Ratner v. Iron Stone Real Estate Fund I, L.P.
212 A.3d 70
| Pa. Super. Ct. | 2019Background
- Iron Stone Real Estate Fund I, L.P. (Partnership) formed 2005/2006; Partnership Agreement set term to expire December 31, 2015, with limited prior one-year extensions permitted by the general partner.
- After the December 31, 2015 expiration, the general partner (Iron Stone LLC) circulated a memorandum in April 2016 proposing an 8-year extension; limited partners were sent an amendment and consent form.
- Vote results: of all limited partners, 34.75% returned ballots agreeing to extend; over 66% of those who actually voted either voted to extend or abstained, but a majority of all limited partners either voted against or did not return ballots.
- Limited partners (Ratners and Dr. Ostoyich) sued alleging breach of fiduciary duty, breach of contract, breach of implied covenant, accounting, conversion, and seeking dissolution—centering on whether the post-expiration extension was effective.
- Trial court: dismissed some claims as derivative and held the extension valid under the Partnership Agreement; limited partners appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether limited partners have standing to bring claims | Ratners: claims (contract, accounting, dissolution) are direct because they seek enforcement of individual rights and return of unit value | Iron Stone: most claims are derivative because alleged harms flow to the partnership and any recovery belongs to it | Court: breach fiduciary/good-faith and conversion claims are derivative and dismissed; contract, accounting, and dissolution claims are direct and plaintiffs have standing |
| Whether the Partnership’s term could be validly extended after expiration/dissolution | Ratners: expiration (Dec 31, 2015) triggered dissolution; once dissolved the partnership exists only to wind up, so retroactive extension is ineffective | Iron Stone: Partnership Agreement and statutory comment permit retroactive amendment to avert dissolution and continuation; Section 15.1 allows amendment | Court: Pennsylvania law does not authorize rescission of dissolution; partnership went into dissolution on expiration and agreement cannot vary winding-up requirements, so retroactive extension was ineffective |
| Effect of consent mechanics and vote counts | Ratners: extension was requested after expiration and required unanimous or different thresholds; vote process flawed and insufficient | Iron Stone: followed amendment procedure in Section 15.1; sufficient consents (by those who responded) and reliance on consent rules | Court: did not rely on the consent form language; key legal defect was that dissolution had already occurred so any retroactive amendment was inoperative; trial court’s factual challenge to vote sufficiency not dispositive on law reversing denial of dissolution relief |
| Remedy: whether court should order winding up/dissolution | Ratners: seek judicial dissolution and winding up in accordance with the Limited Partnership Act | Iron Stone: sought to enforce the extended term and continuation | Court: affirmed dismissal of derivative claims but reversed dismissal of contract/accounting/dissolution counts and remanded with instruction that partnership must wind up under 15 Pa.C.S. § 8682 |
Key Cases Cited
- Anglo Am. Sec. Fund, L.P. v. S.R. Glob. Int’l Fund, L.P., 829 A.2d 143 (Del. Ch.) (distinguishes direct vs. derivative claims by nature of injury and remedy)
- Hill v. Ofalt, 85 A.3d 540 (Pa. Super.) (derivative claims belong to the entity; individual partner lacks standing for entity harms)
- Weston v. Northampton Pers. Care, Inc., 62 A.3d 947 (Pa. Super.) (a limited partner must sue derivatively when alleged wrongs are to the partnership and only indirectly harm the partner)
- Alexander v. City of Meadville, 61 A.3d 218 (Pa. Super.) (standard of appellate review for summary judgment and legal errors)