Family farm feud Featured

8:32am EDT November 1, 2002
He can't do much about the pain that came out of the conflicts in his family's business, but he can help others avoid the same.

McNulty, who chairs the family business law practice at Feldstein, Grinberg, Stein & McKee, witnessed firsthand how a family business can crumble under the weight of conflict among family members. For him, the experience is a poignant example of how businesses and families can be ripped apart by misunderstandings and inadequate partnership agreements.

McNulty's father, Jim McNulty, took responsibility for running the family farm near Altoona before he was a teen-ager, while Jim's father, Maurice, worked as a carpenter. Jim enjoyed farming and believed he would inherit the 450-acre potato and poultry farm by virtue of his sweat equity, and Dan says there was an informal agreement between his father and grandfather that indicated as much.

By the time he took over the farm in the early 1950s, Jim had a vision of creating a dynasty of sorts for the business and persuaded Maurice to reconcile with Jim's brother, Patrick, and have him come into the family business. A partnership agreement was drawn up, giving father and sons a share in the farm and its assets.

Patrick, it turned out, had little interest in or aptitude for farming. At best, he was an adequate farmhand but offered little additional value to the business. After several years, Jim concluded the partnership was spreading the assets too thin.

According to the partnership agreement, to balance the equity, each of the brothers was to pay his share of the profits into a capital account until it equaled $14,000, an amount that Maurice contended was his equity share in the farm. However, the agreement had stipulated that Maurice's share was comprised mostly of equipment that Jim had purchased through loans he had secured and paid off.

In 1966, Jim asked his father to revise the partnership agreement, but he refused. When Jim asked his father for his equity out of the business, Maurice refused as well.

Because Jim had grown weary of dealing with his autocratic and oftentimes unreasonable father, Dan McNulty surmises, he walked away from the business empty-handed, marking the beginning of years of estrangement between father and son.

Jim started a school bus company and, later, a contract mail carrier business and a transport business to take Conrail maintenance workers to worksites. He got involved in Cambria County politics, got a job in the domestic relations office and was elected clerk of courts.

In 1975, Maurice made an apparent effort to reconcile with Jim, visiting him on Jim's birthday. Dan McNulty describes the event as "surreal."

"He acted like they hadn't missed a beat," says the lawyer.

Two weeks later, Maurice died. Despite Maurice's apparent change of heart, Jim was cut out of the will. When Maurice's wife died several years later, Jim tried to buy the farm from the family but it instead was sold to someone from out of town, as stipulated in his mother's will.

Jim consulted with a lawyer to try to get what he thought was his fair share. Without any explanation, Jim received a $25,000 check from his mother's estate.

Ultimately, Jim, who died in 1997, bought the farm in a sheriff's sale. What he wasn't able to retrieve, however, were the years spent away from the work he enjoyed and a satisfactory reconciliation with his family.

That experience and a subsequent review of documents that refer to the family business left a lasting impression on Dan McNulty. And a decade of litigating family business issues for ServiceStar, the cooperative that supplies independent hardware retailers, provided additional insight into the problems that families often create out of neglect or poor planning.

After years of trying to fix problems that created conflicts in family enterprises, he decided he wanted to work with family business clients to head off trouble before it started. When he was offered the chance to work in the family business practice at Feldstein, Grinberg, Stein & McKee, he jumped at it.

McNulty says he has learned some valuable lessons about partnerships from his personal and professional experience. For one, the partnership agreement his grandfather, father and uncle created was poorly conceived.

"That partnership agreement had no insight into what the business was or who the partners were," he says.

McNulty says businesses need to form partnership agreements that accurately and realistically reflect the realities of how the business is operated and the responsibilities of each partner, taking into account their skills and interest in the business.

Says McNulty: "You better make sure that you walk the walk of that document." How to reach: Feldstein, Grinberg, Stein & McKee, www.fgsmlaw.com