Agency & Partnership Professor Donald J. Kochan

1. Agency & PartnershipProfessor Donald J. Kochan Class 22

2. Today’s Materials • Partnership Operation • Pages 648-677

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

4. Meehan v. Shaugnessy • 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 • Case Removal and Dealings with Clients

5. Meehan v. Shaugnessy • 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 provision’s indicate partnership’s “strong intent” not to allow UPA to govern. • Note special rule for interpretation in light of rights of lawyers to practice law

6. Meehan v. Shaugnessy • “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? • Understand strong focus on whether actions create an “Unfair Advantage”

7. Meehan v. Shaugnessy • 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 • Again, look at things like “unfairly prejudicial” acts or “taking advantage” of partner’s confusion or lack of full information.

8. Meehan v. Shaugnessy • Why and When is the burden of proof shifted – self dealing issue • 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

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

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

11. 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 partner’s 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’”

12. Conflicts of Interest and Enea • RUPA sec 404(b) – EXCLSUIVE LIST BUT • California alteration of 404 says “includes but not limited to” – See Enea • Read Enea on pages 660-64 – Good Review of general concepts in partnership law and duties -- KNOW THIS CASE; it is rich with rules

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

14. Jerman v. O’Leary • Purchase of partnership asset by two partners for personal use • 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

15. 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 • Strength of supremacy of the contract demonstrated • 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?

16. Note 1 p. 670-71 • Read and know especially the first 2 paragraphs on RUPA 404

17. 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 • 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

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