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Bohatch v. Butler & Binion

Court of Appeals of Texas, Fourteenth District, Houston · 1995 · Corporations
905 S.W.2d 597 (1995)
Updated
CorporationsPartnershipsFiduciary dutyPartnership agreementExpulsion of partnerAttorney's feespartnershipexpulsion

Facts

Bohatch, a partner in Butler & Binion's Washington office, reported to firm management her suspicions that McDonald was overbilling Pennzoil. After investigating and finding no basis for her allegations, the firm told Bohatch it was in her best interest to seek other employment, stopped assigning her work, later denied her tentative distribution for 1991 without written notice, and terminated her monthly draw while she still remained a partner. The partnership agreement allowed expulsion by specified procedures and also incorporated compensation procedures requiring written notice before reduction of a partner's tentative distribution and requiring a monthly draw for each non-retired partner. The firm formally expelled Bohatch only later, in October 1991.

Issue

Whether the firm and certain partners breached a fiduciary duty to Bohatch by acting in bad faith in connection with her expulsion, and whether the firm breached the partnership agreement by reducing her compensation and monthly draw before formal expulsion. The court also had to determine what damages and fees, if any, were recoverable on the surviving theory.

Rule

Texas partners owe fiduciary duties to one another, but in the context of expelling a partner, the relevant duty is a limited one: partners may not expel another partner in bad faith, and bad faith in this context means expulsion for self-gain. Separately, where a partnership agreement and incorporated compensation procedures require written notice before reducing a partner's tentative distribution and require a monthly draw for each non-retired partner, failure to comply breaches the agreement.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.
A consulting partnership in Dallas allows expulsion of a partner by management-committee recommendation and partner vote, without cause. After Nora Ellis accuses another partner of mishandling a client file, the firm investigates, finds no wrongdoing, and votes to expel Nora because the partners believe the office can no longer function with the conflict. There is no evidence any partner expected a personal financial benefit from removing her.

If Nora sues the firm for breach of fiduciary duty based on bad-faith expulsion, what is the strongest analysis?

Explanation. In the expulsion context, the majority limited the fiduciary-duty inquiry: partners may not expel another partner in bad faith, and bad faith means expulsion for self-gain. Evidence of conflict, unfairness, or an arguably inadequate investigation does not alone establish that motive. So without evidence of intended self-gain, the fiduciary-duty claim fails.