Court: Washington Supreme Court; August 12, 1954; Washington; State Supreme Court
The case involves a dispute between partners over a hydraulic shock absorber invention known as the boomsnub. The plaintiff, T.A. Cheesman, alleged that the defendants, including C.J. Sathre, conspired to defraud him and remove him from the Boomsnub Company, a limited partnership. The complaint claimed that Sathre executed a licensing agreement that unlawfully granted exclusive manufacturing rights of the boomsnub to defendants George R. Steele and Al Hauge, violating the partnership agreement and depriving Cheesman of his rights to profits and a pending patent.
Cheesman sought $50,000 in damages, asserting that the conspiracy and subsequent actions by Sathre led to his ousting from the partnership and significant financial loss. In response, Sathre denied the allegations and claimed the Boomsnub Company was financially distressed prior to September 1952. He stated that a royalty agreement was made with Columbia Marine Steel Works, allowing them to manufacture and sell boomsnubs while providing a 7.5% royalty to the Boomsnub Company until the patent's expiration in 1970. The court ultimately ruled in favor of Cheesman, awarding him $8,000 based on the jury's verdict.
Defendant Sathre, representing the Boomsnub Company, claimed that the agreement with Columbia Marine Steel Works was intended to benefit the plaintiff, Sathre, and the limited partners of the Boomsnub Company. Sathre denied any conspiracy to exclude the plaintiff from the company or to deprive them of benefits from boomsnub operations. Defendants Steele and Hauge acknowledged entering a written agreement on September 19, 1952, which allowed them to manufacture, sell, and distribute boomsnubs, and they confirmed compliance with the agreement by paying royalties to the Boomsnub Company. Following a trial, the jury favored the plaintiff. The defendants' motions for judgment notwithstanding the verdict or for a new trial were denied, leading to their appeal with fifteen error assignments, primarily concerning jury instructions. The appellate court found that the trial court erred by not requiring the plaintiff to prove the conspiracy by "clear, cogent, and convincing evidence," which is a higher standard than mere preponderance of the evidence. Despite the respondent's argument that the evidence of conspiracy was overwhelming and thus the error was non-prejudicial, the court ruled that conflicting testimonies indicated that reasonable minds could differ on the existence of a conspiracy. Consequently, the judgment was reversed, and the case was remanded for a new trial.
Appellants are entitled to a reversal of the judgment and a new trial due to erroneous instructions. The trial court's denial of appellants' motion for judgment notwithstanding the verdict is upheld, as the evidence, viewed favorably for the respondent, supports this denial. The issues presented were appropriate for jury determination. Regarding the motion for a new trial, appellants argue that one partner cannot sue another for damages without a dissolution of the partnership or an accounting, citing Stipcich v. Marinovich. The respondent agrees with this general rule but asserts an exception exists for actions arising from conspiracies involving partners and others. This issue is novel in the state. Appellants reference Lachmann v. Benson to illustrate that a partner cannot sue another for conspiracy without dissolution or accounting, but the court finds this case not directly applicable. The respondent cites fifteen cases, mostly from California, supporting the notion that a partner can sue for conspiracy-related damages. Notably, the factual contexts of these cases differ significantly from the current case.
In the analyzed cases, no partnerships existed as ongoing concerns at the time of the lawsuits. All partners were joined in those cases, with some involving formal dissolution and others pertaining to equitable actions for accounting rather than legal damages. Key relevant cases involved scenarios where one partner dissolved the partnership by selling or converting all partnership assets without the consent of the other partner. In the current case, both parties agree that the limited partnership operating as the Boomsnub Company remains intact.
It is established that a partner can sue another for conspiracy under specific conditions, such as when a partner converts partnership assets or excludes another partner from business operations. However, a partner cannot pursue a conspiracy claim for asset conversion if the partnership is still active and retains valuable assets in which the suing partner has an interest, unless the suing partner treats the actions as a dissolution of the partnership.
The precedent case, Moropoulos v. C.H. O.B. Fuller Co., illustrates that a partner ousted from possession can either seek restoration or accept the wrongful appropriation and sue for personal damages. In applicable cases cited by the respondent, recovery was allowed under the premise of converted assets. Thus, the innocent partner essentially concedes title to the converted assets to the wrongdoers and relinquishes claims to the converted property upon judgment collection.
In the current situation, the respondent has not classified the actions of partner Sathre regarding the royalty agreement with appellants Steele and Hauge as a conversion or dissolution. Instead, the respondent claims damages solely from the signing of the royalty agreement until the trial date, and the trial court supported this damage theory. The respondent also maintains the right to sue for further damages if appellants continue their actions post-trial.
A lawsuit has been initiated by the respondent for damages related to a conversion of partnership assets, specifically concerning the boomsnub patent. The respondent initially sought damages that included lost profits over the patent's life but shifted his claim during trial to seek compensation based on the total potential recovery from appellants Steele and Hauge as if they were infringing the patent. Allowing this claim while also retaining ownership of the partnership assets would result in a double recovery for the respondent.
The court finds that the respondent must choose between treating his partner's actions as a conversion and thus dissolving the partnership or treating the partnership as still active. The court determines that the respondent's actions do not indicate an election to surrender his claim to the patent or dissolve the partnership, primarily because he has consistently asserted his right to the patent and because other limited partners, who invested $14,000, are not parties to the suit.
Citing precedent, the court emphasizes that one partner cannot pursue an action regarding partnership assets without the involvement of all partners unless there is an assignment of rights. The respondent's claim is personal, not for the partnership's benefit, and without the limited partners' involvement, the action cannot proceed. The appellants have successfully challenged the respondent's ability to maintain the suit while the partnership remains intact. However, upon remand for a new trial, the respondent retains the option to treat the appellants' actions as a conversion and pursue the case, provided he obtains assignments from all other partners or joins them as parties.
The trial court made an error in its instructions on the measure of damages. If the respondent chooses to amend the complaint to sue for conversion, the appropriate measure of damages is the respondent's proportionate share of the market value of the converted partnership property at the time of conversion. The respondent can amend the complaint after the remittitur is filed to pursue one of two theories: either for his proportionate share of the value of the converted property or to invalidate the agreement dated September 19, 1952, based on the lack of authority of appellant Sathre to execute it. To proceed with either theory, the respondent must allege and prove an assignment of the limited partners' interests or join them as parties in the action. The trial court's denial of the appellants' motion for a new trial is a basis for reversing the judgment and remanding the case for a new trial in line with these findings. All justices concur in this decision.
