When do superseding events terminate an oral partnership? In a recent case, both a San Diego trial court and the Court of Appeals found that formation of a corporation can terminate a predecessor partnership and partnership fiduciary duties. In 2006, real estate agents Eng and Levy decided to purchase the Tin Fish Gaslamp restaurant in San Diego. Eng claimed that the agreement was an oral partnership. The offer was written and executed by B.L.E. Fish, which was incorporated the same month. The shareholders were Brown, Eng and Levy. A dispute arose over the operations of the restaurant and Eng alleged that Brown and Levy breached an oral partnership agreement wherein they agreed to a 10% management fee and set compensation. Specifically, Eng claimed Brown and Levy breached their fiduciary duties by charging a 20% property management fee and paying themselves excessive compensation. Brown and Levy argued that the formation of the corporation terminated the predecessor partnership and the associated partnership fiduciary duties.
Both the trial court and the Fourth Appellate Court of Appeals agreed concluding that the formation of the corporation superseded the prior oral partnership agreement. The opinion can be found at 2018 DJDAR 2685.
This e-bulletin was prepared by Phil Jelsma, Partner, CGS3.