Partnership Litigation

McLaughlin & Nardi’s attorneys represent business owners in disputes with their partners.  When negotiation can swiftly resolve the dispute and protect our clients’ rights, we pursue it.  When it cannot, our experienced litigators fight aggressively for our clients’ rights in partnership litigation.

Partnerships are formed when two or more people go into businesses together and do not form some other formal business entity, such as a corporation or limited liability company (“LLC”).  Partnerships can be either “de facto” or “de jure”.  A “de facto” partnership is one were the parties are acting as partners as a matter of fact even though they do not have any formal partnership agreement; a “de jure” partnership is one were the parties act as partnership through a formal agreement.  Both are legally recognized partnerships governed by New Jersey partnership law.  Partnerships are different from corporations and LLC’s.  Partnerships have the advantage of avoiding taxes at the partnership level, but they leave their partners open to personal liability.

The first place to look in any dispute is the partnership agreement.  Partnership agreements determine the rights and responsibilities of the partners, and their remedies if a partner’s rights are violated by another partner. Thus, drafting a clear agreement defining those rights, remedies and responsibilities is essential.  When there is no partnership agreement, partners’ rights, responsibilities and remedies are determined by New Jersey’s Uniform Partnership Act.  It takes the partners’ destinies out of their hands.

It is thus important for partners to have a well-drafted partnership agreement.  Our attorneys are experienced in drafting partnership agreements which protect our clients’ rights.  Indeed, Frank Nardi, respected as both an attorney and certified public accountant, brings a unique expertise on the financial aspects of partnership agreements, while our litigators use their experience of having litigated many disputes among partners to avoid pitfalls that can lead to later disagreement.

Even with the best partnership agreement, disputes among partners often happen.  In this event, it is important to have an experienced attorney on your side.

Partnership disputes can be difficult.  Partners have often made a long commitment in the years of their lives and the sweat they have put into the partnership.  It is not unfair to say that the business is their “baby.”  Likewise, often they have known and trusted their partners for many years, and entered into the partnership with the highest of hopes.  Thus, partnership litigation is often called a “business divorce.”

Disputes can be resolved through several paths: Direct negotiations between the parties or their attorneys, mediation, arbitration, or through a lawsuit.  Direct negotiation can be the fastest, but when this puts parties who are at odds in direct communication it sometimes results in a hardening of positions (it is not a coincidence that a dispute between business partners often resembles a divorce between partners in a marriage). 

In mediation, a neutral third party tries to bring the parties together to a mutually acceptable solution.  Mediation is often the most efficient way to resolve a dispute without putting it in the hands of an arbitrator, judge or jury.  Our attorneys are experienced negotiators, and Maurice McLaughlin has been appointed by New Jersey’s Superior Court to mediate many cases there.

Arbitration puts the dispute in the hands of a neutral third party who makes a final, binding decision.  While it is often swifter and less expensive than a trial in court, it is rarely swift or inexpensive.  Moreover, parties in an arbitration give up the right to appeal.  Our experienced litigators have handled many arbitrations.

Often, a well drafted partnership agreement will include a dispute resolution mechanism.  This is the often the wisest course – without it disputes may go straight to court, to the detriment of the business and the expense of the partners.  Our attorneys have drafted many partnership, corporate shareholder and LLC membership agreements.

When disputes cannot be resolved, they often wind up in court.

Partnership litigation normally proceeds through state court, although in limited circumstances it can wind up in federal court.  There are two divisions of the New Jersey Superior Court that hear partnership disputes.

The Law Division has jury trials, but it primarily handles monetary disputes.  At the end of the day, a typical Law Division trial will either find that the party suing has not proved its case, or that it has and give it a money award for its damages.

In the Chancery Division, on the other hand, there is no jury.  However, the chancery judge can award money damages (or legal relief) as well as non-monetary “equitable” relief.  For instance, the Chancery Division can order a partnership dissolved, that its assets be sold, or that an oppressed partner’s equity be purchased by the other partners (a “forced buyout”).  It can also issue injunctions.  It can order access to books and records.  It can order an accounting of the businesses profits and losses, income and expenses.  It can appoint a receiver when a partner has been oppressed by another who is in control of the business.  It can enforce restrictive covenants.  For this reason, most partnership litigation occurs in the Chancery Division of the Superior Court of New Jersey.

Our lawyers have long years of experience representing partners in both the Chancery and Law Divisions, and in federal court.

The issues in partnership litigation can be complex.  For instance, a forensic examination of the partnership’s books and records is often needed.  A determination of the business’s fair market value is often required when one partner may be ordered to buy out another, and the valuations often conflict, making it important for experienced attorneys to be able to convince the judge of validity of their client’s valuation.  Often a buyout can be forced.

A judge will often need to explore whether a partner has been oppressed by another partner who is in a more dominant position within the enterprise.  A judge will need to explore whether a partner was taking excessive profits or salary for the business, or breached his fiduciary duty to his partners.

Our attorneys have decades of litigation experience.  We are dedicated to fighting for the rights of partners in partnership disputes.

Partnership litigation is long, tough and complex, but in the long run failing to enforce your rights can be even tougher and more expensive.  To learn more about the services offered by our experienced partnership litigation lawyers, please e-mail us or call (973) 890-0004.