Brennan v. Brennan Associates

Connecticut Supreme Court · 2015 · Corporations

CorporationsPartnershipsPartner dissociationBuyout valuationRUPAConnecticut Uniform Partnership Actjudicial dissociationautomatic stay

Facts

The plaintiff was one of four general partners in a partnership that operated a shopping center. The trial court entered a judgment of dissociation against him on September 27, 2006, but that judgment was automatically stayed during his appeal, and he continued to manage partnership affairs and received about $1.7 million in partnership profits while the appeal was pending. After Brennan I affirmed the dissociation judgment in 2009, the plaintiff filed this action to value his interest and obtain a buyout. The trial court valued his interest as of 2006, awarded him approximately $6.9 million after subtracting profits received during appeal, and added about $3.5 million in interest from 2006.

Issue

When a judicial dissociation judgment is automatically stayed pending appeal, is the dissociated partner's interest valued as of the date the judgment was rendered or the date the stay ends and the partner is actually expelled? Also, for a wrongfully dissociating partner, does interest on the buyout award accrue from the date of dissociation or only when payment becomes due and owing?

Rule

Under § 34-355 (5) and § 34-362 (b), the relevant date of dissociation for valuation purposes is the date the partner is actually expelled from the partnership; when enforcement of a dissociation judgment is automatically stayed pending appeal, dissociation does not occur until the stay terminates and the judgment becomes effective. Under § 34-362 (h), which specifically governs wrongful dissociation, a wrongfully dissociating partner's deferred or court-accelerated buyout award bears interest only from the date the payment becomes due and owing, not from the date of dissociation.

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Cedar Market Partners owns a warehouse complex in Columbus, Ohio. After a court enters a judgment expelling partner Aaron Pike under a statute authorizing expulsion by judicial determination, Aaron appeals, an automatic stay prevents enforcement, and he continues voting on partnership matters and receiving monthly distributions for 18 months.

For purposes of determining Aaron’s buyout price, which date should a court use to value his partnership interest?

Explanation. The governing rule is that when dissociation occurs by judicial expulsion, the valuation date is the date of actual expulsion, not merely the date the judgment was rendered, if enforcement of that judgment was automatically stayed pending appeal. Because Aaron continued participating in management and receiving benefits during the stay, he had not yet been dissociated for buyout valuation purposes until the stay terminated and the judgment became effective. (Derived from Brennan v. Brennan Associates (n.d.).)