5.1.2 The Traditional Role of Fiduciary Duty in the Partnership Relationship

Indeed, the traditional role of fiduciary duty in the partnership relationship was to enforce fairness beyond the letter of the written “deal”:

The rules (governing business relationships) are consistent, however with a concept of persons as a society and with the notion that economic and political competitions are played out not in an environment of pre-Leviathan lawlessness, but on the basis of a set of ground rules.   In the laws of business organizations, fiduciary obligations traditionally have provided one of those ground rules.   It may be that fiduciary doctrine is not crystal clear, in the sense of a rule requiring traffic to stop at red lights.   But the argument from certainty can be overblown.   Dean Weidner suggests that a principle motivation behind the “reformation” of fiduciary rules was the desire of lawyers to be certain that their negotiated agreements would be upheld.   For lawyers to argue that fiduciary duty creates significant uncertainty is specious.

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We should move away from rhetoric and confront reality.   The call to self-abnegation in fiduciary case law has never quite been the reality.   No judge, not even Cardozo, appears to have expected partners to cast aside their worldly longings.   What the language conveys is an attitude, a way of thinking about the relationship, which is not at all ambiguous for the language in which it is couched.   It is the attitude of the impartial spectator, of the person who desires the approbation of his peers, as well as his own self-respect.   It is an attitude that expresses the ideal that some kinds of competition and some forms of risk taking are quite appropriate in some circumstances and not in others.   It is an attitude well expressed in Labovitz v. Dolan.   In Labovitz, one of the partners stated: “The risk we took was that the business would not succeed.   We did not take the risk that the business would succeed so well that the general partner would squeeze us out and take the investment for himself.”^[1]