Commercial Division Blog
Court of Appeals Grants Leave to Appeal in Case Involving Valuation of Minority Partner’s Interest
On January 10, 2017, the Court of Appeals granted leave to appeal in Congel v. Malfitano, a case involving the valuation of a minority partner’s interest under Partnership Law § 69(2)(c)(II), which entitles a partner who has wrongfully caused the dissolution of a partnership to be paid the "value" of his interest in the partnership less any damages caused to the copartners by the wrongful dissolution.
In Congel, the Second Department held that in determining the valuation, it was appropriate to apply a "minority discount" to reflect the minority partner's lack of control over the operation of the business. In so holding, the court distinguished case law declining to apply a minority discount in valuing the interest of minority shareholders of a corporation who claim oppressive conduct by the majority. The court explained:
[T]his case does not involve a determination of the "fair value" of a dissenting shareholder's shares . . . but rather, involves the determination of the "value" of the shares of a partner who has wrongfully caused the dissolution of a partnership pursuant to Partnership Law § 69(2)(c)(II). . . .
[A]pplying a minority discount in the context of valuing a partnership interest would not contravene the distinctly corporate statutory proscription (Business Corporation Law § 501[c]) against treating holders of the same class of stock differently, or undermine the remedial goal of the appraisal statutes to protect shareholders from being forced to sell at unfair values, or inevitably encourage oppressive majority conduct. Moreover, the Court of Appeals' concern that imposing a minority discount in valuing a dissenting shareholder's stock would encourage oppressive majority conduct is not relevant here, where the dissolution was caused not by any action on the part of the majority, but rather, was caused by the "wrongful[ ]" conduct of a minority partner (Partnership Law § 69[c][II]).