When Buyout Agreements Go Awry
By Nina Kaufman, Esq.It’s never a pretty sight when a business partnership has to be dissolved. Even uglier is what happens when you put in the time and effort to create a partnership agreement, only to find that the terms you included create more confusion than clarity.
The cleverly-named blog, New York Business Divorce (why didn’t I think of that?), highlights a recent New York State case where the confusion over the definition of certain terms led to a major dispute when Joseph Costello, a lawyer with the firm of Costello, Shea & Gaffney, died. The surviving law partners disagreed with the way Costello’s estate interpreted their 1993 partnership agreement. (Gee, imagine that). At stake was Costello’s capital account when he died, calculated at over $130,000.00.
It’s a fascinating (for some of us) analysis of how the Nassau County Court reached its decision. Essentially, the judge had to parse through the language to see where the inconsistencies lay. If you accept Costello’s estate’s interpretation of the language, did it meet a reasonable, logical conclusion? What about the surviving partners? Is the language they are quibbling over (if $130,000 can be deemed a “quibble”) clearly set out in the agreement, or is the agreement silent on that specific point? And then, there is the actual conduct of the parties. Other payments the surviving partners made to Costello’s estate were inconsistent with their position.
What can you make of all this? First of all, that partnership agreements are very powerful tools … that can also be weapons, if not handled carefully. Second, it’s crucial that you take the time to read through your partnership agreement to make sure you truly understand its terms. Finally, with your attorney, make a list of all of the possible exit scenarios you might be concerned about so that they are properly and directly addressed in your agreement.
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