Discovery Limited in Partnership Dissolution Case
It's rare to read a Business Court opinion granting a motion to restrict discovery on the basis of relevancy, but that's the subject of the Court's ruling today in Coremin v. McNamara. Coremin, who was formerly a partner of a furniture-related business with the Defendant, sought discovery on the finances of the business after he was ousted from the partnership.
Plaintiff claimed that he was entitled to half the profits of the business since the dissolution of the partnership based on an oral agreement, and sought discovery on the profitability of the business for the three years after the dissolution. The Court ruled that this discovery was outside the scope of relevancy.
The Court made its decision based on what partnership law would allow as a recovery to a partner forced out by dissolution. The Uniform Partnership Act says that the partnership may be terminated by “the express will of any partner” without a violation of the agreement between them. N.C. Gen. Stat. § 59-61(b) (2009).
Either Coremin or McNamara was therefore entitled to dissolve the partnership at any time without any liability to another partner per a North Carolina Supreme Court decision cited several times in today's opinion, Campbell v. Miller, 274 N.C. 143, 161 S.E.2d 546 (1968). In the case of such a dissolution, valuation of the partner's interest is determined as of the date of dissolution, making the post-dissolution financial information irrelevant.
The plaintiff argued that it was necessary to learn about the post-dissolution finances so he could have a discounted cash flow analysis performed. Judge Tennille condemned that as "speculation," stating that "when a new partnership has no record of income, as here, the discounted cash flow method of valuation normally will be highly speculative and improper."
The result probably would have been different if the partnership agreement had provided for a post-dissolution share of the profits to Coremin.
