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Simon v. Oradell Works Partnership, Ltd.

A-0577-065T5 (N.J. Super. App. Div. 2007) (Unpublished)

STATUTE OF LIMITATIONS; PARTNERSHIPS; TRANSFERS — Where a partner has hidden the fact that he or she has been transferring portions of his or her partnership interest in contravention of the partnership agreement, and where the other partners were unaware of the transfers, the statute of limitations for other partners to get judicial relief will not run until the other partners were first notified of the prohibited transfers.

Three men formed a partnership to own, operate, and manage an apartment complex. The partnership agreement prohibited the sale of partnership interests to anyone other than a spouse, child or grandchild without first offering it to the other partners. If a partner received an offer for his partnership interest, he was required to notify the other partners of the offer, in which case they would receive an opportunity to purchase the partnership interest. Over the course of thirty-seven years, one of the partners sold portions of his partnership interest to outsiders without first notifying the other partners as required by the agreement. During that time period, he filed amendments to the partnership agreement dealing with the transfer of the other partners’ interests to permitted transferees. He also signed tax returns for the partnership in which he represented that he retained the same partnership interest, although at the time he had sold nearly his entire partnership interest, but not his own. In 1999, when a spouse of one of the other original partners decided to transfer her partnership interest to an entity, the other partners signed a consent to the transfer. At that point, the other partners were told, for the first time, of the transfers of partnership interests in contravention of the partnership agreement. About six years later, the transferees sued the partnership claiming that they owned partnership interests and were wrongfully denied access to the books and records. The partners then filed a third-party complaint in which they alleged that the selling partner breached the partnership agreement when he transferred his partnership interest to someone other than a spouse, child or grandchild without first notifying them and giving them the opportunity to buy him out. The partners demanded that the transferees sell back their partnership interests for the price they paid to the selling partner.

The transferees moved for summary judgment, claiming that since the transfers had taken place more than six years earlier, the complaint was barred by the statute of limitations. The lower court agreed, finding that the statute of limitations had expired, since the claim first arose more than thirty years earlier. The lower court refused to apply the discovery rule to lift the statute of limitations. Under the discovery rule, a cause of action does not accrue until one discovers, or by exercise of reasonable diligence could have discovered, that he or she has a claim. This decision was based on the lower court’s finding that the long passage of time, death of key witnesses, and deep prejudice outweighed the lifting of the statute of limitations. The lower court also found that the partners failed to present clear and convincing evidence that the selling partner had breached the partnership agreement.

The Appellate Division reversed, finding that the lower court should have applied the discovery rule, so that the statute of limitations should not have begun to run until the partners were first notified of the prohibited transfers. There was no evidence that the selling partner had ever requested the consent of the other partners before selling portions of his partnership interest. In addition, the partners had no way of knowing about the transfers because the selling partner continued to sign amendments to the partnership agreement and tax returns in which he claimed to still own his original partnership interest. The Court also noted that until the selling partner died, he continued to receive distributions and he paid additional contributions to the partnership as if he still owned his partnership interest.


The Court rejected the transferees’ argument that lifting the statute of limitations would be inequitable because of the unavailability of witnesses or documents. It found that the reason no witnesses or documents were available was not the fault of the remaining partners, but of the selling partner who deliberately kept his partners in the dark. The Court also rejected the lower court’s finding that the partners failed to prove, by clear and convincing evidence, that the selling partner had breached the partnership agreement by selling to outsiders without notice. The Court found that the partnership agreement clearly required a selling partner to obtain consent before transferring his or her partnership interest and to notify the other partners of any offers he or she receives for the partnership interest. Here, there was no evidence that the selling partner ever notified his partners or obtained consent before selling his interest. The Court found the absence of any writing to be clear and convincing evidence that the selling partners did not send notice or receive consent. Further, the Court noted that the agreement was amended several times when spouses became substitute partners, and that consent was received for other transfers as well. Therefore, the Court found it clear that the selling partner breached the partnership agreement by failing to provide notice or receive consent.


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