1. Influence
1.1. Treatment of partnership law has been forever impacted by Meinhard v. Salmon – it sets a joint-venture on the same level as a partnership.
1.1.1. Sets an incredibly high standard to the duty that anyone in one of these relationships must hold for both loyalty and fiduciary duty
1.2. Seeing how impactful the decisions have been, often these ventures are far more formal than in the past
1.2.1. If you read these cases, would you trust that your partner would agree to something that you had advised them of or get it in writing?
2. Importance
2.1. When entering into a joint venture/partnership, it is extremely important to:
2.1.1. Hold the loyalty to the venture most sacred
2.1.2. Always give the utmost respect to the venture’s financial interests over your own, personally
2.1.3. Be 100% truthful in your representation of facts and intentions to your co-venturer/partner until any dissolving of the venture/partnership has been signed and sealed
2.1.4. Failure to do this is a breach in your partnership
2.1.4.1. Partner is entitled to stipulated percentage of any improper business
2.2. Be wary of contentious partnerships and the behavior involved
2.2.1. Even if a managing partner does something that is not in the financial interest of their partner, without telling them, they are in breach of fiduciary duty
3. Impact
3.1. Birnbaum v. Birnbaum (1989)
3.1.1. Two partners in joint real estate ventures
3.1.1.1. One partner died, 50% of his 50% share went to each of his two children (25% each)
3.1.1.2. Though one child and remaining partner were supposed to make management decisions, child did not fulfill role
3.1.1.3. Remaining partner hired a woman (who later became his wife) to help develop the property,
3.1.1.3.1. Charged her compensation against the property
3.1.1.3.2. Did not alert other partners (children) of this
3.1.2. Was the remaining partner proper in charging developer compensation to the venture versus him personally?
3.1.2.1. Court found he owed a fiduciary duty to the two children of his deceased partner to protect their interests
3.1.2.1.1. “elemental that a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect”
3.1.2.2. Remaining partner’s relationship with his wife violated the trust at the core of the venture
3.1.2.3. Court says that employees can be hired, as long as loyalty and fiduciary duty of the venture is held most important
3.2. Blue Chip Emerald LLC, et al. v. Allied Partners Inc., et al. (2002)
3.2.1. BCE owned 50% of venture, remainder was owned by two brothers
3.2.2. Venture had one asset – a building valued at $80 million
3.2.3. BCE sold its portion of the venture to the two brothers
3.2.4. Two weeks later, two brothers sold it to a third party for $200 million
3.2.5. BCE claims that brothers breached fiduciary duty, and if it was sold during the venture, they would be owed an additional $60 million
3.2.5.1. Defendants failed to alert BCE of third party discussions of property sale
3.2.5.1.1. Failed to disclose full range price
3.2.5.2. Defendants misrepresented renovations that caused BCE to seek to leave the venture
3.2.5.3. Defendants moved to dismiss complaint due to stipulations in the buyout agreement
3.2.5.4. Court found:
3.2.5.4.1. Citing both Meinhard v. Salmon and Birnbaum v. Birnbaum (among other cases), that the Defendants had loyalty and fiduciary duty they owed to the Plaintiff up until the time the buyout was signed
3.2.5.4.2. Defendants had no right to misrepresent material facts concerning efforts to sell/lease the property
3.2.5.4.3. Prior court had dismissed the complaint, the Supreme Court of NY reversed
4. Conclusion
4.1. Meinhard and Salmon were in a joint-venture and as their original contract was still open, the joint-venture was still intact at the time of the 2nd Gerry offer
4.1.1. Partners in a business owe fiduciary duty to one another when an opportunity arises during the partnership
4.1.1.1. Salmon broke fiduciary duty to Meinhard when he failed to inform of the new opportunity presented by Gerry
4.1.1.2. Meinhard had a significant financial opportunity in the new project
4.1.1.2.1. Was owed a portion due to the establishment of the joint venture (40% for 5 years followed by 50%)
4.1.1.2.2. Court lowered Meinhard’s percentage of the new venture 49%, but affirmed decision
5. Facts
5.1. Louisa Gerry leased Defendant, Walter Salmon, Hotel Bristol on April 10, 1902
5.1.1. Lease term for 20 years, from 5/1/1902 to 4/30/1922
5.1.2. Salmon modified hotel building to use as shops
5.1.2.1. Alterations/additions accretions to the land
5.1.2.2. Salmon in treaty with Meinhard (Plaintiff) for the necessary funds and a share of future profits
5.1.2.2.1. Meinhard paid Salmon half of money needed to change/operate the property
5.1.2.2.2. Salmon to give Meinhard 40% net profits for the first five years, 50% thereafter
5.1.2.2.3. Losses to be beared equally
5.1.2.3. Salmon had sole power to manager, lease, underlet and operate under the venture
5.1.2.4. Pre-emptive rights in contingency of death
5.2. Gerry approached Salmon near the end of the original lease regarding a lot adjoining the Bristol building
5.2.1. Plan to lease long term to someone who would destroy the buildings and put another in their place
5.2.1.1. New lease to Midpoint Realty Company (owned and controlled by Salmon) for tract and large outlay
5.2.1.1.1. Term 20 years, successive covenants and renewal for 80
5.2.1.1.2. Buildings unchanged for 7 years, then torn down at cost of $3M
5.2.1.1.3. Lease from Bristol $55,000, new lease for combined properties for $350,000 - $475,000
5.2.1.1.4. Salmon personally guaranteed performance until the new building had been completed and paid for
5.2.1.1.5. Signed 1/25/22
5.2.1.1.6. Meinhard not informed
5.3. Meinhard found out about the new deal between Gerry and Salmon and sued for his portion of the deal as joint venture
5.3.1. Original court awarded 25% interest (half interest in half the property)
5.3.2. Appellate court increased to 50% (half interest in whole property)
6. Issue
6.1. During a partnership, if an opportunity arises, does it break fiduciary duty if one partner doesn’t offer the opportunity to the other (or fails to inform)?
7. Rule of Law
7.1. Joint adventurers (like co-partners) owe to one another, while the enterprise continues, the duty of finest loyalty
7.2. Partners in a joint venture owe fiduciary duty to one another; this is breached when one partner has an opportunity arise and does not offer it to the other partner
8. Application
8.1. Salmon argued that any duty owed to the partnership expired at the end of the 20 year term
8.1.1. The deal signed by Salmon was for the period after the expiration of the partnership
8.2. Meinhard argued that the new business opportunity was made available to Salmon during the course of the partnership
8.2.1. Salmon, therefore, was obligated to communicate the opportunity and share the profits with the partnership