Continuing partner not entitled to salary

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Without an explicit provision to the contrary, a partner who continues operating the business after his partner withdraws is not entitled to a salary.

As a result, a business partner who continued to work for 11 years after his partner withdrew is entitled to no more upon dissolution than the partner who withdrew.

On June 30, the Wisconsin Supreme Court held that, while the result “appears to be inequitable,” equitable considerations are not permissible under the plain language of sec. 178.15(6).

Justice Ann Walsh Bradley wrote for the court, “If the provisions of the [Uniform Partnership Act] are unsatisfactory, partners can and should protect their interests by agreeing to different terms. In the absence of an agreement modifying the provisions of the UPA, a court should decline from fashioning an after-the-fact remedy in pursuit of an equitable result when that remedy contravenes the public policy choices established by the legislature.”

Stephen Reisman and David Bushard formed PressEnter LLP in 1995. The partnership, which had no written agreement, provided dial-up internet service in western Wisconsin.

In 1999, Bushard sent Reisman a notice of dissolution and withdrew from the business. Reisman continued to run the operations, while attempting to sell the business.

Over the years, each was paid approximately $2.3 million in post-dissolution distributions. Between 2004 and 2008, Reisman also paid himself a total of $704,700 in salary.

Bushard filed suit in 2007, alleging breach of fiduciary duty and unjust enrichment, seeking a judgment equal to Reisman’s salary.

The circuit court held that the salary payments were unauthorized under sec. 178.15(6), which only permits an allowance for continuing a partnership when the other partner is deceased. Accordingly, the court ordered Reisman to pay Bushard half the amount he had taken in salary over the years.

The Court of Appeals affirmed in an unpublished decision, and the state Supreme Court also affirmed.

Wisconsin’s Uniform Partnership Law has been in effect since 1915, and sec. 178.15(6) provides in relevant part, “No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his or her services in winding up the partnership affairs.”

Case law has limited the meaning of “surviving partner” only to partners who have survived after another partner’s death, and does not include a partner who continues to work after another partner retires or withdraws from the business. Estate of Matteson v. Matteson, 2008 WI 48, par. 62, 309 Wis.2d 311, 749 N.W.2d 557.

The court noted that the Uniform Partnership Act was revised in 1997, to provide, “A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership.”

However, Wisconsin has not adopted the new version.

Because Reisman is not a “surviving partner” under the statute, the court held that he was not entitled to any compensation for his work.

“Wisconsin Stat. Ch. 178 reflects the legislature’s public policy choices about the rights and obligations of partners in the absence of agreements to the contrary,” the court concluded. “As discussed above, the Uniform Law Commission has adopted revisions to the UPA that would ameliorate the harsh result reached in this case. Nevertheless, the Wisconsin legislature has not adopted these revisions.”

Justice Patience Drake Roggensack dissented, concluding, “The relative values of each partner’s contributions to the partnership should be determined on remand, valuing both their financial contributions and their skill and services that created increased value in the partnership.”

The dissent relied on Lange v. Bartlett, 121 Wiss.2d 599, 606, 360 N.W.2d 702 (Ct.App.1984), in which the Court of Appeals held, “one who continues a partnership business after dissolution and contributes substantial labor and management services is entitled to compensation for that effort.”

The majority acknowledged the language in Lange permitting a circuit court to perform an equitable accounting in a partnership dissolution. But without expressly overruling Lange, the court said that whatever equitable power a court has, it cannot override the plain language of sec. 178.15(6).

Attorney Thomas Jacobson, who represented Bushard, praised the ruling as a correct interpretation of the statute.

Jacobson said it was unnecessary for the court to overrule Lange, because the case involved a continuation, rather than a windup, of a partnership. “When there is a windup, the statute applies. So, absent an agreement, no partner except a surviving partner is entitled to remuneration.”

What the Court Held

Case: Bushard v. Reisman, No. 2009AP438

Issue: Can a remaining partner collect a salary for continuing a partnership’s business after his partner withdraws?

Holding: No. Absent an agreement, sec. 178.15(6) prohibits the remaining partner from collecting a salary.

Attorneys: For Plaintiff: Kay Nord Hunt, Thomas R. Jacobson, Diane M. Odeen, Hudson; For Defendants: J. Drew Ryberg, Michael J. Happe, Eau Claire.

David Ziemer can be reached at [email protected].