Opinion ID: 1938746
Heading Depth: 3
Heading Rank: 1

Heading: Suit for Accounting as Breach of Fiduciary Duty

Text: Given that some form of tortious conduct must undergird an award of punitive damages, [24] WMC argues that by asserting its legal right to an in-court accounting it breached no duty toward Holle. Judge Kessler found, to the contrary, that the action for an accounting was unfounded and asserted maliciously by WMC to attain improper objectives. We will reverse this fact-specific determination only if it is plainly wrong or without evidence to support it. D.C.Code § 17-305(a) (1989); see Simpson v. Chesapeake & Potomac Tel. Co., 522 A.2d 880, 885 (D.C.1987) (implied finding, as predicate for Rule 11 sanctions, that pleading was filed in bad faith was not clearly erroneous). Judge Kessler's finding is supported by the record. A partner's right to an in-court accounting is an essential incident of the partnership relation. See D.C.Code § 41-121 (1986). It is the means by which a partner can enforce the duty of his copartners to hold as trustee for the partnership any benefit derived from transactions connected with the formation, conduct or liquidation of the partnership without destroying the enterprise. See D.C.Code § 41-120(a); id. § 41-121(3). [25] An accounting is also the penultimate event in the lifetime of the partnership. It follows dissolution and the winding up of partnership affairs, and marks the point at which the partners' fiduciary duties inter se and the legal existence of the partnership terminate. See D.C.Code § 41-129 ([o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed); Warren v. Chapman, supra, 535 A.2d at 859. See also Cowan v. District of Columbia Dep't of Finance and Revenue, 454 A.2d 814, 815 (D.C.1983) (per curiam) (realty does not lose its character as partnership property until final distribution between partners). As we recently held: A partner has a right to an accounting upon dissolution, and indeed has a right to obtain the assistance of the court if such an accounting is refused. Warren v. Chapman, supra, 535 A.2d at 860. Because the right to an account is a central incident of partnership status, its assertion cannot in itself, under ordinary circumstances, form the basis for a claim of fiduciary breach. See Weil v. Diversified Properties, 319 F.Supp. 778, 784 (D.D. C.1970) (counterclaim by limited partners for breach of trust based on general partner's suit for accounting dismissed; [t]here is no rule of law that denies the courts to a partner who mistakenly questions the conduct of his partners). But while a partner's right to seek legitimate redress in the courts is unquestioned, it is equally basic that use of a lawsuit as a private means to oppress another or coerce him to do what he legally cannot be compelled to do is an abuse of that right. See, e.g., Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622-23, 44 L.Ed.2d 141 (1975) (under exception to the American Rule, prevailing party may recover attorney fees and litigation costs upon proof that opponent has maintained unfounded suit in bad faith, vexatiously, wantonly, or for oppressive reasons). Besides the institutional harm that malicious and unfounded litigation begets, the law recognizes that the person targeted suffers injury, and accordingly affords a cause of action in tort for abuse of judicial process. As we explained in Williams v. City Stores, 192 A.2d 534 (D.C.1963): To charge an abuse of process, there must be a perversion of court processes to accomplish some end which the process was not intended by law to achieve, or which compels the party against whom it has been used to do some collateral thing which he could not legally and regularly be compelled to do. Id. at 537. See also Jacobson v. Thrifty Paper Boxes, 230 A.2d 710, 711 (D.C.1967). As explained earlier, partners owe each other the duty of the utmost good faith in all that pertains to their relationship. Riss & Co. v. Feldman, supra, 79 A.2d at 571. This duty persists until the partnership affairs have been wound up and the relation is terminated, even after relations have become strained. 2 A. BROMBERG & L. RIBSTEIN, supra, § 6.07, at 6:72-73. [26] Self-evidently, the pursuit of malicious and ill-founded litigation by one partner calculated to coerce another to abandon his legal rights, or to punish him for asserting them, violates the extraordinary duty of good faith and fair dealing that partners owe one another in partnership affairs. Judge Kessler found WMC's suit for an accounting to be groundless on the merits because WMC failed to demonstrate that the losses for which it sought reimbursement from MHEC had been incurred on behalf of the partnership. She based this finding upon the following evidence: Dey-erberg, the president of WMC, testified that the period during which WMC claimed MHEC incurred losses was the time when Doctors' Hospital, Inc. (WMC's wholly-owned subsidiary) was operating the New Hampshire Avenue property as an extended care facility; all of WMC's witnesses, including Deyerberg and Hunter, admitted that DHI had been responsible for these losses while it was operating the facility; [27] and WMC's consolidated tax returns showed that it, not MHEC, had enjoyed the tax advantages of these losses (totalling $3.3 million), as well as an additional $2.261 million in operating losses for the years 1973-77. The court also found that WMC's sudden realization of its mistake in treatment of losses, and its claim for $1 million in punitive damages against Holle, were not fortuitous but rather part of a strategic ploy calculated to punish and retaliate against Holle for questioning the management of MHEC by WMC, and  because of the dismayingly high costs of litigation as well as the risk of liability on the ... punitive damages claim  to coerce and intimidate him into abandoning his claims. As evidence of the true purpose of the lawsuit, the trial court emphasized that Holle was singled out among all the partners as the named defendant. She rejected WMC's explanation that Holle was sued because he was the only general partner left, nothing that Dr. Hunter was still a general partner and that, pursuant to the partnership agreement making Hunter responsible for 18% of the partnership liabilities, under WMC's theory, he would be liable for $1.26 million of the $7 million WMC alleged it was entitled to recover. WMC failed to explain why it sued the one person who had persistently raised questions about its management of the partnership instead of the other person from whom a greater recovery could be won. The court also found unpersuasive WMC's contention that, because the action was for an accounting and all partners would have to be joined eventually, it made no difference who was sued, nothing that the named defendant bears costs of litigation and the greatest risk of losing his distributive share. WMC argues that the trial court ignored significant evidence providing a legitimate explanation for WMC's failure to name Dr. Hunter  namely, that Hunter had previously transferred his rights to receive a distributive share. This fact, however, does not undermine the court's reliance on the partnership agreement provision under which Hunter remained liable for 18% of the partnership liabilities, regardless of his entitlement to share in the surplus. [28] More importantly, even if we found WMC's explanations credible, our standard of review constrains us from substituting our view for that of the trial judge, who had the opportunity to observe the demeanor of the witnesses and the tenor of their testimony. See Johnson, supra, 398 A.2d at 362, citing Noonan v. Cunard Steamship Co., 375 F.2d 69, 71 (2d Cir.1967). The court found as a fact that omitting the other partners from the suit evinced WMC's improper motive and male fides toward Holle when considered against the backdrop of a pattern of conduct explicable, in the aggregate, only as an attempt to force Holle to abandon his claims. We uphold, as supported by sound reasoning and a firm foundation in the record, the trial judge's findings that the suit was brought in bad faith and to achieve an improper goal, acts which constituted a breach of WMC's duty to deal with Holle in good faith. Our holding is a limited one. As Judge Gesell pointed out in Weil v. Diversified Properties, supra , the law does not deny the courts to a partner who mistakenly questions the conduct of his partners. 319 F.Supp. at 784. Partnership disputes like any others may be marked by bad feelings and hostility, and our holding does not affect the vast majority of instances where one partner legitimately  and aggressively  questions the conduct of another in an action for an accounting, only to be proven mistaken at some stage of the proceedings. [29] We deal here with a finding by the trial court that WMC brought suit for reasons antithetical to the purpose of an accounting or any other legal action, and it is that finding that we sustain.