X hits on this document

PDF document






10 / 28



[Vol. 30:53

Third, the duty of loyalty, like all Gaul, is divided into three parts: (1) the duty to account for property, profits, or benefits derived from the partnership’s business or the use of partnership property, which includes partnership opportunities;38 (2) the duty not to deal with the partnership as an adversary or on behalf of adverse interests;39 and (3) the duty not to compete with the partnership.40

Standing alone, these three open-ended definitions of the duty of loyalty might have satisfied all but the most ardent of the tradition- alists. They do not, however, stand alone. First, section 404(e) states that “[a] partner does not violate a duty or obligation . . . merely be- cause the partner’s conduct furthers the partner’s own interest”; it is no sin to be selfish.41

Finally, as noted above, the drafters were concerned with broken equipment. Perhaps the inclusion of “intentional misconduct” in the duty of care was addressed to the account- ant or doctor on a rampage. While I find the image curiously entrancing—Casper Milque- toast with a sledgehammer—I cannot believe that any such partner would think that the firm should absorb the damage and therefore refuse to pay the bill once he’d sobered up.


R.U.P.A. § 404(b)(1). According to the Official Comments, the reference to misap-

propriation of a partnership opportunity is intended to codify case law, including that om- nipresent classic, Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928). RUPA does not offer any bright line guidance as to just what constitutes a partnership opportunity, although it does give partners the ability to do that themselves—maybe. See infra note 45. In any event, if a partner withdraws (“dissociates” in RUPA-speak) and the business either is not wound up, or the withdrawing partner does not participate in winding up, the dissociated partner is

free to appropriate any new opportunities that float by. R.U.P.A. § 603(b)(3).

39. R.U.P.A. § 404(b)(2). Once a partner withdraws from the partnership, the dissoci- ated partner may deal with the partnership as an adversary with respect to new matters. Id. § 603(b)(3).

40. Id. § 404(b)(4). The duty not to compete ceases on withdrawal, whether or not the business is wound up, id. § 603(b)(2), although the Official Comments note that a compet- ing former partner may not use confidential information of the partnership and that trade secret law may also apply.

The question whether information “belongs” to the partnership or is simply an accretion to human capital and therefore the property of the partner is as complex as the law is con- fused. A full discussion of property rights in information is far beyond the scope of this Ar- ticle; indeed, the topic consumes whole treatises. However, woe to the partner who gets it wrong or who “usurps” an opportunity. That partner has more to worry about than con- structive trusts or even punitive damages. If the mails or a telephone or modem have been used along the way—and when will they not have been?—the partner may become an in- voluntary guest of the U.S. government. The federal mail and wire fraud statutes apply to the deceitful misappropriation of confidential information, even if it does not result in any quantifiable harm to the “owner.” Carpenter v. United States, 484 U.S. 19 (1987). Full dis- closure before the fact eliminates the risk of jail time, United States v. O’Hagan, 521 U.S. 642 (1997), although not the risk of damages.

41. R.U.P.A. § 404(e). So much for partnership as “a position in which thought of self [is] . . . to be renounced, however hard the abnegation.” Meinhard, 164 N.E. at 548. The Of- ficial Comments state that this section is “new” and “deals expressly with a very basic is- sue.” Official Comments to R.U.P.A. § 404(e). The explanation goes on to point out that partners are not trustees, and that a partner’s rights as an owner of a business exist as a counter-balance to his or her fiduciary duties and obligations: “For example, a partner who, with consent, owns a shopping center may . . . legitimately vote against a proposal by the partnership to open a competing shopping center.” Id.

In their treatise, Professors Hillman and Vestal and Dean Weidner argue that it is pos- sible to read 404(e) narrowly. HILLMAN ET AL., supra note 25, at 204-05. Under a narrow

Document info
Document views46
Page views46
Page last viewedMon Oct 24 09:08:19 UTC 2016