For 23 years, Craig Studnicky and Philip Spiegelman have partnered to run International Sales Group (ISG), a leading luxury real estate brokerage in South Florida, working with top developers and publishing its own highly regarded report on the Miami condo market. Though ISG has reportedly brought in more than $10 billion in sales during its lifetime, the two partners had disagreements that made their way to court – and now stand to threaten the future of ISG altogether.
According to the complaint, the disputes started in 2016 when Spiegelman allegedly wanted to close ISG’s doors and Studnicky did not. They reportedly came to an agreement (not in writing) that Studnicky would take over the daily management of the brokerage, and Spiegelman would receive a smaller percentage of profits for a reduced role.
In 2018, Spiegelman filed a lawsuit claiming that Studnicky created highly unnecessary overhead expenses, spending all the company’s revenue and not delivering any profits. Spiegelman requested that a judge dissolve the company. In response, Studnicky filed a counterclaim trying to keep ISG running, but to remove Spiegelman.
The counterclaim makes numerous personal attacks on Spiegelman, claiming he involuntarily had to have a reduced role due to personal and financial issues. Studnicky also filed a separate lawsuit seeking $1.8 million he claims he lent to the company.
Whether or not the court will wind down and dissolve the company or allow Studnicky to continue ownership on his own is yet to be seen.
The current legal issues facing ISG and its principal partners highlights the need for valid operating agreements, conducting regular legal audits, and implementing sound business planning practices.
The Importance of an Operating Agreement
Even though the company was bringing in billions of dollars, both owners admit there was never an operating agreement in place. Even though partnerships have no formal requirements for owners to draft an agreement, these agreements can be invaluable should partner disputes arise.
Operating agreements can contain terms regarding the following and more:
- Decision-making – Do decisions have to be unanimous? Does one partner have the authority to use their own judgment without the other’s agreement?
- Capital contribution – How much will each partner contribute to the business? Will one partner contribute money and the other work hours?
- Distributions – How will profits be distributed? When will funds remain in the business instead of going to owners?
- Dispute resolution – If the partners disagree on major issues, how will they resolve the matter? Will they have to go through mediation or arbitration instead of taking the matter to court?
- Dissolution – What happens if one or more partners no longer want to be in business? What is the exit strategy? Can one partner withdraw while the other continues to run the company?
Often, having the right operating agreement in place can prevent the need for business litigation.
The entire issue could have been avoided. The company has been in operation since 1995, if there would have been a legal audit performed, sometime in the interim 23 years, the missing operating agreement would have been caught and hopefully resolved.
Agreements made between the ISG partners regarding their management roles were also not formalized in writing. While verbal contracts are enforceable in some circumstances, this presents the opportunity for each side to tell their own version of the agreement and reasons behind it. Having all agreements memorialized in a written contract can help prevent legal disputes and can protect your interests down the road.
Moreover, the impact to the company due to the legal issues related to the alleged incapacitation of a keyperson (one of the primary partners) and the disagreements between the partners themselves could have been mitigated through long term legal business planning.
The business lawyers at Walsh Banks Law help all types of businesses with legal audits, legal planning, contracts, litigation, and any other business related legal issues that may arise.