Professor Andrej Thomas Starkis



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Partnership Law (Cons. Laws, c. 39), § 53, subd. 1, is to the effect that 'a conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the *471 partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.' This statute, which took effect October 1, 1919, did not indeed revive the enterprise if automatically on the execution of the assignment a dissolution had resulted in 1917. It sums up with precision, however, the effect of the assignment as the parties meant to shape it. We are to interpret their relation in the revealing light of conduct. The rule of the statute, even if it has modified the rule as to partnerships in general (as to this see Pollock, Partnership, p. 99, § 31; Lindley, Partnership [9th Ed.] 695; Marquand v. New York Mfg. Co., 17 Johns. 525), is an accruate statement of the rule at common law when applied to these adventurers. The purpose of the assignment, understood by every one concerned, was to lower the plaintiff's tax by taking income out of his return and adding it to the return to be made by his wife. She was the appointee of the profits, to whom checks were to be remitted. Beyond that, the relation was to be the same as it had been. No one dreamed for a moment that the enterprise was to be wound up, or that Meinhard was relieved of his continuing obligation to contribute to its expenses if contribution became needful. Coadventurers and assignee, and most of all the defendant Salmon, as appears by his own letters, went forward on that basis. For more than five years Salmon dealt with Meinhard on the assumption that the enterprise was a subsisting one with mutual rights and duties, or so at least the triers of the facts, weighing the circumstantial evidence, might not unreasonably infer. By tacit, if not express approval, he continued and preserved it. We think it is too late now, when charged as a trustee, to come forward with the claim that it had been disrupted and dissolved. 277

*472 The judgment should be modified by providing that at the option of the defendant Salmon there may be substituted for a trust attaching to the lease a trust attaching to the shares of stock, with the result that one-half of such shares together with one additional share will in that event be allotted to the defendant Salmon and the other shares to the plaintiff, and as so modified the judgment should be affirmed with costs. 277

ANDREWS, J. (dissenting). 277

A tenant's expectancy of the renewal of a lease is a thing, tenuous, yet often having a real value. It represents the probability that a landlord will prefer to relet his premises to one already **550 in possession rather than to strangers. Less tangible than 'good will,' it is never included in the tenant's assets, yet equity will not permit one standing in a relation of trust and confidence toward the tenant unfairly to take the benefit to himself. At times the principle is rigidly enforced. Given the relation between the parties, a certain result follows. No question as to good faith, or injury, or as to other circumstances is material. Such is the rule as between trustee and cestui (Keech v. Sanford, Select Cas. in Ch. 61); as between executor and estate (Matter of Brown, 18 Ch. Div. 61): as between guardian and ward (Milner v. Harewood, 18 Ves. 259, 274). 277

At other times some inquiry is allowed as to the facts involved. Fair dealing and a scrupulous regard for honesty is required. But nothing more. It may be stated generally that a partner may not for his own benefit secretly take a renewal of a firm lease to himself. Mitchell v. Reed, 61 N. Y. 123, 19 Am. Rep. 252. Yet under very exceptional circumstances this may not be wholly true. W. & T. Leading Cas. in Equity (9th Ed.) p. 657; Clegg v. Edmondson, 8 D. M. & G. 787, 807. In the case of tenants in common there is still greater liberty. There is said to be a distinction between those holding under a will or through descent and those holding under independent *473 conveyance. But even in the former situation the bare relationship is not conclusive. Matter of Biss [1903] 2 Ch. 40. In Burrell v. Bull, 5 N. Y. Super. Ct. 15, there was actual fraud. In short, as we once said, 'the elements of actual fraud--of the betrayal by secret action of confidence reposed, or assumed to be reposed, grows in importance as the relation between the parties falls from an express to an implied or a quasi trust, and on to those cases where good faith alone is involved.' Thayer v. Leggett, 229 N. Y. 152, 128 N. E. 133. 278

Where the trustee, or the partner or the tenant in common, takes no new lease but buys the reversion in good faith a somewhat different question arises. Here is no direct appropriation of the expectancy of renewal. Here is no offshoot of the original lease. We so held in Anderson v. Lemon, 8 N. Y. 236, and although Judge Dwight casts some doubt on the rule in Mitchell v. Reed, it seems to have the support of authority. W. & T. Leading Cas. in Equity, p. 650; Lindley on Partnership (9th Ed.) p. 396; Bevan v. Webb, [1905] 1 Ch. 620. The issue, then, is whether actual fraud, dishonesty, or unfairness is present in the transaction. If so, the purchaser may well be held as a trustee. Anderson v. Lemon, cited above. 278

With this view of the law I am of the opinion that the issue here is simple. Was the transaction, in view of all the circumstances surrounding it, unfair and inequitable? I reach this conclusion for two reasons. There was no general partnership, merely a joint venture for a limited object, to end at a fixed time. The new lease, covering additional property, containing many new and unusual terms and conditions, with a possible duration of 80 years, was more nearly the purchase of the reversion than the ordinary renewal with which the authorities are concerned. 278

The findings of the referee are to the effect that before 1902, Mrs. Louisa M. Gerry was the owner of a plot on *474 the corner of Fifth avenue and Forty-Second street, New York, containing 9,312 square feet. On it had been built the old Bristol Hotel. Walter J. Salmon was in the real estate business, renting, managing and operating buildings. On April 10th of that year Mrs. Gerry leased the property to him for a term extending from May 1, 1902, to April 30, 1922. The property was to be used for offices and business, and the design was that the lessee should so remodel the hotel at his own expense as to fit it for such purposes, all alteration and additions, however, at once to become the property of the lessor. The lese might not be assigned without written consent. 278

Morton H. Meinhard was a woolen merchant. At some period during the negotiations between Mr. Salmon and Mrs. Gerry, so far as the findings show without the latter's knowledge, he became interested in the transaction. Before the lease was executed he advanced $5,000 toward the cost of the proposed alterations. Finally, on May 19th he and Salmon entered into a written agreement. 'During the period of twenty years from the 1st day of May, 1902,' the parties agree to share equally in the expense needed 'to reconstruct, alter, manage and operate the Bristol Hotel property'; and in all payments required by the lease, and in all losses incurred 'during the full term of the lease, i. e., from the first day of May, 1902, to the 1st day of May, 1922.' During the same term net profits are to be divided. Mr. Salmon has sole power to 'manage, lease, underlet and operate' the premises. If he dies, Mr. Meinhard shall be consulted before any disposition is made of the lease, and if Mr. Salmon's representatives decide to dispose of it, and the decision is theirs, Mr. Meinhard is to be given the first chance to take the unexpired term upon the same conditions they could obtain from others. 279

The referee finds that this arrangement did not create a partnership between Mr. Salmon and Mr. Meinhard. In this he is clearly right. He is equally right in holding *475 **551 that while no general partnership existed the two men had entered into a joint adventure and that while the legal title to the lease was in Mr. Salmon, Mr. Meinhard had some sort of an equitable interest therein. Mr. Salmon was to manage the property for their joint benefit. He was bound to use good faith. He could not willfully destroy the lease, the object of the adventure, to the detriment of Mr. Meinhard. 279

Mr. Salmon went into possession and control of the property. The alterations were made. At first came losses. Then large profits which were duly distributed. At all times Mr. Salmon has acted as manager. 279

Some time before 1922 Mr. Elbridge T. Gerry became the owner of the reversion. He was already the owner of an adjoining lot on Fifth avenue and of four lots adjoining on Forty-Second Street, in all 11,587 square feet, covered by five separate buildings. Obviously, all this property together was more valuable than the sum of the value of the separate parcels. Some plan to develop the property as a whole seems to have occurred to Mr. Gerry. He arranged that all leases on his five lots should expire on the same day as the Bristol Hotel lease. Then in 1921 he negotiated with various persons and corporations seeking to obtain a desirable tenant who would put up a building to cover the entire tract, for this was the policy he had adopted. These negotiations lasted for some months. They failed. About January 1, 1922, Mr. Gerry's agent approached Mr. Salmon and began to negotiate with him for the lease of the entire tract. Upon this he insisted as he did upon the erection of a new and expensive building covering the whole. He would not consent to the renewal of the Bristol lease on any terms. This effort resulted in a lease to the Midpoint Realty Company, a corporation entirely owned and controlled by Mr. Salmon, For our purposes the paper may be treated as if the agreement was made with Mr. Salmon himself. 279

*476 In many respects, besides the increase in the land demised, the new lease differs from the old. Instead of an annual rent of $55,000 it is now from $350,000 to $475,000. Instead of a fixed term of twenty years it may now be, at the lessee's option, eighty. Instead of alterations in an existing structure costing about $200,000 a new building is contemplated costing $3,000,000. Of this sum $1,500,000 is to be advanced by the lessor to the lessee, 'but not to its successors or assigns,' and is to be repaid in installments. Again no assignment or sale of the lease may be made without the consent of the lessor. 279

This lease is valuable. In making it Mr. Gerry acted in good faith without any collusion with Mr. Salmon and with no purpose to deprive Mr. Meinhard of any equities he might have. But as to the negotiations leading to it or as to the execution of the lease itself Mr. Meinhard knew nothing. Mr. Salmon acted for himself to acquire the lease for his own benefit. 280

Under these circumstances the referee has found and the Appellate Division agrees with him, that Mr. Meinhard is entitled to an interest in the second lease, he having promptly elected to assume his share of the liabilities imposed thereby. This conclusion is based upon the proposition that under the original contract between the two men 'the enterprise was a joint venture, the relation between the parties was fiduciary and governed by principles applicable to partnerships,' therefore, as the new lease is a graft upon the old, Mr. Salmon might not acquire its benefits for himself alone. 280

Were this a general partnership between Mr. Salmon and Mr. Meinhard, I should have little doubt as to the correctness of this result, assuming the new lease to be an offshoot of the old. Such a situation involves questions of trust and confidence to a high degree; it involves questions of good, will; many other considerations. As has been said, rarely if ever may one partner without the knowledge of the other acquire for himself the renewal of *477 a lease held by the firm, even if the new lease is to begin after the firm is dissolved. Warning of such an intent, if he is managing partner, may not be sufficient to prevent the application of this rule. 280

We have here a different situation governed by less drastic principles. I assume that where parties engage in a joint enterprise each owes to the other the duty of the utmost good faith in all that relates to their common venture. Within its scope they stand in a fiduciary relationship. I assume prima facie that even as between joint adventurers one may not secretly obtain a renewal of the lease of property actually used in the joint adventure where the possibility of renewal is expressly or impliedly involved in the enterprise. I assume also that Mr. Meinhard had an equitable interest in the Bristol Hotel lease. Further, that an expectancy of renewal inhered in that lease. Two questions then arise. Under his contract did he share in that expectancy? And if so, did that expectancy mature into a graft of the original lease? To both questions my answer is 'No.' 280

The one complaint made is that Mr. Salmon obtained the new lease without informing Mr. Meinhard of his intention. Nothing else. There is no claim of actual fraud. No claim of misrepresentation to any one. Here was no movable property to be acquired by a new tenant at a sacrifice to its owners. **552 No good will, largely dependent on location, built up by the joint efforts of two men. Here was a refusal of the landlord to renew the Bristol lease on any terms; a proposal made by him, not sought by Mr. Salmon, and a choice by him and by the original lessor of the person with whom they wished to deal shown by the covenants against assignment or under-letting, and by their ignorance of the arrangement with Mr. Meinhard. 280

What then was the scope of the adventure into which the two men entered? It is to be remembered that before their contract was signed Mr. Salmon had obtained *478 the lease of the Bristol property. Very likely the matter had been earlier discussed between them. The $5,000 advance by Mr. Meinhard indicates that fact. But it has been held that the written contract defines their rights and duties. Having the lease, Mr. Salmon assigns no interest in it to Mr. Meinhard. He is to manage the property. It is for him to decide what alterations shall be made and to fix the rents. But for 20 years from May 1, 1902, Salmon is to make all advances from his own funds and Meinhard is to pay him personally on demand one-half of all expenses incurred and all losses sustained 'during the full term of said lease,' and during the same period Salmon is to pay him a part of the net profits. There was no joint capital provided. 280

It seems to me that the venture so inaugurated had in view a limited object and was to end at a limited time. There was no intent to expand it into a far greater undertaking lasting for many years. The design was to exploit a particular lease. Doubtless in it Mr. Meinhard had an equitable interest, but in it alone. This interest terminated when the joint adventure terminated. There was no intent that for the benefit of both any advantage should be taken of the chance of renewal--that the adventure should be continued beyond that date. Mr. Salmon has done all he promised to do in return for Mr. Meinhard's undertaking when he distributed profits up to May 1, 1922. Suppose this lease, nonassignable without the consent of the lessor, had contained a renewal option. Could Mr. Meinhard have exercised it? Could he have insisted that Mr. Salmon do so? Had Mr. Salmon done so could he insist that the agreement to share losses still existed, or could Mr. Meinhard have claimed that the joint adventure was still to continue for 20 or 80 years? I do not think so. The adventure by its express terms ended on May 1, 1922. The contract by its language and by its whole import excluded *479 the idea that the tenant's expectancy was to subsist for the benefit of the plaintiff. On that date whatever there was left of value in the lease reverted to Mr. Salmon, as it would had the lease been for thirty years instead of twenty. Any equity which Mr. Meinhard possessed was in the particular lease itself, not in any possibility of renewal. There was nothing unfair in Mr. Salmon's conduct. 281

I might go further were it necessary. Under the circumstances here presented, had the lease run to both the parties, I doubt whether the taking by one of a renewal without the knowledge of the other would cause interference by a court of equity. An illustration may clarify my thought. A. and B. enter into a joint venture to resurface a highway between Albany and Schnectady. They rent a parcel of land for the storage of materials. A., unknown to B., agrees with the lessor to rent that parcel and one adjoining it after the venture is finished, for an iron foundry. Is the act unfair? Would any general statements, scattered here and there through opinions dealing with other circumstances, be thought applicable? In other words, the mere fact that the joint ventures rent property together does not call for the strict rule that applies to general partners. Many things may excuse what is there forbidden. Nor here does any possibility of renewal exist as part of the venture. The nature of the undertaking excludes such an idea. 281

So far I have treated the new lease as if it were a renewal of the old. As already indicated, I do not take that view. Such a renewal could not be obtained. Any expectancy that it might be had vanished. What Mr. Salmon obtained was not a graft springing from the Bristol lease, but something distinct and different--as distinct as if for a building across Fifth avenue. I think also that in the absence of some fraudulent or unfair act the secret purchase of the reversion even by one partner is rightful. Substantially this is such a purchase. Because of the mere label of a transaction we do not place it on one *480 side of the line or the other. Here is involved the possession of a large and most valuable unit of property for 80 years, the destruction of all existing structures and the erection of a new and expensive building covering the whole. No fraud, no deceit, no calculated secrecy is found. Simply that the the arrangement was made without the knowledge of Mr. Meinhard. I think this not enough. 281

The judgment of the courts below should be reversed and a new trial ordered, with costs in all courts to abide the event. 282

**553 POUND, CRANE, and LEHMAN, JJ., concur with CARDOZO, C. J., for modification of the judgment appealed from and affirmance as modified. 282

ANDREWS, J., dissents in opinion in which KELLOGG and O'BRIEN, JJ., concur. 282

Judgment modified, etc. 282



Day v. Sidley & Austin 282

J. Edward DAY, Plaintiff, 282

v. 282

SIDLEY & AUSTIN et al., Defendants. 282

Civ. A. No. 74-1112. 282

United States District Court, District of Columbia. 282

May 29, 1975. 282

MEMORANDUM OPINION 282

PARKER, District Judge. 282

This case involves a dispute between a former senior partner of Sidley & Austin (S&A), a Chicago law firm, and some of his fellow partners. The controversy centers around the merger between that firm and another Chicago firm, Liebman, Williams, Bennett, Baird and Minow (Liebman firm), and the events subsequent to the merger which ultimately led to plaintiff's resignation. Plaintiff seeks damages claiming a substantial loss of income, damage to his professional reputation and personal embarrassment which resulted from his forced resignation. 282

The matter is now before the Court on defendants' motion for summary judgment. After consideration of the pre-and post-hearing memoranda of counsel, answers to interrogatories, affidavits, and oral arguments, this Court concludes that defendants' motion for summary judgment should be granted. 282

On July 1, 1974, plaintiff J. Edward Day filed a complaint in the Superior Court for the District of Columbia against Sidley & Austin itself, *988 and 12 named partners (members of the firm's executive committee) alleging breach of fiduciary duty, breach of contract, fraud and misrepresentation, conspiracy, wrongful dissolution or ouster of co-partner and breach of partnership agreement. Thereafter, the individual defendants who had then been served filed a petition for removal in the United States District Court for the District of Columbia. [FN1] Federal jurisdiction is conferred by reason of diversity of citizenship and the amount in controversy exceeding $10,000. 28 U.S.C. § 1332. On October 8, 1974, this Court denied plaintiff's request for a remand to the Superior Court and quashed service on those individual defendants who had been served with Superior Court process after removal had become effective. Service against the partnership itself was quashed. [FN2] As of this date, plaintiff has served eleven of the individual defendants. 282

As an initial response to the motion for summary judgment plaintiff asserts that the motion should be denied because it is premature since 'extensive discovery' is contemplated including depositions to supplement the interrogatories that have already been answered. In Washington v. Cameron, 133 U.S.App.D.C. 391, 411 F.2d 705 (1969), the district court was reversed for precipitously granting defendant's summary judgment motion on the basis of an ex parte administrative determination of fact, before plaintiff had had a chance to conduct any discovery. The caution and restraint dictated by Cameron was clearly warranted by its facts, the record and the state of the pleadings. Such an approach is not mandated by the record in this proceeding. Here, the plaintiff has conducted discovery by way of interrogatories, has filed several personal affidavits, and defendants have submitted key documents such as the Partnership Agreements of Sidley & Austin and the Memorandum of Understanding governing the proposed merger of S&A and the Liebman firm. The partnership agreements and other essential undisputed facts and relevant documents present questions of law and the Court sees no reason why the motion for summary judgment is untimely. See E. P. Hinkel & Co. v. Manhattan Co., 506 F.2d 201 (D.C.Cir. 1974). 283

The Factual Background 283

The basic and material facts in this controversy may be briefly detailed. 283

Mr. Day was first associated with Sidley & Austin in 1938. His legal career was interrupted by World War II service in the Navy and by his tenure with both the Illinois state government and as Postmaster General of the United States. Upon leaving the federal government, he was instrumental in establishing a Washington office for the firm in 1963. As a senior underwriting partner, he was entitled to a certain percentage of the firm's profits, and was also privileged to vote on certain matters which were specified in the partnership agreement. He was never a member of the executive committee, however, which managed the firm's day-to-day business. He remained an underwriting partner with Sidley & Austin from 1963 until his resignation in December 1972. 283

At some time between February 1972 and July 12, 1972, S&A's executive committee explored the idea of a possible merger between that firm and the Liebman firm. S&A partners who were not on the executive committee were unaware of the proposal until it was revealed at a special meeting of its underwriting *989 partners on July 17, 1972. At that meeting, each partner present, including plaintiff, voiced approval of the merger idea and favored pursuing further that possibility in such manner as the executive committee of S&A might think proper or advisable, with the understanding that any proposed agreement would first be submitted to all partners for their consideration before any binding commitments were made. The merger was further discussed at meetings of the underwriting partners held on September 6, September 22, September 26 and September 28. The plaintiff received timely notice of the meetings but did not attend. 283

The final Memorandum of Understanding dated September 29, 1972 and the final amended Partnership Agreement, dated October 16, 1972 were executed by all S&A partners, including plaintiff. The Memorandum incorporated a minor change requested by plaintiff. 284

At a meeting of the executive committee of the combined firm on October 16, 1972, it was decided that the Washington offices and the Washington office committees of the two predecessor firms would be consolidated. The former chairmen of the Washington office committees of the two firms were appointed co-chairmen of the new Washington Office Committee. [FN3] 284

In late October of 1972, the new Washington Office Committee recommended to the Management Committee that a combined Washington Office be set up at 1730 Pennsylvania Avenue, thus eliminating the old S&A Washington office in the Cafritz Building. A decision was then made to move to the new location despite plaintiff's objections. 284

Mr. Day resigned from Sidley & Austin effective December 31, 1972 claiming that the changes which occurred after the merger in the Washington Office-- the appointment of co-chairmen and the relocation of the office-- made continued service with the firm intolerable for him. 284

Plaintiff has made certain allegations which are not conceded by defendants. As to these matters, plaintiff's allegations have been given the benefit of all reasonable doubts and inferences. [FN4] 284

Mr. Day contends that he had a contractual right to remain the sole chairman of the Washington Office, and that the maintenance of this status was a condition precedent for his rejoining the firm in 1963 and opening the Washington office. According to plaintiff, the decision to appoint co-chairmen was made prior to the merger and defendants' concealment of that decision was a material omission and without that prior information his vote of approval for the merger would not have been given. 284

He further alleges that certain active misrepresentations about the results of the proposal also had the effect of voiding the approval of the merger. These other alleged misrepresentations were: 284

(1) that no Sidley partner would be worse off in any way as a result of the merger, including positions on committees; 284

(2) that two senior partners of the Liebman firm would soon be leaving law practice; 284

*990 (3) that the merged firm would drop representation of a certain Liebman client whose interests might conflict with some Sidley clients; 284

(4) that the merger with Liebman would be advantageous to the Sidley partners and would add to the standing and prestige of the firm; 284

(5) that all aspects of the merger had been exhaustively investigated by defendants; and 285

(6) that there were good, sound, objective reasons which made the merger highly desirable. 285

Plaintiff also alleges that the fact that the Liebman firm had been shopping around for a merger partner for 10 years was concealed. 285

Events after the merger, allegedly void because of the mentioned omissions and misrepresentations, inevitably led to plaintiff's resignation. The loss of his status as sole chairman of the Washington office was viewed by plaintiff as a humiliating experience, especially as it was accompanied by harassment by the defendants. Day points to the method of handling the relocation of the consolidated firm as the most obvious manifestation of the defendants' intent to force his resignation. In an affidavit submitted by plaintiff, he asserts that the process of approving the office move entailed a series of meetings held and decisions made without consulting him, all in derogation of his former status as the final decision maker for the S&A Washington office. 285

Defendants do not concede that misrepresentations or omissions tainted the approval of the merger, nor do they admit engaging in harassment techniques intended to force plaintiff to resign. The thrust of defendants' argument for summary judgment is that plaintiff's factual allegations are not material because they fail to state a cause of action. Defendants contend that any possible taint of plaintiff's vote in favor of the merger is of no consequence because only a majority, and not unanimous consent, was required for the merger under the provisions of the partnership agreements. Defendants also contend that any diminution of status as perceived by plaintiff cannot have any legal consequences because he had no vested contractual right to remain the sole chairman. They rely on the terms of the partnership agreements to support this defense. Under the agreements, the Executive Committee had the authority to govern the composition of all other firm committees and no special provisions had been made as to plaintiff's vested right in the Washington office. 285

An analysis of the adequacy of each of plaintiff's causes of action follows. 285

Fraud 285

Plaintiff contends that the pre-merger representations, set forth above, were fraudulent, that the approval based on such misrepresentations was wrongfully obtained and illegal and that he was forced to resign because of the intolerable conditions which flowed from the illegal merger. The Court has reviewed the misrepresentation claims and concludes that they fall short of supporting any cause of action for fraud. 285

The essential elements of fraud are: (1) a deliberate misstatement of fact, (2) made with the intent to deceive another person, (3) reasonably relied upon by the deceived person, (4) which reliance proximately and directly results in damage to that person. [FN5] 285

As to the statements regarding the future plans of two Liebman partners, and the dropping of a Liebman client, plaintiff's damages could not have been caused by his reliance on these *991 statements because he left the firm only a few months after the merger, without giving sufficient time to ascertain whether the promised events would occur. Also, as a general rule, a misrepresentation as to future events will not constitute fraud unless the person making the statement has definite knowledge that those events will not occur. [FN6] It is also quite apparent from plaintiff's affidavit that the other representations about the Liebman firm were not a factor in plaintiff's resignation, because the main reason for his departure was his perceived loss of stature within the firm. These representations are therefore immaterial. 285

The key misrepresentation which forms the basis of plaintiff's complaint is that no Sidley partner would be worse off as a result of the merger. Plaintiff interpreted this to mean that he would continue to serve as the sole chairman of the Washington Office and that he would wield the commanding authority regarding such matters as expanding office space. It was the change in plaintiff's status at the Washington Office which directly precipitated his resignation. 286

This misrepresentation regarding plaintiff's status cannot support a cause of action for fraud, however, because plaintiff was not deprived of any legal right as a result of his reliance on this statement. The 1970 S&A Partnership Agreement, [FN7] to which plaintiff was a party, sets forth in some detail the relationships among the partners and the structure of the firm. No mention is made of the Washington Office or plaintiff's status therein, whereas special arrangements are specified for certain other partners. If chairmanship of the Washington Office was of the importance now claimed, the absence of such a provision from the partnership agreement requires a measured explanation which Mr. Day does not supply. Plaintiff's allegations of an unwritten understanding cannot now be heard to contravene the provisions of the Partnership Agreement which seemingly embodied the complete intentions of the parties as to the manner in which the firm was to be operated and managed. 286

Nor can plaintiff have reasonably believed that no changes would be made in the Washington Office since the S&A Agreement gave complete authority to the executive committee to decide questions of firm policy, [FN8] which would clearly include establishment of committees and the appointment of members and chairpersons. Having read and signed the *992 1970 and 1972 S&A Partnership Agreements which implicitly authorized the Executive Committee to create, control or eliminate firm committees, plaintiff could not have reasonably believed that the status of the Washington Office Committee was inviolate and beyond the scope and operation of the Partnership Agreements. Thus, since plaintiff had no right to remain chairman of the Washington Office, a misrepresentation regarding his chairmanship does not form the basis for a cause of action in fraud. 286

Breach of Contract, Conspiracy and Wrongful Dissolution or Ouster of Partner 286

As shown above, plaintiff had no contractual right to maintain his authority over the Washington Office, and therefore he has not made out a case for breach of contract. Since he did not have a legal right to maintain his status in the firm, the conspiracy charge [FN9] amounts to no more than an internal power sweep, executed and permitted under the provisions of the partnership agreement for which there is no legal remedy. 286

Similarly, there was no wrongful dissolution or ouster of plaintiff from the partnership because the merger of the two firms was authorized under the terms of the S&A partnership agreement. By the terms of the agreement, the executive committee was entrusted with 'all questions of Firm policy.' [FN10] Additionally, partners could be admitted and severed from the firm and the partnership agreement could be amended by majority approval by the partners. [FN11] The merger of S&A with the Liebman firm could be considered either as the admission of new partners or the making of a new or amended agreement, and thus majority approval was all that was required, and a post facto change in plaintiff's vote would be of no effect. 286

Plaintiff contends that the merger was such a fundamental change in the nature of the partnership that unanimous approval was required and that had he known the personal consequences of the merger, he would have exercised a 'veto' and the events which forced him to resign would not have occurred. This theory, however, runs counter to the prevailing law of partnership. Generally, common law and statutory standards concerning relationships between partners can be overridden by an agreement reached by the parties themselves. [FN12] The Uniform Partnership Act (adopted both in Illinois and the District of Columbia) [FN13] specifically provides that statutory rules governing the rights and duties of the partners are 'subject to any agreement between them.' [FN14] 287

*993 Nor do the cases cited by plaintiff support the proposition that unanimous consent is needed for the merger of partnerships. In McCallum v. Asbury, 238 Or. 257, 393 P.2d 774 (1964), a partner sued to dissolve a partnership of medical doctors. Plaintiff challenged the amendment of the agreement by majority vote which provided for management by an executive committee. The court held that a majority could approve this change, even though the agreement provided that all partners were to have an equal share in management. Likewise, Fortugno v. Hudson Manure Co., 51 N.J.Super. 482, 144 A.2d 207 (1958), affords little support. 287

Fortugno basically held that a partner could not be effectively changed into a stockholder in a corporation without his consent. In that case, there had been no prior contract that the partnership agreement could be amended by majority vote. The S&A Agreement, however, dealt specifically with incorporation of the firm, providing that incorporation would be effective if approved by three-fourths of the partners. Merger was a less dramatic change than incorporation, which would have eliminated the partnership entity. It cannot reasonably be argued, therefore, that the merger fell outside the purview of the Agreement, requiring unanimous consent for its approval. Amendments to the Agreement and admission of partners required only majority approval, and plaintiff's proposed 'veto power' is nothing more than an expressed hope, incompatible with and contrary to the overall scheme and provisions of the S&A Agreement. 287

Breach of Fiduciary Duty 287

Plaintiff also alleges that defendants breached their fiduciary duty by beginning negotiations on a merger with the Liebman firm without consulting the other partners who were not on the Executive Committee and by not revealing information regarding changes that would occur as a result of the merger, such as the co-chairmen arrangement for the Washington office. An examination of the case, law on a partner's fiduciary duties, however, reveals that courts have been primarily concerned with partners who make secret profits at the expense of the partnership. [FN15] Partners have a duty to make a full and fair disclosure to other partners of all information which may be of value to the partnership. 1 Rowley on Partnership § 20.2, at 512-13 (2d ed. 1960). The essence of a breach of fiduciary duty between partners is that one partner has advantaged himself at the expense of the firm. Id. The basic fiduciary duties are: 1) a partner must account for any profit acquired in a manner injurious to the interests of the partnership, such as commissions or purchases on the sale of partnership property; 2) a partner cannot without the consent of the other partners, acquire for himself a partnership asset, nor may he divert to his own use a partnership opportunity; and 3) he must not compete with the partnership within the scope of the business. See Crane & Bromberg, Law of Partnership, § 68, at 389-91 (1968). 287

A typical case of breach of fiduciary duty and fraud between partners cited by plaintiff is Bakalis v. Bressler, 1 Ill.2d 72, 115 N.E.2d 323 (1953). There, a defendant partner has surreptitiously purchased the building which housed the partnership's business and was collecting rents from the partnership for his own profit. What plaintiff is alleging in the instant case, however, concerns failure to reveal information regarding changes in the internal structure of the firm. No court has recognized a fiduciary duty to disclose this type of information, the concealment of which does not produce any profit for the offending partners nor any financial *994 loss for the partnership as a whole. Not only was there no financial gain for defendants, but the remaining partners did not acquire any more power within the firm as the result of the alleged withholding of information from plaintiff. They were already members of the executive committee and as such had wideranging authority with regard to firm management. Thus plaintiff's claim of breach of fiduciary duty must fail. 288

What this Court perceives from Mr. Day's pleadings and affidavits is that he may be suffering from a bruised ego but that the facts fail to establish a legal cause of action. As an able and experienced attorney, it should have been clear that the differences and misunderstandings which developed with his former partners were business risks of the sort which cannot be resolved by judicial proceedings. Mr. Day, a knowledgeable, sophisticated and experienced businessman and a responsible member of a large law firm, bound himself to a well-defined contractual arrangement when he executed the 1970 [FN16] Partnership Agreement. The contract clearly provided for management authority in the executive committee and for majority approval of the merger with the Liebman firm. Even if plaintiff had voted against the merger, he could not have stopped it. Furthermore, the Partnership Agreement, to which he freely consented denies the existence of a contractual right to any particular status within the firm for plaintiff. If plaintiff's partners did indeed combine against him, it is clear that their alleged activities did not amount to illegality, and that any personal humiliation or injury was a risk that he assumed when he joined with others in the partnership. 288

Accordingly it is this 29th of May, 1975 288

Ordered that defendants' motion for summary judgment is granted and the complaint in this proceeding is dismissed with prejudice. 288

FN1. Pursuant to 28 U.S.C. § 1441. 288

FN2. The common law rule in the District of Columbia is that a partnership cannot sue or be sued as a separate entity. See: Mayflower Hotel Stockholders v. Mayflower Hotel Corp., 73 F.Supp. 721 (D.D.C.1947), rev'd on other grounds, 84 U.S.App.D.C. 275, 173 F.2d 416 (1949); Fennell v. Bache, 74 App.D.C. 247, 123 F.2d 905 (1941); Matson v. Mackubin, 61 App.D.C. 102, 57 F.2d 941 (1932); National Ass'n for Community Development v. Hodgson, 356 F.Supp. 1399, 1402 (D.D.C.1973). 288

FN3. Day was not a member of the executive committee of the merged firm. He had been the chairman of the S&A Washington Office and John Robson had been chairman of the equivalent Liebman office before the merger. Day contends that the decision to have co-chairmen had been made well before the October 16 executive committee meeting and indeed, the alleged concealment of this fact forms the basis for plaintiff's claim that the approval of the merger was fraudulently induced. There is no dispute, however, that the matter was finalized and made known to plaintiff as of October 16th. 288

FN4. 10 Wright & Miller, Federal Practice and Procedure § 2725, at 510 (1973). See: Day v. United Automobile, Aerospace and Agricultural Implement Workers of America, Local 36 of UAW, 466 F.2d 83 (6th Cir. 1972); Gross v. Southern Railway Co., 414 F.2d 292 (5th Cir. 1969); Cox v. American Fidelity & Casualty Co., 249 F.2d 616 (9th Cir. 1957). 289

FN5. See: Isen v. Calvert Corp., 126 U.S.App.D.C. 349, 379 F.2d 126 (1967); United States v. Kiefer, 97 U.S.App.D.C. 101, 228 F.2d 448 (1955), cert. denied, 350 U.S. 933, 76 S.Ct. 305, 100 L.Ed. 815 (1956); Hooker v. Midland Steel Co., 215 Ill. 444, 74 N.E. 445 (1905); Crocker v. Manley, 164 Ill. 282, 45 N.E. 577 (1896). See also 12 Williston Contracts § 1487 (3d ed. 1970). 289

FN6. See: Hayes v. Disque, 401 Ill. 479, 82 N.E.2d 350 (1948); Brodsky v. Frank, 342 Ill. 110, 173 N.E. 775 (1930); Miller v. Sutliff, 241 Ill. 521, 89 N.E. 651 (1909); Parker v. Arthur Murray, Inc., 10 Ill.App.3d 1000, 295 N.E.2d 487, 490 (1973). 289

FN7. The Sidley & Austin Partnership Agreement dated April 24, 1970 was the governing contract in effect at the time the merger was negotiated and approved, and the validity of the merger procedure should be evaluated in light of this agreement. An amended agreement which took into account the needs of the larger merged firm, was executed on October 16, 1972, in conjunction with a Memorandum of Understanding detailing the terms of the merger. 289

FN8. Both the 1970 and 1972 S&A Partnership Agreements contained the following language: 289

1. All questions of Firm policy, including determination of salaries, expense, Partners' participation, required balances of Partners, investment of funds, designation of Counsel, and the admission and severance of Partners, shall be decided by an Executive Committee . . . provided, however, that the determination of participation, admission and severance of Partners, shall require the approval of Partners (whether or not members of the Executive Committee) then holding a majority of all voting Percentages. The Committee shall advise and consult with other Partners to such an extent as the Committee may deem advisable and in the best interest of the Firm. 289

Any amendment of this Agreement or any subsequent agreement, if signed or initialed by Partners then holding a majority of all voting Percentages, shall be as effective as though signed or initialed by all Partners; provided, however, that any agreement providing for the incorporation of the Firm shall be signed by Partners then holding seventy-five percent (75%) of all voting Percentages . . .. 289

FN9. Plaintiff charged in his original complaint that defendants had conspired to change the basic nature of the firm by presenting a faradvanced merger arrangement and to downgrade plaintiff's status at the Washington Office, thus forcing plaintiff to resign. See plaintiff's complaint Count IV, PP47-53. 289

FN10. See note 8, supra. Management by an executive committee elected by a majority of the partners is a legally acceptable contractual arrangement. See: Morrison v. Ultican, 35 Wash.2d 504, 213 P.2d 617 (1950); Bernstein, Bernstein, Wile & Gordon v. Ross, 22 Mich.App. 117, 177 N.W.2d 193 (1970). 290

FN11. See note 8, supra. 290

FN12. See H. Crane and A. Bromberg, Law of Partnership § 5, at 43 (1968). 290

FN13. See Am.Jur.2d Desk Book, Doc. 129 (1974 Supp.). 290

FN14. See D.C.Code § 41-317 (1973) and Ill.Rev.Stat.1973, ch. 106 1/2, § 18. Two of the rules which are thus 'subject to agreement' are: 290

(e) All partners have equal rights in the management and conduct of the partnership business. (g) No person can become a member of a partnership without the consent of all the partners. Id. 290

See also Holman v. Coie, 11 Wash.App. 195, 522 P.2d 515 (1974), where a court upheld the expulsion of two partners by majority vote without any form of notice or hearing on the ground that the partnership agreement expressly provided for such summary procedure. 290

FN15. See: J. Crane & A. Bromberg, Law of Partnership § 68 (1968); 1 Rowley on Partnership §§ 20.0-20.2 and § 21.1 (2d ed. 1960). 290

FN16. See note 7, supra. 290



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