66discountTalk about playing your cards wrong.

A partner with a 3.08% interest worth $4.85 million in a partnership that owns a major shopping mall likely will walk away with only a few hundred thousand dollars after a court decision finding that he wrongfully dissolved the partnership and deducting from the value of his interest the other partners’ damages including legal fees, a 15% discount for goodwill, a 35% marketability discount, and a whopping 66% minority discount.

Last week’s decision by the Brooklyn-based Appellate Division, Second Department, in Congel v Malfitano, 2016 NY Slip Op 03845 [2d Dept May 18, 2016], rejected the partner’s appeal from the trial court’s determination of wrongful dissolution and also upheld its valuation determination with one major exception: the appellate court held that the trial court erred by failing to apply a minority discount and that it should have applied a 66% minority discount based on the “credible” expert testimony “supported by the record.”

The defendant partner’s fateful decision took place in 2006, when he sent his fellow partners a written notice unilaterally electing to dissolve the partnership due to what he described as a “fundamental breakdown in the relationship between and among us as partners.” The other partners quickly responded with a damages lawsuit claiming that he had wrongfully dissolved in violation of the partnership agreement in an effort to force the partnership to buy out his interest at a steep premium. The defendant, arguing that the partnership was at-will and of indefinite duration, denied wrongful dissolution and counterclaimed for his full, pro rata share of the partnership’s value upon dissolution. Continue Reading Partner Who Wrongfully Dissolved Partnership Hit With Whopping 66% Minority Discount

Shawe EltingPictured in happier times are Philip Shawe and Elizabeth Elting, the founding co-owners of TransPerfect Global, Inc., a hugely successful international translation and business services company formed under Delaware law and headquartered in New York City, with 2014 revenues approaching $500 million, net income of almost $80 million, and no debt.

Now picture this:

  • My lawyer instructed me to say “Ouch!”  Shawe enters Elting’s office to confront her about a tax distribution she took. Elting tells Shawe to leave her office. Shawe refuses. Shawe sticks his foot in the door to block Elting from closing it. Elting tries to move his foot with her foot. While his foot is in the door, Shawe calls one of his attorneys. The next day, Shawe files with the police a “Domestic Incident Report” in which he accuses Elting of kicking him in the ankle. To ensure the matter is treated as a domestic violence incident and trigger Elting’s arrest, Shawe identifies Elting as his ex-fiancée even though their engagement ended 17 years earlier. The police contact Elting and tell her she’s going to be arrested for assault and battery, but charges are dropped after Elting’s lawyers intervene. Shawe then files a tort action against Elting, in the course of which Shawe sends Elting a letter, with copies sent to company employees, telling her to make available for inspection the shoes she was wearing on the day of the incident.
  • Mommy, there’s something scary under my bed!  After Elting calls off their engagement, Shawe becomes very angry, goes under Elting’s bed, and stays there for a half hour. Years later, when Elting is overseas on business, Shawe shows up unannounced at Elting’s hotel room, refuses to leave, and again goes under the bed for a half hour.
  • Tell that fly on the wall we don’t need him.  Shawe instructs company employees to intercept and bring to him Elting’s mail, including mail from her lawyers and their retained financial advisor, and to monitor her phone calls. On a New Year’s eve when Elting is absent, Shawe uses a master key card to enter her office, where he temporarily removes and makes a mirror image of her computer’s hard drive. Over the next two months he secretly enters her office 10 more times between the hours of 11 p.m. and 2 a.m. He also remotely accesses Elting’s hard drive on at least 20 occasions. Shawe obtains 19,000 emails from Elting’s personal Gmail account, including 12,000 privileged emails with her lawyers — How does she find time to get any work done? — some of which are provided to and read by Shawe’s lawyers.
  • Battle Stations, We’re at DEFCON 1.   “YOU WANT TO GO NUCLEAR OVER THIS . . . JUST SEND EVERYONE HOME NOW AND STOP SERVICING THE CLIENT. MY MISSILE KEY IS TURNED,” Shawe emails to Elting after she rejects his proposal to open an office in a certain French city. Elting ultimately relents to the request, which becomes one among many episodes of expletive-laden “mutual hostaging” by both Shawe and Elting as each demands some concession from the other as condition for consenting to the other’s demand for distributions, hirings, firings, acquisitions, buy-sell agreements, etc.

Continue Reading “Locked in Corporate Hell”: Bitter Feud Between Deadlocked 50/50 Owners Leads Court to Order Sale of Lucrative Company