FRYDMAN LLC SECURES RECOVERY IN LIMITED PARTNERSHIP DISPUTE
Frydman LLC recently secured a favorable recovery for our client in a lawsuit seeking unpaid distributions and our client’s share of the proceeds from a limited partnership’s sale of a New York City rental building. One of FLLC’s practice areas is corporate litigation involving disputes between investors, shareholders, lenders, management and companies for breaches of operating agreements, breaches of fiduciary duty and related claims. In 1984, our client, a resident of Italy, invested as a limited partner in a New York limited partnership managed by her brother, a resident of France, acting as general partner. The general partner brother was also a limited partner, the husband of a limited partner and the beneficiary of a trust with a limited partner interest.
On behalf of our client, we filed suit against the general partner brother and the partnership in New York County Supreme Court alleging causes of action including breach of fiduciary duty and breach of the limited partnership agreement. We claimed that over the years the general partner and the partnership made distributions to our client’s brother and his related limited partners, but deliberately failed to pay our client accrued distributions. We further claimed that, in 2011, without notice to our client and in breach of the partnership agreement, the general partner caused the partnership to sell the rental building for over $5 million through a “Section 1031 Exchange” and purchased an interest in a triple-net lease for a CVS pharmacy located in Texas. After the sale, the general partner brother secretly dissolved the limited partnership, leaving the triple-net lease in a newly formed entity.
Discovery in the action was hard fought. We made an extensive motion claiming that the manager-brother withheld from production in discovery critical email uncovering the misconduct. The court granted our motion to compel the defendants’ attorneys to search thirteen years of the brother’s email employing specific search terms. We subpoenaed the brother’s accountant and others and received productions totaling tens of thousands of emails and other documents. With the help of a consulting expert to forensically examine the partnership’s books and records, we were able to determine how much money the partnership failed to distribute to our client and the amount of our client’s share of the proceeds from the building sale.
We performed detailed analysis of the parties’ records and a reconstruction of the limited partners’ accrued distributions and capital accounts. Armed with these analyses, we engaged in intensive settlement discussions that included multiple conferences with our forensic accounting team. We were able to obtain a novel, tax advantaged settlement package for our client involving a significant cash payment and exit from the investment relationship. We are gratified that our client justly received significant compensation and can now move on from this long-term family investment that had been a source of upset and consternation.
