Opinion ID: 1638324
Heading Depth: 2
Heading Rank: 2

Heading: whether richard scruggs's wrongful acts were in the ordinary course of business of the joint venture.

Text: ¶ 33. Under Mississippi Code Section 79-13-305, a partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership. Mississippi Code Section 79-13-302(1) provides that: Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority. Miss Code Ann. 79-13-302(1) (Rev.2009). It is undisputed that Richard Scruggs's misconduct was not actually authorized by SKG, and there is no assertion that he acted with apparent authority under Section 79-13-302(1). Therefore, we confine the discussion to vicarious liability under Section 79-13-305, under which a partnership is liable for any penalty incurred by a partner's misconduct committed in the ordinary course of business of the partnership. This Court is guided by several cases in which a trial court exercised its discretion to decide whether to hold an innocent partner liable for damages or judicial sanctions based upon another partner's misconduct. ¶ 34. The Jones Firm cites Duggins v. Guardianship of Washington, 632 So.2d 420 (Miss.1993). In Duggins, an attorney, Duggins, associated another attorney, Barfield, to represent a guardianship in a medical-malpractice suit. Id. at 422-23. The two attorneys agreed that they would divide the fees equally. Id. at 423. Duggins's role was to compile medical records and medical bills and maintain contact with the client; Barfield was to draft and file the complaint, arrange for expert witnesses, and attempt to negotiate with the defendant's insurer. Id. at 423. However, Barfield made material misrepresentations to Duggins and the client and misappropriated settlement funds, for which he eventually was disbarred and convicted of a felony. Id. at 423-25. A chancellor determined that Barfield and Duggins were liable to the guardianship in tort and for breach of contract, and that Duggins was vicariously liable for Barfield's misconduct because it was committed in the scope of the partnership. Id. at 426. In addition to compensatory damages, the chancellor ordered Barfield and Duggins to pay punitive damages and attorney's fees. Id. at 426. On appeal, Duggins contended that, like the client, he was but an innocent victim of the nefarious Barfield and, thus, he could not be held vicariously liable for Barfield's misconduct. Id. at 429. ¶ 35. This Court affirmed. We first determined that the legal relationship between Duggins and Barfield constituted a joint venture governed by the Uniform Partnership Act. Id. at 427. We then examined the Uniform Partnership Act's provisions governing a partnership's liability to third parties. [6] Id. at 427. The court examined Section 79-12-17(1), the prior version of Section 79-13-301(c), and Section 79-12-25, the prior version of Section 79-13-305. [7] The Court found that Barfield's misconduct was imputable to Duggins under the Uniform Partnership Act because the misconduct was well within the scope of the joint venture's business. Id. at 428. The Court found that Barfield's actions were committed while in the furtherance of the partnership and was certainly within the partnership business. The handling of client funds is clearly within the realm of an attorney's representation of a guardianship in a legal action. Id. Thus, the Court determined that Duggins was vicariously liable for Barfield's actions. Id. The Court further found Duggins vicariously liable for punitive damages, stating: If the partner acted within the course and scope of actual or apparent authority, then even liability for fraudulent wrongs can be imputed to the partnership. The other partners, though innocent without knowledge of the act or omission, can be vicariously liable. . . . [Prior cases] found punitive damages appropriate against an innocent partner for actions done by another partner while engaged in work within the scope of the partnership. Id. at 429-30 (citations omitted). ¶ 36. However, in affirming the damages assessed against Duggins, this Court did not solely rely upon partnership principles, but also upon the chancellor's finding that Duggins was guilty of omissions that had contributed to the guardianship's loss of assets. Id. at 429. We noted that the guardianship had relied on Duggins, as well as Barfield, to pursue its interests, and the chancellor recognized that there were sufficient `red flags' which should have caused Duggins to realize that something was amiss. Id. Therefore, we stated, in addition to Barfield's misdeeds, Duggins' negligence and inaction in investigating Barfield's suspicious conduct allowed the guardianship to be stripped of all its assets. Id. ¶ 37. The appellants cite Idom v. Weeks & Russell, 135 Miss. 65, 99 So. 761 (1924). In Idom, the sheriff of the town of Ackerman rallied the citizenry after two burglaries and a sighting of suspicious characters. Id. at 74, 99 So. at 762. Weeks and Russell were partners who owned and operated a drug store, and Russell, without Weeks's knowledge or authorization, decided to lie in wait overnight at the store with a gun in case burglars tried to break in. Id. at 73-74, 99 So. at 762. Tragically, Russell shot and killed Idom, an innocent person who was checking on the store. Id. at 74, 99 So. at 762. ¶ 38. In a suit by Idom's widow against Russell and Weeks, this Court held that, while Russell was liable for the killing, his partner, Weeks, was not liable because Russell had not acted in furtherance of partnership business. Id. at 76-77, 99 So. at 763-64. The Court reviewed the rules pertaining to a partner's liability for the acts of another partner. Id. at 76-79, 99 So. at 763-64. The Court stated that whether a partner is so liable is governed by the law pertaining to principal and agent, such that: If the act or tort of the partner be committed while he is engaged in the partnership business, and is in furtherance of the interest of the partnership, then the partnership and all partners are liable. . . . If a tort be committed by one partner while engaged in a transaction within the scope of the partnership business, and such tort be committed in furtherance of the interests of the partnership, it will be liable. But it will not be liable for a tort committed by one partner in a transaction outside of the partnership business, where he acts from his own private malice or ill will, unless the act which constituted the tort was authorized by the members of the partnership, or subsequently ratified by them; the act itself having been done in their behalf and interest. Id. at 76-77, 99 So. at 763 (citations omitted). The Court defined course of business as what is usually done in the management of trade or business. Id. at 78, 99 So. at 764 (citation omitted). ¶ 39. The Court determined that Russell's act of lying in wait for burglars at the partnership's drug store emanated from his own private malice or ill will and was not within the scope of the partnership's business. Id. at 78, 99 So. at 764. There was testimony that, after the shooting, Russell told the sheriff that he was in the store for the purpose of trying to capture the burglars; he mentioned no intent to protect the partnership's property. Id. at 76, 99 So. at 763. From this, the Court concluded that [a]ccording to this statement of Russell his dominant purpose was not for the preservation of the partnership property but rather to try and capture the burglars. Id. The Court found that the scope of the partnership business did not contemplate that one partner, when the place of business is closed for the night, should conceal himself inside the store for the purpose of capturing burglars. Id. at 78, 99 So. at 763-64. ¶ 40. Similarly, in Perna v. Electronic Data Systems Corp., 916 F.Supp. 388, 402-03 (D.N.J.1995), a federal district court declined to sanction a partnership for the unethical conduct of one partner because the partner's behavior was outside the scope of the partnership's business. The partnership was a plaintiff in litigation. Id. at 391. During a visit by defense counsel to the partnership's premises, the partner surreptitiously viewed and photocopied documents in defense counsel's briefcase. Id. at 392-93. The partner stated that he had committed the misconduct to protect his own interest. Id. at 402. As in this case, no other partners authorized the misconduct. Id. Further, as in this case, the defendant urged sanctions against the partnership because the partner's misconduct was in the furtherance of the partnership's interest and was in the ordinary course of partnership business. Id. at 402. The defendant demanded the sanction of dismissal of the partnership's lawsuit. Id. ¶ 41. While the district court sanctioned the individual partner for fraud on the court, the court declined to sanction the partnership. Id. The district court found that the partner's misconduct had been motivated by a desire to protect his own interest and his own individual claim. Id. Therefore, the district court concluded, the partner's extraordinary behavior was outside the scope of the business and was an individual act. Id. The district court stated that dismissal of the partnership's claim without a demonstration of an intentional and willful conduct on the part of the entire partnership is too severe a sanction. Id. at 403. ¶ 42. We turn to the facts at hand. The SKG joint-venture agreement specified that the joint venture's purpose was to bring a number of lawsuits on behalf of individuals and businesses who were wrongfully denied insurance coverage for property damage arising out of Hurricane Katrina. SKG earned $26.5 million in profits from the Katrina litigation. When a fee dispute arose, SKG ousted the Jones Firm, resulting in its suit against SKG's remaining co-venturers for a share of the joint-venture profits. When the Jones Firm sued, the remaining co-venturers hired attorneys and filed a motion to compel arbitration pursuant to the joint-venture agreement's arbitration clause. As with other SKG expenses, the Nutt Firm advanced the defense fees, and the testimony of Lovelace and of Barrett, by stipulation, indicates that some co-venturers/codefendants made the strategic decision on behalf of all the co-venturers/codefendants to file a motion to compel arbitration. Subsequently, Richard Scruggs pleaded guilty to a conspiracy to bribe the trial judge to enter an order granting the motion to compel arbitration. Members of the other co-venturer law firms testified that they lacked any knowledge of the conspiracy and did not authorize or ratify it. ¶ 43. The record aptly demonstrates that the scope of SKG's business did not contemplate an attempted bribery of the trial judge. See Idom, 135 Miss. at 78, 99 So. at 763-64. This unauthorized criminal act constituted extraordinary behavior outside the ordinary course of SKG business and amounted to an act of private malice or ill will equivalent to the conduct in Idom. There was no evidence that Scruggs intended, by this act, to benefit SKG; in fact, the Nutt Firm, having been allotted thirty-five percent of the net fee by the joint-venture agreement, could not have lost its share of the net fee at a trial over the division of the remaining sixty-five percent. Because the misconduct of Richard Scruggs was outside the ordinary course of SKG business, the trial court abused its discretion in finding otherwise. Moreover, unlike in Duggins, there was no evidence of red flags that should have alerted the Barrett Firm, Don Barrett, or the Lovelace Firm to Scruggs's activities. Because there was no basis for sanctioning the appellants, we reverse the order imposing sanctions upon them.