Muscarelle v. Castano

302 N.J. Super. 276, 695 A.2d 330 (App. Div. 1997)
  • Opinion Date: June 23, 1997

PARTNERSHIPS; DISSOLUTION; RECEIVERS—The Chancery Court does not need statutory authority in order to appoint a receiver to protect the rights of a minority partner. The majority partner’s (Chancery Court ordered) final, sealed bid to buy the partnership’s property offered “$10,000” more than any other offer. The Court rejected this type of bid as inconsistent with the intent of the court order.

The partners of a limited liability partnership could not agree on how best to wind up, so they appointed an attorney-in-fact who could be removed only by vote of partners holding a 60% interest in the partnership. An outside party then made an offer to purchase the sole piece of property owned by the partnership. One of the partners, Muscarelle, disapproved and offered to purchase the property himself. After his offer was rejected, Muscarelle raised the offer and filed a motion seeking an order directing the sale of the property to him. The attorney-in-fact favored sale to the outside party. The Chancery Division ordered Muscarelle and the third party to submit final, sealed bids. In his bid, Muscarelle stated that his real final offer would be $10,000 higher than whatever amount the third party had bid. The next day, Muscarelle and another partner, who together owned a 60% interest in the partnership, terminated the attorney-in-fact. The remaining partner petitioned the Court to appoint the attorney-in-fact as receiver to wind up the affairs of the partnership. The Court approved the sale of the property to the third party, rejected Muscarelle’s offer, and appointed the attorney-in-fact to serve as receiver for the partnership. Muscarelle appealed, claiming the Chancery Court raised the interest of the minority partner above that of the majority, and improperly intruded into the affairs of the partnership by decreeing to whom the property was to be sold.

Since minority stakeholders are vulnerable, courts have given themselves wide latitude to regulate oppressive conduct. While simple disagreements are not enough to warrant a court’s intervention, a court may take appropriate measures where the actions of the majority threaten to frustrate minority interests. Accordingly, even in the absence of statutory authority, the Appellate Division found nothing that prohibited the Chancery Court from taking appropriate steps to protect the interest of a minority partner, including the appointment of a receiver. The Court also held that partners may not force other partners to divest their interest, and that majority partners owe a duty to minority partners to sell assets at the highest price attainable. As to rejection of Muscarelle’s offer to top any third party offer, the Court found no error. The Court found Muscarelle’s offer to be an attempt to frustrate the bidding process and insure he would win, in contravention of the Chancery Court’s order.