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Joint Venture’s Fiduciary Duties Continue Through Windup

Where members of a joint venture have agreed to its dissolution, the fiduciary duties owed among the members continue through the windup process.  Morris International v. Parker, 2021 NCBC 13 (J. McGuire).  As a result, Defendants could not dismiss Plaintiff’s breach of fiduciary claim where Defendants had improperly used the JV’s property during the windup process without appropriate compensation. 

Plaintiff entered into an agreement with defendant Old Beam General Partnership (“OBGP”) and PA & K, LLC (“PA&K”) [through the president of one of OBGP’s partners, defendant Anthony Parker (“Parker”)] to form a joint venture (“JV”).  The purpose of the JV was to develop property owned by OBGP into a luxury RV park that would be contained in a subdivision that adjoined a golf course.  Plaintiff contributed significant money, skills, and expertise to the JV, including site plans and various budgets to develop the RV park.  When residents of the subdivision threatened to sue over the establishment of the RV park, Plaintiff and Parker agreed in August 2016 that the RV park was not worth pursuing. At that time, Parker advised that OBGP would pursue other opportunities using the land, including possibly selling it or developing it with someone else.  Plaintiff admittedly voiced no objection.  In July 2017 Parker and another individual formed defendant KPP and decided to pursue development of the RV park, allegedly using the plans and designs Plaintiff had previously prepared as part of the JV.  After discovering KPP’s activities, Plaintiff demanded to be included in the new venture, but Defendants refused.  Plaintiff filed suit asserting, inter alia, a claim for breach of fiduciary duty against OBGP and PA&K, both of whom moved to dismiss on the basis that because the JV had dissolved a year earlier, no fiduciary duties were owed thereafter.

The Business Court disagreed.  Although it found that Plaintiff had admitted in his complaint that the JV dissolved in August 2016, the Business Court nonetheless found that the fiduciary duties OBGP and PA&K owed to Plaintiff continued through the winding up of the JV, similar to fiduciary duties owed among partners in the winding up of a partnership.  Plaintiff’s allegation that KPP and OBGP were using the JV’s assets (i.e., the designs and budgets Plaintiff provided) without any compensation constituted a viable breach of fiduciary claim.

As a result of this decision, any business acting in a joint venture or as a partnership should remember that various obligations may be owned among the participants even after the relationship ends. 

Additional Legal Points

  • To maintain a request for the remedy of a constructive trust or equitable lien, a plaintiff must allege facts to show it has no adequate remedy at law (Opinion. ¶78-79). 

  • To support an assertion that a defendant’s actions were willful, wonton and malicious, plaintiff must allege facts to support such conclusory allegations.  (Id., ¶59).

  • A general partner is jointly and severely liable for all acts and obligations of a partnership (Id., ¶55). 

  • A partner in a general partnership may bring a personal action for conversion of the partnership property against other partners, but only the partnership can pursue a conversion claim of the partnership property against a third party (Id., ¶52).

  • The exception to the usual rule that a partner lacks standing to pursue claims on behalf of a partnership, as set forth in Barger v. McCoy Hillard & Parks, 346 N.C. 650, 660 (1997), does not apply to a general partnership but only to a limited partnership (Id., ¶50).

  • Any claim for breach of a joint venture agreement accrues as of the date of dissolution and must be pursued within three years pursuant to the North Carolina Uniform Partnership Act.  (Id., ¶37-38). 

  • Absent a specified termination date, a joint venture dissolves when its purpose is accomplished or until the accomplishment becomes impracticable. (Id. ¶30).

  • A joint venture is governed by partnership law as codified in the Uniform Partnership Act.  Id., ¶29).

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume XI, Number 127
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About this Author

Phil Mohr Bankruptcy and Litigation Attorney Womble Bond Dickinson
Partner

Phil is a trial lawyer. Although he will search for creative legal and business solutions for his clients, his more than two decades of trial experience for both publicly traded and privately held companies in state and federal courts throughout the country have taught him that some cases simply have to be tried to verdict. Representing companies that have both been wronged and accused of wrongdoing, Phil has honed his trial skills in cases involving complex business litigation (including fraudulent transfer and equitable subordination cases in federal bankruptcy court)...

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