Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 25

Fiduciary Duties of Partners. Karl Horvath, Hein Rusen, and Carl Thomas formed a partnership, HRT Enterprises, to buy a vacant manufacturing plant and an annex building on eleven acres in Detroit, Michigan. HRT leased the plant to companies owned by the partners, including Horvath's Canadian-American Steel. When Horvath's firm missed three payments under its lease, HRT evicted it from the plant. Horvath objected but remained an HRT partner. Later, Rusen and Thomas leased the entire plant to their company, Merkur Steel. Merkur then sublet the premises to City Steel and Merkur Technical Services-both of which were owned (or substantially owned) by Rusen and Thomas. The rent these companies paid to Merkur was higher than the rent Merkur paid to HRT, which meant that Merkur profited from the arrangement. Rusen and Thomas did not tell Horvath about the subleases. When Horvath learned of the deals, he filed a suit in a Michigan state court against HRT and the other partners for an accounting of their actions. Did Rusen and Thomas breach their fiduciary duty to HRT and Horvath? Discuss. [ Horvath v. HRT Enterprises , 489 Mich. 992, 800 N.W.2d 595 (2011)]