Court Holds There to Be No Breach of Duty of Loyalty Between Partners With Respect to Post-Term Activities

Court Holds There to Be No Breach of Duty of Loyalty Between Partners

With Respect to Post-Term Activities

 

      In Cass JV, LLC v. Host International, Inc., Cass and Host jointly bid on and were awarded the right to operate concessions at an airport for a franchise period of ten years.  During that period the relationship between Cass and Host deteriorated.  Prior to the time that solicitations were made for the concession franchise for the next ten-year period, Host advised Cass that it would not be bidding with Cass for the next period.  Host, with a new partner, was awarded the franchise for the next period, and Cass brought suit alleging breach of fiduciary duty.  Cass JV, LLC v. Host International, Inc., No. 312-CV-00359-CRS-DW, 2014 WL 3955366 (W.D. Ky. Aug 13, 2014).

      The District Court found there to be no breach of duty.  Initially, the purpose of the partnership was defined as exploitation of the concession franchise, that being defined as that for a specific ten-year period.  Second, Host had advised Cass that they would not be together bidding to receive the franchise for the next period.  On that basis there was no concealment of intentions.

 

      On this decision is consistent with a long string of court cases which have held, inter alia, that when the purpose of a partnership is defined as exploiting an opportunity for a particular term or undertaking, there is no breach of duty when one of the participants in the venture exploits those same assets and on a subsequent term or in a different undertaking see, e.g., Whalen v. Connelly, 545 N.W.2d 284 (Iowa 1996) (purpose of particular venture described as exploitation of a particular business opportunity with only the possibility, but no commitment, of expansion into other areas).