Starr v. Fordham - 420 Mass. 178, 648 N.E.2d 1261 (1995)

Rule:

Partners owe each other a fiduciary duty of the highest degree of good faith and fair dealing. When a partner has engaged in self-dealing, that partner has the burden to prove the fairness of his actions and to prove that his actions did not result in harm to the partnership.

Facts:

Plaintiff Ian M. Starr was a partner in the Boston law firm, Fordham & Starrett (firm). After the plaintiff withdrew from the firm, he commenced this action to recover amounts to which he claimed that he was entitled under the partnership agreement. The plaintiff also sought damages for breach of fiduciary duty and fraudulent misrepresentation. The defendants, his former partners at the firm, counterclaimed that the plaintiff had violated his fiduciary duties to his partners and breached the terms of the partnership agreement. The Superior Court judge concluded that the founding partners had violated their fiduciary duties to the plaintiff as well as the implied covenant of good faith and fair dealing in the partnership agreement when they determined the plaintiff's share of the firm's profits for 1986. The judge awarded the plaintiff damages of $75,538.48, plus interest from the date on which the plaintiff filed his complaint. The judge also found that Fordham, in his individual capacity, had misrepresented to the plaintiff the basis on which the founding partners would allocate the firm's profits among the partners. The judge rejected, however, the plaintiff's claim that he was entitled to a "fair share" of the firm's accounts receivable and work in process for 1986. Finally, the judge entered judgment for the plaintiff on the defendants' counterclaims. Plaintiff appealed the judgment on his claim for a share of a law firm's accounts receivable and work in process. The founding partners cross-appealed the finding that they violated their fiduciary duties and the implied covenant of good faith and fair dealing.

Issue:

Did the Superior Court err in holding the founding partners liable to the plaintiff for breach of fiduciary duties, as well as the implied covenant of good faith and fair dealing in the partnership agreement?

Answer:

No.

Conclusion:

On review, the court found that there was no error in the judge's imposing on the founding partners the burden of proving that their distribution of the firm's profits to the attorney was fair and reasonable. Likewise, the court concluded that the judge properly found that the founding partners had violated both their fiduciary duties to the attorney and the implied covenant of good faith and fair dealing; therefore, the judge's ultimate finding of liability was not clearly erroneous.