Dunn v. Zimmerman

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Dunn v. Zimmerman

State: Ohio

Court: Supreme Court

Docket No: 1993-0574

Case Date: 05/18/1994

Plaintiff: Dunn

Defendant: Zimmerman

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Dunn, Appellee, v. Zimmerman, a.k.a. Dunn, Appellant, et al.
[Cite as Dunn v. Zimmerman (1994), Ohio St.3d .]
Partnerships -- Breach of fiduciary duty among partners
actionable at law -- Remedy for breach of fiduciary duty is an
accounting.

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A breach of fiduciary duty among partners is actionable at

law. The usual and normal remedy for a breach of

fiduciary duty or other legal conflict among partners is

an accounting.

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(No. 93-574 -- Submitted December 15, 1993 -- Decided May
18, 1994.)
Certified by the Court of Appeals for Summit County, No.
15698.

On February 7, 1980, appellee, Harvey Dunn, and appellant,
Cindy Zimmerman, executed an agreement to become partners in
the ownership and operation of a parcel of commercial property
in Akron, Ohio. According to the agreement, Dunn owned a
seventy-percent interest in the partnership property, and
Zimmerman a thirty-percent interest. Zimmerman managed the
property, and received a percentage of the rents collected as
her fee.

Zimmerman subsequently developed a drug addiction, which
led her to convert funds from the partnership to her own use.
Zimmerman admits that she mismanaged the property. Dunn
discovered Zimmerman's activities and sought restitution. As a
result, in May 1988 Zimmerman paid $10,000 to the partnership,
and later executed two notes in the amount of $15,000 and
$20,658, on which the partnership eventually collected.

In September 1989, Dunn filed a complaint naming Zimmerman
and Max Dunn as defendants. Max Dunn is Zimmerman's father,
and assisted Zimmerman on some aspects of the management of the
property. The complaint alleged conspiracy and conversion, and
prayed for injunctive relief, an accounting, and compensatory
and punitive damages.

The matter was tried before a referee, who concluded that
the record lacked proof of how much damage Dunn had suffered in

excess of the $45,658 that Zimmerman had already paid. He thus
recommended an award of $100 nominal compensatory damages and
$14,900 punitive damages for Zimmerman's willful breach of her
fiduciary obligations. Zimmerman objected to the report,
asserting that a partner could bring no claim for money damages
for breach of fiduciary duty in the absence of an accounting.
The referee issued a supplementary report, leaving intact the
nominal and punitive damage awards, which the trial court
adopted.

Zimmerman appealed, assigning as error, inter alia, the
trial court's award of damages without a full accounting of the
partnership affairs. The court of appeals affirmed the
judgment of the trial court. Finding its judgment to be in
conflict with that of the Court of Appeals for Franklin County
in Deist v. Timmins (1986), 32 Ohio App.3d 74, 513 N.E.2d 1382,
the court of appeals certified the record of the case to this
court for review and final determination.

Joseph S. Kodish and Mark B. Weisman, for appellee.
Melvin R. Hawk, for appellant.

Moyer, C.J. The question certified for our review is
"whether a partner may maintain an action for breach of a
fiduciary duty by one partner against another." Answering the
certified question in this case also requires this court to
consider in what circumstances a formal accounting is required
in an action at law between partners.

Partners in Ohio owe a fiduciary duty to one another.
Arpadi v. First MSP Corp. (1994), 68 Ohio St.3d 453,
N.E.2d , paragraph two of the syllabus. This duty would be
meaningless without the existence of a remedy for its breach.
Nevertheless, we have never explicitly recognized a claim for
damages for breach of fiduciary duty by a member of a
partnership. Cf. Slater v. Motorists Mut. Ins. Co. (1962), 174
Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45 (recognizing claim
for breach of insurer's duty to act in good faith towards
insured). Consequently, at least one appellate court has
concluded that Ohio does not recognize a claim for breach of
implied fiduciary duty between partners. Deist v. Timmins
(1986), 32 Ohio App.3d 74, 513 N.E.2d 1382.

In 1949, the General Assembly adopted G.C. Chapter 8105,
now R.C. Chapter 1775, the Uniform Partnership Law. Two
provisions of the statute guide our interpretation of it. R.C.
1775.04 provides: "In any case not provided for in sections
1775.01 to 1775.42, inclusive, of the Revised Code, the rules
of law and equity, including the law merchant, shall govern."
We therefore look first to the statute to determine whether it
recognizes a right to bring an action for breach of fiduciary
duty. Second, R.C. 1775.03(A) provides that "[t]he rule that
statutes in derogation of the common law are to be strictly
construed has no application to section[s] 1775.01 to 1775.42
of the Revised Code." We interpret this provision to mean that
the General Assembly intended the Uniform Partnership Law to be
liberally construed.

R.C. 1775.20(A) provides in pertinent part:

"Every partner must account to the partnership for any
benefit and hold as trustee for it any profits derived by him

without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property."

This provision is essentially the codification of the
common-law fiduciary duty owed by partners to one another. In
addition, R.C. 1775.21 provides:

"Any partner has the right to a formal account as to
partnership affairs:

"(A) If he is wrongfully excluded from the partnership
business or possession of its property by his partners;

"(B) If the right exists under the terms of any agreement;

"(C) As provided by section 1775.20 of the Revised Code;

"(D) Whenever other circumstances render it just and
reasonable."

Construing R.C. 1775.20 and 1775.21 liberally, we conclude
that the General Assembly intended that a breach of fiduciary
duty among partners is actionable at law. We conclude also
that the usual and normal remedy for a breach of fiduciary duty
or other legal conflict among partners is an accounting. The
broad scope of circumstances listed in R.C. 1775.21(A) to (D)
indicates that an accounting is an appropriate remedy for a
range of wrongs, embracing more than just breach of fiduciary
duty. In the instant case, for example, the complaint
contained counts for conversion and conspiracy. Depending on
the specific facts of the case, such independent claims may be
grounds for an accounting under subections (A), (C) or (D).

We note that R.C. 1775.21, establishing the right to an
accounting, does not require the windup or dissolution of the
partnership. R.C. 1775.42, in contrast, provides a right to
seek an accounting upon dissolution of a partnership. In
addition, R.C. 1775.17(A) to (H) provide a set of rules for the
court to follow in determining the rights and liabilities among
partners when rendering an account.

A party seeking an accounting must introduce sufficient
evidence to enable the court to make a definitive accounting
that states the "'true condition of [the] affairs'" between the
partners. Oglesby v. Thompson (1898), 59 Ohio St. 60, 64, 51

N.E. 878 (quoting Slater, Myers & Co. v. Arnett [1886], 81 Va.
432, syllabus). In the absence of sufficient proof, the court
must leave the parties where they stand. Id. Once the
accounting has been conducted, the trial court may enforce the
collection of any amounts found owing. The trial court's award
may include punitive damages in the appropriate circumstances.
See Digital & Analog Design Corp. v. N. Supply Co. (1989), 44
Ohio St.3d 36, 540 N.E.2d 1358.

This interpretation of R.C. Chapter 1775 accords with the
common law of Ohio and other jurisdictions. This court last
addressed the question of the need for an accounting in an
action between partners nearly a century ago. The court
established the rule that a partner could not maintain an
action against a copartner for contribution in the payment of a
partnership debt until there had been a final accounting of
partnership affairs. Kunneke v. Mapel (1899), 60 Ohio St. 1,
53 N.E. 259, paragraph one of the syllabus. The one narrow
exception to the rule was when a "particular transaction had,
by agreement, been withdrawn from the partnership account."
Id. The rule in Kunneke was said to be a corollary of the

holding of Oglesby, supra, 59 Ohio St. 60, 51 N.E. 878,
paragraph one of the syllabus, that in a suit for an accounting
by one partner against another, there could be no judgment in
favor of either party before a full accounting had been
completed. The rationale for the rule of Kunneke and Oglesby
was that until a full accounting had been done, it was
impossible to tell, based on the entire scope of partnership
transactions, who owed what to whom. Id.

Another justification for the traditional rule stems from
the fact that at common law, partners were jointly liable for
their obligations. Suing one's partner would therefore require
the joinder of each member of the partnership as defendants,
including the plaintiff. The result would be that,
technically, one party would be both plaintiff and defendant in
the same cause. Sertich v. Moorman (1989), 162 Ariz. 407, 783
P.2d 1199; Balcor Income Properties, Ltd. v. Arlen Realty, Inc.
(1981), 95 Ill.App.3d 700, 420 N.E.2d 612.

Numerous courts have recognized one or more exceptions to
the general rule. In Ohio, courts have recognized legal claims
between partners without an accounting when the basis of the
suit does not involve a searching inquiry into the affairs of
the partnership. Hanes v. Giambrone (1984), 14 Ohio App.3d
400, 14 OBR 518, 471 N.E.2d 801 (allowing an action between
partners to collect unpaid partnership contributions). See,
also, Lorain Natl. Bank v. Saratoga Apts. (1989), 61 Ohio
App.3d 127, 572 N.E.2d 198 (recognizing a claim for breach of
fiduciary duty despite dismissal of claim for an accounting).

Other jurisdictions have recognized similar exceptions.
In Battles v. LaSalle Natl. Bank (1993), 240 Ill.App.3d 550,
608 N.E.2d 438, the court allowed general partners to sue
another general partner without an accounting for breach of
fiduciary duty in disposing of partnership property. Likewise,
in Fulton v. Baxter (1979), 596 P.2d 540, the Supreme Court of
Oklahoma allowed a lawsuit for breach of fiduciary duty by a
partner in the absence of an accounting when the complaint
alleged that the defendant had wrongfully appropriated a
partnership lease to his own use.

These exceptions arose from the recognition that in
certain cases the rationales for the traditional rule do not
apply. For example, it has been stated that the merger of law
and equity in a single court has eliminated the technical
problem that a party may not be plaintiff and defendant in the
same cause, a rule that was enforced in legal actions, but not
in equitable ones. Sertich, supra, 162 Ariz. at 412, 783 P.2d
at 1204; Balcor Income Properties, supra, 95 Ill.App.3d at 703,
420 N.E.2d at 614.

Even courts that have recognized exceptions to the
traditional rule requiring an accounting, however, have applied
the exception narrowly. Thus, the Supreme Court of Hawaii held
that, although no accounting is necessary for one partner to
sue another "if the amount sued for is capable of computation
and ascertainment by a jury without a full accounting," this
exception did not apply where the relevant transactions among
the partners are complex and cover a long period of time. Lau

v. Valu-Bilt Homes, Ltd. (1978), 59 Haw. 283, 290, 582 P.2d
195, 200. The Lau court specifically cited the fact that the
evidence consisted of numerous documents and accounts, and that

many of the accounts had not yet been wound up at the time of
trial. Id. at 292, 582 P.2d at 201. See, also, Giblin v.
Anesthesiology Assoc. (1991), 171 App.Div.2d 839, 567 N.Y.S.2d
775 (claim for incidental benefits of employment upon
termination from partnership not appropriate for suit without
accounting); Catron v. Watson (1970), 12 Ariz.App. 132, 468
P.2d 399 (accounting necessary when complaint alleged failure
to pay contributions to promissory note and tax assessment, and
general mismanagement of business).

At common law, then, the prevailing view has been that an
accounting is generally a prerequisite to an action at law that
arises from the affairs of a partnership. This rule continues
to be jurisprudentially sound because of the concern, as valid
today as it was a century ago, that determining obligations
between partners requires an inquiry into the full scope of the
partnership business.

We recognize, however, that in the universe of disputes
that might arise among partners, there may be some for which a
formal accounting would be a pointless exercise. Such cases
would involve disputes over a very limited time or number of
transactions, whose resolution would not require a searching
inquiry into partnership affairs. We emphasize that this would
be the exceptional case. It would be the rare case indeed in
which a trial court abuses its discretion in ordering an
accounting as a means of determining a legal dispute between
partners.

In this case, the general rule applies. The allegations
of Dunn's complaint are not narrowly limited in either scope or
time. In fact, plaintiff alleged in paragraph twenty-one of
his complaint that "[t]he amount of money due from Defendants
to Plaintiff is unknown to Plaintiff at this time, and cannot
be ascertained without an accounting showing all receipts
received by Defendants ***." Furthermore, Dunn asserted in a
court filing that "Plaintiff finally discovered the amount and
extent of [defendant's] theft after spending hundreds of hours
of work to determine the amount and the fact that she had been
stealing money from the partnership for several years." By her
own admission, Zimmerman's misappropriation of partnership
property encompassed several years and a large number of
transactions. It is thus apparent that the true standing of
plaintiff and defendant cannot be ascertained in the absence of
a formal accounting.

We therefore reverse the judgment of the court of appeals
and remand the cause for proceedings consistent with this
opinion.

Judgment reversed

and cause remanded.

A.W. Sweeney, Douglas, Wright, Resnick, F.E. Sweeney and Pfeifer, JJ., concur.

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