DISCLOSURE PROBLEMS IN HIGH-TECH JOINT VENTURES

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Copyright © Tulane University 1991.

Tulane Law Review

March, 1991

65 Tul. L. Rev. 705

LENGTH: 26990 words

ARTICLE: "ASK ME NO QUESTIONS AND I'LL TELL YOU NO LIES":STATUTORY AND COMMON-LAW DISCLOSURE REQUIREMENTSWITHIN HIGH-TECH JOINT VENTURES.

NAME: ALLAN W. VESTAL *

BIO:

* Assistant Professor, Washington and Lee University School of Law. B.A. 1976, YaleUniversity; J.D. 1979, Yale University. The assistance of the Frances Lewis Law Center,Washington and Lee University, is gratefully acknowledged.

LEXISNEXIS SUMMARY:

... American business has discovered the joint venture. ... "Thingsaffecting the partnership," the disclosure of which would be harmfulto the participant, would parallel the information that the jointventure would require for its internal use (for example, Delta's plansto expand or curtail service to various locations, American'soccupancy statistics on the various routes, or a plan to merge Deltaand another airline). ... The partners in a sophisticated joint venturemay by written agreement limit the access of any or all of them to

designated partner or venture information. ...

TEXT:[*706] American business has discovered the joint venture.

Especially in certain high-tech industries n1 and sectors of the

economy with a strong international potential, n2 the joint venture isbeing touted as the answer to problems ranging from the need to

minimize risk in high technology projects, n3 to difficulties in capital

1/17/2011 LexisNexis® Academic & Library Soluti…

…dom.edu/hottopics/lnacademic/ 1/



formation, n4 to excessive government regulation, n5 to a need to

[*707] bring new techniques into aging American industries, n6 to a

lack of competitiveness in international markets. n7 As one writer put

it, some American companies have "gone consortia-crazy." n8

Well-publicized examples of recent high-tech joint ventures include

the government-backed joint venture to protect the Americansemiconductor industry (Sematech), n9 the partnership between HEM

and Du Pont to develop the AIDS drug Ampligen, n10 and the"independent partnership" of Delta Air Lines and American Airlines to

consolidate their proprietary reservation systems. n11 But it is not justthe largest businesses that enter into joint ventures; small- andmedium-sized high-tech businesses also participate. In the computerindustry, for example, small- and medium-sized companies "are

beginning to use strategic partnering agreements as a foundation of their strategic activities" because of the extraordinarily high cost of research and development and the difficulty in creating distribution

channels into profitable international markets. n12

In the rapidly developing marketplace, the legal dimension of the joint venture phenomenon in some instances has been [*708]subordinated to the business dimension. For instance, the

subordination of legal analysis has resulted in the imprecise use of terms among the business people and some of the lawyers involved.The terms "joint venture" and "partnership," for example, are used to

characterize both corporate and noncorporate entities. n13 Theconsultants and public relations people have added new terms, such

as "strategic partnership" n14 and "independent partnership," n15

which have no intrinsic legal significance. The more creativeinvestment banker community, meanwhile, has adopted, and misused

the Japanese term "zaibatsu." n16

The imprecision in terminology, perhaps not critical standing alone,reflects the relatively underdeveloped state of some aspects of thelegal analysis relevant to the new wave of high-tech joint ventures.Both the government and business people involved in joint ventureshave addressed some of the legal problems, most notably the externa

antitrust aspects. n17 But beyond the antitrust statutes, the





participants in some cases appear to act as if they are free toestablish the terms and conditions of the joint venture by contract,

unconstrained by either statute or common law. n18

[*709] The first section of this Article illustrates some of thedisclosure [*710] problems commonly encountered in high-tech

joint ventures. The second and third sections of this Article examinethe disclosure provisions of existing statutory law and common lawrelevant to the joint venture participants' disclosure obligationsamong themselves. Emphasis is placed on disclosure issues of specialconcern to high-tech joint ventures. The Article also notes thosestatutory and common-law provisions that are not subject toalteration by agreement of the parties and those which should be of particular concern to high-tech joint venturers.

The fourth section briefly addresses and rejects a proposed synthesisof the existing statutory and common-law disclosure requirements.This synthesis would significantly expand the disclosure obligations ofthe participants and would pose a substantial burden on high-tech joint venturers.

The fifth section of this Article traces the development of theproposed revision of the Uniform Partnership Act and outlines the

revisions that would affect the high-tech joint venturers' disclosureobligations among themselves. Drawing on this discussion, the finalsection of the Article offers an alternative proposal for modification ofthe draft revisions of the Uniform Partnership Act, which, if adopted,would make the revised Act more responsive to the needs of high-tech joint ventures. I. DISCLOSURE PROBLEMS IN HIGH-TECH JOINT VENTURES

The risk of subordinating the legal analysis in a partnership-basedhigh-tech joint venture is demonstrated by the statutory andcommon-law disclosure requirements on the participants amongthemselves. Often, the exchange and development of proprietaryinformation are the raisons d'etre for the high-tech joint venture. A joint venture may involve a mutual pooling of proprietary informationas is the case with the semi-conductor research being undertaken by

Sematech. n19 It may [*711] involve the exchange of proprietary





information in return for capital and marketing expertise, as was thecase with the partnership between HEM and Du Pont to develop

Ampligen. n20 High-tech joint ventures are also notable for theimportance of information generated by the venture: Sematech existsto develop information to be used by American semiconductor chipmanufacturers.

The question of information confidentiality is important because thecentrality of information is one characteristic that differentiates high-tech joint ventures from traditional partnerships. Indeed, it has beensuggested that change in the flow and control of information is acentral aspect of an evolving business environment that compels the

use of joint ventures. n21 Driven by rising competition and newinformation technologies, corporations have to become more flexiblein terms of organization and management of human resources. This inturn requires a new managerial paradigm in which successfulcorporations are those that are both "flatter" (having fewerorganizational levels) and "rounder" (characterized by "the dispersion

and decentralization of organizational power"). n22 Under the newmanagerial paradigm, it is argued, organizational rigidity gives way tointra- and intercorporation flexibility. Within the corporation, ad hoc

interdisciplinary teams are fashioned on a project-specific basis. n23

The external corporate parallel is the partnership or joint venture.

Since information is often the coin of the realm in high-tech jointventures, provisions for the control and dissemination of informationwithin the joint venture are of critical importance. The internaldisclosure challenges facing joint ventures relate to both the type of information at issue and the timing of the disclosures. Two broadcategories of information are involved: information that is in somesense proprietary to the joint venture and information that is

proprietary to the individual participants, but not primarily to theventure. n24

[*712] The venture often has an interest in maintaining theconfidentiality of the venture information as against the participants,or in limiting the use to which the participants put the information.n25 The classic example of the genre is Meinhard v. Salmon, whichinvolved the diversion of a joint venture opportunity in a real estate





joint venture. n26 A more modern example is the litigation arising outof the joint venture between NBC/RCA and Sony/Columbia, in which itis claimed that Sony/Columbia diverted a joint venture business

opportunity to its own advantage. n27

In high-tech joint ventures the confidentiality of venture information

as against the participants is often at issue, raising questions of whenand under what conditions venture information should be madeavailable to participants. The question commonly arises when oneparticipant contributes basic development efforts to the joint ventureand the other contributes capital or marketing resources. Since theparties are not equally positioned to use the venture information at allpoints of the development process, the venturer with lateropportunities for use must be protected.

The confidentiality of venture information as against the participantsalso arises in development consortia such as Sematech. The ability of parties to privatize venture information at an early stage in thedevelopment may undermine support for later development efforts. Toassure all participants that the development cycle will be pursuedeven after some participants could gain benefits from privatization of venture information, it may be necessary to withhold the information

from all participants. n28

[*713] The protection of venture information as against theparticipants is also raised when it is feared that the participant will inturn divulge the information to its joint venturers in other jointventures. This secondary disclosure of venture information has beenraised in connection with Sematech. The concern is that high-techinformation developed by the joint venture will be transferredoffshore via joint ventures that include American Sematech

participants and foreign computer companies.n29

The response of aSematech representative that "there is no way to stop the spread of technological advances" and that the best one can hope for is delay,

demonstrates the difficult problem posed by secondary disclosure. n30

Secondary disclosure problems have become more important as majorcorporations have become involved in more joint ventures. Forexample, General Motors is involved in a joint production venture

with Toyota. n31 General Motors Chairman Roger Smith gave





assurances t at a irect tec no ogy trans er pro em wi not arisefrom the production venture with Toyota:

There should be no problem in assuring that GM and Toyota do notexchange too much confidential information in the joint venture.Neither side wants to let the other know more than is necessary,Smith said, and the project "is limited to one plant, one product . . .less than 1 percent of all the vehicles that will be produced in the

world." n32

The stakes can be quite high. Even if one discounts GM's internalhigh-tech base, a secondary disclosure problem could arise withrespect to GM's other joint ventures. The American car [*714] maker"has moved aggressively to weave new technologies into every aspectof its business . . . [a]nd for the first time in its history, GM has made

investments in several small venture companies in fields ranging fromartificial intelligence to machine vision as a means to keep abreast of

relevant technologies." n33 Participants in those joint ventures could justifiably have a concern over the dissemination to Toyota of information from those ventures. These two examples illustrate thecomplexity of the technology-transfer issues when joint ventureparticipants are involved in multiple high-tech joint ventures.

Beyond the disclosure of venture information, substantial problemsarise over the disclosure of participant information. Problems arisewhen the participants agree to allow the joint venture to use theirindividual proprietary information but restrict the other participants'access to such information. This is not simply a theoretical concern. Aconflict over joint venturer financial information appears to be part of the problem in the breakup of the NBC/RCA-Sony/Columbia jointventure. Press reports indicate that NBC/RCA claims that

Sony/Columbia "officials tried to misappropriate confidential financialinformation from joint venture employees." n34 Such a problem of information disclosure by participants might also have arisen in theDelta-American joint venture, in which the two airlines wanted tomerge their proprietary reservation systems. The venture wouldpresumably need information concerning flight capacities,occupancies, and route modifications: information that is necessaryfor the operation of the joint venture, but which the participants





wou ot erw se w s to eep con ent a rom eac ot er. e samerequirement to keep certain participant information confidential wouldarise if a consortium of computer software companies was developinga programming protocol to ease data transmission between differentsoftware programs. Each individual participant might want the

consortium to have access to its source code, n35 while still

maintaining confidentiality vis-a-vis the other participants.

Furthermore, the internal disclosure concerns of high-tech [*715] joint venture participants are not constant through the life of the jointventure. The formation of the joint venture is a situation with specialdisclosure concerns. A party considering a joint venture needs toconvince the other party of the value of entering into thearrangement, without giving away so much information as to enablethe other party to accomplish its goal without the joint venture. The

disclosure obligation on creation of the joint venture has been thesubject of litigation. In the aftermath of the Ampligen joint venture,Du Pont sued HEM for rescission and damages. One of the groundswas HEM's submission of allegedly fraudulent medical testing records

to Du Pont in the prepartnership stage. n36 Similarly, there aredisclosure concerns when one party to a joint venture wants towithdraw and sell its interest to the other participant without thebenefit of a fixed price put. The desire to withdraw may be based on

nonpublic information in the possession of the withdrawing venturer,and the other participant may not have access to it. This scenariowould result in an overvaluation of the joint venture interest beingtransferred. Or, the nonwithdrawing venturer may have nonpublicinformation to which the withdrawing partner does not have access,which would increase the value of the joint venture interest beingtransferred. In such a case, the withdrawing partner's interest will beundervalued.

There are also potential disclosure problems during the operationalperiod of the joint venture. As with any partnership, a mechanism isneeded for the dissemination of information required for the venturersto make any decisions in which they will participate. This can be aproblem in a high-tech joint venture because decisions may requirethe consideration of confidential venture or participant information.

Finally, disclosure questions arise in situations in which the joint





ven ure s no procee ng as an c pa e . n ese cases, e ques onis whether the joint venturers should have the ability to requireextraordinary disclosures either from the joint venture or from theother participants. Here again, the normal partnership rules may needto be modified because of the centrality of information to the high-tech joint venture.

Some commentators n37 and lawyers n38 have been sensitive to[*716] the information control problems inherent in joint ventures.

But the literature is commonly cast in terms of contractualconsiderations for the security of information brought to the jointventure and the ownership of information generated by the joint

venture. n39 The literature does not address the significant statutoryand common-law disclosure obligations that may be present simply

by virtue of being a participant in the joint venture. n40 [*717]Participants ignore the status-based, internal disclosure requirementsat their peril. In this area, the participants are not completely free tocontract as they will; by their terms, certain statutory and common-law disclosure requirements cannot be superseded by the agreement

of the parties. n41

II. EXISTING DISCLOSURE PROVISIONS UNDER THE UNIFORMPARTNERSHIP ACT

The disclosure obligations of partners under the Uniform PartnershipAct (UPA) are divided into two categories: obligations designed to beroutine and obligations that are both extraordinary and remedial innature. The latter are extraordinary because they are not intended tobe invoked in the normal operation of the partnership. They areremedial because they are designed to assure access to informationwhen the normal patterns of information dissemination and

partnership management have broken down.

The requirements in the first category,the routine disclosures, are notexplicitly set forth in the UPA. It is correctly argued, however, that theobligation to make routine disclosures is implied in section 18 of the

UPA. n42 Professor Melvin Eisenberg concludes that "[t]he effect of Section 18(e) 'is to require that, absent contrary agreement, everypartner be provided on an ongoing basis with information concerning





e par ners p us ness, an e consu e n par ners p ec s ons.n43

[*718] The requirements in the second category, the extraordinaryand remedial disclosures, are explicitly set forth in the UPA. Theprimary extraordinary and remedial disclosure requirement in section20, which provides that "[p]artners shall render on demand true and

full information of all things affecting the partnership to any partneror the legal representative of any deceased partner or partner under

legal disability." n44 In addition [*719] to the primary extraordinaryand remedial disclosure obligation under UPA section 20, the partnershave explicit obligations to disclose under UPA section 19 ("everypartner shall at all times have access to and may inspect and copyany of [the partnership books ]"), UPA section 21 ("[e]very partnermust account to the partnership for any benefit, and hold as trustee

for it any profits derived by him without the consent of the otherpartners from any transaction connected with the formation, conduct,or liquidation of the partnership or from any use by him of itsproperty"), and UPA section 22 ("[a]ny partner shall have the right toa formal account as to partnership affairs").

The distinction between the routine disclosures and the extraordinaryand remedial disclosures is reinforced by several aspects of their

treatment in the UPA. First, by agreement, the partners are able tooverride the management allocation provisions and presumably theimplied routine information dissemination provisions, of section18(e). The extraordinary and remedial provisions of section 19through 22 contain no parallel language allowing the parties to agree

to waive their rights to information. n45 Second, the routineinformation disclosure under section 18(e) is self-executing. It doesnot depend on a demand from the party to whom disclosure is to begiven. In contrast, the extraordinary and remedial disclosureprovisions in sections [*720] 19, 20, and 22 either affirmatively

require a demand n46 or contemplate a request of the party to whom

disclosure is required. n47 The scope of required disclosures alsodiffers. The routine disclosures under section 18(e) are deemed byProfessor Eisenberg to include "'information concerning thepartnership business'" as to matters upon which the particular partner

is given a voice. n48 The statutory coverage of the extraordinary and





.information in the partnership books. Section 20 is cast in terms of "true and full information of all things affecting the partnership."Sections 21 and 22 involve all information required for theaccountings. Additionally, the extraordinary and remedial provisionsof sections 19 through 22 operate for the benefit of all partners,regardless of the allocation of decisionmaking authority under section

18(e). n49

There are four potential internal disclosure problems under theexisting UPA as applied to high-tech joint ventures. The first arisesunder Professor Eisenberg's widely accepted formulation of thesection 18(e) disclosure obligation. Under that analysis, venturerswould have a right to information concerning those aspects of thepartnership business on which they have authority to act. Since a

venturer's right to participate under section 18(e), and therefore itsright to information,is always "subject to any agreement between [thepartners]," the parties can always limit the flow of information byrestricting the participation of the venturers in the various venture

decisions. n50 This is, however, a rather gross means of controllingthe information flow because it requires the parties to know and agreeahead of time what types of decisions are likely to be taken on behalf of [*721] the joint venture, what information would be appropriate

to such decisions, and whether the information should be madeavailable. An improvement in the regime would be first to codify theright to information identified by Professor Eisenberg under section18(e) and then specifically allow the parties to agree to restrictionson such information without limiting the right to participate inpartnership decisionmaking.

The second internal disclosure problem for high-tech joint venturesunder the UPA arises under section 19, which provides that "[t]hepartnership books shall be kept, subject to any agreement betweenthe partners, at the principal place of business of the partnership, andevery partner shall at all times have access to and may inspect and

copy any of them." n51 Since the obligation to keep books, ascontrasted with the location where the books are to be kept, cannotbe amended by the agreement of the parties, the joint venture cannotbe structured to withhold any proprietary venture information





con a ne n s oo s rom e n v ua par c pan s.

Whether this is a significant problem depends on what information isincludable within the partnership books. It can be argued that this isnot a significant problem, since historically the class of partnershipbooks has been rather narrowly construed as relating simply to the

financial records of the partnership. n53 But the high-tech jointventurer should be cautious on this point. The cases dealing with thesection 19 right to inspect have typically been suits for a partnershipaccounting in which the partnerships were not sophisticated orcomplicated businesses [*722] and the information necessary to do

an accounting is a simple record of receipts and disbursements. n54

The relatively low level of sophistication and complexity of thedocuments required in those cases is simply a reflection of theunsophisticated and simple business operations involved. But, even if

the scope of partnership books is l imited to basic financialdocuments, a section 19 claim on a high-tech joint venture may notbe so simple. In a complex high-tech joint venture, detailedinformation on venture operations could be required to accuratelyassess and document losses, business expenditures, and other costs.If, as one treatise suggests, the test for inclusion in the category"partnership books" is whether the information is necessary for the

preparation of a tax return, n55 the contents of a high-tech joint

venture's "books" may be both voluminous and sensitive. Thesituation would be further complicated if the scope of partnershipbooks were expanded to include all information required for afinancial audit, a reasonable extension for a high-tech joint venture.n56

Consider the Ampligen partnership. HEM claimed that Du Pont gainedunauthorized access to joint venture computer records on the

Ampligen research.n57

If the information accessed constituted"books" of the partnership under UPA section 19, it would appear that

Du Pont had an absolute right to such information. n58 Were theallegedly purloined joint venture documents [*723] in the Ampligencase part of the joint venture books? The published reports wouldindicate that the information included data on the clinical research on

Ampligen. n59 In what was apparently a single product venture, fakedor misrepresented test results would clearly be relevant to the





enterprise. n60 If the test for inclusion in the books of a partnership iswhether the information is used in the preparation of a financial auditor tax return, there is clearly an argument that the records at issue inthe Ampligen case were properly classified as partnership books.

Even under a restrictive reading of UPA section 19 -- requiring a

nexus to financial audit or tax preparation -- a wide range of recordsof a sophisticated business venture could be included as partnershipbooks. Is there an argument for adoption of an even more expansivedefinition of the term? Perhaps. Since the reported section 19 casestypically deal with feuding partners trying to get an accounting, it isunderstandable that the courts focus on the basic ledger of accountsof the business -- documents that are required to be kept by apartnership and are necessary for the accounting. But the focus in

section 19 could as easily be shifted from what is required to be keptto what is in fact kept. Using such a focus, one could fashion adefault rule that would give partners access to all existing partnershipbooks and records. Under such a rule, a managing partner could notbe disadvantaged for not keeping books and records beyond thoseindependently required for tax and financial audit purposes. If suchexpanded books and records were kept by the partnership,however,then every partner would have section 19 access to them.

Such an "access to all existing partnership books and records" rulecould expand the range of disclosure even further into the area of sensitive and proprietary information within some high-tech jointventures. One common situation in which this expanded rule wouldbe a problem is in the area of participant [*724] information. Suchinformation could constitute a component of the joint venture's"books" under the expanded rule, creating a substantial problem for

some high-tech joint ventures. n61

The high-tech joint venturer might gain some comfort in the fact that,at least at common law, the right of inspection was seen as limited to

inspection for a proper purpose. n62 Reliance on this point, however,should be tempered by caution. On its face, section 19 does notimpose a proper-purpose test for partnership access to the

partnership's books; the right to inspect is not qualified. n63 This





attempting to inspect the corporation's books. n64 Further, it ispossible that when a joint venturer examines enterprise records for animproper purpose, the remedy should be an injunction to bar the

improper use, not denial of the right to inspect. n65

Whether a broad or narrow definition of partnership books is adoptedwill significantly expand or constrict the range of information at risk,and some protection may be offered by the purpose test. Butparticipants in high-tech joint ventures should be aware that potentialproblems do exist in this area. An improvement in the present regimewould be to insert a definition of "partnership books" in the UPA andeither specifically allow the parties to agree to restrictions on accessto partnership [*725] books or impose a proper-purpose test foraccess to such information. The revision should specifically empower

the court to limit or prevent access to partnership books uponrequisite showing, as an alternative to merely limiting the use of suchinformation.

The third internal disclosure problem for high-tech joint venturesunder the UPA arises from section 21, which requires participants toaccount for profits from any nonconsensual use of partnership

property. n66 In the high-tech field, ideas and information are the

currency of the joint venture, and tracing the use of proprietaryinformation can be extraordinarily difficult. Of course, this problemcan be eliminated in the joint venture agreement. If the agreementsimply allows any participant unrestricted use of any joint ventureproprietary information, then no UPA section 21 accounting problemscan arise. However, this blanket permissive-use solution will not beacceptable in many situations. An example is Sematech, which has asits purpose the development of a new generation of technology.Development costs could be financed under an agreement of theconstituent members to contribute to the venture based upon someobjective factor, such as gross sales or current market share in thesegment under development, without further payment. Under such anagreement the members would be free to use the technicaldevelopments at any stage of completion, even to the point of takingthe fruits of the enterprise in an unfinished state and completing thedevelopment internally.





.to match the formula for support with the projected value received,making agreement ex ante on the cost allocation difficult. Theparticipants with greater research and development capabilities couldappropriate the developing technology at an earlier stage, internalizeits use, and not support further consortium-based development. Theprecompletion use of the developing technology by the participants

would lead to confidentiality difficulties. Finally, such use would leadto the licensing of individually completed technology to outsiders,decreasing the value of the consortium product and complicating theprospects for development-cost recovery by the consortium. [*726]For these reasons, it is likely that the participants would want toprohibit participants from internalizing their use of the developingtechnology, and instead would elect to license the completed newtechnology to the members. In such a case, the problems of tracing

participant use of the developing technology, and the associated UPAsection 21 accounting problems, would remain. The section 21problem would be addressed by the inclusion of a "partnership books"definition and the confirmation of the ability of the participants toagree to the exclusion of classes of venture information from thebooks.

The fourth internal disclosure problem for high-tech joint venturesunder the UPA is the most significant. This statutory disclosureproblem arises under the UPA section 20 requirement that "[p]artnersshall render on demand true and full information of all thingsaffecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability."

The language of section 20, "all things affecting the partnership," isnecessarily plenary, given the extraordinary and remedial nature of the section and the generally unsophisticated parties assumed to be

involved. But the same broad language mandated by the underlyinggoal of the section can be a problem in a typical high-tech jointventure. Consider the "independent partnership" of Delta Air Linesand American Airlines to consolidate their proprietary reservation

systems. n67 "Things affecting the partnership," the disclosure of which would be harmful to the participant, would parallel theinformation that the joint venture would require for its internal use(for example, Delta's plans to expand or curtail service to various

'





, ,plan to merge Delta and another airline). Each of these items wouldbe required for the reservation system to plan its operations andproject system-wide resource allocations efficiently. Yet, thedisclosures would present confidentiality problems for theparticipants, who are, after all, competitors.

The only saving grace, and it is not complete, is that the disclosurerequirement of UPA section 20 is not self-executing. For thedisclosure obligation to arise, there must be a predicate demand byanother partner. Thus, in the Delta-American situation, Delta'sobligation to disclose its plans to expand or curtail [*727] service tosome locations would arise only upon a reasonably specific requestfor information from American. Especially in situations like the Delta-American joint venture, in which both parties have parallel

information they wish to keep confidential, a self-limiting dynamicmay prevent the request from ever being made. But this self-limitingdynamic is not always present. Consider the Ampligen joint venture.HEM, essentially a one-product pharmaceutical developmentlaboratory, would have everything to gain and nothing to lose fromasking Du Pont to disclose information known to the large corporationthat might affect the partnership. The scope of such informationwould at the very least include data on other AIDS drugs that Du Ponthas under in-house development, that Du Pont is developing jointlywith other partners, or that Du Pont knows other parties aredeveloping. The reciprocal request could have little, if any, value toDu Pont. In a situation with this type of asymmetry, the mutuality of obligation presents little comfort to the party with more information.

The disclosure requirements of UPA section 20 cannot be modified bythe agreement of the parties. This is appropriate in mostcircumstances, given the extraordinary and remedial nature of the

section and the generally unsophisticated nature of the parties.However, the inability of the parties to contract around the disclosureprovisions should cause concern to high-tech joint ventureparticipants. An improvement in the present regime would be to allowsophisticated parties in high-tech joint ventures to agree torestrictions on the scope of information that would be subject to asection 20 demand or to impose a proper-purpose test for access tosuch information.





III. COMMON-LAW DISCLOSURE OBLIGATIONS

The common law governing the disclosure obligations of partnersamong themselves is not always clearly set forth in the decisions onpoint. Courts have repeatedly indulged in rhetorical hyperbole beforefashioning a factually limited rule of law. For example, one court

stated that a partner's "standard of conduct must equal that of Caesar's wife." n68 Another stated that a partner must demonstrate"that he had been completely frank with his partner and had made full

disclosure." n69 The taproot of [*728] hyperbole on this question isJudge Cardozo's endlessly cited opinion in Meinhard v. Salmon:

Joint adventurers, like copartners, owe to one another, while theenterprise continues, the duty of the finest loyalty. Many forms of

conduct permissible in a workaday world for those acting at arm'slength, are forbidden to those bound by fiduciary ties. A trustee isheld to something stricter than the morals of the market place. Nothonesty alone, but the punctilio of an honor the most sensitive, is

then the standard of behavior. n70

The general maxims provide no realistic guidance on the practicaloutlines of the common-law disclosure requirement. The common-lawdisclosure obligation -- even if stated in the sweeping commands of fiduciary duty -- has been severely limited by distinctions drawn fromthe factual settings in the cases. The general pronouncements of thecourts merely set the stage for the more tightly focused holdings,which set the actual limits of the common-law disclosure obligation.So viewed, the holdings group into a small number of fairly narrowpatterns that are distinguishable from the UPA disclosure obligations.Professors Harold Reuschlein and William Gregory do a credible job ofbypassing the rhetoric for the substance of the decisional law in this

area. n71 They parse the obligation into two classes of specific factpatterns: "prepartnership transactions" and the purchase by onepartner of another's interest. These classifications are consistent withthe holdings in the reported cases, if not the rhetorical flourishes of

the deciding courts. n72

[*729] The first category cited by Reuschlein and Gregory involves





questions of self-dealing arise:

One class of cases emphasizing this duty to disclose are thoseinvolving prepartnership transactions, such as those involving atransfer to the partnership of property previously owned or recentlyacquired by one of the parties to the agreement of partnership. In

these cases the interests of a partner in such property or the cost atwhich it was obtained by a partner are [*730] material facts which it

is the partner's duty to disclose. n73

This first class of common-law disclosure cases may be toorestrictively defined. The partners' disclosure obligation arising fromsales to the partnership during the formation stage is scarcelydifferent from that arising from transactions with the partnership

during its term or its dissolution and winding up. n74 The Reuschlein-Gregory categorization thus should be expanded to include alltransactions between the partnership and a partner that take placeduring the formation, term, or dissolution and winding up of thepartnership.

So expanded, this classification of cases would include the situations

in which one partner usurps a partnership opportunity; n75 in which

one partner purchases, without disclosure, an asset required forpartnership business activities; n76 and in which one partner

mischaracterizes partnership income as nonpartnership income. n77

The second category cited by Reuschlein and Gregory involves actionsand transactions of the partners with each other, in which questionsof self-dealing arise: "Both selling and purchasing partner are dutybound to reveal such facts as touch the value of the property which

are not available to the other partner."

n78

This classification of casesincludes those situations in which one partner is purchasing anotherpartner's interest in the partnership and the purchasing partner hasinformation relevant to the price, information that the selling partnerdoes not have. Such information can range from the expected (one

partner conceals a third-party bid for all of the partnership assets) n79

to the positively grotesque (the purchasing partner knows of the

selling partner's fatal and undisclosed disease). n80 In the context

*





an obligation to disclose relevant facts unknown to the other partner.This obligation may be especially acute if the party with theinformation is the managing partner of the enterprise. The disclosurerequirement is not effective, however, after the terms of the sale are

agreed to, n81 or if the sale is pursuant to an antecedent fixed-price

option. n82 Nor is disclosure required, according to Reuschlein and

Gregory, when there is an independent availability of the information.n83

An additional restriction on the common-law disclosure obligationmight be found when the partner to whom the disclosure is to bemade is seeking it for purposes that would breach his fiduciary duty

toward his copartners. n84 A final restriction on the disclosureobligation would presumably arise when the partner is forbidden to

make disclosure by statute, rule, regulation, or an effective court oradministrative order, although not by virtue of a contract with theother participant.

Thus, a partner is a fiduciary to the other partners under commonlaw, with an obligation in certain well-defined situations to disclosespecific items of information even absent an affirmative demand by a

partner. n85 The absence of a demand distinguishes the common-law

disclosure requirements from the [*732] extraordinary and remedialdisclosure requirements under sections 19, 20, and 22 of the UPA.The common-law disclosure requirements are distinguishable fromthe routine disclosure requirement implied under UPA section 18(e)by both the timing and the scope of the disclosures required.

By its terms, the UPA did not displace the common law. n86 It is clearthat some circumstances give rise to a partner's affirmative obligationto disclose, even absent a demand from a copartner:

The duty of the partner to give information is something moreextensive than the mere duty to supply information upon demand of aco-partner or legal representative of a deceased partner or partnerunder a legal disability. There are circumstances which put him under

a duty to disclose voluntarily. n87

Consistent with this formulation courts have ro erl held that in





the well-defined situations in which the common law requireddisclosure, disclosure would continue to be required following the

adoption of the UPA. n88

The potential problems for high-tech joint venturers from thecommon-law disclosure requirements are substantial. They include

both the transfer of proprietary participant information to the jointventure at its initiation and the transfer of joint venture interests.

Under the common law, there is an obligation to make a fulldisclosure in connection with "prepartnership transactions, such asthose involving a transfer to the partnership of property previouslyowned or recently acquired by one of the parties to the agreement of

partnership." n89 The partner transferring the property has an

obligation to disclose material facts bearing on [*733] the value of the property being transferred. In a high-tech joint venture, the mostvaluable commodity brought to the bargaining table is often theproprietary information of the potential participant. Thus, thiscommon -law obligation is unrealistic and overly burdensome. Thepotential participant must strike a delicate balance. It must give theother potential participants enough information to prove the value of the proprietary information, without giving so much information thatthe receiving party does not need the joint venture to proceed. At thesame time, the disclosing party must fulfill its common-law obligationto disclose all material facts that would weigh on the valuation of the

proprietary information being transferred. n90 This mating ritual cango astray, with disastrous results. An example is the litigation in theAmpligen joint venture, in which Du Pont now asserts that the valueof the pre-joint-venture research was severely misrepresented byHEM.

The common law could be appropriately modified to require thathigh-tech joint venturers make only those disclosures that arecommercially reasonable under the circumstances, as long as thedisclosure made is not substantially misleading overall. Thus, in a joint venture such as Sematech, a prospective participant would notbe required to disclose such detailed proprietary research informationas to vitiate the value of that party's participation since such

disclosure would not be commerciall reasonable but onl if the





resulting disclosure was not substantially misleading. n91

The common-law internal disclosure obligations in the transfer of joint venture interests also impact high-tech joint ventures. Under thecommon law, in the event of a sale of one joint venturer's interest toanother, "[b]oth selling and purchasing partner are duty bound to

reveal such facts as touch the value of the property which are notavailable to the other partner." n92 This disclosure requirement couldhave a profound effect on the [*734] termination of a joint venture,since both the selling and the purchasing joint venturers are requiredto make disclosure. Consider the situation if Sematech had beenstructured as a partnership -based joint venture, and one of theparticipants had independently developed a new process tomanufacture the chips. While under the common law the developing

party would not have an obligation to disclose the development to theother joint venturers so long as it remained in the joint venture, n93 it

would have a disclosure obligation if it tried to sell its interest. n94

Joint venture participants can take some steps under the presentregime to avoid this problem. One strategy is to remain in the jointventure even after it ceases to have any future. Thus, the party withconfidential information does not have to disclose the information

that would bear on the value of the interest. This obviously may notbe a realistic option if the joint venture has a continuing right to callupon the participants for resources, if there is potential liability fromremaining in the joint venture and the liability is not balanced by theprospect of some gains, or if the flow of information is such that theknowledgeable participant needs to extricate itself from the venture in

order to pursue the newly presented opportunity. n95 Another possiblestrategy would be to grant each participant a put, with the price to beeither fixed or established on the basis of an agreed-upon formula,since the disclosure obligation is inoperative when the sale price is

automatic. n96 This, however, is of limited utility. It is certainly notthe normal case to have such a fixed-price put for what are typicallyquite speculative ventures.

An appropriate modification of the common law in this respect wouldbe to relieve sophisticated participants in high-tech joint ventures

from an obli ation to disclose in connection with the urchase or





sale of interests in the venture. This would not change the disclosureobligation during formation. Nor would it change any disclosureobligations as to third parties, [*735] since the common-lawobligations apply only to sales between partners. IV. SYNTHESIS AND EXPANSION OF THE DISCLOSURE PROVISIONS

UNDER THE UNIFORM PARTNERSHIP ACT AND THE COMMON LAW

Separately, the statutory and common-law disclosure requirementscontain substantial potential problems for high-tech joint venturers.One commentator, however, suggests that the present state of the lawis a synthesis of the UPA section 20 disclosure requirement and thecommon-law fiduciary requirements. Thus, the disclosure obligationsof a general partner are presented as a unitary obligation:

In certain circumstances the common law recognized that a partnerhad a duty of voluntary disclosure to his co-partners. Under theUniform Partnership Act, a partner has the duty to render informationon demand. However, this duty has been expanded and tied in withthe fiduciary relationship. The duty to render information is now alsothe duty to disclose information even without demand. In effect, thereis a duty to disclose to the co-partner all matters necessarily affecting

the partnership business. n97

By reading the "on demand" language out of UPA section 20, thesynthesized obligation is made self-executing. By glossing over thecommon-law limitation of the disclosure requirement to certain well-defined factual situations, the synthesized obligation is made plenary.n98

Adoption of such a sweeping self-executing intrapartnership

disclosure obligation could compound the substantial problemsalready identified for high-tech joint venturers. The synthesis doesnot withstand even cursory analysis, however. The first problem withthe synthesis argument is a failure even to suggest the mechanism bywhich the synthesis has been accomplished. [*736] It simply is notpossible to exorcise the demand requirement from UPA section 20,using accepted norms of statutory interpretation. The language of UPAsection 20, that "[p]artners shall render on demand true and full

information of all thin s affectin the artnershi to an artner "n99





is not ambiguous in any sense of the word. Lacking ambiguity, no

statutory interpretation can eliminate the demand component. n100

The second problem with the synthesis argument is a complete failureto produce any evidence that the synthesis has in fact taken place.The two cases cited as supporting the expanded disclosure obligation

are, on their facts, explained by reference to pre-existing common-law disclosure requirements. n101 If there is a synthesized duty todisclose to the [*737] copartner all matters affecting thepartnership, then one would expect to find a body of cases whereeither UPA section 20 was cited to require disclosure absent ademand, or where the common law was cited to require disclosurebeyond the traditional limitations of the common law. But the courtshave invoked section 20 to require disclosure only when the record

reflects that the predicate demand has been made. This patternindicates that -- contrary to the assertion of the synthesis analysis --

the demand is not surplusage. n102 The courts also have refused torequire disclosure when there is no evidence of the required demand,

again acting contrary to the synthesis analysis. n103 In fact, thereappear to be no reported cases citing UPA section 20 as the authorityfor disclosure, when there was neither a predicate demand nor an

independent common-law basis for requiring disclosure. n104

Similarly, there appear to be no post-UPA cases citing the commonlaw as the authority for disclosure, [*738] when there is neither acommon-law basis for disclosure nor a UPA section 20 predicatedemand.

[*739] Thus, while the courts may be accused of sloppiness, theycannot be rightly accused of either exorcising the demand component

of UPA section 20 n105 or expanding the range of information required

to be disclosed at common law.n106

[*740] V. DRAFT REVISIONS OF THE DISCLOSURE PROVISIONS

UNDER THE UNIFORM PARTNERSHIP ACT

Participants in partnership-based high-tech joint ventures may soonbe free to contract around the statutory and common-law disclosurerequirements, at least in part. Contemporaneously with, but

independent of, the business community's infatuation with joint





ventures, the legal community is moving to fundamentally revise oneof the basic sources of statutory law applicable to partnership-based joint ventures, the UPA.

The revision of the UPA is not the product of a desire to accommodatethe law to high-tech joint ventures. The revision effort is driven by a

model of a partnership that is fundamentally different from that of thehigh-tech joint venture. The focus of the revision effort is the"typical" partnership, which reflects the traditional use of thepartnership form, with concentrations "in agriculture and relatedfields of fishing and forestry, wholesale and retail trade, finance,insurance and real estate, and professional and general service

businesses." n107 It is perhaps not surprising, given the focus of therevision effort, that the proposed revision would not solve thedisclosure problems of high-tech joint ventures, and may in factexacerbate them.

Setting aside the synthesis argument, the present statutory andcommon-law internal disclosure regime presents five substantialproblems for high-tech joint venturers. First, the scope of the routineoperations disclosure obligation implied under [*741] section 18(e)is not well defined. Second, the definition of partnership books undersection 19 is imprecise. Third, the demand mechanism under section

20 is open ended and unconditional. Fourth, the common law requiresbroad disclosures upon formation of the venture. Fifth, the commonlaw requires broad disclosures upon the sale of a joint ventureinterest to a coventurer. The first three problems create a potentialinability to protect both participant and venture information. The lasttwo jeopardize participant information. The revision of the UPA beingundertaken by the National Conference of Commissioners on UniformState Laws presents an opportunity to remedy these problems.

Unfortunately, the preliminary results of the revision effort do notcorrect the problems, and in several significant respects, wouldcompound them.

The process of developing a revision of the UPA has involved both theAmerican Bar Association (ABA) and the National Conference of Commissioners on Uniform State Laws (Conference). In January of 1986, the ABA's Uniform Partnership Act Revision Subcommittee of

the Committee on Partnerships and Unincorporated Business





Organizations, Section of Corporation, Banking and Business Law,

issued its report. n108 The Conference's Drafting Committee to Revisethe Uniform Partnership Act followed and, in the fall of 1989, issued

an initial discussion draft of the Revised UPA to the Conference. n109

Although the proposals for revision are not yet final, n110 some broadthemes are clear: for example, a rejection of the aggregate theory of

the UPA in favor of a modified entity theory as the basis for therevised act. n111 With regard to the concerns of high- [*742] tech joint venturers, the results are mixed. A. Routine Operations Disclosures Under Section 18(e)

The proposed revision fails to meet the needs of high-tech jointventures in two ways. The revision fails to codify the section 18(e)

disclosure obligation and it fails to allow the participants to limit theinformation required to be disclosed.

Neither the ABA Report n112 nor RUPA n113 proposes any modification

of the language of UPA section 18(e) n114 that would undermine the

validity of the Eisenberg implied disclosure analysis. n115 Indeed, thedrafters of RUPA-89 refer to the Eisenberg analysis with apparent

approval in the comment to section 18. n116 But the drafters decline

to codify the routine operational disclosure requirement.

The UPA does not specifically allow the parties to agree to restrictionson the information required to be disclosed. Under the Eisenberganalysis, the only way for participants to limit the informationrequired to be disclosed to participants is to exclude such participantsfrom the decisionmaking process. The RUPA drafters take a radicallydifferent approach. Under section 4X the parties are free to makeagreements limiting the availability of information. While this may bean appropriate provision for high-tech joint ventures amongsophisticated parties represented by counsel, such an ability torestrict information by agreement invites abuse in partnershipsinvolving less sophisticated participants and is inappropriate as a

general revision of partnership [*743] law. n117

B. "Partnership Books" Definition Under Section 19

Although the section 19 revision is an improvement over the current





provision, the proposed revision falls short of meeting the needs of

high-tech joint ventures. n118 The ABA committee proposed two

changes in section 19. n119 The Conference drafters proposed threesuch changes in the RUPA-89 draft but made substantial changes in

the RUPA-90 draft. n120

For a high-tech joint venturer, the fundamental flaw in UPA section 19is the inadequate definition of the category "partnership books andrecords." Both the ABA committee and the Conference drafterspropose an expansion of the coverage of UPA section 19. Startingfrom the assumption that the term "partnership books" includes only"financial records," itself one step beyond the Crane and Bromberg

focus on tax records, n121 the ABA committee declared that "this

section should be expanded to cover other records as well." n122 The

ABA committee rejected the inclusion of a "laundry list" of recordsrequired to be maintained. n123

The Conference drafters adopted the major thrust of the ABA draft and

expanded upon the theme. n124 The Conference draft proposes thatreferences within the section be expanded from "partnership books"

to "partnership books and [*744] records." n125 While generallyadopting the ABA committee's analysis, the Conference drafters felt

that the comment to the section

might nonetheless include some discussion of the books and recordsthat are required. For example, the partnership must maintain thebooks and records that are required to be kept by the InternalRevenue Code. More generally, the comment might include astatement that the partnership must ["should" in RUPA-90] keep suchbooks and records as are ["as are" is omitted in RUPA-90] necessaryto enable a partner to determine his ["her" in RUPA-90] share of theprofits and losses of the partnership and his ["her" in RUPA-90] rights

on withdrawal. n126

Thus the scope of expanded coverage proposed is left somewhatunclear under both the ABA and Conference drafts. Apparently, boththe ABA and Conference drafters are proposing a modest increase toinclude at least all records required to be kept by the UPA. However,

it is not clear whether records required to be kept by other statutes,





by agreement of the parties, or under generally accepted accounting

principles would be included. n127 Neither the ABA draft nor theConference proposal is clear as to whether the drafters intended toadopt a rule giving access to all existing partnership books andrecords, including, perhaps, even nonfinancial records. Additionalclarity is required.

The second modification suggested by the Conference, although notby the ABA committee, was an additional provision that "[e]achpartnership shall keep complete and correct books and records of

account." n128 Whether this change is appropriate depends, of course,on the definition of partnership books and records. If the definitionallows access to all existing partnership books and records, then thechange would be inappropriate. The requirement that books andrecords be kept has been deleted in RUPA-90 apparently because "[t]he Committee did not want to create new liability to third partiesby stating a duty to keep partnership books," although some "[m]embers of a subcommittee were uncomfortable with thesuggestion that RUPA [*745] says you don't have to keep books and

records." n129 It seems odd that a fundamental question concerningthe relations of the partners among themselves should be decided onthe basis of third- party-beneficiary status, which should be readilydisclaimable if really a concern.

The third modification, included in both the ABA and Conferencedrafts, is a relocation of the access and inspection provision from

section 19 to section 20 and a revision of the text. n130 The result istroublesome to high-tech joint venturers.

The ABA drafters' pronouncements regarding restrictions on accesswere somewhat cryptic:

Subsection (a) dealing with the right to inspect and to copypartnership books and records should be subject to statutoryrestrictions (e.g., a good faith and proper purpose standard or aprovision restricting access to certain technical and confidential

research data) by agreement among the partners. . . . n131

Read literally ("[the inspection right] should be subject to statutory





restrictions . . . by agreement among the partners"), the languagewould seem to suggest that there would be a set of statutorily definedrestrictions into which the partners could opt by agreement. But theclause, "or a provision restricting access to certain technical andconfidential research data," is not an easy fit. It seems difficult tobelieve that such a restriction could be structured as a statutory "opt-

in" clause. The wide range of situations would surely frustrate effortsat statutory drafting by making such an opt-in clause so broad andgeneric as to be ineffective. And there is also the question of how"technical and confidential research data" could be within theclassification "partnership books and records" at all, given the narrowview suggested by both the ABA and Conference drafters.

In the initial Conference draft, the access and inspection language of current section 19, "every partner shall at all times have access to and

may inspect and copy any of [the partnership books]," n132 wasreplaced by new subsection (a) of section 20:

Partners, their agents, and attorneys shall have access to partnershipbooks and records. Former partners shall have access to books andrecords pertaining to the time when they were partners. [*746]Subject to reasonable restrictions by agreement, partnership booksand records may be inspected and copied during ordinary business

hours. The partnership may impose a reasonable charge, covering thecosts of labor and material, for copies of any documents provided to a

partner. n133

There was a question as to whether the "reasonable restrictions byagreement" modified the initial, seemingly unrestricted grant of access, or only the mechanics of inspection during ordinary businesshours. The placement of the enabling language suggested the

narrower view; the comment suggested the Conference draftersintended the broader. n134 The problem was in one sense resolved inRUPA-90, with the revision of section 20(b):

(b) Partners and their agents and attorneys may have access topartnership books and records. Former partners may have access tobooks and records pertaining to the time when they were partners. A

partnership must provide the opportunity to inspect and copy books





and records during ordinary business hours. A partnership mayimpose a reasonable charge, covering the costs of labor and material,

for copies of documents furnished to a partner. n135

The changes seem appropriate except perhaps the substitution of theweaker "may" in place of "shall," as used in the earlier draft.

C. Demands Under Section 20

The most significant proposed revisions deal with the disclosureobligation under UPA section 20. The ABA Report summarized itsrecommendations concerning section 20 as "[t]he obligation of apartner to render information about the partnership business to hisfellow partners under UPA section 20 is made unqualified, and therequirement that information be made available only 'upon demand' is

eliminated." n136 In its detailed analysis of UPA section 20, which wasembodied in RUPA-89 section 20(b) and is now embodied in RUPA-90section 20(c), the ABA committee's recommendation was:

Subsection (b) should include the language in existing section 20requiring partners to provide information about the partnershipbusiness; however, the 'on demand' requirement should be replacedby the phrase 'to the extent the circumstances [*747] render it just

and reasonable,' which is used in the Georgia Partnership Act andmore accurately encompasses a partner's fiduciary duty of completeand continuous disclosure established by case law. . . .

. . . [A] majority of the Committee believed that the duty to renderinformation about the partnership business should also be subject toreasonable restrictions by agreement. The Committee did not feel thatit would be appropriate to allow the partners to agree to a complete

elimination of any right of inspection and rendering of information.One member of the Committee felt that the duty to render informationwas so fundamental that it should not be subject to any restriction.n137

Although the ABA committee did not suggest specific language, thefollowing provisions would be a fair rendition of section 20(b) asproposed by the ABA committee:

(b) Partners shall render, to the extent the circumstances render it





just an reasona e an su ject to t e reasona e agreement o t epartners, true and full information on all things affecting thepartnership to any partner or the legal representative of any deceasedpartner or partner under legal disability.

The Conference committee's initial draft adopted some of the changesin the UPA section 20 proposed in the ABA Report. In its entirety, therevision contained in RUPA-89 read as follows (additions areunderlined; deletions have brackets []):

SECTION 20. [DUTY] RIGHTS OF PARTNERS TO [RENDER] OBTAININFORMATION.

(a) Partners, their agents, and attorneys shall have access topartnership books and records. Former partners shall have access to

books and records pertaining to the time when they were partners.Subject to reasonable restrictions by agreement, partnership booksand records may be inspected and copied during ordinary businesshours. The partnership may impose a reasonable charge, covering thecosts of labor and material, for copies of any documents provided to apartner.

(b) Partners shall [render on demand] have the right, to the extent just and reasonable, to true and full information of all things affectingthe partnership [to any partner or]. This is also the right of the legalrepresentative of any deceased partner or partner under legaldisability. By agreement, partners can reasonably restrict the right to

information about the partnership [*748] business. n138

The Conference drafting committee's 1990 draft made somesignificant changes from the RUPA-89 version. In its entirety, therevision of UPA section 20 contained in RUPA-90 reads as follows

(with the indicated changes from the RUPA-89 draft):

SECTION 20. RIGHTS OF PARTNERS TO OBTAIN INFORMATION.

(a) The partnership books and records, if any, shall be kept at theprincipal place of business of the partnership.

(b) Partners[,] and their agents and attorneys [shall] may have access





to partners p oo s an recor s. ormer partners s a may aveaccess to books and records pertaining to the time when they werepartners. [Subject to reasonable restrictions by agreement,partnership books and records may be inspected and copied] Apartnership must provide the opportunity to inspect and copy booksand records during ordinary business hours. [The] A partnership mayimpose a reasonable charge, covering the costs of labor and material,for copies of any documents [provided] furnished to a partner.

[(b)](c) Partners, and the legal representative of any deceasedpartner or partner under legal disability, shall have the right, to theextent just and reasonable, to true and full information [on all thingsaffecting] concerning the partnership. [This is also the right of thelegal representative of any deceased partner or partner under legaldisability. By agreement, partners can reasonably restrict the right to

information about the partnership business.] n139

Together, the two Conference drafts propose three important textualmodifications of section 20, in the title, and in what was subsection(b) in RUPA-89 and is now subsection (c) in RUPA-90. These are a re-orientation from an extraordinary and remedial focus to a standardoperating focus, with the associated elimination of the UPA demandrequirement, limitation of the scope of information that can be

obtained, and confirmation of partners' agreements to restrict accessto information. The modifications are troublesome for high-tech jointventurers, both in conception and execution.

The reformulation of UPA section 20 in both drafts of RUPA is causefor concern because it marks a change in the underlying premise forthe section--a shift from the extraordinary [*749] remedialorientation of UPA section 20 to a standard procedural orientationunder RUPA. The re-orientation of section 20, including the

elimination of the demand component that accompanies thetheoretical shift, is also a source for procedural concern, due to thelack of adequate procedural provisions in RUPA.

The first step in reviewing the fate of UPA section 20 is to reachagreement on what end the section is designed to accomplish. Itseems clear from the language and treatment of section 20 in the UPA

that it was not designed to codify the general obligations of partners





o e eac o er e ru or o s are n e managemen o eenterprise. Rather, it was designed as a remedial tool available to thepartners in extraordinary situations in which the normal flow of information is disrupted. That, however, is decidedly not theorientation adopted by the Conference drafters. It appears that thedrafters see the language of RUPA-89 section 20(b) and RUPA-90section 20(c) as a mechanism by which a pre-existing, normal,operational obligation to supply information to the partners can befulfilled. In its comment to RUPA-89 section 20, the draftingcommittee first refers to the provision that, subject to any agreement

between the partners, n140 "all partners have equal rights in the

management and conduct of the partnership business." n141 From thisprovision, the drafters adopt Professor Eisenberg's conclusion that "[t]he effect of ["UPA" added in RUPA-90] Section 18(e) is 'to requirethat, absent contrary agreement, every partner be provided on anongoing basis with information concerning the partnership business,

and be consulted in partnership decisions.' " n142 The drafters alsonote that UPA section 20 "arguably limits the thrust of the ["UPA"added in RUPA-90] Section 18(e) information right by suggesting thatit be honored on [*750] 'demand' rather than volunteered as

appropriate," and suggest removing the demand component. n143

The RUPA revision of section 20 is fundamentally flawed as a result of

a mistaken belief that the UPA section 20 disclosure mechanism isdesigned to meet the need for ongoing information, pursuant to UPAsection 18(e). The linkage of Eisenberg's UPA section 18(e) impliedinformation requirement with UPA section 20 is a creation of the

Conference drafters. It is not found in the ABA Report, n144 and it isnot found in Professor Eisenberg's work to which the drafters make

reference. n145 Indeed, one of the works upon which ProfessorEisenberg relies clearly distinguishes the UPA section 20 disclosure

obligation from any implied right to information under UPA section18(e). n146

The better reading of UPA section 20 is that, whatever obligation thepartners (or the partnership, to adopt the drafters' entity orientation)have under section 18(e) to supply information for managementpurposes under normal operating circumstances, the right to demand

information under UPA section 20 is a tool for individual partners to





secure n orma on rom o er par ners n ex raor narycircumstances. Thus, properly viewed, UPA section 20 does not,contrary to the drafters' concerns, limit the thrust of any section 18(e)information right. It merely gives the partners an additionalmechanism to secure information. If one accepts that section 20 is anextraordinary and remedial tool, then the demand component isrequired, and the RUPA revision of section 20 should be modified toreinstate the demand requirement.

Procedurally, the Conference drafters' re-orientation of section 20 andthe associated removal of the demand component are also sources forconcern. The intention of the drafters is unclear in terms of theprocess by which information will be disseminated [*751] to thepartners. This leads to a lack of adequate procedural provisions in theRUPA revision of section 20.

The procedural uncertainty of the Conference drafters builds upon thatof the ABA committee. The ABA group seemed to be thinking in termsof a self-executing duty of each partner to render information. Theychanged the obligation under UPA section 20 only by the removal of

the demand requirement n147 and the insertion of the provision foundin the recently revised Georgia act that requires disclosure "to the

extent the circumstances render it just and reasonable." n148 Thus,

the ABA committee proposed adoption of the Georgia language,essentially without amendment. n149

Use of the broad Georgia formulation of section 20 as the mechanismfor achieving routine disclosures within the partnership will be alogistical and procedural nightmare. As argued above, the broadinterpretation of UPA section 20 is less apt to be burdensome in theoriginal remedial context since disclosure follows specific demand,and since the information required to be disclosed in any situation isdefined and limited by the terms of the demand. But when made self-executing, the broad definition of information to be disclosed isfunctionally unlimited.

The procedural problems of the ABA proposal stem, it seems, from abasic misreading by the ABA committee of the common-law disclosureobligation. The ABA committee proceeded on the assumption that the

Georgia statute "more accurately encompasses a partner's fiduciary

"





,

citing as its authority the Crane and Bromberg treatise. n150 Of course, the observation that the Georgia statute "more accuratelyencompasses [*752] a partner's fiduciary duty" is misleadingbecause UPA section 20 was never intended to encompass a partner'scommon-law fiduciary duty to disclose. In fact, putting aside thequestion of whether the Georgia statute is "more accurate" than theUPA, it must be noted that the Georgia statute is not, in itself, anaccurate formulation of a partner's common-law disclosure obligation.

The ABA committee cites Crane and Bromberg on Partnership for itscontention that the Georgia formulation is a more accurate rendition

of the common-law disclosure obligation. n151 But that treatisereflects the analysis that the information required to be disclosed bydemand under section 20 of the UPA differs from the information

required to be disclosed even without demand under the commonlaw:

At common law, a partner is not only bound to give information ondemand but, in certain circumstances, he is under a duty of voluntarydisclosure. UPA § 20 expresses the duty to render information "ondemand." Strict statutory construction would find a negativeimplication where no demand is made. But this should be outweighed

by the high fiduciary duties of partners. In consequence, voluntarydisclosure should be considered as necessary under the Act as at

common law. n152

Properly read, Crane and Bromberg simply state that UPA section 20did not change the common-law disclosure requirement; "in certaincircumstances," voluntary disclosure remains necessary as providedunder the common law.

Thus, the ABA committee's efforts can be criticized for misstating thecommon-law duty to disclose, for trying to transform section 20 froma remedial measure into a standard operating procedure, and forcreating a disclosure mechanism that will be unworkable in practice.

The Conference drafters further complicated the revision effort. TheConference drafters clearly contemplate a duty to disclose information

that is self-executing, at least as to some information. n153 But





ne er e anguage o e ra s a u ory prov s on nor edraft comment provides any clear direction on the process.

The procedural inadequacy of RUPA section 20 is traceable, at least inpart, to the replacement of the "duty to render information" found in

the UPA n154 with the "right to obtain information" found in RUPA.n155

This is in line with the Conference drafters' understanding thatthe ABA report suggested that UPA section 20 "be stated as a 'rights'

section rather than a duty section." n156 The ABA report, however,does not make such a recommendation with specific reference to UPA

section 20, either in the summary n157 or in the body. n158

Furthermore, the summary specifically speaks in terms of "theobligation of a partner to render information about the partnership

business to his fellow partners." n159

It probably makes little difference in the long term whether section 20is structured as a statement of rights or as a statement of duties. Asthe Conference drafting committee noted in the context of RUPA-89

section 18, "In a sense, every right is the flip side of a duty." n160 Butin this case, the change from a declaration of obligations to astatement of rights introduced complications that have not beenresolved. It seems reasonable to assume that any comprehensivedefinition of a disclosure procedure should include at least fourelements: how the disclosure obligation is initiated, from whom thedisclosure is required, to whom the disclosure is made, and what thedisclosure must include. Using this measure, the UPA and RUPA bothfail to provide a full definition.

The UPA, which is "duty oriented, "is somewhat imprecise as to howthe obligation is initiated. Clearly there is to be a demand. Fromwhom the demand comes is less clear, but presumably the actors who

can initiate the demand are the same actors who will receive theinformation -- the partners. UPA section 20 is commendably clear asto both from whom the disclosure [*754] is required ("[p]artnersshall render on demand") and to whom the disclosure is to be made("any partner or the legal representative of any deceased partner or

partner under legal disability"). n161 As to what information isrequired to be disclosed, the UPA and RUPA-89 share the "true and

full information of all things affecting the partnership" language and





. -standard to "true and full information concerning the partnership,"n162 which narrows the range of disclosure.

The disclosure obligation definition under section 20 of RUPA, whichis "rights oriented," is less complete. As noted in the next section, thedraft language is unclear as to how the disclosure obligation is

initiated. Unlike UPA section 20, which provides that "partners shall

render . . . true and full information," n163 the draft language of RUPAsection 20 does not clearly articulate from whom the disclosure isrequired. That is an especially unfortunate omission given the shift inthe theoretical base of the act from an aggregate theory to an entity

theory. n164 Like UPA section 20, RUPA section 20 clearly states towhom the disclosure is made.

The second substantive change incorporated in the RUPA drafts is astatutory limitation on the scope of information to which a partner hasaccess. Under the UPA, a partner has a right to demand "true and full

information of all things affecting the partnership." n165 Under RUPA,each partner would have the right to information only "to the extent

just and reasonable." n166 The "just and reasonable" modifier maylimit the scope of information required to be disclosed (although it isa fair assumption that a court would be reluctant to order disclosure

under the existing language of UPA section 20 if unjust orunreasonable), but it certainly is a slender reed upon which to dependfor protection in a multi-million dollar high-tech joint venture in[*755] which the protection of proprietary information is of critical

importance.

The RUPA language is notable, however, as much for what it does notdo as it is for what it does. In RUPA-89 the drafters defined

"partnership business" as "the scope of business activity set forth inthe partnership agreement or actually being conducted by the

partnership." n167 This was narrowed in RUPA-90 to definepartnership business as "the scope of business activity authorized by

a partnership agreement." n168 Rather than limit the requireddisclosure to "true and full information of all matters of partnershipbusiness," the drafters retained the substantially broader "true and

full information of all things affecting the partnership" in RUPA-89

"





information concerning the partnership" in RUPA-90. n169

In the context of a high-tech joint venture, the difference -- even withthe marginally narrower construction adopted in RUPA-90 -- could besubstantial. Within the Sematech joint venture, for example, theparallel development of new chip technology by one of the

participants would be within the classification "true and fullinformation of all things affecting the partnership," and might bewithin the classification of "true and full information concerning thepartnership," but would not be within the classification "true and fullinformation of all matters of partnership business." The samedifference in outcome would occur in the Ampligen partnership. DuPont proprietary information concerning its in-house AIDS medicationdevelopment would fall within the broader "affecting the partnership"

formulation, and might arguably be within the "informationconcerning the partnership" formulation, but would not be within thenarrower "matters of partnership business" formulation.

The final substantive change from UPA section 20 to RUPA-89 section20 was confirmation of the partners' ability to further limit the scopeof available information by agreements between themselves. This wasaccomplished by addition of the language that "[b]y agreement,partners can reasonably restrict the right to information about the

partnership business." n170 This language was not carried over intothe RUPA-90 draft. The [*756] drafters presumably relied on thegeneral section 4X ability to modify statutory provisions by

agreement. n171

There were several problems with the proposed language, not all of which are resolved in the RUPA-90 draft. First, the focus of theallowance in RUPA-89 was wrong. By using the more restrictive

formulation of "partnership business" rather than the broaderformulation of "all things affecting the partnership," the languageallowing intrapartnership agreements did not allow one type of restriction -- relating to internal participant knowledge not directlyrelated to partnership business -- that is of critical concern to high-tech joint venturers. This problem is resolved in the RUPA-90 draft,

since the power to modify section 20 under section 4X is unlimited.

-





,however, it may be appropriate to differentiate between informationconcerning partnership business and information concerning thebroader category of all things affecting the partnership.

Second, the qualification in RUPA-89 that the partners might only"reasonably restrict" such information introduced some uncertainty

into the process. Is it reasonable to restrict the partners' right toinformation concerning one party's in-house research? In theAmpligen example, would it be reasonable for Du Pont and HEM todeny HEM the right to information on Du Pont's projections relating tothe marketing of a competing AIDS drug? The proposed languageprovided no guidance. Relying on the section 4X power, however, theRUPA-90 drafters have excluded any reasonableness requirement for

contractual modifications of section 20. n172 Given the central

importance of information in the operation of a partnership and theopportunities for abuse when one partner is relatively sophisticated orhas an overwhelming bargaining advantage, the decision of thedrafters to permit unrestricted contractual modifications of the section20 right to information is unfortunate.

Third, the procedures in the revised section are flawed. As aprocedural matter, it might be prudent to require that suchagreements be in writing and be signed at least by the partner againstwhom they are being enforced. This would greatly simplify the proof problems and would eliminate arguments as to an agreement arisingfrom the partners' pattern of activity over [*757] time. Undersection 4X, contractual modifications of RUPA provisions can beprovided in the "partnership agreement," and under section 2(c), thepartnership agreement can be oral. Thus, the RUPA-90 drafters haveleft open the possibility of oral modifications of the section 20 right to

information. n173 This is a serious flaw in the RUPA-90 draft.

D. Common-Law Disclosures in Dealings with the Ventures

Neither the ABA draft nor RUPA addresses the common-lawrequirements for disclosure in dealings with the venture. E. Common-Law Disclosures in Dealings with Coventurers

Neither the ABA draft nor RUPA addresses the common-law





. VI. HIGH-TECH AGENDA FOR REVISION A. The Needs of High-Tech Joint Venturers

The ABA and Conference drafts inadequately address the needs of

high-tech joint venturers. An adequate statute would contain thefollowing elements in order to meet the identified shortfalls of boththe common law and the existing UPA. 1. Section 18(e). Routine Disclosures.

The routine disclosure obligation under section 18(e) should becodified. The scope of the disclosure should be indicated, and the

parties should be empowered to restrict disclosure by agreement. 2. Section 19. Access to Partnership Books.

A two-part definition of "partnership books and records" should becodified. It should include both (1) any information required to bekept by statute, regulation, or generally accepted accountingprinciples, including information required to substantiate entries in atax or financial audit, and (2) any additional information beyond that

in (1) which is in fact kept. Parties should be given access to allexisting partnership books and records under section 19, withstatutory provisions for an injunction against disclosure if animproper purpose can be proved. Further, the parties should beauthorized to restrict [*758] access by prior agreement toinformation under (2), but not under (1). 3. Section 20. Extraordinary and Remedial Demands.

The demand mechanism under the existing UPA should be retained.Statutory provisions should be included tracking the classification of information under section 19. An injunction against disclosure shouldbe allowed if an improper purpose can be proved. The parties shouldbe authorized to restrict access by prior agreement to informationunder (2) but not under (1).

-





.

Parties to high-tech joint ventures should be required to make onlythose disclosures that are commercially reasonable under thecircumstances as long as the disclosure actually made is notsubstantially misleading overall.

5. Common-Law Disclosures in Dealings with Coventurers

Parties to high-tech joint ventures should be relieved from anyobligation to disclose in connection with the purchase or sale of interests in the venture. B. The Proposal

Even given the shortcomings of the draft revisions, it is logical toaddress the peculiar disclosure needs of high-tech joint venturerswithin the framework of the pending revision of the UPA. Since someof the changes proposed in the general revision are flawed in waysthat make them inappropriate both for traditional partners and high-tech joint venturers, some of the reform proposals are of generalapplication. These are set forth in the following subsections. But notall of the disclosure needs of high-tech joint venturers are parallel tothose of parties in traditional partnerships. Therefore, it is necessary

at certain junctures to propose special rules for the high-tech class.n174 These are set forth in my proposed section 20X, which defines aclass of "sophisticated joint ventures" and allows additional latitudeto the participants.

[*759] This proposal for reform is necessarily more complicatedthan the existing regime. This is in part because of the decision toexpand the UPA to include both the existing extraordinary and

remedial function of sections 19 through 22 and the ongoing routinedisclosure obligations implied under present section 18(e). If theongoing routine disclosure obligations are included, then thetreatment will be made substantially longer and more complicatedbecause it will be necessary to state not only the affirmativerequirement, but also to define the numerous limitations andexceptions to the rule.

There is a reasonable argument that the scope of the UPA disclosure





.in recent years regarding the disclosure obligations of partnersindicates a need to expand the coverage of the uniform act. The ABAcommittee and Conference drafters have determined to pursue abroader treatment. My draft, therefore, is structured to cover both theroutine ongoing disclosure obligation as well as that for extraordinaryand remedial disclosure.

These proposed sections conform as much as possible to the policydecisions made by the Conference drafters. They use the Conferencedraft as a starting point. Further, they are re-oriented to discuss therights of partners and are not structured solely in terms of partners'obligations. However, since the comprehensive definition of adisclosure system requires that both rights and obligations beaddressed, my draft speaks to both.

1. Section 18(e). n175

What is now section 18(e) would be revised to read:

(f) All partners shall have equal rights in the management andconduct of the partnership business, which rights shall entitle[*760] each partner to such information from the partnership

concerning the partnership business as is reasonably required for the

exercise of such rights, without any demand by such partner.

RUPA section 4X would be modified by the insertion of a newnumbered clause within subsection (a) stating that a partner's right toinformation concerning business matters as to which the partner has amanagement and conduct right under section 18(f) may not be variedby agreement. Except for the ability to limit access to informationconcerning decisions as to which a partner has a vote under section

18(f), my draft is compatible with the RUPA drafts. My draft simplyprovides that the right to participation in the management andconduct of the business carries with it -- and is limited to the sameextent the right to participate could be limited under proposed section4X -- the right to such "information . . . concerning the partnershipbusiness as is reasonably required for the exercise of such rights." Mydraft provides that such information comes from the partnership. This

preserves the entity orientation of the RUPA drafters and fixes





2. Section 19. n176

A definition of "partnership books and records" would be added tosection 2:

(9) "partnership books and records" means (a) the media containingany information required by applicable statutes, rules, regulations,GAAP or the partnership agreement, or required for the preparation ofthe partnership's tax returns or financial statements, including allinformation on any supporting or explanatory schedules and notes,and all information required to support, clarify or call into questionsuch tax returns and financial statements (the "required partnershipbooks and records"), together with (b) the media containing any

information maintained in fact within the partnership's control inaddition to that set forth under (a) (the "optional partnership booksand records"); subject in either case to destruction pursuant to[*761] a commercially reasonable document/information destruction

policy of general application.

What is now section 19 would be revised to read:

Each partnership shall keep complete and correct partnership books

and records. The partnership books and records shall be kept, subjectto any agreement between the partners, at the principal place of business of the partnership. The inspection language, which is transferred from section 19 tosection 20 under the RUPA drafts, is discussed in the followingsubsection.

3. Section 20

My draft revision of section 20 follows the existing organization. It isdivided into six subsections that deal in turn with informationavailable without demand from partners, information availablewithout demand from the partnership, information available from boththe partners and the partnership upon demand, exceptions to the right

to information, costs of reproduction, and definitions of common

terms. The section would read:







(3) Partnership Business: Information regarding the state of thepartnership business and the financial condition of the partnership.

(4) All Things Affecting the Partnership: Information regarding allthings affecting the partnership, other than as provided in (c)(3), asis just and reasonable.

(d) Exceptions to Disclosure Obligations: The obligation to discloseinformation shall be avoided to the extent the party otherwiserequired to disclose is able to establish the applicability of anexception hereunder:

(1) Independent Source: As to disclosures under section (c), thatsuch information is either reasonably available to the recipient or hasbeen communicated to the recipient by another source.

(2) Agreement of Partners: As to disclosures under sections (b) and(c)(2), (3), or (4), that such information is protected from disclosureto the recipient by a reasonable written agreement of the partners,signed by the recipient. No agreement shall be effective to limit theaccess of the recipient to required partnership books and recordsunder (c)(1).

(3) Legal Prohibition: As to disclosures under sections (b) and (c),that the discloser is prohibited from disclosing such information byapplicable statute, rule or regulation, or by an order of a court oradministrative body of competent jurisdiction.

(4) Illegitimate Purpose and Substantial Risk of Harm: As todisclosures under section (c), that such information is not reasonablyrequired by the recipient for any legitimate purpose and that therelease of the information requested poses a substantial risk of harm

to the partnership or any partner.

(5) Conclusion of Fiduciary Relationship: As to disclosures undersection (a), that the discloser no longer stands in a fiduciary role asto the recipient, for reasons that make it equitable to avoid thedisclosure obligation otherwise existent.

[*763] (e) Costs: Partnership books and records to which the

reci ient is afforded access hereunder ma be ins ected and co ied





during ordinary business hours. The partnership may impose areasonable charge, covering the costs of labor and material, forcopies of any documents provided to the recipient.

(f) Definitions: For purposes of this section, the following definitionsshall apply:

(1) "Partners": The term "partners" shall be deemed to include thelegal representative of any deceased partner or partner under legaldisability, former partners to the extent the information at issuepertains to the time when they were partners, and the agents andattorneys of such parties.

(2) "Information": The term "information" shall be deemed to meantrue and full information of the type specified, presented in a timely

manner. My draft is a merger of the UPA section 20 obligations with those inthe common law. It does not seek to increase the obligations of thepartners to make disclosure beyond the circumstances set forth ineither the present formulation of UPA section 20 or the common law.

Subsection (a) introduces some basic concepts and sets forth the

information that a partner should receive from any copartnerpossessing the information without any triggering demand. First, thesubsection looks both to the right of the receiving party (designatedthe "recipient") to the information and to the duty of the disclosingpartner (designated the "discloser") to make the disclosure. Asstructured, the class of disclosers is limited to partners "possessingsuch information." Thus, the disclosure mechanism does notcontemplate an affirmative obligation that partners seek out suchinformation if they do not already possess it. Within subsection (a),there are two categories of information: "partnership transactions"and "transfers of partnership interests." These conform to thecategories of information that must be disclosed without demandunder the common law. The definition of partnership transactions in(a)(1) is plenary, "commercial transactions between the discloser andthe partnership," with an exclusion for transactions that are both

incidental to the business of the partnership and on terms and

conditions generally available in a recognized market. Paragraph (a)





(2) tracks the common-law disclosure situation in which one partneris either selling or purchasing a partnership interest in a transactionwith another partner. The [*764] paragraph applies only as to salesbetween partners. It does not create a disclosure obligation when apartnership interest is sold to a third party.

Subsection (b) defines two types of information that must be suppliedby the partnership without any predicate demand: partnership taxreturns and legal process giving original notice of claims and causesof action. The requirement to provide tax returns is broad. Thepartner must be given a copy of all partnership federal, state, andlocal income tax returns together with all supporting schedules. Thetax provision in (b)(1) does not, however, extend to other thanincome tax returns. The tax return requirement parallels theprovisions of the Revised Uniform Limited Partnership Act (RULPA),although the demand requirement in RULPA is deleted in recognitionof the more central management role and increased liability of

partners in a general partnership. n177 Paragraph (b)(2) requires thatthe partners be given copies of original legal process of actionsagainst the partnership which, if adversely decided, would have amaterial adverse impact on the partnership. The requirement islimited in two respects. First, it requires only that the partners begiven copies of original legal process, not copies of all suit papers.

Presumably, a partner interested in the progress of the litigation coulddemand copies of subsequent filings under subsection (c), asappropriate. The second qualification on the right to legal process isthe materiality test. Copies need be supplied only when an adversedecision would have a material adverse impact on the partnership. Of course, it would be possible to further define this threshold, eitherthrough the use of a dollar limit or a more detailed definition of materiality. But given the wide variations in the types of enterprises

covered by the statute, such an attempt at further specification wouldnot be productive.

Subsection (c) restates, and restricts somewhat, the demand-drivenmechanism in UPA section 20. First, my draft makes it clear that the

demand originates with a partner n178 and can be directed either to a

copartner or to the partnership. Second, [*765] my draft restricts

the process by requiring that the demand be in writing. In this







This is also consistent in approach with a disclosure provision in

RULPA. n190

Subsection (d) contains exceptions to the disclosure obligations. Notall of the exceptions under subsection (d) apply to disclosuresrequired under subsections (a), (b), and (c). The independent source

exception under (d)(1), for example, applies only to disclosuresrequired under subsection (c), the provision concerning partnershipdisclosures by the partners and the partnership upon demand. Underthis exception, the party to whom the demand is made can decline todisclose if the information is "reasonably available" or if therequesting party has already received the information from anothersource. This exception will avoid use of the disclosure request as ameans of forcing another partner or the partnership to assemble

information that is otherwise available. It will also avoid wastefulduplication of effort due to parallel disclosure requests.

Paragraph (d)(2) contains the exception to disclosures when thepartners have limited disclosure by their agreement. This exceptionapplies to disclosures under both subsection (b) and subsection (c),with the exception of disclosures of required partnership books andrecords under (c)(1). To provide an exception to disclosure under (d)(2), the agreement must meet three [*767] tests. First, it must be

written. Second, it must be signed by the party to whom disclosurewould be made. These procedural requirements are necessary toavoid the time-consuming proof problems inherent in situations whenthe disclosing party claims an oral agreement, or a written agreementthat has not been executed by the recipient. Third, the substance of the agreement must also be reasonable.

Paragraph (d)(3) creates an exception to disclosure when the

disclosing partner "is prohibited from disclosing such information byapplicable statute, rule or regulation, or by an order of a court oradministrative body of competent jurisdiction." The exception doesnot extend, of course, to contractual prohibitions on disclosure. By itsterms, (d)(3) applies to disclosures under both subsections (b) and(c), although one is hard pressed to envision a situation in whichinformation required to be disclosed under subsection (b) -- tax

returns and legal process -- would be subject to a legal prohibition ondisclosure. It is certainly possible to describe a situation in which a





disclosure under subsection (a), dealing with partnership transactionsand sales of partnership interests, would be the subject of a legalprohibition. But disclosures under subsection (a) do not come withinthe exception in (d)(3). Since the exception is not available, thedisclosing party must either violate the law or abandon thetransaction. It is assumed that in the normal case the transaction will

be abandoned. In either event, the interests of both the seller and thepurchaser are protected. If the transaction is abandoned, thedisclosing party is protected from violating the legal prohibition andthe receiving party is protected from going forward with thetransaction without the information in the possession of the disclosingparty. If the disclosing party decides to violate the legal prohibition,presumably the cost of the legal violation is less than the reward of consummating the transaction. Thus, the value to the disclosing partyis protected and the recipient is protected because it will have the fullrange of information required.

Under paragraph (d)(4), demand-generated disclosures undersubsection (c) can be avoided if the disclosing party establishes thatthe information demanded "is not reasonably required by the recipientfor any legitimate purpose and that the release of the informationrequested poses a substantial risk of harm to the partnership or anypartner." The test is structured so that the party desiring to avoid

disclosure must prove both [*768] elements. Disclosure would stillbe required when the information is not reasonably required for anylegitimate purpose of the demanding partner but such disclosure doesnot pose a substantial risk of harm to the partnership or any partner.Partners have traditionally had wide access to partnership records,and in the absence of harm to the partnership, this right ought not becurtailed. Similarly, disclosure would be required when theinformation is reasonably required for a legitimate purpose of the

demanding partner but such disclosure poses a substantial risk of harm to the partnership or a partner. Presumably, in such a case acourt can order suitable protections to minimize the harm to thepartnership or partner at risk. The illegitimate purpose and substantiarisk of harm exception is not available for disclosures required undereither subsection (a) or subsection (b). Such an exception would beinappropriate when dealing with partnership transactions or the sales

of partnership interests inter se, and the partners should have anabsolute right to partnership tax returns and process. Disclosures of





required partnership books and records, however, would come withinthe exception of (d)(4). Thus, the partnership has the possibility of disclosing only the filed returns and supporting schedules, and notthe background records, when there is proof of illegitimate purposeand impending harm.

Paragraph (d)(5) establishes an exception, available for disclosuresrequired under subsection (a), when the disclosing partner canestablish "that the discloser no longer stands in a fiduciary role as tothe recipient, for reasons that make it equitable to avoid thedisclosure obligation otherwise existent." The paragraph restates theexception to the common-law-based disclosure requirements of subsection (a), when the disclosing partner is no longer a fiduciary asto the recipient, for reasons that make it equitable to avoid thedisclosure obligation otherwise existent. For example, the disclosure

obligations would be suspended if the parties negotiated a firm pricefor the partnership interest before the disclosing party received the

knowledge to be disclosed. n191 This narrow exclusion for disclosuresrequired under subsection (a) follows the common law withoutessential modification.

My draft does not extend the (d)(5) exception to disclosures requiredunder subsections (b) and (c). By definition, the party [*769]

receiving information under subsection (b) is a partner. Thus, thepartnership should always be deemed to be a fiduciary of therequesting partner and the exception could not ever come into play.For the same reason, disclosures from the partnership undersubsection (c) should always be required. Disclosures from thepartners under paragraphs (c)(1) and (c)(2) should be allowedwhether or not the individual partners stand as fiduciaries to oneanother, since partnership books and records cannot be the property

of an individual partner. Disclosures under (c)(3) should probably berequired for the same reason. Disclosures under (c)(4) could beblocked by a court upon a finding that the disclosure would not be"just and reasonable."

Subsection (e) provides a cost recovery mechanism for the productionof copies of partnership books and records.

Finally, subsection (f) contains two definitions. The first, thedefinition of the term "partners," contains both the UPA section 20





inclusion of "the legal representative of any deceased partner or

partner under legal disability" n192 and the ABA and Conference

drafters' inclusion of former partners, n193 and the agents and

attorneys of partners. n194 The second, the definition of the term"information," contains the UPA qualification of "true and full

information" n195 and the concept that information must be presented

in a timely manner. 4. Section 20X

To accommodate the special needs of high-tech and othersophisticated joint venturers, a new section, which I have called 20X,should be added. It would read:

§ 20X. Sophisticated Joint Ventures.

In each case absent the contrary agreement of the partners in theparticular sophisticated joint venture, the following provisions shallapply to sophisticated joint ventures hereunder:

(a) Definitions.

(1) The term "partner information" shall mean the confidential or

proprietary information of a partner in a sophisticated joint venturewhich is not otherwise included in the classification of ventureinformation.

[*770] (2) The term "sophisticated joint venture" shall mean:

a. a partnership which is both:

1. created pursuant to a written partnership agreement, and,

2. created with a business purpose which is limited in scope atinception;

b. where the parties to the partnership:

1. are business entities or individuals with substantial businessexperience, and,





2. are represented in the formation of the partnership by separatelegal counsel;

c. where the partnership agreement contains an election to adoptstatus as a sophisticated joint venture under this section.

(3) The term "venture information" shall mean the confidential orproprietary information of a sophisticated joint venture, including butnot limited to both original information developed by thesophisticated joint venture and the confidential or proprietaryinformation of a partner in the sophisticated joint venture whicheither:

a. becomes known to the sophisticated joint venture with permission

from the disclosing partner for unrestricted dissemination, or,

b. becomes known to the sophisticated joint venture with permissionfrom disclosing partner for restricted dissemination, where thesophisticated joint venture is acting in compliance with suchrestrictions.

(b) Access to Sophisticated Joint Venture Books and Records. Thepartners in a sophisticated joint venture may by written agreement

limit the access of any or all of them to designated partner or ventureinformation. Such agreements shall prevail over the statutory right tosuch information from the sophisticated joint venture concerning thesophisticated joint venture's business as is reasonably required forthe exercise of such partners' rights under section 18(f), and shallprevail over the statutory right to information under section 20.

(c) Injunctive and Other Relief. Either the sophisticated joint venture

or any partner therein may obtain an injunction against the exerciseof a partner's right to information under section 20(c), when themoving partner establishes that the request for information is notmade in good faith and for a proper purpose. The issuing court mayin its discretion fashion a more limited remedy, including but notlimited to an order allowing receipt of the information by the partner

requesting it, under bond and with limitations on the dissemination oruse of such information.





[*771] (d) Transactions Between the Joint Venturer and theSophisticated Joint Venture. Notwithstanding any contrary commonlaw or statutory requirement, in transactions between partners insophisticated joint ventures and the sophisticated joint venture,partners need make only those disclosures of partner information thatare commercially reasonable under the circumstances, as long as thedisclosures made by such partner are not affirmatively and materiallymisleading when taken as a whole.

(e) Trading in Sophisticated Joint Venture Interests Among the JointVenturers. Notwithstanding any contrary common law or statutoryrequirement, partners in sophisticated joint ventures need make nodisclosures of partner or venture information when trading in interestsin the sophisticated joint venture among themselves.

The special section on sophisticated joint ventures contains certaindefault changes in the partnership structures. A venture meeting thedefinitional requirements for a sophisticated joint venture could optinto the regime by the inclusion of an election in the partnershipagreement. In each case, the default provisions can be overridden.Thus, the venture could opt into the general changes and then finetune the regime to its particular needs.

The election of sophisticated joint venture status is limited to certain

partnerships. Unlike a traditional partnership, n196 a sophisticated joint venture must be created pursuant to a written partnershipagreement that contains an election to adopt the status of asophisticated joint venture. This reflects both a policy judgment thatsuch entities should be formed with the benefit of a writtenagreement and a desire to eliminate any confusion as to the status of the entity. To qualify, the entity must represent that it was created

with a business purpose. Thus, nonbusiness ventures are excluded,but not-for-profit consortia such as Sematech are allowed. The entitymust further represent that the business purpose was limited in scopeat inception. The limited purpose requirement follows the traditional,if somewhat murky, distinction between partnerships and joint

ventures. n197 The scope of the test is deliberately limited to the

inception of the enterprise. Once the status of the venture isestablished, the participants should not have to worry about







requ re o ma e on y suc sc osures as are reasona e un er ecircumstances, and the recipient party should have the assurance thatunderstanding the disclosure is less than complete, the overall picturepainted by the disclosure is not substantially misleading. Whiledifferent formulations are possible, that balance must be struck.

Finally, the common-law requirement relating to disclosures on thepurchase and sale of partnership interests between partners iseliminated. These sophisticated parties should rely on their owninformation and analysis when making such determinations. VII. CONCLUSION

With great solemnity, generations of lawyers and judges have recitedthe essence of duty in the joint venture relationship, as distilled by

Cardozo in Meinhard v. Salmon: "the duty of the finest loyalty . . .something stricter than the morals of the market place . . . thepunctilio of an honor the most sensitive, is . . . the standard of

behavior." n199

Thereupon, with a wink and a nod, those same lawyers and judgesproceeded to argue and decide cases based on a much narrower setof rules governing the relations of partners among themselves.

Especially when dealing with the partners' obligations to discloseinformation to one another, the lawyers and judges circumvented theimpractical results of the Cardozo pronouncement and fashioned anarrowly defined set of circumstances in which disclosure would berequired.

But you cannot play penny poker in the church basement forever.Either a young new priest arrives who takes it all too seriously, or thestakes get too high for it to be a friendly game. In the same way, the

days of the Cardozo wink and nod on joint venture disclosures shouldbe coming to an end. Like the new priest full of good intentions, theABA and the RUPA drafters take seriously the policy statements of thehigher authorities. And like the penny ante card game grown up, thestakes in high-tech [*774] joint ventures have simply become toolarge to depend on the benign neglect of the powers-that-be to

protect the pot.





disclosure in a joint venture should be something less than complete,that the minimum standard of conduct among joint venturers ought tobe something short of "the punctilio of an honor the most sensitive."But the record is clear that courts -- even the Cardozo court inMeinhard -- have always recognized the practical limits of the loftyobligation. The business community's infatuation with high-tech joint

ventures has suddenly increased the stakes on the table. It would bea mistake to change the statutes to match Cardozo's lofty rhetoric andunreasonably increase the burden on participants, as the Conferencedrafters come perilously close to doing with their self-executingplenary formulation of section 20. Rather, we should candidly admitthat the rhetoric has always outpaced the reality. We should acceptthe realistic limits on the general obligation to disclose, indicated bythe case law and practical considerations, and we should acknowledge

the special requirements of sophisticated and high-tech jointventurers by fashioning a specific statutory regime for their use.

Legal Topics:

For related research and practice materials, see the following legaltopics:

Business & Corporate LawJoint VenturesFormationBusiness & Corporate LawJoint VenturesManagement Duties & LiabilitiesMergers& Acquisitions LawAntitrustJoint Ventures

FOOTNOTES:

n1 Although there is some truth to the observation that "[t]hrough amixture of destiny, default and design, virtually every importantindustry in the United States is becoming high-tech," Schrage, The

Lure of New Technologies: Companies Radically Reshaping OldBusiness Values, Traditions, Wash. Post, Jan. 13, 1985, at E1, col. 3,this discussion will focus primarily on examples in the "traditionallyhigh-tech" areas of information processing and dissemination,pharmaceuticals, biotechnology and basic research.

n2 See, e.g., Henderson, Biotech Firms Reach Overseas for Partners,Wash. Post, May 19, 1985, at H1, col. 1.







. -foreign companies looking for an entree into American markets alsolook to the joint venture mechanism. See, e.g., Forry & Joelson,Preface, supra note 3, at v.

n8 Schrage, U.S. Company Encourages Firm Relationships, Japanese-Style, Wash. Post, Mar. 9, 1990, at G3, col. 1.

n9 Lewis, Are U.S. Companies Learning to Share?, N.Y. Times, Feb. 7,1988, at 9, col. 1 (describing Sematech, a consortium of thirteenprivate semiconductor companies).

n10 Armstrong, Charlap-Led HEM Revs Bid to Restore Its AIDS Drug,Phila. Bus. J., July 24, 1989, at 1, col. 3.

n11 Delta Airline and American Airlines Agreement, supra note 5.

n12 Stuart, Strategic Issues in Strategic Partnerships, COMPUTER & SOFTWARE NEWS, Sept. 19, 1988, at 37.

n13 Sometimes there is no effort to differentiate between partnership-and corporate-based joint ventures. See, e.g., Incantalupo, She CanSee GM Back in the Driver's Seat, NEW YORK NEWSDAY, Apr. 25,1990, at 61, 64 (describing the General Motors-Toyota jointly owned

automobile production corporation, New United Motor Manufacturing,Inc., as a "joint car-building venture"). Less frequently, commentatorsuse the term joint venture consciously to mean both partnership- andcorporate-based vehicles. See, e.g., Forry & Joelson, Preface, supranote 3, at v; Dobkin, Burt, Harker & Somay, Joint Venturing byTurkish and American Firms for U.S. Defense Procurements, MIDDLEEAST EXECUTIVE REP., July 1988, at 8 [hereinafter Joint Venturing].

n14 See, e.g., Stuart, supra note 12, at 37.

n15 See, e.g., Delta Airline and American Airlines Agreement, supranote 5.

n16 Schrage, supra note 8, at G3.

n17 See 15 U.S.C. § 638 (1988) (noting, in the Declaration of Policyat (a), that "[t]he expense of carrying on research and development

"





-directing at (d)(1) that the federal government assist and encouragesmall businesses "to undertake joint programs for research anddevelopment carried out through such corporate or other mechanismas may be most appropriate for the purpose;" and granting at (d)(3)that "[n]o act or omission to act pursuant to and within the scope of any joint program for research and development, under an agreement

approved . . . under this subsection, shall be construed to be withinthe prohibitions of the antitrust laws or the Federal Trade CommissionAct [15 U.S.C. 41 et seq.]"); see also 15 U.S.C. §§ 4301-4305 (1988)(The National Cooperative Research Act, which applies to basicresearch activities, includes provisions insulating such activities frombeing declared per se illegal under the antitrust laws, id. § 4302,limiting damages, id. § 4303, and attorney fee awards, id. § 4304, inantitrust cases involving such activities.).

n18 At common law the differences between joint ventures andpartnerships were slight, with joint ventures being characterized atvarious times by the lack of a partnership-entity representation,somewhat more limited purposes, and a somewhat shorter duration.See, e.g., Smith v. Metropolitan Sanitary Dist., 77 Ill. 2d 313, 318,396 N.E.2d 524, 527 (1979) ("a joint venture is an association of twoor more persons to carry out a single enterprise for profit"); Wiley N.

Jackson Co. v. City of Norfolk, 197 Va. 62, 67, 87 S.E.2d 781, 784(1955) ("a joint adventure, which is a special combination of two ormore persons, where in some specific undertaking of a businessnature a profit or other gain or benefit is jointly sought without anyactual partnership or corporate designation").

One substantive difference in some jurisdictions has been theexistence of a prohibition on corporations being partners in generalpartnerships without a parallel prohibition on corporations being joint

venturers.

[I]t appears to be well-established as the majority rule that acorporation, in the absence of express statutory or charter authorityto do so, has no power to become a partner . . .

. . .





,partnerships and joint adventures, the courts have usually found thatalthough the partnership relationship is beyond the scope of corporatepowers, there is nothing objectionable about a corporation becominga joint adventurer . . . ."Annotation, Corporation's Power to Enter into Partnership or JointVenture, 60 A.L.R.2d 917, 919 (1958) (footnote omitted).

By its terms, the Uniform Partnership Act allows for corporatepartners. UNIFORM PARTNERSHIP ACT § 6(1), 6 U.L.A. 22 (1969)[hereinafter UPA], defines "partnership" as "an association of two ormore persons." UPA § 2, 6 U.L.A. 12 defines "person" to include"individuals, partnerships, corporations, and other associations."

Once past the bar on corporate partners, the common law made few

substantive differentiations between partnerships and joint ventures.See, e.g., Smith, 77 Ill. 2d at 318, 396 N.E.2d at 527 ("the rights andliabilities of its members are tested by the same legal principles whichgovern partnerships"); Wiley N. Jackson Co., 197 Va. at 67, 87 S.E.2dat 785 ("The relations of the parties to a joint adventure and thenature of their association are so similar and closely akin to those of partners that it is commonly held that their rights, duties andliabilities are to be tested by rules which are substantially the same asthose which govern partnerships."); 1 A. BROMBERG & L. RIBSTEIN,

BROMBERG AND RIBSTEIN ON PARTNERSHIP § 2.06(a), at 2:42-:43(1988) ("[M]ost courts have chosen to distinguish between isolatedtransactions and continuing enterprises by classifying the former as joint ventures and applying partnership law with little or nomodification."). The primary differences have been in the scope of liability for usurpation of partnership/joint venture opportunities andin the degree to which the partner must refrain from outside businessactivities. Id. § 6.07 Lest joint venturers intent on sharp practices

gain too much comfort from the differentiation, however, it should benoted that the parties in Meinhard v. Salmon were classic jointventurers and not partners. Meinhard v. Salmon, 249 N.Y. 458, 463,164 N.E. 545, 546 (1928).

The Uniform Partnership Act does not speak in terms of joint

ventures, treating all such entities as either partnerships within thecoverage of the Act or nonpartnerships outside its coverage. It seems

-





, , . . .39, most of the business arrangements here under review would beclassifiable as partnerships. Indeed, even under the common-law test,many would be classified as partnerships and not joint ventures giventheir broadly defined purposes and relatively long durations.

Finally, the drafters of the first proposed revision of the Uniform

Partnership Act faced the question squarely and provided that "[a] joint venture is a partnership and is subject to the provisions of this[Act]." UPA § 6(1), at 11 (Tent. Draft 1989) [hereinafter RUPA-89].The subsequent draft addressed the "Joint Venture Issue" andreversed the earlier blanket inclusion on the basis of the conclusionthat "not every relationship called a joint venture rises to the level of partnership." U.P.A. § 7 comment, at 20 (Tent. Draft 1990)[hereinafter RUPA-90]. After noting the theoretical "possibility that at

least some kinds of joint ventures will be found to be outside theUPA," id. at 21, the drafters conclude by quoting Professor Eisenbergto the effect that some result-oriented courts have created adifferentiation between general partnerships and joint ventures whenthe same result could be achieved by simply finding an agreementbetween the parties overriding the applicable UPA provision. Id. at 22(citing M. EISENBERG, AN INTRODUCTION TO AGENCY ANDPARTNERSHIP 88-90 (1987)). Presumably, the final draft of theRevised Uniform Partnership Act will clarify the point.

n19 Lewis, supra note 9, at 9, col. 1.

n20 Armstrong, supra note 10, at 31.

n21 Webber, Ricochet Change Across the Pacific, HARV. BUS. REV.,Sept.-Oct. 1988, at 144.

n22 Id. at 148.

n23 Id.

n24 See, e.g., Baillie, Intellectual Property in the U.S. and Researchand Development Joint Ventures, in JOINT VENTURES IN THE UNITED

STATES, supra note 3, at 76. For purposes of this discussion I shallrefer to the classifications as "venture information" and "participant

"





, .primarily proprietary to the venture since, although the venture mayhave an interest in preserving the confidentiality of the informationeither because of the interest of the participant or because the venturehas an interest in preventing the value of the information from beingappropriated by nonparticipants, this venture interest is secondary tothat of the participant.

n25 Of course, to say that the venture has an interest in maintainingsuch confidentiality is simply a shorthand for saying that theparticipants have a shared interest ex ante in the maintenance of confidentiality.

n26 Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928).

n27 NBC Sues Sony/Columbia in Video "Plot," L.A. Times, Mar. 16,1990, at D5, col. 4.

n28 This is of course not the only option. The parties could agree, forexample, that they would have full access to venture information, butwould not make use of the information until the conclusion of theproject. One problem with such a solution is that in order to monitorcompliance, the venturers would have to make their internaloperations open to inspection, thus jeopardizing their purely internal

information. Another problem is that, given the way in which high-tech information is utilized, it is often extraordinarily difficult andexpensive to prove the use, or misuse, of such information.

n29 Sematech's Noyce Urges U.S. Adoption of Strategy to AddressJapan Challenge, 6 Int'l Trade Rep. (BNA) No. 11, at 320-21 (Mar. 15,1989).

n30 Commenting on concerns that technology developed atSEMATECH will flow to Japanese chip firms as a result of jointventures, [Sematech President Robert] Noyce said that there is noway to stop the spread of technological advances. The only advantagethe U.S. firms have is one of time, he said, where U.S. firms can get a jump of 12-15 months on their Japanese competitors. Addressing

concerns centered on a joint venture between Texas Instruments -- aSEMATECH member -- and Hitachi to make 16 megabit dynamic

"





,faith" in TI's ability to keep technology advances coming out of SEMATECH to itself, noting that it is not the intention of joint ventures"to give away the store."Id. at 321.

n31 The General Motors-Toyota joint venture, New United Motor

Manufacturing, Inc., is actually structured as a corporation, not apartnership, but the factual illustration remains helpful in illustratingthe potential problems for partnership-based joint ventures.

n32 Abbott, United Press Int'l, Feb. 7, 1984 (NEXIS, Current library)(quoting General Motors Corp. Chairman Roger Smith).

n33 Schrage, supra note 1, at E1.

n34 NBC Sues Sony/Columbia in Video "Plot," supra note 27, at D16.

n35 The source code is the proprietary operating instructions for thecomputer, written in machine-readable language. The smoothtransmission of data between programs might require the programmeto have access to both the source code of the sending and receivingcomputer. This would be particularly true where the source code usednonstandard or unique coding, which might well be of increased

proprietary value.


n37 See, e.g., Stuart, supra note 12, at 38.

n38 See, e.g., Joint Venturing, supra note 13, at 8. This primer oninternational joint ventures suggests measures for handling the flowof information. After noting that one of the joint venturers in the

hypothetical has as a secondary purpose "to obtain for its ownpurposes the technology and know-how that will be developed as aresult of the joint undertaking." id. at 17, the authors suggest astepped exchange of information. The first step, in the pre-joint-venture stage, is an information-exchange agreement, under which

the two putative joint venturers can "exchange certain limitedtechnological and business information." Id. The primer does suggest





the technological and business information exchanged at this point isnecessarily limited. The U.S. firm must reveal enough of itsproprietary technology to demonstrate the feasibility andinnovativeness of the new systems, but not so much as tocompromise its proprietary rights. The disclosures must be

sufficiently substantive to demonstrate that each party can make ameaningful contribution to the venture.

The agreement should make the disclosures subject to appropriateconfidentiality measures and the return of all information if discussions are terminated. Promises of confidentiality in suchcircumstances are, of course, no panacea in the event of deliberate orinadvertent unauthorized disclosure. Where, however, the disclosuresare made in countries that recognize proprietary rights and afford judicial enforcement of such rights, the risk is less. . . .

In any event, a careful assessment of the intentions of both parties isrequired, and even information of a nonconfidential nature should notbe freely given if there is any reason to suspect improper motivationon the part of the prospective partner.Id. (footnotes omitted).

This initial exchange is followed, assuming the successfulinvestigation of the joint venture prospects, by the agreementestablishing the joint venture entity. It is noted that this documentshould include provisions as to the treatment upon termination of information supplied by the two parties. "The partners should alsodiscuss at the outset, and incorporate in their agreement, provisionseffective upon termination for the return of all confidential material,coupled with continuing confidentiality requirements. . . ." Id. at 19.

The primer does not expand, however, upon the statutory andcommon-law information disclosure obligations of the parties duringthe pendency of the joint venture if it is structured as a partnership-based joint venture, one of the options under consideration but notultimately adopted.

n39 Stuart, supra note 12, at 38, states:

In man hardware and software or anizations information is the most





important tool the organization has. Intellectual property andproprietary technologies can be the core of the organization'scompetitive advantage.

One of the risks involved with strategic partnerships is the potentialleak of information that is of critical importance to the firm.

. . .

In some cases an organization may have to terminate a strategicpartnership if they find that they cannot control the information that isbeing contributed.

n40 See, e.g., Hennessy, Basic Forms and Terms of US JointVentures, in JOINT VENTURES IN THE UNITED STATES, supra note 3,

at 12-14 (listing advantages and disadvantages of partnership-based joint venture without mention of statutory and common-law internaldisclosure requirements).

n41 There is a lively debate on the essentially parallel question incorporate law as to whether corporate participants should be free tocontract as they wish, unconstrained by external requirements. Seegenerally Butler & Ribstein, Opting Out of Fiduciary Duties: A

Response to the Anti-Contractarians, 65 WASH. L. REV. 1 (1990). Onone hand are the "contractarians," who argue for complete freedom ofcontract. On the other are the traditionalists, the "anti-contractarians"in Butler and Ribstein's nomenclature, who argue for the right of thesociety, operating through the state, to impose certain conditions oncorporations. On balance, it seems that the traditionalists have thebetter argument, since in any meaningful sense the society, actingthrough the state, is a party to the contract through the grant of limited liability, the establishment of governmental institutions to

assist the corporations in their activities, and the toleration of corporate aggregations of power that would not exist but for thepermission of the state. The argument, although not at presentfocused on general partnerships, becomes more interesting in thisarea, since these three arguments do not apply.

n42 UPA § 18(e), 6 U.L.A. 213 (1969), provides that, absent thecontrary agreement of the partners, "[a]ll partners have equal rights

in the mana ement and conduct of the artnershi business."





n43 RUPA-89, supra note 18, § 20 comment, at 61; RUPA-90, supranote 18, § 20 comment, at 65 (quoting in both instances M.EISENBERG, supra note 18, at 42) (emphasis added).

n44 UPA § 20, 6 U.L.A. 256. The Uniform Partnership Act has been

adopted in every state but Louisiana, with the language of § 20 in theUniform Partnership Act incorporated into the statute of each adoptingstate. ALA. CODE § 10-8-46 (1987); ALASKA STAT. § 32.05.150(1986); ARIZ. REV. STAT. ANN. § 29-220 (1989); ARK. STAT. ANN. §4-42-403 (1987); CAL. CORP. CODE § 15020 (Deering 1979); COLO.REV. STAT. § 7-60-120 (1986); CONN. GEN. STAT. ANN. § 34-58(West 1987); DEL. CODE ANN. tit. 6, § 1520 (1974); FLA STAT. ANN.§ 620.655 (West 1977)0; GA. CODE ANN. § 14-8-20 (1989); HAW.REV. STAT. § 425-120 (1985); IDAHO CODE § 53-320 (1988); ILL.ANN. STAT. ch. 106 1/2, para. 20 (Smith-Hurd 1987); IND. CODEANN. § 23-4-1-20 (Burns 1989); IOWA CODE ANN. § 544.20 (West1987); KAN. STAT. ANN. § 56-320 (1983); KY. REV. STAT. ANN. §362.245 (Baldwin 1983); ME. REV. STAT. ANN. tit. 31, § 300 (1978);MD. CORPS. & ASS'NS CODE ANN. § 9-403 (1985); MASS. ANN.LAWS ch. 108A, § 20 (Law. Co-op. 1985); MICH. STAT. ANN. §449.20 (Callaghan 1990); MINN. STAT. ANN. § 323.19 (West 1981);MISS. CODE ANN. § 79-12-39 (1989); MO. ANN. STAT. § 358.200

(Vernon 1968); MONT. CODE ANN. § 35-10-403 (1989); NEB. REV.STAT. § 67-320 (1986); NEV. REV. STAT. § 87-200 (1987); N.H.REV. STAT. ANN. § 304-A:20 (1984); N.J. STAT. ANN. § 42:1-20(West 1940); N.M. STAT. ANN. § 54-1-20 (1988); N.Y. PARTNERSHIPLAW § 42 (McKinney 1988); N.C. GEN. STAT. § 59-50 (1989); N.D.CENT. CODE § 45-07-03 (1978); OHIO REV. CODE ANN. § 1775.19(Baldwin 1986); OKLA. STAT. ANN. tit. 54, § 220 (West 1969); OR.REV. STAT. § 68.330 (1989); 15 PA. CONS. STAT. ANN. § 8333

(Purdon 1990); R.I. GEN. LAWS § 7-12-31 (185); S.C. CODE ANN. §33-41-530 (Law. Co-op. 1990); S.D. CODIFIED LAWS ANN. § 48-3-11 (1983); TENN. CODE ANN. § 61-1-119 (1989); TEX. REV. CIV.STAT. ANN. art. 6132b, § 20 (Vernon 1970); UTAH CODE ANN. § 48-1-17 (1989); VT. STAT. ANN. tit. 11, § 1243 (1984); VA. CODE ANN.§ 50-20 (1989); WASH. REV. CODE ANN. § 25.04.200 (1969); W.VA.

CODE § 47-8a-20 (1986); WIS. STAT. ANN. § 178.17 (West 1989);WYO. STAT. § 17-13-403 (1989). Even Louisiana, the only state that

has not ado ted the Uniform Partnershi Act has statutor rovisions





which to some degree parallel §§ 20 and 21 of the UPA:

A partner may inform himself of the business activities of thepartnership and may consult its books and records, even if he hasbeen excluded from management. A contrary agreement is null.

He may not exercise his right in a manner that unduly interferes withthe operations of the partnership or prevents other partners fromexercising their rights in this regard.LA. CIV. CODE ANN. art. 2813 (West Supp. 1990). The Civil Codefurther states:

A partner owes a fiduciary duty to the partnership and to his partners.He may not conduct any activity, for himself or on behalf of a thirdperson, that is contrary to his fiduciary duty and is prejudicial to the

partnership. If he does so, he must account to the partnership and tohis partners for the resulting profits.Id. art. 2809.

In only three states has the language of § 20 been changed from thatof the Uniform Partnership Act: Florida modifies the Uniform Act textby moving the phrase "on demand" to the beginning of the section:"On demand partners shall render true and full information of all

things affecting the partnership to any partner or the legalrepresentative of any deceased partner or partner under legaldisability." FLA. STAT. ANN. § 620.655 (emphasis added). Georgiavaries the official text to: "Partners shall render, to the extent thecircumstances render it just and reasonable, true and full informationof all things affecting the partners to any partner and to the legalrepresentative of any deceased partner or of any partner under legaldisability." GA. CODE ANN. § 14-8-20 (emphasis added). Minnesotamakes the words "on demand" into a separate clause, and changesthe word "partnership" to "partnerships": "Partners shall render, ondemand, true and full information of all things affecting thepartnerships to any partner or the legal representative of anydeceased partner or partner under legal disability." MINN. STAT. ANN.§ 323.19 (emphasis added). Only one state, Georgia, has modified

the uniform language to eliminate the demand component from theenacted statute. GA. CODE ANN. § 14-8-20.





n45 Within § 19 the language "subject to any agreement between thepartners" clearly modifies the preceding clause, "[t]he partnershipbooks shall be kept," and the last clause, "and every partner shall atall times have access to and may inspect and copy any of them." UPA§ 19, 6 U.L.A. 254; see also A. BROMBERG, CRANE AND BROMBERGON PARTNERSHIP § 66, at 383 n.13 (1968) (characterizing the

language of § 19 as "rather oblique, since the statement is primarilywhere they shall be kept, and only secondarily that they shall bekept")(emphasis in original).

The informational right under § 22 apparently can be expanded, butnot restricted, by the agreement of the partners. "Any partner shallhave the right to a formal account as to partnership affairs . . . [i]f the right exists under the terms of any agreement. . . ." UPA § 22, 6U.L.A. 284.

n46 Uniform Partnership Act § 20 provides that "[p]artners shallrender on demand true and full information." UPA § 20, 6 U.L.A. 256(emphasis added).

n47 The inspection right under § 19 and the right to an accountingunder § 22 necessarily presuppose an affirmative act of the partnerdesiring the information.

The duty to account for profits made from the unauthorized use of partnership property under § 21 is self-executing. But this is bestviewed as a modification of the right to an accounting under § 22,where the benefited partner has all of the information that would leadthe disadvantaged partners to act, and is divulging the information astrustee for the benefit of the disadvantaged partners.

n48 RUPA-89, supra note 18, § 20 comment, at 61; RUPA-90, supra

note 18, § 20 comment, at 11 (quoting in both instances M.EISENBERG, supra note 18, at 42).

n49 UPA § 20, 6 U.L.A. 256.

n50 See id. § 18(e), 6 U.L.A. at 213 ("The rights and duties of thepartners in relation to the partnership shall be determined, subject to

any agreement between them, by the following rules: . . . (e) All





partners have equal rights in the management and conduct of thepartnership business.").

n51 Id. § 19, 6 U.L.A. at 254.

n52 Exceptions to the general rule are found in some special purpose

joint ventures created under federal law. Under the Steel andAluminum Energy Conservation and Technology Competitiveness Actof 1988, 15 U.S.C. §§ 5101-5110, "[t]he knowledge resulting fromresearch and development activities conducted under this chaptershall be developed for the benefit of the domestic companies whoprovide financial resources to the program," id. § 5103(b)(3), and the"results from research and development activities" in the federallysponsored joint venture can be kept confidential for up to five years,id. § 5103(b)(4)(A). A parallel provision exists for confidential

information from participants in the National Institute of Standardsand Technology's Advanced Technology Program. Id. § 278n(d)(5).

n53 See, e.g., Saballus v. Timke, 122 Ill. App. 3d 109, 118, 460N.E.2d 755, 760 (1983) ("As a general rule, one of the ordinaryduties of partners is to keep true and correct books showing the firmaccounts . . ."); 2 A. BROMBERG & L. RIBSTEIN, supra note 18, §6.05(c), at 6:55 n.17 ("U.P.A. § 19 refers only to 'partnership books,'

which apparently includes only financial records . . ."); A.BROMBERG, supra note 45, § 66, at 383 (concluding that theapplicable statutes do not specify what types of records are included,but noting that applicable tax regulations would require financialrecords for tax purposes).

n54 See, e.g., Lowell Perkins Agency,Inc. v. Decker, 256 Ark. 211,212-13, 506 S.W.2d 559, 559-60 (1974) (operation of a garage undean oral agreement); Royal v. Moore, 580 S.W.2d 159, 160-61 (Tex.Ct. App. 1979) (operation of apartment building).

n55 A. BROMBERG,supra note 45, § 66, at 383.

n56 For example, one of the obligations of the auditor is "to

determine whether litigation, claims, and assessments have beenproperly reflected in the financial statements in accordance with

generally accepted accounting principles." M. MILLER & L. BAILEY,





GAAS GUIDE 8.36 (1986). The Financial Accounting Standards Boardstandard requires that a loss contingency "be accrued by a charge toincome if . . .: (a) [i]nformation available prior to issuance of thefinancial statements indicates that it is probable that an asset hadbeen impaired or a liability had been incurred at the date of thefinancial statements . . . [and] (b) [t]he amount of loss can be

reasonably determined." CODIFICATION OF ACCOUNTINGSTANDARDS AND PROCEDURES, Statement of Financial AccountingStandards No. 5, P8 (Am. Inst. of Certified Pub. Accountants 1989).In order to fulfill this obligation, "the auditor must collect evidentialmatter (1) to identify circumstances that may result in a losscontingency, (2) to identify the period in which the event occurredthat may lead to the loss contingency, (3) to support the probabilityof the loss,and (4) to support the estimated loss or the estimatedrange of the loss." M. MILLER & L. BAILEY, supra, at 8.36.


n58 In its litigation HEM charged that the access of Du Pont to therecords "violated Food and Drug Administration guidelines." Id. Itshould be noted that UPA § 19 gives each partner access topartnership books "at all times," even the dead of night, and allowsthe inspecting partner to "inspect and copy any of them." UPA § 19, 6

U.L.A. 254 (1969).


n60 In the Ampligen case the auditor would be required to probe theresearch documentation -- the key to the later controversy betweenthe parties -- in order to determine whether a loss contingencyneeded to be accrued. See supra note 56 and accompanying text. If the standard for inclusion in the classification "partnership books" iswhether information is required for audit purposes, then the sweep of the classification would be very broad.

n61 The confidentiality of participant proprietary information isaddressed in some special-purpose joint ventures created under

federal law. Under the Steel and Aluminum Energy Conservation andTechnology Competitiveness Act of 1988, "[n]o trade secrets orcommercial or financial information that is privileged or confidential .





. . which is obtained from a domestic company shall be disclosed inthe conduct of the management plan or research plan, or as a resultof activities under this chapter." 15 U.S.C. § 5104(a). A parallelprovision exists for confidential information developed by jointventures funded under the National Institute of Standards andTechnology's Advanced Technology Program. Id. § 278n(d)(5).

n62 See A. BROMBERG, supra note 45, § 66, at 385 n.31.

n63 " The partnership books shall be kept, subject to any agreementbetween the partners, at the principal place of business of thepartnership, and every partner shall at all times have access to andmay inspect and copy any of them." UPA § 19, 6 U.L.A. 254 (1969)(emphasis added).

n64 See REVISED MODEL BUSINESS CORP. ACT § 16.02(b9)-(c)(1989) (providing for inspection of certain board minutes, records of committee actions, and records of shareholder actions only if thedemand for inspection is "made in good faith and for a properpurpose").

n65 See A. BROMBERG, supra note 45, § 66, at 385 n.31 ("'[Theinspecting] partner's rights are not absolute. He may be restrained

from using the information gathered from inspection for other thanpartnership purposes.'") (quoting Sanderson v. Cooke, 256 N.Y. 73,175 N.E. 518 (1931)).

n66 UPA § 21(1), 6 U.L.A. 258 ("Every partner must account to thepartnership for any benefit, and hold as trustee for it any profitsderived by him without the consent of the other partners from anytransaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.").

n67 Delta Airline and American Airlines Agreement, supra note 5.

n68 Slingerland v. Hurley, 388 So. 2d 587, 589 (Fla. Dist. Ct. App.1980).

n69 Peskin v. Deutsch, 134 Ill. App. 3d 48, 54, 479 N.E.2d 1034,1038 (1985).





n70 Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546(1928). For example, Professor Beane reproduces language fromMeinhard as the introduction to her article discussed in the followingsection. Beane, The Fiduciary Relationship of a Partner, 5 J. CORP.LAW 483, 483 (1980).

n71 H. REUSCHLEIN & W. GREGORY, HANDBOOK ON THE LAW OFAGENCY AND PARTNERSHIP § 189 (1979) (citing Starr v.International Realty, Ltd., 271 Or. 396, 533 P.2d 165 (1975); Johnsonv. Buck, 540 S.W.2d 393 (Tex. Ct. App. 1976)).

n72 The narrowing of the disclosure obligation pronounced in therhetoric of the decisions goes beyond the limitation of the obligationto the classes of situations noted. It also takes place bycircumscribing both the information deemed material and the parties

subject to the requirement even within the defined classes. Forexample, one court appeared to be ready to find a duty to disclosewhen it observed that the "utmost good faith is required of partners intheir relations with each other; [and] that one is the confidentialagent of the other and is required to make full disclosure of allmaterial facts within his knowledge in relation to their partnershipaffairs." Florida v. Wilkerson, 247 S.W.2d 678, 682 (Mo. 1952).Wilkerson involved a situation in which one of the partners had been

dispatched to negotiate a potential acquisition. During the course of negotiations, it developed that the seller was putting a condition onthe sale that the negotiating partner stay to manage the acquisition.This condition was rejected by the other partners and negotiationswere broken off. The negotiating partner then arranged for hispartners to buy out his interest in the partnership without disclosingthat he had agreed to purchase the former acquisition target for hisown account. Id. at 679-82.

But having stated the disclosure obligation in sweeping terms, theWilkerson court adopted a factually narrow interpretation and heldthat his acquisition of the former target was not a material fact inrelation to the partnership affairs. Id. at 682. The position that hisacquisition could be deemed not material to the partnership in its

discussions on terminating his participation is remarkable; that thefiduciary bonds could be so restricted following the Meinhard-esquerhetorical windup is not unusual, however.





Wilkerson dealt with the type of information required to be disclosed.Another range of cases restricts the generalized common-lawdisclosure requirements by narrowing the class of parties subject tothe disclosure requirement. These include an exception to thefiduciary-based obligation to disclose when there is an agreement to

terminate the partnership and the partners are found to be dealing asbetween themselves at arm's length and not as fiduciaries.

In Algernon Blair Group, Inc. v. Corneal, joint venturers had a fallingout and through a settlement agreement structured an option topurchase for the minority interest holder. No. 86-4465 (E.D. Pa. Feb.18, 1988) (LEXIS, Genfed library, Dist file). Thereupon, the minorityventurer sought financing and, unable to find financing, sought apurchaser for the joint venture assets. The court found no fiduciary

duty to disclose because "the settlement agreement . . . significantlyaltered the relationship of the parties and . . . they buy-sell clauseplaced them in an arms-length posture each free to pursue its owninterest." Id. at * 17-18. The court indicated that the outcome wouldhave been different "if there were a committed purchaser waiting inthe wings at the time the settlement agreement was executed." Id. at* 18. But after the buy-sell was negotiated, there was no duty todisclose: "There is no duty to disclose matters affecting the value of

the assets once the buy out price has been determined since it wouldserve no purpose." Id. at * 18-19 (citing Kaufmann v. Kaufmann, 222Pa. 58, 70 A. 956 (1908)).

That the court in Algernon Blair considered the underlying disclosureobligation terminated, and not merely suspended on the question of the buy-sell price, is made clear by the post buy-sell agreementconduct of the parties. The minority interest holder negotiated anextension of the buy-sell agreement without disclosing theprospective purchaser. At trial, the majority interest holder statedthat, had it been informed of the third party offer, it would havedenied the extension requested by the minority interest holder andexercised its secondary buy-sell option, thereby appropriating theentire benefit of the pending sale of joint venture property. "That,"

the court observed, "is precisely what motivated [the minority interestholder] in withholding the information. This demonstrates beyondperadventure that with respect to the rights and obligations of the





parties under the settlement agreement, they were adversaries andneither had any fiduciary duty with respect to the other." Id. at * 21.

n73 H. REUSCHLEIN & W. GREGORY, supra note 69, § 189, at 280(citing Starr v. International Realty, Ltd., 271 Or. 396, 533 P.2d 165(1975)).

n74 While the dissolution situation could be covered under the secondclassification, as a transaction between the partners themselves, see,e.g., Allen v. Sanders, 176 Ga. App. 647, 337 S.E.2d 428 (1985),transactions between a partner and the partnership during the term of the partnership should certainly be included and indicate theappropriateness of a general expansion of the classification.

n75 Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928).

n76 Bakalis v. Bressler, 1 Ill. 2d 72, 115 N.E.2d 323 (1953).

n77 Peskin v. Deutsch, 134 Ill. App. 3d 48, 479 N.E.2d 1034 (1985).

n78 H. REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280(citing Johnson v. Buck, 540 S.W.2d 393 (Tex. Ct. App. 1976)).

n79 Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786 (1938).

n80 Alexander v. Sims, 220 Ark. 643, 649-50, 249 S.W.2d 832, 836(1952) ("[W]e think that [the defendant] failed to observe and obeythe rule which requires partners to exercise the utmost good faith intheir dealings with each other," when the defendant, with knowledgeof her partner's impending death, got the unsuspecting but soon to bedeceased partner in the two-person partnership to sign a mutualagreement giving a deceased partner's interest to the survivor.).

n81 Patrick v. Bowman, 149 U.S. 411, 420 (1893). The Patrick courtfaced a situation in which the acquiring partner, who was also themanaging partner, knew of a rich mineral strike prior to theconsummation of his purchase of the partnership interest. The courtnoted, but did not rely upon, conflicting evidence of a demand for

information by the seller, and qualified the duty to disclose:

If, [when the minerals were discovered], there was a completed





un ers an ng e ween em a e acqu r ng par ner was o uyout [the selling partner's] interest and release him from his liabilityupon the note, there was no obligation to make such disclosure. If,upon the other hand, no such understanding had been reached, it wasthen incumbent upon [the acquiring partner] to inform [the sellingpartner] of the progress of the work before taking from him the deed.. . .Id.

n82 Graham v. Stratton, 339 F.2d 1004, 1008 (7th Cir. 1964).

n83 " Facts, such as those appearing on the firm books, to which allthe partners have equal access need not be divulged." H.REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280 (citingBradley v. Marshall, 129 Vt. 635, 285 A.2d 745 (1971)).

n84 Of some assistance on this point is Sanderson v. Cooke, 256 N.Y.73, 80-81, 175 N.E. 518, 520-21 (1931), which, although framed inthe context of a request to examine partnership documents and not arequest for information per se, suggests that the motive and objectiveneed of the partner for the disclosure would be considered.

n85 The Uniform Partnership Act does not, by its terms, affirmativelyprovide that the partners are fiduciaries to each other. The only use ofthe term "fiduciary" in the Uniform Partnership Act is in the title toUniform Partnership Act § 21, "Partner Accountable as a Fiduciary."UPA § 21, 6 U.L.A. 258 (1969).

n86 Id. § 5, 6 U.L.A. at 19 ("In any case not provided for in this actthe rules of law and equity . . . shall govern."). The nature and extentof the fit between the Act and the common law has been the source ofvarying judicial interpretations, some finding the common law to be

superseded when a topic is covered in the Act, see, e.g., Chien v.Chen, 759 S.W. 2d 484, 491 (Tex. Ct. App. 1988).

n87 H. REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280.

n88 See, e.g., Alexander v. Sims, 220 Ark. 643, 649-50, 249 S.W.2d832, 836 (1952); Bakalis v. Bressler, 1 Ill. 2d 72, 81-82, 115 N.E.2d323, 328 (1953); Kreutz v. Jacobs, 39 Ill. App. 3d 515, 519-20, 349





N.E.2 93, 95 1976 ; Herring v. O utt, 266 M . 593, 596-98, 295A.2d 876, 879 (1972); Johnson v. Buck, 540 S.W.2d 393, 399 (Tex.Ct. App. 1976).

n89 H. REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280(citing Starr v. International Realty, Ltd., 271 Or. 396, 533 P.2d 165(1975)).

n90 See, e.g., Joint Venturing, supra note 13, at 17 (citing need for apre-memorandum-of-understanding "information exchangeagreement" to provide for confidentiality in the preliminary disclosurephase).

n91 An alternative would be simply to eliminate the common-lawdisclosure obligation on participants in high-tech joint ventures when

dealing with transactions between the participant and the venture.This alternative has the attraction of being simple in operation. Onbalance, however, it goes too far and leaves the situation too open toabuse.

n92 H. REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280(citing Johnson v. Buck, 540 S.W.2d 393 (Tex. Ct. App. 1976)).

n93 It is assumed that the development is truly independent and not

within a Meinhard v. Salmon-type obligation to surrender thedevelopment to the joint venture.

n94 Note that it would not have a self-executing obligation to discloseunder the Uniform Partnership Act, either. It would, however, have anobligation to disclose upon a § 21 request being made by acoventurer.

n95 Nor is it a protection against another participant seeking to exit,when the agreement requires the remaining participants to purchasethe exiting participant's interest at some nonfixed price, since thedisclosure obligation includes both the seller and the buyer.

n96 Graham v. Stratton, 339 F.2d 1004, 1008 (7th Cir. 1964).

n97 Beane, supra note 70, at 491-92 (footnotes omitted). In support

" "





,Beane cites two cases, Libby v. L.J. Corp., 247 F.2d 78 (D.C. Cir.1957), and Auld v. Estridge, 86 Misc. 2d 895, 382 N.Y.S.2d 897 (Sup.Ct. 1976); see also infra note 101 and accompanying text.

n98 Simplicity of formulation ought not in this case be confused withpracticality: the disclosure regime that the merger analysis suggests

would be unworkable. The conditions under which disclosure ismandated are far too broad. As formulated by Professor Beane, themerged obligation does not even explicitly contain the common-lawexception for information that is either known to the party receivingthe disclosure or equally available to such party. See A. BROMBERG,supra note 45, § 67; 1 N. LINDLEY, W. GULL & W. LINDLEY, ATREATISE ON THE LAW OF PARTNERSHIP *303.

n99 UPA § 20, 6 U.L.A. 256 (1969).

n100 Some thirteen states have statutory provisions governing theinterpretation of statutes, the baseline assumption of which is thatunambiguous statutory language is to be applied as written. See, e.g.COLO. REV. STAT. § 2-4-203 (1980) (adopting UNIFORM STATUTORYCONSTR. ACT § 15 (1980)); MINN. STAT. ANN. § 645.16 (West 1947)("When the words of a law in their application to an existing situationare clear and free from all ambiguity, the letter of the law shall not bedisregarded under the pretext of pursuing the spirit."). As to thosestates where there is no statutory construction provision on point inthe statutes, the case law either requires ambiguity in the statute, or aparallel situation such as absurdity of result, as a predicate forrecourse to the rules of construction. Also, some courts hold that thestandard for interpreting a facially unambiguous statute is soextraordinarily burdensome that it prevents construction as a practicalmatter when dealing with language as unambiguous as that of UPA §

20. See, e.g., Cilley v. Lamphere, 206 Conn. 6, 9-10, 535 A.2d 1305,1308 (1988); County of DuPage v. Graham, Anderson, Probst & White, Inc., 109 Ill. 2d 143, 151, 485 N.E.2d 1076, 1079 (1985);Storey v. Meijer, Inc., 431 Mich. 368, 376, 429 N.W.2d 169, 173(1988).

n101 Beane, supra note 70, at 492 n.65. In Libby, the court faced theclassic diversion of a partnership opportunity, related to thataddressed by Judge Cardozo in Meinhard v. Salmon. The plaintiff and





e e en an s a en ere n o a o n ven ure o purc ase andevelop some real estate. The other joint venturers had usurped theopportunity by forming an entity to develop the property without theplaintiff's participation. In reversing the trial court grant of summary judgment in favor of the defendants, the court stated: "Therelationship of joint adventurers gives rise to certain reasonably well-defined fiduciary duties and obligations. The duty imposed isessentially one of good faith, fair and open dealing and the utmost of candor and disclosure to all concerned." Libby, 247 F.2d at 81.

Professor Beane is incorrect in citing Libby as an example of theexpanded disclosure obligation arising from the merger of § 20 of theUniform Partnership Act and the common-law provisions. The Libbycourt did not even cite § 20 of the Uniform Partnership Act,presumably because Congress did not adopt the Uniform Partnership

Act for the District of Columbia until five years after the Libbydecision. (D.C. CODE ANN. § 41-119 (1990) was enacted in Act of Sept. 27, 1962, Pub. L. No. 87-709, 76 Stat. 636.)

The other case cited by Professor Beane, Auld v. Estridge, is squarelywithin the coverage of the common law, and is equally unavailing toProfessor Beane in establishing the merged, expanded disclosureobligation. Auld involves "another of those cases which may be fairly

called business matrimonial disputes," 86 Misc. at 896, 382 N.Y.S.2dat 898-99, where the issue is the valuation of the partnership upondissolution. Simply stated, the plaintiff established that the defendant-- who was the managing partner of their enterprise -- liquidated thebusiness in return for stock; that the defendant failed to disclose fullythe nature of the stock received; and that the defendant did not fairlyallocate the liquidatin proceeds. The Auld court found a breach of thedefendant's fiduciary duty toward the plaintiff, and, citing "[t]heclassic statement of Chief Judge Cardozo in Meinhard . . . [which]

rings sonorously through the archives of this case," id. at 902, 382N.Y.S.2d at 902, found that the managing partner

was under a duty to disclose to his partners information uniquely his,which was fundamental to their enterprise. In the end, nothing was

more fundamental or basic to [the plaintiff's] interest in the businessthan the price for which it was sold. Yet, [the managing partner] wasmisleadingly silent here.





. c a on om e . e u cour no re er o e n ormPartnership Act. It apparently based its disclosure holding onMeinhard v. Salmon and Schneider v. Brenner, neither of which referto the Uniform Act disclosure provisions. See Meinhard v. Salmon,249 N.Y. 458, 164 N.E. 545 (1928); Schneider v. Brenner, 134 Misc.449, 235 N.Y.S. 55 (Sup. Ct. 1929). Uniform Partnership Act § 20 wasenacted in New York in 1919, prior to both Meinhard and Schneider.1919 N.Y. Laws 408.

n102 See, e.g., Wortham & Van Liew v. Superior Court, 188 Cal. App.3d 927, 932-33, 233 Cal. Rptr. 725, 728 (1987); Block v. Lea, 5 Haw.App. 266, 278, 688 P.2d 724, 733, cert. denied, 67 Haw. 685, 744P.2d 781 (1984); Fouchek v. Janicek, 190 Or. 251, 272-73, 225 P.2d783, 793 (1950).

n103 E.g., Coleman v. Lofgren, 593 P.2d 632, 636 (Alaska 1979).Coleman is interesting because the court quoted UPA § 20 withemphasis on the demand component, and, seeing no evidence of demand, found for defendant on the nondisclosure claim. The courtdid not address any common-law theory requiring disclosure, whichmight have been present given the facts of the case.

n104 It is true that courts, citing § 20 as their authority, haverequired disclosure by partners of information affecting thepartnership without any record of a demand by a partner being made.See, e.g., Berg v. King-Cola, Inc., 227 Cal. App. 2d 338, 341-43, 38Cal. Rptr. 655, 657-58 (1964); Peskin v. Deutsch, 134 Ill. App. 3d 4852, 479 N.E.2d 1034, 1038 (1985); Jaffa v. Shacket, 114 Mich. App.626, 640-41, 319 N.W.2d 604, 609 (1982); R.C. Gluck & Co. v.Tankel, 24 Misc. 2d 841, 847, 199 N.Y.S.2d 12, 19-20 (Sup. Ct.1960), aff'd, 12 A.D.2d 339, 211 N.Y.S.2d 602 (App. Div. 1961). Butin each case, one of two factors was present. Either the court found a

constructive demand, or the invocation of Uniform Partnership Act §20 is surplusage since the situation would have required disclosureeven absent a demand under the common law.

One way to finesse the demand component while deciding the matter

under UPA § 20 is to find conduct which, although falling short of anexpress demand for the specific information later at issue, constitutesin effect a constructive demand. This is one reading which can be





. - , . investor who had been promised stock in a to-be-formed corporationin return for her investment. The managing partner told the investorthat he had not formed the corporation, when in fact he had formed acorporation and issued all of the stock to himself. The plaintiff did notask whether the corporation had been formed. She asked for herstock. King-Cola, 227 Cal. App. 2d at 340-41, 38 Cal. Rptr. at 656-57.The King-Cola court recited that the managing partner "was under alegal duty to disclose to plaintiff matters affecting their businessrelationship," citing UPA § 20 and making no reference to the demandcomponent. Id. at 341, 38 Cal. Rptr. at 657-58. But, at an earlierpoint in the opinion, reference is made to conduct of the plaintiff thatcould be taken to constitute a § 20 demand. Id. at 341-42, 38 Cal.Rptr. at 657-58. Even absent a precisely worded demand, the courtcharacterized the plaintiff's requests in such a way as to supply the

demand component in § 20:

Plaintiff made frequent demands on [the managing partner] to giveher some evidence of her interest in the enterprise or to arrange forstock to be issued by the corporation for her contributions, but [themanaging partner] each time put her off, stating that he did not havetime to take care of the matter. By his statements and conduct [themanaging partner] dissuaded plaintiff from pursuing any investigation

into the matter of issuance of stock.Id. at 340, 38 Cal. Rptr. at 657.

The use of constructive demand does not evidence the type of mergerand expansion suggested by Professor Beane. The courts are, afterall, finding the predicate demand, or at least its functional equivalent.

Of course, the easiest way to finesse the demand component of § 20is to cite to § 20 without quoting the language. For instance, in Covalt

v. High, 100 N.M. 700, 675 P.2d 999 (Ct. App. 1983) (citing N.M.STAT. ANN. § 54-1-20 (1978)), cert. denied, 100 N.M. 631, 674 P.2d521 (1984), the court concluded that "[a]s a fiduciary, each partnerhas a duty to fully disclose to the other, all material facts which mayaffect the business of the partnership." Id. at 702, 675 P.2d at 1001.

Contrast the court's conclusion with the language of the citedstatutory section: "Partners shall render on demand true and fullinformation of all things affecting the partnership to any partner or





legal disability." N.M. STAT. ANN. § 54-1-20 (1978). Another easyway to finesse the demand component is simply to misquote § 20:"The [Uniform Partnership] Act requires that partners render 'true andfull' information of all things affecting the partnership to their co-partners. . . ." Peskin, 134 Ill. App. 3d at 52, 479 N.E.2d at 1037.

Certainly, the Uniform Partnership Act § 20 demand requirement hasbeen ignored in cases in which the common law would requiredisclosure without a demand, with the courts combining the common-law requirement with Uniform Partnership Act § 20 to find adisclosure requirement that does away with the demand component,seemingly on the basis of § 20. If one discounts the "constructivedemand" reading of King-Cola, for example, that case illustrates thistype. There is, under the King-Cola fact pattern, a clear obligation of

one partner to disclose to his partners his breach of an independentfiduciary duty. This arises from the defendant's failure to issue stockin the replacement corporate entity, in which his partner was to havebeen given an interest, but in which the nondisclosing partner hadacquired all of the issued stock. A common-law-based obligation todisclose is present, but the King-Cola court insisted on bringingUniform Partnership Act § 20 into the formulation in a way that -- if one discounts the earlier constructive demand -- reads the demand

component out of the statutory section:

[The defendant] was a fiduciary, both because of the personalrelationship of trust and confidence found by the court, and becauseof the confidential relationship which exists between partners, as amatter of law. [The defendant] was under a legal duty to disclose toplaintiff matters affecting their business relationship, and his failureto disclose that he held the outstanding stock of King-Cola was abreach of that duty, amounting to fraud.

King-Cola, 227 Cal. App. 2d at 341-42, 38 Cal. Rptr. at 657-58(citations omitted) (citing California's version of § 20 of the UniformPartnership Act). The King-Cola court had perhaps telegraphed itsintention to stretch to find several grounds for recovery, and in theprocess to muddle the § 20 analysis; given a compelling fact pattern

it had noted that "plaintiff is clearly entitled to a return of her moneyon one theory or another." Id. at 341, 38 Cal. Rptr. at 657.





disclosure where there was no predicate demand -- either actual orconstructive -- all involve disclosures in which the common-lawstandards would independently require the disclosure at issue. Someinvolve situations where disclosure would have been required underthe common-law rule governing prepartnership transactions. See,e.g., Jaffa, 114 Mich. App. at 640-41, 319 N.W.2d at 609; Gluck, 24

Misc. 2d at 847, 199 N.Y.S.2d at 19-20. Others present situations inwhich disclosure would have been required under the common-lawrule governing transactions between copartners. See, e.g., King-Cola,227 Cal. App. 2d at 341-42, 38 Cal. Rptr. at 657-58; Penner v. DeNike, 288 Mich. 488, 490, 285 N.W. 33, 34 (1939).

n105 See supra note 104.

n106 The courts have been imprecise in their invocation of thecommon-law rule. For example, Peskin involved a failure to accountfor partnership income by a former law partner. Under the commonlaw a partner clearly has an affirmative duty to disclose partnershipincome that is diverted by the partner for his own purposes. But thePeskin court stated that "[t]he fiduciary duty owed by one partner toanother includes a duty to make a full and fair disclosure," withoutany qualification to fit the narrower common-law rule. Peskin, 134 Ill.App. 3d at 53, 479 N.E.2d at 1038. Similarly, in Johnson v. Peckham,

132 Tex. 148, 120 S.W.2d 786 (1938), a partner purchased hiscopartner's interest following a third party offer, without disclosingthe offer. The court properly and narrowly framed the question as"whether it is a partner's duty to disclose material matters inpurchasing his copartner's interest in firm assets," which fallssquarely within the common-law rule. Id. at 151, 120 S.W.2d at 787.But the Johnson court framed the answer to overwhelm the common-law distinctions: "Since each is the confidential agent of the other,

each has a right to know all that the others know, and each isrequired to make full disclosure of all material facts within hisknowledge in any way relating to the partnership affairs." Id. Thecourt in Johnson may have redeemed itself by its final pronouncementon the subject, which ties in the common-law rule:

This necessity for good faith and the making of a full disclosure of allimportant information applies in the case of sale by one partner toanother of his interest in the partnership. Such a sale will be





,and on a full and complete disclosure of all important information asto value.Id.

n107 See UPA Rev. Subcomm. of the Comm. on Partnerships andUnincorporated Bus. Organizations, Section of Corp., Banking and

Bus. L., Am. Bar Ass'n, Should the Uniform Partnership Act BeRevised?, 43 BUS. LAW. 121, 121 (1987) [hereinafter RevisionReport]. (This report was not submitted to the American BarAssociation for approval and does not express the views of either theAssociation or its Section of Corporation, Banking and Business Law.)It is clear that the American Bar Association subcommittee, whichinitiated the revision of the Uniform Partnership Act, focused on adifferent type of partnership. In its report, the subcommittee noted

Census Bureau figures showing that there were in excess of 1.4million partnerships in the United States in 1981, that theserepresented 9% of the business enterprises in the country, and thatthey are concentrated "in agriculture and related fields of fishing andforestry, wholesale and retail trade, finance, insurance and realestate, and professional and general service businesses." Id. Thesubcommittee noted, "As a general rule, partnerships tend to beslightly larger in terms of revenues than proprietorships but areusually considerably smaller than corporations." Id. In developing aframework governing the rights of the partners among themselves,the subcommittee acted in the belief that "the UPA should containrules that provide a reasonable and equitable framework for resolvingthe basic problems that are encountered in a hypothetical 'typical'partnership, with the right of the partners to vary the statutory rulesin the partnership agreement." Id. at 123.

n108 Revision Report, supra note 107. A brief chronology of the

development process is given at RUPA-89, supra note 18, at i-ii;RUPA-90, supra note 18, at 1.

n109 RUPA-89, supra note 18.

n110 At the 1990 summer meeting of the Conference, the UPArevisions were discussed. See RUPA-90, supra note 18. A furtherrevision will be generated, with final adoption projected for the





.

n111 See RUPA-89, supra note 18, at i-ii; RUPA-90, supra note 18, at2 ("The Drafting Committee has recommended a Revised UniformPartnership Act ('RUPA') that moves the law of partnership closer toan entity model. RUPA does not adopt, however, a 'strict' entityapproach."); Revision Report, supra note 107, at 124 ("Because the

'entity theory' avoids a number of technical problems, such as theauthority of a general partnership to sue or be sued in its partnershipname, the subcommittee determined that it should be incorporatedinto any revision of the UPA whenever possible and that the'aggregate theory' should be retained only where it appears to beessential, e.g., because of tax considerations."). This is, of course, areversal of the decision made at the time the Uniform Partnership Actwas drafted. The UPA was adopted by the Conference in 1914 after

twelve years of celebrated debate during which the theoreticalfoundation of the Act was changed from the entity theory advanced byHarvard Dean James Barr Ames to the aggregate theory supported byPennsylvania Dean William Draper Lewis.

n112 The ABA Subcommittee proposes no changes in the text of §18(e). Revision Report, supra note 107, at 147-49.

n113 The Conference drafters in RUPA-89 and RUPA-90 propose only

to renumber the present § 18(e) to be § 18(f), without any changes inwording. See RUPA-89, supra note 18, § 18(f), at 50; RUPA-90, supranote 18, § 18(f), at 55.

n114 In its present incarnation, Uniform Partnership Act § 18(e)states: "The rights and duties of the partners in relation to thepartnership shall be determined, subject to any agreement betweenthem, by the following rules: . . . (e) All partners have equal rights in

the management and conduct of the partnership business." UPA §18(e), 6 U.L.A. 213.

n115 See supra text accompanying note 43.

n116 The comment to RUPA-89 § 18 does refer to the Eisenberganalysis, with a somewhat cryptic note that "[p]erhaps the OfficialComment should contain at least a cross-reference to Section 20(b),





with information." RUPA-89, supra note 18, § 18 comment, at 55.This is modified in RUPA-90 to a notation that the official comment to§ 18(f) "could refer to RUPA Section 20(b), which states the rights of partners to obtain information." RUPA-90, supra note 18, § 18comment, at 60.

n117 Even among sophisticated joint venturers, the contractualmodifications of the right to information should be both reasonableand in writing. The proposed language allowing reasonable writtenrestrictions of the information available to participants in high-tech joint ventures is found at § 20X(b), discussed infra subsection VI.B.4.

n118 In its present incarnation Uniform Partnership Act § 19 states:"The partnership books shall be kept, subject to any agreement

between the partners, at the principal place of business of thepartnership, and every partner shall at all times have access to andmay inspect and copy any of them." UPA § 19, 6 U.L.A. 254.

n119 Revision Report, supra note 107, at 149.

n120 Compare RUPA-89, supra note 18, § 19& comment, at 58-59with RUPA-90, supra note 18, §§ 19-20 & comments, at 62-66.

n121 A. BROMBERG, supra note 45, § 66, at 383.

n122 Revison Report, supra note 107, at 149.

n123 Id; see REVISED UNIFORM LIMITED PARTNERSHIP ACT § 105, 6U.L.A. 271-72 (Supp. 1990) (listing records required to be kept by alimited partnership). The ABA committee rejected a laundry list in thiscontext because of the informal nature of many partnerships, aninability to agree on an appropriate penalty for a failure to comply,

and a belief that "the procedural requirements and allocation of theburden of proof in accounting actions between partners provideadequate remedies in the event inadequate records are kept." RevisonReport, supra note 105, at 149.

n124 See RUPA-89, supra note 18, § 19, at 58; RUPA-90, supra note18, § 20, at 63.

n125 RUPA-89 su ra note 18 19 at 58 RUPA-90 su ra note 18





20, at 63.

n126 RUPA-89, supra note 18,§ 19 comment, at 59; RUPA-90, supranote 18,§ 20 comment, at 64-65.

n127 Revision Report, supra note 107, at 149; RUPA-89, supra note

18, § 19 comment, at 59; RUPA-90, supra note 18, § 20 comment, at64-65.

n128 RUPA-89, supra note 18, § 19, at 58.

n129 RUPA-90, supra note 18, § 20 comment, at 64.

n130 RUPA-89, supra note 18, §§ 19-20, at 58-60; RUPA-90, supranote 18, §§ 19-20, at 62-63; Revision Report, supra note 107, at 149


n132 UPA § 19, 6 U.L.A. 254 (1969).

n133 RUPA-89, supra note 18, § 20(a), at 59 (emphasis added).

n134 Id. § 20 comment, at 60.

n135 RUPA-90, supra note 18, § 20(b), at 63.


n137 Id. at 150-51 (footnotes omitted).

n138 RUPA-89, supra note 18, § 20, at 59-60.


n140 UPA § 18, 6 U.L.A. 213, contains prefatory language that "[t]herights and duties of the partners in relation to the partnership shall bedetermined, subject to any agreement between them, by the followingrules." (emphasis added). RUPA-89 and RUPA-90 § 18 delete the citedlanguage but achieve the same result as to § 18 through a newsection, designated § 4X, which "lists the provisions of RUPA thatcannot be varied by agreement" and does not include § 18 in the list.

- -





, , , . , ,§ 18 comment, at 51; RUPA-90, supra note 18, § 4X, at 11-12, & § 18comment, at 57.

n141 RUPA-89, supra note 18 § 20 comment, at 61; RUPA-90, supranote 18, § 20 comment, at 65.

n142 RUPA-89, supra note 18 § 20 comment, at 61; RUPA-90, supranote 18, § 20 comment, at 65 (emphasis added) (in both instancesquoting M. EISENBERG, supra note 18, at 42).

n143 RUPA-89, supra note 18 § 20 comment, at 61; RUPA-90, supranote 18, § 20 comment, at 65-66.

n144 See Revision Report, supra note 107, at 150-51.

n145 M. EISENBERG, supra note 18, at 42. Professor Eisenberg doesnot mention UPA § 20 in the section of his work where he developsthe information requirement based on UPA § 18(e).

n146 Hillman, Power Shared and Power Denied: A Look atParticipatory Rights in the Management of General Partnerships, 1984U. ILL. L. REV. 865, 874 & n.53 (1984) ("The participatory rightsassured by section 18(e) . . . may provide a basis for obtaining

information equal, if not greater in importance, to the more specificdisclosure provisions outlined in the U.P.A.") (referring in a footnoteto UPA §§ 19, 20, 21 & 22, 6 U.L.A. 254, 256, 258, 284).

n147 Revision Report, supra note 107, at 126 ("The obligation of apartner to render information about the partnership business to hisfellow partners under UPA section 20 is made unqualified, and therequirement that information be made available only 'upon demand' iseliminated.").

n148 Id. at 150 ("Subsection (b) should include the language inexisting section 20 requiring partners to provide information aboutthe partnership business; however, the 'on demand' requirement

should be replaced by the phrase 'to the extent the circumstancesrender it just and reasonable,' which is used in the GeorgiaPartnership Act . . . .").





n149 " Partners shall render, to the extent the circumstances render it just and reasonable, true and full information of all things affectingthe partners to any partner and to the legal representative of anydeceased partner or of any partner under legal disability." GA. CODEANN. § 14-8-20 (1989) (emphasis added).

The ABA committee did in addition indicate that the partners would beable to agree to "reasonable" modifications of the disclosureobligations. Revision Report, supra note 107, at 150-51.


n151 Id. (citing A. BROMBERG, supra note 45, § 67, at 388).

n152 A. BROMBERG, supra note 45, § 67, at 388 (citations omitted)

(emphasis added).

n153 The drafters seemed in the earlier draft to concede that theobligation cannot be completely self-executing, with their observationthat the comments "should give some guidance on the extent to whichinformation must be provided whether requested or not." RUPA-89,supra note 18, § 20 comment, at 61. That position, however, may bechanging; the RUPA-90 comment changes the statement that guidance

should be given into a question: "Should Comment give someguidance on the extent to which information must be provided even if not requested?" RUPA-90, supra note 18, § 20 comment, at 66.

n154 UPA § 20, 6 U.L.A. 256 (1969).

n155 RUPA-89, supra note 18, § 20, at 59; RUPA-90, supra note 18, §20, at 63.

n156 RUPA-89, supra note 18, § 20 comment, at 60; RUPA-90, supranote 18, § 20 comment, at 63.

n157 See Revision Report, supra note 107, at 126.

n158 See id. at 150-51.

n159 Id. at 126.





n160 RUPA-89, supra note 18, § 18 comment, at 51. The language isnot included in the comments to RUPA-90. See RUPA-90, supra note18, § 18 comment, at 57-61.

n161 UPA § 20, 6 U.L.A. 256.


n163 UPA § 20, 6 U.L.A. 256.

n164 This certainly is not to suggest that the problems of the RUPAdrafts are problems inherent in a structure based on a right to obtaininformation. A full definition could obviously be created using eitherbasis. It is merely to observe that the change in basis createdproblems in the new structure, and these problems have not been

addressed.

n165 UPA § 20, 6 U.L.A. 256.

n166 RUPA-89, supra note 18, § 20, at 59. RUPA-90 includes the "justand reasonable" modifier while changing the definition of whatinformation is to be disclosed to "true and full information concerningthe partnership." RUPA-90, supra note 18, § 20, at 63.

n167 RUPA-89, supra note 18, § 2(9), at 2.

n168 RUPA-90, supra note 18, § 2(d), at 5.

n169 RUPA-89, supra note 18, § 20, at 59-60; RUPA-90, supra note18, § 20, at 63.


n171 RUPA-90, supra note 18, § 4X, at 11-12, & § 20, at 63.

n172 Section 4X does not contain a reasonableness requirement formodifications by agreement of the parties. See id. § 4X(a), at 11.

n173 Id. § 2(c), at 5, § 4X, at 11-12.

n174 The scope of this Article is limited to high-tech joint ventures.

Certain of the proposals could also be seen as appropriate for a class





of partnerships involving sophisticated participants. Other than thecentrality of information to the high-tech joint venture, it is easy toimagine that these partnerships of sophisticated parties would presentmany of the same concerns.

n175 In its present form § 18(e) provides that, absent the contrary

agreement of the partners, "All partners have equal rights in themanagement and conduct of the partnership business." UPA § 18(e),6 U.L.A. 213 (1969). Under the RUPA drafts the provision isrenumbered as § 18(f), and the ability to modify is moved from theintroductory clause of § 18 to a new section designated § 4X, whichprovides that "[u]nless the partnership agreement provides otherwise,the provisions of this [Act] govern ["the" in RUPA-89] relationsamong the partners." RUPA-89, supra note 18, § 4X, at 7; RUPA-90,supra note 18, § 4X,at 11. Proposed § 4X does list several sectionsthat cannot be modified by the partnership agreement, and § 18 is notincluded. Between RUPA-89 and RUPA-90, the drafters changed theorder of the clauses in § 4X, but not the content, and augmented thelisting of sections not subject to variation in the partnershipagreement. Neither change restricts the ability to modify theprovisions of § 18(e), now § 18(f), by agreement. Compare RUPA-89,supra note 18, § 4X, at 7-8 with RUPA-90, supra note 18, § 4X, at 11-12.

n176 In its present form § 19 provides that "[t]he partnership booksshall be kept, subject to any agreement between the partners, at theprincipal place of business of the partnership, and every partner shallat all times have access to and may inspect and copy any of them." Asis noted in the text, RUPA-89 added a requirement that "[e]achpartnership shall keep complete and correct books and records of account," and transfered the inspection language to § 20, while RUPA-

90 deleted the requirement that records be kept. See supra textaccompanying notes 128-30.

n177 Under RULPA a limited partner is entitled on "reasonabledemand" to receive from the general partner "a copy of the limited

partnership's federal, state and local income tax returns for eachyear." REVISED UNIFORM LIMITED PARTNERSHIP ACT § 305(2), 6U.L.A. 320 (Supp. 1990) [hereinafter RULPA].





n178 Note that under the draft language at (f)(1), the term "partner"includes "the legal representative of any deceased partner or partnerunder legal disability, [and] former partners to the extent theinformation at issue pertains to the time when they were partners."See supra subsection VI.B.3.

n179 " Partners shall render on demand true and full information . . ."UPA § 20, 6 U.L.A. 256 (1969).

n180 The ABA drafters proposed deletion of the demand requirement.Revision Report, supra note 107, at 150.

n181 The Conference drafters also proposed deletion of the demandrequirement. RUPA-89, supra note 18, § 20 comment, at 61; RUPA-90, supra note 18, § 20 comment, at 65-66.

n182 Berg v. King-Cola, Inc., 227 Cal. App. 2d 338, 341-42, 38 Cal.Rptr. 655, 657-58 (1964).

n183 UPA § 20, 6 U.L.A. 256.

n184 Revision Report, supra note 107, at 150-51.

n185 RUPA-89, supra note 18, § 20, at 59; RUPA-90, supra note 18, §

20, at 63.

n186 M. EISENBERG, supra note 18, at 42.

n187 Under RULPA a limited partner is entitled on "reasonabledemand" to receive from the general partner "true and fullinformation regarding the state of the business and financial conditionof the limited partnership." RULPA § 305(2), 6 U.L.A. 320 (Supp.

1990).


n189 RUPA-89, supra note 18, § 20 comment, at 61; RUPA-90, supra

note 18, § 20 comment, at 66.

n190 Under RULPA a limited partner is entitled on "reasonabledemand" to receive from the general partner "other information





regarding the affairs of the limited partnership as is just andreasonable." RULPA § 305(2), 6 U.L.A. 320.

n191 Algernon Blair Group, Inc. v. Corneal, No. 86-4465 (E.D. Pa.Feb. 18, 1988)(LEXIS, Genfed Library, Dist file); see supra note 72and accompanying text.

n192 UPA § 20, 6 U.L.A. 256 (1969).

n193 Revision Report, supra note 107, at 150; RUPA-89, supra note18, § 20 comment, at 59; RUPA-90, supra note 18, § 20 comment, at63.

n194 Revision Report, supra note 107, at 150; RUPA-89, supra note18, § 20 comment, at 59; RUPA-90, supra note 18, § 20 comment, at

63.

n195 UPA § 20, 6 U.L.A. 256.

n196 Under UPA § 7, a writing is not required to create a generalpartnership. UPA § 7, 6 U.L.A. 38-39.

n197 See supra note 18 and accompanying text.

n198 Both the term "partner information" and "venture information"are defined in terms of "confidential or proprietary information." Suchinformation of a partner does not become venture information unlessthe venture either receives it with permission from the disclosingpartner for unrestricted dissemination, or receives it with restrictionsthat it is following. A blanket bar on the dissemination of partnerinformation would be one possible approach. It seems clear, howeverthat in many joint ventures the free flow, at least internally, of such

information is the norm and not the exception. Under the proposedregime, the parties would be required to identify such information andaffirmatively agree on restrictions.

n199 Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546

(1928). Search Terms [Linked Document] (1)





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DISCLOSURE PROBLEMS IN HIGH-TECH JOINT VENTURES