Opinion ID: 1309482
Heading Depth: 2
Heading Rank: 2

Heading: fraud issue and punitive damages

Text: Disharoon contends that the district court erred in awarding Levy damages for fraud and punitive damages because any claim for fraud was premature. Disharoon relies on Willey v. Renner, 8 N.M. 641, 646, 45 P. 1132, 1134 (1896), in which this Court stated: It is a proposition so well settled as to scarcely require authority to support it that one partner can not (sic) maintain an action at law against another partner to recover an amount claimed by him by reason of partnership transactions until there has been a final settlement of the affairs of the partnership   . Until a final settlement is effected, until the parties come together and have an adjustment of all of the business growing out of the firm, and until it is ascertained what is due one partner under such settlement, the only remedy of the partner is to apply to a court of equity for a dissolution of the firm, and for an accounting as to the partnership business. We have no quarrel with the general rule announced in Willey that partners cannot sue each other at law for acts relating to the partnership unless there is an accounting, prior settlement, or adjustment of the partnership affairs. This rule, nevertheless, is inapplicable to this case because this action is not one at law, but one in equity seeking a partnership accounting and settlement. Holcomb v. Davis, 431 S.W.2d 881 (Ky. 1968). When 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. McIntosh v. Ward, 159 F. 66 (7th Cir.1907). The governing motive of equity is to grant full relief and to adjust in one suit the rights and duties of all parties, which flow out of or are connected with the subject matter of the suit. Maruca v. Phillips, 139 Conn. 79, 90 A.2d 159 (1952). Disharoon contends, however, that the fraud claim was never properly before the court because it was not pleaded. Disharoon's contention is meritless. Although the fraud issue was not pleaded in the complaint, Levy tried the issue and at the close of his case moved that the pleadings be amended to conform to the evidence. The district court granted the motion without objection from Disharoon. Disharoon claims no surprise or prejudice by the court's ruling. The fraud issue was properly before the court. See Citizens Bank v. C & H Const. & Paving Co., 89 N.M. 360, 552 P.2d 796 (Ct.App.), cert. denied, 90 N.M. 7, 558 P.2d 619 (1976). In a partnership relationship, each partner has the right to have his co-partner exercise good faith in all partnership matters. Citizens Bank of Clovis v. Williams, 96 N.M. 373, 630 P.2d 1228 (1981). 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 he must account to the co-partner. § 54-1-21(A). The district court concluded that Disharoon had breached a fiduciary duty in appropriating to his own use $128,000 of the money borrowed from Sunwest. The facts show that the lear jet was actually purchased for $860,000, but that Disharoon told Levy the sale price was $963,000. The difference of $103,000 was wired to Disharoon's personal banking account in Chicago. Thus, Disharoon defrauded the partnership in the amount of $103,000, not $128,000. [5] We conclude the court was correct in holding Disharoon accountable for the fraud, but erred in awarding Levy $70,000 in actual damages. The reason for this error is as follows. The court applied the net result of Disharoon's fraudulent gain to reduce the partnership debt at Sunwest. We find no error in this application, but conclude that by so doing the court in essence awarded Levy his compensatory damages which we believe, unless the district court finds otherwise, was one-half of the misappropriated funds or $51,500. Had the court not held Disharoon accountable for his fraud, Levy's liability for the note would have been greater. There is no evidence that Levy suffered an additional $70,000 in actual damages. We thus reverse that portion of the court's judgment. The trial court also awarded Levy $100,000 in punitive damages. The amount of punitive damages is left to the discretion of the fact finder and will not be disturbed on appeal unless it is so unrelated to the injury and actual damages proven as to plainly manifest passion and prejudice rather than reason and justice. Galindo v. Western States Collection Co., 82 N.M. 149, 155, 477 P.2d 325, 331 (Ct.App. 1970). (quoting Faubion v. Tucker, 58 N.M. 303, 307, 270 P.2d 713, 716 (1954)). The $100,000 punitive damage award is not so unrelated to the actual damages to be clearly erroneous. Disharoon's conduct in misrepresenting the jet's actual sale price and misappropriating the partnership's funds deserves punishment. We thus uphold the $100,000 punitive damage award.