Summary Judgment Granted In Part, Denied In Part In Action Between Limited Partners

In an order dated June 4, 2024, Justice Andrew Borrok resolved various claims among limited partners in a real estate entity, granting summary judgment to each side on some claims. Melrose Associates Limited Partnership v. Floral Associates Limited Partnership, Index No. 651323/2020.

In 1983, Plaintiff Melrose Associated Limited Partnership (“Melrose”) and defendants Floral Associates Limited Partnership (“Floral”), along with certain affiliates of Floral, entered into a limited partnership agreement (the “LPA”) to acquire and manage an apartment complex. The LPA provided that day-to-day receipts and expenses of the partnership were to be borne 96% by Melrose and 4% by Floral, gains from capital events would be shared between them equally, and Floral could enter into agreements with its affiliates concerning the subject complex, provided that the terms were competitive. Slip Op., pp. 2-4.

In 2018, Floral contracted with an affiliate, non-party Floral Associates Development Company (“FADC”), to assist in the sale of the building for a fee of 1% of the sale price, to be earned by negotiating a reduction of the brokerage commission. Id., p. 5.

After the closing went forward and Melrose brought suit, Melrose and Floral moved for summary judgment on their various claims and counter-claims.

The Court granted summary judgment to Melrose as to liability on its first through fourth causes of action, which alleged 1) breach of fiduciary duties and/or

the LP Agreement through failure to distribute proceeds on a 96%-4% basis; 2) entering into the commission agreement with FADC and advancing payment on the 1% fee before the sale price was known; 3) making improper deductions, including the 1% fee, from operating cash; and 4) improperly retaining $98,000 from distribution.

The Court held that under the LPA, the 1% commission was “an expense in managing the capital event of sale” to be split 50/50, not an “expense of the Project” subject to 96/4 split. Id., pp. 6-7. However, the amount to be distributed presented factual issues yet to be resolved.

The Court also granted Melrose the accounting sought by the sixth cause of action. “The defendants' expert report provided after fact discovery and which does not account for a full wind-up is insufficient, and does not moot this cause of action, as the defendants' contend.” Id., p. 9.

Summary judgment was denied on Melrose’s fifth cause of action, relating to the payment of bonuses with operating cash, because “the fully-developed record” showed no impropriety in the bonuses paid. Id., p. 8.

Neither Melrose’s seventh cause of action, concerning payment of legal fees, nor Floral’s corresponding counterclaim, was ripe for resolution pending determination of whether Floral had engaged in misconduct that would disallow payment of such fees under the LPA. Id., p. 9.

The Court granted summary judgment to Floral on its first through fourth counterclaims, which alleged misrepresentations by Melrose in connection with the closing. “The defendants have met their burden of showing that the $750,000 payment demanded by Melrose to close on the sale was a shakedown based on a misrepresentation, i.e., that the payment was required to obtain the consent of the limited partners of Melrose, when in fact no consent was sought of the limited partners and in fact some $250,000 of that money was being diverted to ESMC.” Id., p. 10.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning the contractual or fiduciary duties among members of corporate entities or their affiliates.