The limited partnership is the dinosaur of business forms in New York, on its way to virtual extinction (outside of estate planning*) due to the availability since 1994 of the vastly superior LLC form and the inherent shortcomings of New York’s limited partnership statutes.
When New York finally enacted a Revised Uniform Limited Partnership Law in 1991 (NYRULPA), it exempted from its application all pre-existing limited partnerships which, unless the partnership later files an amended certificate, continue to be governed by the Uniform Limited Partnership Act of 1916 adopted by New York in 1922 (NYULPA). Meanwhile, there appears to be no interest or effort underway to modernize New York’s limited partnership laws, as almost 20 other states have done, by adopting the re-Revised Uniform Limited Partnership Law of 2001.
In its pre-LLC heyday, the limited partnership was a popular form of business association for real estate investments, and there remain some number of legacy limited partnerships that never filed a certificate of amendment and therefore remain subject to NYULPA’s antiquated provisions. One of the ways we know these dinosaurs are still roaming about is the occasional court decision, which invariably involves some of the messiest and most prolonged litigation you’re ever likely to come across.
Take, for example, Alizio v. Perpignano, pending in Nassau County Supreme Court for over ten years, involving multiple litigations over multiple real estate limited partnerships, in the course of which two of the five general partners died. By my count the case has generated at least 50 motions and 27 written decisions by the lower court, and another 17 appellate decisions on motions and appeals, which by any standard represents an extraordinary expenditure of judicial resources on one case.
An unreported decision last month by Nassau County Commercial Division Justice Stephen A. Bucaria, who took over the case from Justice Leonard B. Austin (later appointed to the Appellate Division) in 2008, may be the beginning of the end of the litigation saga — subject, of course, to the inevitable appeals. The decision, which can be read here, orders the appointment of a receiver to sell the last of the real properties still owned by the limited partnerships, and grants “equitable” judicial dissolution of the partnership that indirectly owned the property.
The plaintiff, Anthony Alizio, brought suit individually and as a general partner in six affiliated limited partnerships, each of which was formed to own a HUD-subsidized apartment building. Alizio claimed that the other general partners, including his twin brother Joseph, breached fiduciary duty by selling some of the properties for less than fair value; that Joseph breached fiduciary duty by accepting money from the other partners to vote in favor of the sales; and that they wasted corporate assets including payment of legal fees for non-partnership purposes.
The case also consolidated separate suits by a realty management company operated by Anthony’s sons seeking damages against some of the general partners for wrongful termination damages, and counter-suit against the management company for breach of the management agreements.
The trial of the consolidated matters commenced before Justice Bucaria on September 17, 2013. By that time, all partnership properties had been sold save one apartment building in Astoria, Queens, owned by Bridgeview III Housing Corp. (“Bridgeview Corp.”) which is wholly owned by a limited partnership formed in 1975 known as Bridgeview III Associates (“Bridgeview L.P.”).
The Motion to Dissolve
A week after trial started, defendant Peter Perpignano, both individually and in his capacity as President of Bridgeview Corp., supported by the estates of the two deceased general partners, moved for the dissolution of Bridgeview L.P. and the appointment of a receiver to sell the property which has an estimated value of $20 million to $25 million and allegedly operates at a loss. Anthony Alizio, joined in this instance by his otherwise adverse brother, opposed dissolution, instead contending that the property should be maintained and renovated utilizing a $13 million interest-free loan made available by the City.
Justice Bucaria’s Ruling
Justice Bucaria began his analysis by addressing certain provisions in the Bridgeview L.P. partnership agreement.
He noted that while Article Ninth requires the consent of 75% of the limited partners to sell, lease or otherwise dispose of the property prior to January 1, 1996, “[t]he agreement appears to be silent as to whether the approval of the limited partners is necessary for a sale after that date.”
Justice Bucaria also cited Article Twenty-First which provides that the general partners shall have the powers to “direct [Bridgeview Corp.] on behalf of the partnership to sell . . . all or any part of the partnership property.” This did not dictate the result, however, because a majority of the three remaining general partners — namely, the two Alizio brothers — opposed a sale of the property.
Having exhausted the possibilities for non-judicial dissolution, Justice Bucaria next turned to judicial dissolution. The NYULPA, which is codified in §§ 90 through 119 of the Partnership Law, does not include a provision authorizing judicial dissolution of a limited partnership. However, Justice Bucaria noted, Partnership Law § 98 states that a general partner in a limited partnership, with certain inapplicable exceptions, “shall have all the rights and powers” of a partner in a general partnership governed by the New York Uniform Partnership Act codified in §§ 1 through 82 of the Partnership Law. “Among these rights,” Justice Bucaria wrote, “is the power to seek dissolution of the partnership on the ground that the business can only be carried on at a loss, or other circumstances render dissolution equitable” as provided in Partnership Law § 63 (1) (e) and (f).
The broad, discretion-infused language of § 63 was enough for Justice Bucaria to grant dissolution. His explanation is brief and to the point:
The parties have been mired in litigation for over ten years. Two of the original general partners have died, and all but one of the properties have been sold. In these circumstances, the court concludes that the dissolution of Bridgeview Associates III is equitable. Accordingly, defendant Bridgeview III Housing Corp.’s motion for dissolution of Bridgeview III Associates and the appointment of a receiver to sell the property is granted.
I’ve not seen other cases involving general or limited partnerships in which a court grants or denies equitable dissolution under § 63 (1) (f). But if ever there was a case where “enough is enough” makes dissolution equitable, Alizio is it.
It’s generally true that the likelihood, complexity and duration of partnership litigation bears an inverse relationship to the sophistication, clarity and foresight of the partnership agreement. The ten years of litigation in Alizio were made possible because the partnership agreements provided no pathway to resolution once the interests of the several partners began to diverge. The fact that Alizio involved limited partnerships governed by the outmoded NYULPA did not help either, which illustrates why the limited partnership is going the way of the dinosaur.
* My thanks to LLC guru and fellow blogger John Cunningham for advising me that in the estate planning field, limited partnerships are still very much alive because of the “applicable restriction” rules in IRC Part 14.