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.
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.