BRENNAN v. BRENNAN
Supreme Court of Connecticut
The ‘‘officially released’’ date that appears near the
EVELEIGH, J., concurring in part and dissenting in part.
In construing
In my view, use of the term ‘‘expulsion’’ in
Moreover, in my view, the majority’s analogy to
Additionally, the defendants’ desire to value the plaintiff’s partnership interest as of 2009 belies the positions they took in Brennan I, in which they wished to value the plaintiff’s partnership interest as early as possible and while the previous appeal was pending before this court. See Brennan v. Brennan Associates, 293 Conn. 60, 89, 977 A.2d 107 (2009) (Brennan I). After this court issued its opinion in Brennan I, the defendants sent a letter to the plaintiff offering to purchase his interest in the partnership as of ‘‘the date of [the plaintiff’s] dissociation . . . .’’ The defendants’ letter indicated that the plaintiff was dissociated in September, 2006, the month in which the trial court rendered its original judgment of dissociation. Only after the passage of time, and subsequent decline in the real estate market, did the defendants begin to claim that the date of dissociation should be a date other than the date of the trial court’s decision. As stated by the Pennsylvania Supreme Court in a similar partnership context, ‘‘a party whose contention is rejected [on appeal] should gain nothing by the lapse of time . . . .’’ Scheckter v. Rubin, 349 Pa. 102, 104, 36 A.2d 315 (1944).
This conclusion is further supported by an examination of partnership law under the Uniform Partnership Act (UPA), the Revised Uniform Partnership Act (RUPA), and Connecticut’s Uniform Partnership Act (CUPA).3 My review of cases in other states where an automatic stay existed while the UPA was in effect indicates that the proper date of dissolution is
The majority lists several policy reasons why its decision is sound in that ‘‘the plaintiff was not dissociated until the conclusion of his appeal in Brennan I.’’ First, ‘‘a partner should not be allowed to participate in a partnership when he does not share in the risk that the partnership will lose value.’’ Second, ‘‘an outgoing partner would be deprived of sharing in any value he added to the partnership through his good faith efforts to run the business during the pendency of his appeal . . . .’’ Third, ‘‘a disgruntled, outgoing partner could take a nonmeritorious appeal for the sole purpose of intentionally sabotaging the business of the partnership, knowing that he is not risking a diminution of his interest.’’ In response to the first policy reason, in my view, a dissociated partner does share in the risk that the partnership will lose value even if his partnership interest is valued before he ceases participation. The dissociated partner has an economic incentive to prevent the loss of value and foster profitability of the partnership so that he ultimately will be paid his full share. Moreover, the dissociated partner may properly be compensated for his work during that time by the trial court. While the majority’s second policy reason is a valid reason, the opposite is also true in that a dissociated partner does not share in any decline in value. Regarding the third policy reason, a dissociated partner has a fiduciary duty while working for the partnership, even if he works postdissociation, which prevents him from intentionally sabotaging the business of the partnership. Further, any damage to the partnership may defeat the partnership’s ability to pay him. Such a course of action would be self-defeating if the court ultimately reversed the decision dissociating that partner from the partnership.
In my view, there are additional contrary policy considerations which should be entertained. The majority permits the parties to continue to prolong this dispute. The Brennan I trial court, Munro, J., ordered the plaintiff dissociated on September 27, 2006. The plaintiff appealed the ruling and this court affirmed the trial court’s decision on August 18, 2009. See Brennan v. Brennan Associates, supra, 293 Conn. 60. The plaintiff subsequently filed the present action seeking, inter alia, valuation of his partnership interest pursuant to
I also take issue with the majority’s consideration of the defendants’ claim as to the date of dissociation. The defendants should have presented this issue in Brennan I and never did. See id., 60. In my view, it is too late to discuss the matter at this time. Brennan I discussed the validity of the dissociation and certainly could have discussed the effective date of dissociation, but the issue
Unfortunately, the majority opinion does nothing to shorten the length of time taken in this matter or the delay occasioned by the parties. In my view, the procedure employed in these cases should be as follows: (1) the dissociation date should be the date the trial court rendered judgment of dissociation; (2) the dissociated party may then bring an appeal; cf. Hylton v. Gunter, 313 Conn. 472, 97 A.3d 970 (2014) (discussing final judgment rule); (3) the trial court retains jurisdiction for valuation purposes; (4) the parties wait for the statutory 120 day period; see
Finally, as to part III of the majority opinion, I respectfully disagree with the majority’s conclusion regarding attorney’s fees because, in my view, the defendants did not offer any competent evidence during trial to sustain their claim that those fees should be treated as a liability of the partnership.
I would affirm the trial court’s finding that the date of dissociation was September 27, 2006, and its conclusion that the attorney’s fees were not a liability of the partnership. Accordingly, I respectfully dissent from parts I and III of the majority opinion.
The trial court’s December 11, 2012 memorandum of decision appropriately sets forth the following relevant facts and procedural history. ‘‘On September 5, 1984, the plaintiff, along with Richard Aiello and [the] defendants Alexander Aiello and Serge Mihaly, entered into a written general partnership agreement . . . for the operation and management of certain real property known as the Trumbull Shopping Center . . . .
‘‘After [the defendants] Salvatore [DiNardo], Peter [DiNardo], Leonard DiNardo and David Lehn became involved in [the partnership] as coadministrators of the estate of Richard Aiello,4 issues arose among the partners regarding, among other things, who had check signing authority, who had control of and access to the books and records of the partnership, who should have contact with prospective and current tenants, and how decisions regarding leasing and improvements to the premises were to be made. Animosity quickly grew particularly between [the plaintiff] and the other partners. . . .
‘‘As a result of the situation, the plaintiff commenced a civil action against the defendants seeking a declaratory judgment as to the rights of the various parties under the partnership agreement. The defendants filed a counterclaim against the plaintiff seeking to have him statutorily dissociated from the partnership for his conduct. On September 27, 2006, a decision was rendered [by the trial court dissociating] the plaintiff from the partnership.’’ (Footnote added.) ‘‘In [that] ruling, the [trial] court entered an order of dissociation pursuant to . . .
‘‘The dissociation did not, however, result in the dissolution or winding up of the partnership and it continued on in its business as allowed by statute. The plaintiff filed an appeal [and] the trial court’s decision [was affirmed] on August 18, 2009. [See Brennan v. Brennan Associates, supra, 293 Conn. 60.] Because the parties were unclear as to the effect of the appellate stay on the plaintiff’s involvement with the partnership, the plaintiff remained involved in its affairs during the pendency of the appeal. . . . He continued to, amongst other things, solicit tenants, attend partnership meetings, [and] write to the partners about the partnership’s affairs . . . . He also continued to receive $48,640 per month constituting his percentage draw from the partnership consistent with the payments he had received prior to the dissociation. This participation and payment structure continued until the [plaintiff’s appeal in Brennan I was resolved] at which time both his participation and the payments ceased. . . . The total payments received by the plaintiff from the . . . partnership between September 27, 2006 and August 18, 2009 were $1,702,400.
‘‘Thereafter, by letter dated September 3, 2009, the plaintiff made demand upon the partnership pursuant to . . .
The trial court memorandum continued: ‘‘Prior to trial, the parties disagreed on what was the appropriate date of dissociation to be used by the court for the valuation of the plaintiff’s interest in the partnership. The plaintiff contended that the appropriate date was the September 27, 2006 trial court decision. The defendants argued that the appropriate date was the August 18, 2009 ruling . . . affirming the trial court’s decision. Because the application of the statute under these circumstances appeared to be an issue of first impression in this state, the court reserved judgment on the issue and took evidence and argument from the parties relative to both dates.’’
‘‘The parties presented a significant volume of evidence relative to the valuation of the plaintiff’s interest in the partnership. This included, but was not limited to, expert testimony as to the valuation of the real estate, leasehold interests, cash and other holdings of the partnership. [The] [p]laintiff’s experts valued the plaintiff’s [32 percent] interest in the partnership to be $9,400,000 as of September 27, 2006. [The] [d]efendants presented expert testimony establishing the value of the plaintiff’s interest in the partnership as of that date to be $6,800,000.’’ Ultimately, the trial court found the date of dissociation to be September 27, 2006, and valued the plaintiff’s partnership interest at $8,640,000.
The trial court found, as a matter of law, that the partnership was for a definite term and, thus, that ‘‘the plaintiff was a partner who wrongfully dissociated under
To account for the plaintiff’s receipt of distributions and participation in partnership affairs during the pendency of the appeal, the trial court ‘‘allow[ed] a credit for the monthly payments made to the plaintiff from October 2006 through August 2009, totaling $1,702,400 . . . [finding that] [s]uch credit may be allowed given the unique circumstances of this case under the principles of equity. The plaintiff’s continued participation in the affairs of the partnership due to the parties’ perceived ambiguity of the effect of the dissociation ruling in light of the appeal and the fact the partnership had no obligation to provide the plaintiff with a monthly salary draw following the dissociation, justifies an equitable allowance of such credit.’’ The trial court further concluded that ‘‘interest shall accrue from the date of dissociation to the date of payment pursuant to
The defendants claimed offsets against the value of the plaintiff’s partnership interest pursuant to
After judgment, the plaintiff moved for offer of compromise interest and attorney’s fees pursuant to
The defendants appealed from the judgment of the trial court, claiming that the trial court improperly: (1) valued the plaintiff’s partnership interest as of September 27, 2006; (2) awarded interest to the plaintiff from the date of dissociation to the date of payment; and (3) failed to include attorney’s fees as a liability when it calculated the partnership value. The plaintiff cross appealed from the judgment of the trial court, claiming that the trial court improperly declined to award offer of compromise interest pursuant to
The majority holds that the trial court improperly found that the date of dissociation, the date on which the plaintiff’s partnership interest is valued pursuant to
As the trial court aptly noted, application of the statute under these circumstances is an issue of first impression in this state. This is due, in part, to the fact that the legislature substantially revised Connecticut’s partnership laws in 1995. See footnote 3 of this concurring and dissenting opinion. Because of the paucity of case law interpreting the CUPA, I must first begin with case law in, and commentary about, the fundamental principles of partnership law inherent in the UPA. Jurisprudential understanding of the UPA caused and influenced the relevant revisions seen in the RUPA. In fact, in Brennan I, this court acknowledged the fact that the history of the UPA informed our interpretations of the RUPA, noting that ‘‘there is nothing in the history of, or policy underlying, these provisions to support the distinction [between the remedy of dissociation, a relatively new term in partnership law, versus that of dissolution] proposed by the plaintiff’’ especially in light of an official comment in the RUPA stating that ‘‘ ‘dissociation,’ is used in lieu of . . . the term ‘dissolution’ . . . .’’ Brennan v. Brennan Associates, supra, 293 Conn. 84, quoting Rev. Unif. Partnership Act of 1997, § 601, comment (1), 6 U.L.A. (Pt. 1) 164 (2001). This court agreed with the trial court’s use of ‘‘case law addressing the more established, and in [the trial court’s] view analogous, standard for dissolution’’; Brennan v. Brennan Associates, supra, 77; and noted the conceptual similarities between dissociation and dissolution. Id., 83–84.
The resolution of the defendants’ claim in the present case requires me to interpret the phrase ‘‘date of dissociation’’ contained in
No court has squarely addressed a challenge to the date of dissociation, under the RUPA, based on the effect of an appellate stay. Additionally, no court has squarely addressed a challenge to the date of dissolution, under the UPA, based on the effect of an appellate stay. Accordingly, in the present case, three lines of inquiry inform my conclusion that the date of dissociation is the date of the trial court’s decision in Brennan I: (1) case law interpreting the analogous provisions on partnership dissolution in the UPA and, specifically, disputes over the date of dissolution by decree of court; (2) problems with the dissolution provisions of the UPA that the drafters of the RUPA attempted to remedy, particularly confusion over the causes and effects of dissolution; and (3) the relation of the RUPA to, and its adoption of, the UPA principles of partnership dissolution in determining the appropriate date of dissociation, which comport with our appellate stay jurisprudence and policy rationales.
I
DATE OF DISSOCIATION
A
Because dissociation is a relatively new concept under partnership law, I begin, first, with a discussion of the causes of partnership dissolution under the UPA, which are analogous to the causes of dissociation under the RUPA. Thereafter, because no court has squarely addressed a challenge to the date of dissolution, under the UPA, based on the effect of an appellate stay, I discuss and glean principles from case law about the date of dissolution that I will later apply in interpreting the date of dissociation; specifically, that it is the conduct giving rise to the grounds for dissolution—the cause of the dissolution—that controls the date of dissolution, and not conduct occurring postdissociation.
Under the UPA, the term ‘‘dissociation’’ did not exist; instead of dissociation, if certain enumerated events occurred, such as death, bankruptcy of a partner, or expulsion of a partner, the underlying partnership would be dissolved.10 Because some causes of dissolution were automatic and some required a decree of court, courts encountered some difficulty in delineating the exact moment in time a partnership dissolved under the UPA. ‘‘Nearly half of the causes of dissolution [under the UPA] require judicial action. That is, they are not causes of dissolution per se, but rather are grounds for dissolution by court decree.’’ (Emphasis added.) A. Bromberg, ‘‘Partnership Dissolution—Causes, Consequences, and Cures,’’
‘‘To determine the date of dissolution, it is necessary first to consider the cause of dissolution.’’ In re Crutcher, 209 B.R. 347, 352 (Bankr. E.D. Pa. 1997). Determining this date often required a court to choose between nonjudicial and judicial causes of dissolution. See id. (choosing earliest of three possible dates of dissolution: [1] date partner had been expelled from business by being cut off from all management duties, judicial cause of dissolution under § 31 [1] [d] of UPA; [2] date partner filed for bankruptcy, nonjudicial cause of dissolution under § 31 [5] of UPA; or [3] date partner filed adversary proceeding in Bankruptcy Court for accounting, expressing his will to withdraw from partnership, nonjudicial cause of dissolution under § 31 [2] of UPA).11
‘‘[Nonjudicial] causes [of dissolution] appear to operate ipso facto, and dissolution dates from the occurrence of the event.’’ J. Crane & A. Bromberg, supra, § 78, p. 436. In Robins v. Roland, Docket No. B191659, 2008 WL 615865, *1 (Cal. App. April 7, 2008), for example, one partner of a three person real estate partnership died in 1994, leaving his wife as the executrix of his estate and the purported owner of his partnership interest. For years after her husband’s death, the wife had received distributions from the partnership, attended company board meetings, signed minutes, and consented to partnership actions. Id., *6. After relations between the partners soured, the wife attempted to dissociate from the partnership nine years later. Pursuant to § 31 (d) (4) of the UPA, however, the death of the partner had already ipso facto caused dissolution because the partnership agreement did not provide for continuation of the partnership upon a partner’s death. Despite the wife’s receipt of partnership distributions and participation in partnership affairs for years after the dissolution caused by her husband’s death, the California Court of Appeal held that the partnership had dissolved as a matter of law upon the partner’s death in 1994, thus rendering moot the wife’s attempt to dissociate. Id., *3. The court reasoned that ‘‘[u]nder the UPA, a dissolved partnership does not automatically terminate but rather ‘continues until the winding up of partnership affairs is completed.’ . . . Thus, by default, the partnership would continue until being finally
In contrast to nonjudicial causes of dissolution, judicial causes of dissolution have less clearly defined dates; it is more difficult to determine the exact moment in time a partnership dissolves where a trial court’s decree of court establishes that dissolution has occurred. According to Alan Bromberg, a leading scholar on partnership law, ‘‘a judicial dissolution dates from the court decree, unless there is equitable reason for the court to set an earlier date. These rules fix the time when partners’ rights and powers are modified, and when their rights to an accounting accrue.’’ (Emphasis added; footnotes omitted.) J. Crane & A. Bromberg, supra, § 78, p. 436. In In re Woskob, 305 F.3d 177 (3d Cir. 2002), the United States Court of Appeals for the Third Circuit chose between four possible dates of dissolution by decree of court: (1) the date the debtor’s partner excluded the debtor from partnership proceeds in January 1997, a judicial cause of dissolution under the UPA; (2) the date the debtor excluded the debtor’s partner from management and income from the partnership in April, 1997, a judicial cause of dissolution under the UPA; (3) the debtor’s partner’s bankruptcy in June 1997, a nonjudicial cause of dissolution under the UPA; or (4) the debtor’s partner’s death in 1999, a nonjudicial cause of dissolution under the UPA. With respect to whether the partners’ expulsions in 1997 were ‘‘sufficient to dissolve [the] partnership through operation of law and without the need for a judicial decree,’’ the Third Circuit distinguished between expulsions that ‘‘result in the instantaneous dissolution of the partnership’’—such as when a partner expels another in accordance with power conferred by agreement under § 31 (1) (d) of the UPA—and those that ‘‘merely serve as grounds by which a court can decree a dissolution’’—such as when a partner expels another without power conferred by agreement. Id., 183. The court held that because the partnership agreement did not confer the power to expel under § 31 (1) (d) of the UPA, and because neither of the parties had brought suit for dissolution by decree of court after their purported expulsions by each other, the exclusions had not operated to ipso facto dissolve the partnership and were
As in In re Woskob, supra, 305 F.3d 183, courts have looked to the conduct of the parties to determine when it would be equitable to set the date of dissolution at a time other than the date of the court’s decree, finding this inquiry to be easier when conduct giving rise to grounds for dissolution is extreme, and harder where conduct giving rise to grounds for dissolution is not serious enough to ‘‘result in the instantaneous dissolution of the partnership.’’ When conduct giving rise to grounds for dissolution by judicial decree is ‘‘serious and unequivocal . . . the misconduct really dissolves the partnership, the court decree merely giv[es] legal effect thereto.’’ Vangel v. Vangel, 116 Cal. App. 2d 615, 626, 254 P.2d 919 (1953); see Fisher v. Fisher, 349 Mass. 675, 678, 212 N.E.2d 222 (1965) (fixing date of dissolution as date partner was notified in writing that he was ‘‘ ‘permanently suspended’ ’’ from partnership, and effectively ousted, instead of date of judicial decree, and entering judgment nunc pro tunc, as of date he was notified, in interest of ‘‘[e]quity and . . . furtherance of justice’’); see also Edwards v. Edwards, 122 Idaho 963, 968, 842 P.2d 299 (1992) (‘‘[T]he effective date of a dissolution is the date of the first effective act of dissolution; subsequent acts or causes of dissolution are irrelevant. . . . Thus, although a dissolution by judicial decree generally dates from the date of the court decree, the date of dissolution may be deemed to have occurred earlier, where, as here, the partnership is dissolved on the basis of findings that relate back to a prior date.’’ [Citations omitted; emphasis added.]); accord 68 C.J.S. 723, Partnership § 549 (2009).
But when grounds for dissolution by judicial decree are ‘‘so disputed or equivocal that automatic dissolution by operation of law, or self-help by partners [of excluding the offending partner] would be reckless’’; J. Crane & A. Bromberg, supra, § 78, p. 437; the court may otherwise fix the date of dissolution as the date of the judicial decree. See Graham v. Dietze, Docket Nos. A-08-796 and A-09-088, 2010 WL 1600562, *5–6 (Neb. App. 2010) (finding impropriety in trial court’s setting date of dissolution as date before suit brought, when most reliable financial information had been available, and holding that date was improper because parties’ conduct had not ipso facto amounted to dissolution and parties had not sought judicial dissolution as of that date); cf. Vangel v. Vangel, supra, 116 Cal. App. 2d 626 (The trial court fixed the date of dissolution as the date of closing of evidence at trial instead of the date judgment was entered or the date of exclusion because ‘‘a court may, because of a breach of the partnership agreement, decree the dissolution of the partnership as of a date prior to the judgment. In some cases where the breach is serious and unequivocal the dissolution may be decreed as of the date of the breach. . . . But here the act of [the defendant] in excluding [the] plaintiffs did not ipso facto dissolve the partnership. His acts simply provided grounds for an application to a court of equity for such relief. . . . [The date of the close of evidence]
The conduct of the parties has always been relevant to determining the date of dissolution by decree of court because the conduct itself provides the factual basis that gives rise to a cause of action for dissolution as a matter of law. In Kruse v. Vollmar, 83 Ohio App. 3d 378, 382, 614 N.E.2d 1136 (1992), the Court of Appeals of Ohio addressed whether a trial court had improperly failed to dissolve a partnership even though it had awarded punitive damages after finding that the defendants had excluded the plaintiff from management decisions. The Court of Appeals held that, on remand, the trial court must dissolve the partnership and that ‘‘the cause of the dissolution must be determined in the first instance by the trial court . . . [and] the date on which the parties’ interest in the partnership is to be finally ascertained is the date on which the trial court enters its judgment of dissolution consistent with this opinion . . . .’’ Id., 385. Upon motion for reconsideration, however, the Court of Appeals of Ohio, in a per curiam opinion, noted that, in holding that the date of dissolution must be the date of the trial court’s judgment, it had ‘‘fail[ed] to fully consider that there may be events that could cause the trial court, in the first instance, to establish the date of dissolution at a time previous to its final judgment entry.’’ (Emphasis added.) Kruse v. Vollmar, 85 Ohio App. 3d 198, 199, 619 N.E.2d 482 (1993). Accordingly, the court held that ‘‘the trial court should not be prevented from considering [events occurring prior to the date judgment is rendered] to ascertain what the proper date of dissolution should be . . . .’’ Id.
Though trial courts have properly found earlier dates of dissolution than the date the trial court renders judgment of dissolution based on the conduct or circumstances of the parties, trial courts have neither found nor attempted to find later dates of dissolution than the date the trial court renders judgment of dissolution. A trial court cannot find future facts and, thus, no appellate court has directly addressed whether an appeal of the judgment of dissolution would alter the ‘‘date of dissolution’’ to be subsequent to the date the trial court renders judgment of dissolution. In Scheckter v. Rubin, supra, 349 Pa. 104, however, the Supreme Court of Pennsylvania addressed whether the date of dissolution by decree of court should be the date specified in the decree nisi dissolving the partnership or the date when the trial court dismissed the exceptions to the decree nisi and entered the final decree. The appellant sought to gain the benefit of postdissolution appreciation in the value of his partnership interest from the date of the decree nisi to the date of the final decree. The court held unequivocally that the effective date of dissolution was the earlier date, ‘‘the date specified in the decree nisi which, in express words, dissolved the partnership as of that day. . . . There can be no serious objection, on the dismissal of the exceptions [to the decree nisi], to adopting, in the final decree, the date stated in the decree nisi as the dissolution date. In such circumstances, a party whose contention is rejected [on appeal] should gain nothing by the lapse of time between the dates of the nisi and final decrees.’’ Id.; accord Kirby v. Kalbacher, 373 Pa. 103, 95 A.2d 535 (1953) (holding date of dissolution by decree of court to be date of decree nisi, notwithstanding affirmance of decree three months later, because affirmance merely restated fact of dissolution as of
These decisions all establish the principle that the conduct giving rise to the grounds for dissolution—the cause of the dissolution—controls the date of dissolution. No events relating to the grounds for dissolution occur during the pendency of an appeal; conduct or circumstances of the parties relevant to dissolution have already occurred, the trial court has already found facts, and no further factual developments during that interim period can influence an appellate court as to the propriety of upholding a dissolution because such developments are not in the appellate record. A mere lapse of time after a trial court renders judgment of dissolution has no bearing on a trial court’s a priori factual finding of dissolution as of a particular date.
Like the courts refusing to set the date of dissolution after, at the latest, the date the trial court renders judgment of dissolution, other courts have similarly refused to allow valuation of partnership assets after the date of dissolution because, under the UPA, the ‘‘value [of the departing partner’s interest] is computed as of the date of dissolution rather than the later time of settlement, which means the outgoing interest is protected, as against the other partners, from [postdissolution] losses and does not get the benefit of [postdissolution] appreciation.’’ (Footnotes omitted.) 2 A. Bromberg & L. Ribstein, Bromberg and Ribstein on Partnership (2014) § 7.13 (b) (1), pp. 7:186–7:187. For example, in Oliker v. Gershunoff, 195 Cal. App. 3d 1288, 1304, 241 Cal. Rptr. 415 (1987), the California Court of Appeal addressed whether an expelled partner of a real estate syndication partnership was entitled to a pro rata share of postdissolution appreciation in value of the partnership-owned realty. The real estate market during the Oliker partnership was in the middle of a recession when the withdrawing partner withdrew. Id., 1300. After the partners mutually agreed to allow the withdrawing partner to withdraw, an inflationary cycle began and real property values boomed. Id. The California Court of Appeal held that, in receiving the value of his interest in the partnership, the withdrawing partner could not take advantage of postdissolution appreciation of the partnership property because ‘‘[t]o reach a contrary result would be manifestly inequitable. [The withdrawing partner] had no downside risk [after dissolution] because his interest, in large part, was fixed as of the date of dissolution. By a parity of reasoning, the withdrawing partner should not be entitled to share in the upside potential. Otherwise, a withdrawing partner would have no motivation to settle his partnership accounts but instead could delay such matter, gambling on the chance that the partnership’s assets would rise in value in the interim, and knowing that, in any event, his value in the interest in the partnership determined as of the date of dissolution could not be reduced by any subsequent events.’’ Id., 1304.
Similarly, in King v. Evans, 791 S.W.2d 531, 535 (Tex. App. 1990), the Court of Appeals of Texas discussed how the UPA treated postdissolution fluctuations in value: ‘‘Section 42 [of the UPA] is intended to give the [noncontinuing] partner the benefit of asset appreciation at dissolution, and leave him unaffected by later [postdissolution] losses. . . . [T]he statute was obviously intended to put the risk of operating the business after dissolution on the continuing partner. This is the reason that the value of an outgoing partner’s interest must be computed as of the date of dissolution rather than the later time of settlement. Conversely, neither would an outgoing partner receive the benefit
Courts refusing to alter either the date of dissolution or the value of a partnership interest despite postdissolution fluctuations in value are justified in this refusal, notwithstanding that a departing partner had only later felt the effects of dissolution (i.e., had received partnership distributions or participated in partnership affairs during an interim period). After all, courts valuing a departing partner’s interest can equitably adjust the valuation to account for postdissolution distributions received while winding up or maintaining the status quo. See, e.g., Robins v. Roland, supra, 2008 WL 615865, *3 (finding date of dissolution to be date of death of partner, even though partner’s wife continued to manage partnership affairs and receive distributions for years after dissolution); Vangel v. Vangel, supra, 116 Cal. App. 2d 630 (affirming date of dissolution as date of closing of evidence in trial court, even though ‘‘it appear[s] from the briefs and from the oral argument that the status quo with respect to the partnership operations has remained unaltered during the pendency of this appeal’’); Scheckter v. Rubin, 355 Pa. 633, 635–36, 50 A.2d 668 (1947) (ordering reimbursement of funds expended by former partner in maintaining partnership business postdissolution and during pendency of appeals because even former partners may be ‘‘justly and properly entitled to reimbursement out of the [partnership] assets’’ in continuing dissolved business until settlement and because such expenditures can ‘‘be accounted for accordingly’’).13 Noteworthy in these
In accordance with the foregoing case law and principles of partnership law under the UPA, the date of dissolution and, thus, the date of valuation of a partnership interest is the date the trial court renders judgment of dissolution, or a date prior to that if the parties’ conduct as found by the trial court—the cause of the dissolution itself—compels an earlier finding. Scholarship reinforces the principle that the date of dissolution is the date the trial court renders judgment of dissolution, or some date prior to when the trial court renders judgment of dissolution. See, e.g., J. Crane & A. Bromberg, supra, § 78, p. 436 and n.31; 2 A. Bromberg & L. Ribstein, Bromberg and Ribstein on Partnership, supra, pp. 7:98–7:99; R. Hillman, ‘‘Misconduct as a Basis for Excluding or Expelling a Partner: Effecting Commercial Divorce and Securing Custody of the Business,’’
B
Having discussed case law interpreting the date of dissolution under the UPA, I now address other common problems courts and commentators have encountered in interpreting its dissolution provisions. In particular, I discuss problems with the definition of dissolution and how the statutory language set forth in the UPA created confusion about the causes and effects of dissolution. These problems informed the choices made by the drafters of the RUPA in overhauling the UPA and creating the analogue to dissolution—dissociation—that we must interpret in the present case.
Lawyers often misunderstood the term ‘‘dissolution’’ in the UPA. ‘‘Dissolution is probably the most confusing concept and area in all of partnership law.’’ D. Weidner, ‘‘A Perspective to Reconsider Partnership Law,’’
The UPA attempted to implement a precise definition of ‘‘dissolution’’—accompanied by distinct references to winding up and termination—to clarify that dissolution did not mean termination. To remedy the
Even after the UPA attempted to clarify dissolution, case law in the seventy-five years since the drafting of the UPA did not evince this clarity. ‘‘Despite the relative precision of the statutory language [of the UPA], [‘dissolution,’ ‘winding up,’ and ‘termination’] continue to be used indiscriminately by many courts and lawyers.’’ J. Crane & A. Bromberg, supra, § 73, p. 416.14 The National Conference of Commissioners on Uniform State Laws revisited principles of partnership dissolution in 1986, deciding to undertake a complete revision of the UPA and recommending sixty-six changes to the partnership break-up provisions of the UPA. See UPA Revision Subcommittee of the Committee on Partnerships and Unincorporated Business Organizations, ‘‘Should the Uniform Partnership Act Be Revised?,’’
The revision subcommittee specifically noted that the leading scholar on partnership law ‘‘has criticized the lack of coordination between the general definition of dissolution under [§] 29 [of the UPA] and the specific causes of dissolution under [§§] 31 and 32 [of the UPA].’’ UPA Revision Subcommittee of the Committee on Partnerships and Unincorporated Business Organizations, supra, 43 Bus. Law. 161. The revision subcommittee agreed that the definition of dissolution ‘‘confuses the causes and effects in that [for example] a partner ceasing to be associated is both the cause and the definition of dissolution.’’ Id.
expressing his will to dissolve is dissociating himself and causing a dissolution,
Thus came the RUPA, which added the term ‘‘dissociation’’ to the statutory scheme in an attempt to clarify the moment in time when a partner begins the process of leaving a continuing partnership. See
‘‘ ‘[D]issociation’ ’’ is characterized as ‘‘the beginning of the end of association. A partnership, like a marriage, often is far easier to start than it is to end. . . . The process of dissociation is more complicated than in the case of [a shareholder selling shares in a public corporation] because every partner has agency power and personal liability that must be wound down. Whether there is a buyout of the dissociating partner or a
A review of the RUPA’s structure, language, and official comments confirms that the concepts of dissociation and dissolution are analogous. We agreed with this premise in Brennan I, noting that the drafters of the RUPA used the term dissociation ‘‘in lieu of the ‘UPA term ‘‘dissolution’’ . . . .’ ’’ Brennan v. Brennan Associates, supra, 293 Conn. 84. Just as § 31 of the UPA set forth ‘‘Causes of Dissolution’’ and § 32 of the UPA elaborated more fully on ‘‘Dissolution by Decree of Court,’’ § 601 of the RUPA sets forth ‘‘Events Causing Partner’s Dissociation,’’ which include ‘‘expulsion by judicial determination’’ in § 601 (5) of the RUPA, as is relevant to the present case. See
C
With this understanding of (1) how courts have interpreted the UPA in determining the date of dissolution, (2) how the definition of dissolution confused cause and effect and how the drafters of the RUPA acknowledged this confusion, and (3) that ‘‘dissociation’’ was meant to supplant dissolution, I now turn to case law interpreting the date of dissociation under the RUPA.
The determination that dissociation is analogous to dissolution also perseveres when I examine how the RUPA values an outgoing partner’s partnership interest, whether the partnership continues despite dissociation or the partnership dissolves and liquidates. ‘‘The basic policy judgment is that the departing partner should get the same amount through the buyout that he or she would get if the business were wound up. Theoretically, the amount paid to the dissociating partner should be the same whether there is a buyout by the continuing partnership or a liquidation of the business.’’ D. Weidner & J. Larson, supra, 49 Bus. Law. 11–12. Just as the conduct or circumstances of the parties informed the relevant date of dissolution under the UPA, the ‘‘ ‘moment of the event causing cessation’ ’’ informs the relevant date of dissociation in determining the price of a partner’s interest during a buyout under the RUPA. D. Weidner, ‘‘The Revised Uniform Partnership Act Midstream: Major Policy Decisions,’’ 21 U. Tol. L. Rev. 825, 840 (1990); see also In re Woskob, supra, 305 F.3d 177; Vangel v. Vangel, supra, 116 Cal. App. 2d 626; Edwards v. Edwards, supra, 122 Idaho 968; 68 C.J.S., supra, p. 723.
Case law interpreting dissociation under the RUPA follows the same logic, policy rationales, and reasoning inherent in partnership law as does case law interpreting dissolution under the UPA. Just like the court in In re Woskob, the court in Fotouhi v. Mansdorf, 427 B.R. 798, 803 (Bankr. N.D. Cal. 2010) also found, years after the
Courts interpreting the RUPA must also be guided by findings of fact with respect to the parties’ conduct or circumstances that give rise to dissociation, just as courts interpreting the UPA have done so with respect to dissolution. Compare Graham v. Dietze, supra, 2010 WL 1600562, *5–6 (trial court improperly set date of dissolution as date before action brought because parties’ conduct had not ipso facto amounted to dissolution and parties had not sought judicial dissolution as of that date), Kruse v. Vollmar, supra, 85 Ohio App. 3d 199 (trial court entitled to find earlier date of dissolution than date judgment is rendered if it makes factual findings that establish dissolution as matter of law at earlier date), with Robertson v. Jacobs Cattle Co., 285 Neb. 859, 874–75, 830 N.W.2d 191 (2013) (Valuation of dissociated partner’s share under RUPA as of ‘‘date of dissociation’’ clearly ‘‘refers to the date of the event which resulted in the dissociation’’ and because ‘‘the dissociation occurred as a result of expulsion by judicial determination . . . [the dissociated partners] were not dissociated from the partnership until the [D]istrict [C]ourt determined that they had engaged in conduct described in [§ 601 of the RUPA]’’).
Setting the ‘‘date of dissociation’’ as the date of the conduct or circumstances that cause dissociation remains correct notwithstanding postdissociation fluctuations in the value of the partnership. ‘‘During the period between dissociation and the purchase of the dissociated partner’s interest, the dissociated partner is essentially a creditor of the partnership. The purchase price of the dissociated partner’s interest is established as of the date of dissociation, it does not reflect post dissociation events in the life of the partnership.’’ R. Hillman et al., supra, § 603, author’s comment (6); see King v. Evans, supra, 791 S.W.2d 536 (UPA places ‘‘risks of continuation of the farming business after dissolution, including the risks of land depreciation in a falling real estate market [on the] continuing partner’’); accord Robertson v. Jacobs Cattle Co., supra, 285 Neb. 874–75 (The court refused to find the date of dissociation to be earlier than the date the trial court rendered judgment
D
With these principles in mind, I now turn to the present case. The defendants claim, and the majority agrees, that the date of dissociation for purposes of valuing the plaintiff’s partnership interest pursuant to
I acknowledge that the effect of the appellate stay pursuant to
The drafters of the RUPA explicitly stated that ‘‘dissociation’’ was meant to supplant ‘‘dissolution’’ and that ‘‘dissolution’’ now had a new meaning. Id. (‘‘An entirely new concept, ‘dissociation,’ is used in lieu of the UPA term ‘dissolution’ . . . . ‘Dissolution’ is retained but with a different meaning.’’).
For dissolution’s first role, defining the cause, the drafters of the RUPA decided to replace the word ‘‘dissolution’’ with the word ‘‘dissociation,’’ ‘‘answer[ing] the policy question of whether enough has happened to trigger the contraction of a partner’s association with the business.’’ D. Weidner & J. Larson, supra, 49 Bus. Law. 7. If enough had happened—if dissociation had been caused—the partnership would thereafter choose between one of two paths. On the first path, after dissociation of a partner for misconduct, the business could continue and the dissociating partner could be bought out. On the second path, after dissociation of a partner for misconduct, the business could treat such partner’s dissociation as a dissolution of the partnership and thereafter wind up and terminate. On both paths, at least in the context of a change in the partnership due to a partner’s misconduct, there must first have been a dissociation of the partner.
For dissolution’s second role, defining the effect of a change in the partnership, i.e., winding up and termination, the drafters of the RUPA decided to retain the word ‘‘dissolution.’’ Dissolution was, thus, repurposed to describe the second path, the result or effect of the dissociation that meant that the partnership would wind up and terminate. See
Automatic stays existed prior to the adoption of the RUPA and, despite their existence, the cases cited nevertheless yielded the same rule of law that the proper date of dissolution was the date of judgment of dissolution and not the date a subsequent appeal was resolved. See, e.g., In re Woskob, supra, 305 F.3d 177; Fotouhi v. Mansdorf, supra, 427 B.R. 802; In re Crutcher, supra, 209 B.R. 352; Estate of Webster v. Thomas, supra, 2013 WL 164041; Anastos v. Stable, supra, 443 Mass. 146; Fisher v. Fisher, supra, 349 Mass. 675.21 Apart from the majority’s claim that the stay changes the result, the majority has offered no law to that effect nor explained how this result would alter our jurisprudence regarding appellate stays in other cases.
My own review of our jurisprudence interpreting appellate stays indicates that the date of dissociation does not change even if a judgment of dissociation is stayed pending appeal. I begin by noting that the appropriate time to challenge the effect of the automatic stay on the plaintiff’s participation in partnership affairs would have been during the appeal in Brennan I.
If the defendants had truly questioned the effect of the appellate stay on the judgment of dissociation as it related to the plaintiff’s continued participation in the partnership, they should have included this claim in Brennan I. The fact of the matter is that the defendants did not question the propriety of the stay in the appellate system until it had an economic incentive to do so, when real estate prices fell years later and when it realized that the date of dissociation could impact the valuation of the partnership under the RUPA. In fact, in 2006, the defendants acknowledged that the plaintiff would have management rights during the pendency of the appeal, that the defendants might have to pay interest during that time period; see footnote 13 of this concurring and dissenting opinion; and, yet, that ‘‘the [trial] court [had] granted the defendants’ remedy of dissociation’’ as of September 2006. Notwithstanding these acknowledgments, the defendants asked the trial court to set a valuation hearing date within thirty days of its posttrial brief of issues to be resolved. We normally would decline to review the defendants’ challenge to the effect of the appellate stay years after the fact and merely because real estate values did not go in the direction the defendants had hoped. Cf. Sargent v. Smith, 272 Conn. 722, 733, 865 A.2d 1129 (2005) (denying plaintiff’s claim in second appeal that he would have been entitled to money collected by receiver during pendency of first appeal, and noting that ‘‘no equitable considerations warrant a contrary result’’ because same parties were involved in both actions, that plaintiff could have alerted trial court in first action to his claim, and that plaintiff could have taken appeal challenging actions of receiver when actions actually occurred).
The parties’ appeal in Brennan I did not challenge the notion that the parties should be prevented from working together; indeed, the plaintiff stated in his brief that he ‘‘has never disputed the fact that there was a great deal of dissension between [the] defendants and [the] plaintiff.’’ Instead, Brennan I was merely about the appropriateness of the remedy: the plaintiff claimed that, instead of his being dissociated from the partnership, the partnership should have been dissolved, or that it should have been the defendants’ being forced to withdraw from the partnership. Specifically, the plaintiff claimed in his brief that ‘‘[e]ven if [the] defendants’ newly discovered attitude towards the plaintiff’s twenty year old conduct were genuine, it is their change of attitude, not [the] plaintiff’s conduct, that makes it reasonably impracticable to carry on the partnership. In that case, perhaps withdrawal of the objecting partners, or dissolution of the partnership might be appropriate; but dissociation of [the] plaintiff is not.’’ [Emphasis in original.] Like in Sunbury, the parties merely appealed an aspect of the judgment of dissociation; they never desired to prevent their separation. Now, after eight years and the benefit of hindsight, the defendants challenge the date on which to value the plaintiff’s partnership
I also note that, to the extent a judgment of dissociation can be characterized as a form of injunctive relief and disregarding the fact that the defendants could have raised this claim in Brennan I, the automatic stay of
In Tomasso Bros., Inc. v. October Twenty-Four, Inc., 230 Conn. 641, 652–58, 646 A.2d 133 (1994), this court explored what types of injunctions are automatically stayed by
Our case law interpreting prior versions of our rules of practice confirmed that stays of prohibitory injunctions, as well as those of mandatory injunctions, were not automatic on appeal. Id., 654. We concluded that prohibitory injunctions were not automatically stayed and that ‘‘the enjoined party ought to be required to request the trial court to rule on a stay pending appeal, and that absent such a request, the injunction ought to be considered in effect. . . . [D]ifferent portions of the same injunction may be treated differently for some purposes . . . the fact that the same injunction may have both prohibitory and mandatory aspects counsels that both aspects be treated similarly for purposes of whether the injunction is automatically stayed pending appeal.’’ (Citation omitted.) Id., 657–58. The continuing vitality of this rule, that prohibitory injunctions are not automatically stayed on appeal, was reaffirmed in Sullivan v. McDonald, 281 Conn. 122, 126 n.2, 913 A.2d 403 (2007); see also 43A C.J.S. 464, Injunctions § 397 (2004) (‘‘[i]t is within the discretion of the court to stay the operation of the decree [granting an injunction] pending an appeal therefrom, until the hearing of the appeal on the merits, but taking an appeal does not of itself operate as a stay’’ [footnotes omitted]).
In the present case, however, the parties assumed the applicability of an automatic stay under
The majority’s interpretation encourages appeals and detracts from this court’s policy of conserving our scarce judicial resources. It allows for the possibility of either party’s benefiting from postjudgment market conditions and, thus, creates incentives to lodge appeals and gamble on fluctuating market conditions where such incentives did not exist previously. See Scheckter v. Rubin, supra, 349 Pa. 104 (‘‘a party whose contention is rejected [on appeal] should gain nothing by the lapse of time between the dates of the nisi and final decrees’’). Additionally, the majority’s interpretation precludes settlement because, after an appeal has been filed, the date of dissociation would change to an unknown future date and, therefore, the parties could not possibly negotiate or settle because any appraisals they had would be meaningless. The majority’s interpretation runs contrary to this court’s declaration that ‘‘it becomes important to fix the parties’ circumstances
To reach its interpretation of the date of dissociation, the majority places emphasis on the word ‘‘expulsion’’ in construing ‘‘expulsion by judicial determination . . . .’’ (Internal quotation marks omitted.) Specifically, the majority concludes that ‘‘[t]he language of
In support of its emphasis on the word ‘‘expulsion,’’ the majority states that ‘‘[§] 34-355 (7) (C) is particularly illuminating [in highlighting the importance of the term expulsion in § 34-355 (5)], given that dissociation under that subparagraph, like under § 34-355 (5), involves a judicial determination,’’ and yet
The case law discussed previously in this opinion interprets the date of dissolution under the UPA with reference to the causation role dissolution had played, not the effect role dissolution had played. The courts cited have uniformly held that the causation type dissolution was the relevant moment to define the date of dissolution. Therefore, it has been noted that, ‘‘[n]othing in [the RUPA] reveals an intent to change prior case law [of determining the date of dissolution], which suggests flexibility to fix a date of separation to suit the circumstances of a given case. Accordingly, the effective date of dissociation by judicial expulsion may be the date of conduct or circumstances giving rise to the decree, the date of the petition for judicial relief, or the date of the decree itself. Normally, however, the date of the decree
I would conclude that the trial court appropriately valued the plaintiff’s partnership interest as of 2006, the date of dissociation, rather than the date the plaintiff ceased to participate in partnership affairs, despite postdissociation fluctuations in value.22 Setting this date comports with principles of partnership law that set the ‘‘value [of the departing partner’s interest] as of the date of dissolution rather than the later time of settlement, which means the outgoing interest is protected, as against the other partners, from post-dissolution losses and does not get the benefit of postdissolution appreciation.’’ (Footnotes omitted.) 2 A. Bromberg & L. Ribstein, Bromberg and Ribstein on Partnership, supra, pp. 7:186–7:187; see R. Hillman et al., supra, § 603, author’s comment (6) (‘‘During the period between dissociation and the purchase of the dissociated partner’s interest, the dissociated partner is essentially a creditor of the partnership. The purchase price of the dissociated partner’s interest is established as of the date of dissociation [and] it does not reflect post dissociation events in the life of the partnership.’’ [Emphasis added.]); see also Oliker v. Gershunoff, supra, 195 Cal. App. 3d 1304 (‘‘[The withdrawing partner’s interest] was fixed as of the date of dissolution. By a parity of reasoning, the withdrawing partner should not be entitled to share in the upside potential. Otherwise, a withdrawing partner would have no motivation to settle his partnership accounts but instead could delay such matter, gambling on the chance that the partnership’s assets would rise in value in the interim, and knowing that, in any event, his value in the interest in the partnership determined as of the date of dissolution could not be reduced by any subsequent events.’’).
Additionally, the defendants’ arguments to value the plaintiff’s partnership interest as of 2009 belie the positions they took in Brennan I, in which they wished to value the plaintiff’s partnership interest as early as possible and while the appeal was pending. See Brennan v. Brennan Associates, supra, 293 Conn. 64. After this court issued its opinion in Brennan I, the defendants sent an offer to purchase the plaintiff’s interest in the partnership as of ‘‘the date of [the plaintiff’s] dissociation (September 2006).’’23 Only after the passage of time, and subsequent decline in the
I would, accordingly, reject the majority’s interpretation of the RUPA and, instead, reaffirm well established principles of partnership law, holding the date of dissociation to be the date the trial court rendered judgment of dissociation, or a date prior to when the trial court renders judgment of dissociation, if the parties’ conduct as found by the trial court—the cause of the dissociation itself—compels an earlier finding.
II
ATTORNEY’S FEES
As to part III of the majority’s opinion, in my view, aside from some vague generalities, the defendants offered no proof that the partnership should have treated their attorney’s fees as a liability of the partnership. Therefore, I respectfully dissent from the majority opinion regarding attorney’s fees and would have affirmed the decision of the trial court.
The partnership never treated the attorney’s fees as a liability of the partnership. All of the tax returns and evidence at trial support a contrary conclusion. Further, I disagree with the majority’s characterization that the trial court decided the issue as a matter of law under
The defendants claim that the trial court improperly failed to consider the defendants’ attorney’s fees as a liability of the partnership when computing the value of the plaintiff’s partnership interest. They claim that the trial court improperly construed the partnership agreement24 and that this construction constituted an error of law, over which this court exercises plenary review. See Crews v. Crews, 295 Conn. 153, 162, 989 A.2d 1060 (2010). In opposition, the plaintiff claims that, at trial, the defendants couched their claim for attorney’s fees as a claim for damages pursuant to
At trial in the present case, the defendants sought the entirety of their substantial attorney’s fees as damages pursuant to
Addressing the defendants’ argument that it should award attorney’s fees as damages, the trial court found that ‘‘the defendants have failed to prove by a preponderance of the evidence the allegations and applicability of their first and second special defenses. There is no evidence that the damages claimed by the defendants, whether for attorney’s fees or otherwise, are causally related to the wrongful dissociation.’’ In finding that ‘‘the conduct of the plaintiff did not lead to damage to the partnership but rather simply made management of the partnership unworkable’’ the court ‘‘decline[d] to award attorney’s fees as an offset against the buyout price due the plaintiff.’’
On appeal, had the defendants challenged the trial court’s determination that the attorney’s fees did not causally relate to the plaintiff’s wrongful dissociation, we would have reviewed the ‘‘trial court’s determination of causation under the clearly erroneous standard.’’ Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin, 247 Conn. 48, 58, 717 A.2d 724 (1998).25
In the present case, however, the defendants do not challenge the legal or factual bases of the trial court’s decision on causation. The defendants instead claim entitlement to attorney’s fees based on an entirely different theory: they now claim that the attorney’s fees should have been treated as a liability of the partnership pursuant to the partnership agreement. The plaintiff notes that, at trial, the defendants couched their claim for attorney’s fees as a claim for damages under the RUPA. I
At trial, the defendants did not properly raise the claim that the attorney’s fees were a liability of the partnership; the overwhelming presentation of the claim was that the attorney’s fees constituted damages. The defendants’ counterclaim requested that the attorney’s fees be awarded exclusively as damages for wrongful dissociation pursuant to
The defendants did not offer the testimony of the partnership’s accountant, who prepared the balance sheets or tax returns that both parties relied upon, to testify as to the accounting practices of the partnership. In lieu of the accountant’s testimony, the parties instead stipulated to the amounts of the partnership’s two liabilities for the two claimed dates of dissociation; those liabilities included only the amounts due on the mortgage and the tenants’ security
The defendants did suggest that the attorney’s fees were a liability once in pretrial
The defendants’ theory at trial evinces a choice between two alternatives. On the one hand, the defendants could have chosen to book the attorney’s fees as a contingent liability of the partnership—contingent because the partnership, for want of cash, had not yet reimbursed the estate—thereby reducing the value of the plaintiff’s partnership interest by the plaintiff’s proportional share of all attorney’s fees. See footnote 36 of this concurring and dissenting opinion. On the other hand, the defendants could have chosen to forgo booking the attorney’s fees as a contingent liability in the hopes of recovering, as damages pursuant to
Scholars are familiar with the strategic choice involved in characterization of contingent liabilities during a valuation proceeding. See R. Hillman, ‘‘RUPA and Former Partners: Cutting the Gordian Knot with Continuing Partnership Entities,’’ supra, 58 Law & Contemp. Probs. 22 (‘‘[i]t is in the partnership’s advantage to consider contingent liabilities in arriving at its estimate of the buyout price’’); id., 22 n.93 (‘‘[T]he partnership has an incentive to insist that all known liabilities be taken into account since they will reduce the buyout price. The dissociating partner
In the present case, by choosing the damages theory of entitlement to attorney’s fees, the partnership chose to ignore its contingent liabilities in favor of a higher buyout price, taking the chance that the trial court would: (1) find the plaintiff liable for damages representing the full amount of their attorney’s fees; (2) offset the damages in full against the purchase price; and (3)
thus require the defendants to pay a much lower buyout price to the plaintiff. In doing so, the partnership also took the chance that the trial court would not find the plaintiff liable for the attorney’s fees as damages, which occurred in the present case, causing the defendants to pay the higher buyout price and still owe the entirety of their own attorney’s fees to the estate.
By choosing the damages claim of entitlement to attorney’s fees, and presenting their arguments and evidence accordingly, the defendants failed to sufficiently raise their claim of entitlement to attorney’s fees as a liability. See White v. Mazda Motor of America, Inc., 313 Conn. 610, 631, 99 A.3d 1079 (2014) (‘‘Even if we assume that [the defendant’s] passing suggestion actually referenced [the claim raised on appeal], it was too little, too late, for several reasons. . . . [A]n issue must be ‘distinctly raised’ before the trial court, not just ‘briefly suggested . . . .’ ’’). The defendants pursued the theory on attorney’s fees—damages pursuant to
Therefore, I respectfully concur in part II of the majority opinion and dissent from parts I and III of the majority opinion.1
Notes
‘‘(1) The partnership’s having notice of the partner’s express will to withdraw . . .
‘‘(2) An event agreed to in the partnership agreement as causing the partner’s dissociation;
‘‘(3) The partner’s expulsion pursuant to the partnership agreement;
‘‘(4) The partner’s expulsion by the unanimous vote of the other partners . . .
‘‘(5) On application by the partnership or another partner, the partner’s expulsion by judicial determination because: (A) The partner engaged in wrongful conduct that adversely and materially affected the partnership business; (B) the partner wilfully or persistently committed a material breach of the partnership agreement or of a duty . . . or (C) the partner engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with the partner;
‘‘(6) The partner’s: (A) Becoming a debtor in bankruptcy; (B) executing an assignment for the benefit of creditors; (C) seeking, consenting to or acquiescing in the appointment of a trustee. . . or (D) failing . . . to have vacated or stayed the appointment of a trustee . . .
‘‘(7) In the case of a partner who is an individual: (A) The partner’s death; (B) the appointment of a guardian or general conservator for the partner; or (C) a judicial determination that the partner has otherwise become incapable of performing the partner’s duties under the partnership agreement;
‘‘(8) In the case of a partner that is a trust . . . distribution of the trust’s entire transferable interest in the partnership . . .
‘‘(9) In the case of a partner that is an estate . . . distribution of the estate’s entire transferable interest in the partnership . . . or
‘‘(10) Termination of a partner who is not an individual, partnership, corporation, trust or estate.’’
‘‘(b) The buyout price of a dissociated partner’s interest is the amount that would have been distributable to the dissociating partner under subsection (b) of section 34-378 if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date. Interest must be paid from the date of dissociation to the date of payment.
‘‘(c) Damages for wrongful dissociation under subsection (b) of section 34-356, and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, must be offset against the buyout price. Interest must be paid from the date the amount owed becomes due to the date of payment. . . .
‘‘(e) 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 (c) of this section.
‘‘(f) If a deferred payment is authorized under subsection (h) of this section, the partnership may tender a written offer to pay the amount it estimates to be the buyout price and accrued interest, reduced by any offsets under subsection (c) of this section, stating the time of payment, the amount and type of security for payment and the other terms and conditions of the obligation. . . .
‘‘(h) A partner who wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking is not entitled to payment of any portion of the buyout price until expiration of the term or completion of the undertaking, unless the partner establishes to the satisfaction of the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment must be adequately secured and bear interest.
‘‘(i) A dissociated partner may maintain an action against the partnership . . . to determine the buyout price of that partner’s interest, any offsets under subsection (c) of this section or other terms of the obligation to purchase. . . . The court shall determine the buyout price of the dissociated partner’s interest, any offset due under subsection (c) of this section and accrued interest, and enter judgment for any additional payment or refund. If deferred payment is authorized under subsection (h) of this section, the court shall also determine the security for payment and other terms of the obligation to purchase. The court may assess reasonable attorney’s fees and the fees and expenses of appraisers or other experts for a party to the action, in amounts the court finds equitable, against a party that the court finds acted arbitrarily, vexatiously or not in good faith. The finding may be based on the partnership’s failure to tender payment or an offer to pay or to comply with subsection (g) of this section.’’
‘‘(2) In the case of a partnership for a definite term or particular undertaking, before the expiration of the term or completion of the undertaking . . . (B) the partner is expelled by judicial determination under subdivision (5) of section 34-355 . . . .
‘‘(c) A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the partner to the partnership or to the other partners.’’
‘‘(1) The partner’s right to participate in the management and conduct of the partnership business terminates . . . .’’
Suppose the plaintiff had engaged in conduct that had ipso facto caused dissociation as a matter of law on the date of the conduct, such as giving the defendants notice of his express will to withdraw as a partner;
The defendants themselves recognized this in their 2006 posttrial brief, noting that the purpose of
Moreover, the majority’s interpretation of the date of dissociation as the date of disposition on appeal raises more questions than it answers. If the parties withdrew their appeals, would the date of dissociation be the date(s) of those withdrawals? If the parties maintained the status quo, but later were granted relief from the appellate stay, as the parties in the present case attempted to do, would the date of dissociation be the date of the relief from stay? The events described in the previous two questions have no relation to the conduct or circumstances that trigger dissociation pursuant to
The trial court found that the plaintiff had been dissociated despite his participation in partnership affairs during the appeal. Given the circumstances particular to the present case, the trial court might reasonably have been entitled to find that the plaintiff retained some fiduciary duties despite his technical dissociation. The trial court found that ‘‘the defendants have failed to establish by a preponderance of the evidence that for the period [during the appellate stay] the plaintiff was engaged in conduct that violated the duty of loyalty set forth in [General Statutes]
‘‘[The Defendants’ Counsel]: Were there any issues that arose, I suppose you’re aware of, in connection with [the partnership’s accountant] putting that balance sheet together?
‘‘[Lehn]: Yes. . . . The one open item was the value of the real estate, which obviously is the primary issue in this case.’’
‘‘[The Plaintiff’s Counsel]: And then in your formulation you deducted $2 million as an offset, correct?
‘‘[Lehn]: Correct.
‘‘[The Plaintiff’s Counsel]: And that was to represent attorney’s fees, loss of partnership income and damage to the partnership’s reputation and goodwill, correct?
‘‘[Lehn]: Yes, sir.’’ (Emphasis added.)
‘‘[The Plaintiff’s Counsel]: And then you came to a total value of the real estate investment; am I right?
‘‘[Vannucci]: Yes . . . .
‘‘[The Plaintiff’s Counsel]: Okay. Then you took a 3 percent selling cost?
‘‘[Vannucci]: That is correct.
‘‘[The Plaintiff’s Counsel]: And then you deducted the balance on the mortgage on the property?
‘‘[Vannucci]: We deducted the liabilities that existed that I was—information I was shown, so, yes, we deducted those liabilities. We deducted notes payable, second line after that shows tenants’ security deposits deducted.’’ (Emphasis added.)
The plaintiff’s valuation expert, Kenneth Pia, testified that ‘‘[the partnership] is a box. And it’s an entity that is filled with various assets and two liabilities. The assets are in the form of real estate and there’s a little bit of cash as well and the liabilities are, simply, the mortgage related to the real estate and the tenant security deposits, as it is a real estate intensive entity.’’ (Emphasis added.)
‘‘[Lehn]: The partnership records, both for 2006 and 2009, and today, do not reflect any liability on the books and records of the partnership for the amount [of attorney’s fees] owed to the estate.
‘‘[The Defendants’ Counsel]: And do you know why they have not been booked yet by the partnership?
‘‘[Lehn]: Because the partnership’s position is that [the plaintiff] is liable for those fees, so it would be—it would be an asset and an offsetting liability if—if it’s a receivable from [the plaintiff] and offsetting liability from the partnership, so it wasn’t worth putting both numbers on there. But obviously if [the plaintiff] did not pay, then there would be a liability for the partnership.’’ (Emphasis added.)
‘‘[Lehn]: Well, obviously from these partners’ perspective, we felt that [the plaintiff] would ultimately be responsible for [the attorney’s fees], but . . .
‘‘[The Defendants’ Counsel]: In the meantime, who was going to pay the fees?
‘‘[Lehn]: The estate would on behalf of the partnership and the partners. . . .
‘‘[The Defendants’ Counsel]: [I]n connection with the attorneys’ fees, what does the estate expect in terms of repayment of those fees?
‘‘[Lehn]: Well, it expects that [the plaintiff] will repay those [attorney’s] fees to the partnership, which will then repay those fees to the individual law firms—to the estate.
‘‘[The Defendant’s Counsel]: Has the estate made demand on the partnership to this date to reimburse it for the fees?
‘‘[Lehn]: No.
‘‘[The Defendant’s Counsel]: Okay. And why not?
‘‘[Lehn]: Again, because we’re hopeful that this court will find that [the plaintiff is] responsible, and so that the fees will come through [the plaintiff] rather than through the partnership directly.
‘‘[The Defendant’s Counsel]: And on what basis do you seek to have [the plaintiff] repay those fees—pay those fees to the estate?
‘‘[Lehn]: That’s under [§§ 34-362 and 34-356], providing for a damage offset to the amount that [the plaintiff] is entitled to from the partnership. . . .
‘‘[The Defendants’ Counsel]: And if [the attorney’s fees become] a liability for the partnership, how is it that the estate would expect to be repaid?
‘‘[Lehn]: Well, if the partnership is required to pay back the estate and is not paid by [the plaintiff], then there is not sufficient cash at this time. The partnership will have to pay back the amount due to the estate over some extended period of time. We haven’t worked out the details yet, but it’s clear that there’s not enough cash available to do that now.’’ (Emphasis added.)
When the parties acquiesce to use of well-kept partnership books and records as the bases of an accounting or an appraisal, courts may properly decline to disturb the parties’ characterizations of partnership items in the absence of compelling evidence to the contrary. In Kerasotes v. Estate of Kerasotes, 238 Ill. App. 3d 1020, 1027, 605 N.E.2d 643 (1992), for example, the Appellate Court of Illinois rejected the contention that the trial court should have characterized a parent partnership’s asset as the asset, instead, of a subsidiary company. The court declined to do so, noting that, for many years, the parent partnership’s financial statements had treated the asset as an asset of the parent partnership. Id. The court noted that ‘‘[t]he audit reflected this, and these amounts were included in determining the net assets of [the parent partnership]. It does not sit well for [one of the members of the subsidiary company], who was the president and chief executive officer of [the parent partnership], to now allege the accounting procedure employed for many years was incorrect and that he did not know that the [asset, composed of advertising revenue and soft drink rebates] would be included as revenue of [the parent partnership].’’ Id. The court noted that the parties had acquiesced, via a dissolution agreement, to the manner of the audit, relying on ‘‘audit of the books and records of the partnership . . . to certify the assets and liabilities of each partnership.’’ Id. The court held that the members of the subsidiary company were ‘‘bound by this agreement and cannot now disregard the terms of [the dissolution agreement] simply because [the members of the subsidiary company] have discovered the terms are less profitable to them than they anticipated when they entered into it.’’ Id.; see Cowan v. Maddin, 786 S.W.2d 647, 658 (Tenn. App. 1989) (‘‘It is not inequitable to plaintiff to continue treating prepaid expenses in the same manner as those expenses had been treated from [the beginning of the partnership in 1974 to the date of dissolution in 1986]. The plaintiff has had the benefit of that treatment over the years . . . .’’); see also Dawson v. White & Case, 88 N.Y.2d 666, 673, 672 N.E.2d 589, 649 N.Y.S.2d 364 (1996) (affirming trial court’s exclusion of unfunded pension plan payments from calculation of the partnership liabilities in part because partnership ‘‘never included the unfunded pension plan as a liability in the firm’s financial statements’’).
Because the defendants chose the damages theory of entitlement to attorney’s fees, the record is insufficient for this court—let alone the trial court—to decide whether the partnership’s failure to characterize the attorney’s fees as a liability throughout the many years of ongoing litigation now should be disregarded at the defendants’ own request. See footnote 35 of this concurring and dissenting opinion. As to evidence of characterization, in Cowan, the court relied upon findings of a Special Master, who specifically took proof ‘‘regarding the manner in which the partnership had treated prepaid expenses,’’ including testimony from the partnership’s accountant. Cowan v. Madden, supra, 786 S.W.2d 657. Unlike in Cowan, the defendants in the present case have not offered proof as to the manner in which the partnership has treated attorney’s fees, or liabilities in general, in the past. As to selectively-asserted accounting methods, in Dawson, the Court of Appeals of New York affirmed exclusion of a law firm’s unfunded pension plan payments from the firm’s liabilities, agreeing with the Appellate Division’s reasoning that ‘‘[t]he purported multi-million dollar liability never appeared in any of [the] defendant’s financial statements and was never assessed against either defendant or any of its partners for accounting purposes. It is only against plaintiff that defendant seeks to impose this burden. The unfunded plan was, and is, if anything, a future, not a current, liability . . . .’’ (Emphasis added.) Dawson v. White & Case, 212 A.D.2d 385, 386 (N.Y. App. 1995). Like the defendant in Dawson, the defendants in the present case only seek, after an unfavorable ruling by the trial court, to impose the burden of attorney’s fees as a liability against the plaintiff.