Lee & Lum, LLP helps Client Win Case Involving Breach of Contract and Partnership Dispute
By Robert J. Lum
The Court grants summary judgment in favor of the Plaintiff
In this commercial dispute involving complex issues, the Plaintiff commenced a lawsuit against the Defendant, his former business partner, over a breach of contract, while the Defendant counter-sued by bringing counterclaims against the Plaintiff for neglecting to perform his obligations for the partners’ business.
The Plaintiff was represented by Robert Lum, of Lee & Lum, LLP, who was able to secure a victory for the Plaintiff by winning summary judgment, entitling him recovery of the money that the Defendant owed to him and the Plaintiff’s cost of attorneys’ fees incurred as a result of this dispute.
The Case
In September of 2016, the Plaintiff and Defendant formed a real estate brokerage firm, as a limited liability company, focused on brokering sales of residential units in New York City. The Plaintiff was to act as a sales agent to make sales for the firm and the Defendant was responsible for the operations of the firm. However, interestingly, the partners did not sign a partnership or membership agreement to stipulate their respective responsibilities and obligations. In addition, the firm never issued physical shares or certificates to each partner to demonstrate their interest in the firm.
Despite the partners’ carelessness by failing to enact such protocols, the partners proceeded to invest substantial time and funds into the company for the purchase of a commercial lease, equipment, fixtures, and incurred other expenses in an effort to expand the firm. Unfortunately, the firm did not perform or grow to the Plaintiff’s expectations, and thus, after a year in business, he demanded to be bought out.
Subsequently, the partners mutually agreed upon a buy-out agreement wherein the Defendant would purchase the Plaintiff’s share of the firm for a total of $60,000, the balance of which shall be paid off within one year. However, the Defendant breached that agreement by refusing to pay the agreed-upon amount. As a result, in January 2019, the Plaintiff retained Lee & Lum, LLP, to sue the Defendant for breach of contract, unjust enrichment, and his attorneys’ fees. We immediately moved for summary judgment to swiftly end the case without having a trial because there were no genuine issues of material fact as to whether the Defendant owed money to the Plaintiff - he did.
The Defense
The Defendant’s defense was based upon: (1) baseless arguments that he could not be held liable for the debt on the buy-out agreement because he did not sign it in his personal capacity, but as a representative of the real estate brokerage firm; (2) unsubstantiated accusations that the firm failed because the Plaintiff did not make an effort to procure sales or commissions for the firm; and (3) that the Plaintiff never physically transferred his shares of the firm to the Defendant after the signing of the buy-out agreement (the Plaintiff claimed that the firm never created and issued physical shares or certificates to demonstrate each partners’ interest in the firm).
The Court’s Ruling
Ultimately, the Supreme Court in Kings County ruled that “contrary to defendant’s contention, the written contract between the parties constitutes sufficient proof that the plaintiff, as of the signing of the contract, relinquished his 20% interest in the [firm]…” and that “[defendant’s] contention that he did not issue any installment payments to the plaintiff in his individual capacity is irrelevant.”
Thus, the Court ruled that it made no difference whether the Plaintiff physically transferred his shares to the Defendant because the contract required the Plaintiff to relinquish his control of the firm. Upon the Plaintiff’s signing of the buy-out agreement, the Plaintiff legally transferred his shares and relinquished any decision-making powers pertaining to the firm.
In the end, the Court awarded the Plaintiff with the unpaid amount owed to him plus his expenses toward paying his attorneys to pursue the Defendant in litigation.
Insight
In New York, the Limited Liability Company Laws grant the members unique flexibility in allowing them to freely create rules with respect to the company’s internal governance and decision-making. However, it is important to have all decisions and important events recorded in writing to avoid arguments by the partners. The foregoing dispute demonstrates that the partners’ differences may have been avoided, or at least resolved even more expeditiously, if, prior to starting the firm, they expressly stipulated their respective responsibilities and whether the firm would issue physical shares of the firm as consideration for an initial investment from each partner.