Congel v. Malfitano, 141 AD 3d 64 2016 In 1985, Robert Congel, Marc Maliftano, and other…
Congel v. Malfitano, 141 AD 3d 64 2016
In 1985, Robert Congel, Marc Maliftano, and other individuals entered into a written agreement to form the Poughkeepsie Galleria Company Partnership. The partnership was created to own and operate the Poughkeepsie Galleria Shopping Center The agreement held that the partnership would continue until terminated by a majority vote of the partners. Malfitano was a general partner with 3.08 percent interest in the partnership. In November 2006, Malfitano sent a letter to the other partners stating that he had unilaterally elected to dissolve the partnership due to a “fundamental breakdown in the relationship between and among us as partners.
In 2007, Congel and the other partners sued Malfitano, alleging that he had wrongfully dissolved the partnership in violation of the partnership agreement. The plaintiffs also alleged that Malfitano had dissolved the partnership to force the partnership “to buy out . . . his interest at a steep premium” (indeed, Malfitano sought $4.8 million for his interest in the partnership). The plaintiffs sought to recover damages for breach of contract and a judgment declaring that Malfitano had wrongfully dissolved the partnership.
At trial, the court found that the terms of the partnership agreement clearly spell out that the partnership was not at-will partnership. In other words, partners could not simply dissolve the partnership and leave whenever they wanted to. As was stated in the agreement, it took a majority vote by the partners to dissolve the partnership. Thus, Malfitano had wrongfully dissolved the partnership. On appeal, the appellate court agreed.
Regardless of whether the partnership was dissolved rightfully or not, it was still in the interest of the other partners to buy out Malfitano’s interest. The trial court argued, however, that under New York Partnership Law § 69, a marketability discount of 35 percent could be applied to the purchase cost of Malfitano’s interest due to the limited marketability of the interest (i.e., the only people that would have wanted to purchase the interest were the other partners). The appellate court went even further and increased the discount to 66 percent due to Malfitano’s minority interest (to be applied before damages were taken into account). Essentially, the appellate court punished Malfitano for placing such a large burden on his partners despite only controlling ~3 percent of the partnership.