Remedies For Partnership Disputes

I previously wrote about the rights and obligations between business partners and between partners and the partnership.  I also noted that a partnership agreement can help avoid many business disputes among partners or at least end a dispute before it becomes fullblown litigation.  But if litigation does arise, what are the available legal remedies?

First, business partners or partnerships can always bring standard legal claims such as breach of contract, fraud, defamation, or negligence.  Iowa Code 486A.405(2)(c) specifically allows legal claims involving partners or partnerships that arise independently of the partnership relationship.  Because of that, many partnership lawsuits can become complicated and involve many different claims, counterclaims, and defenses because each partner starts blaming the other partner(s) for everything that’s gone wrong or been done wrong for the past several years preceding the lawsuit.

Second, Iowa Code 486A.405 provides special remedies for partnership issues.  A partnership may maintain an action against a partner for a breach of the partnership agreement, or for the violation of a duty to the partnership, causing harm to the partnership.  A partner can also sue the partnership or another partner for legal or equitable relief, with or without an accounting as to partnership business.  Those types of claims by a partner can include enforcing the partner’s rights under the partnership agreement and enforcing the partner’s rights under Iowa’s partnership law (Iowa Code Chapter 486A).

Please note that, as with other types of litigation, partners or a partnership involved in a lawsuit are responsible for their own attorney fees and litigation expenses.  That’s one reason why it’s important to try to avoid or at least minimize partnership disputes before they get out of control.  Not many true “winners” emerge from a partnership lawsuit.

A Partnership Agreement Can Help Prevent Partnership Disputes

In an earlier post I described some of the basics rights and responsibilities for members of a business partnership under Iowa’s partnership law, Iowa Code Chapter 486A.  But avoiding partnership disputes is more important than knowing your rights as a business partner under Iowa law.  A common method of eliminating or reducing partnership disputes is the existence of a partnership agreement among the partners.

Per Iowa Code 486A.103, partnership agreements usually govern the relations between partners and between partners and the partnership.  Iowa Code 486A.103 does provide a few exceptions to business partners’ freedom to enter into a partnership agreement, some of which I summarized in my earlier post.  But in general partners can set up their partnership in whatever manner they see fit.

A partnership can prevent many legal problems and partnership disputes.  The partnership agreement should include the terms and conditions of the partnership.  Some of the standard topics for partnership agreement include:

1. The business’s name.
2. The business partnership’s milestones and goals.
3. Each partner’s percentage of ownership.
4. The manner in which profits will be divided.
5. How important partnership decisions will be made.
6. The procedures for a handling a partner’s withdrawal or death or the introduction of new partners.

The best practice is to set up the partnership equally.  That means each partner has an equal ownership interest in the business and shares equally in the profits.  Many partnership disputes arise when one or some of the partners believe that they’re being treated unfairly or unequally.  Treating all partners the same in all respects from the beginning (to the extent possible) can help reduce the risk of bad feelings expanding into a full-blown partnership dispute.

Partnership Liability Under Iowa Law

Business disputes sometimes arise among the members of a partnership or between one partner and the partnership itself.  The members of a partnership frequently execute a partnership agreement that governs the partners’ relationship.  The partners are generally free to structure their partnership however they wish.  But Iowa Code 486A.103 restricts to some extent the ability of partners to modify Iowa’s standard rules concerning partner access to information and the duties that partners owe to each other and to their partnerships.

Iowa Code 486A.403 provides Iowa’s rules governing partners’ access to partnership information.  A partnership must keep its books and records at its main business office.  Partners (including former partners) and their agents and attorneys are allowed access to partnership books and records.  The right of access provides the opportunity to inspect and copy books and records during ordinary business hours.  Among the documents that may be inspected or copied are any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or Iowa’s partnership law, Iowa Code Chapter 486A, and any other information concerning the partnership’s business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.  A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished. 

Iowa Code 486A.404 sets the general standards for partner conduct towards the partnership and other partners.  Partners owe duties of loyalty and care.  Partners can be sued for breaching either type of duty owed the partnership or other partners.

The duty of loyalty requires partners to account to the partnership and hold as trustee for the partnership any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity.  Loyalty also means that partners must refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership andfrom competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

Proving breach of a partner’s duty of care requires more than establishing mere negligence.  That’s because a partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.  Somewhat related, under Iowa partnership law partners must discharge their duties to the partnership and the other partners under Iowa Code Chapter 486A or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.

 

The Iowa Court Of Appeals Reminds You To Prove Causation

There’s a question that sometimes seems to be overlooked in civil cases — How did the defendant’s supposed wrongdoing harm you?  You have to prove not only that the defendant violated some aspect of the law, but also that the defendant’s violation caused you injuries and damages.  That’s generally referred to as “causation.”  The standards for causation vary from one type of claim to another, but the basic principle is always that you must prove you were harmed by the defendant’s conduct or you have no claim.  The principle applies to a personal injury suit, products liability claim, motor vehicle accident claim, motorcycle accident claim, dog bite claim, employment or labor law claim, construction defect claim, business practices or contract law claim, debt collection practices law claim, nuisance law claim, or insurance law claim.

This is not an issue to be taken lightly.  Money damages do not automatically flow from a determination that a defendant violated the law.  If Point A is the defendant’s liability and Point C is your injuries and damages, you need to have a good argument for Point B, which is causation, or the connection between the defendant’s liability and your injuries and damages.

The Iowa Court of Appeals’s recent decision in Stutzman v. West Des Moines OB/GYN illustrates this concept in tragic fashion.  Stutzman was a wrongful death case involving Julie Stutzman’s death from cancer.  Her estate and surviving family claimed that her doctor committed malpractice in the manner in which the doctor handled some of Julie’s earlier doctor visits.  The plaintiffs argued that, had Julie’s doctor properly handled and responded to earlier communications from Julie, Julie’s cancer would have been detected sooner and she would have had a higher chance of survival.

The Stutzman plaintiffs lost because they could only prove one aspect of malpractice against Julie’s doctor and clinic — A charting error.  But they were unable to establish that the charting error made a difference in the course of Julie’s subsequent cancer diagnosis and death, i.e., causation.  So Stutzman is a recent, good example of the importance of having sufficient proof of causation to connect the defendant’s wrongdoing to your harm.  Even though Julie’s family proved that her doctor did something wrong, they could mot prove that the doctor’s error harmed Julie, and they lost their case.

The Impact Of Your Social Media Use On Your Legal Rights

Your social media posts are not private.  Nor is there any law that prevents a lawsuit opponent from using against you something you posted on Facebook, Twitter, Instagram, or any of countless internet websites and blogs.  If you’re involved in a personal injury suit, products liability claim, motor vehicle accident claim, motorcycle accident claim, dog bite claim, employment or labor law claim, construction defect claim, business practices or contract law claim, debt collection practices law claim, nuisance law claim or insurance law claim, that information could compromise your case.

It is routine for opposing counsel in all types of cases to request this information as part of their pretrial investigation.  They want to know if you’ve posted anything anywhere online that contradicts any part of your claim.  They also want to know if there are any photos or videos of you doing things that you shouldn’t be doing or claim that you can’t do.

Judges increasingly allow opposing counsel access to this information, even if you’ve marked it as private in your online profile or settings.  To judges, your online musings, pictures, and video are as much fair game in a lawsuit as would be a diary, journal, scrapbook with photos, etc.  So odds are good opposing counsel will get this information whether you like it or not.

And that only covers opposing counsel’s attempts to come in through the front door.  As long as opposing counsel doesn’t communicate directly with you, they’re also free to view anything that you’ve left publicly available.  So opposing counsel may be poking around your internet persona and you won’t even know it until it’s too late.

The moral of the story is to avoid putting anything online that your common sense tells you will be used against you by opposing counsel.  Chances are good counsel will eventually get that information somehow.  And they’re guaranteed to try to use it.

Service Animals In Public Places — When Must They Be Accommodated?

In an earlier post I wrote about the rules for service animals on airplanes.  But what about service animals in public or commercial places, like restaurants and stores?  Under what circumstances must a business allow service animals inside to avoid a business practices claim?

This issue is governed by the Americans With Disabilities Act (ADA).  Businesses must follow rules that the United States Department of Justice issues about ADA compliance.  The DOJ has responsibility for implementing the provisions of the ADA.  Generally, businesses must permit service animals to accompany people with disabilities in all areas where members of the public are allowed to go.

The starting question is — What is a service animal?  The DOJ now only recognizes dogs and miniature horses as service animals.  Usually, a service animal is a dog that is individually trained to do work or perform tasks for people with disabilities.  Service dogs are working animals, not pets.  The work or task a dog has been trained to provide must be directly related to the person’s disability.  Dogs whose sole function is to provide comfort or emotional support do not qualify as service animals under the ADA.

The requirements for service animals in public or commercial establishments have been broadly written to allow flexibility for all the various situations that may arise with service animals.  A one-size-fits-all approach would not work and would be impossible to apply to different types of establishments and different types of disabilities.  The only real constant is the fact that, under federal law, most service animals will be dogs.

The ADA requires state and local governments, businesses, and nonprofit organizations that serve the public generally to allow service animals to accompany people with disabilities in all areas of the facility where the public is normally allowed to go.  A service animal must be harnessed, leashed, or tethered, unless these devices interfere with the service animal’s work or the individual’s disability prevents using these devices.  In that case, the individual must maintain control of the animal through voice, signal, or other effective controls.

A person with a disability cannot be asked to remove his service animal from the premises unless: (1) the dog is out of control and the handler does not take effective action to control it or (2) the dog is not housebroken. When there is a legitimate reason to ask that a service animal be removed, staff must offer the person with the disability the opportunity to obtain goods or services without the animal’s presence.  Establishments that sell or prepare food must allow service animals in public areas even if state or local health codes prohibit animals on the premises.  People with disabilities who use service animals cannot be isolated from other patrons, treated less favorably than other patrons, or charged fees that are not charged to other patrons without animals. In addition, if a business requires a deposit or fee to be paid by patrons with pets, it must waive the charge for service animals.

When it is not obvious what service an animal provides, only limited inquiries are allowed. Staff may ask two questions: (1) is the dog a service animal required because of a disability, and (2) what work or task has the dog been trained to perform. Staff cannot ask about the person’s disability, require medical documentation, require a special identification card or training documentation for the dog, or ask that the dog demonstrate its ability to perform the work or task.  Allergies and fear of dogs are not valid reasons for denying access or refusing service to people using service animals. When a person who is allergic to dog dander and a person who uses a service animal must spend time in the same room or facility, for example, in a school classroom or at a homeless shelter, they both should be accommodated by assigning them, if possible, to different locations within the room or different rooms in the facility.

Service Animals On Commercial Air Flights

A recent incident on a U.S. Airways flight involving a disabled veteran and his service dog has brought attention to the issue of service animals on  commercial flights.  The veteran was ejected from the flight because he refused to put his service dog on the floor in front of him.  Instead, he insisted that the dog be allowed to sit on an empty seat next to him.  This is a rare publicized episode of a business practices area of disability discrimination law (service animals on commercial flights) that has received scant attention from the courts.

A few starting points.  First, this is not a issue under the Americans With Disabilities Act (ADA).  Rather, this situation is covered by the federal Air Carrier Access Act (ACAA), which is interpreted by the U.S. Department of Transportation.  Second, although a moot point here because the passenger’s service animal was a dog, beginning March 15, 2011 the U.S. Department of Justice issued new rules under the analogous ADA that restrict the definition of “service animal” to dogs and miniature horses.  If the DOT follows suit in revising the ACAA’s rules, eventually only dogs and miniature horses will be allowed on planes as service animals, assuming there’s even a way to get a miniature horse on an airplane and keep it somewhere in the cabin.

So let’s focus on a common type of service animal, dogs.   The DOT’s rules currently state that a service animal is (i) an animal individually trained and which performs functions to assist a person with a disability; (ii) an animal that has been shown to have the innate ability to assist a person with a disability, e.g., a seizure alert animal; or (iii) an emotional support animal.  Airlines must permit dogs and other service animals used by passengers with a disability to accompany the passengers on their flights.  In addition, such passengers must be allowed to have their service animal accompany them to their assigned seat and remain there as long as the animal does not obstruct the aisle or other areas that must remain unobstructed for safety reasons.  Moreover, disabled passengers must be able to keep their service animals with them unless the animal poses a direct threat to the health or safety of others or presents a significant threat of disruption to the airline service in the cabin.

There are numerous decisions and considerations that are implicated by service animals on an aircraft.  Too many to address in a single post.  The main questions are (1) Is the passenger with the animal disabled?  (2) Is the animal a service animal or a pet?  (3) Can the service animal be transported in the aircraft’s cabin?

You might wonder why this is even an issue since most airlines allow dogs to travel with passengers in the aircraft cabin.  It has to do with the special considerations given to passengers with service dogs.  DOT rules require that the dog fly free, that the disabled passenger receive special seating consideration to accommodate the dog, and that the airline waive some requirements regarding when a dog can’t be transported in the passenger cabin (for example, size or weight restrictions).  Unfortunately, some people who aren’t disabled or who don’t have a true service animal lie in an effort to gain one or more of those special considerations to which they normally wouldn’t be entitled.

So who was right in the dispute between U.S. Airways and the disabled veteran regarding placement of his service dog?  Probably U.S. Airways.  To my knowledge, no federal court has ever issued a decision on whether a disabled passenger must be allowed to keep their service animal on an adjacent unoccupied seat.  But the DOT’s policy guidance concerning service animals in air transportation suggests that airlines can insist that service animals be placed in front of, not on a seat next to, a disabled passenger.  The DOT’s policy guidance specifically references placing service animals on the floor in  front of the passenger.  It also notes that airlines are not required to furnish more than one seat per ticket in order to accommodate a service animal, which implies that if a disabled passenger wants the service animal on the adjacent seat and the airline allows that, the airline can ask the disabled passenger to pay for the second seat.

Please feel free to contact me if you have any questions about service animals under the Americans With Disabilities Act or the Air Carrier Access Act.

Legal Liability For Abuse Of Process

Invariably, when I represent someone or a company that gets sued, early questions from my client include “how can they just sue me?”, “don’t they have to have proof?,” and “can I get my attorney fees after we win the defense?”  Let me discuss the attorney fee question.  It’s extremely rare, absent a contract or statute that provides for attorney fees, for a successful party to recover attorney fees from the losing party.  Usually, upon successfully defending a case the only way you can recover your attorney fees is if the lawsuit against you had absolutely no basis in law or fact or was brought for an improper purpose.  One such claim for attorney fees is called “abuse of process.”

Abuse of process is the use of legal process, whether criminal or civil, against another primarily to accomplish a purpose for which it was not designed.  The improper purpose is ordinarily an attempt to secure from another some collateral advantage not properly includable in the process itself and is a form of extortion in which a lawfully used process is perverted to an unlawful use.  An abuse of process can occur even though there is probable cause to bring the action and the original action terminates in favor of the plaintiff.  At the same time, the mere failure of a legal claim, without more, furnish proof of some attempt to gain a collateral advantage by pursuit of the claim.  Any type of legal claim, including business or contract law cases, motor vehicle accidents, motorcycle crashes, dog bite cases, private nuisance actions, employment law matters, construction defect claims, personal injury or wrongful death claims, or products liability claims, can be improper and thus expose the party bringing the action to a later abuse of process claim.

To prove a claim of abuse of process, a plaintiff must show (1) use of the legal process, (2) in an improper or unauthorized manner, and (3) that damages were sustained as a result of the abuse.   With respect to the second element of the cause of action for abuse of process, a plaintiff must prove that the defendant used the legal process primarily for an impermissible or illegal motive.  Id. 

A very restrictive view is taken of the “impermissible or illegal motive element.”  Proof of an improper motive by the person filing the lawsuit for even a malicious purpose does not satisfy this element.  This is so to protect the right to ready access to the courts.  An ulterior motive does not alone satisfy the requirement for an action in abuse of process; a definite act or threat outside the process is required.  Consequently, this is a difficult element to establish.

All of this is true as long as the act that is alleged to be improper is in fact proper in the regular prosecution of the proceeding.  A defendant is not liable if it has done no more than carry the process to its authorized conclusion, even with bad intentions.  There is no action for abuse of process when the process is used for the purpose for which it is intended, but there is an incidental motive of spite or an ulterior purpose of benefit to the defendant.  For abuse of process to occur there must be use of the process for an immediate purpose other than that for which it was designed and intended.  The usual case of abuse of process is one of some form of extortion, using the process to put pressure upon the other to compel him to pay a different debt or to take some other action or refrain from it.

Any act that is proper in the regular prosecution of a proceeding cannot be relied upon as a basis for an abuse of process claim.  Rather, to show abuse of process, a plaintiff must show defendants took some specific action in connection with their use of process which can be characterized as unlawful or irregular.  In other words, plaintiff must show defendants committed some act in the use of process that was not proper in the regular prosecution of the proceeding.  Proof of an improper motive by the person filing a lawsuit, even a malicious purpose, does not satisfy that element.

Abuse of process will not lie for a civil action that inconveniences a defendant, or for one filed in expectation of settlement (a “nuisance” suit).  Wilson, 464 N.W.2d at 267.  Settlement is included in the goals of proper process, even if the suit is frivolous.  Id.  Additionally, there is no abuse of process when the action is filed to intimidate and embarrass a defendant knowing there is no entitlement to recover the full amount of damages sought.  Id.

 

What’s The Big Deal About Big Class Actions?

Class actions allow groups of people to come together in one lawsuit against a common defendant and assert common legal claims.  Class actions are a method of addressing the same legal problem across a group of people rather than doing so through many individual lawsuits.  Class actions are available for personal injury or wrongful death, defective products, employment and labor, consumer fraud, business practices and contract law, or insurance law cases, among many other possibilities.

It seems like some lobbying group is always complaining about class actions.  Trying to reduce the situations when a class action can be brought.  Trying to shuttle all class actions to federal court where they can suffer a slow death.  Trying to get people to agree to contracts that foreclose their right to participate in a class action.  Trying to eliminate the class action vehicle period.

So, given the uproar over class actions, they must be easy moneymaking machines that any lawyer can file and instantly become a multimillionaire, right?  Just find a named plaintiff, slap the words “class action” in the lawsuit caption, file the thing, and have plenty of buckets available to catch the gold coins when they start raining from the sky.  Well, let’s have a reality check for a moment.

The truth is that there’s an entire section of the rules of procedure and an entire body of case law on the books that governs class actions.  Any lawsuit that becomes a class action usually does so after passing through a series of judicial checks and balances to ensure that a class action is truly appropriate.  And, under Iowa law, any district court order certifying a lawsuit as a class action is automatically reviewed by the Iowa Supreme Court.  Even the settlement of a class action, which is when the big bucks are usually made, is strictly monitored by the courts for compliance with the procedural rules and case law I mentioned.  Thus, class actions are not the license to print money that some organizations would have you believe them to be.

What’s often omitted from the discussion is the benefits provided by class actions, such as:  class action lawsuits create strength in numbers; class action lawsuits allow people to be included in the lawsuit who otherwise would not have been able to bring an individual lawsuit;even if they wouldn’t have been able to afford an individual lawsuit; class actions are cost effective for plaintiffs and defendants because both benefit from not having to deal with dozens, hundreds, or thousands of the same claim over and over again; class action lawsuits increase the courts’ efficiency for the same reasons that class actions are cost effective; and class action lawsuits are the great equalizer between the masses and huge corporations with limitless bank accounts to use defending themselves, especially for small claims that otherwise have no chance on an individual basis.

Can You Be Defamed At Work By Your Managers Or Co-Workers?

Defamation consists of false written or oral statements that tend to injure a person’s reputation and good name.  But how does that apply to managers or co-workers in the employment context?  Can comments by a manager or co-worker lead to liability for defamation or some sort of business practices issue?  The Iowa Supreme Court has never answered that question, but the Iowa Court of Appeals did recently in Newell v. JDS Holdings.

The Newell court decided that inter-corporate communications can, in limited circumstances, form the basis for a defamation claim.  The court thought that a defamatory statement made to one’s employer can harm one’s business reputation with the employer, whether the defamer is a co-worker or is instead removed from the employment relationship.  But the Newell court also ruled that inter-office communications are entitled to a limited privilege under certain circumstances, a privilege that, if applicable, protects the co-worker or manager from liability for defamation.

Under Newell, there’s now a two-stage inquiry under Iowa law in inter-corporate defamation cases.  First, is the statement entitled to protection under the limited privilege?  Second, if the statement is entitled to the limited privilege, has the defendant somehow abused the privilege and forfeited the immunity that the privilege would otherwise provide?

The limited privilege applies to employment communications if (1) the statement was made in good faith (2) the statement was on any subject matter in which the person communicating has an interest to uphold or with reference to which the person had a duty to speak (3) the scope of the statement was limited to the identified interest, and (4) the statement was made on a proper occasion, in a proper manner, and to proper parties only.  Inter-corporate statements that do not satisfy each of those elements do not received privileged status.

Even if an inter-corporate statement does receive protection from the limited privilege, that protection can be lost if the privilege is abused.  To defeat the privilege, a plaintiff must prove the defendant acted with knowing or reckless disregard of the truth of the statement.  If that cannot be proved, then the limited privilege applies and the manager or co-worker is immune from liability.  Of course, if the statement complained about is not even entitled to the limited privilege, then standard defamation rules apply and there is no possible immunity from liability.