Business Associations, Pages 247–249

Bane v. Ferguson

United States Court of Appeals for the Seventh Circuit, 1989

Facts:

Plaintiff worked at a law firm with a retirement plan entitling every partner to a pension. The pension's amount depended on the firm's earnings on the eve of the retirement, but it would cease when the firm dissolved without a successor entity and could not exceed 5% of the firm's net income in the preceding year.

Plaintiff retired at 72 with this plan in place and began to draw $27,483 a year, which was then his only significant source of income. Several months after retiring, his firm merged with another large firm, but the merged firm was dissolved a couple years later without a successor. Plaintiff's payments then stopped and plaintiff sued.

Procedural History:

District court held that there is no remedy under Illinois law.

Issue:

Did defendants breach their duty of care through negligent mismanagement?

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 248
805 ILCS 205/9

(3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:

. . .

  1. Do any other act which would make it impossible to carry on the ordinary business of the partnership;

Reasoning:

The purpose of this statute is not make negligent partners liable to third-parties the partnership contracts with, but to limit the liability of the other partners for for the unauthorized act of one partner. It is to protect partners, not give them additional liability. Plaintiff stopped being a partner when he retired. Partners do not owe fiduciary duties to their former partners, only their current ones. Plaintiff was informed of how the plan worked and bore the risk of this happening. Even fi the defendants were fiduciaries of plaintiff, the business-judgment rule would shield them from liability for mere negligence.

Holding:

No, defendants did not even owe a duty of care to plaintiff, much less breach it. Affirmed.

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