Jan, Bobby and Marsha, who have all been friends since high school, form a partnership called Living Easy to develop two residential apartment complexes in their home town. Because they have been friends for so long and trust each other, they do not enter into a written partnership agreement. Instead, they simply agree that they will equally share in the profits and losses of the partnership. Bobby soon discovers that Jan and Marsha are extremely capable and hard workers and begins cutting down the time that he devotes to the partnership. Soon, Bobby is coming into the office only one day a week. He spends the other days hanging out at the tennis courts. Bobby brags on the tennis courts about what an accomplished apartment complex developer he is, and attracts the attention of two other tennis players, Marco and Eve, who also want to get into the business of developing apartment complexes. Bobby convinces Marco and Eve to hire him as a consultant, and Marco and Eve agree to pay him $2500/week for his consulting services, which money Bobby keeps for himself. During the course of his consulting, Bobby provides Marco and Eve with plans for an apartment complex marked “SECRET” that were created by Living Easy, in order that Marco and Eve can use them as a basis for their development. Eventually, at the urging of Marco and Eve, Bobby leaves Living Easy before the two apartment complexes have been completed and becomes partners with Marco and Eve in developing apartment complexes that will directly compete with Living Easy.

Has Bobby breached any fiduciary duties to Living Easy and Jan and Marsha? Which ones? What specific facts support the breach of each duty that you identify? Is Bobby entitled to be paid for his partnership interest in Living Easy? If so, how will the buyout price for his interest be calculated? When is Bobby entitled to receive payment?

Exam 1 Question 1 Answer

Yes and he breached four fiduciary duties. First, it is clear that he violated his duty not to disclose any relevant information that may harm the interest of the company. Such information ought to be confidential, but Bobby, in the pursuit of his interest and consultancy work with Marco and Eve, disclosed the “secrets” of the partnership.