Opinion ID: 1911789
Heading Depth: 1
Heading Rank: 23

Heading: Default Remedy for Breach of a Mandatory Buyout Provision

Text: As noted, under the switching provision in § 67-433(1), when a partner's dissociation does not result in dissolution of the partnership, the mandatory buyout provisions of sections 67-434 to 67-438 apply. The purchase of a dissociated, partner's interest is governed by § 67-434. Harley argues that subsection (5) required Don to pay an estimated buyout price of Harley's interest when the parties could not agree on the value. Section 67-434(5) provides: If no agreement for the purchase of a dissociated partner's interest is reached within one hundred twenty days after a written demand for payment, the partnership shall pay, or cause to be paid, in cash to the dissociated partner the amount the partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under subsection (3) of this section. Harley further argues that under § 67-434(5), his notice of his intent to withdraw constituted a written demand for payment. Thus, he argues, Don had a total of 180 days, under the partnership agreement, to pay the estimated buyout price. We disagree. Subsection (5) does not refer to any time limit within a partnership agreement. The 180 days under the partnership agreement is irrelevant under subsection (5). Instead, the event that triggers a partnership's duty to pay an estimated buyout price within 120 days is a written demand, which Harley did not make. We conclude that this provision has no application. Further, even if subsection (5) applied, nothing in § 67-434 provides dissolution as a remedy for a partnership's failure to timely pay an estimated buyout price. Harley cannot rely on a mandatory buyout provision in § 67-434 to bolster his argument that the partnership was in dissolution. Such an argument is inconsistent with § 67-433(1), which creates separate paths through which a withdrawing partner can recover his or her interest. A withdrawing partner's rights are governed by the dissolution and winding up provisions or the mandatory buyout provisions, but not both. Section 67-434(9) provided Harley's remedy for the partnership's failure to timely pay the buyout price or its unsatisfactory offer: A dissociated partner may maintain an action against the partnership, pursuant to subdivision (2)(b)(ii) of section 67-425, to determine the buyout price of that partner's interest, any offsets under subsection (3) of this section, or other terms of the obligation to purchase. The action must be commenced within one hundred twenty days after the partnership has tendered payment or an offer to pay or within one year after written demand for payment if no payment or offer to pay is tendered. Harley, however, failed to use this provision. On March 28, 2002, Don offered to pay Harley $1.25 million for his interest. Harley did not seek a judicial valuation of his interest under § 67-434(9) within 120 days of March 28. So he has waived this remedy. In sum, the district court correctly concluded that the partnership was not dissolved, but we believe its reasoning regarding Don's breach of section 13's buyout deadline was incorrect. The district court concluded that Harley had lost his right to enforce the partnership agreement. Implicit in this determination was the court's reasoning that if Harley could have enforced the agreement, the partnership would have been dissolved. This reasoning was incorrect. Under the partnership agreement, Harley did not have the right to force the partnership's dissolution when Don elected to continue the business. Although Don failed to timely pay the buyout price, absent a remedy provision in the agreement, Harley's remedy was statutory. His statutory remedy against the partnership did not include dissolution, and he waived the remedy of judicial valuation. Therefore, section 12 of the agreement provided the method for determining his interest's value.