Gain Without Regard To Profits Does Not A Partnership Make

Allen Matkins
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Allen Matkins

It does not take much to create a partnership under California's Uniform Partnership Act of 1994, which defines a partnership as "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership".  Cal. Corp. Code § 16202(a).  A partnership agreement, moreover, may be written, oral or even implied.  Cal. Corp. Code § 16101.  

"April is the cruellest month . . ."

In Ecohub, LLC v.  Nortech Waste LLC,  2023 WL 3852700 (N.D. Cal. June 6, 2023), the plaintiff and the defendant jointly pitched a proposal to manage and operate a waste facility.  If successful, the defendant would be paid $10 per ton of waste collected and the plaintiff would be entitled to the remaining profits from operating the facility.  Needless to say, the pitch did not go well and the plaintiff sued for breach of fiduciary duty.  In order to establish a fiduciary duty, the plaintiff alleged that the arrangement constituted a partnership or joint venture.  U.S. Magistrate Judge Thomas S. Hixson disagreed finding that where "one party stands to gain whether or not the venture is profitable, for example through payment of a flat fee, no joint venture is created". (quoting Prostar Wireless Grp., LLC v. Domino's Pizza, Inc., 360 F. Supp. 3d 994, 1009 (N.D. Cal. 2018), aff'd, 815 F. App'x 117 (9th Cir. 2020)).  Judge Hixson also found that the plaintiff had failed to allege joint control or management of the alleged joint venture., finding that the plaintiff's allegations indicated input, but not a right to control or manage the process.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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