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Congel v. Malfitano - 2018 NY Slip Op 02119, 31 N.Y.3d 272, 76 N.Y.S.3d 873, 101 N.E.3d 341

Rule:

New York's well-established adoption of the American Rule provides that the prevailing litigant ordinarily cannot collect attorneys' fees from its unsuccessful opponents. The standard is not which party was "more responsible" for the litigation. Attorneys' fees are treated as incidents of litigation, rather than damages. 

Facts:

In 1985, defendant Marc A. Malfitano and seven others entered into a written agreement to form a general partnership for the ownership, operation, and management of a shopping mall. In the mid-2000s, Malfitano decided to withdraw from the partnership. Plaintiff remaining partners took the position that defendant had wrongfully dissolved the partnership, and they continued the business. Plaintiffs filed a breach of contract action in which they sought a declaratory ruling that defendant Marc A. Malfitano, a minority partner, had wrongfully dissolved the partnership by withdrawing from and unilaterally electing to dissolve it. The trial court (the Supreme Court of New York) granted summary judgment to plaintiffs, holding that the partnership was not an "at-will" partnership, because it specified a "particular undertaking" within the meaning of state partnership law and that Malfitano's dissolution of the partnership breached the agreement. The Appellate Division upheld the trial court's ruling on the wrongfulness of the dissolution. On remittal, the trial court ruled that plaintiffs were entitled to attorneys' fees and experts' fees, as part of their damages, reasoning that those costs were not incidental to the litigation but instead were damages caused by the defendant's breach of the agreement. Malfitano sought review.

Issue:

In a breach of contract action alleging wrongful dissolution of a partnership, were plaintiff remaining partners entitled to attorney fees from defendant former partner Malfitano?

Answer:

No

Conclusion:

The Court of Appeals of New York held that defendant Malfitano violated the partnership agreement when he sought to unilaterally dissolve the partnership because the partnership agreement covered the terms of the dissolution and Partnership Law § 62(1)(b) had no application since it would only apply if the agreement did not address the issue. The Court also found that the partners were not entitled to attorney fees from Malfitano because New York applied the American rule that each party paid its own attorney fees which were generally not considered damages and there was no provision in the partnership agreement to authorize an exception to the rule. The trial court properly reduced the minority partner's share for goodwill under Partnership Law § 69(2)(c)(II), because the findings were supported by evidence that there was goodwill value in the partnership.

The Court concluded that the partnership agreement in this case dictated the conclusion that partner Malfitano wrongfully dissolved the partnership. However, the Court concluded that it was error to include the legal fees incurred by the remaining partners in the damages owed to them by Malfitano. 

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