Bane v. Ferguson

• Decision Date: 20 November 1989
• Docket Number: No. 89-1653,89-1653
• Citation: Bane v. Ferguson, 890 F.2d 11 (7th Cir. 1989)
• Parties: , 11 Employee Benefits Ca 2216 Charles A. BANE, Plaintiff-Appellant, v. Richard G. FERGUSON, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 11

890 F.2d 11

58 USLW 2323, 11 Employee Benefits Ca 2216

Charles A. BANE, Plaintiff-Appellant, v. Richard G. FERGUSON, et al., Defendants-Appellees.

No. 89-1653.

United States Court of Appeals Seventh Circuit.

Argued Sept. 14, 1989.

Decided Nov. 20, 1989.

George N. Leighton argued, Neal & Associates, Chicago, Ill., Susan B. Magary, Wayzata, Minn., for plaintiff-appellant.

Richard G. Ferguson, Hinsdale, Ill., for Richard G. Ferguson.

Miriam F. Miquelon, Keck, Mahin & Cate, Harvey M. Silets argued, Locke E. Bowman, III, Silets & Martin, Michael A. Pope, Mark D. Blumberg, Phelan, Pope & John, Stanley L. Ferguson, Chicago, Ill., for defendant-appellee.

Before POSNER, COFFEY, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

The question presented by this appeal from the dismissal of the complaint (see 707 F.Supp. 988 (N.D.Ill.1989)) is whether a retired partner in a law firm has either a common law or a statutory claim against the firm's managing council for acts of negligence that, by causing the firm to dissolve, terminate his retirement benefits. It is a diversity case governed by the law of Illinois, rather than a federal-question case governed by the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001 et seq., because ERISA excludes partners from its protections. See 29 C.F.R. Sec. 2510.3-3(c)(2).

Charles Bane practiced corporate and public utility law as a partner in the venerable Chicago law firm of Isham, Lincoln & Beale, founded more than a century ago by Abraham Lincoln's son Robert Todd Lincoln. In August 1985 the firm adopted a noncontributory retirement plan that entitled every retiring partner to a pension, the amount depending on his earnings from the firm on the eve of retirement. The plan instrument provided that the plan, and the payments under it, would end when and if the firm dissolved without a successor entity, and also that the amount paid out in pension benefits each year could not exceed five percent of the firm's net income in the preceding year. Four months after the plan was adopted, the plaintiff retired, moved to Florida with his wife, and began drawing his pension (to continue until his wife's death if he died first) of $27,483 a year. Bane was 72 years old when he retired. So far as appears, he had, apart from social security, no significant source of income other than the pension.

Several months after Bane's retirement, Isham, Lincoln & Beale merged with Reuben & Proctor, another large and successful Chicago firm. The merger proved to be a disaster, and the merged firm was dissolved in April 1988 without a successor--whereupon the payment of pension benefits to Bane ceased and he brought this suit. The suit alleges that the defendants were the members of the firm's managing council in the period leading up to the dissolution and that they acted unreasonably in deciding to merge the firm with Reuben & Procter, in purchasing computers and other office equipment, and in leaving the firm for greener pastures shortly before its dissolution. The suit does not allege that the defendants committed fraud, engaged in self-dealing, or deliberately sought to destroy or damage the law firm or harm the plaintiff; the charge is negligent mismanagement, not deliberate wrongdoing. The suit seeks damages, presumably the present value of the pension benefits to which the Banes would be entitled had the firm not dissolved.

Bane argues incorrectly that on a motion to dismiss for failure to state a claim the court should resolve unclear questions of law, as well as of fact, in favor of the plaintiff. What is correct is that for purposes of determining whether the complaint states a claim, the facts alleged, plus reasonable inferences therefrom, are taken as true, and the question is then whether on those assumptions the plaintiff would have a right to legal relief. See, e.g., Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir.1985).

Bane has four theories of liability. The first is that the defendants, by committing acts of mismanagement that resulted in the dissolution of the firm, violated the Uniform Partnership Act, Ill.Rev.Stat. ch. 106 1/2, p 9(3)(c), which provides that "unless authorized by the other partners ... one or more but less than all the partners have no authority to: Do any ... act which would make it impossible to carry on the ordinary business of the partnership." This provision is inapplicable. Its purpose is not to make negligent partners liable to persons with whom the partnership transacts (such as Bane), but to limit the liability of the other partners for the unauthorized act of one partner. See Hackney v. Johnson, 601 S.W.2d 523, 525 (Tex.Civ.App.1980). The purpose in other words is to protect partners. Bane ceased to be a partner when he retired in 1985.

Nor can Bane obtain legal relief on the theory that the defendants violated a fiduciary duty to him; they had none. A partner is a fiduciary of his partners, but not of his former partners, for the withdrawal of a partner terminates the partnership as to him. Adams v. Jarvis, 23 Wis.2d 453, 458, 127 N.W.2d 400, 403 (1964). Bane must look elsewhere for the grounds of a fiduciary obligation running from his former partners to himself. The pension plan did not establish a trust, and even if, notwithstanding the absence of one, the plan's managers were fiduciaries of its beneficiaries (there are myriad sources of fiduciary duty besides a trust), the mismanagement was not of the plan but of the...