The Colorado Uniform Partnership Act (“CUPA”) contains a subtle shortcoming. CUPA is a default statute that only operates in the absence of a governing agreement between two partners formed at the outset of the partnership. As with most things in this life, partnerships inevitably come to an end. When this happens, a partner is said to have “dissociated” from the partnership. Typically, this is followed by a dissolution of the partnership itself.
Rather than terminating at that point, the partnership then goes into what is called the “winding up” period. Among other things, winding up involves liquidating all of the partnership’s tangible assets down to cash for distribution. This is where the shortcoming presents itself. It involves a single question: when partnership property takes the form of intellectual property, how do you equitably liquidate and distribute it in accordance with CUPA? As the law currently stands, a former partner is forced to give up the fruits of his labor to the benefit of another, more financially powerful partner. This “might makes right” mentality flies in the face of the theoretical underpinnings of property law, and intellectual property law in particular.
If and how minority partners have a legally cognizable interest in former intellectual partnership property are issues of first impression. Colorado is therefore in a unique position in that it has the opportunity to shape partnership law for the future. This Comment proposes resurrecting the common law doctrine of distributions in kind as an equitable alternative to forced liquidation in the case of intellectual partnership property. Though a legislative amendment to CUPA would be ideal, in truth it will fall upon the courts, sitting in equity, to effectuate this change. It is high time that CUPA, and analogous laws in other states, come to reflect the realities of intellectual property.
Suppose that two individuals (Partner A and Partner B) decide to go into the business of selling various managerial products (office supplies, software, advertisements, etc.) to local business owners in Colorado. They decide to form a partnership but do not memorialize their venture with any sort of written agreement. To aid in their business, they develop a computer program that stores and organizes all of their clients’ information. Assume Partner A contributes slightly more time and labor than Partner B to creating this program, though they both do indeed contribute. The partnership lasts for about ten years until the two decide to go into business for themselves. At this point, because the two no longer wish to continue the partnership and because they had no written operating agreement, the provisions of Colorado’s partnership statute—the Colorado Uniform Partnership Act (“CUPA”)—control the dissolution. The way Colorado partnership law currently stands, not only are the former partners deprived of the program itself, but Partner B is also forced to accept whatever cash value a court can attribute to his ownership of the program. According to the statute, because Partner B contributed slightly less to the creation of the program than Partner A, Partner A will receive a share of the judicially determined cash value of the program as well as any profits derived therefrom. This share that Partner A receives is disproportionate to the amount of work he actually put in.
Equitable? This Comment posits that such an outcome is not. What would make more sense from an equitable point of view would be to grant all former partners—upon dissolution—the right to use former intellectual partnership property. In other words, a distribution in kind.
Close inspection of CUPA reveals a shortcoming in partnership law. On its face, the law seems straightforward. In practice, however, it seems that expediency and accessibility have replaced utility and principles of equity. The theoretical underpinnings of property law, and intellectual property in particular, have given way to a mentality of “might makes right”—in this context, the idea that a former partner can be forced to give up the fruits of his labor to the benefit of another. Specifically, the common law doctrine of distributions in kind (the transfer of property “as is”) has been replaced by forced liquidation (liquidating an asset down to cash and distributing that cash among the partners) when a partnership is dissolved. Some might argue that CUPA does not need to reflect theories of property. After all, CUPA is a default statute that only operates in the absence of a valid governing agreement between two partners. However, it is precisely because CUPA is a default statute that it should incorporate intellectual property theories. As it currently stands, it does not. The shortcoming is found in the application of the CUPA provisions governing partnership dissolution.
To get a better understanding of the issue, it is perhaps best to start with an overview of what the statutory process looks like. Colorado defines a partnership as “the association of two or more persons to carry on as co-owners of a business for profit . . . .” The individuals involved in the venture need not intend to form a partnership, for in the absence of a partnership agreement, the existence or non-existence of a partnership will be a question of fact for a jury to decide should a dispute arise. During the existence of a partnership, partners owe one another certain fiduciary duties and must maintain a joint partnership account.
All good things must come to an end, however, and partnerships are no exception. Pursuant to an operating agreement, or upon an exercise of free will, a partner may leave the partnership. When this happens, the partner is said to have “dissociated” from the partnership. It is at this point (the “point of dissolution”) that a court is likely to find that a partnership, absent an explicit understanding to the contrary, dissolves. However, the point of dissolution is not the point at which a partnership terminates. Rather, it goes into what is called the “winding up” period, in which the dissolved partnership’s business is finalized, assets are liquidated, the partnership’s obligations are paid, and any surplus is distributed among the former partners. Upon completion of the winding up period, the partnership is terminated.
The primary task of winding up is to pay any outstanding debts from the partnership’s account. After that, the task is to distribute what is left among the former partners. In addition to distributing the liquid capital left over in the partnership’s account, this process involves liquidating all of the partnership’s tangible assets (hereinafter “partnership property”) down to cash for distribution. This is where the shortcoming in Colorado law presents itself. It involves a single question: when partnership property takes the form of intellectual property, how do you equitably liquidate and distribute it in accordance with CUPA? Certainly, Partner A and Partner B in our earlier hypothetical would like to know. As mentioned at the outset of this Comment, CUPA is a default statute. If there is an operating agreement in place, then the answer is not complicated. One simply liquidates or distributes the property according to the terms of the agreement. In the absence of an agreement, the matter becomes complicated because the provisions of the default statute, CUPA, would then control.
CUPA provides that “in [winding up] accounts among the partners, the profits and losses that result from the liquidation of partnership assets shall be credited and charged to the partners’ accounts.” That provision, however, is subject to section 7-64-807(1), which provides that “[i]n winding up a partnership’s business . . . [a]ny surplus shall be applied to pay in cash the net amount distributable.” In the case of intellectual property, however, this form of partnership property does not lend itself to equitable liquidation and distribution like some tangible property does. Intellectual property is usually created—not just owned—during the life of the partnership by one or more of the partners themselves. As such, it represents the fruits of one’s labor as well as a certain sentimental value, both of which make the property difficult to value for purposes of liquidation. CUPA is silent on this admittedly narrow issue, as are Colorado courts. This issue is one of first impression across all United States jurisdictions. With no readily available solution, it is time to propose one.
This Comment proposes reviving an old doctrine of partnership law to address this issue: the distribution in kind. A distribution in kind is a transfer of property “as is,” or in its original state, such as a distribution of the land itself instead of the proceeds of its sale. In the case of intellectual partnership property, a distribution in kind would mean that all former partners would have a right to use the property post-dissolution. Prior to Congress’s enactment of the Uniform Partnership Act (“UPA”) in 1914, distributions in kind were a common way of allocating former partnership property upon dissolution. Gradually during the twentieth century, distributions in kind fell out of favor, and in 1997, with the adoption of the Revised Uniform Partnership Act (“RUPA”) in most jurisdictions, they became strictly prohibited. RUPA provides that “[a] partner has no right to receive, and may not be required to accept, a distribution in kind.” Colorado has adopted this rule against distributions in kind, as have the rest of the states that have adopted RUPA.
Consequently, Colorado has an opportunity to set an example for the rest of the states on how to liquidate and distribute intellectual property under RUPA. This Comment proposes that either (a) the legislature should amend section 7-64-402 to include an exception for intellectual partnership property, or (b) the courts should read section 7-64-402 to contain a carveout for such property. Two normative reasons present themselves for the return to this pre-RUPA doctrine: (1) intellectual property cannot easily be valued and liquidated into cash, and (2) allowing a distribution in kind would be the most equitable solution because all partners, theoretically, had a hand in creating the property, and thus have an equal claim to its use.
This Comment proceeds as follows: Part I discusses the theoretical underpinnings of intellectual property from the perspectives of Margaret Radin’s “personhood” approach and John Locke’s “labor” theory of property. Part II examines how CUPA has thrown the theoretical underpinnings of intellectual property out the window by reviewing the evolution of partnership law from UPA to RUPA and its subsequent adoption in Colorado. Finally, Part III proposes a solution to the problem of liquidating and distributing former intellectual partnership property and examines the policy considerations behind limiting the rule against distributions in kind in Colorado.
It is important to have a general grasp of the theoretical foundations of intellectual property, and more importantly, how and why CUPA has thrown theory out the window. Intellectual property is unlike most other forms of property. For one thing, it is created. As a result, traditional notions of property law have not meshed well with this highly prevalent form of property. Intellectual property rights are intangible, while the thing that those rights attach to are tangible and non-rivalrous. One can possess and use the tangible embodiment of intellectual property without disrespecting the creator’s intangible rights. As for the rights themselves, intellectual property simultaneously represents the fruits of one’s individual mental and physical labor and, as a result, retains a certain sentimental value that cannot easily be translated into dollars and cents.
Intellectual property’s unique nature therefore presents a problem when it comes to dividing assets equitably among its creators—as Colorado’s current partnership law would have it. Laws like UPA, RUPA, and CUPA, as well as property law in general, were built around the assumption that all “things” are tangible and thus easily divisible. This first Part will explain how intellectual property tends to defy those assumptions. The focus will be on three conceptions of property: two that apply generally and one that is specific to intellectual property. The big takeaway from this theoretical discussion is that intellectual property rights contain inherent valuation problems that, at least in the context of partnership dissolution, can be resolved by making the possession and use of the tangible embodiment of the piece of intellectual property non-exclusive.
Section A explores the theoretical underpinnings of intellectual property. Section B builds on this foundation by discussing Professor Margaret Radin’s “personhood” theory of property. Section C then examines the Lockean “labor” theory of property. This Part concludes with a discussion of how this theoretical foundation is glaringly absent from CUPA.
Intellectual property holds a unique position in property law. Like other forms of property, intellectual property can be thought of as a bundle of sticks, with each “stick” representing a property interest that can be alienated or held exclusively at the owner’s will. However, the similarities end there. Unlike the holders of other forms of property, the holders of intellectual property are more than just owners of the bundle of sticks, they are also creators (hereinafter “creator-owners”). The creator-versus-owner distinction is key to understanding how intellectual property is treated and valued.
Calling it “intellectual property” is somewhat misleading. Intellectual property refers to intangible interests in “commercially valuable products of the human intellect.” The interests—or rather, the rights—are intangible in that the creator-owner does not physically possess intellectual property. They possess the rights to the thing that is the tangible embodiment of the intellectual property. This is where the confusion manifests itself. When one claims that they physically possess intellectual property, in all likelihood they merely possess the tangible thing that the intellectual property rights attach to. They are mere owners of a thing, not the creators of that thing. To illustrate, if one possesses a DVD, they do not possess intellectual property; they possess the tangible embodiment of a whole slew of intellectual property rights. This is why when someone lends a friend their copy of Saving Private Ryan, they are not running afoul of any intellectual property laws. In sum, “intellectual property” refers to the rights that attach to a thing that is created, not the thing itself.
As for the physical “thing” that intellectual property rights attach to, another curious phenomenon of property law presents itself. The tangible embodiment of intellectual property is non-rivalrous, meaning one’s use of a thing that intellectual property rights attach to does not interfere with another’s ability (or right) to use or possess the thing as well. In order to conceptualize this, consider an example of a rivalrous piece of property. If someone rides their bike to the park, another person cannot simultaneously ride that same bike to the park. With intellectual property, on the other hand, two people can possess and view the same movie. There is more than one copy of Saving Private Ryan out there.
More to the point, a mere owner’s use of intellectual property does not interfere with the creator-owner’s rights. What it interferes with is the value of the intellectual property. If I am a lawful user of intellectual property, then my use does not decrease the value of the intellectual property to the creator-owner. In fact, my use actually profits the creator-owner. My use of the creator-owner’s intellectual property would devalue said property if my use were somehow illegal (e.g., if I illegally recorded a movie in a theater and then sold the bootlegged copy for profit). If a whole group of people are now using a piece of intellectual property without purchasing its use rights, then the value of the creator-owner’s property has decreased.
While this fear of devaluation arguably justifies the various intellectual property laws, it does not follow that the same fear of devaluation should require that a whole class of intellectual property be made exclusive to the creator-owner—specifically intellectual partnership property. Based on the current state of affairs for partnership dissolution, it appears that the fear of devaluation—coupled with the “might makes right” mentality that forces a former partner to give up the fruits of his or her labor to the benefit of a more financially powerful partner—has overtaken the theoretical foundations of intellectual property in the partnership context. This Comment next explores how this fear of devaluation and “might makes right” has taken hold.
In her 1982 article, Professor Radin argues that much of what we call “property” can be described by the following:
Most people possess certain objects they feel are almost part of themselves. These objects are closely bound up with personhood because they are part of the way we constitute ourselves as continuing personal entities in the world. They may be as different as people are different, but some common examples might be a wedding ring, a portrait, an heirloom, or a house.
Broadly speaking, Radin argues that property and identity are two sides of the same coin. To borrow Radin’s phrase, people “can be bound up” with external “things” to which they attach sentimental value. As a result, that “person should be accorded broad liberty with respect to control over that ‘thing.’” Radin drew much of her research from nineteenth-century German philosopher Georg Hegel, who described the legal concept of “personhood” like so:
A person has as his substantive end the right of putting his will into any and every thing and thereby making it his, because it has no such end in itself and derives its destiny and soul from his will. This is the absolute right of appropriation which man has over all “things.”
Though Radin did not frame her personhood theory in terms of Hegel’s absolute dominion over a thing, the fact that she drew on Hegel’s work suggests that when she speaks of a person binding themselves up with a thing, the result is indeed absolute dominion over that thing.
When it comes to most forms of tangible property, absolute dominion makes practical sense. In the case of intellectual property, however, absolute dominion does not always square with its economic realities. A generation after Radin and building on Hegel’s observations, Professor John Tehranian argued that “personhood” involved another concept: consumption, which has broad implications for how intellectual property should be treated under a personhood approach. Specifically, Tehranian argued that “the actualization of personhood comes about through acts of consumption—our interaction with objects in the external world . . . .” Personhood starts internally, with our identity as we see it in an object or idea. Outwardly, “the expression of personhood occurs when the individual communicates some aspect of her . . . identity to others as a way of contextualizing herself . . . within the broader community.”
Tehranian’s broader point is that intellectual property law does not completely square with Radin’s personhood theory. Perhaps copyright, trademark, and patent owners do not hold a personhood view of intellectual property, but the creators of that property most certainly do. The law, unfortunately, does not take the owner’s lack of personhood into account. Tehranian took issue with this, and for similar reasons this Comment does too, just in the context of partnership law. Tehranian argues that “[w]hile we develop relationships with our personal property, we do not develop relationships with the remote physical property of others.” Further, “[t]he exclusive and rivalrous nature of private physical property means that fans do not enjoy a relationship with Bono’s car, his house, or his personal jet.” Perhaps this is true, but Bono himself may feel quite differently about his car, his house, and his personal jet. In particular, he probably identifies a great deal with his music.
As the U.S. Supreme Court put it, property arises from “labour and invention.” The Supreme Court was quoting the philosopher John Locke and his Second Treatise of Civil Government. From an isolated passage in the Second Treatise, we are introduced to Locke’s labor theory of property:
Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned [sic] to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, it hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no Man but he can have a right to what that is once joyned [sic] to, at least where there is enough and as good left in common for others.
Modern spelling conventions aside, this passage has formed the basis for what most in the legal community have come to call a “property right,” or an individual’s right to a thing that is good against the world. Essentially, you own the fruits of your labor. As one scholar argues, Locke’s theory stands for the idea that “property arises from laboring upon things in the world—mixing one’s pre-owned labor with unowned things.”
In addition to providing the basis for law students’ fury over Pierson’s ownership of that “wild and noxious beast,” Locke’s theory has generated criticism from several modern legal scholars, one of whom is worth discussing briefly. Philosopher Robert Nozik criticized the abstract idea of mixing one’s labor to create property with a now-famous hypothetical involving a can of tomato juice:[W]hy isn’t mixing what I own with what I don’t own a way of losing what I own rather than a way of gaining what I don’t? If I own a can of tomato juice and spill it in the sea so that its molecules (made radioactive, so I can check this) mingle evenly throughout the sea, do I thereby come to own the sea, or have I foolishly dissipated my tomato juice?
Nozick then asks whether the property entitlement derives from “the added value one’s labor has produced.” As Professor Adam Mossoff explains, this leaves two unanswered questions about Locke’s theory, especially in the context of intellectual property: (1) “how much added value is necessary to create a property right,” and (2) “[w]hy does one gain a right to the entire object instead of only to that portion to which value has been added?” Partnership law seems to adopt Nozick’s view that one can realistically only claim ownership to the portion of a thing to which value has been added. How else can one explain why partnership law requires either a forced sale of the software and subsequent distribution of the cash proceeds, or else one former partner gets ownership of the property while the other is left with the cash buyout of its fair market value?
Mossoff has a different Lockean view of property, which has direct applications to intellectual property. Take Locke’s “mixing labor” phraseology. Mossoff argues that it is a term of art. Locke thinks of labor as a rational (or purposeful) value-creating activity.
A value-creating activity in plain English means production. In fact, when Locke gives content to his argument for the creation of property, mixing labor repeatedly exemplifies productive activities. For instance, mixing labor represents the acts of gathering nuts, growing vegetables and fruits, mining ore, drawing water, killing a deer, catching fish, hunting a hare, cultivating land for farming, sewing clothes, baking bread, felling timber, and perhaps the most important, fermenting wine.
The same goes for intellectual property. Intellectual property should be legally protected because “[there is] no property more peculiarly a man’s own than that which is produced by the labour of his mind.” In other words, creating something tangible from intangible human intellect is arguably a value-creating activity. More to the point of this Comment, the added value generated by human intellect is often not added by one, singular human intellect, but rather several human intellects working together. Put another way, because “the interdependent nature of human culture means that intellectual works are necessarily the products of collective labour,” they “ought to be owned collectively” by the individuals who contributed to the creation of intellectual works. To be clear, this Comment is not commenting on the Lockean approach to intellectual property from the perspective of the legal owners of the property (i.e. the copyright, trademark, and patent holders). From that perspective, the idea of collective ownership is understandably unappealing. Rather, this Comment examines intellectual property from the perspective of the creator(s) of the property. Though CUPA is silent on the idea that partnership property can be created, in order for its goal of equity to be served, this perspective should be read into it. As it currently stands, CUPA, implicitly, is drafted from the perspective of owners of intellectual property.
Recall our two hypothetical partners and their computer program. Though seemingly insignificant, this software actually is responsible for the partners bringing in a lot of business. Perhaps the locality values the partnership’s efficiency. Ten years pass, and the partners come to an impasse and no longer wish to continue the partnership. Under CUPA, section 7-64-807 kicks in and the partnership begins winding up. This means, inter alia, that all of the partnership property gets liquidated and the cash proceeds are then distributed among the former partners.
But what does CUPA do with the organizational software? The software is intangible, it was created by both partners, and both partners imparted an aspect of themselves on the property. This property gave them each their livelihood. What CUPA currently does, in the absence of a partnership agreement, is either force a sale of the software and a subsequent distribution of the cash proceeds, or else one former partner gets ownership of the property while the other is left with the cash buyout of its fair market value—a token gesture to the fruits of his labor, but a gesture that completely ignores his personhood interest in the software.
Radin’s, Hegel’s, and Tehranian’s work suggests that intellectual property—more so than other forms of property—cannot easily, or at least equitably, be assigned a cash value. In the context of valuation, the law does not distinguish between the creators and owners of intellectual property with varying degrees of personhood attachment. Even so, the two former partners in our hypothetical scenario should not be stuck with the status quo. Under a personhood approach, the equitable solution would be for both former partners to retain ownership rights—a distribution in kind—while limiting their ability to use the property in such a way that infringes on their right to compete with one another. Personhood theory accounts for the difficulty of putting a price tag on certain assets and, if incorporated into CUPA, could remedy the result under current law where difficulty in pricing intangible assets makes division impractical or unjust in the event of partnership dissolution. Difficulties in valuation are not the end of the matter, however. Intellectual property also represents the fruits of one’s labor—in other words, labor theory.
Consider, again, our hypothetical former partners and their computer software. This intellectual partnership property is traditionally Lockean. Both partners had a hand in creating this property, and both have used it in the course of the partnership. Both partners have put their hearts and souls into this property, and as such, they have both added value to it. CUPA, as it currently stands, does not take this Lockean view. Instead of collective ownership of intellectual property, former partners are forced to battle it out at the negotiating table—or possibly even in the courts—to decide who has a greater claim of right to this former partnership property. Indirectly, CUPA’s dissolution provisions foster inequity and perpetuate the “might makes right” mentality.
All is not lost, however. With this theoretical background in mind, the solution to the problem is apparent. Collective ownership of former partnership property is truly the best path forward if Colorado partnership law is to respect both the “personhood” of intellectual property and the fruits of former partners’ labor. In order to get there, the law needs a mechanism in place that ensures former partners will have access to reasonable use of the property—access to the “thing” itself. Recall two fundamental aspects of intellectual property: the legal use of intellectual property neither interferes with the creator-owner’s rights nor leads to devaluation. Enter the distribution in kind, a legal mechanism for the transfer of property as is, with no need to liquidate down to cash. By allowing a distribution in kind, CUPA would embrace the fundamental right-to-use concept of intellectual property law without creating inequities among former partners. The distribution in kind is not unknown to partnership law, which makes its absence from RUPA and CUPA intriguing. As it turns out, the absence of distributions in kind from CUPA is a story in and of itself.
In 1914, the National Conference of Commissioners on Uniform State Laws (the “Conference”) presented the states with a blanket set of rules to govern all general partnerships. This blanket set of rules became the UPA. The UPA reigned supreme until the early 1990s, when the Conference began proposing RUPA to replace the UPA. In 1997, the states, including Colorado, began to adopt RUPA. Though much stayed the same when RUPA took over from the UPA, some key aspects changed. This Comment will focus on the shift from allowing distributions in kind to forced liquidation. However, the most significant change regarding partnership law as a whole was the shift from the “aggregate theory” to the “entity theory” of partnerships. Sections A and B will provide a brief overview of the history of the UPA and RUPA, respectively. Section C will focus on the change from distributions in kind to forced liquidation, or the “in-cash” rule.
Like many statutory doctrines, the law of partnerships has its origins in common law principles. Particularly relevant to this Part’s discussion is the significant difference between the common law and present-day RUPA. Starting at the turn of the twentieth century, the “might makes right” paradigm found its way into the law of partnerships—meaning that a former partner who contributed more to the formation of the partnership itself could get ownership of all the partnership property while the others are left with the cash buyout of the property’s fair market value. Prior to the adoption of a uniform partnership law, there was much confusion regarding the rights and fiduciary duties partners owed to one another, as well as confusion over the rights and duties owed to third parties (creditors, for instance). In 1902, the need for uniformity was recognized, and the Conference began drafting what was to become the UPA.
A look at the drafting history of the UPA reveals a philosophical split over whether the aggregate theory or the entity theory would serve as the foundation for the act. Proponents of the aggregate theory view partnerships “[a]s a collection of sole proprietors engaged in the same business . . . where one or another general partner is held fully liable for any obligation . . . [and] the partnership is being treated as an aggregation of individuals.” The entity theory, on the other hand, conceives of the partnership as a legal person entirely distinct from the partners that compose it. This Comment will not dive deep into the drafting history of the UPA, but suffice it to say that the aggregate-entity division was sharp. In fact, when it came time to settle on the final version of the act, the Conference was presented with two drafts—one adopting the aggregate theory and one adopting the entity theory. The final version of the UPA embodied the aggregate theory.
By 1986, the UPA had been adopted in every state except Louisiana, leading to a sense of uniformity. Overall, the effect of the UPA was that it provided a set of rules that governed general partnerships in the absence of an agreement, including how to end a partnership. In order for a partnership governed by the UPA to end, “dissolution,” “winding up,” and “termination” must take place—and in that order. Despite the definitions provided in the Act, these terms were a constant source of confusion in the legal community due to their inconsistent use by many courts and lawyers. Dissolution under the UPA referred to “the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.” Dissolution could be triggered by, inter alia, “the express will of any partner” in a partnership at will, “the death of any partner,” or a court’s decree. Following the point of dissolution, the winding up period began, and only upon completion of winding up did the partnership officially end. Under the aggregate theory, the withdrawal of any partner effectively dissolved the partnership. Even if the remaining partners elected to continue with the venture, they had to form a new partnership.
Over the next seventy-five years, the consensus was that modern partnerships had outgrown the confines of the UPA. The size and quantity of partnerships increased dramatically in the mid-twentieth century—spurred in part by the emergence of limited partnerships—and many called for reforms to the UPA to respond to these changes. Amid this pressure, the Conference began the arduous task of revising the UPA in 1986.
In 1992, the states unanimously approved RUPA. Nevertheless, drafting errors and objections by the American Bar Association revealed a number of the Act’s shortcomings. RUPA was revised again in 1993, 1994, 1996, and 1997—the last version being the one ultimately adopted by a majority of the states. The result was that the uniformity enjoyed under the UPA went out the window. As of today, only thirty-seven states (as well as the District of Columbia and the U.S. Virgin Islands) have adopted RUPA; Wyoming, Montana, and Texas adopted the 1992 version, and Connecticut, Florida, and West Virginia have adopted variations of the 1994 version. The differences between RUPA and the UPA can best be explained by the “three policy decisions” outlined by Donald Weidner:
First, RUPA makes a major move away from the aggregate or conduit theory of partnerships and toward the entity theory of partnerships. Second, RUPA rewrites the rules on partnership breakups and in the process gives more stability to partnerships. Third, RUPA reflects the supremacy of the partnership agreement and minimizes mandatory rules among partners.
Section 201 of RUPA explicitly adopts the entity theory by stating that “a partnership is an entity distinct from its partners.” This paradigm shift had a substantial effect on the dissolution process.
RUPA established two pathways that a partnership can follow after a partner dissociates. RUPA provides that “a partner’s dissociation results either in the dissolution and winding up of the partnership or a mandatory buyout of the dissociated partner’s interest.” The dissolution pathway is described in more detail in the following Section. Mandatory buyouts, however, are worth examining in more detail here, given that they are an entirely new mechanism. Section 801 of RUPA provides an enumerated list of events that trigger the dissolution pathway. All of the events listed take the form of a partner dissociating from the partnership in some manner. If, however, an event occurs that is not enumerated in section 801, then the partnership proceeds down the mandatory-buyout pathway.
Specifically, section 701 of RUPA states that a dissociated partner whose departure does not trigger a dissolution under section 801 has the right to a buyout of his or her interest in the partnership by the remaining partners at a price determined by an agreement or the Act. The buyout price governed by section 701 is the greater of “the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner.” Like the dissolution pathway, a buyout is presumably paid to the dissociating partner “in-cash.” This is because RUPA carries over the old UPA section 38(1), which provides that “[w]hen dissolution is caused . . . each partner . . . may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to respective partners.”
Lastly, and this will be especially important to consider in later sections of this Comment, RUPA expressly empowers the courts to use their equitable discretion. Equitable concerns are common under RUPA, and the only limit on the courts’ equitable discretion is that their rulings cannot contradict the Act. This Comment next discusses the “in-cash” rule as one such example.
From 1914 until the present, distributions in kind have fallen out of favor, due in part to RUPA section 807(1) (formerly UPA section 38(1) and adopted in Colorado as section 7-64-807(1)), which provides that “in winding up a partnership’s business . . . any surplus shall be applied to pay in cash the net amount distributable to partners . . . .” Many jurisdictions have interpreted this provision to mean that only two options are available to distribute partnership assets: liquidating the assets to cash through a sale, or buying out (presumably, in-cash) one or more partners’ interest in the partnership assets. The buyout option is only available to partnerships that have not dissolved, but that option implicitly adopts the same “in-cash” rule.
Of the jurisdictions that have adopted RUPA’s “in-cash” rule, courts have applied the rule to real and personal property. There are, however, no cases that address whether RUPA’s “in-cash” rule applies to distribution of intellectual property upon partnership dissolution. Colorado has not explicitly adopted the “in-cash” rule, nor has it explicitly rejected distributions in kind, aside from adopting RUPA section 402. This leaves the door open for Colorado to not only adopt the “in-cash” rule, but to modify it to allow an exception for distribution of intellectual property. How can this be accomplished? Read on.
Now that an overview of the governing law as well as the shortcomings regarding the law’s handling of intellectual partnership property have been provided, the focus shifts to proposing an equitable solution to the problem. This Part proposes resurrecting the pre-UPA distribution-in-kind doctrine as an equitable way of distributing intellectual property from a former partnership. Though an amendment to CUPA would be the quickest solution, the next two Sections assume the decision will be left to the courts. Section A proposes that courts sitting in equity should treat the distribution in kind as a textually justified remedy. Section B proposes, alternatively, that a carveout for distributions in kind should be implied in section 7-64-402 as a de facto liquidation under sections 7-64-807(1)–(2).
Distributions in kind are not a thing of the past. California and Pennsylvania leave courts sitting in equity the option of allowing a distribution in kind of former partnership property absent “great prejudice to the parties.” In Logoluso v. Logoluso, the partnership property at issue encompassed twelve parcels of land, some with real property built on them. The partnership, which consisted of five brothers, began winding up in 1960. Shortly thereafter, the brothers signed an agreement in which ten of the parcels would be distributed in kind among the former partners, while the remaining two would be appraised and sold at auction. In reversing the trial court’s order to sell all twelve parcels, the California Court of Appeals held that “in a proceeding to dissolve, the partners can agree to divide partnership property in kind.” The court added that a “distribution in kind . . . simply conforms to the tenet of equity that recognizes real property and certain kinds of personal property as unique,” thus making other forms of liquidation or distribution inequitable in certain circumstances.
In two more recent cases, the Alaska and Montana state legislatures left the door open for courts to use their discretion and equitable powers and to provide alternative forms of distribution. In Disotell v. Stiltner, a case interpreting the Alaska statute, two partners formed a partnership in 1997 to convert an existing building into a hotel. Up until the partnership dissolved in 1998, even though both partners earnestly put forth money in developing the hotel, only one partner—Stiltner—actually resided there. In affirming the trial court’s order permitting Stiltner to buy out the other partner, the Alaska Supreme Court reasoned that the state’s Uniform Partnership Act (identical to Colorado’s) does not absolutely require liquidation or even distribution in-cash. The Court added that “at present it is not certain whether a partner may or may not insist on a physical partition of the property remaining . . . .”
The case interpreting the Montana statute, Doting v. Trunk—which involved three contracts receivable on three separate parcels of land—was a pre-RUPA decision. This still does not affect the analysis because the UPA and RUPA liquidation provisions are nearly identical. The only difference between the statutes is the prohibition on distributions in kind in RUPA section 402, which, as this Comment explains, can be read to contain a carveout for intellectual partnership property in part due to the reasoning in Doting and similar cases.
The Doting court reasoned that while the general rule is to require a sale of partnership assets and distribute the proceeds, in certain circumstances, “alternative distributions of partnership property may also effect a termination.” The Court followed the reasoning of the Michigan and Oregon Supreme Courts in stating that in certain situations—especially ones where the former partnership has no outstanding obligations—distributions in kind can be fairly and equitably made.
Given that Colorado has yet to provide an interpretation of RUPA’s liquidation provision, a Colorado court should find that a distribution in kind would be an equitable way to apportion intellectual partnership property equally. Unlike real and personal property, intellectual property cannot easily be liquidated down to cash. Applying Radin’s “personhood” theory and Locke’s “labor” approach to property, intellectual property is inherently sentimental and laborious. If I write a short story or a novel—that likely took several years to develop—I am going to value the property more highly than someone who wishes to purchase it would. Further, I am definitely going to value the property more highly than a third party who has to appraise my work would.
In the alternative, a Colorado court using its equitable discretion can view a distribution in kind of a partnership’s former intellectual property after dissolution as a de facto liquidation under CUPA sections 7-64-807(1)–(2). Following the majority of jurisdictions, Colorado can interpret CUPA’s liquidation provision as disfavoring distributions in kind while still not forcing former partners to accept the cash value of the property and allowing them to continue to use it. CUPA section 7-64-807(2) provides that “in [winding up] accounts among the partners, the profits and losses that result from the liquidation of the partnership assets shall be credited and charged to the partners’ accounts.” That provision, however, is subject to section 7-64-807(1), which provides that “[i]n winding up a partnership’s business . . . [a]ny surplus shall be applied to pay in cash the net amount distributable to partners . . . .” This is the “in-cash” rule discussed above that has been interpreted by a majority of jurisdictions as allowing only (1) a sale of partnership assets and subsequent distribution in cash, or (2) buyout in cash of one or more partners’ interest in the partnership assets.
As was discussed in the previous section, some jurisdictions have left the door open for alternative, equitable methods of distributing partnership property upon dissolution. How the Colorado courts will interpret CUPA’s liquidation provisions will depend on both how the courts define “liquidation” and how they interpret section 7-64-402, which seems to prohibit distributions in kind.
The Washington state Court of Appeals offered five possible interpretations of “liquidate”:
(1) To settle (an obligation) by payment or other adjustment; . . . . (2) To ascertain the precise amount of (debt, damages, etc[.]) by litigation or agreement. (3) To determine the liabilities and distribute the assets of (an entity), esp[ecially] in bankruptcy or dissolution. (4) To convert (a non-liquid asset) into cash. (5) To wind up the affairs of (a corporation, business, etc[.]).
The majority of jurisdictions seemingly have focused on the fourth and fifth definitions of “liquidate.” RUPA (and the Colorado equivalent) seems to adopt those definitions as well, although RUPA does not explicitly define “liquidate” or “liquidation.”
As the Black’s Law definition suggests, “liquidate” does not necessarily mean converting an asset to cash. Based on a plain reading of the definitions, liquidation can involve a physical distribution of assets in addition to a conversion into cash. In addition to the California and Pennsylvania cases discussed in the previous section, Florida has also seemingly interpreted the term this way.
The biggest issue with regard to whether a Colorado court will view a distribution in kind as a de facto liquidation is how the court will interpret CUPA section 7-64-402: “A partner has no right to receive, and may not be required to accept, a distribution in kind.” A plain reading of the statute prohibits distributions in kind. Further, although CUPA allows courts to use their equitable discretion under section 7-64-104, caselaw from other jurisdictions suggests that such equitable power is not without limits. As such, a Colorado court cannot use its equitable powers in a way that contradicts CUPA. These arguments are certainly valid, but as this Comment posits, reading a carveout into CUPA section 402 for intellectual partnership property or reading the term “liquidation” to encompass distributions in kind in certain situations are both fair and equitable readings of the statute. Partnerships—or rather, former partnerships—do not have to be rivalrous.
To be sure, and also to pose one final thought, business does tend to depend on this rivalrous mentality. That is the whole idea of capitalism, is it not? Still, a balance can be struck between the right of business owners to compete and the principles of equity that CUPA purports to further. Intellectual property, by its very nature, lends itself to physical distributions of its tangible embodiment without harming the creator-owner (i.e., collective ownership). Whether it be through a distribution in kind or a de facto liquidation, Colorado courts are well within their equitable discretion to liquidate the assets of a partnership in such a way that does not prejudice the parties involved. Perhaps, if courts are willing to adopt this Comment’s proposal, the “might makes right” mentality that rules the day in business can be brought down to a dull roar.
Colorado is in an advantageous position because it has the ability to shape the course of partnership law. As explained above, no jurisdiction in the United States has provided a solution to this contentious issue. There are two potential solutions going forward: either (a) the legislature should amend section 7-64-402 to include an exception for intellectual partnership property, or (b) the courts should read section 7-64-402 to contain a carveout for such property when engaged in the process of winding up the partnership under section 7-64-807. Option A would involve the patchwork quilt of factions, alliances, and arrangements that comprises the political process. However, the advantage of Option A is that the courts would be forced to adhere to the statute’s plain language.
Realistically, Option B is the best path forward, and as such, it has provided the bulk of this Comment’s argument. The courts, using their equitable discretion, have the ability to prevent inequitable situations, like the one in our hypothetical about the grocery store partners. Rather than forcing former partners to accept a cash buyout or a forced liquidation of intellectual property, and thereby effectively terminating their ownership interests in any such property, the courts should read section 7-64-402 to contain a carveout for intellectual partnership property. Former partners have a personhood-like interest in owning and using the fruits of their labor. The law as it currently stands flies in the face of this reality.
Of course, in life the world is never as cut and dry as it is in the world of a law review article. In the “real world,” partners do not always have an equal hand in creating intellectual partnership property. Furthermore, former partners have a right to compete with one another for profits post-dissolution—as do all participants in the free market. To be sure, this is an issue that should be addressed, but in the interest of not tackling too much at once, thorough discussion of the topic will have to wait for another day.
Where this goes from here will be left up to the legislature or the courts. One thing is certain, however. If nothing is done, then Colorado is perpetuating the status quo of “might makes right,” meaning that only the most powerful and most financially well-off will own the fruits of their labor. As far as intellectual property is concerned, this view must finally come to an end.
- J.D. Candidate, 2020, University of Colorado Law School; Articles Editor, University of Colorado Law Review. I would like to thank all of the law review members who worked many long nights to get this article ready for publication. In particular, I wish to thank Noah Stanton, Austin Slaughter, Rachel Calvert, and Andi Savage—working with you all has made writing this article the highlight of my law school career. I also wish to thank Professor Andrew Schwartz for his excellent mentorship and his guidance in navigating the complex world of partnership law. Special thanks to K.C. Groves at Ireland Stapleton Pryor & Pascoe for inspiring me to write about this topic. Finally, I would like to thank my friends Cody and Merritt James, Andrew Jacobo, and Haley Baker—my apologies for missing game nights to work on this article. ↑
- . Colo. Rev. Stat. §§ 7-64-101 to -1206 (2019). ↑
- . See infra Part I. ↑
- . This is an aphorism that essentially means only those who effectively shut down their opposition can determine what is “right,” at least in a moral sense. This idea is perhaps best expressed by author T.H. White in his famous Arthurian novel, which I highly recommend you read. See T.H. White, The Once and Future King (Ace mass-market ed. 1987) (1958). While “might makes right” is not a bad thing per se—after all, it is the typical justification for our economic system (capitalism)—this does not mean we should adhere to this principle to the point where majority control and ownership runs amok. ↑
- . Distribution in Kind, Black’s Law Dictionary (10th ed. 2014). ↑
- . § 7-64-807(2). ↑
- . This Comment will not be addressing former partners’ rights post-dissolution of limited partnerships, limited liability partnerships, or limited liability limited partnerships. These business organizations are governed by separate and fundamentally different equitable principles. Colo. Rev. Stat. §§ 7-62-101 to -1201 (2019). For an excellent overview of these forms of doing business, see Daniel S. Kleinberger, A User’s Guide to the New Uniform Limited Partnership Act, 37 Suffolk U. L. Rev. 583 (2004). ↑
- . § 7-64-801. ↑
- . § 7-64-202(1). ↑
- . Id. ↑
- . See § 7-64-101(20) (“‘Partnership agreement’ means the agreement, whether written, oral, or implied, among the partners that governs relations among the partners and between partners and the partnership.”). ↑
- . See Hooper v. Yoder, 737 P.2d 852, 857 (Colo. 1987) (discussing how the conduct of the parties can be dispositive for determining whether a partnership exists). ↑
- . §§ 7-64-401, 404. ↑
- . § 7-64-401(1)(a). ↑
- . § 7-64-103(1). ↑
- . §§ 7-64-601 to -602. ↑
- . Id. ↑
- . § 7-64-801(1)(a). ↑
- . Tucker v. Ellbogen, 793 P.2d 592, 597 (Colo. App. 1989). ↑
- . See §§ 7-64-803(3), -807. ↑
- . Tucker, 793 P.2d at 597. ↑
- . § 7-64-807(1). ↑
- . § 7-64-807(2). ↑
- . Cf. § 7-64-103(2) (delineating the outer limits of how a partnership agreement can dictate dissolution). ↑
- . § 7-64-103(1). ↑
- . § 7-64-807(2). ↑
- . § 7-64-807(1) (emphasis added). ↑
- . Intellectual property can also take intangible form, which complicates the situation even further. ↑
- . See infra Part I. ↑
- . See infra Part I. ↑
- . See Black’s Law Dictionary, supra note 4. ↑
- . Colorado used UPA until 1997, when the legislature adopted the Revised Uniform Partnership Act of 1997. See generally Turkey Creek, LLC v. Rosania, 953 P.2d 1306 (Colo. App. 1998), abrogated by Sandstrom v. Solen, 370 P.3d 669 (Colo. App. 2016). RUPA was adopted in Colorado as CUPA. § 7-64-101. ↑
- . See generally Harper v. Lamping, 33 Cal. 641 (1867) (holding that a distribution in kind upon the dissolution of a partnership will be allowed if it is as fair to all the parties as a sale of the property and division of the proceeds). ↑
- . See infra Section II.C. ↑
- . The following states have adopted RUPA: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and West Virginia. Uniform Laws Commission, Partnership Act, Uniform Laws Commission (last updated Jan. 8, 2019), https://www.uniformlaws.org/committees/community-home?CommunityKey=52456941-7883-47a5-91b6-d2f086d0bb44 [https://perma.cc/5MNA-SETX]. ↑
- . Rev. Unif. Partnership Act § 402 (amended 2013). ↑
- . See § 7-64-402. ↑
- . See Uniform Laws Commission, supra note 34. ↑
- . At the outset, it is important to reiterate that this issue is one of first impression across the country. As such, much of the case law referenced in this Comment is from outside Colorado. Given the ubiquitous nature of this issue, however, the principles and propositions contained in these cases lend themselves to consideration here in Colorado. ↑
- . This Part will address the “how.” Part II, infra, takes up the “why.” ↑
- . See generally Thomas W. Merrill & Henry E. Smith, Property: Principles and Policies 1–23 (3d ed. 2017) (discussing the right-to-exclude and the more general bundle-of-sticks approaches to property law). ↑
- . Cf. Intel Corp. v. Hamidi, 71 P.3d 296 (Cal. 2003) (holding, inter alia, that the temporary use of some portion of employer’s computer processors or storage by former employee’s e-mail messages was not an injury to employer’s interest in its computers, as was required to support a claim for trespass to chattels). ↑
- . A. Douglas Melamed et al., Antitrust Law and Trade Regulation 891–92 (Foundation 7th ed. 2018) (discussing basic intellectual property theory as a precursor to how this form of property figures into the antitrust context). One can imagine examples where the thing to which intellectual property rights attach are also intangible (e.g., Microsoft Office software, which can be downloaded directly from the Internet to one’s computer and thus never actually take tangible form). Even with such examples, the basic concept of intellectual property still applies. The intangible software is still the thing, while the right to use the software is the intellectual property right that would be the source of the owner’s and the user’s legal footing. ↑
- . Id. at 892. ↑
- . See infra Part III; see also Merrill & Smith, supra note 40, at 238–49 (discussing the work of Professors Margaret Radin and Harold Demsetz on division and regulation of tangible, rivalrous property). ↑
- . Margaret J. Radin, Property and Personhood, 34 Stan. L. Rev. 957 (1982). ↑
- . Merrill & Smith, supra note 40, at 247–48 (quoting Radin, supra note 45, which discusses John Locke’s labor theory); see also infra Section I.C. ↑
- . Anna di Robilant, Property: A Bundle of Sticks or a Tree?, 66 Vand. L. Rev. 869, 877–78 (2013). ↑
- . Intellectual Property, Black’s Law Dictionary (10th ed. 2014). ↑
- . Peter S. Menell & Suzanne Scotchmer, Intellectual Property Law, in 2 Handbook of Law and Economics 1474 (A. Mitchell Polinsky & Steven Shavell eds. 2007) (discussing how the use of an idea does not diminish the idea’s value). ↑
- . Id. ↑
- . Peter S. Menell et al., Intellectual Property in the New Technological Age: 2019, Volume 1: Perspectives, Trade Secrets, and Patents 1–2 (2019). ↑
- . See Melamed et al., supra note 42, at 892 (discussing this concept in the context of books and patented processes and contrasting these with tangible, rivalrous goods like cars). ↑
- . Menell et al., supra note 51, at 2. ↑
- . See Melamed et al., supra note 42, at 892 (positing a similar hypothetical). ↑
- . If Saving Private Ryan is too dated, pretend I used The Avengers as my example. Both are great movies and worth your time if you are bored one evening. ↑
- . Menell & Scotchmer, supra note 49, at 1474; see also Melamed et al., supra note 42, at 892. ↑
- . Melamed et al., supra note 42, at 892. ↑
- . Id. ↑
- . See infra Sections II.B–C. ↑
- . See infra Section I.D. ↑
- . Radin, supra note 45, at 959. ↑
- . See id. ↑
- . Id. at 960. ↑
- . Id. ↑
- . Georg Wilhelm Friedrich Hegel, Philosophy of Right para. 44, at 41 (T.M. Knox trans., 1st ed. 1952). ↑
- . See Radin, supra note 45, at 960. ↑
- . Paul W. Wildman Professor of Law at Southwestern Law School in Los Angeles. Professor Tehranian has taught Intellectual Property and Entertainment Law at various law schools throughout the country. Professor Tehranian is also an experienced intellectual property litigator. John Tehranian, Southwest Law School, https://www.swlaw.edu/faculty/full-time/john-tehranian (last visited Nov. 13, 2019) [https://perma.cc/Z2RZ-8LDR]. ↑
- . John Tehranian, Parchment, Pixels, and Personhood: User Rights and the IP (Identity Politics) of IP (Intellectual Property), 82 U. Colo. L. Rev. 1, 1 (2011). ↑
- . Id. at 23. ↑
- . Id. ↑
- . Id. ↑
- . Id. at 27. ↑
- . See generally The Copyright Act, 17 U.S.C. § 202 (2006) (noting that ownership of a copyright is separate and apart from ownership of a tangible work that embodies a copyright). ↑
- . Tehranian, supra note 68, at 27–28. ↑
- . Id. ↑
- . Id. at 28. “Bono” refers to the lead singer of U2. If you have not heard of U2, which would be very surprising, listen to “I Still Haven’t Found What I’m Looking For,” and you will become a fan. ↑
- . Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984) (citing John Locke’s Second Treatise for the proposition that property derives from “labour and invention”). ↑
- . John Locke, Two Treatises of Government § 27, at 287 (Peter Laslett ed., Cambridge Univ. Press 1988) (emphasis omitted). ↑
- . See generally Richard A. Epstein, No New Property, 56 Brook. L. Rev. 747, 750 (1990). ↑
- . Namely Professor Adam Mossoff, professor of intellectual property law at the Antonin Scalia Law School at George Mason University. Professor Mossoff is an intellectual property theorist, as well as scholar, whose work has been cited by the U.S. Supreme Court, several of the federal circuit courts, and the U.S. Patent and Trademark Office. Adam Mossoff, Antonin Scalia Law School, https://www.law.gmu.edu/faculty/directory/fulltime/mossoff_adam (last visited Nov. 13, 2019) [https://perma.cc/G5EA-EZ6T]. ↑
- . Adam Mossoff, Locke’s Labor Lost, 9 U. Chi. L. Sch. Roundtable 155, 157 (2002). ↑
- . Pierson v. Post, 3 Cai. R. 175, 180 (N.Y. Sup. Ct. 1805). ↑
- . Mossoff, supra note 81, at 157–58. ↑
- . Robert Nozick, Anarchy, State and Utopia 174–75 (1974). ↑
- . Id. at 175. ↑
- . Mossoff, supra note 81, at 158. ↑
- . See infra Section II.B. ↑
- . Mossoff, supra note 81, at 160. ↑
- . Id. at 159 (quoting Stephen Buckle, Natural Law and the Theory of Property: Grotius to Hume 151 (1991)). ↑
- . Id. (citing Locke, Second Treatise §§ 26, 28, 29, 30, 32, 37, 38, 40, 42, 43, 46, at 286–91, 294–300) (internal quotations omitted). ↑
- . John O. McGinnis, The Once and Future Property-Based Vision of the First Amendment, 63 U. Chi. L. Rev. 49, 80 (1996) (quoting Act for the Encouragement of Literature (1783), which was superseded by the Patent and Copyright Clause of the federal Constitution, U.S. Const. art. I, § 8, cl. 8.). ↑
- . Lior Zemer, The Making of a New Copyright Lockean, 29 Harv. J.L. & Pub. Pol’y 891, 913 (2006) (quoting Carys J. Craig, Locke, Labor and Limiting the Author’s Right: A Warning Against a Lockean Approach to Copyright Law, 28 Queen’s L.J. 1, 36 (2002)). ↑
- . See supra Introduction. ↑
- . See infra Section II.B. ↑
- . See infra Section II.B. ↑
- . See infra Part III. ↑
- . See infra Conclusion. ↑
- . See infra Section II.B. ↑
- . See supra Section I.A. ↑
- . See Black’s Law Dictionary, supra note 4. ↑
- . See Tiffany A. Hixson, The Revised Uniform Partnership Act—Breaking Up (Or Breaking Off) Is Hard to Do: Why the Right to “Liquidation” Does Not Guarantee a Forced Sale Upon Dissolution of a Partnership, 31 W. New Eng. L. Rev. 797, 797 (2009). ↑
- . Id. ↑
- . Id. at 816. ↑
- . Id. at 798. ↑
- . Id. at 801; see also Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership § 1.02 (1988). ↑
- . See Hixson, supra note 101, at 816 (discussing the concept of forced liquidation in UPA and RUPA). ↑
- . See Theophilus Parsons, A Treatise on the Law of Partnership (Joseph Henry Beale, Jr. ed., Little, Brown & Co. 4th ed. 1893). ↑
- . Hixson, supra note 101, at 801. ↑
- . UPA Revision Subcommittee of the Committee on Partnerships and Unincorporated Business Organizations, Should the Uniform Act Be Revised?, 43 Bus. Law. 121, 122 (1987). ↑
- . Burton J. DeFren, Partnership Desk Book ¶ 103 (1978). ↑
- . Gary S. Rosin, The Entity-Aggregate Dispute: Conceptualism and Functionalism in Partnership Law, 42 Ark. L. Rev. 395, 398 (1989). ↑
- . For an in-depth discussion of this divide, see Hixson, supra note 101, at 802. ↑
- . Id. ↑
- . Id. Though distributions in kind did not survive the formation of the UPA, arguably the aggregate theory—the idea that partnerships are an aggregation of individuals—is more amenable to the common law doctrine. If a partnership is a collection of individuals, then it follows that those individuals have legally cognizable rights to partnership property post-dissolution. But I digress. For an excellent discussion of how the entity-aggregate fight affected dissolution, see Rosin, supra note 111, at 438–44. ↑
- . Bromberg & Ribstein, supra note 105, at § 1.02(b). ↑
- . See generally Donald J. Weidner, The Revised Uniform Partnership Act Midstream: Major Policy Decisions, 21 U. Tol. L. Rev. 825, 836 (1990). ↑
- . Unif. Partnership Act §§ 29–32 (1914). ↑
- . Alan R. Bromberg, Crane and Bromberg on Partnership 416 (1968). ↑
- . Unif. Partnership Act § 29 (1914). ↑
- . Id. § 31. ↑
- . Id. § 30 (“On dissolution the partnership is not terminated but continues after the winding up of partnership affairs is completed.”). ↑
- . Unif. Partnership Act § 801 cmt. 1 (1997) (“Under the UPA Section 29, a partnership is dissolved every time a partner leaves. That reflects the aggregate nature of the partnership under the UPA.”). ↑
- . Id. (“[E]ven if the business of the partnership is continued by some of the partners, it is technically a new partnership.”). ↑
- . Weidner, supra note 116, at 825–27. ↑
- . See generally Joseph Shade, Business Associations in a Nutshell 33 (2d ed. 2006). ↑
- . Hixson, supra note 101, at 807. ↑
- . Id. at 809. ↑
- . Thomas R. Hurst, Will the Revised Uniform Partnership Act (1994) Ever Be Uniformly Adopted?, 48 Fla. L. Rev. 575, 577 (1996). The most contentious issue was the fact that, under UPA, a partner’s exit meant the automatic dissolution of the partnership. Id. at 583–84. ↑
- . Hixson, supra note 101, at 809. ↑
- . Id. ↑
- . Id. ↑
- . Donald J. Weidner, Three Policy Decisions Animate Revision of Uniform Partnership Act, 46 Bus. Law. 427, 427–28 (1991). ↑
- . Id. at 428. ↑
- . Rev. Unif. Partnership Act § 201(a) (2017). ↑
- . Id. § 601 cmt. 1. ↑
- . “Dissociation” is a new term created by RUPA, and it denotes a “partner’s ceasing to be associated in the carrying on of the business.” Hixson, supra note 101, at 811 n.110. “Dissolution,” on the other hand, refers to the point where a partnership begins the process of winding up. Id. ↑
- . Id. at 811. ↑
- . The Rev. Unif. Partnership Act § 801 cmt. 1. ↑
- . Id. ↑
- . Id. § 701(a). ↑
- . Id. ↑
- . Id. § 701(b). Colorado takes a different approach and provides that the dissociated partner’s buyout price is the amount the partner originally invested in the partnership plus interest. Colo. Rev. Stat. § 7-64-701(2) (2019). ↑
- . See infra Section II.C. ↑
- . Hixson, supra note 101, at 806 n.67; see also Uniform Laws Commission, The Uniform Partnership Act § 38(1) (1914). ↑
- . Rev. Unif. Partnership Act § 104(a) (stating that RUPA is supplemented by the principles of law and equity). ↑
- . See, e.g., Horne v. Aune, 121 P.3d 1227 (Wash. App. 2005) (holding that a partner was entitled to buy out the other partner upon dissolution of the partnership where the partnership property included the partner’s house). ↑
- . See Rev. Unif. Partnership Act § 104(a). ↑
- . Colo. Rev. Stat. § 7-64-807(1) (2019) (emphasis added). ↑
- . Rev. Unif. Partnership Act § 807 cmt. 1; see also Hixson, supra note 101, at 806. ↑
- . See generally Hixson, supra note 101; see also Colo. Rev. Stat. § 7-64-701(1) (2019) (providing that a partner is entitled to dissociate and be “bought out” by the remaining partners). “Buying” a former partner’s interest in the partnership implies an exchange of cash. ↑
- . Disotell v. Stiltner, 100 P.3d 890 (Alaska 2004) (finding that Alaska’s Uniform Partnership Act did not absolutely require a liquidation of the hotel; a buyout of the property was permitted); McCormick v. Brevig, 96 P.3d 697 (Mont. 2004) (asserting that plain meaning of the statute dictates that the partnership farm is to be liquidated and then the cash proceeds are to be distributed); Horne v. Aune, 121 P.3d 1227 (Wash. App. 2005) (holding that in lieu of a public sale, the trial court could allow one partner to purchase property for its agreed upon value with cash). ↑
- . See generally Turkey Creek, LLC v. Rosania, 953 P.2d 1306 (Colo. App. 1998) (discussing the form of co-ownership of former joint venture property post-dissolution), abrogated on tax grounds by Sandstrom v. Solen, 370 P.3d 669 (Colo. App. 2016). ↑
- . Logoluso v. Logoluso, 233 Cal. App. 2d 523, 530 (5th Dist. 1965); see also Kelley v. Shay, 55 A. 925 (Pa. 1903) (distribution in kind ordered where one party would have unfair advantage over the other in liquidation sale). ↑
- . 233 Cal. App. 2d at 525. ↑
- . Id. at 525–26. ↑
- . Id. at 526. ↑
- . Id. at 527. ↑
- . Id. at 530. ↑
- . 100 P.3d 890, 891 (Alaska 2004). ↑
- . Id. at 892. ↑
- . Id. at 894. ↑
- . Id. ↑
- . 856 P.2d 536 (Mont. 1993). ↑
- . Id. at 538. ↑
- . Id. at 541. ↑
- . Id. at 542 (citing Rinke v. Rinke, 48 N.W.2d 201 (Mich. 1951) and Nicholes v. Hunt, 541 P.2d 820 (Or. 1975)). As of this writing, only Alaska, Montana, California, Michigan, and Oregon allow distributions in kind in this context. Query how other states will approach the issue. Should Colorado read in distributions in kind as an available remedy under CUPA, then perhaps this list will begin to grow. ↑
- . See supra Section I.B. ↑
- . See supra Section I.C. ↑
- . See generally Radin, supra note 45; Merrill & Smith, supra note 40, at 245–49 (discussing Radin’s various works). ↑
- . Colo. Rev. Stat. § 7-64-807(1) (2019) (emphasis added). ↑
- . See supra Section II.C. ↑
- . Horne v. Aune, 121 P.3d 1227, 1234 (Wash. App. 2005) (quoting Black’s Law Dictionary (8th ed. 2004)) (emphasis added). ↑
- . McCormick v. Brevig, 96 P.3d 697, 699 (Mont. 2004) (discussing the plain meaning of the liquidation provisions of RUPA and their adoption among the states). ↑
- . Liquidation, Black’s Law Dictionary (10th ed. 2014). ↑
- . See Swann v. Mitchell, 435 So.2d 797, 800 (Fla. 1983) (where circumstances exist that would render distribution in kind, or another method of disposition, to be more favorable to the interests of the parties, such a distribution is permissible and desired). ↑
- . Colo. Rev. Stat. § 7-64-402 (2019) (emphasis added). ↑
- . See Horne, 121 P.3d at 1234 (the court’s equitable discretion is subject to partnership statutes); Logoluso v. Logoluso, 233 Cal. App. 2d 523, 530 (5th Dist. 1965) (the court has the power to order distribution in kind, subject to equitable considerations such as a contrary agreement among the partners). ↑
- . See, e.g., In re S & D Foods, Inc., 144 B.R. 121, 160–61 (Bankr. D. Colo. 1992) (applying Colorado partnership law to hold that a “partner in a dissolving confidential relationship, which still has loose ends dangling, cannot cut-off the rights of the other partner . . . by entering into a ‘new’ contract . . . nor may a party in a fiduciary relationship interfere with current or prospective contracts”); see generally Hooper v. Yoder, 737 P.2d 852 (Colo. 1987) (holding that partners owe one another the fiduciary duties of loyalty and fair dealing when winding up partnership affairs). These, and other cases, suggest that business owners do indeed have a right to compete, but that that alone will not always rule the day. ↑