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Agency & PartnershipAgency & PartnershipProfessor Donald J. KochanProfessor Donald J. Kochan
Class 22Class 22
Today’s MaterialsToday’s Materials
Partnership OperationPartnership Operation
Pages 648-677Pages 648-677
Leaving the AssociationLeaving the Association Competition IssuesCompetition Issues
Balancing Autonomy and Freedom to Exit Balancing Autonomy and Freedom to Exit and Freedom to Pursue Own Interest and and Freedom to Pursue Own Interest and Earn a LivingEarn a Living
With Duties to Past or Existing PartnersWith Duties to Past or Existing Partners Duty of LoyaltyDuty of Loyalty Conflicts of InterestConflicts of Interest Freedom of ContractFreedom of Contract Fiduciary DutiesFiduciary Duties Duty of CareDuty of Care
Meehan v. ShaugnessyMeehan v. Shaugnessy
Litigation Partners decide to form own Litigation Partners decide to form own firmfirm
Focus on facts: Idea Formation, Focus on facts: Idea Formation, Investigative Acts in Anticipation of Investigative Acts in Anticipation of Formation, Formation, Acts Furthering Formation, Formation, Acts Furthering New Firm – Logistical v. Substantive, New Firm – Logistical v. Substantive, Announcement of Intent to Exit, Exit, Announcement of Intent to Exit, Exit, Post-Exit ActionsPost-Exit Actions
Case Removal and Dealings with ClientsCase Removal and Dealings with Clients
Meehan v. ShaugnessyMeehan v. Shaugnessy
Why is notice to other partners of intent to Why is notice to other partners of intent to leave and/or intent to contact clients leave and/or intent to contact clients important? important?
Focus on controlling nature of the contract. Focus on controlling nature of the contract. Test for choosing contract over default Test for choosing contract over default rule: where contract language is carefully rule: where contract language is carefully drawn provision’s indicate partnership’s drawn provision’s indicate partnership’s “strong intent” not to allow UPA to govern.“strong intent” not to allow UPA to govern.
Note special rule for interpretation in light Note special rule for interpretation in light of rights of lawyers to practice lawof rights of lawyers to practice law
Meehan v. ShaugnessyMeehan v. Shaugnessy
““Well settled that partners owe each other a Well settled that partners owe each other a fiduciary duty of ‘the utmost good faith and fiduciary duty of ‘the utmost good faith and loyalty’”loyalty’”
““fiduciaries may plan to compete with the entity to fiduciaries may plan to compete with the entity to which they owe allegiance ‘provided that in the which they owe allegiance ‘provided that in the course of such arrangements they [do] not course of such arrangements they [do] not otherwise act in violation of their fiduciary duties . . otherwise act in violation of their fiduciary duties . . .” Why no violation here?.” Why no violation here?
Understand strong focus on whether actions create Understand strong focus on whether actions create an “Unfair Advantage”an “Unfair Advantage”
Meehan v. ShaugnessyMeehan v. Shaugnessy
UPA Ection 20 – duty to render informationUPA Ection 20 – duty to render information
Cannot Use “Position of Trust” to disadvantage Cannot Use “Position of Trust” to disadvantage current partners – focus on what facts current partners – focus on what facts established violation here, including hiding established violation here, including hiding information and information and non-disclosurenon-disclosure, misleading , misleading lettersletters
Again, look at things like “unfairly prejudicial” Again, look at things like “unfairly prejudicial” acts or “taking advantage” of partner’s acts or “taking advantage” of partner’s confusion or lack of full information.confusion or lack of full information.
Meehan v. ShaugnessyMeehan v. Shaugnessy
Why and When is the burden of proof shifted Why and When is the burden of proof shifted – self dealing issue– self dealing issue
Focus on the policy behind burden-shifting as Focus on the policy behind burden-shifting as encouraging disclosureencouraging disclosure
UPA sec 2 and 21 on remedy: partner must UPA sec 2 and 21 on remedy: partner must account for any profits which flow from account for any profits which flow from breach of a fiduciary duty – “fair charge” testbreach of a fiduciary duty – “fair charge” test
Gibbs v. Gibbs v. Breed, Abbott & MorganBreed, Abbott & Morgan
Trust and Estate Lawyers caseTrust and Estate Lawyers case
Breach of Loyalty IssuesBreach of Loyalty Issues
Unfair Competitive Advantage issuesUnfair Competitive Advantage issues
Using Partnership information such as personnel Using Partnership information such as personnel recordsrecords
Confidential Memo issuesConfidential Memo issues
Gibbs v. Gibbs v. Breed, Abbott & MorganBreed, Abbott & Morgan
Recruiting while still members and Recruiting while still members and before notice of intent to withdraw – before notice of intent to withdraw – why important?why important?
Withholding information – what impact?Withholding information – what impact? Note the court’s statements regarding Note the court’s statements regarding
difficulties in calculation of damages; difficulties in calculation of damages; know lost profits standard – consider know lost profits standard – consider effect on desirability of settlementeffect on desirability of settlement
Gibbs v. Gibbs v. Breed, Abbott & MorganBreed, Abbott & Morgan
““The members of a partnership owe each The members of a partnership owe each other a duty of loyalty and good faith, and other a duty of loyalty and good faith, and ‘as a fiduciary, a partner must consider his ‘as a fiduciary, a partner must consider his or her partner’s welfare, and refrain from or her partner’s welfare, and refrain from acting for purely private gain’ . . . Partners acting for purely private gain’ . . . Partners are constrained by such duties throughout are constrained by such duties throughout the life of the partnership and ‘the manner the life of the partnership and ‘the manner in which partners plan for and implement in which partners plan for and implement withdrawals . . . Is still subject to the withdrawals . . . Is still subject to the constraints imposed on them by virtue of constraints imposed on them by virtue of their status as fiduciaries’” their status as fiduciaries’”
Conflicts of Interest and EneaConflicts of Interest and Enea
RUPA sec 404(b) – EXCLSUIVE LIST RUPA sec 404(b) – EXCLSUIVE LIST BUTBUT California alteration of 404 says “includes California alteration of 404 says “includes
but not limited to” – See Eneabut not limited to” – See Enea
Read Enea on pages 660-64 – Good Read Enea on pages 660-64 – Good Review of general concepts in Review of general concepts in partnership law and duties -- KNOW partnership law and duties -- KNOW THIS CASE; it is rich with rulesTHIS CASE; it is rich with rules
Fiduciary Duties and Fiduciary Duties and Freedom of ContractFreedom of Contract
Consider:Consider: Obligations Under ContractObligations Under Contract Obligations Imposed By LawObligations Imposed By Law
DefaultDefault Mandatory (i.e., unwaivable)Mandatory (i.e., unwaivable)
Jerman v. O’LearyJerman v. O’Leary
Purchase of partnership asset by two Purchase of partnership asset by two partners for personal usepartners for personal use
Limited partners v. general partners issuesLimited partners v. general partners issues
Disclosure when partners are adversaries Disclosure when partners are adversaries to each other – ULPA sec 9(1)(d); RULPA to each other – ULPA sec 9(1)(d); RULPA sec 403 deals with powers and liabilities of sec 403 deals with powers and liabilities of general partners much less restrictivelygeneral partners much less restrictively
Singer v. SingerSinger v. Singer
Two partners are allowed to get away with what Two partners are allowed to get away with what would otherwise be a shocking violation of a would otherwise be a shocking violation of a fiduciary duty because of the language in the fiduciary duty because of the language in the partnership agreementpartnership agreement
Strength of supremacy of the contract demonstratedStrength of supremacy of the contract demonstrated
Rests, in part, on equality of position and Rests, in part, on equality of position and sophistication of parties – why?sophistication of parties – why?
Note the court says there is a threshold that cannot Note the court says there is a threshold that cannot be crossed – what is it?be crossed – what is it?
Note 1 p. 670-71Note 1 p. 670-71
Read and know especially the first 2 Read and know especially the first 2 paragraphs on RUPA 404paragraphs on RUPA 404
Duty of Care and Duty of Care and Bane v. FergusonBane v. Ferguson
UPA 9(3)(c) – no authority to do any act which UPA 9(3)(c) – no authority to do any act which would make it impossible to carry on the ordinary would make it impossible to carry on the ordinary business of the partnershipbusiness of the partnership
Effect of business judgment rule – shields many Effect of business judgment rule – shields many decisions: how and why?decisions: how and why?
See Note 1 on page 674 re application of business See Note 1 on page 674 re application of business
judgment rule, and burden shiftingjudgment rule, and burden shifting
Moren v. Jax RestaurantMoren v. Jax Restaurant
Rights to IndemnityRights to Indemnity
RUPA 401 and 301RUPA 401 and 301
What effect “personal reasons”?What effect “personal reasons”?