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Bauer v. The Blomfield Co./Holden Joint Venture (4/9/93), 849 P 2d 1365
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
WILLIAM J. BAUER, )
) )
Appellant, ) File No. S-4255
)
v. ) 1JU 89 1214 CI
)
THE BLOMFIELD COMPANY/HOLDEN ) O P I N I O N
JOINT VENTURE, an Alaska )
Partnership; CHARLES A. )
BLOMFIELD; PATRICIA A. )
BLOMFIELD; CHARLES ANTHONY ) [No. 3942 - April 9, 1993]
BLOMFIELD; RICHARD H. MONSARRAT; )
and THE BLOMFIELD COMPANY, )
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, First Judicial District, Juneau,
Walter L. Carpeneti, Judge.
Appearances: Arthur H. Peterson, Richard D.
Monkman, Dillon & Findley, Juneau, for Appel
lant. Robert J. Dickson, Susan Wright Mason,
Atkinson, Conway & Gagnon, Anchorage, for
Appellees.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
MATTHEWS, Justice, with whom RABINOWITZ,
Chief Justice, joins, dissenting.
William J. Bauer, assignee of a partnership interest,
sued the partnership and the individual partners, claiming that
partnership profits were wrongfully withheld from him. The
superior court granted summary judgment to the partnership and
individual partners, and dismissed Bauer's complaint with
prejudice. We affirm.
I
In 1986 William Bauer loaned $800,000 to Richard Holden
and Judith Holden. To secure the loan, the Holdens assigned to
Bauer "all of their right, title and interest"in a partnership
known as the Blomfield Company/Holden Joint Venture. The other
members of the partnership -- Charles Alfred (Chuck) Blomfield,
Patricia A. Blomfield, Charles Anthony (Tony) Blomfield and
Richard H. Monsarrat -- consented to the assignment. According
to the consent document, their consent was given "[p]ursuant to
AS 32.05.220."1
When the Holdens defaulted on the loan, Bauer sent the
following notice to the partnership members: "William Bauer
hereby gives notice that he is exercising his rights to receive
all distributions of income and principal from the Blomfield
Company/Holden Joint Venture Partnership." Thereafter, for a
time, the partnership income share payable to the Holdens was
paid monthly to Bauer.
In January, 1989 the partners stopped making income
payments to Bauer. They, instead, agreed to use the income of
the partnership to pay an $877,000 "commission"to partner Chuck
Blomfield. Bauer was not a party to this agreement; he was
notified of the agreement after the fact by means of a letter
dated January 10, 1989. Bauer was not asked to consent to the
agreement, and he never agreed to forego payment of his assigned
partnership income share or to pay part of the "commission" to
Blomfield. The amount Bauer would have received, had the
"commission"not been paid, was $207,567.
Blomfield's $877,000 commission represented five
percent of the increased gross rental income earned by the
partnership from lease extensions obtained from the state by
Blomfield on partnership properties leased by the state. These
and other lease extensions were obtained when a private claim
made against the state by Chuck Blomfield and Patricia Blomfield
for $1,900,000 was settled. Other lease extensions thus obtained
were on properties not owned by the partnership; these properties
were owned by the Blomfields and were leased by them to the
state. One of the conditions upon which Chuck and Patricia
Blomfield based their settlement was the agreement of the
partners to pay Chuck Blomfield an $877,000 commission for the
lease extensions that he obtained on the partnership's
properties.
II
Insisting that his assigned right to the Holdens' share
of the partnership's income had been violated, Bauer filed suit
in superior court against the partnership and all of the partners
except the Holdens. Bauer sought declaratory and injunctive
relief, and damages. His various claims were dismissed, with
prejudice, when the court concluded that Bauer's assignment from
the Holdens did not make him a member of the partnership.
Therefore, he was not entitled to complain about a decision made
with the consent of all the partners. This appeal followed.
III
The assignment to Bauer of the Holdens' "right, title
and interest"in the partnership, did not, in and of itself, make
Bauer a partner in the Blomfield Company/Holden Joint Venture.
See AS 32.05.220. We are unpersuaded by Bauer's argument that he
should be considered a de facto partner.
As the Holdens' assignee, Bauer was not entitled "to
interfere in the management or administration of the partnership
business or affairs, or to require any information or account of
partnership transactions or to inspect the partnership books."
AS 32.05.220(a).2
The "interest" that was assigned to Bauer was the
Holdens' "share of the [partnership's] profits and surplus." AS
32.05.210.3 The assignment only entitled Bauer to "receive . .
. the [partnership] profits to which the [Holdens] would
otherwise be entitled." AS 32.05.220(a) (emphasis added).
Because all of The Blomfield Company/Holden Joint Venture
partners agreed that Chuck Blomfield was entitled to receive an
$877,000 commission, to be paid out of partnership income, we
agree with the superior court's conclusion that there were no
partnership profits which the Holdens, and thus Bauer, were
entitled to receive until the commission was fully paid.
AFFIRMED.
MATTHEWS, Justice, with whom RABINOWITZ, Chief Justice, joins,
dissenting.
It is a well-settled principle of contract law that an
assignee steps into the shoes of an assignor as to the rights
assigned.4 Today, the court summarily dismisses this principle
in a footnote and leaves the assignee barefoot.
The court's analysis, set out in three cursory para
graphs is this: (1) Bauer was not a partner; (2) Bauer, as an
assignee, was not entitled to interfere in the management of the
partnership; (3) Bauer's assignment entitled him to receive only
the profits the Holdens would have received; and (4) Bauer was
due nothing because no profits were distributed. These
statements are generally correct as far as they go. However,
they do not address the issue in dispute: whether the partners
owe Bauer a duty of good faith and fair dealing.
The court is correct to state that Bauer's assignment
entitles him to nothing if the partnership decides to forego a
distribution. However, this statement leaves unanswered the
crucial question that must first be asked: was the partners'
decision to pay Blomfield a "commission," thereby depleting
profits for distribution, a decision made in good faith? Until
this question is answered, we cannot know if Bauer was unjustly
deprived of that to which he is entitled.
The court dismisses the main issue in a short footnote,
stating "[w]e are unwilling to hold that partners owe a duty of
good faith and fair dealing to assignees of a partner's
interest." The court reasons that to find such a duty "would
undermine the clear intent of AS 32.05.220(a). Partners should
be able to manage their partnership without regard for the
concerns of an assignee . . . ." The court is correct in noting
that Bauer has no management rights in the partnership. Bauer's
attempt to enforce his right to profits under the assignment is
not, however, an interference with the management of the
partnership. Requiring the partners to make decisions regarding
distributions in good faith does not interfere with management,
it merely requires that the partners fulfill their existing
contractual duties to act in good faith.
I further disagree with the court's interpretation of
the intent of the statute. The statute's intent is to assure
that an assignee does not interfere in the management of the
partnership while receiving "the profits to which the assigning
partner would otherwise be entitled." AS 32.05.220(a). As
interpreted by the court, the statute now allows partners to
deprive an assignee of profits to which he is entitled by law for
whatever outrageous motive or reason. The court's opinion
essentially leaves the assignee of a partnership interest without
remedy to enforce his right.5
Upon formation of the Blomfield Company/Holden Joint
Venture, a contractual relationship arose among the partners.6
This court has held that a covenant of good faith and fair
dealing is implied in all contracts.7 We have noted that the
basis for imposing this duty "is a hybrid of social policy and an
effort to further the expectations of the contracting parties
that the promises will be executed in good faith." Alaska
Pacific, 794 P.2d at 947. The duty of good faith and fair
dealing "requires `that neither party . . . do anything which
will injure the right of the other to receive the benefits of the
agreement.'" Klondike Indus. Corp. v. Gibson, 741 P.2d 1161,
1168 (Alaska 1987) (quoting Guin, 591 P.2d at 1291).
One element of the contract between the Holdens and the
partnership is the Holdens' right to receive their share of
profits when a distribution is made. As an element of the
partnership contract, this right is accompanied by the duty of
the parties to deal fairly and in good faith. The partnership
has a right to decide not to make a distribution, but in making
this decision, the partnership must act in good faith.8
The Holdens assigned to Bauer that part of the partner
ship contract that entitled the Holdens to receive distributions.
Under the law of assignments, Bauer steps into the shoes of the
Holdens as to this distribution right. Accompanying this
contract right is the partners' duty to act in good faith. Thus,
as the assignee of that element of the contract, the partners owe
Bauer a duty of good faith and fair dealing in deciding whether
to make a distribution.
Holding that, as a matter of law, the partners owe
Bauer a duty of good faith when deciding whether to make a
distribution does not resolve the dispute in this case. Whether
the decision to pay the "commission" in lieu of making a
distribution was made in good faith is a factual question. See
3A Arthur L. Corbin, Corbin on Contracts 654B, at 89 (Supp.
1992) ("Good faith always involves questions of fact . . . . If
there is a dispute as to why someone did what he did, there is a
question of fact for the jury."). As the moving party on a
motion for summary judgment, the burden is on the partnership to
demonstrate that no genuine issue existed as to whether the
decision to pay the 5% "commission"was made in good faith.9 The
partnership presented little to no evidence on this issue.10 This
court should thus remand to the superior court for a factual
determination of whether or not the decision by the partners to
pay Blomfield's "commission"was made in good faith.
The court's decision today effectively leaves an
assignee with no remedy to enforce his right to receive
partnership profits. Without such a remedy, his assignment
becomes worthless. As I believe this result is contrary to basic
contract and assignment law, I dissent from the court's opinion.
_______________________________
1. AS 32.05.220 provides:
(a) A conveyance by a partner of a
partner's interest in the partnership does
not by 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 partnership business or affairs, or to
require any information or account of
partnership transactions or to inspect the
partnership books, but it entitles the
assignee to receive in accordance with the
assignee's contract the profits to which the
the assigning partner would otherwise be
entitled.
(b) In the case of a dissolution
of the partnership, the assignee is entitled
to receive the assignor's interest and may
require an account from the date only of the
last account agreed to by all of the
partners.
2. We are unwilling to hold that partners owe a duty of
good faith and fair dealing to assignees of a partner's interest.
To do so would undermine the clear intent of AS 32.05.220(a).
Partners should be able to manage their partnership without
regard for the concerns of an assignee, who may have little
interest in the partnership venture. As commentators have
explained:
The U.P.A. rules concerning assignment
of partnership interests and the rights of
assignees balance the interests of assignees,
assignors, and nonassigning partners in a way
that is suited to the very closely held
business. Although the assignee's impotence
obviously limits the market value of the
partners' interest, the partners need to be
protected from interference by unwanted
strangers.
Alan R. Bromberg and Larry E. Ribstein, Partnership 3:61
(1988).
3. AS 32.05.210 provides: "A partner's interest in the
partnership is the partner's share of the profits and surplus."
4 6A C.J.S. Assignments 88 (1975) ("An assignee stands in
the shoes of the assignor and ordinarily obtains only the rights
possessed by the assignor at the time of the assignment, and no
more."); United States v. American Nat'l Bank, 443 F. Supp. 167,
174 (N.D. Ill. 1977) ("The assignee stands in the shoes of its
assignor."); Massey-Ferguson Credit Corp. v. Brown, 567 P.2d 440,
444 (Mont. 1977) ("An assignee stands in the shoes of the
assignor . . . ."); see also 6A C.J.S. Assignments 73 (1975)
("A valid assignment generally operates to vest in the assignee
the same right, title, or interest that the assignor had in the
thing assigned . . . ."); id. 76 ("Unless a contrary intention
is manifest or inferable, an assignment ordinarily carries with
it all rights, remedies, and benefits which are incidental to the
thing assigned . . . .").
5 The court notes that the Uniform Partnership Act balances
the rights of assignees, assignors, and nonassigning partners.
One of the ways in which the U.P.A. accomplishes this is to
provide the assignee with the right to petition a court for
dissolution of the partnership. The U.P.A. states that upon
application of an assignee, the court must decree a dissolution
if the partnership was a partnership at will at the time of
assignment. U.P.A. 32(2)(b). Although the Alaska Partnership
Act was copied from the U.P.A., due to an error in cross-
referencing, it is unclear that an assignee in Alaska has the
right to apply for a dissolution. Thus he may be deprived of one
of the "balances"that the U.P.A. sets up for his protection.
6 See Alan A. Bromberg & Larry E. Ribstein, Partnership
1.01, at 1:11 (1988) ("Fundamentally, general partnership is a
contractual relationship among the partners."); Grimm v.
Pallesen, 527 P.2d 978, 982 (Kan. 1974) ("`It . . . has been
repeatedly declared that a man cannot be made a partner against
his will, by accident, or by the conduct of others, for the
reason that partnership is a matter of contract.'") (quoting Wade
v. Hornaday, 140 P. 870, 871 (Kan. 1914)); Eder v. Reddick, 278
P.2d 361, 365 (Wash. 1955) ("A contract of partnership, either
express or implied, is essential to the creation of the
partnership relationship."); Preston v. State Indus. Accident
Comm'n, 149 P.2d 957, 961 (Or. 1944) ("`Our law has always
treated the partnership relation as founded in voluntary
contract.'") (quoting Call v. Linn, 228 P. 127, 129 (Or. 1924)).
7 Alaska Pacific Assurance Co. v. Collins, 794 P.2d 936, 947
(Alaska 1990) ("A covenant of good faith and fair dealing is an
implied component of all contracts as a matter of law."); Alyeska
Pipeline Serv. Co. v. H.C. Price Co., 694 P.2d 782, 788 (Alaska
1985) ("Parties to a contract have mutual obligations of good
faith and fair dealing."); Guin v. Ha, 591 P.2d 1281, 1291
(Alaska 1979) ("In every contract . . . there is an implied
covenant of good faith and fair dealing . . . ."); see also
Restatement (Second) of Contracts 205 (1981) ("Every contract
imposes upon each party a duty of good faith and fair dealing in
its performance and its enforcement.").
8 See Brooke v. Mt. Hood Meadows Oreg., Ltd., 725 P.2d 925,
929 (Or. App. 1986) ("Like the corporate director's fiduciary
responsibility to the shareholders for the declaration of
dividends, the general partner's duty to the limited partners in
the distribution of profit is discharged by decisions made in
good faith that reflect legitimate business concerns."); see also
Betz v. Chena Hot Springs Group, 657 P.2d 831, 835 (Alaska 1982)
("Absent bad faith, breach of a fiduciary duty, or acts contrary
to public policy, we will not interfere with the management
decisions of the firm."); Steven J. Burton, Breach of Contract
and the Common Law Duty to Perform in Good Faith, 94 Harv. L.
Rev. 369, 385-86 (1980) ("The good faith performance doctrine may
be said to permit the exercise of discretion for any purpose --
including ordinary business purposes -- reasonably within the
contemplation of the parties.").
9 McGee Steel Co. v. State ex rel. McDonald Indus. Alaska,
Inc., 723 P.2d 611, 615 (Alaska 1986) ("The moving party bears
the burden of demonstrating the absence of any genuine issue of
material fact and its entitlement to judgment as a matter of
law."); Stanfill v. City of Fairbanks, 659 P.2d 579, 581 (Alaska
1983) ("In ruling on a motion for summary judgment, all
reasonable inferences must be drawn in favor of the non-moving
party and against the movant. The burden of proving the absence
of any genuine issues of material fact is upon the moving
party.").
10 In support of its contention that the decision to pay the
"commission" was fair, the partnership argued that the amount
paid to Blomfield was the "standard"rate. The only evidence
presented by the partnership was the testimony of Blomfield
himself that a 5% "commission"was standard. One should view
this with some skepticism as Blomfield was dealing with a tenant
who was already in the building and did not have to be located or
persuaded to move in. Furthermore, the rate Blomfield received
is greater than 5% as the rent on which the "commission"is based
is a future stream of income, not a present lump sum. After
discounting future rental income to its present value,
Blomfield's "commission"is greater than 5%.
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