Robert J. Congel, et al.,, Respondents,v.Marc A. Malfitano, Appellant.BriefN.Y.February 13, 2018Of Counsel: To be Argued by: VICTORIA GRAFFEO (Time Requested: 20 Minutes) Dutchess County Clerk's Index No. 2007-220 Appellate Division Docket No. 2013-07052 Court of Appeals No. 2017 - 00005 COURT OF APPEALS of the STATE OF N£\\f 1fOR~ ROBERT J. CONGEL, BRUCE A. KENAN and JAMES A. TUOZZOLO, as the Executive Committee ofPOUGHKEEPSIE GALLERIA COMPANY, a general partnership, on behalf of THE POUGHKEEPSIE GALLERIA COMPANY, Plaintiffs-Respondents, v. MARC A. MALFITANO, Defendant-Appellant. DEFENDANT-APPELLANT'S APPELLATE BRIEF HARRIS BEACH PLLC Attorneys for Defendant-Appellant 677 Broadway, Suite 1101 Albany, New York 12207 Telephone: (518) 701-2700 Victoria A. Graffeo, Esq. Aubrey A. Roman, Esq. March 8, 2017 TABLE OF CONTENTS TABLE OF AUTHORlTIES .................................................................................... iii PRELIMINARY STATEMENT ............................................................................... 1 STATEMENT OF QUESTIONS PRESENTED ...................................................... 4 STATEMENT OF FACTS ........................................................................................ 5 I. Background Facts ............................................................................................ 5 II. Procedural History ........................................................................................ 1 0 OVERVIEW OF IMPLICATED PROVISIONS OF NEW YORK'S PARTNERSHIP LAW ............................................................................................ 16 POINT I MALFITANO DID NOT ENGAGE IN A WRONGFUL DISSOLUTION OF THE PARTNERSHIP BECAUSE THE PARTNERSHIP AGREEMENT LACKED A DEFINITE TERM OR A PARTICULAR UNDERTAKING UNDER PARTNERSHIP LAW§ 62 ............. 21 A. The Appellate Division should have applied the rule announced in Gelman v Buehler to the facts of this case .............. 21 B. The application of the rule announced in Gelman v Buehler and the language of the governing partnership agreement compels a determination that, as a matter of law, Malfitano dissolved the Partnership pursuant to Partnership Law§ 62 (1) (b) .......................................................... 26 POINT II THE PARTNERSHIP IS NOT ENTITLED TO RECOVER COUNSEL FEES IN THIS BREACH OF CONTRACT ACTION BECAUSE NEITHER THE GOVERNING CONTRACT NOR ANY STATUTE ALLOWS FOR SUCH RECOVERY ........................................... 30 POINT III SECTION 69 OF THE PARTNERSHIP LAW DOES NOT ENTITLE THE PARTNERSHIP TO DIMINISH THE VALUE OF MALFITANO'S PARTNERSHIP INTEREST BY APPLYING A MINORITY DISCOUNT, MARKETABILITY DISCOUNT, OR GOODWILL REDUCTION .......................................................... 39 A. The Partnership does not have any goodwill value ....................... 41 1. Real estate holding companies do not possess goodwill .................................................................................... 41 2. The Partnership did not have any history of goodwill ............. 43 B. The application of minority and marketability discounts in this case was contrary to law ..................................................... 44 1. Minority and marketability discounts are unnecessary when a partnership continues operations after the departure of a partner .............................................................. 46 2. Minority discounts are disfavored in corporate divorces when the business continues ...................................... 47 3. The Second Department has held that marketability discounts are inapplicable to real estate holding companies················.·~·~····························································· 48 CONCLUSION .............................................. , ........................................................ 51 11 TABLE OF AUTHORITIES Cases Aaron v Aaron, 2 AD3d 942 [3d Dept 2003]. ......................................................... 16 Aero Garage Corp. v Hirschfeld, 185 AD2d 775 [1st Dept 1992] ............................................................................ 36 Alyeska Pipeline Service Co v Wilderness Society, 421 us 240 [1975] ............................................................................................... 32 Americorp Securities, Inc. v Sager, 239 AD2d 115 [1st Dept 1997] ............................................................................ 21 BGW Dev. Corp. v Mount Kisco Lodge, 264 AD2d 4 3 3 [2d Dept 1999] ............................................................................. 3 6 Bibeau v Ward, 228 AD2d 943 [3d Dept 1996] ..................................................... 38 Bumstine v Geist, 257 AD 792 [1st Dept 1939] ················································,····· 19 Cannon v Bertrand, 2 So 3d 393 [Sup Ct, La 2009] ................................... 46, 48, 49 Chicago Title Ins. Co. v LaPierre, 140 AD 3d 821 [2d Dept 20 16]. ............................................................................ 33 City of Elmira v Larry Walter, Inc., 150 AD2d 129 [3d Dept 1989], affd on other grounds, 76 NY2d 912 [1990] ................................................ 35, 36 Cohen v Cohen, 279 AD2d 599 [2d Dept 2001] ............................................... 42, 49 Dawson v White & Case, 88 NY2d 666 [1996]. ......................................... 16, 43, 44 E.M.R. Management Corp. v Halstead Harrison Associates, 299 AD2d 393 [2d Dept 2002]. ............................................................................ 34 111 East Park Ltd. Partnership v Larkin, 167 Md App 599 [2006] ....................................................................................... 48 Equitable Lumber Corp. v IP A Land Development Corp., 38 NY2d 516 [1976] ............................................................................................. 33 Flemming v Barnwell Nursing Home and Health Facilities, Inc., 15 NY3d 375 [2010] ............................................................................................ 32 Gager v White, 53 NY2d 4 75 [1981] .......................................................... 22, 25, 26 Gelman v Buehler, 20 NY3d 534 [2013] ......................................................... passim Grunfeld v Grunfeld, 255 AD2d 12 [1st Dept 1999] .............................................. 41 Gurnee v. Aetna Life & Cas. Co., 55 NY2d 184 [1982] .......................................................................... 22, 24, 25,26 Halstead v Fournia, 134 AD3d 1269 [3d Dept 2015] ............................................. 33 Hunt v Sharp, 85 NY2d 883 [1995] ........................................................................ 31 In re Brown, 242 NY 1 [1926] .......................................................................... 43, 44 In re Cinque v Largo Enters. of Suffolk Cty., 212 AD2d 608 [2d Dept 1995]. ............................................................................ 42 In re Dissolution ofPenepent Corp., Inc., 96 NY2d 186 [2001] ............................................................................................ 47 In re Friedman v Beway Realty Corp., 87 NY2d 161 [1995] ................................................................................ 47, 48, 50 Kaplan v Schachter & Co., 261 AD2d 440 [2d Dept 1999] ................................... 43 Kirsh v Leventhal, 181 AD2d 222 [3d Dept 1992] ................................................. 20 Kurzman, Kaplan & Stuchin v Kurzman, 139 AD2d 422 [1st Dept 1988] ............................................................................ 17 IV Logoluso v Logoluso, 43 Cal. Rptr. 678 [Cal. Dist. Ct. App. 1965] .................................................................................... 17 Mashihi v 166-25 Hillside Partners, 51 AD 3d 73 8 [2d Dept 2008]. .............................................................................. 18 Matter of A. G. Ship Maintenance Corp. v Lezak, 69 NY2d 1 [1986] ................................................................................................ 32 Matter of Cinque v Largo Enters. Of Suffolk County, 212 AD2d 608 [2nd Dept 1995] ........................................................................... 49 Matter of Whalen, 204 AD2d 468 [2d Dept 1994] ................................................. 50 Medimmune, LLC v Board of Trustees of the University ofMassachusetts, 2015 WL 5783381 [2015] ...................................................... 28 Mighty Midgets v Centennial Ins. Co., 47 NY2d 12 [1979]. .................................. 32 Millman v Brownlee, 133 AD2d 221 [2nd Dept 1987] .......................................... 32 Mount Vernon City School Dist. v Nova Casualty Co., 19 NY3d 28 [2012] ........................................................................................ 32, 33 Napoli v Domnitch, 18 AD2d 707 [2d Dept 1962] ................................................. 17 Nat'l Union Fire Ins. Co. of Pittsburgh, PA v Odyssey Reinsurance Co., 143 AD3d 626 [1st Dept 2016] ............................................... 33 Nicholes v Hunt, 541 P 2d 820 [Or. 1975] .............................................................. 17 People v Favor, 82 NY2d 254 [1993] ................................................... 21, 22, 25, 26 Ruzicka's v Rager, 277 AD 359 [1st Dept 1950] ................................................... 17 Saltzstein v Payne, et al., 292 AD2d 585 [2d Dept 2002] ................................ 43, 44 Siddall v Keating, 8 AD2d 44 [1st Dept 1959], affd 7NY2d846 [1959] ...................................................................................... 43 v Tropeano v Dorman, 441 F3d 69 [1st Cir. 2006] .................................................... 28 Vandenbark v Owens-III. Glass Co., 311 US 538 [1941] ...................................... 21 Vick v Albert, 4 7 AD 3d 482 [2d Dept 2008] .......................................................... 49 Wharton Assoc., Inc. v Continental Indus. Capital LLC, 137 AD3d 1753 [4th Dept 2016] ................................................................... 33, 34 Zelasko Constr., Inc. v Merchants Mut. Ins. Co., 142 AD3d 1328 [4th Dept 2016] ......................................................................... 34 Statutes Business Corporation Law § 623 ............................................................................ 4 7 PL § 1 [1919] ............................................................................................... 16, 21,44 PL §§ 1 - 126 .......................................................................................................... 34 PL § 60 ............................................................................................................... 16, 17 PL § 61 ..................................................................................................................... 17 PL § 62 .............................................................................................................. passim PL § 62 (1) ................................................................................................................. 9 PL § 62 (1) (b) .................................................................................................. passim PL § 62 (2) ....................................................................................... 18, 19, 23, 24, 28 PL § 69 ........................................................................................................... 4, 34, 45 PL § 69 (1) ......................................................................................................... 19, 39 PL § 69 (2) ......................................................................................................... 19, 39 PL § 69 (2) (a) (II) ................................................................................................... 19 Vl PL § 69 (2) (b) ................................................................................................... 19, 21 PL § 69 (2) (c) (I) .................................................................................................... 20 PL § 69 (2) (c) (II) ....................................................................................... 20, 21,40 PL § 71 ..................................................................................................................... 18 PL § 73 ............................................................................................. 18, 19, 20, 21, 45 PL § 74 .................................. ~ .................................................................................. 18 UPA § 29 [1914] ..................................................................................................... 16 Other Authorities James E. Harris, Valuation of Closely Held Partnerships and Corporations: Recent Developments Concerning Minority Interest and Lack of Marketability Discounts, 42 Ark. L. Rev. 649 [1989] .................................................................................. 45 Job Aid for IRS Valuation Professionals, Discount for Lack of Marketability [Sept. 25, 2009] ......................................................................... 45 Robert L. Haig, Commercial Litigation in New York State Courts, § 57:76 [4th Ed. 2015] ............................................................................... 33, 34, 36 Vll PRELIMINARY STATEMENT This case illustrates the extreme difficulties faced by a minority partner when the relationship between business partners deteriorates. The Defendant- Appellant, Marc Malfitano ("Malfitano") spent many years serving as a minority partner of the Poughkeepsie Galleria Company Partnership (the "Partnership"), which owned part of a shopping mall. When Malfitano' s concerns about financing plans and other issues went unheeded by the Executive Committee (the Plaintiffs- Respondents herein), his relationship with the Partnership eroded and he decided to separate from the group. In the face of consistent refusal by the Executive Committee to provide him with financial records and other documents, he was forced to resort to the Partnership Law ("PL") to assert his right to disassociate from the Partnership and obtain the value of his interest. Following the procedures of PL § 62, Malfitano sent the Executive Committee a Notice of Dissolution. Thereafter, the Executive Committee contested his eligibility to declare dissolution under the partnership agreement (the "Partnership Agreement") and commenced this lawsuit against Malfitano seeking a declaration that his dissolution of the Partnership was ''wrongful.'' The Appellate Division incorrectly determined that Malfitano' s actions constituted a "wrongful dissolution" because the court failed to apply the definition 1 of the phrase "definite term" under Partnership Law § 62 as required in Gelman v Buehler (20 NY3d 534 [2013]). This was error. If the Appellate Division had complied with Malfitano's request to apply the definition of "definite term" under Gelman, his actions would not have been declared "wrongful" and the value of his interest in the Partnership - stipulated at $4,850,000.00 - would not have been subject to unfair discounts and reductions, nor would he have been ordered to pay the Executive Committee's counsel fees, all of which resulted in a judgment against him and in favor of the Executive Committee for almost $1 million. Consequently, Malfitano received no recovery of his interest in this valuable property after two decades as a partner. This grossly inequitable judgment cannot stand under any reasonable assessment of the facts and law, particularly since the Executive Committee never suffered any business interruption. Section 62 of the Partnership Law provides a means for partners to declare dissolution of a partnership by application of law in order to recover the value of their interest, particularly useful in situations where majority partners refuse to cooperate in supplying an accounting and paying out the value of retreating partners interests. The Partnership Law was enacted, in part, in recognition that partners associated with partnerships whose governing agreements have no mechanism for securing dissolution or the extraction of partners' financial interests must have a means of assessing the value and obtaining the pay out of their 2 interests. These objectives are particularly pertinent here, where Malfitano's majority partners refused to provide him with adequate information or cooperate with an accounting, as required by both the Partnership Agreement and the Partnership Law. Unless this Court rectifies the gross injustice that befell this minority partner, the purpose underlying PL § 62 will be defeated and partners in similar circumstances will be left with no option but to bend to the will of the majority. This underscores the statewide importance of this case and the need for this Court to establish the proper dissolution procedures under the Partnership Law in order to protect the rights of partners, particularly minority partners, who decide to withdraw from their partnerships in accordance with law. 3 STATEMENT OF QUESTIONS PRESENTED (1) Did the Appellate Division err when it refused to apply this Court's definition of the phrase "definite term" in Partnership Law § 62 as prescribed in Gelman v Buehler (20 NY3d 534 [2013])? Answer: Yes, under the analysis in Gelman, the Partnership Agreement here does not specify a "definite term." (2) Did the Appellate Division err when it ruled that counsel fees were recoverable by the prevailing party in this breach of contract action contesting a minority partner's notice of dissolution under Partnership .Law § 62 ( 1) (b)? Answer: Yes, consistent with the time-honored "American Rule," counsel fees are not recoverable in this breach of contract action because there is no statutory or contractual basis for such an award. (3) Did the Appellate Division err in applying a goodwill reduction, a minority discount and a marketability discount in calculating the value of Malfitano' s minority partnership interest under Partnership Law § 69? Answer: Yes, it was an error to reduce his financial interest In the Partnership through the application of such discounts and reductions. 4 STATEMENT OF FACTS I. Background Facts Marc Malfitano is an attorney admitted to practice in the State of New York, and he is an adjunct professor at Syracuse University College of Law (R. at B555). In 1978, upon his graduation from law school, he began employment with the Pyramid Companies, the umbrella name for a shopping center development business, including its management arm, the Pyramid Management Group, Inc. (collectively, "Pyramid") (R. at B555-57). In 1982, Malfitano became General Counsel for Pyramid (R. at B556), and after 27 years of working for Pyramid, he is now retired from the company. During his years of employment with Pyramid, Malfitano acquired a financial interest in several of the real estate entities that own malls managed by Pyramid (R. at B557-58). On January 1, 1985, Malfitano and other individuals entered into a written agreement to form a partnership (the "Partnership Agreement") known as the Poughkeepsie Galleria Company Partnership (the "Partnership") (R. at B82-150), whose purpose was to own a portion of what became known as the Poughkeepsie Galleria Mall in Town of Poughkeepsie, New York (R. at B98). Malfitano initially had a 2.25% ownership interest in the Partnership and that interest increased to not less than 3.08% by the time the Verified Complaint in this action was filed (R. at B 14 7, B 154 ). 5 The Partnership owns a portion of the popular 1.2 million square-foot Poughkeepsie Galleria retail shopping center (R. at Bl55). However, the Partnership does not have any employees, nor does it manage the mall or negotiate and enter into leases with the various tenants (R. at B630-33). Pyramid serves that function and has responsibility for the day-to-day operations of the shopping center, including oversight of security at the mall (id). The Partnership, therefore, has never had any management responsibility for the Galleria Mall, and it does not have an independent relationship with the vendors or tenants of the mall (id). The Partnership has been a financially successful enterprise because Pyramid secured lease agreements with popular anchor tenants, such as J.C. Penney's, Macy's and Target that attract mall shoppers (R. at B24). During his more than two-decade association with the Partnership, Malfitano' s managerial and legal responsibilities for Pyramid gave him unique expertise that benefited the Partnership (R. at B555-57). As the years passed, the Partnership's Executive Committee, which includes Plaintiffs-Respondents Robert J. Congel, Bruce A. Keenan, and James A. Tuozzolo (the "Executive Committee"), began to embark on a course of conduct that caused Malfitano to have serious concerns about the long-term financial stability of the Partnership and the appropriateness ofproposed actions (R. atB212-15, B559-60). 6 These concerns were particularly troubling to Malfitano as a licensed attorney with ethical and fiduciary responsibilities. The actions of the Executive Committee that Malfitano voiced disagreement with included, but were not limited to: • The Executive Committee's contemplation of refinancing the Galleria Mall to fund a significant litigation settlement unrelated to the Partnership or its property; • The Executive Committee's use of a "cash call" to finance mall projects rather than borrowing money, with the expressed intention of harming minority partners; • Adding liabilities to the balance sheet of the Partnership in order to provide funds to the son of Executive Committee member Congel; • The withholding of information that Malfitano believed he was entitled to receive under the Partnership Agreement; • Charging hundreds of thousands of dollars in· expenses per year against the Partnership that were not incurred in accordance with any authorization or binding agreement with the Partnership; and • Causing agreements to be entered in Malfitano's capacity as an individual partner of the Partnership, and granting individual releases to third parties, without his knowledge or consent. (R. at B212-15, B559-60). As a result of Malfitano's increasing discomfort and belief that some of the partners may have been breaching their fiduciary duties, Malfitano sent the Executive Committee over a dozen letters expressing his concerns (R. at Bl96). 7 This correspondence represented Malfitano' s efforts to draw attention to the pertinent issues that he earnestly believed were undermining the proper operation of the Partnership and causing relationship problems among the partners (R. at B205). Unfortunately, his involvement and recommendations were rejected by the Executive Committee, which eroded Malfitano' s relationship with the Partnership (see id). Based on Malfitano' s legal experience and troubled by what he considered were contractual and ethical breaches by the Executive Committee, he decided to withdraw from the Partnership in November 2006. After researching and considering the available remedies under the Partnership Law ("PL"), Malfitano elected to exercise his rights under PL § 62 (1) (b). Section 62 (1) (b) of the Partnership Law establishes that a partner may, at any time, and for any reason, elect to dissolve a partnership without violating the governing partnership agreement so long as the subject partnership agreement does not specify a definite term or particular undertaking (see PL § 62 [1] [b]; see also infra, Point I [A], [B]). In the Partnership Agreement at issue, section 2.3 is entitled "Term" and reads as follows: "The Partnership shall commence upon the effective date ofthis Partnership Agreement as set forth on the first page hereof and shall continue until it is terminated as hereinafter provided" (R. B98) and section 12 indicates that the Partnership would dissolve upon the "election by the Partners" (R. at B 140). 8 Therefore, since the "Term" of the agreement was indefinite under PL § 62, Malfitano issued a letter, dated November 24, 2006, declaring his intention to seek dissolution in accordance with the Partnership Law (R. at B 151 ). Malfitano did not decide lightly to proceed with the procedure authorized by PL § 62 (1) (b), nor was it a vindictive effort to damage the Partnership, receive a windfall from the Executive Committee, or thwart any effort to refinance the mall (R. at B202, B559-63). He had spent his entire legal career working with these companies and he has a continuing financial interest in several of Pyramid's holdings. After his unsuccessful attempts to alter the Executive Committee's proposals, Malfitano concluded that his use of PL § 62 ( 1) was justified since the Partnership refused to give him access to the information he was entitled to receive as a partner, and he could no longer condone what he viewed as the improper actions of the Executive Committee. After Malfitano sent his PL § 62 ( 1) (b) notice of election to dissolve the Partnership, the Executive Committee commenced this litigation against him, lodging false and inflammatory accusations against Malfitano in an effort to avoid compensating him for his interest in the Partnership (R. at B152-66). Much to Malfitano' s anguish, this protracted litigation resulted in a series of unjust and legally incorrect decisions, the end result being that Malfitano was ordered to pay the Partnership - that remains a going-concern to this day - nearly $1 million 9 (R. at B3, B24, B564, B223-29). This severely inequitable outcome was the result of a lengthy litigation history, which includes several erroneous determinations. II. Procedural History On January 11, 2007, in response to Malfitano' s notice of dissolution (R. at B 151 ), the Plaintiffs-Respondents in this action - Robert J. Congel, Bruce A. Kenan and James A. Tuozzolo as the Executive Committee of the Partnership - commenced this litigation on behalf of the Partnership against Malfitano by service of a Summons and Verified Complaint (R. at B 152-66). The Verified Complaint alleged two primary causes of action, both of which are at issue in this appeal. The first cause of action sought a declaratory ruling that Malfitano wrongfully sought to dissolve the partnership under New York's Partnership Law (R. at B160). The second cause of action was a claim for damages based on an alleged breach of contract, presumably the Partnership Agreement (id). Malfitano served a Verified Answer on January 16, 2007, denying the accusations asserted by the Executive Committee and interposing several counterclaims, including a claim for judicial dissolution (R. at B 167-73 ). Shortly after issue was joined, Malfitano cross-moved to dismiss the Verified Complaint, contending that it failed to state a claim (R. at B230-35). Malfitano argued that he had not acted wrongfully in seeking to dissolve the Partnership since he had a statutory basis under PL § 62 (1) (b) for his actions (R. at B231-35) premised on 10 the fact that the Partnership Agreement lacked a provision establishing a definite term and the Partnership was not created for a specific purpose (see id). In the absence of either requisite provision, Malfitano asserted that the Partnership qualified as an "at will" partnership subject to statutory dissolution (see id). On April20, 2007, Supreme Court denied Malfitano's cross-motion to dismiss, finding that the . Verified Complaint adequately pled the contested causes of action (R. at B76-77). Nearly a year after this litigation was commenced, the parties exchanged amended pleadings (R. at B174-222). None of the additional causes of actions contained in the Amended Verified Complaint are at issue in this litigation.1 Thereafter, both sides engaged in several rounds of motion practice before the trial and intermediate appellate courts: a. The Executive Committee filed a motion for summary judgment in connection with its wrongful dissolution and breach of contract claims. On May 29, 2008, Supreme Court issued a Decision and Order granting the Executive Committee's motion, holding that Malfitano wrongfully dissolved the Partnership and had violated the Partnership Agreement in doing so. The court reached this conclusion after determining that the Partnership Agreement did not contain a definite term but had a specific purpose, and therefore, PL § 62 (1) (b) was not available to Malfitano (R. at B55-66). b. Malfitano then pursued two appeals: (1) the denial of his motion to dismiss and (2) the Judgment in favor of the 1 The intermediate record on appeal in this matter consists of thousands of pages of, including motion papers and resulting orders that are immaterial to the issues on this appeal. 11 Executive Committee's request for summary judgment. On April 21, 2009, the Appellate Division, Second Department, issued two separate Decisions. · The first affirmed the denial of Malfitano' s motion to dismiss, concluding that PL § 62 ( 1) (b) did not apply under the facts of this case because although the Partnership Agreement did not have a temporal limit, it nonetheless stated a "definite term" (R. at B67 -69). The second Decision modified Supreme Court's May 29, 2016 Order and remitted the matter to that court for further proceedings on the issue of damages related to the breach of contract claim (R. at B66a-66b). c. Malfitano subsequently moved for partial summary judgment requesting a ruling that the Executive Committee was not entitled to obtain damages for its attorneys' fees related to the breach of contract cause of action. On March 30, 2011, Supreme Court ruled that the Executive Committee was entitled to seek damages for counsel and expert fees (R. at B47-54). By early November 2011, after extensive motion and appellate practice, the courts below concluded that Malfitano wrongfully sought to dissolve the Partnership based on the terms in the Partnership Agreement (R. at B55-69). Thereafter, Supreme Court conducted a non-jury trial to establish the valuation of Malfitano's interest in the Partnership, along with the amount of damages, if any, he owed to the Executive Committee (R. at B22). On the first day of trial, the parties stipulated that the value of Malfitano' s interest in the Partnership as of November 24, 2006 (the date he notified the Partnership that he was seeking dissolution under PL § 62 [1] [b ]) was $4,850,000.00 (R. at B28). Both sides presented expert testimony in support of their contentions regarding what, if any, deductions or discounts should be applied when 12 determining the value of Malfitano's interest in the Partnership (R. at B22-23, B277-552). Supreme Court generally accepted the deductions and discounts in valuation that were submitted by the Executive Committee's expert, with the exception of a proposed reduction for a minority discount (R. at B36-37). On September 27, 2012, Supreme Court (Hon. Charles D. Wood) issued a Decision and Order concluding that Malfitano's $4,850,000.00 stipulated value in the Partnership would be reduced by: ( 1) a goodwill reduction in the amount of $727,500.00, (2) an additional 35o/o marketability discount of $1,442,875.00, and (3) another $1,596,157.50 deduction for damages to cover the Executive Committee's counsel and expert fees (R. at B34-36, 39). After these calculations, the value of Malfitano' s interest was drastically reduced, resulting in a Judgment in his favor of $1,083,467.60 -less than 25% of the stipulated value of his interest- to be further reduced by statutory interest on the Executive Committee's fee award (R. at B44-46). For ease of analysis, the following chart lists the reductions ordered by the Supreme Court: 13 $4,850,000.00 -$727,500.00 $4,122,500.00 -$1,442,865.00 $2,679,625.00 -$1,596,157.00 $1,083,467.50 Stipulated value ofMalfitano's interest Goodwill reduction 35% Marketability discount Damages award for counsel and expert fees Malfitano's Judgment against the Executive Committee Malfitano appealed Supreme Court's determinations (R. at B14-15), but the Appellate Division affirmed that Malfitano had wrongfully dissolved the Partnership (R. at B7 -8). The Court concurred with the application of both the goodwill and marketability discounts (R. at B12-13, B78), but modified by ordering that a minority discount be applied to the value of Malfitano' s partnership interest (R. at B8-12). The court remitted to Supreme Court for the additional calculation of a massive 66% minority discount that was proposed by the expert for the Executive Committee (R. at B13). Upon remand, Supreme Court issued a Second Amended Judgment on July 21, 2016 that resulted in: (1) the stipulated value ofMalfitano's interest in the Partnership ($4,850,000.00) being reduced by the previously determined goodwill factor and marketability discount, plus the newly-mandated 66o/o minority discount, marginalizing Malfitano's interest to the sum of only $911,072.50; and (2) the application of a deduction of $1,822,460.25, representing counsel and expert fees, plus statutory interest (R. at B3). In sum, when all reductions were 14 calculated, the Second Amended Judgment ordered Malfitano to pay the sum of $911,287.75, in favor ofthe Executive Committee (id). The below chart lists the calculations related to the judgment in favor of the Executive Committee: $911,072.50 -$1,822,460.25 -$911,387.75 Value ofMalfitano's interest after a goodwill reduction, a 35% marketability discount and a 66% minority discount Damages award for fees (plus $226,302.75 in statutory interest from 9/1/11 - 5/24/13) Judgment in favor of the Executive Committee Incredibly, Malfitano received no return on his more than 20-year investment and active participation 1n the profitable Partnership - his $4,850,000.00 stipulated value evaporated - and he was saddled with a huge judgment against him and in favor of the recalcitrant Executive Committee (id). To redress this situation, Malfitano filed a motion for leave to appeal to this Court, which was granted on January 10, 2017 (R. at B1). On this appeal, Malfitano contends that: ( 1) Supreme Court's failure to apply the proper definition of the phrase "definite term" in PL § 62 - as decreed by this Court in Gelman v Buehler (20 NY3d 534 [2013]) - was improper and resulted in the erroneous determination that Malfitano wrongfully dissolved the Partnership; (2) the award of counsel fees was improper since the Partnership Agreement did not authorize such an award in a breach of contract action, nor did 15 any statute or court rule; and (3) the application of three separate discounts against Malfitano's interest in the Partnership was not supported by precedent or the public policy of this State. OVERVIEW OF IMPLICATED PROVISIONS OF NEW YORK'S PARTNERSHIP LAW The law of partnerships in New York is codified 1n the New York Partnership Law ("PL"), and is itself a codification of the 1914 Uniform Partnership Act ("UP A") (see McKinney's New York Partnership Law § 1 [ 1919]). One of the bedrock principles of the UP A is that partnerships - absent a continuation provision within the governing partnership agreement- dissolve by operation of law the moment a partner elects to cease association with the partnership, regardless of the reason for that partner's exit (see Uniform Partnership Act § 29 [1914]). Given New York's codification of the UPA, this premise is echoed in PL § 60 (see PL § 60 ["dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on" of the partnership]; Aaron v Aaron, 2 AD3d 942, 944 [3d Dept 2003]). This principle, coupled with the well-recognized tenet that a person cannot be forced continue as a partner in a partnership, (see Dawson v White & Case, 88 NY2d 666, 670, n 1 [1996] [stating, "partners are statutorily empowered to dissolve the partnership at any time]; Napoli v Domnitch, 18 AD2d 707, 708 [2d 16 Dept 1962] [stating "[n]o one can be forced to continue as a partner against his will"]), can result the automatic dissolution of a partnership upon the voluntary withdrawal of a partner. Since dissolution is triggered automatically upon a partner's departure, the remaining partners, regardless of their intentions to carry on the business, are then legally obligated to wind up the partnership's affairs (see PL § 61 [stating, upon dissolution, a partnership continues "until the winding up of partnership affairs is completed" before terminating])? Given the rigidity of the UP A, there is no statutory procedure in New York for a partner to exit a partnership without placing the entity into dissolution. 3 With that said, some courts in UP A jurisdictions apply equitable principles and permit remaining partners to buyout the withdrawing partner's interest and continue the partnership (see ~ Logoluso v Logoluso, 43 Cal. Rptr. 678, 682 [Cal. Dist. Ct. App. 1965]; Nicholes v Hunt, 541 P 2d 820, 828-29 [Or. 1975]). This Court has never sanctioned such a result, yet some partnerships reach that outcome through negotiations (see~ Burger, Kurzman, Kaplan & Stuchin v Kurzman, 139 AD2d 422, 423 [1st Dept 1988], citing Ruzicka's v Rager, 277 AD 359 [1st Dept 1950]). 2 Under the Partnership Law, a partnership can dissolve for several reasons other than the election of a partner to withdraw, including an agreement by the partners to dissolve, or the death of a partner (see PL § 62). 3 Recognizing the often impractical nature of PL § 60, the Revised Uniform Partnership Act ("RUP A") -which has been adopted in 3 7 states that previously followed the UP A - establishes two tracks following the exit of a partner: (1) disassociation, which involves a buyout of the former partners interest and the continuation of the business, and (2) dissolution, which requires the partnership to wind up and terminate like the UP A. The continuity of business concept seen in the disassociation concept of the RUP A is not recognized by the UP A, and New York State has not adopted the RUPA. 17 In New York, a partner can terminate involvement in a partnership explicitly through a notice of dissolution (see PL § 62 [recognizing dissolution by the "express will of any partner]), or implicitly through a course of conduct with the partnership (see Mashihi v 166-25 Hillside Partners, 51 AD3d 738, 738-39 [2d Dept 2008]). At the time of dissolution, all partners are entitled to an immediate accounting (see PL § 74). The rules for valuing partnership assets and the ultimate valuation of the individual partner's interests post-dissolution are generally governed by Section 71 of the Partnership Law and the applicable terms of the h. 4 partners 1p agreement. Once the accounting process is complete and the business's affairs have been wound up, the partnership terminates. The Partnership Law recognizes that a partner's departure triggers dissolution that is either consistent with the governing partnership agreement, or "in contravention" of the governing agreement, i.e., "wrongful" (see PL § 62). The determination of whether a dissolution is consistent with a partnership agreement or in violation thereof hinges on whether the agreement specifies a "definite term" or a "particular undertaking" (see PL § 62 [1] [b], [2]). If a partnership agreement does not contain a "definite term" or a "particular undertaking," it is considered an "at-will" partnership and a partner can dissolve the business at any time without violating the terms of the governing agreement 4 Section 73 of the Partnership Law also deals with dissolution and the accounting of a departing partner's percentage interest in the partnership as of the date of dissolution (see PL § 73). 18 (see PL § 62 [1] [b]; Gelman, 20 NY3d at 537-39). Following the dissolution of an at-will partnership, the partnership must apply its property to discharge its liabilities and then distribute the surplus, in cash, to the partners according to their ownership interests (PL § 69 [1 ]). For partnership agreements that contain a "definite term" or a "particular undertaking," the withdrawal of a partner before the expiration of the definite term or the achievement of the partnership's purpose constitutes a "wrongful" dissolution (see PL § 62 [2]). In this situation, the Partnership Law authorizes the resulting rights of both the exiting partner and the remaining partners (see PL § 69 [2]). Section 69 establishes that the remaining partners subject to a "wrongful" dissolution have: (1) the right to recover damages from the dissolving partner for breach of the agreement, and (2) the ability to continue the business in the same name during the agreed term for the partnership, provided they pay the partner who caused the dissolution the value of that partner's interest at the tirne of the dissolution, less any appropriate damages recoverable for breach of the agreement (see PL § 69 [2] [a] [II], [2] [b ]). 5 If a partnership elects to continue its business, PL § 73 addresses the process that the partnership must go through to pay the departing partner's interest. That provision provides that the remaining partners 5 An accounting proceeding in equity following dissolution and a proceeding for damages under Section 69 do not have to occur simultaneously (see Burnstine v Geist, 257 AD 792, 794 [1st Dept 1939]). 19 must determine the exiting partner's percentage interest in the partnership property as of the date of dissolution, and then compensate the departing partner for the value of that interest in the dissolved partnership with interest from the date of dissolution or, at the election of the departing partner in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership (see PL § 73; Kirsh v Leventhal, 181 AD2d 222, 225 [3d Dept 1992] [stating that interest runs from the date of dissolution]). A "wrongfully" exiting partner's rights after dissolution vary depending on whether the partnership opts to continue or terminate the business. If the partnership terminates, the dissolving partner's interest is paid after the partnership winds up its affairs, less any damages the exiting partner owes for breaching the partnership agreement (see PL § 69 [2] [ c] [I]). In contrast, if the partnership continues, the dissolving partner is entitled to receive the "value of his interest in the partnership, less any damages caused to his copartners by the dissolution, ascertained and paid to him in cash" (see PL § 69 [2] [ c] [II]). When ascertaining the value of the dissolving partner's interest in this scenario, Section 69 states that the "value of the good-will of the business shall not be considered" (see id). If a partnership that was wrongfully dissolved elects to remain a going concern, it avoids winding up and terminating; however, the business must pay out the dissolving partner's interest, less any damages stemming from the dissolution 20 or secure that payment by a bond approved by the court (see PL §§ 69 [2] [b], [2] [c] [II], 73). The Partnership Law does not dictate how to value a minority interest in a partnership that continues its business pursuant to Partnership Law§ 69 (2) (b) (see PL §§1, et seq.), and there is very little, if any, guidance on this subject from the courts in New York. POINT I MALFITANO DID NOT ENGAGE IN A WRONGFUL DISSOLUTION OF THE PARTNERSHIP BECAUSE THE PARTNERSHIP AGREEMENT LACKED A DEFINITE TERM OR A PARTICULAR UNDERTAKING UNDER PARTNERSHIP LAW § 62. A. The Appellate Division should have applied the rule announced In Gelman v Buehler to the facts of this case The Appellate Division's failure to apply this Court's precedent' from Gelman regarding the existence of a "definite term" in a partnership agreement was in error since the Partnership Agreement in this case did not contain a "definite term." A critical function of the Appellate Division when reviewing a lower court proceeding is to apply the law as it exists at the time the appeal is decided (see ~ People v Favor, 82 NY2d 254, 260 [1993], citing, in part, Vandenbark v Owens- III. Glass Co., 311 US 538 [1941]); Americorp Securities, Inc. v Sager, 239 AD2d 115, 116-17 [1st Dept 1997]). When a new rule of law is announced, appellate 21 courts generally provide for prospective application of that new rule to avoid wreaking "havoc on society" or causing a "dramatic shift away from customary and established procedure" (see Favor, 82 NY2d at 262-63 [internal quotation marks and citations omitted]). But, this Court has clarified that a judicial decision that construes the words of a pre-existing statute does not constitute the creation of a new legal principle restricted to prospective application (see Gurnee v. Aetna Life & Cas. Co., 55 NY2d 184, 191 [1982] [internal quotation marks and citations omitted]; see also Favor, 82 NY2d at 263 [same]). To the contrary, it is now well-settled that such judicial construction, even if it represents a change in the controlling decisional law, will be "applied retrospectively to all cases still in the normal litigating process" (see Gurnee, 55 NY2d at 191, 194 ["mandating" the retroactive application of a change in decisional law] [internal quotation marks and citations omitted]; see also Gager v White, 53 NY2d 475, 483 [1981] [citations omitted]). This Court has stated that retroactive application of a judicial decision interpreting the words of a statute is necessary since "it would be unthinkable to apply anything less than the 'true' law to an actual controversy" (see Favor, 82 NY2d at 261 [internal quotation marks and citations omitted]). This principle is fundamental in correcting the misapplication of the law in this case. 22 Here, the courts below were asked to decide whether Malfitano' s election to dissolve the Partnership was permissible, or in contravention, of the Partnership Agreement. The answer to that question requires examination of the language of the Partnership Agreement to determine whether it specifies a "definite term" or a "particular undertaking" (see PL § 62). As outlined in Point I (B) below, both courts involved in this proceeding concluded that Malfitano elected to dissolve the Partnership contrary to the operation of the Partnership Agreement (R. at B60, B68). However, the courts travelled different routes to reach that conclusion. The trial court found that the Partnership Agreement specified a "particular undertaking," but not a "definite term" (R. at B60). On Malfitano's appeal on the issue of whether the Partnership Agreement contained a "particular undertaking," the Appellate Division held, contrary to Supreme Court, that the Partnership Agreement contained a "definite term," but not a "particular undertaking" (R. at B66a-68).6 Having found that Partnership Agreement set forth a "definite term," the Appellate Division determined that under PL § 62 (2), Malfitano' s election to dissolve the Partnership violated the Partnership Agreement and was wrongful (R. at B66a-66b ). 7 6 There was no pending cross-appeal by the Executive Committee on the issue of whether a "defmite term" existed in the Partnership Agreement. 7 The Executive Committee never appealed the determination by the Appellate Division that the Partnership Agreement did not specify a "particular undertaking." 23 Notably, at the time the Appellate Division concluded that the Partnership Agreement included a "definite term," this Court had not yet construed or interpreted the phrase "definite term" as used in the Partnership Law. It was not until 2013 - but while this case was still actively being litigated - that this Court issued its decision in Gelman. Gelman presented the novel issue of defining the meaning of the phrase "definite term" as it is used in PL § 62 (1) (b) and§ 62 (2) (see 20 NY3d at 537-38 [acknowledging that there was no controlling New York case law that defined the "commonly-used statutory phrase - a 'definite term"']). Gelman clarified that a partnership agreement specifies a "definite term" only if it includes "a specific or even a reasonably certain termination date[,]" and that the termination date must be "ascertainable at the outset of the partnership" (id). Hence, partnership agreements without a fixed operational period lack a definite term and, without a specific undertaking, will be deemed "at will" and subject to dissolution, with no violation of the underlying partnership agreement (see id at 538-39). Since the Appellate Division's initial holding that the Partnership Agreement contained a "definite term" was rendered in 2009 and before the Gelman decision was issued, Malfitano requested in his 2013 appeal that the Appellate Division, under the mandate of Gurnee (55 NY2d 184 ), reconsider the issue of whether the Partnership Agreement specified a "definite term" (R. at B7). But the Appellate 24 Division refused to apply the Gelman rule, holding that the "law of the case doctrine forecloses re-examination of a question previously determined by an appellate court in the same action" (R. at B8 [internal quotation marks and citations omitted]). The "law of the case" concept was inapplicable here under the dictates of Gurnee and Gelman. This Court's interpretation of "definite term" in PL § 62 was simply the construction of a phrase used within a pre-existing statute, which this Court had not previously interpreted. Gelman did not limit the definition of the phrase "definite term" to oral partnership agreements, or to unsophisticated business partners (as in Gelman), it simply construed a statutory term (see Gelman, 20 NY3d at 537-39). As such, Gelman did not pronounce a new legal principle that would be applied only prospectively, or be subjected to a "law of the , case" analysis. The Gelman decision represents a change in the controlling decisional law of the State which must be applied "retrospectively to all cases still in the normal litigating process" (see Gurnee, 55 NY2d at 191 [internal quotation marks and citations omitted]; see also Gager, 53 NY2d at 483 [citations omitted]; Favor, 82 NY2d at 260-61 ). Any other result would be "unthinkable" because it would represent a failure of our judiciary system to apply the '"true' law to an actual controversy" (see Favor, 82 NY2d at 260-61 ). And at a practical level, the phrase 25 "definite term" in the Partnership Law should not have one definition in an oral agreement and another in a written agreement, absent a statutory exception. The status of the law is clear in New York and the Appellate Division should have applied the analytical framework in Gelman to this matter, which remained in the litigation pipeline after Gelman was issued. The Appellate Division's misguided reliance on the "law of the case" doctrine allowed it to avoid discussing the mandates of this Court's decisions in Gurnee (55 NY2d 184), Gager (53 NY2d 475), and Favor (82 NY2d 254). But the law of the case doctrine should not trump a clear directive from this Court. This Court should enforce its precedent regarding the retroactive impact of its interpretation of a "definite term" to ensure consistency in the application of Section 62 of the Partnership Law and provide clear guidance to minority partners confronting recalcitrant majority partners who refuse to buyout exiting partners at an appropriate value. B. The application of the rule announced in Gelman v Buehler and the language of the governing partnership agreement compels a determination that, as a matter of law, Malfitano dissolved the Partnership pursuant to Partnership Law § 62 ( 1) (b) The application of the Gelman rule to the facts of this case mandate a reversal of the Appellate Division's finding that the Partnership Agreement specified a "definite term," and, by extension, that Malfitano's dissolution of the Partnership was wrongful. 26 After reviewing the plain language of Section 2.3 of the Partnership Agreement, the trial court found that the Partnership Agreement did not specify a "definite term," but that it did establish a "particular undertaking" for the Partnership (R. at B60). Consequently, Malfitano's election to dissolve the Partnership was deemed "wrongful" (R. at B60-62). The court did not rely on any case law to support its conclusion that the Partnership Agreement contained a "particular undertaking" (R. at B56-69). The Appellate Division disagreed with that holding and held that the Partnership Agreement did not specify a "particular undertaking" (R. at B68),8 but it did provide for a "definite term" (R. at B66a-68). The court stated that even though the Partnership Agreement was not limited temporally, a "definite term" could be found because the parties "expressed ... intention" that the Partnership should "dissolve upon an election of a majority of the partners," even though that election may never occur (R. at B68). Not only did the Appellate Division rely on prior inapposite and distinguishable case law to reach this result, the court's recitation of the Partnership Agreement is factually inaccurate. The Partnership Agreement provides a mechanism for dissolution when it states that the partnership shall dissolve "[t]he election by the Partners" (R. at B140)- not the "election of a majority of the partners" as the court concluded (R. at B68). Moreover, the 8 The Executive Committee never appealed or challenged the holding that the Partnership Agreement lacked a "particular undertaking" so that issue is not before this Court. 27 presence of a provision in a Partnership Agreement allowing for dissolution to occur upon a vote of the partnership does not constitute a temporal limit as contemplated by Gelman. For example, in Tropeano v Dorman (441 F3d 69, 78 [1st Cir. 2006]) - a case that this Court cited favorably in Gelman - the U.S. Circuit Court of Appeals for the First Circuit, applying Massachusetts law9 held that even a term in a partnership agreement providing for the termination of the partnership upon a 60o/o interest vote did not create a temporal limit or, by extension, a definite term. 10 Notwithstanding the inaccuracies recited by the Appellate Division to conclude that the Partnership Agreement contained a "defmite term," it affirmed Supreme Court's conclusion that Malfitano's election to dissolve the Partnership was "wrongful" under PL § 62 (2) (id). Fallowing this decision, a non-jury trial was conducted in Supreme Court to establish the valuation of Malfitano' s interest in the Partnership, along with the amount of damages, if any, Malfitano owed the Executive Committee for his "wrongful" dissolution of the Partnership. It was this "label" of wrongful dissolution that lead to the inequitable discounts and 9 Like New York, Massachusetts enacted the UPA to form its partnership law (see Tropeano, 441 F3d at 70, 74). 10 The Massachusetts Court of Special Appeals has held that a "Term" provision in a contract that reads: "'Term' shall mean the period beginning on the effective date of the Agreement and ending when this Agreement is terminated" does not provide a durational term for the agreement (see Medimmune, LLC v Board of Trustees of the University of Massachusetts, 2015 WL 5783381 at *44 [2015]). Instead, that provision simply means the "contract starts when it starts and ends when it ends" (id). The "Term" of the Partnership Agreement in this case is nearly identical to the language interpreted by the Massachusetts court in Medimmune. 28 reductions that have now requ1re Malfitano to owe a judgment of almost $1 million, plus interest, to the Executive Committee. In the 2013 appeal of Supreme Court's Decision and Order resulting from the bench trial on valuation (R. at B22-46), Malfitano requested that the Appellate Division revisit the issue of whether he wrongfully dissolved the Partnership in light of the rule in Gelman (R. at B7). The Appellate Division's refusal to do so should be reversed. The Gelman opinion established, on an issue of first impression before this Court, that a partnership agreement that does not have a fixed operational period, or a "specific or even a reasonably certain termination date," does not have a definite term (see Gelman, 20 NY3d at 537-38). In this case, before Gelman was decided, the Appellate Division had initially held that the Partnership Agreement specified a "definite term" notwithstanding the fact that it "does not specify a time limit" (R. at B68). Such a holding is unavailable in the post-Gelman era because partnership agreements without a term limit lack, as a matter of law, a "definite term." Section 2 of the Partnership Agreement as it relates to the heading "Term" states that the "Partnership shall commence upon the effective date of this Partnership Agreement as set forth on the first page hereof and shall continue until it is terminated ... " (R. at B98). On its face, as the Appellate Division recognized, the Partnership Agreement does not specify a reasonable termination date, nor was 29 one ascertainable at the inception of the Partnership. Notwithstanding this glaring absence of a "definite term", the Appellate Division - after Gelman was decided - upheld its determination that the Partnership Agreement contained a "definite term" (R. at B5-8). This result is in direct conflict with Gelman, and the Appellate Division's holding that the Partnership Agreement contains a "definite term" and that Malfitano's dissolution was wrongful must be reversed as a matter of law. POINT II THE PARTNERSHIP IS NOT ENTITLED TO RECOVER COUNSEL FEES IN THIS BREACH OF CONTRACT ACTION BECAUSE NEITHER THE GOVERNING CONTRACT NOR ANY STATUTE ALLOWS FOR SUCH RECOVERY. The issue of counsel fees only arises in the event that this Court does not agree with Malfitano that the determination of wrongfulness was in error. If this Court upholds the determination of wrongful dissolution, Malfitano submits that the Appellate Division's affirmance ofthe trial court's award of$1,595,157.50 in counsel and expert fees to the Executive Committee should be reversed because the award is contrary to well-settled law in New York. If the decision below stands, it will call into question the validity of the "American Rule" as applied in New York and will perpetuate a split of authority among the intermediate appellate courts as to when attorneys' fees are recoverable in breach of contract actions. 30 After the courts below decided that Malfitano wrongfully dissolved the Partnership, he moved for partial summary judgment, arguing that the Executive Committee was not entitled to recover attorneys' fees as a part of their damages award because such a result would be inconsistent with the "American Rule" (R. at B246-48). 11 Without any discussion of the "American Rule," the trial court denied Malfitano' s motion, holding that the Executive Committee was entitled to seek damages in the form of attorneys' fees because "[ t ]he costs and expenses of forming a new partnership and seeking a judicial ruling that defendant's dissolution was wrongful are not incidental to the litigation, rather they are incidental and consequential damages caused by the defendant's breach" (R. at B49-51 ). The Appellate Division subsequently affirmed this ruling, holding that the Executive Committee's counsel fees and expert expenses were "recoverable expenditures directly occasioned and made necessary by the defendant's breach of the partnership agreement" (R. at B 12).12 This Court has long recognized that New York courts, like federal courts, must apply the "American Rule" when deciding whether a prevailing litigant can 11 Malfitano presented several other reasons why the Executive Committee should not be allowed to recover damages in this action in his motion for partial summary judgment, including the Executive Committee's failure to request such damages in its Verified Complaint and its failure to comply with discovery requests and disclosure orders (R. at B236-64). Although none of these issues are directly addressed in this appeal, Malfitano reserves his right to reargue these points if this matter should be remitted to the trial court on the issue of damages. 12 Between the time of the trial court's determination that the Executive Committee could seek damages for attorneys' and expert fees (March 30, 2011), and the Appellate Division's affirmance (May 18, 2016), the trial court had concluded a non-jury trial on damages and found that the Executive Committee was entitled to recover counsel and expert fees in the sum of $1,596,157.50 (R. at B22-46). Therefore, the Appellate Division's May 18, 2016 decision not only affirmed that the Executive Committee could seek damages, but also the value of the damages awarded by the trial court (R. at B 12-13 ). 31 collect legal fees from its unsuccessful opponent (see Hunt v Sharp, 85 NY2d 883, 885 [1995] [holding that "this State adheres" to the "American Rule"] [citation omitted]; see also Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21-22 [ 1979] [outlining that the principles underlying the "American Rule" are "ingrained" in New York's jurisprudence]; Alyeska Pipeline Service Co v Wilderness Society, 421 US 240, 245 [1975]). Under the "American Rule," attorneys' fees and disbursements are "incidents of litigation" and may not be collected by a successful party from the losing party unless such an award "is authorized by agreement between the parties or by statute or court rule" (Mount Vernon City School Dist. v Nova Casualty Co., 19 NY3d 28, 39 [2012], quoting Matter of A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 5 [1986]; Flemming v Barnwell Nursing Home and Health Facilities, Inc., 15 NY3d 375, 379 [2010] [citation omitted]). The "American Rule" is also applicable in actions sounding in equity (see Millman v Brownlee, 133 AD2d 221, 222 [2nd Dept 1987] [citation omitted]). The "American Rule" is premised on a "fundamental legislative policy decision" in New York, and throughout the country, that absent particular exceptions, it is "undesirable to discourage submission of grievances to judicial determination" in fear that litigants may need to expend monies to pay for their own, and their opponents, litigation expenses (see Mighty Midgets, 4 7 NY2d at 32 21-22 [citations omitted]). 13 In the absence of an explicit agreement between parties allowing the party who successfully proves a claim against the other (i.e., breach of contract) to recovery counsel fees, or a statute that authorizes such recovery, litigants in New York are not entitled to recover counsel fees as damages, regardless of their ultimate success on the merits of their claims (see id; see also Mount Vernon, 19 NY3d at 39 [citation omitted]). Given the unequivocal precedent from this Court establishing the controlling nature of the "American Rule" when determining whether a successful litigant is entitled to attorneys' fees, the Appellate Divisions have consistently applied the "American Rule" (see ~ Nat'l Union Fire Ins. Co. of Pittsburgh, P A v Odyssey Reinsurance Co., 143 AD3d 626, 626 [1st Dept 2016]; Chicago Title Ins. Co. v LaPierre, 140 AD3d 821, 822 [2d Dept 2016]; Halstead v Fournia, 134 AD3d 1269, 1271-72 [3d Dept 2015]; Wharton Assoc., Inc. v Continental Indus. Capital LLC, 137 AD3d 1753, 1755 [4th Dept 2016]). Notably, New York does not have any statutory provision that allows for the general recovery of attorneys' fees by the prevailing party in a breach of contract action (see Robert L. Haig, Commercial Litigation in New York State Courts,§ 57:76 [4th Ed. 20 15] [listing all New York statutes that provide a party the right to recover 13 The "American Rule" stands in contrast with other legal systems - such as Great Britain - which uniformly allow successful litigants recovery of attorneys' fees expended to prosecute their case or defend their rights from their unsuccessful opponents, who must also pay for their own legal expenses (see Chapel v Mitchell, 84 NY3d 345, 349 [1994]). 33 attorneys' fees, none of which relate to a breach of contract action]; see also Equitable Lumber Corp. v IPA Land Development Corp., 38 NY2d 516, 519-20 [1976]). Therefore, a party who prevails in a breach of contract action can be awarded damages covering counsel fees only if the subject contract expressly contemplates such recovery (see Zelasko Constr., Inc. v Merchants Mut. Ins. Co., 142 AD3d 1328, 1329 [4th Dept 2016] [denying a request for attorneys' fees because there was no applicable statute allowing for such recovery and there was no "justification for a conclusion that" such recovery was, "at the time of formation of the [subject] contract, within the contemplation of the parties as an intended or foreseeable consequence of any breach"]); Wharton Assoc., 137 AD3d at 1755).14 The Partnership Agreement does not allow for the recovery of attorneys' fees to prosecute a wrongful dissolution or breach of contract action (R. at B82-150), nor is there any other statute that allows for such an award stemming from either cause of action (see, Commercial Litigation, § 57:76; see generally PL §§ 1 - 126, et seq.). 15 Simply put, without an applicable exception to the "American Rule," an award of attorneys' fees in this case is prohibited. As discussed below, there is no exception to the "American Rule" that would justify the legal fees award in this matter. 14 Similarly, there is no statute allowing for the recovery of attorneys' fees in an action for a declaratory judgment (see E.M.R. Management Corp. v Halstead Harrison Associates, 299 AD2d 393, 394 [2d Dept 2002] [citations omitted]). 15 More specifically, PL § 69, which, assuming Malfitano's dissolution was wrongful, grants the Executive Committee the right to seek damages, does not address the recovery of attorneys' fees, much less sanction such an award. 34 The courts below relied on a narrow body of appellate case law, and an unreported decision from the Supreme Court's Appellate Term, that carved an exception to the "American Rule" permitting the recovery of limited legal expenses incurred by a prevailing party to remedy the consequences of a breach of contract. A review of these cases makes clear that the fees awarded in this case do not qualify as "legal expenses" under to this narrow exception to the "American Rule," which has never been adopted by this Court. For example, in City of Elmira v Larry Walter, Inc. (150 AD2d 129 [3d Dept 1989], affd on other grounds, 76 NY2d 912 [1990]), cited by the Appellate Division, the prevailing plaintiff attempted to recover $42,219.92 in counsel fees incurred to rebid the contract that the defendants breached. Defendants argued that such fees were not recoverable because there was no statutory or contractual basis for recovery (id). Although the Third Department noted that defendants were "correct ... that counsel fees are not available ... in the absence of statutory or contractual authority[,]" the court went on to explain that the charges the plaintiff was attempting to recover were not traditional "counsel fees" incurred to obtain a judgment against the defendants (id at 133). Instead, these charges were deemed "legal expenses" expended to "rebid the contract," something separate and apart from the "counsel fees" accrued in the litigation (id). Despite the fact that City of Elmira allowed for the recovery of certain fees, the court clearly precluded the 35 recovery of legal fees incurred by the prevailing party related to the prosecution of the breach of contract action since there was no contractual provision or statute providing recoupment of those expenses (id). Similarly, in Aero Garage Corp. v Hirschfeld (185 AD2d 775, 776-77 [1st Dept 1992]), the First Department determined that a defendant who breached his contract with plaintiff by failing to obtain a certificate of occupancy for the premises leased by plaintiff could be charged with the reasonable legal expenses the plaintiff incurred to obtain a certificate of occupancy since those expenses were "directly occasioned" by the defendant's breach.16 Hence, the "American Rule" precludes the Executive Committee from recovering the fees related to the obtainment of a judgment of wrongful dissolution or breach of contract against Malfitano because the Partnership Agreement does not allow for the recovery of attorneys' fees (R. at B82-150) and there is no statutory authority for such an award (see Robert L. Haig, Commercial Litigation in New York State Courts, § 57:76 [4th Ed. 2015]). Moreover, City of Elmira and its progeny specifically preclude the award of attorneys' fees incurred to prosecute the underlying action in the absence of a statutory or contractual provision allowing for the same (see infra). 16 The two other Appellate Division decisions relied on by the lower courts precluded the recovery of legal expenses that were not allowable under the "American Rule" and not directly occasioned by the underlying breach (see BGW Dev. Corp. v Mount Kisco Lodge, 264 AD2d 433,434 [2d Dept 1999]; RAD Ventures Corp. v Artukmac, 31 AD3d 412, 414-15 [2d Dept 2006]). 36 The fees sought by the Executive Committee in this case were not directly occasioned by Malfitano' s alleged breach of the Partnership Agreement. The trial court stated that it was awarding the Executive Committee damages "limited ... to those legal and expert fees incurred" to secure a "ruling that [Malfitano' s] dissolution was wrongful and that the remaining partners may properly continue the business of the partnership, and their costs associated with the formation of a new partnership" (R. at B41). The value of the fees requested by the Executive Committee for these services was $2,717,340.00 - 94.61% of which constituted fees to litigate the breach of contract and wrongful dissolution causes of action from the commencement of this litigation - all contrary to the "American Rule" (R. at B42). After discounting the requested fee, the court awarded the Executive Committee attorneys' fees of $1,516,452.00 and expert fees of $79,705.50,' for a total damage award of$1,596,157.50, plus interest (R. at B44.;.45). The remaining 5.39o/o of the fees awarded represent fees estimated to form "a new partnership." Counsel for the Executive Committee testified at trial that the fees incurred to "reconstitute" the Partnership were $14,640.00 (R. at B767). Critically important to this claim for legal fees is the fact that the Partnership never terminated - a fact that the lower courts consistently overlooked. The Record here establishes that the Partnership decided to continue operating under the assumption that Malfitano wrongfully dissolved the Partnership, which would, pursuant to the 37 Partnership Law, allow the Partnership to continue operations without dissolving and reconstituting (R. at B223-29, B254, B564, B770; PL § 69 [2] [b ]). Hence, any fees attributable to the formation of a new partnership were improperly awarded given the fact that there is no dispute that a new partnership was not formed to carry on the business of the Poughkeepsie Galleria. The ruling permitting the Executive Committee to recover over $1.5 million in legal fees to prosecute this action against Malfitano is unsupported and contrary to the time-honored "American Rule," and must be reversed (see Bibeau v Ward, 228 AD2d 943, 946-47 [3d Dept 1996] [reversing lower court's award of attorneys' fees in a breach of contract action because there was no agreement, statute, or prior court rule that authorized such recovery]). Moreover, an affirmance by this Court authorizing the recovery of damages for such legal fees would eviscerate the "American Rule" in the context of partnership dissolution actions, and effectively mandate what the State legislature has refused to do - amend the Partnership Law to provide for entitlement by the prevailing party in a partnership dissolution action to the recovery of all legal expenses incurred to prosecute or defend such an action. There is no legal basis to affirm the award of counsel fees to the Executive Committee and regardless of this Court's determination of wrongfulness, and this aspect of the Appellate Division's Order must be reversed. 38 POINT III SECTION 69 OF THE PARTNERSHIP LAW DOES NOT ENTITLE THE PARTNERSHIP TO DIMINISH THE VALUE OF MALFITANO'S PARTNERSHIP INTEREST BY APPLYING A MINORITY DISCOUNT, MARKETABILITY DISCOUNT, OR GOODWILL REDUCTION. The issue of reductions and discounts arise only in the event this Court does not agree with Malfitano that the determination of wrongfulness was in error. If this Court reverses the Appellate Division and determines that the Partnership Agreement does not specify a "definite term" in accordance with Gelman, Section 69 ( 1) of the Partnership Law governs and Malfitano recovers the value of his interest in the Partnership without reductions. And, even if this Court finds that Malfitano's dissolution was "wrongful," PL § 69 (2) does not sanction the deductions applied by the Appellate Division to the value of Malfitano's financial interest as a minority partner. Hence, the Appellate Division's recalculation of Malfitano's value in the Partnership to account for the Partnership's goodwill, the lack of marketability of his minority interest, and his lack of controlling interest in the Partnership were in error. The Partnership did not possess goodwill and there is no precedent to support the application of such onerous discounts to dilute a minority partner's interest in a partnership. In this case, the Partnership dissolved as a matter of law on November 24, 2006, when Malfitano sent his Notice of Dissolution in accordance with Section 62 39 of the Partnership Law to the Executive Committee (R. at B 151 ). Instead of winding up and paying Malfitano the value of his interest in the Partnership, the Partnership continued to carry on its business under the same name (R. at B24) and commenced this action seeking a declaration of wrongful dissolution by Malfitano and damages (R. at B25). After the trial court denied Malfitano his right to an accounting (contrary to the clear provisions in New York's Partnership Law entitling him to the same) (R. at B26) and determined that Malfitano' s dissolution was "wrongful" (R. at B66a-68), the court conducted a non-jury trial to determine the value of Malfitano' s interest in the Partnership pursuant to PL § 69 (2) (c) (II), along with the damages the remaining partners were entitled to, if any, due to the wrongful dissolution (R. at B22). At the beginning of the bench trial, the parties stipulated that Malfitano' s interest in the partnership as of the date of dissolution was $4,850,000.00 (R. at B28). They also reserved the right to argue whether any deduction for goodwill or other discounts would apply to decrease the stipulated value (id). Both parties offered expert testimony addressing whether the stipulated value of Malfitano's interest included goodwill and if reductions in value for the lack of marketability or Malfitano' s status as a minority partner were warranted (R. at B277-552). 40 With respect to the reductions and discounts disputed at trial, Supreme Court concluded that: (1) the Partnership had goodwill value and deducted $727,500.00 from Malfitano' s stipulated value, (2) after deducing the goodwill value, Malfitano's remaining stipulated value was reduced by 35% (nearly $1.5 million) for a marketability discount, and (3) the application of a minority discount was improper in this case (R. at B27-40). The Appellate Division upheld Supreme Court's first two determinations, but held that the trial court should have additionally applied a 66% minority discount to Malfitano' s ownership share (R. at B 11-12). On remittal, Supreme Court determined that the stipulated $4.85 million value of Malfitano's interest in the Partnership, after excluding goodwill and applying two discounts, was only $911,072.50 (R. at B3). The application of these discounts and reductions were not consistent with the intent of the Partnership Law and were utterly lacking in an equitable basis. A. The Partnership does not have any goodwill value 1. Real estate holding companies do not possess goodwill Generally, the goodwill value of a business is that "portion of the value over and above the value of the business's tangible assets, less its liabilities {see Grunfeld v Grunfeld, 255 AD2d 12, 14 [1st Dept 1999]). Based on this precept, and prior to the Appellate Division decision appealed from here, it was well-settled that goodwill does not exist in a real estate holding company, like the Partnership 41 in this case (see ~' Cohen v Cohen, 279 AD2d 599, 599-600 [2d Dept 2001] [holding there is no goodwill in real estate holdings]; In re Cinque v Largo Enters. of Suffolk Cty., 212 AD2d 608, 609-10 [2d Dept 1995] [holding a corporation whose value is attributable solely to "real property and cash" does not have goodwill]). Consistent with this precedent, Malfitano' s expert testified unequivocally at trial that there should be no reduction of Malfitano' s value for goodwill because the Partnership "is a real estate holding company. It has no goodwill" (R. at B488-90). Additionally, this Partnership is an entity that exists to own a portion of the Galleria Mall (R. at B98). The Partnership does not manage the mall, solicit tenants, negotiate leases or have mall employees (R. at B630-33). All of those functions are carried out by Pyramid, a separate entity (id). Although the Galleria Mall is a profitable shopping mall, that success is largely attributable to the management efforts of Pyramid. Any goodwill credited to the success or desirability of the Galleria Mall has been earned by Pyramid and the top-quality tenants, not the Partnership. Therefore, the Appellate Division erred when it concluded that the Partnership possessed goodwill due to its "operation of the shopping mall that it owned" (R. at B12-13). This was factually incorrect since the Partnership did not 42 operate or manage the mall, and it ignored the precedent in its own Department that real estate holding companies do not derive goodwill. 2. The Partnership did not have any history of goodwill The record is uncontroverted that there was no history of goodwill value in this Partnership. The Partnership Agreement is silent regarding the valuation of goodwill, which is generally an indicator as to whether a partnership accrues goodwill value (see Kaplan v Schachter & Co., 261 AD2d 440 [2d Dept 1999]), nor does it reference a goodwill factor in determining the "fair market value" of the Partnership (R. at B82-150). Moreover, both parties agreed during trial that there is no goodwill carried on the books or financial statements of the Partnership (R. at B30). 17 Generally, when a partnership possesses goodwill, the goodwill is accounted for as part of the assets and properties of the business (see In re BTown, 242 NY 1, 6-7 [ 1926]; Dawson v White & Case, 88 NY2d 666 [ 1996] [citation omitted]; Saltzstein v Payne, et al., 292 AD2d 585 [2d Dept 2002]; Siddall v Keating, 8 AD2d 44 [1st Dept 1959], affd 7 NY2d 846 [1959]). Here, the absence of any evidence of goodwill in the Partnership's financial records and the Partnership Agreement's silence on the presence of goodwill for valuing the Partnership's assets is determinative evidence that the Partnership does 17 The Partnership Agreement defmes the term "Accounting Method" and states that the "accounting records of the Partnership shall be prima facie [ ] deemed to properly reflect the proper account method [of the Partnership's assets], absent a showing of gross error of fraud" (R. at B85). The accounting records of the Partnership do not reveal a single business record showing goodwill value (R. at B610-ll, B629-30, Bl047-51). The only contention regarding goodwill was a statement by the Executive Committee's expert who lacked business valuation credentials and his testimony was contrary to the terms of the Partnership Agreement (R. at B317-31). 43 not possess any goodwill value (see Dawson, 88 NY2d at 671 [holding that "even if a given partnership might be said to possess goodwill, the courts will honor an agreement among partners whether express or implied that goodwill not be considered and asset of the firm"], citing In re Brown, 242 NY at 6-7; Saltzstein, 292 AD2d at 585 [affirming dismissal of an action by a partner for a share of the partnership's goodwill value, in part, because "the partnership agreement at issue did not specify that goodwill was a firm asset"] [citations omitted]). Despite the nonexistent management responsibilities of this Partnership and the lack of financial records establishing that the Partnership accrued a goodwill value, the Appellate Division upheld the lower court's ruling that Malfitano's interest in the Partnership must be reduced by a goodwill factor in valuing his interest in the Partnership (R. at B12-13). This Court should reaffirm the holding in In re Brown, which established that real estate holding companies do not possess goodwill and, for the reasons stated above, vacate the goodwill reduction in this case. B. The application of minority and marketability discounts in this case was contrary to law New York's Partnership Law is silent regarding the availability of minority and marketability discounts when valuing a minority partner's interest in a partnership that remained a going concern after dissolving as a matter of law (see generally PL §§ 1, et seq.). Moreover, this Court has yet to opine on the standard 44 for valuing a departing minority partner's interest under PL §§ 69 and 73. Despite the absence of controlling authority from this Court sanctioning such discounts, the Appellate Division held that Malfitano' s interest in the Partnership should be discounted to account for the lack of marketability of his interest and his minority position in the Partnership (R. at B2-3, B8-13, B37-40). This result runs afoul of the logic underlying the purpose of discounts because, after Malfitano exited the Partnership, it remained a going concern with no business interruption. A discount for lack of marketability is a "percentage deduction from the value of an ownership interest to reflect the relative absence of marketability" (see Job Aid for IRS Valuation Professionals, Discount for Lack of Marketability [Sept. 25, 2009], at 8). Relatedly, a minority discount is sometimes factored in the valuation of corporate shares to reflect a minority owner's lack of control in the business entity (see James E. Harris, Valuation of Closely Held Partnerships and Corporations: Recent Developments Concerning Minority Interest and Lack of Marketability Discounts, 42 Ark. L. Rev. 649, 649 [1989]). Importantly, the Executive Committee chose to continue the business of the Partnership (R. at B24). Thus, the remaining partners absorbed Malftiano's 3.08% interest in the Partnership (valued at over $4.85 million) and bore no expense to begin as a new partnership. 45 1. Minority and marketability discounts are unnecessary when a partnership continues operations after the departure of a partner Because Malfitano's interest was retained by the Partnership, there was no concern that another party would purchase his interest, yet the Appellate Division approved the application of minority and marketability discounts. The Louisiana Supreme Court in Cannon v Bertrand, 2 So 3d 393 [Sup Ct, La 2009], a case involving a limited liability partnership and the valuation of a 33.33% ownership interest of a withdrawing partner, spoke directly to this issue in rejecting the application of minority or marketability discounts in situations when a withdrawing partner's interest is absorbed by the remaining partners: "[B]ecause the partners have already determined to purchase the partnership share themselves by opting to continue the partnership and avoid liquidation, neither is lack of marketability an issue . . . . The withdrawing partner should not be penalized for doing something the law allows him to do, and the remaining partners should not thereby realize a windfall profit at his expense" (2 So 3d at 3 96-97). Based on this logic, the Cannon Court cautioned that minority and marketability discounts "must be used sparingly" to ensure equitable results when a partner leaves a business in accordance with the law (id). This Court should adopt a similar view and hold that the Appellate Division erred by applying marketability and minority discounts, which allowed the Executive Committee to receive a windfall from Malfitano' s legitimate decision to withdraw from the Partnership pursuant to PL § 62. 46 f ~i l' II rl H l r.:j• ., I ~ i r: t! ~::, r: ., .':: f": 2. Minority discounts are disfavored in corporate divorces when the business continues The closest this Court has come to examining the issue of whether a minority discount is appropriate when valuing a partner's interest in a dissolved partnership was in 1995 in In re Friedman v Beway Realty Corp. (87 NY2d 161 [1995]). In Friedman this Court analyzed the application of a minority discount to shares held by a minority shareholder in a closely-held corporation subject to a Business Corporation Law § 623 buyout when the corporation continued operations after the buyout. This Court held that such a discount was inapplicable because doing so would "deprive minority shareholders of their proportionate interest in a going concern[,]" allow majority shareholders to reap a windfall after "cashing out a dissenting shareholder[,]" and "encourage oppressive majority conduct" (see Friedman, 87 NY3d at 169 [internal quotation marks and citations omitted]). These considerations are clearly just as relevant in this partnership dispute. Notwithstanding certain differences between corporations and partnerships, this Court's "central equitable principle[] of corporate governance" precluding the imposition of a minority discount to a shareholder's value when the corporation remains a going concern after buying out the dissenting shareholder (see In re Dissolution of Penepent Corp., Inc., 96 NY2d 186, 194 [200 1 ]) is transferrable to the partnership context. For example, in East Park Ltd. Partnership v Larkin (167 47 Md App 599, 619-20 [2006]), the Court of Special Appeals of Maryland relied on Friedman to determine that withdrawing partners from a limited partnership should not have their value reduced by a minority discount since the partnership continued after their departure. In that case, relying on corporate buyout principles, it was recognized that applying a minority discount to a withdrawing partner's value is "inappropriate" when the exiting partner's interest is "absorbed by the partnership entity" because the application of such a discount would 'result in a "windfall" for the remaining partners who gain an automatic increase in their interest (see East Park, 167 Md App at 619-20 [holding that there is an analogy between dissenting shareholder cases and withdrawal of limited partners cases] [citations omitted]). The rationale of Cannon and Friedman should apply with equal force here to explain why minority discounts are not recoverable when ascertaining a minority partner's interest after the partner exits a business that remains a going concern. Consequently, this Court should reverse the application of a minority discount in this case to prevent the Partnership from receiving an unjust benefit from Malfitano after retaining his interest in the Partnership. 3. The Second Department has held that marketability discounts are inapplicable to real estate holding companies It is uncontroverted that the Partnership at issue in this case exists as a real- estate holding company (R. at B40). Contrary to its determination in this case, previously the Second Department has refused to apply a marketability discount 48 when valuing a departing partner's interest in partnership that holds real estate (see Vick v Albert, 47 AD3d 482, 484 [2d Dept 2008], citing Cohen v Cohen, 279 AD2d 599 [2nd Dept 2001]; Matter of Cinque v Largo Enters. Of Suffolk County, 212 AD2d 608 [2nd Dept 1995]). In Vick, the Second Department declined using a marketability discount against a decedent's interest in a partnership that remained a going concern after his death because the "business consists of nothing more than ownership of real estate" (Vick, 4 7 AD 3d at 484 [citations omitted]). Similarly, in Cohen, the court refused to apply a marketability discount to determine the value of the parties' interests in corporations and partnerships since those entities existed solely to hold real property (see 279 AD2d at 600). Though the Vick court did not specify why marketability discounts should not apply to real estate holding companies, the Cohen court did. The Cohen court explained that marketability discounts should only be applied to the portion of a business that is attributable to goodwill, and, since holding companies have no goodwill, marketability discounts cannot apply (id, at 600; see also Cinque, 212 AD2d at 609-10 [limiting a marketability discount to the portion of the value of a corporation that was attributable to goodwill]). Accordingly, if this Court does not hold that marketability discounts are unavailable when the dissolved partnership continues operations as outlined in Cannon, it should conclude that marketability discounts are inappropriate when the dissolved entity is a real estate holding 49 company that does not have any goodwill value (accord Matter of Whalen, 204 AD2d 468 [2d Dept 1994] [holding that the discount for lack of marketability should only be "applied to the portion of the value attributable to goodwill"]). The issue of what reductions and discounts apply when valuing a departing partner's interest in a partnership that remains a going concern is of deep concern to the hundreds of minority partners with financial investments in qualifying partnership agreements. New York would benefit from a rule that protects oppressed minority shareholders from being forced to cash out their partnership shares at steep and unjustified discounts. 18 Membership in a partnership should not become an involuntary commitment, and departing partners should not be so heavily penalized for withdrawal that their financial interests are eviscerated. Here, Malfitano's $4,850,000.00 stipulated value was reduced by over three- quarters after three categories of discounts and reductions were applied by the Appellate Division. If this patently inequitable decision remains intact, it would not only encourage oppressive conduct by majority partners and conduct contrary to the expectations of the PL (see Friedman, 87 NY2d at 170 [stating "the greater the[ir] misconduct, ... the less they need to pay for the minority's share"] [citation omitted]), it will also have a chilling effect on anyone considering a partnership 18 See Samuel J. Bazian, Minority Partners Risk Huge Losses When Wrongfully Dissolving a Partnership (June 2 0 16), http://www .herrick. com/publications/minority -partners-risk-huge-losses-when-wrongfully -dis so 1 ving -a- partnership/; Peter Mahler, Court of Appeals to Decide Controversial Partnership Dissolution Case (Jan. 16, 2017), http://www.nybusinessdivorce.com/tag/congeV; Louis Russo & Stephen Younger, Court of Appeals Grants Leave to Appeal in Partnership Dissolution Case (Jan. 23, 20 17), https:/ /nycommercialdivisionblog.com/court-of-appeals- grants-leave-to-appeal-in-partnership-dissolution -case/. 50 investment because of the possible risk of substantial financial loss 1n these situations. CONCLUSION This case demonstrates the reality of the difficult situation confronting a minority partner who, because of legitimate fiduciary or other concerns, seeks to withdraw from a partnership, but confronts controlling partners who refuse to account and pay the minority partner his interest. So long as the controlling faction delays or declines a pay out, the minority partner has no efficient and economical means of forcing the majority to value and compensate the minority interest. For many minority partners, the prospect of retaining counsel and getting embroiled in lengthy litigation is a substantial disincentive to pursuing their rights - the cost of legal recourse may be more than the value of the interest. The precise purpose of PL § 62 is to provide a "self-help" avenue for a partner to exit a partnership and require the partnership to account for its assets and pay the departing partner the value of her interest in the partnership. After the exiting partner recoups her ownership interest, the partnership can reconstitute and carry on business. That said, the value paid to a departing partner can vary widely depending on whether the governing partnership agreement specifies a "definite term" or "particular undertaking" in PL § 62. If either element exists, the exiting partner faces a claim for damages by the partnership due to a "wrongful" dissolution, 51 notwithstanding the fact that the partnership can elect to continue operations. If neither element is present in the partnership agreement - as Malfitano asserts in this case - the statute provides that there is no "wrongfulness" in the partner's actions and there should be no damages awarded. This highlights the very need for this Court to apply Gelman here. If, as Malfitano urges, Gelman mandates a determination that the Partnership Agreement did not contain a "definite term," Malfitano's dissolution of the Partnership was not wrongful as a matter of law, and he was entitled to the full value of his interest in the Partnership; and he should not have been harnessed with close to a $1 million judgment in favor of the Executive Committee and the total loss of his interest. Therefore, Malfitano seeks a declaration from this Court that his notice of dissolution was proper under PL § 62 and he should be compensated by the Partnership for his interest without any reductions or discounts. Accordingly, Marc Malfitano respectfully requests that the Order of the Appellate Division be reversed in all respects, and this matter be remanded for the appropriate calculation of the value of his interest, and such other and further relief as this Court deems just and proper. 52 Dated: March 8, 20 1 7 By: 53 Respectfully submitted, HARRIS BEACH PLLC Aubrey A. Roman, Esq. 677 Broadway, Suite 1101 Albany, New York 12207 (518) 427-9700 NEW YORK STATE COURT OF APPEALS CERTIFICATE OF COMPLIANCE I hereby certify pursuant to 22 NYCRR PART 500.10) that the foregoing brief was prepared on a computer using Microsoft Word. Type. A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 Line spacing: Double Word Count. The total number of words in this brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, corporate disclosure statement, questions presented, statement of related cases, or any authorized addendum containing statutes, rules, regulations, etc., is 11,963 words. Dated: March 9, 2017 Victoria A. Graffeo, Esq. Harris Beach PLLC Attorneys for Defendant-Appellant Marc Malfitano 677 Broadway, Suite 1101 Albany, New York 12207 (518) 427-9700