Reference no: EM131637452

Fiduciary Duty

FACT SUMMARY In February 1992, author Thomas Clancy formed Jack Ryan Limited Partnership (JRLP) named after Clancy’s fictional hero. Clancy’s only partner in the venture was his wife, King. JRLP’s purpose was to generate revenue related to the writing, publishing, and sale of certain novels. Each partner owned a half interest in JRLP. The partnership agreement had standard provisions imposing the duty of diligence, but also contained a specific provision that allowed each partner to compete freely on an individual basis with the interests of JRLP. Specifically, the partners gave up the right to claim that the other party breached the duty of care due to a partner’s participation in a competing venture.

After formation of the partnership, JRLP entered into an agreement with a literary agency for Clancy to lend his name only to a series of novels written by an author who was using a “Clancy-esque” writing style. In this agreement, Clancy had the absolute right to withdraw the use of his name for the series at any time. Clancy apparently had very little to do with the venture, but his name had sufficient marketing power to propel the series to substantial financial success.

By 1996 Clancy and King were divorced but remained partners in the highly profitable JRLP entity. In 2001, Clancy announced that he was exercising his right to withdraw the right to use his name for the series starting in 2004. When Clancy did finally withdraw the right to use his name, King filed suit against him alleging that Clancy’s withdrawal of the right to use his name was a breach of fiduciary duty that he owed to King and was done out of ill will toward her stemming from the divorce. Clancy countered that he had the right to conduct the partnership as he thought best and pointed to the partnership agreement’s provision on insulation from liability for due care. The case eventually went to Maryland’s highest court.

SYNOPSIS OF DECISION AND OPINION The Maryland Court of Appeals ruled that Clancy’s withdrawal of the use of his name constituted an act of bad faith that breaches the general duty of good faith and fair dealing owed to his partner King. No matter what the parties agreed to in terms of the duty of care, a duty of good faith and fair dealing underlie the actions of the partners. The court defined an act of bad faith as an act where a primary motivator of the partner’s conduct is to injure either the firm’s value or other partners. Under the doctrine of good faith, a partner impliedly promises to refrain from conduct that will harm the partnership and other partners.

WORDS OF THE COURT: Good Faith Requirement “If a significant motive for Clancy exercising his right to withdraw his name from the [venture] series was to decrease the profitability of the series, thereby denying his JRLP partner and ex-wife revenue, because he desired to spite or punish King for or as a consequence of their divorce, it could reasonably be maintained that he acted in bad faith towards [them]. One certainly breaches the promise of good faith owed [ . . . ] as a fiduciary in a partnership by working actively to decrease the profits of the business venture.”

Case Question

Responses must be a minimum of 250 words each citing any resources used to support your response in APA format.

1. Are there any circumstances under which there could be a good faith reason for Clancy to withdraw the right to use his name?