Source: https://www.nybusinessdivorce.com/2018/01/articles/partnerships/rare-partnership-dissolution-decision-applies-deadlock-standard-dissolution-partnership-law/
Timestamp: 2019-04-22 02:46:24+00:00

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As LLCs have become the dominant for m of closely-held business in New York, cases involving dissolution of partnerships have become more and more rare. Section 63 of the Partnership Law is the statute governing judicial dissolution of New York general partnerships. The last time this blog wrote about a general partnership dissolution under Partnership Law § 63 was Summer 2015, a testimonial to how uncommon they have become.
After a lengthy interlude, along comes Magid v Magid, 2017 NY Slip Op 32603(U) [Sup Ct NY County Dec. 14, 2017].
Magid involved a fact pattern familiar to this blog’s regular readers – an entity owned by siblings, an income-producing property, a rising real estate market, some family members who want to sell, others who do not. Litigation ensues. Usually, the various dissolution statutes under the Business Corporation Law (BCL) or the Limited Liability Company Law (LLC Law) provide the standards to resolve the dispute.
In Magid, Manhattan Commercial Division Justice Eileen Bransten considered the applicable standards for judicial dissolution – particularly based on deadlock – under Partnership Law § 63. Magid raises the question – is the standard for judicial dissolution based on deadlock under Partnership Law § 63 any different than under BCL § 1104, the deadlock statute for corporation dissolutions?
In 1981, Norman Roberts, Abraham Magid, and Abraham’s son, Lawrence Magid, formed 110 East 13th Street Associates (the Partnership) to own and operate a six-story, mixed-use commercial and 20-unit residential apartment building (the Building) in the East Village of Manhattan.
The Partnership Agreement provided that the Partnership “shall continue until November 30, 2030” except upon “mutual written consent of the Partners to terminate and dissolve,” the “sale or other divestiture of all or substantially all real estate or interest in real estate held or owned by the Partnership,” or certain other events. Thus establishing (at the least) a “definite term” for the Partnership, the partners could not withdraw except in “contravention” (i.e., breach) of the Partnership Agreement under Partnership Law § 62 (1) (a), and (2).
The Partnership had three managing members – Lawrence, Marc, and the Abraham LP – whom the Partnership Agreement collectively vested with the power to “sell or exchange all of the real property owned by the Partnership” without the consent of the non-managing partners.
In 2015, Marc received an offer to sell the Building for $25 million. All of the managing (and non-managing) partners but Lawrence wanted to sell. Lawrence’s refusal thwarted a sale. When Lawrence blocked the sale, the partners called a meeting to remove him as property manager for the Building. Disputes also arose over whether to refinance the property.
While the cases cited by plaintiffs have largely concerned partnerships where the competing owners or ownership groups each held 50% of the partnership, defendants do not point to any authority stating that a 50/50 division is necessary for the court to find that a partnership is irretrievably deadlocked.
Magid represents a flexible approach to the concept of deadlock. The court concluded that a minority partner’s refusal to consent to a sale or refinancing, coupled with the intense acrimony his refusal provoked, could potentially constitute deadlock despite the absence of even division among the managing partners, and even though the minority member arguably had every right under the Partnership Agreement to withhold his consent.
Would the outcome have been different if Magid involved a corporation? The short answer is yes. By definition, there must be an even split to show deadlock under the corporate deadlock statute, BCL § 1104. The statute explicitly states that a petition must be brought by “the holders of shares representing one-half of the votes of all outstanding shares of a corporation” showing that the directors, shareholders, or factions thereof are “so divided” that (i) the “votes required for action by the board cannot be obtained,” (ii) the “votes required for the election of directors cannot be obtained,” or (iii) “dissolution would be beneficial to the shareholders.” The usual go-to in the case of an unevenly divided board or shareholders is the “oppression” statute, BCL § 1104-a. But in Magid, the plaintiffs would have been incapable of showing oppression because they were a clear majority.
What if Magid involved an LLC? The LLC dissolution statute, LLC Law § 702, does not speak in terms of deadlock, nor is deadlock alone sufficient to dissolve an LLC. As the court held in In re 1545 Ocean Ave., LLC, 72 AD3d 121, 129 [2d Dept 2010], “‘[d]eadlock’ is a basis, in and of itself, for judicial dissolution under Business Corporation Law § 1104,” but “no such independent ground for dissolution is available under LLCL 702.” “Instead, the court must consider the managers’ disagreement in light of the operating agreement and the continued ability of 1545 LLC to function in that context.” So while deadlock may suffice to dissolve under the Partnership Law and BCL, not necessarily under the LLC Law.

References: § 63
 § 63
 § 63
 § 1104
 § 62
 § 1104
 § 1104
 § 702
 § 1104