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Laplace v. Laplace

2006 WL 83110 (U.S. Dist. Ct. N.J. 2006) (Unpublished)

PARTNERSHIPS; AGREEMENTS—A court will honor the buy-out provisions of a written partnership agreement, even one that results in a very low price, especially where the parties have abided by the provisions in the past and could have changed them if they had wanted to do so.

During the 1930’s, two brothers founded a chemical manufacturing and distribution business. In 1959, the brothers, along with one brother’s three sons, executed a formal partnership agreement to govern the operation of their business and detail the rights and obligations of the partners. Over time, the partnership purchased the real property upon which the business operated. In 2002, only two partners remained: two of the three sons of one brother. In 2003, one of them died. The deceased partner’s spouse and daughter sued to compel the surviving partner to buy out their interest in the partnership for fair market value. The surviving partner argued that the partnership agreement, which had governed the partnership for more than 40 years, provided that the partnership interest of a deceased partner may be bought-out for the sum of $100,000. The deceased partner’s heirs argued that, notwithstanding the buyout provisions in the partnership agreement, the provisions of the Revised Uniform Partnership Act (RUPA) controlled. They argued that, under RUPA, upon the withdrawal of a partner from the partnership, the buyout price is equal to the fair market value of the withdrawing partner’s interest. The heirs claimed that, at death, the deceased partner withdrew from the partnership, and therefore RUPA controlled. The surviving partner argued, and the Court agreed, that RUPA governs only where a written partnership agreement does not contain specific provisions with respect to the death or withdrawal of a partner.

The surviving partner argued that the partnership agreement specifically provided for a buyout price upon the death of a partner and listed a specific amount of $100,000. The heirs then claimed that the buyout price was based on the estimated value of the business at the time it was formed. The Court, however, noted that it is not up to a court to rewrite the partnership agreement just because its application is advantageous to one partner over the heirs of another. The partners had abided by the partnership agreement for more than 40 years, and, had they intended to adjust the buyout price for fair market value, they could have done so. The heirs then argued that the surviving partner could not rely on the buyout provision because the partners, over the years, had historically adjusted the buyout price for a deceased partner’s share. Therefore, they claimed this showed that the partners never intended to be bound by the $100,000 buyout price. In contrast, the surviving partner argued, and the Court agreed, that the buyout provision specifically stated that the buyout price could be adjusted upwards or downwards, provided that it was done in a written agreement signed by all of the partners. The Court noted that whenever the buyout price for a partner’s share was more than $100,000, it was in agreed to in writing. Therefore, the Court found that the partners’ conduct indicated their intention to abide by the agreement, since each buyout for more than the listed buyout price was confirmed in writing. The heirs then argued that the buyout provision only applied to the “partnership business,” as referenced in the buyout provision, but did not refer to the real property owned by the partnership. The Court disagreed, accepting the surviving heirs’ contention that the real property owned by the partnership was an asset of the partnership and was not intended to be separated from the chemical business operated by the partnership. It noted that nowhere in the agreement or in the prior buyouts was a distinction made between the business and the real property. Lastly, the Court noted that if the deceased partner wanted to change the partnership agreement to adjust the buyout price, he could have done so before he died.

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