Opinion ID: 1195176
Heading Depth: 3
Heading Rank: 2

Heading: Fiduciary Duties Between Partners

Text: 19. In order to allege sufficient facts to support this cause of action, GCM must demonstrate both the existence of a fiduciary relationship between GCM and Brown and Brown's breach of a fiduciary duty owed to GCM. In New Mexico, a partner cannot assert claims belonging to the partnership. [A] partnership is empowered to sue or to be sued in the name of the partnership, and a cause of action accruing to the partnership, for damages to partnership property or interests, belongs to the partnership rather than to individual partners. First Nat'l Bank v. Sanchez, 112 N.M. 317, 325, 815 P.2d 613, 621 (1991) (citations omitted). While it is clear that Brown owed a fiduciary duty to the Limited Partnership, NMSA 1978, § 54-1-21(A) (1947, effective until July 1, 1997), [1] the only real party in interest to properly assert such a claim would be the partnership entity. Only the injured party may assert a claim for aiding and abetting or intentionally causing another to breach a fiduciary duty. Rule 1-017(A) NMRA 1997 (stating that [e]very action shall be prosecuted in the name of the real party in interest). Thus, under the applicable law, only the Limited Partnership could sue for damages caused by intentionally inducing a breach of a partner's fiduciary duty owed to the partnership. As a result, in order to assert this action in its individual capacity, GCM must demonstrate a fiduciary duty on the part of Brown owed to GCM separately from Brown's duty to the Limited Partnership. 20. An action for breach of fiduciary duty by a partner can be characterized as both an individual and a partnership claim. 4 Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership § 15.04(h), at 15:35-36 (1996). The distinction between the two is based on whether the duty is deemed owed to the partners (as individuals) or to the partnership. Id. (footnote omitted). While there is a statutory fiduciary duty imposed on partners with respect to the partnership, Section 54-1-21(A), the legislature has only recently included an explicit concurrent duty with respect to other partners. See NMSA 1978, § 54-1A-404 (effective July 1, 1997) (modifying the earlier law and defining the scope of fiduciary duties a partner owes to the partnership and to the other partners); § 54-1A-405(b)(2)(i) (effective July 1, 1997) (permitting an action by a partner against another partner for breach of fiduciary duty, with or without an accounting and for either legal or equitable relief). However, the controlling statute does not appear to preclude such an obligation if it arises under common law principles. See NMSA 1978, § 54-1-5 (1947) (In any casenot provided for in this act the rules of law and equity, including the law merchant, shall govern.). In fact, the controlling statute implicitly recognizes such a duty by providing to individual partners a right to a formal accounting based on Section 54-1-21 or whenever other circumstances render it just and reasonable. NMSA 1978, § 54-1-22 (1947). 21. In addition, this Court has recognized a fiduciary duty existing between partners in a partnership. It is true that partners occupy a fiduciary duty towards one another. Citizens Bank v. Williams, 96 N.M. 373, 375, 630 P.2d 1228, 1230 (1981); see also Covalt v. High, 100 N.M. 700, 702, 675 P.2d 999, 1001 (Ct.App.1983) (The status resulting from the formation of a partnership creates a fiduciary relationship between partners.). Further, this Court has recognized the availability of damages for fraud by a partner against another partner in an equitable action for an accounting. Levy v. Disharoon, 106 N.M. 699, 703-04, 749 P.2d 84, 88-89 (1988) (distinguishing actions at law from an equitable action for an accounting and stating that [w]hen there is a partnership accounting and defendant is charged with fraud and misconduct, defendant is answerable in that proceeding for all damages sustained by plaintiff on account of defendant's breach of duty to the firm); see also Bassett v. Bassett, 110 N.M. 559, 564-65, 798 P.2d 160, 165-66 (1990) (allowing punitive damages and attorney fees against one partner for the breach of fiduciary duty owed another partner in an action based on constructive fraud); cf. Turpin v. Smedinghoff, 1994 NMSC 052, 117 N.M. 598, 600-01, 874 P.2d 1262, 1264-65 (limiting the holding of Bassett with respect to attorney fees to a breach of fiduciary duty resulting from constructive fraud that causes actual harm or when one partner sues in order to maintain the common fund). It follows from the general requirement of good faith in partnership dealings that a partner is not allowed to gain any advantage over a co-partner by fraud, misrepresentation or concealment, and for any advantage so obtained [the partner] must account to the co-partner. Levy v. Disharoon, 106 N.M. at 704, 749 P.2d at 89. 22. Under the applicable statute, it is unclear whether a partner may obtain redress from a co-partner for a breach of fiduciary duty owed to the partner by the co-partner before dissolution. See generally Nussbaum v. Kennedy, 267 Ill.App.3d 325, 204 Ill.Dec. 689, 693, 642 N.E.2d 151, 155 (1994); Dunn v. Zimmerman, 69 Ohio St.3d 304, 631 N.E.2d 1040, 1043-44 (1994). While the Limited Partnership has not been dissolved, this case does not present a dispute between partners in an existing partnership. Rather, this is an action against a third party non-partner. For purposes of this case, we will assume that an aider and abettor may be liable in tort independent of a judicial proceeding against the principal tortfeasor. Cf. NMSA 1978, § 30-1-13 (1972) (discussing the criminal liability of an accessory despite any failure to prosecute or convict the principal of the crime). 23. The tort of aiding and abetting will apply in a partnership context if: (1) a partner owes a fiduciary duty to the partnership or partner bringing the action; (2) the partner breaches that duty; (3) the third-party defendant intentionally assists or encourages in a substantial manner the partner's acts constituting the breach with knowledge that these acts would be a breach of duty owed to the plaintiff; and (4) damages to the plaintiff result. See Holmes, 885 P.2d at 309 (We perceive no reason why the tort of aiding and abetting a breach of fiduciary duty should not be recognized in a limited partnership situation.). This principle ought to apply equally to joint ventures. Cf. Hansler v. Bass, 106 N.M. 382, 387, 743 P.2d 1031, 1036 (Ct.App.1987) (finding the definition of partnership relevant in determining the existence of a joint venture, and stating that a joint venture is a partnership for a single transaction). However, the scope of a tort duty is a matter of law. Calkins v. Cox Estates, 110 N.M. 59, 62, 792 P.2d 36, 39 (1990) (The court must determine as a matter of law whether a particular defendant owes a duty to a particular plaintiff.). Whether a partner owes a fiduciary duty to another partner or the partnership, the scope of that duty is limited to partnership dealings. Cf. § 54-1-21(A) (limiting the scope of a partner's fiduciary duty to the partnership to any transaction connected with the formation, conduct or liquidation of the partnership or from any use by him of its property); Kueffer v. Kueffer, 110 N.M. 10, 13, 791 P.2d 461, 464 (1990) (A fiduciary is obliged `to act primarily for another's benefit in matters connected with such undertaking. ') (quoting Black's Law Dictionary 563 (5th ed. 1979)) (emphasis added). Finally, in order to constitute an individual claim, as opposed to a partnership claim, the breach must cause an injury separate and distinct from an injury suffered by the partnership. Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15 (Del.Ch.1992). Thus, a partner's individual action for aiding and abetting against a third party must be founded on a co-partner's failure to act primarily for the benefit of the partner bringing the action, arising out of matters connected with the partnership, and causing a direct injury to the partner rather than an indirect injury through the partnership.