Bauer v. BLOMFIELD CO./HOLDEN J. VENTURE
849 P.2d 1365 (1993)
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Rule of Law:
Partners do not owe a duty of good faith and fair dealing to an assignee of a partner's interest. An assignee is only entitled to receive the profits to which the assigning partner would have been entitled, and has no right to interfere in partnership management decisions that affect those profits.
Facts:
- William J. Bauer loaned $800,000 to Richard and Judith Holden.
- As security for the loan, the Holdens assigned their entire interest in the Blomfield Company/Holden Joint Venture partnership to Bauer.
- The other partners in the joint venture consented to the assignment.
- The Holdens subsequently defaulted on their loan from Bauer.
- Bauer exercised his rights under the assignment and, for a period, received the Holdens' share of the partnership's income.
- The partners unanimously agreed to pay one partner, Chuck Blomfield, an $877,000 'commission' from partnership income for his work in securing lease extensions.
- This commission payment depleted the partnership's income, resulting in the cessation of profit distributions to Bauer.
Procedural Posture:
- William J. Bauer sued The Blomfield Company/Holden Joint Venture and its individual partners in the Alaska superior court (court of first instance).
- The defendants moved for summary judgment.
- The superior court granted summary judgment in favor of the defendants and dismissed Bauer's complaint with prejudice.
- Bauer, as appellant, appealed the superior court's judgment to the Supreme Court of Alaska.
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Issue:
Do partners owe a duty of good faith and fair dealing to an assignee of a partner's interest when making a unanimous management decision that eliminates distributable profits?
Opinions:
Majority - Justice Burke
No. Partners do not owe a duty of good faith and fair dealing to an assignee of a partner's interest. Under AS 32.05.220(a), an assignment of a partnership interest does not make the assignee a partner and does not entitle them to interfere in the management of the partnership. The assignee is only entitled to receive the profits to which the assigning partner 'would otherwise be entitled.' Because all partners agreed to pay the commission to Chuck Blomfield, a management decision, there were no partnership profits for the Holdens, and thus Bauer, to receive. Imposing a duty of good faith towards assignees would undermine the statute's clear intent to protect partners from interference by 'unwanted strangers'.
Dissenting - Justice Matthews
Yes. A duty of good faith and fair dealing is implied in all contracts, including partnership agreements, and this duty extends to assignees. An assignee 'steps into the shoes' of the assignor and acquires the assignor's contractual rights, which includes the right to have the other parties act in good faith. Requiring partners to make decisions regarding profit distributions in good faith is not an interference with management but an enforcement of their existing contractual duties. By refusing to recognize this duty, the majority's decision renders the assignment of a partnership interest worthless and leaves the assignee without a remedy against potentially self-serving or malicious actions by the partners.
Analysis:
This decision solidifies the principle that an assignee of a partnership interest possesses very limited rights, subordinate to the managerial autonomy of the partners. By explicitly rejecting a duty of good faith and fair dealing owed to assignees, the court prioritizes the 'pick your partner' principle and protects partners from unsolicited interference. This ruling makes lending against a partnership interest significantly riskier, as the assignee has no recourse if the partners make a business decision—even one that seems self-serving—that eliminates distributable profits. The case reinforces the statutory distinction between a mere assignee and a substitute partner.
