Singer v. Singer

Brief Fact Summary.

Stanley Singer (D) and Andrea Singer (D), partners in Josaline Production Co. (P) (Josaline) contend that their partnership contracts allowed them to enter into business transactions that were in competition with the partnership’s interests that Josaline (P) failed to enter into for itself.

Synopsis of Rule of Law.

A partnership may contract away expectations of noncompetitive business practices with its partners.

Facts.

The family partnership as well as other partnership contracts of Josaline (P) Production Co. allow its partners to enter into transactions for his or her own separate individual account without the other partners entitled to a claim. At a partnership meeting, an investment opportunity to purchase land with minerals on it was raised, but then deferred. After the meeting, siblings Stanley Singer (D) and Andrea Singer (D) purchased the land through another company without consultation with of the other Josaline (P) partners. Joe Singer (P) who had initially presented the opportunity, demanded to be permitted to buy 50% of the property. Joe Singer (P) was refused, so he and Josaline Production Co. (P) brought suit against Stanley (D) and Andrea Singer (D) claiming breach of fiduciary duty and entitlement to participate in the investment. The trial court ruled in favor of Josaline (P) and ordered that the property be held in a constructive trust for Josaline (P). The appellate court allowed the appeal.

Issue.

May a partnership contract away expectations of noncompetitive business practices with its partners?

Held.

(Boydston, J.) Yes, a partnership may contract away its expectations of noncompetitive business practices with its partners. If it were not for the specific provision in the Josaline (P) partnership agreement, Josaline (P) would be correct in its assertions that Stanley (D) and Andrea (D) had breached fiduciary duty and that Josaline was entitled to participate in the investment. The provision however gives Stanley (D) and Andrea (D) the right to compete with Josaline and its other partners. If Josaline (P) had already acquired the asset or investment opportunity rather than show speculative interest, Stanley (D) and Andrea (D) could not compete with the partnership for that asset or investment. Reversed and Remanded.

Discussion.

As demonstrated in this case, partners, and members of limited liability companies, can contract away many fiduciary duties imposed by law. There are limitations on what can be contracted away on a state by state basis. For example, Delaware will not allow for a partnership to contract away liability for bad faith violations of the implied contractual covenant of good faith and fair dealing.