Business Partnership Dispute Cases and the Clause Each One Needed

Most partnership disputes that reach a judge were settled years earlier, at the moment the owners signed an agreement without the clause that would have decided them. The 20 decisions below, from 1928 to 2025, show it case after case: eight are about deadlock or the right to have a court end the company, and in four the owners had never signed a partnership or shareholders' agreement. Each summary comes from the opinion itself (or, for the one settlement, the company's SEC filing), with the lesson and, where wording would have prevented the fight, a sample clause.

The breakups that made the news, Cellino & Barnes and TransPerfect among them, are told in Famous Failed Business Partnerships and What Broke Them. This page is the court record. It is general information; how any of these rules applies to a particular business depends on its state and its agreement, and a lawyer in that state should read both.

Every duty-of-loyalty argument in an American partnership case still starts in 1928. In Meinhard v. Salmon, Walter Salmon managed a 20-year lease of the Hotel Bristol on Fifth Avenue for a venture in which Morton Meinhard had put up half the money. With less than four months left, the landlord offered Salmon a far larger lease of the Bristol site and the lots beside it, for up to 80 years, and Salmon signed it through his own company without a word to Meinhard. New York's highest court gave Meinhard half of the new lease. Chief Judge Cardozo's standard, 'the punctilio of an honor the most sensitive', was not about fraud: the court assumed Salmon acted in good faith. The breach was taking, in secret, an opportunity that came to him because he ran the venture. The rule is now written into the uniform partnership act; Fiduciary Duties Business Partners Owe Each Other sets out what it covers and what an agreement may change.

Thirty-three years later the California Supreme Court used the same duty to limit a different power. In Page v. Page, two brothers had run a linen supply business under an oral agreement since 1949; after years of losses it turned a small profit, and the brother whose company held a $47,000 note against the partnership moved to dissolve it. With no term agreed, the court held either brother could end the partnership at will, but not to 'freeze out' the other and keep the newly profitable business. A partner with an unwritten deal can leave whenever he likes, and his partner's only protection is a lawsuit about motive.

Massachusetts carried the partnership standard into small corporations. In Donahue v. Rodd Electrotype the controlling family had the company buy their retiring patriarch's 45 shares at $800 each, after offering the minority holder's family $40 to $200 a share; the court required the same offer to the minority. A year later, Wilkes v. Springside Nursing Home involved four founders who had each put in $1,000 and drawn equal pay; after a quarrel, three of them took the fourth off the payroll and off the board. The court required a legitimate business purpose for that, found none, and awarded the salary he would have earned. In a company that pays no dividends, the paycheck is the return, and taking it away is the freeze-out. How to Remove a Business Partner covers doing it lawfully.

A partnership needs no paperwork, and two cases show what that costs. In Holmes v. Lerner, Patricia Holmes and Sandra Lerner, a founder of Cisco, agreed at a kitchen table in 1995 to start the nail polish company that became Urban Decay. No profit split was ever agreed. When Holmes was pushed out, a jury awarded her over $1 million in compensatory and punitive damages, and the California Court of Appeal affirmed against Lerner: an express agreement to share profits is not required to prove a partnership. Intent to run a business together as co-owners is enough, which is why How to Start a Business Partnership puts the written agreement before the bank account.

Ederer v. Gursky shows the other side. A lawyer became a 30% owner of a firm by an oral deal in 2000, the firm registered as a limited liability partnership in 2001 with no written partnership agreement, and he withdrew in 2003 and sued for his share. New York's Court of Appeals held the LLP shield protects partners from the firm's creditors, not from each other: the remaining partners could be personally liable for what the departing one was owed. Are You Liable for Your Business Partner's Debts covers the outside creditors; this case is a reminder that the obligations among partners are a separate matter.

When two equal owners stop agreeing and the agreement has no way out, Delaware's Court of Chancery dissolves the company. In Vila v. BVWebTies the two co-equal managers of the LLC behind BobVila.com had to agree on everything and did not; the court ordered dissolution and appointed a liquidating trustee. In Fisk Ventures v. Segal, a biotech LLC needed 75% of its board for any action, the board had been split for years, and the company had no office and no revenue. The founder argued the investor should be made to use its put right instead; the court said the option was the investor's to exercise or not, and that it would not redraft the agreement for 'sophisticated and well-represented parties'.

The rule is not confined to Delaware or to failing businesses. In Kirksey v. Grohmann, four sisters who had inherited a ranch split 2 to 2 over a grazing lease, and South Dakota's Supreme Court ordered dissolution even though the ranching could go on. Colorado, in Gagne v. Gagne (a mother and son with four apartment LLCs), adopted a list of factors (deadlock, misconduct, inability to work together, financial feasibility) and counted against dissolution any way around deadlock the agreement provides. The grounds state by state are in Judicial Dissolution of an LLC by State.

Two Delaware decisions add the detail most buy-sell clauses miss. In Haley v. Talcott, two 50% members owned the land under a restaurant, and their LLC agreement let one buy the other out at fair market value. The court dissolved the company anyway, because the buyout would have left the departing member personally liable on the mortgage he had guaranteed, for a company he would no longer control. Nineteen years later, in In re Dissolution of T&S Hardwoods, a 50/50 lumber venture's buy-sell provision was optional even on deadlock, and the court refused to dismiss a dissolution petition for that reason and the same guaranty problem. An exit clause works only if someone is required to use it and the person leaving can leave clean. Deadlock Clauses for a 50/50 Partnership compares the mechanisms.

Delaware lets owners sign the courthouse door shut. In R&R Capital v. Buck & Doe Run Valley Farms, members had agreed to 'waive and renounce' any right to seek judicial dissolution or a receiver, and the Court of Chancery enforced it: sophisticated members may give that right up, keeping only the implied covenant of good faith and fair dealing, which cannot be waived. California took the opposite view in 2025. In Meads v. Driggers, a manager sued the minority members for petitioning to dissolve in breach of a similar clause, and the Court of Appeal held members cannot waive the statutory grounds, because the LLC Act allows those provisions to be varied only where it expressly says so. That case was decided under the older act that governed a 2011 agreement; the court left the current act's answer open.

The practical point is that the same clause can be binding in one state and void in the next. A waiver with nothing in its place leaves a deadlocked owner with no exit at all, so an agreement that gives up the court should supply a buy-sell that works.

Some states give a minority owner a remedy for oppression; Texas does not. In Ritchie v. Rupe, the holder of 18% of a family company with no shareholders' agreement could not get an acceptable price from the directors, who also refused to meet outside buyers she found. A jury found oppression and the trial court ordered a $7.3 million buyout. The Texas Supreme Court reversed: the statute allowed only a rehabilitative receivership, not a forced buyout, and Texas recognizes no common-law oppression claim. Where the law offers no exit, the agreement is the only one.

Frank v. Linkner is about timing. In 2009 the members running ePrize amended its operating agreement so that those who had lent the company money were paid first through new Series C units. When ePrize sold for more than $100 million in 2012, the members left out of that class got nothing. Michigan's Supreme Court held their oppression claim accrued in 2009, when the amendment interfered with their interests, not in 2012 when the loss became a number, so the three-year period had run. A dilution should be challenged when it happens.

The most expensive line in this table is a settlement. Reggie Brown sued Snapchat's founders in February 2013, saying the disappearing-photo idea was his and he had been cut out with no stake, as TechCrunch reported. The company settled in September 2014, acknowledging 'Reggie's contribution to the creation of Snapchat'. Its 2017 Form S-1 disclosed the price: $157.5 million to an individual who claimed intellectual property jointly owned with the founders, $50 million in 2014 and $107.5 million in 2016. Nothing in the record says what a signed split would have given Brown, but it would have put a number on his claim while the company was worth little. Co-Founder Equity Split by the Numbers covers how to set that number and vest it.

Mart v. Severson is a lesson in the standard of value. One of two shareholders moved to dissolve their company and the other elected to buy him out under California's statute. The appraisers valued the business at $5.6 million as a going concern; the trial court used their $1.48 million liquidation figure because the seller had not signed a non-compete. The Court of Appeal reversed: the statute's fair value includes going-concern value and does not require a non-compete. A gap of $4.1 million came down to a definition, which is why How to Value a Business Partner's Share starts with the agreement's own valuation clause.

The non-compete itself is the subject of Valley Medical Specialists v. Farber. A pulmonologist who had become a shareholder and director of his practice left in 1994 under a covenant barring him for three years within five miles of any of its three offices, about 235 square miles. Arizona's Supreme Court refused to enforce it: between partners or not, it was judged like an employee covenant, it was broader than needed, and the court would not rewrite it into something narrower. How each state treats these covenants is in Non-Compete Laws by State, and Non-Compete Rules After a Business Partnership Ends covers the exit.

The newest Supreme Court case on the list is about what happens after an owner dies. In Connelly v. United States, brothers owned a St. Louis building supply company 77/23, and their company held $3.5 million of life insurance on each to fund a redemption of the deceased brother's shares. When Michael Connelly died in 2013, the company paid his estate $3 million. The Court held unanimously that the company's promise to redeem the shares did not reduce its value for estate tax, so the insurance money counted: the company was worth $6.86 million, his shares $5.3 million, and the estate owed $889,914 more. The Court pointed out that a cross-purchase agreement, in which the owners insure each other personally, would have kept the proceeds out of the company. What that means for a buy-sell agreement today, including partnerships and LLCs, is in Buy-Sell Agreements for Business Partners and, for the steps after a death, What Happens When a Business Partner Dies.

Read together, the 20 cases make one argument. Courts enforce what the owners wrote, fill gaps with fiduciary duty, and end companies whose agreements have no exit. The cheapest litigation in this table is the clause nobody had to sue over.