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Rosenfeld, Meyer & Susman v. Cohen

California Court of Appeal · 1983 · Corporations
194 Cal. Rptr. 180 (Ct. App. 1983)
Updated
CorporationsPartnershipsFiduciary dutyUnfinished businessInterference with contractual relationsCivil conspiracypartnership at willgood faith

Facts

RM&S was an at-will law partnership that had a contingent-fee agreement to represent International Rectifier in major antitrust litigation, and most of the work on that matter was performed by partners Cohen and Riordan while all partners expected to share in any eventual fee under the firm's profit-sharing system. After years of work funded by RM&S, Cohen and Riordan demanded a much larger share of the Rectifier fee and threatened to withdraw if the firm refused; they believed Rectifier would hire them if they left. They withdrew effective April 30, 1974, formed a new firm, and shortly thereafter Rectifier discharged RM&S and retained Cohen and Riordan under a new agreement that gave them substantial compensation and a contingent fee. RM&S sued, alleging bad-faith dissolution, appropriation of unfinished business, interference with the RM&S-Rectifier contract, and conspiracy with Rectifier to cause the loss of that business.

Issue

Does a former partner of an at-will partnership owe fiduciary duties to former partners after dissolution when the partner later agrees with a former client to continue business that was an asset of the dissolved partnership? Relatedly, did the lower courts err in treating dissolution at will as absolute, in ruling that the client's later discharge of the firm defeated an unfinished-business claim, and in restricting or dismissing the interference and conspiracy claims?

Rule

Even though an at-will partnership may be dissolved by the express will of any partner, that power must be exercised in good faith. Upon dissolution, the partnership continues for winding up, and business covered by a contract of employment existing at the time of dissolution is unfinished business; partners of the dissolved partnership owe continuing fiduciary duties to complete that business for the partnership and may not take action regarding it for purely personal gain. A cause of action for intentional interference with contractual relations may be pleaded by alleging ultimate facts of inducement or persuasion, and privilege or justification for interference is generally qualified, fact-dependent, and not absolute merely because of an attorney-client or other fiduciary relationship. Civil Code section 47, subdivision 2 protects publications related to judicial proceedings, not conduct divorced from the objects of the litigation.

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Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.
A three-partner architecture firm in Sacramento is an at-will partnership. After the firm spends four years funding a large redevelopment project under an existing service contract, two partners threaten to withdraw unless they receive a much larger share of the eventual success fee, believing the client will follow them if they leave.

If the remaining partner sues, which argument by the withdrawing partners is weakest under the governing rule?

Explanation. The majority held that although an at-will partnership may be dissolved by the express will of any partner, that power is not absolute. It remains constrained by fiduciary obligations and must be exercised in good faith. A partner may not dissolve in order to appropriate a partnership opportunity for personal gain at the expense of copartners.