Southex Exhibitions, Inc. v. Rhode Island Builders Ass'n
279 F.3d 94 (2002)
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Rule of Law:
The existence of a partnership is determined by the totality of the circumstances, and no single factor, such as profit-sharing or the use of the term 'partner' in an agreement, is dispositive. Factors indicating a lack of intent to be co-owners, such as the absence of loss-sharing and unequal control, can outweigh evidence of profit-sharing.
Facts:
- In 1974, the Rhode Island Builder’s Association, Inc. (RIBA) entered into an agreement with Sherman Exposition Management, Inc. (SEM) for the production of home shows.
- The preamble of the 1974 Agreement stated that RIBA wished to participate as 'sponsors and partners.'
- Under the agreement, SEM agreed to advance all required capital, obtain all licenses and insurance, and indemnify RIBA for all show-related losses of any kind.
- The agreement specified that net profits would be shared, with 55% going to SEM and 45% to RIBA.
- Contemporaneously with the signing, SEM's president, Manual Sherman, informed RIBA's director that he 'wanted no ownership of the show.'
- In 1994, Southex Exhibitions, Inc. (Southex) acquired SEM's interest under the agreement.
- After the parties' relationship deteriorated, RIBA entered into a new management contract with another producer, Yoffee Exposition Services, Inc.
Procedural Posture:
- Southex commenced suit against RIBA in the U.S. District Court for the District of Rhode Island, seeking a preliminary injunction.
- The district court denied the preliminary injunction, finding Southex was not likely to succeed on the merits.
- The U.S. Court of Appeals for the First Circuit affirmed the district court's denial of the injunction in an unpublished opinion.
- The case was remanded to the district court for a bench trial on the merits.
- Following the trial, the district court entered a final judgment in favor of RIBA, ruling that no partnership existed.
- Southex, as appellant, appealed the final judgment to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does an agreement establish a legal partnership when it refers to the parties as 'partners' and includes a profit-sharing arrangement, but other evidence, such as one party indemnifying the other against all losses and maintaining primary operational control, indicates a lack of intent to form a partnership?
Opinions:
Majority - Cyr, Senior Circuit Judge
No. An agreement does not establish a legal partnership despite using the term 'partners' and including profit-sharing where the totality of the circumstances indicates no intent to operate as co-owners. The court determined that the existence of a partnership must be assessed under a 'totality-of-the-circumstances' test, where no single factor is conclusive. While profit-sharing is prima facie evidence of a partnership under Rhode Island law, this presumption was rebutted by substantial countervailing evidence. Key factors that negated the existence of a partnership included SEM's agreement to advance all capital and indemnify RIBA for all losses, which is contrary to the normal presumption that partners share in losses. Additionally, SEM was responsible for the 'lion's share' of management, the parties never filed partnership tax returns, they conducted business in their own names rather than a partnership name, and testimony from the original negotiators indicated a specific intent to disclaim any ownership interest on SEM's part. The single, prefatory use of the word 'partners' was deemed inconclusive and insufficient to overcome the weight of these other factors.
Analysis:
This case solidifies the principle that partnership formation is a fact-intensive inquiry based on the overall substance of the parties' relationship, not just on labels or isolated terms in an agreement. It clarifies that while profit-sharing is a strong indicator, the allocation of risk and control is often more telling of the parties' true intent. The decision serves as a precedent cautioning that the statutory presumption of partnership arising from profit-sharing can be rebutted by a wide range of evidence, not just the specific statutory exceptions. This holding reinforces that courts will look beyond the form of an agreement to its substance to determine the true nature of a business association.
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