On this date in 1955, the Supreme Court of New Jersey decided Stark v. Reingold, 18 N.J. 251 (1955). The case involved charges and counter-charges of wrongful conduct by partners in several related businesses. The Court’s unanimous opinion, written by Justice Jacobs, is one of the earliest decisions in the modern era to establish important principles of fiduciary duty law in New Jersey.
At a general level, the Court adopted the “oft-quoted comment by Chief Judge Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1 (1928)” that sets out the duties owed by one partner or joint venturer to another:
“Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions.”
The Court adopted this formulation in full, and supplemented it by citations to decisions of lower courts in New Jersey. For example, Justice Jacobs observed that “the relationship of co-partners was ‘one of trust and confidence, calling for the utmost good faith, permitting of no secret advantages or benefits.”
More specifically, Stark articulated a version of what later came to be known as the “corporate opportunity doctrine.” Reingold had become aware of a business opportunity that would have been beneficial to the joint enterprise. Instead of revealing that opportunity to his partner, however, Reingold kept it for himself. Quoting a decision from the Supreme Court of Oregon, Justice Jacobs stated “the now generally accepted doctrine that where a member of a partnership obtains valuable information which may be used for the partnership’s benefit he is not at liberty to conceal it and use it for his private benefit.” The partnership with Stark “imposed upon Reingold a fiduciary duty to share such business opportunities which clearly related to the subject of their partnership business.”
Stark has been the foundation stone for many decisions about fiduciary duties among business partners or joint venturers in the years since its issuance. Today, anyone involved with a Chancery or other case involving the relationship between business fiduciaries must consult this case, decided 57 years ago today, as a starting point.