Posted in Business Litigation, Business Start Ups, Corporate Law, Partnership Law
Ed Schultz hosts a TV show on MSNBC, not so imaginatively titled, “The Ed Show.” There’s so much more than a TV show going on, according to a lawsuit filed by Michael Queen. He claims Schultz agreed to a partnership with him to help develop the show and get it on the air, and in exchange for his help, Queen would be paid a salary and a quarter of all the profits Schultz obtained from it. Like in a bad soap opera, Schultz is accused of walking out on the deal, leaving Queen holding the bag.
Not to be outdone, Queen hired an attorney and sued Schultz for breach of contract and for breach of fiduciary duties owed to him as a partner. Schultz counterclaimed, alleging fraud, slander and libel.
Legal fight starts up between two men who were working together
The good news for Schultz is that initially the judge in the U.S. District Court for the District of Columbia dismissed Queen’s case, claiming there was no valid contract between the parties nor was there a partnership. The judge also dismissed Schultz’ counterclaims. The bad news for Schultz is that Queen appealed the decision, claiming these issues should’ve been decided by a jury, not by the judge in a preliminary motion. The U.S. Court of Appeals for the District of Columbia Circuit ruled there was no contract, but whether or not there was a partnership needs to be decided by a jury and remanded the case back to the trial court for further proceedings.
In 2008 Queen was an NBC employee when he approached Schultz, then a radio talk show host, and asked if he wanted help in getting a TV show. What follows is disputed by the parties, but Queen’s version is that Schultz agreed. The two of them, plus a TV director who later dropped out the proposed deal, verbally agreed to form a partnership with Queen getting a salary and 25% of the profits from the show. Schultz refused to sign a proposed written partnership agreement (that left the amount of the salary blank) but later e-mailed Queen, “(A)ny TV deal will obviously involve you. I will not do a TV deal without your involvement and that includes a financial involvement. Rest assured, we are together on this.” The two were less than together after Schultz agreed to do a TV show for MSNBC in 2009. He cut Queen a check to cover expenses he incurred and washed his hands of him.
Appeals court brings plaintiff’s case back from the dead
The appeals court ruled there was no contract because a material term, Queen’s salary, was never agreed to. The percentage of the profits he was to receive was to be determined after that salary was paid.
However, the court also ruled that Queen put forth a strong enough argument (with the support of the facts and applicable law) that whether or not there was a partnership should be decided by a jury during a trial, not by the judge on a preliminary motion. The court ruled that given the actions and communications between the parties, a jury could find that there was a partnership between Schultz and Queen.
Schultz contends Queen was an employee, not a partner, and he works for MSNBC under an employment contract as an independent contractor and no partnership is involved. The appeals court disagreed.
It ruled that if one partner receives a salary from a third party in the course of the partnership business, that partner is obligated to hold that income as a trustee for the other partners and account to the others for that salary. If Queen can show there was a partnership, he is entitled to a percentage of Schultz’ compensation, regardless of what capacity Schultz works for MSNBC.
But what percentage? Under the un-agreed to contract, Queen would’ve gotten 25% of the income less costs. Since no formal, written agreement is required to form a partnership, the default provisions of the District of Columbia’s law entitles partners to an equal split of the profits. Potentially Queen could be much better off because Schultz refused to sign the proposed agreement.
Much of my practice involves partnership issues, from creating partnership agreements to litigation. This case shows what can go wrong in a partnership and why potential partners need legal counsel before a partnership is formed and to lessen the harm when one breaks up. If you have questions about partnership issues or need legal help, contact my office for a free consultation.
