A plaintiff in Philadelphia recently prevailed in a business dispute with his former real estate partner. In Bravo v. 2536-38 North Broad Street Associates, C.P. Philadelphia No. 141101464, the defendant was ordered to pay his former business partner over $782,000 as a result of a breach of their partnership agreement by failing to pay the plaintiff money owed under the terms of the limited liability partnership.
According to the judge’s opinion following a bench trial, the parties formed a real estate partnership in 2010. The plaintiff initially joined as a limited partner and purchased a 10% ownership stake in the business, for which he was to receive a 10% cash flow payment from the partnership. A few months later, the plaintiff invested additional funds in exchange for a 51% ownership stake of the business. However, subsequently, the plaintiff did not receive his proportion of cash flow payments from the partnership, and the defendant also failed to inform him that there was a lien on one of the partnership’s properties, and that the property was listed for foreclosure sale.
During the time period in which the plaintiff did not receive his proportional disbursements, the judge also found that the defendant had transferred hundreds of thousands of dollars from the partnership to other business entities under the defendant’s control; and that the defendant had paid himself a salary from the partnership. The defendant claimed that the money was diverted from the partnership in order to maintain his ability to secure a mortgage loan for the partnership, however the judge determined that such diversion of partnership funds was not contained in the partnership agreement between the plaintiff and the defendant. The judge was similarly un-receptive to the defendant’s claim the plaintiff was not issued cash flow payments because the partnership was unable to obtain a mortgage loan.
Ultimately, the judge determined that the corporate veil should be pierced, since the defendant essentially ignored corporate formalities. Morover, by failing to pay the plaintiff his proportional share of the partnership’s cash flow, the defendant had breached the partnership agreement. We surmise that the judge’s findings relied heavily on financial data supporting the plaintiff’s claims of, essentially, theft, which supported the plaintiff’s version of events. Thanks to Greg Herrold for his contribution to this post. Please email Brian Gibbons with any questions.