Under ancient (some would argue vestigial) common-law rules of general partnerships, partners can find themselves stuck between a rock and a hard place deciding when to pull the trigger on a lawsuit.
Sue too early, run the risk of having one’s complaint dismissed as premature. Sue too late, run the risk of having the complaint dismissed as untimely. The problem gets trickier when some defendants are partners, but others are not.
A recent appellate decision, Fernandez v Fernandez (235 AD3d 726 [2d Dept 2025]), highlights problems general partners face when choosing the right time and way to sue co-partners and non-partners together in a single lawsuit.
The Sisters, the Brothers, and the Partnership
Graca and Maria Fernandez were “sisters who married brothers.” So began the Appellate Division’s opinion. Graca married Manuel Fernandez. Maria married Augusto Fernandez.
In 2006, Graca and Maria formed Horseblock Holding Assoc. (“Horseblock”) as 50 / 50 general partners. Horseblock owned a piece of property in Medford, New York, consisting of a handful of residential apartments, a laundry facility in the basement, and storage yards for construction equipment. Augusto was the “managing agent” for Horseblock. Manuel owned a separate company, Classic Concrete Associates, Inc. (“Classic Concrete”), which utilized Horseblock’s storage yard for construction equipment.
The Complaint and the Countercomplaint
In 2017, Graca sued Maria, Augusto, and Horseblock, alleging breach by Maria from 2007 to 2017 of an apparently oral partnership agreement to equally share the profits of Horseblock, which Graca estimated to be $10,000 per month. Graca’s complaint alleged claims for conversion, unjust enrichment, and breach of fiduciary duty. Graca named Augusto as defendant through his role as managing agent and collector of rents. Graca sought no equitable relief, only money damages.
Maria countersued Graca, bringing Manuel and Classic Concrete into the lawsuit as additional defendants on the counterclaims. Maria and Augusto alleged that Graca owed Augusto “management fees” for his activities as managing agent of Horseblock, and that Manuel and Classic Concrete owed Horseblock unpaid rent for their use of the storage yard.
The Common Law of General Partnerships
Graca’s lawsuit eventually came to a disappointing end because of the following rules of law.
“As a general rule, an action at law may not be maintained by one partner against another for any claim arising out of the partnership until there has been a full accounting . . . .” (Metzger v Goldstein, 139 AD3d 918 [2d Dept 2016] [quotations omitted]).
Put another way, “partners cannot sue each other at law unless there is an accounting, prior settlement, or adjustment of the partnership affairs” (Non-Linear Trading Co., Inc. v Braddis Assoc., Inc., 243 AD2d 107 [1st Dept 1998] [quotations omitted]).
The traditional rationale for this general rule is to “prevent courts from intruding on daily operations of the partnership and to avoid piecemeal adjudications” (Alam v Ahmad, 190 AD3d 47 [1st Dept 2021]).
But as with most rules, there are exceptions. Under four of them, a partner may bring an action at law against another partner prior to an accounting:
But instead of “avoid[ing] piecemeal adjudications” (Alam v Ahmad), the general rule, if rigidly applied, can spawn multiple litigations where there should only be one, as Graca learned the hard way.
The Summary Judgment Motion and the Decision
In 2022, five years into the litigation, Maria and Augusto moved for summary judgment dismissing Graca’s complaint as simultaneously “premature” because Graca never sought an accounting of Horseblock, and barred by the three-year statute of limitations applicable to claims seeking solely monetary relief.
Suffolk County Commercial Division Justice David T. Reilly granted the motion, ruling:
Here, the plaintiff is not seeking to vindicate a specific wrong perpetrated against her but rather a series of alleged wrongs allegedly to have been committed over a period of more than l0 years. Since the plaintiff’s claims against Maria cannot be resolved without an examination of the partnership books and records, the resolution of those claims must await an accounting. Accordingly, those claims are dismissed as premature.
On the statute of limitations, the Court ruled:
[T]he defendants correctly note that the applicable period of limitation for each of the plaintiffs three causes of action, all of which seek monetary relief, is three years. However, the plaintiff’s allegations clearly make out a continuous wrong which accrued anew each time the defendants improperly withheld rents and proceeds from the plaintiff. Relative to this defense, then, summary judgment is granted only to the extent of limiting the plaintiff’s potential recovery to those rents and proceeds collected and retained by Augusto and Horseblock during the three years immediately preceding the commencement of this action (citations omitted).
The Court held Graca’s claims simultaneously premature and untimely, allowing only a three-year sliver of her ten-year case to proceed, and only against Augusto and Horseblock, but not Maria. Ouch.
The Appeal
Graca appealed, arguing in her principal brief that “[h]aving Plaintiff proceed with claims against Horseblock and Augusto, only to later pursue her same claims against Maria, goes against the interest of judicial economy and the underlying purposes of first requiring an accounting.”
Graca also argued that the exception permitting actions at law prior to an accounting where the partnership is “at an end” applied to her claims because, after a fire, the property was “condemned by the town and the partnership between Graca and Maria is no longer,” therefore, “any court determination will not involve interference with the day-to-day management of the partnership.”
This latter argument has some allure. Under Partnership Law § 62 (3), a partnership dissolves by operation of law upon “any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.” Involuntary removal of tenants and termination of all rental income because of the government’s condemnation of the sole asset of a real-estate holding general partnership would seem to fit the bill.
You can read all the briefs on Graca’s appeal here, here, and here.
The Appellate Decision
The appeals court affirmed the lower court’s dismissal of the complaint as premature “insofar as asserted against Maria,” because, in the Court’s view, “there was no evidence that the partnership had ended,” and “none of the exceptions to the general rule were applicable.”
But on the statute of limitations, the appeals court modified to the extent of holding that a six-year statute of limitations, not a three-year statute, applied because the “substance of the allegations” had their “genesis in the contractual relationship of the parties,” specifically, “the obligations of Maria and the partnership, under the partnership agreement, to pay Graca 50% of the profits derived from the premises.” The Court concluded that “where liability is premised on a contractual relationship, the six-year statute of limitations applies.”
Thoughts on Fernandez
What could Graca have done differently? It seems pretty basic, but in hindsight, Graca most certainly should have alleged an equitable claim for accounting. With an accounting claim accompanying her legal claims, she likely could have skirted the general prohibition against an “action at law” by a co-partner “until there has been a full accounting” (Metzger v Goldstein).
What is Graca to do now? It seems crazy, but after spending eight years in litigation against Maria, if Graca wants a remedy against her co-partner, she will have to start all over again with a new complaint against Maria pleading a claim for accounting.
If or when Graca brings a claim for an accounting, she will almost certainly now have to contend with a motion to dismiss the accounting claim based upon the statute of limitations.
The statute of limitations for a claim for accounting is six years, and unless there are allegations or fraud or some other basis to toll the statute, the accounting claim accrues upon “open repudiation of a fiduciary’s obligation” (Kefalas v Pappas, 226 AD3d 757 [2d Dept 2024]).
Maria most certainly openly repudiated her fiduciary obligations by no later than 2017, when Graca sued Maria for breach of fiduciary duty. Now, Graca would be suing eight years later, beyond the six-year limitations periods. So ironically, by dismissing Graca’s complaint as “premature,” the Court may have rendered time-barred Graca’s entire case against Maria.
A possible solution might be for Graca to move for leave to amend to add a new claim for accounting, thereby potentially securing relation back of the statute of limitations to the filing by Graca of her original complaint. But Graca faces yet another obstacle: some courts hold that where a complaint has “already been dismissed,” there is “no complaint left before the court to amend” (Sodhi v IAC/InterActive Corp., 216 AD3d 556 [1st Dept 2023] [quotations omitted]).
Rock and a hard place indeed.
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