[F]or a partnership to arise in law, two or more persons must intend to associate together to carry on as co-owners for profit. . . . "In general, the courts, in determining objective partnership intent, look for the presence or absence of the attributes of co-ownership, including profit and loss sharing, control, and capital contributions."
Beckham v. Farmer
The parties agreed to form a joint law practice called "Beckman & Farmer." While they did not have a formal contract defining the nature of their association, they did agree that plaintiff would receive a guaranteed draw of $85,000 annually, and part of the firm's profits if over certain amounts. Beckham agreed to provide financing provided he would receive reimbursement and was to receive payment as rent for the furnishings. Most of the firm's clients were also provided by Beckham. Kirstein later joined the firm, adding his name, and signed a "partnership agreement" whereby he received an $80,000 draw and a share of the profit once a certain amount of firm profit was reached.
The firm's accounts, books, and records were maintained as if the firm was a partnership. The firm filed partnership tax returns and the three were identified as partners, while Beckham personally provided funding as agreed.
After a few years, the firm filed a multi-million antitrust suit in association with another firm, and they soon settled it. This agreement stipulated that the firms would receive $12.5 million to be split equally between them, with Beckham's firm to receive an extra $340,000 in fees for work performed beforehand. However, Farmer was no longer associated with Beckham and Kirstein by this time.
Farmer had signed a separation agreement the year before. Farmer had never received his final accounting however, despite his continued sending of memos proposing different options. After the settlement agreement, Farmer filed suit against Beckham and Kirstein for breaching their fiduciary duty by forcing him out of the partnership by fraud and refusing to acknowledge his partnership rights.
Trial court granted plaintiff's cross-motion for summary judgment.
Was Farmer a partner?
Farmer satisfied his initial burden to show the existence of a partnership. He shared profits after a certain level of income, he was referred to as a partner, and the firm held itself out as a partnership to tax authorities, lessors, creditors, banks, clients, and its own accountant. Farmer shared the right of ultimate control, as the partners were required to agree when discussing management matters. Farmer was also liable on the bank loans. These establish that the parties associated together with the intent to carry on the business as co-owners for profit.
However, there are material issues of fact concerning the lack of control rights and sharing in losses and liabilities. Farmer still had a guaranteed payment, while Beckham met all firm expenses and capitalization requirements personally. Beckham claims that Farmer never bore any risk of loss and during early negotiations expressed that he expressed that he could not bear a liability for firm obligations. Beckham also alleged that he had sole management authority and that Farmer had no ownership interest, despite Beckham offering him an opportunity to acquire such an interest. Promissory notes in the name of the partnership had no liability for Farmer, and Beckham leased equipment to the firm. While these facts could be compatible with a partnership, they do weigh against it. Beckham also could have personally assumed the risk from Farmer despite him being held out as liable to creditors. These facts raise a genuine issue of material fact, and summary judgment in inappropriate.
It cannot be held that Farmer was a partner as a matter of law. Affirmed with costs.