J&J Celcom v. AT&T Wireless Servs., Inc. - 162 Wash. 2d 102, 169 P.3d 823 (2007)

Rule:

The relevant portion of the Washington RUPA provides:

(1) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (2) and (3) of this section.

(2) A partner's duty of loyalty to the partnership and the other partners is limited to the following:

(a) To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;

(b) To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and

(c) To refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

(3) A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

(4) A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.

(5) A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner's conduct furthers the partner's own interest.

Facts:

J&J Celcom and other former partners (minority partners) acquired their  fractional interests in nine regional cellular telephone partnerships through a lottery. The key asset in each partnership included the right to own licenses for various cellular radio  frequencies. At the time of the asset sales at issue in this case, the minority partners owned less than five percent of each partnership, and AT&T Wireless Services (AWS) owned the remainder. AWS provided wireless service to the customers and all technical and administrative services related to the partnerships. To eliminate the expense of the administrative services related to the partnerships, AWS invoked its majority interest in each partnership and voted to buy out the minority partners. Initially, AWS offered to buy out the minority partners at a price slightly higher than the third party appraisal of four of the nine partnerships. AWS sent letters to the minority partners offering an opportunity to sell voluntarily. The letters stated that, if any minority partner declined the offer, AWS would vote to sell the assets of its partnership to an affiliated entity at the appraised value, dissolve the partnership, and pay the minority partners their pro rata share of the purchase price. Several minority partners accepted the offer but because some declined, AWS proceeded with the asset sales. The Ninth Circuit ruled that the asset sale transactions at issue were based on prices that were fair as a matter of law. 

Issue:

Does a controlling partner violate the duty of loyalty to the partnership or to dissenting minority partners where the controlling partner causes the partnership to sell all its assets to an affiliated party at a price determined by a third party appraisal, when the appraisal and the parties to the transaction are disclosed and the partnership agreement allows for sale of assets upon majority or supermajority vote, but the partnership agreement is silent on the subject of sale to a related party?

Answer:

No

Conclusion:

The court found that the parties' partnership agreement expressly allowed for sale of partnership assets by majority vote. When defendant majority partner sold the partnership assets, it disclosed material information, paid fair consideration, and acted in good faith as a matter of law. Plaintiff minority partners offered no proof of damages as a result of the sale. Nothing in Washington's RUPA, when applied to the case, indicated that defendant violated the duty of loyalty. The partnership agreement did not preclude the sale of the assets, the price paid was fair at the time as a matter of law, and no bad faith existed as a matter of law.