21/09/2020 by George T. Baxter, Esq. 0 Comments
Partnership Disputes and Buyouts
Businessmen and investors who take an ownership interest in a partnership must understand their rights and obligations with regard to the funding of the partnership, management and dissolution of the partnership. Often a partnership functions without problems until one partner seeks to retire or withdraw from the business. Commonly, a family member, in a family owned […]
Businessmen and investors who take an ownership interest in a partnership must understand their rights and obligations with regard to the funding of the partnership, management and dissolution of the partnership. Often a partnership functions without problems until one partner seeks to retire or withdraw from the business. Commonly, a family member, in a family owned business, or partner in a Limited Liability Corporation, LLC, will come to time when they want to retire or sell their interest. This begins the buyout process. Partners, businessmen or investors who had worked in collaboration have a conflict of interest, because the withdrawing partner seeks the maximum value for his interest. Partnership disputes are most often subject to the partnership Operating Agreement. It will set forth the rights of the retiring or withdrawing partner to sell his interest. The operating agreement of the partnership will often provide that the partnership has a first right of refusal to purchase the withdrawing partner’s interest. In the event they cannot agree on the value of the buyout, then the value of the buyout will be submitted to binding arbitration.
In Petriccione v. B.F.P.R. Properties, a Bergen County case, handled by George T. Baxter, Esq., his client, Anthony Petriccione was a partner in several partnerships that owned two Ford Dealerships franchises and the property where they were located. After thirty years, Mr. Petriccione decided to retire from the automobile business. The Operating Agreement controlled a withdrawing partner’s rights and required Mr. Petriccione to give the partnership a first right of refusal to buy his partnership interest. The Operating Agreement also provided that in the event the partnership and Mr. Petriccione could not agree on the value of his partnership buyout, then they would proceed with binding arbitration. After a three-day arbitration, Mr. Petriccione won an arbitration award. The operating agreement provided that his ex-partners and partnership could take three years to pay Mr. Petriccione for the buyout. A mortgage and promissory note were executed between Mr. Petriccione and B.F.P.R. Properties in exchange for his partnership interest. The partnership later defaulted on the note causing the total buyout sum to become due. This created another problem because Atlantic Stewardship Bank had a priority of lien over Mr. Petriccione lien in the collateral property. And, even though Mr. Petriccione retired as a partner, he was still a guarantor on the partnership’s Atlantic Stewardship Bank mortgage. However the tables were soon reversed when Atlantic Stewardship Bank subsequently refinanced the partnership loan and, in doing so, lost it’s priority over Mr. Peticcone’s recorded lien. How Atlantic Stewardship Bank lost its priority of lien to Mr. Petriccione will be the topic of another article.
Mr. Petriccione successfully petitioned the court to attached his ex-partners’ the interest in B.F.P.R., which owned the collateral property. Now, Mr. Petriccione was secured for his buyout by owning his ex-partners interest in the partnership and taking a priority in lien over Atlantic Stewardship Bank. Pursuant to a New Jersey Appellate Court case a partner’s interest in a partnership is personal property that may be attached by a debtor. Mr. Petriccione came to hold a priority lien on the B.F.P.R. collateral property over Atlantic Stewardship Bank and this ex-partners’ interest in the partnership that owned the property. The collateral property was sold and the liens paid in full.
Handling the buyout of a partnership interest can be very complicated and requires aggressive representation. Often there are large sums of money at stake that demand personal attention to the case.