Court: Court of Appeals of Washington; May 19, 1986; Washington; State Appellate Court
Webster, J. adjudicated a case involving former managing partner Wheaton Blanchard, who sued his partners and the partnership for reimbursement of expenses and restoration of withheld revenues. The defendants, including attorney Robert St. Louis, counterclaimed for conversion of capital funds and breach of fiduciary duty. The trial court ruled in favor of the defendants, but the appellate court reversed the decision, ordering a dissolution and accounting of the partnership.
The partnership, Energy Associates Northwest (EANW), was formed in 1977 by Blanchard and St. Louis to manage oil and gas investments with wealthy investors. A management agreement allowed Blanchard and St. Louis to collect commissions on new investments and a share of partnership income. After a successful initial program, the partners decided to allocate $4,000 monthly from revenues to cover Blanchard's salary and management costs. Blanchard managed daily operations and later initiated a 1978 investment program, collecting an 8 percent commission.
In 1979, Blanchard launched another program without informing St. Louis, collecting approximately $940,000 and retaining the full commission. He imposed a $1,000 monthly management charge on revenues from this program, which he ceased after a partner's objection. Following dissatisfaction with the investment's performance, Blanchard hired a lawyer to address disputes with Dan Horn, a geologist, leading to tensions within the partnership.
On June 3, 1981, the partners voted to remove Blanchard and St. Louis as co-managing partners, establishing an executive committee for management. Shortly before his removal, Blanchard withdrew $16,000 from the capital preservation fund for expenses he believed were reimbursable. The executive committee withheld his revenues to restore the fund, prompting Blanchard to sue for over $30,000 in reimbursements, a temporary restraining order, receiver appointment, and partnership dissolution. The defendants countered with claims of conversion and breach of fiduciary duty. After a six-day trial, the court dismissed Blanchard's claims, awarding the defendants $48,737.30 plus $29,000 in attorney's fees.
A partner cannot initiate a lawsuit against another partner until the partnership is dissolved or an accounting has occurred, as established in Cheesman v. Sathre. Partnerships do not permit causes of action between partners except for equitable actions regarding accounting, as reinforced by Stipcich v. Marinovich. In the case between Blanchard and the EANW partners, the lawsuit advanced without a formal dissolution or accounting, despite Blanchard still holding an interest in the partnership. The trial court found that the EANW programs from 1977 to 1979 constituted separate partnerships, yet the judgment did not clarify the entitlements or percentages owed to each partnership from the awarded funds. Blanchard's claim for an accounting was evident throughout the litigation process. The appellate court reversed and remanded the case for a complete accounting, citing that the trial court improperly awarded attorney's fees to the defendants under the common fund exception, which was inapplicable since only the litigants benefited from the action. Additionally, the defendants’ argument regarding the non-service of two partners was dismissed as those partners participated in the proceedings. The court referenced Hsu Ying Li v. Tang, noting the disparity in attorney's fees awarded compared to that case, ultimately ordering a full accounting and dissolution of the partnerships involved.
