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COMPANY GOVERNANCE UNDER FLORIDA’S LIMITED LIABILITY COMPANY ACT - page 9 / 28

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2002]

FLORIDA’S LIMITED LIABILITY COMPANY ACT

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tort liability to others and hence losses to the partnership. Under RUPA’s default rule, such losses are shared by the partners in the same ratio as they share profits, which means (unless otherwise agreed) equally. Indeed, if a tort victim were to sue the ordinarily- negligent partner without naming the partnership, that partner would appear to have a claim against the partnership in the nature of indemnification or contribution.

In addition, at least one of the concerns animating RUPA’s drafters was the problem of broken equipment. This is not a trivial problem in a small partnership. If a doctor drops an expensive microscope, or an accountant drops a computer, who pays for it? In practice, the answer to that varies from firm to firm, so the drafters opted for “gross” negligence as the default rule, which means that the firm pays for “ordinary” clumsiness unless otherwise agreed.

I attempted to persuade my colleague, the Reporter, that it was unnecessary, and indeed unwise, to create a mandatory fiduciary duty of care at all. Partners are profit-sharers and therefore have plenty of incentives to take cost-justified precautions and to monitor each other. If they know each other, they can account for differences in attention or dexterity by assigning high-risk partners to low-risk tasks. If they believe that they are all equally care- ful, then they will foresee that they will all have accidents at about the same rate over time and will agree to internal loss-spreading. I succeeded only in persuading him that it was possible for reasonable people to take that position, see Donald J. Weidner, Three Policy Decisions Animate Revision of Uniform Partnership Act, 46 BUS. LAW. 427, 467-68 (1991), but remain convinced that I was right (for all the good that does).

36. At first blush, even a gross negligence standard may seem too low, since it con- verts a command to “be careful” into a command not to be really, really careless. Lawyers drafting contractual liability clauses (and the clients who sign such contracts) nevertheless routinely limit liability to gross negligence under the apparent assumption that a jury ex- ercising 20-20 hindsight will be able to distinguish “ordinary” lapses from “gross.” Still, “reckless” conduct is something even more egregiously faulty than gross negligence, and could probably have been omitted from the statute without losing anything. At least, I have difficulty imagining a fact pattern in which a defendant charged with gross negli- gence would argue, as an odd kind of affirmative defense, that his or her conduct was actu- ally reckless and therefore exempt from liability because recklessness is not covered by the duty of care.

37. It is not at all clear what “care” has to do with intentionally wrongful conduct. In fact, a partner’s intentional tort against a third party might not even create partnership li- ability precisely because it is intentional. See, e.g., Wheeler v. Green, 593 P.2d 777 (Or. 1979). See generally ALAN BROMBERG & LARRY E. RIBSTEIN, PARTNERSHIP § 4.07 (1996). In any event, the intentionally-tortfeasing partner is always liable for his or her own torts. Such a partner has no right to indemnification or contribution from the partnership, so partnership liability is a backup, not a substitute. If the intentional tortfeasor does not have enough assets to pay a judgment directly to the plaintiff, then giving the other part- ners a right to sue for breach of fiduciary duty does not seem particularly useful.

The reference to a knowing violation of law is also puzzling. Remember that this is the duty of care; a crime against the partnership itself, like embezzlement, would violate the duty of loyalty. Perhaps the drafters envisioned a situation in which some, but not all, partners caused the partnership to engage in an illegal act intended to increase the part- nership coffers, but which, after discovery and prosecution, resulted in a loss. In that case, if the non-violating partners sue, this provision would not allow the violation-causing part- ners to argue that their lawbreaking was efficient ex ante, nor that, as the anticipated gain from the violation would have been shared, so should be the loss.

However, subsuming law violations under “care” creates an anomaly. Were the non- participating partners themselves “grossly negligent” in failing to detect and prevent the violation? The argument that they were is not as far-fetched as it seems. See In re Care- mark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) (board of directors has an ob- ligation to monitor law compliance). If they were, then in any intra-partner litigation there will be enough issues of contributory or comparative negligence (not to mention problems of inquiry notice for purposes of laches or the statute of limitations) to gladden the heart of any torts teacher.

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