Once in a while, legal opinions are downright entertaining. Corrales v. Corrales, G043598 (2011) is a prime example. In this case, a California Court of Appeal found that the case had been tried on a “completely erroneous legal theory,” and resorted to humor to make the best of a bad situation.

The case involved two brothers, Rudy and Richard. Rudy wanted to start a business to repair, refurbish and restore computer tape drives, but couldn’t obtain financing on his own. Richard, who already owned a thriving business, agreed to supply the financing and business know-how, while Rudy would actually run the business. Rudy’s wife and daughters soon came on board.

The business did well for a number of years, until Richard discovered that Rudy and his wife and daughters had formed a competing business. Rudy refused to answer Richard’s pointed questions on the subject, and Richard sent a “Notice of Dissociation” to Rudy, stating that he was withdrawing from the partnership. Richard and Rudy then sued each other, claiming breach of contract, fraud, breach of fiduciary duty, and a laundry list of related causes of action.

The trial was evidently a bit of a circus. Each party’s experts disparaged the other side’s basis of valuation, and the trial judge “found none of the key witnesses credible,” with virtually no independent corroboration of evidence. The partnership’s books and records were kept not in accordance with GAAP (generally accepted accounting principles), but by “winging it.” The appellate court sympathized with the trial judge, surmising that he must have “developed severe neck pain from constantly shaking his head over the way the participants ran their business.”

Nonetheless, the trial muddled through to a judgment. The court adopted Rudy’s expert’s valuation, found that Rudy had concealed the existence of the new business from Richard, but held that Richard had suffered no damages. Richard appealed.

On appeal, the Court of Appeal did something highly unusual–it refused to decide the matter. The problem was that the theory of the case was “completely erroneous,” and there was thus neither legal nor evidentiary support for the key part of the judgment.

The parties had both argued their positions under California law relating to dissociation of a partner. Dissociation deals with the withdrawal of a partner, and permits the carrying on of the partnership business in certain circumstances. But Richard’s “dissociation” and withdrawal left only Rudy as partner–and you can’t have a partnership with only one person. The correct legal principle would have been dissolution, which applies when a partnership is terminated and its business wound down. When a dissociation occurs, the business continues and the withdrawing partner generally is paid the value of his or her interest. When a dissolution occurs, the business is wound down, the partnership’s creditors are paid, and any remaining assets are distributed to the partners. A key element of dissolution law is the protection of creditors. As the court put it, a partner “cannot get first dibs on partnership assets by dissociating when in fact the withdrawal effects a dissolution.”

Given this, the proper procedure would have been for the partnership to perform an accounting, which would determine the rights of each partner to the assets of the partnership (after payment of creditors’ claims). The trial court was ordered to enter an order of dissolution, which would include such an accounting. Any funds the court then determined were improperly obtained by Rudy’s competing business were to be included in the partnership assets.

The opinion is memorable for its concise, humorous, and somewhat sardonic treatment of the case. It was penned by William Bedsworth, who for years has written a legal humor column titled “A Criminal Waste of Space,” to “get it out of his system.” But the entertainment value shouldn’t detract from the value of this case in reminding us of the distinction between partnership dissolution and dissociation, and the key fact that you can’t be a partner with yourself.

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