Bane v. Ferguson, 88 C 6689.

• Decision Date: 27 February 1989
• Docket Number: No. 88 C 6689.,88 C 6689.
• Citation: 707 F. Supp. 988
• Parties: Charles A. BANE, Plaintiff, v. Richard G. FERGUSON; Michael I. Miller; Frederick R. Carson; Sharon L. King; Davis J. Rosso; and Robert A. Yolles, Defendants.
• Court: U.S. District Court — Northern District of Illinois

707 F. Supp. 988

Charles A. BANE, Plaintiff, v.Richard G. FERGUSON; Michael I. Miller; Frederick R. Carson; Sharon L. King; Davis J. Rosso; and Robert A. Yolles, Defendants.

No. 88 C 6689.

United States District Court, N.D. Illinois, E.D.

February 27, 1989.

George N. Leighton, Earl L. Neal & Associates, Chicago, Ill., Susan B. Magary, Wayzata, Minn., for plaintiff.

Miriam F. Miquelon, Miquelon & Associates, Ltd., Michael A. Pope, Mark D. Blumberg, Phelan, Pope & John, Harvey M. Silets, Locke E. Bowman, III, Silets & Martin, Ltd., Chicago, Ill., for defendants.

MEMORANDUM OPINION

BRIAN BARNETT DUFF, District Judge.

Charles Bane is a former partner of the former Chicago law firm of Isham Lincoln & Beale.He retired as a partner from Isham on December 31, 1985, at which time he became eligible for benefits under the firm's Retirement Plan.Isham adopted this plan on August 6, 1985, as an amendment to the firm's Partnership Agreement, and Bane voted in favor of its adoption.The Plan provided that Isham would pay benefits to qualified retired partners until, among other events, the first day of the month of the termination of the Plan.Only two provisions in the Plan spelled out when such termination could or would occur: in Section 8.1, the Plan stated, "If the Firm shall dissolve and there be no successor to it, this Plan will terminate."In Section 8.4, the Plan allowed that

Notwithstanding the second sentence of Section 8.2 of this Plan, this Plan may be terminated ... as to any retired Partner or his or her Surviving Spouse if federal or state law requires funding of any of the benefits of the Plan for that person or imposes other similarly substantial burdens on continuation of the Plan as to that person.

Bane contends that Isham promised more than benefits, however, when it adopted the Plan.He submits that in exchange for his promises to retire at age 72, not to practice law in competition with Isham during retirement, and to refrain from any activity "which damages the reputation of the Firm or which adversely affects the professional activities of the Firm,"Complaint, App. A, § 6.1(hereafter "Plan"), Isham impliedly promised that it would conduct itself "in such a manner that pension payments to a retired partner would continue in accordance with the express undertakings in the Retirement Plan."Complaintat ¶ 8.Bane contends that shortly after his retirement some of his former colleagues and partners at the firm broke this promise, which ultimately led to the dissolution of Isham and the end of its payments to Bane on April 30, 1988.

Bane has sued these former colleagues — Richard G. Ferguson, Michael I. Miller, Frederick R. Carson, Sharon L. King, Davis J. Rosso, and Robert A. Yolles — to get his benefits resumed.Bane alleges that these persons were members of Isham's Managing Council at the time Isham adopted the Retirement Plan.He submits that through various acts and omissions they brought Isham to ruin.Among these acts and omissions are the following, set forth in id.at ¶ 9:

(a) Management of Isham's affairs so as "to cause a number of highly regarded partners of Isham to leave, taking important clients and legal business with them, and adversely affecting Isham's financial health."

(b) Arranging for a merger with the Chicago firm of Reuben & Proctor in June 1986, without investigating whether the firms would be "successful" after the merger.Bane contends that this failure to investigate resulted in the merger being a disaster.

(c) Willful refusals "to attempt to work out and resolve the issues resulting from the merger" once it appeared that it had soured.Instead, Bane accuses the defendants of "maliciously and wrongfully" abandoning Isham for other competing firms.

(d) Ferguson's abdication of responsibilities in mid-1987, and his self-interested demand on Isham for a $750,000-$1 million payment as a condition of retirement.

(e) Carson's failure "to assist in resolving the difficulties of the Firm...."

Bane's complaint alleges four counts.He submits first that the defendants violated their obligations to him under the Illinois Uniform Partnership Act, Ill.Rev.Stat. ch. 106½, ¶¶ 9(3)(c),¹ 13-15(Smith-HurdAnn.1987).Count 2 alleges a breach of the Retirement Plan.As that Plan is expressly subject to Illinois law, Illinois law will cover this count.Count 3 alleges a breach of fiduciary duties under the Illinois Uniform Fiduciaries Act, Ill.Rev.Stat. ch. 17, ¶¶ 2001 et seq.(Smith-HurdAnn.1981), and Count 4 alleges gross negligence.For these acts Bane seeks an amount equal to what he would be entitled to receive under the Plan, plus punitive damages.

The defendants have moved to dismiss Bane's complaint under Rule 12(b)6, Fed.R. Civ.P.²This court must take the allegations of Bane's complaint as true for purposes of this motion, as well as draw reasonable inferences from those allegations so as to put the complaint in the light most favorable to Mr. Bane.SeeEllsworth v. City of Racine,774 F.2d 182, 184(7th Cir.1985)(setting forth standards for construing complaints for purposes of motions under Rule 12(b)(6)).

Partnership Act Claims

In Count 1 of his complaint, Bane alleges violations of the Illinois Uniform Partnership Act, Ill.Rev.Stat. ch. 106½, ¶¶ 9(3)(c), 13-15.Paragraph 9(3)(c) states that:

Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to do any other act see subparagraphs (a) and (b) which would make it impossible to carry on the ordinary business of the partnership.

Unlike ¶¶ 13-15, which make the partnership or the partners liable for various acts, ¶ 9(3)(c) does not expressly create liability for anyone.In fact, it tends to limit liability, by denying fewer than all of the partners the power to bind the partnership.Seeid.at ¶ 9(2)(act of partner "not apparently for the carrying on" of partnership business "in the usual way" does not bind partnership);id.at ¶ 9(4)("No act of a partner in contravention of a restriction on his authority shall bind the partnership to persons having knowledge of the restriction.").

Bane seems to be inviting this court to imply a right of action from ¶ 9(3)(c) for persons aggrieved by unauthorized acts of partners that make it impossible for the partnership to carry on its obligations.The Illinois courts imply rights of action from Illinois statutes when, under the totality of the circumstances, it appears that (1)the plaintiff is a member of the class for whose benefit the Illinois legislature enacted the statute; (2) implication of the right is consistent with the underlying purpose of the statute; (3)the plaintiff's claimed injury is one which the Illinois legislature designed the statute to prevent; and (4) a private right of action is necessary to effectuate the purposes of the statute.SeeSawyer Realty Group, Inc. v. Jarvis Corp.,89 Ill.2d 379, 386-91, 59 Ill.Dec. 905, 908-11, 432 N.E.2d 849, 852-55(1982).

This court is not confident that the Illinois courts would find the right of action that Mr. Bane seeks here.From the language of ¶ 9 it appears that there are three groups of beneficiaries: active partners, who receive the power to act on behalf of the partnership in the normal course of business; the partnership (and by extension, all of the partners individually), which is protected from liability for unauthorized acts; and certain persons with whom a partner transacts certain kinds of business, who are permitted to rely on the partners' actions and, in some cases, enforce an obligation against the partnership.Mr. Bane falls into none of these groups.Bane no longer is an Isham partner, nor was he a partner at the time Isham dissolved.He also has not transacted business with an Isham partner in reliance on that partner's authority as an agent for the partnership.As he alleges in his complaint, whatever arrangement he had was directly with the Isham partnership.SeeComplaintat ¶ 3(Retirement Plan was Isham's plan);id.at ¶ 8(implied agreement with Isham to continue the affairs of the firm).This court thus concludes that a person who is aggrieved by the dissolution of a partnership does not have a right of action against that partnership or its partners under ¶ 9(3)(c) of the Illinois Uniform Partnership Act, unless that person falls into one of the groups listed above.

This court now turns to ¶¶ 13-15, which speak more directly to partnership and partner liabilities.These paragraphs provide:

¶ 13.Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

¶ 14.The partnership is bound to make good the loss:

(a) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and

(b) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership.

¶ 15.All partners are liable:

(a) Jointly and severally for everything chargeable to the partnershp under paragraphs 13 and 14.

(b) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.

Claiming a right of action from these provisions is tantamount to putting the cart before the horse.A person cannot "violate"¶¶ 13-15 unless (1) a predicate wrong has occurred, (2) a partner or the partnership is liable for that wrong under ¶¶ 13-15, and (3) such partner or the partnership has not discharged his, her, or its liability.But...