3rd Dept. 1996); Carola v. Grogan, 102 AD2d 934 (3rd Dept. 1984); and Cracco v. Cracco, 25 AD2d 660 (2nd Dept. 1966); and Partnership Law § 62(1)(b).
Dissolution is defined as a change in the relationship of the partners caused by one partner ceasing to be associated in the carrying on of the partnership business. Partnership Law § 60. A dissolution of a partnership-at-will occurs when ". . . any of the partners expresses an intent not to continue longer." Bayer v. Bayer, 215 App.Div. 454, 473 (1st Dept. 1926). See also, Forbes v. Six-S Country Club, 12 AD3d 1049 (4th Dept. 2004).
If Nassau was to dissolve as of April 15, 1997, and it did not, it became a partnership-at-will. As a partnership-at-will since it continued its business after that date it can be dissolved at any time by any partner. Shandell v. Katz, 95 AD2d 742 (2nd Dept. 1983).
Respondents' reliance upon Zinsmeister v. Stelz, 277 App.Div 782 (2nd Dept. 1950) and Sagus Marine Corp. v. Donald G. Rynne Co., Inc., 207 AD2d 701 (1st Dept. 1994) is misplaced. Zinsmeister and Sagus Marine hold that an action for an accounting must be commenced within six years of the dissolution of a partnership. See, Partnership Law § 74; and CPLR 213(1). If Nassau became a partnership-at-will when the partners continued its business after the termination of its fixed term, then it was dissolved when Schlesinger brought this proceeding in 2005. Thus, the cause of action for an accounting did not accrue until 2005. Thus, it is not barred by the statute of limitations. The cross-motion to dismiss the petition on this ground must be denied.
C. Laches
The action is not barred by laches. Laches is "such neglect or omission to assert a right as, taken in conjunction with the lapse of time, more or less great, and other circumstances causing prejudice to an adverse party, operates as a bar in a court of equity. (Citations omitted)." Matter of Barabash, 31 NY2d 76, 81 (1972). The essential element of this defense is delay which causes prejudice to the opposing party. Id. See also, Saratoga County Chamber of Commerce v. Pataki, 100 NY2d 801 (2003). Prejudice is established by demonstrating an injury, change in position, loss of evidence or some disadvantage resulting from the delay. In re Linker, 23 AD3d 186 (1st Dept. 2005); Resk v. City of New York, 293 AD2d 661 (2nd Dept. 2002); and Skrodelis v. Norbergs, 272 AD2d 316 (2nd Dept. 2000).
None of the Respondents assert or even argue that they have sustained any prejudice as a result of Schlesinger's commencement of this proceeding. Therefore, laches does not bar this action.
Respondents, cross-motion to dismiss on the ground that the action is barred by laches must be denied.
D. 1989 Agreement
Respondents further assert that the proceeding should be dismissed because the 1989 Agreement extended Nassau's duration through December 31, 2008.
Partnership Law § 114(1)(b) requires that all general and limited partners sign and acknowledge any amendment to the limited partnership agreement. The 1989 Agreement which extended the duration of Nassau's duration through December 31, 2008 was not executed by all of the limited partners. Paragraph 36 of the 1972 Agreement required the limited partners to designate the managing general partners as their attorney-in-fact to executed any amendments. However, the managing partners did not execute the 1989 Agreement on behalf of the limited partners. The agreement was signed in counterparts. Ten limited partners, including Ruth Schlesinger did not execute the 1989 Agreement. Thus, the 1989 Agreement was not executed in the manner prescribed by Partnership Law § 114.
The rights and obligations of the partners arise from, and are fixed by, their agreement. Levy v. Leavitt, 257 NY 461 (1931). Paragraph 36 of the 1972 Agreement provided that an amendment which would require the consent of all of the partners could be approved by a writing executed by all of the general partners and the holders of a majority of the limited partnership capital. Under this provision, the 1989 Agreement could have been approved even if it was not executed by all of the limited partners.
Respondents have not established that the limited partners who executed the 1989 Agreement were the holders of a majority of the limited partnership capital. Therefore, the Court cannot determine whether the 1989 Amendment was approved in the manner established by the 1972 Agreement.
If the 1989 Agreement was properly adopted, then Nassau's duration was extended through December 31, 2008. Under such circumstances, Schlesinger could dissolve Nassau by establishing legal basis therefor. Partnership Law §§ 63(6), 63. No statutorily recognized basis for obtaining judicial dissolution has been established. Partnership Law § 63(1).
Thus, discovery is needed to determine if the 1989 amendment was properly approved.
Accordingly, it is,
ORDERED, that Petitioners' motion to dissolve Nassau and for other relief is denied without prejudice for renewal upon completion of discovery; and it is further,
ORDERED, that Respondents' cross-motion to dismiss the petition on the grounds that the action is barred by the statute of limitation or laches is denied; and it is further
ORDERED, that Respondents' cross-motion to dismiss on the grounds that Petitioners have failed to establish a basis for dissolution is denied with leave to renew upon completion of discovery; and it is further
ORDERED, that counsel for the parties are directed to appear for a preliminary conference on April 28, 2006 at 9:30 a.m.
This constitutes the decision and order of this Court.