Opinion ID: 2284361
Heading Depth: 4
Heading Rank: 1

Heading: Accounting As Prerequisite to Action at Law

Text: The District of Columbia has long followed the traditional rule that ordinarily a partner may not sue a co-partner in an action at law with respect to partnership transactions until an accounting in equity, a settlement, or a promise to pay has been obtained. See Wright v. Armwood, 107 A.2d 702, 703 (D.C.1954); Boyle v. Smith, 64 A.2d 428, 429 (D.C.1949). To some extent the rule is a vestigial reflection of the historical division between courts of law and equity, but it also serves a function arising from characteristics of the partnership relation. It recognizes that partners hold partnership property in undivided interests, and that no contractual debtor/creditor relationship can arise between partners until there has been an accounting or its equivalent. Boyle, supra, 64 A.2d at 429. Aside from the problem presented by the undifferentiated manner in which partnership property is held while the enterprise exists, practical difficulties commend the settlement of accounts before an action at law between partners can be maintained. The value of partners' respective interests cannot be determined while accounts are in flux, but only after partnership liabilities are satisfied, all assets are marshalled, the partners' capital accounts adjusted, and the amount of any surplus ascertained. Bromberg and Ribstein explain: The practical reasons for the exclusivity rule focus on the type of claim involved and the necessity of resolving it together with all other claims of the partners in a single proceeding. First, no rights of the partners can accurately be determined until a balance is struck ... Second, without regard to the need for a balance, it is most efficient to resolve multiple claims dealing with related facts in a single proceeding. A. BROMBERG & L. RIBSTEIN, supra, § 6.08, at 6:100-01. The general rule is subject to several exceptions reflecting its basic rationale. If the partnership's business involves a single completed transaction or only one or a few items, and no complicated accounts are involved such that no accounting or appraisal is necessary to fix the amount due the plaintiff, a partner may sue at law for a share of partnership assets. Boyle, supra, 64 A.2d at 429. Also, resort to equity may not be necessary when breach of the partnership agreement, wrongful dissolution, fraudulent breach of trust, or misappropriation of money clearly belonging to another partner is charged. Id. This exception envisions tortious behavior by the defendant partner beyond the scope of rightful partnership activity. [39] In this case, the applicability of these exceptions is not clear cut. The trial judge took Farmer's claims of fraud, conversion, and wrongful dissolution away from the jury, leaving only the breach of fiduciary duty count. Yet we recognize that the essence of Farmer's claim was that his rights as a partner were denied for the purpose of depriving him of a share of the Laker fee. The facts of this case thus approach situations in which courts have recognized an exception for tortious acts by one partner against another. It is not necessary, however, to decide whether Farmer's cause of action falls within the scope of any of the exceptions to the rule. That is because the judge determined the final state of partnership accounts before trying the remaining legal issues to the jury. By adopting the special master's report settling the partnership's accounts and establishing the relative shares of the partners in the surplus, the judge fulfilled the purposes of the common law prerequisite to an action at law: a balance was struck, in that the jury was charged that the accounting established Farmer's shares of partnership assets as conclusive facts for purposes of trial of the legal issues; and sequential trial of Farmer's equitable and legal claims served the goal of efficiency by resolving all claims and defenses in a single action before final judgment was entered. [40] Appellants contend, however, for separate reasons, that the determination of Farmer's interest in the accounting barred his tort claims of breach of fiduciary duty based upon failure to wind up and render an account. We treat these arguments in turn.