Agency & Partnership Professor Donald J. Kochan Class 22

Todays Materials Partnership Operation Partnership Operation Pages Pages

Leaving the Association Competition Issues Competition Issues Balancing Autonomy and Freedom to Exit and Freedom to Pursue Own Interest and Earn a Living Balancing Autonomy and Freedom to Exit and Freedom to Pursue Own Interest and Earn a Living With Duties to Past or Existing Partners With Duties to Past or Existing Partners Duty of Loyalty Duty of Loyalty Conflicts of Interest Conflicts of Interest Freedom of Contract Freedom of Contract Fiduciary Duties Fiduciary Duties Duty of Care Duty of Care

Meehan v. Shaugnessy Litigation Partners decide to form own firm Litigation Partners decide to form own firm Focus on facts: Idea Formation, Investigative Acts in Anticipation of Formation, Formation, Acts Furthering New Firm – Logistical v. Substantive, Announcement of Intent to Exit, Exit, Post-Exit Actions Focus on facts: Idea Formation, Investigative Acts in Anticipation of Formation, Formation, Acts Furthering New Firm – Logistical v. Substantive, Announcement of Intent to Exit, Exit, Post-Exit Actions Case Removal and Dealings with Clients Case Removal and Dealings with Clients

Meehan v. Shaugnessy Why is notice to other partners of intent to leave and/or intent to contact clients important? Why is notice to other partners of intent to leave and/or intent to contact clients important? Focus on controlling nature of the contract. Test for choosing contract over default rule: where contract language is carefully drawn provisions indicate partnerships strong intent not to allow UPA to govern. Focus on controlling nature of the contract. Test for choosing contract over default rule: where contract language is carefully drawn provisions indicate partnerships strong intent not to allow UPA to govern. Note special rule for interpretation in light of rights of lawyers to practice law Note special rule for interpretation in light of rights of lawyers to practice law

Meehan v. Shaugnessy Well settled that partners owe each other a fiduciary duty of the utmost good faith and loyalty Well settled that partners owe each other a fiduciary duty of the utmost good faith and loyalty fiduciaries may plan to compete with the entity to which they owe allegiance provided that in the course of such arrangements they [do] not otherwise act in violation of their fiduciary duties... Why no violation here? fiduciaries may plan to compete with the entity to which they owe allegiance provided that in the course of such arrangements they [do] not otherwise act in violation of their fiduciary duties... Why no violation here? Understand strong focus on whether actions create an Unfair Advantage Understand strong focus on whether actions create an Unfair Advantage

Meehan v. Shaugnessy UPA Ection 20 – duty to render information UPA Ection 20 – duty to render information Cannot Use Position of Trust to disadvantage current partners – focus on what facts established violation here, including hiding information and non- disclosure, misleading letters Cannot Use Position of Trust to disadvantage current partners – focus on what facts established violation here, including hiding information and non- disclosure, misleading letters Again, look at things like unfairly prejudicial acts or taking advantage of partners confusion or lack of full information. Again, look at things like unfairly prejudicial acts or taking advantage of partners confusion or lack of full information.

Meehan v. Shaugnessy Why and When is the burden of proof shifted – self dealing issue Why and When is the burden of proof shifted – self dealing issue Focus on the policy behind burden-shifting as encouraging disclosure Focus on the policy behind burden-shifting as encouraging disclosure UPA sec 2 and 21 on remedy: partner must account for any profits which flow from breach of a fiduciary duty – fair charge test UPA sec 2 and 21 on remedy: partner must account for any profits which flow from breach of a fiduciary duty – fair charge test

Gibbs v. Breed, Abbott & Morgan Trust and Estate Lawyers case Trust and Estate Lawyers case Breach of Loyalty Issues Breach of Loyalty Issues Unfair Competitive Advantage issues Unfair Competitive Advantage issues Using Partnership information such as personnel records Using Partnership information such as personnel records Confidential Memo issues Confidential Memo issues

Gibbs v. Breed, Abbott & Morgan Recruiting while still members and before notice of intent to withdraw – why important? Recruiting while still members and before notice of intent to withdraw – why important? Withholding information – what impact? Withholding information – what impact? Note the courts statements regarding difficulties in calculation of damages; know lost profits standard – consider effect on desirability of settlement Note the courts statements regarding difficulties in calculation of damages; know lost profits standard – consider effect on desirability of settlement

Gibbs v. Breed, Abbott & Morgan The members of a partnership owe each other a duty of loyalty and good faith, and as a fiduciary, a partner must consider his or her partners welfare, and refrain from acting for purely private gain... Partners are constrained by such duties throughout the life of the partnership and the manner in which partners plan for and implement withdrawals... Is still subject to the constraints imposed on them by virtue of their status as fiduciaries The members of a partnership owe each other a duty of loyalty and good faith, and as a fiduciary, a partner must consider his or her partners welfare, and refrain from acting for purely private gain... Partners are constrained by such duties throughout the life of the partnership and the manner in which partners plan for and implement withdrawals... Is still subject to the constraints imposed on them by virtue of their status as fiduciaries

Conflicts of Interest and Enea RUPA sec 404(b) – EXCLSUIVE LIST BUT RUPA sec 404(b) – EXCLSUIVE LIST BUT California alteration of 404 says includes but not limited to – See Enea California alteration of 404 says includes but not limited to – See Enea Read Enea on pages – Good Review of general concepts in partnership law and duties -- KNOW THIS CASE; it is rich with rules Read Enea on pages – Good Review of general concepts in partnership law and duties -- KNOW THIS CASE; it is rich with rules

Fiduciary Duties and Freedom of Contract Consider: Consider: Obligations Under Contract Obligations Under Contract Obligations Imposed By Law Obligations Imposed By Law Default Default Mandatory (i.e., unwaivable) Mandatory (i.e., unwaivable)

Jerman v. OLeary Purchase of partnership asset by two partners for personal use Purchase of partnership asset by two partners for personal use Limited partners v. general partners issues Limited partners v. general partners issues Disclosure when partners are adversaries to each other – ULPA sec 9(1)(d); RULPA sec 403 deals with powers and liabilities of general partners much less restrictively Disclosure when partners are adversaries to each other – ULPA sec 9(1)(d); RULPA sec 403 deals with powers and liabilities of general partners much less restrictively

Singer v. Singer Two partners are allowed to get away with what would otherwise be a shocking violation of a fiduciary duty because of the language in the partnership agreement Two partners are allowed to get away with what would otherwise be a shocking violation of a fiduciary duty because of the language in the partnership agreement Strength of supremacy of the contract demonstrated Strength of supremacy of the contract demonstrated Rests, in part, on equality of position and sophistication of parties – why? Rests, in part, on equality of position and sophistication of parties – why? Note the court says there is a threshold that cannot be crossed – what is it? Note the court says there is a threshold that cannot be crossed – what is it?

Note 1 p Read and know especially the first 2 paragraphs on RUPA 404 Read and know especially the first 2 paragraphs on RUPA 404

Duty of Care and Bane v. Ferguson UPA 9(3)(c) – no authority to do any act which would make it impossible to carry on the ordinary business of the partnership UPA 9(3)(c) – no authority to do any act which would make it impossible to carry on the ordinary business of the partnership Effect of business judgment rule – shields many decisions: how and why? Effect of business judgment rule – shields many decisions: how and why? See Note 1 on page 674 re application of business judgment rule, and burden shifting See Note 1 on page 674 re application of business judgment rule, and burden shifting

Moren v. Jax Restaurant Rights to Indemnity Rights to Indemnity RUPA 401 and 301 RUPA 401 and 301 What effect personal reasons? What effect personal reasons?