Delaware Business Litigation Report

Rejecting Defendant's Argument that Partnership had Merely Dissolved and Was "Winding Up," Superior Court Finds that Partnership had Terminated and that its Right of First Refusal on Property was Extinguished when It Terminated

Estate of Foraker v. Larrimore, C.A. No. 04C-03-041, 2005 WL 1953075 (Del. Super. Ct. May 25, 2005). The court was faced with the question of whether a partnership had terminated or whether it had merely dissolved and was still in the process of "winding up." The partnership had been granted a right of first refusal on a piece of property. Subsequently, the partners entered into an agreement terminating the business and dividing the debts and assets between the partners. When the owners of the property attempted to sell, one of the former partners desired to exercise the partnership's right of first refusal. The owner brought and action against the partner, and the court found that the partnership had was already terminated rather than being merely dissolved and in the process of "winding up." The court also found that the right of first refusal had terminated with the partnership. In October 1987, Heartie J. Foraker and Frances V. Foraker granted a right of first refusal for a piece of real property to L.A. Enterprises, a Delaware partnership. Mr. Foraker died in 1995 and the property transferred to Mrs. Foraker as the surviving joint tenant. Subsequently, in 1998, Mrs. Foraker died and her interest in the property was devised to Dorothy Henrion. In 2003, Mrs. Henrion agreed to sell the property to Francis Webb. However, sell was contingent on the removal of the right of first refusal held by L.A. Enterprises. L.A. Enterprises terminated in 1990. However, the partners did not address the right of first refusal when the partners divided the partnership's assets. Joseph Larrimore, one of the former partners, wished to exercise the right of first refusal. The plaintiff filed suit against Larrimore, and moved for summary judgment. In support of its motion for summary judgment, plaintiff argued that L.A. Enterprises terminated in 1990 when the partners entered into a termination agreement and divided the partnership's assets and debts. In opposition to the motion for summary judgment, Larrimore contended that the partnership had merely dissolved in 1990, and that the partnership had not completed its winding up because it still owned the right of first refusal to the property. Based on the language of the termination agreement, and addendum to the agreement that stated the partnership was terminated, and the lack of activity by the partnership for thirteen years, the court concluded the partnership was terminated. Furthermore, the court found that the right of first refusal terminated when the partnership was terminated. Alternatively, if the partnership had merely dissolved in 1990, the partnership could only continue to exist for "winding up." If the partnership did not terminate, the court determined the partners had not acted diligently to wind up. Accordingly, the failure to diligently wind up could not prevent the partnership from terminating. Again, upon termination of the partnership, its right of first refusal was terminated. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share