Appletree Square I Ltd. Partnership v. Investmark, Inc.
494 N.W.2d 889, 1993 Minn. App. LEXIS 2, 1993 WL 7173 (1993)
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Rule of Law:
A partner's broad common law fiduciary duty to disclose all material information to other partners is not limited by the Uniform Limited Partnership Act's provision requiring partners to furnish information 'upon reasonable demand,' nor can this fundamental duty be contracted away in a partnership agreement.
Facts:
- In 1981, Appletree Square One Limited Partnership was formed to purchase and operate a commercial office building, with appellants (purchasers) and respondents (sellers) as partners.
- During the 1981 sale negotiations, the purchasers' representative, CRI, requested 'any information... which would be material' from the sellers.
- The sellers responded by telling CRI to conduct its own inspection of the building and records, stating they had no way of knowing what would be material to the purchasers' investors.
- In 1985, the purchasers acquired a further 25 percent interest in the partnership from the sellers.
- In 1986, the purchasers discovered that the building's structural steel had been coated with asbestos-based fireproofing material that was deteriorating.
- The estimated cost to abate the asbestos was ten million dollars.
Procedural Posture:
- Appletree Square One Limited Partnership (purchasers) sued the sellers in a state trial court, alleging fraud, breach of contract, and other claims for failure to disclose the presence of asbestos.
- The trial court granted summary judgment for the sellers, ruling that the claims were either barred by the statute of limitations or, in the case of fraud, not pleaded with particularity.
- The purchasers filed a motion to amend the judgment and their complaint, arguing that the sellers' fraudulent concealment tolled the statute of limitations.
- The trial court denied the motion, finding that under the partnership statute and the partnership agreement, the sellers had no duty to disclose information about asbestos because the purchasers never specifically demanded it.
- The purchasers, as appellants, appealed the trial court's grant of summary judgment to the Court of Appeals of Minnesota.
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Issue:
Is a partner’s common law duty to disclose material information to other partners limited by the Uniform Limited Partnership Act or the partnership agreement?
Opinions:
Majority - Crippen, Judge.
No. A partner's common law duty to disclose material information is not limited by statute or the partnership agreement. The relationship between partners is fiduciary, imposing a high standard of integrity and a duty to disclose all material facts. The Uniform Limited Partnership Act's provision granting partners a right to obtain information 'upon reasonable demand' only addresses the narrow duty to respond to requests; it does not negate the broader, pre-existing common law duty to proactively disclose material information. Similarly, while partners may vary aspects of their relationship by contract, they cannot destroy its fundamental fiduciary character. A contract clause limiting disclosure to only that which is requested is contrary to public policy because it would invite fraud by allowing knowledgeable partners to conceal material information from partners who do not know what specific questions to ask.
Analysis:
This decision reaffirms the robust nature of fiduciary duties within a partnership, establishing that statutory rights to demand information are a floor, not a ceiling, for disclosure obligations. It clarifies that the common law duty to proactively disclose material facts remains intact, preventing partners with superior knowledge from remaining silent about critical issues like hidden defects. The ruling significantly limits the ability of partners to contractually waive their core duty of disclosure, thereby protecting less-informed partners and preserving the element of trust that is fundamental to the partnership structure. This precedent makes it more difficult for a partner to use a partnership agreement or a narrow reading of a statute as a shield against claims of fraud or breach of fiduciary duty for non-disclosure.
