Please ensure Javascript is enabled for purposes of website accessibility
Home / Opinion Digests / Plaintiff Proved Partnership, But Not Profits

Plaintiff Proved Partnership, But Not Profits

A Fairfax Circuit Court finds the parties’ formation of three companies in 2007 to conduct business in Afghanistan and the U.S. supported plaintiff’s claim of an oral agreement to form a partnership, but plaintiff has failed to show the partnership had paid all its debts, to allow the trial court to assess damages based on partnership profits after plaintiff dissociated himself from the partnership in 2010; the court enters judgment for defendant.

Prior to 2007, defendant Bahman Shahkarami and third-party defendant Mohammad Hussain were partners operating Renaissance Construction Services and Supplies Corporation. In July 2007, plaintiff Mahmood Sahraeyan and defendant orally agreed that plaintiff would receive a percentage of all profits, assets and inventory of Armada Afghan Inc. and Royal Armada LLC and an additional percentage of all profits, assets and inventory of Ascend Inc. Armada Afghan is a corporation in the business of providing material to the U.S. government for use by the U.S. military in Afghanistan. Royal Armada is a subsidiary of Armada Afghan and was formed to process Armada Afghan invoices to the U.S. government. Ascend is also a subsidiary of Armada Afghan and is also in the business of providing material to the U.S. government for use by the U.S. military in the U.S. The parties created three companies in 2007 in order to do business with the U.S. government. Ascend was specifically created to assume the operations of Renaissance.

At issue is whether a partnership existed between plaintiff and defendant and if so, what is the correct measure of damages.

Under Virginia law, a partnership exists when there is an agreement, either written or oral, between two or more persons to carry on a business for profit. In order to qualify as a partnership, the partners must engage in multiple transactions and not just one single transaction.

In this case, I find that plaintiff and defendant made an oral agreement in July 2007 to carry on a business for profit – in other words, I find the parties formed a partnership. In order to fulfill the agreement, the parties created Armada Afghan, Royal Armada and Ascend. The evidence clearly establishes that the parties carried on these businesses for profit. The evidence also shows plaintiff was paid a portion of the companies’ profits. Under Va. Code § 50-7, the sharing of profits is prima facie evidence of the existence of a partnership. I find that plaintiff and defendant created a general partnership.

A partnership does not require adherence to formalities that are required of corporations and other similar business structures. A partnership may, but is not required, to file a partnership statement. Thus, the partnership’s failure here to adhere to certain formalities does not prove there was no partnership. Although defendant argues there was no meeting of the minds to form an agreement, the parties created three different companies to make their partnership agreement a reality and successfully ran these businesses for profit for a few years. I find there was a meeting of the minds sufficient to form an agreement.

Finally, defendant argues the agreement to work together was brought to fruition in Afghanistan, thus, it is inappropriate to litigate this matter here. Under choice of law principles, however, this argument fails. This matter involves an oral partnership agreement where choice of law terms do not exist. Applying Virginia choice of law principles, the partnership agreement took place in Virginia; therefore I must apply Virginia law. Also, the action was brought in Virginia and the court must apply Virginia law.

In order to determine damages, I must first determine the date of dissociation of the partnership. Absent an agreement, the dissociation of a partnership occurs upon the notice of the express will of any single partner to withdraw as a partner. Plaintiff dissociated from the partnership when he gave his notice on Sept. 31, 2010. No agreement for his interest was reached within 120 days of his written demand for payment. Thus, the court must look to the evidence to determine the buyout price of his interest.

Under Va. Code § 50-73.112(B), the buyout price is the amount that would have been distributable if the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partners and the partnership were wound up as of that date.

The court does not have sufficient direct evidence to determine the partnership debts from the partnership profits. Without information regarding partnership liabilities, the court is unable to appropriately settle the accounts of the partnership. Testimony by one party and two vague emails do not satisfy plaintiff’s burden of proof. Without sufficient evidence regarding partnership liabilities, a determination of damages is not possible. Plaintiff’s argument that his damages are merely his 23.33 percent of all accounts receivable (because all debts had been paid) is attractive; however, this argument is legally insufficient.

Judgment for defendant.

Sahraeyan v. Shahkarami (Smith) No. CL 2013-9758, July 15, 2014; Fairfax Cir.Ct.; Jennifer A. Brust for plaintiff; Dana G. Theriot for defendant; Jerome P. Friedlander II for third-party defendant.  VLW 014-8-074, 10 pp.

VLW 014-8-074

Leave a Reply