Passo and Minetz Obtain Appellate Victory, Restoring Client's Rights to Ownership and Management of Caribbean Hotel
The sharks were circling around an LLF client until Alex Passo and Bob Minetz came and beat them back. The two attorneys recently obtained an appellate victory that restored the client’s ownership and management rights in a boutique hotel in the Turks & Caicos islands, reversing an adverse trial court decision.
The case between the client, her estranged husband, and other silent partners aligned with the husband involved complicated issues of limited partnership law, interpretation of partnership agreements, and the interaction of the terms of such agreements with statutory language governing limited partnerships.
The client and her husband (an attorney) had moved to Turks & Caicos and bought a run-down property with the goal of renovating it and opening a boutique hotel, bar, and restaurant. The wife, represented by LLF, and her husband formed a limited liability company (LLC) to operate the hotel and a limited partnership to purchase and hold title to the property. The husband drafted the limited partnership agreement even though his experience was primarily in personal injury law. The LLC was the general partner of the limited partnership that owned the hotel.
Shortly after opening the hotel in 2019, the couple separated. Despite initial efforts to try to run the hotel together, they were unable to do so. Their relationship continued to deteriorate and they became deadlocked. The wife filed for divorce, and on her behalf, the firm also filed a lawsuit relating to the deadlock in which she, individually and on behalf of the LLC, accused her estranged husband of breach of fiduciary duty and sought the appointment of a receiver to manage the LLC/general partner while the suit remained pending.
Soon after the client filed her lawsuit, the husband engaged in machinations designed to remove the wife from ownership and management of the hotel. Specifically, members of the limited partnership comprising over 74% of the partnership interests -including the husband - executed a “Written Consent of the Limited Partners,” which stated that “in light of [the LLC’s] Receivership Request and Illinois law, the General Partner has been dissociated from the Partnership.” Those members then purported to appoint a new LLC as general partner.
On behalf of the wife and now-disassociated LLC, the firm challenged the propriety of removing the LLC and replacing it with a new general partner. The trial court found that since the limited partnership’s operating agreement did not address
statutory dissociation, the procedure for admitting a new general partner was governed by statute. It further held that the limited partners followed the statute when appointing the new general partner, and thus ordered the client to relinquish her nominal ownership interest in the hotel, vacate the property, and transfer possession to the new general partner.
On appeal, the firm argued that the partnership agreement required the affirmative vote of all limited partners to admit a new general partner when the prior general partner is removed. Since the unanimous consent of all limited partners was not obtained, the admission and appointment of the new general partner was improper.
The appellate court agreed with the firm’s argument that the admission of the new general partner violated the express language of the partnership agreement. It noted that while the partnership agreement did not address dissociation, it
did cover how and when new general partners could be admitted to the partnership. The agreement provided that only the death, bankruptcy, incapacity, or removal of a general partner, along with unanimous approval of all limited partners, allowed for the admission of a new general partner. Since disassociation was not included in the agreement as one of the bases for admitting a new general partner, the court concluded, “Dissociation could not be the basis for admitting a new general partner.”
The case now returns to the trial court for further proceedings. But with this appellate court ruling, Passo and Minetz snatched a victory from the jaws of defeat and restored the client’s rights and interest in her slice of a Caribbean paradise.
