In Kovacik v. Reed, the California Supreme Court carved out an exception to the statutory scheme of dividing up losses in a partnership for the important class of firms known as service partnerships. Kovacik and Reed entered into a general partnership to operate a kitchen remodeling business. Kovacik made an initial capital contribution of $10,000. Reed made no capital contribution, but did contribute a promise of future services by agreeing to superintend the partnership’s work and to estimate the jobs on which the partnership bid. Kovacik and Reed agreed to share profits equally, but made no provision for allocating losses. Reed apparently took no salary. Unfortunately, things did not go as planned and Kovacik dissolved the partnership, after only ten months, on grounds that it was unprofitable. Kovacik claimed that the partnership had lost $8,680 and brought a proceeding for an accounting in which he sought to recover one half of the partnership’s capital loss from Reed.
On the face of the statutes, Kovacik had a strong claim. It appears that the partnership had no liabilities falling under UPA (1914) §§ 40(b)(I) or (II). Accordingly, the next set of liabilities to be satisfied were those “owing to partners in respect of capital”; in other words, return of capital was the senior remaining claim on the partnership’s assets. Assuming for the sake of simplicity that there had been no adjustments to the initial capital accounts (there being no facts to the contrary), the partnership owed $10,000 to Kovacik “in respect of capital” and nothing to Reed. Kovacik therefore was entitled to the entire $1,320 apparently realized upon the liquidation of the partnership, leaving a capital loss of $8,680. Per § 40(d) both partners were required to contribute to satisfaction of that liability in accordance with the rules laid out in § 18(a). In turn, § 18(a) provides that the $8,680 loss was to be shared among the partners “according to [their] share in the profits,” which it will be recalled were shared equally.
On dissolution, the partnership thus had suffered a capital loss, in the form of a capital deficit, of $8,680. Equal sharing of that loss required a debit to each partner of $4,340. Because Reed made no capital contribution, however, he would not bear any share of the capital loss unless he was required to pay in $4,340. Likewise, unless Reed paid him $4,340, Kovacik would bear the entire $8,680 loss. On the face of the statute, Reed is therefore obliged to equalize the losses by paying Kovacik the demanded sum of $4,340.
Courts have strictly applied the UPA provisions in most situations, except those involving a so-called “service partnership,” of the sort present in Kovacik, in which some partners contribute only services. Although none of the relevant UPA sections make any distinction between general partnerships in which all partners make capital contributions and a service partnership, many courts have refused to apply the statute to firms of the latter type if doing so would mean that the service-only partner would be required to make a cash contribution out of personal assets towards his share of any capital losses.
Kovacik is typical of these decisions. The Kovacik court acknowledged the general rule, but held that where the partners had agreed that one was to contribute capital and the other only services, neither partner could be held liable to the other for contribution towards capital losses. “Thus, upon loss of the money the party who contributed it is not entitled to recover any part of it from the party who contributed only services.” The California Supreme Court made no effort to ground this exception in the statute. Instead, the court explained its holding as follows:
The rationale of this rule . . . is that where one party contributes money and the other contributes services, . . . in the event of a loss each would lose his own capital—the one his money and the other his labor. Another view would be that in such a situation the parties have, by their agreement to share equally in profits, agreed that the value of their contributions—the money on one hand and the labor on the other—were likewise equal; it would follow that upon the loss . . . of both money and labor, the parties have shared equally in the losses.
Whatever one makes of this rationale, it has been widely accepted by the courts.
But how would the rule apply where there was both a capital and an operating loss? After all, the court in Kovacik too some pains to note that "Actually, of course, plaintiff here lost only some $8,680 or somewhat less than the $10,000 which he originally proposed and agreed to invest."
Suppose you had the following facts: Abel and Baker are partners. Abel contributed $10,000 cash to the partnership and provides no services to the partnership. Baker contributed to cash to the partnership and did all of the labor of the partnership business. Profits were divided 50-50. After two years in business, they have decided to dissolve the partnership. After liquidating the partnerships assets, the firm owes its outside creditors $100,000 but has paying off the partnership’s creditors, the business has suffered a loss of 20,000. In a state that follows the rule of Kovacik v. Reed, how much money—if any—must Baker pay to settle the losses? My assumption is that he has to pay $10,000 (50%) of the operating loss but none of the capital loss. After all, while it is true that his labor in the court's view is equivalent to Kovacik's capital, that logically should only extend to a capital loss. Right?
Now suppose you were in a UPA (1997) jurisdiction. Section 8.06 makes no distinction between capital and operating losses. And the commentary thereto makes clear that the drafters intended the statute to overturn Kovacik. So you have a net loss of $30,000 and Baker should have to pay $10,000 to the creditors and make good half of Abel's capital loss. Right?
 315 P.2d 314 (Cal. 1957). See generally Stephen M. Bainbridge, Contractarianism in the Business Associations Classroom: Kovacik v. Reed and the Allocation of Capital Losses in Service Partnerships, 34 Ga. L. Rev. 631 (2000).
 See, e.g., Kovacik v. Reed, 315 P.2d 314 (Cal. 1957); Becker v. Killarney, 532 N.E.2d 931 (Ill. App. 1988); Snellbaker v. Herrmann, 462 A.2d 713 (Pa. Super. Ct. 1983). The leading precedent to the contrary is Richert v. Handly, 330 P.2d 1079, 1081 (Wash. 1958), in which the Washington Supreme Court (without any analysis) held that where the parties had not agreed upon or specified the basis upon which losses were to be shared, the UPA provisions controlled. Each partner, including the service-only partner, therefore was required to contribute toward the capital loss sustained by the partnership according to his share of the profits. Richert perhaps can be reconciled with Kovacik by invoking the limitation set forth in the latter that service-only partners who are compensated for their services can be held liable for their share of capital losses. Although this fact did not assume any prominence in the opinion, it appears that the service-only partner in Richert was compensated for at least a portion of his services, 330 P.2d at 1080–81, and, therefore, perhaps could be held liable even under Kovacik and its progeny.
 A later decision made clear that the dispositive fact is that one partner was to provide only services. The Kovacik rule therefore still applies even if the partner who contributed the firm’s capital also contributes some services, so long as the other partner contributes only services. De Witte v. Calhoun, 34 Cal. Rptr. 491, 494–95 (Cal. App. 1963).
 See Snellbaker v. Herrmann, 462 A.2d 713, 716 (Pa. Supr. 1983) (collecting cases); David B. Sweet, Annotation, Joint Venturers’ Comparative Liability for Losses, Absence of Express Agreement, 51 A.L.R.4th 371 (same).
There's an open letter to the Daily Bruin being circulated among UCLA faculty about how the faculty is united to defend our students of color, LGTBQ, etc.... And how UCLA is a safe space for them.
There is no mention of the increasingly violent riots--yes, riots. There is no mention of numerous trumped up (pun intended) false claims being made. There is no acknowledgement that not everybody at UCLA voted for Hillary. There is no acknowledgement that such a letter might alienate conservative faculty and students, making the former wonder about whether UCLA is a safe place for them to work and the latter whether it is a safe place to go to school.
Do you think a similar letter would have circulated to reassure our conservative students if Hillary had won? Do you think faculty would be united to offer those students a safe space?
No? Me neither.
Glenn Reynold addresses these issues in his latest USA Today column, observing that:
Trump’s substantial victory, when most progressives expected a Hillary landslide, came as a shock to many. That shock seems to have been multiplied in academe, where few people seem to know any Trump supporters — or, at least, any Trump supporters who’ll admit to it.
The response to the shock has been to turn campuses into kindergarten.
He then gives the reader a quick run through of the way schools like Michigan, Penn, Stanford, Cornell, and so on have held counseling sessions, play sessions, puppy sessions, crying sessions, and so on. Then he gets to the meat of the problem:
It’s easy to mock this as juvenile silliness — because, well, it is juvenile silliness of the sort documented in Frank Furedi’s What Happened To The University? But that’s not all it is. It’s also exactly what these schools purport to abhor: An effort to marginalize and silence part of the university community.
... when you treat an election in which the “wrong” candidate wins as a traumatic event on a par with the 9/11 attacks, calling for counseling and safe spaces, you’re implicitly saying that everyone who supported that “wrong” candidate is, well, unsafe. Despite the talk about diversity and inclusion, this is really sending the signal that people who supported Trump — and Trump carried the state of Michigan, so there are probably quite a few on campus — aren’t really included in acceptable campus culture. It’s not promoting diversity, it’s enforcing uniformity. It’s not promoting inclusion, it’s practicing exclusion. And, though it pretends to be about nurturing, it’s actually about being mean to those who don’t fall in the nurtured class. Schlissel says he wants the University of Michigan to be “a welcoming place for all members of society,” but how welcome can students who backed Trump feel in the wake of this performance?
Precisely. I'm nearing retirement (7 years), have an established reputation as a conservative curmudgeon so none of this should come as a surprise to anybody, and have a achieved a certain degree of success in my field (if I may say so) that (I think) insulates me from the worst risks of speaking out (fingers crossed). And who knows, I may end up as the next SEC Chairman yet. But what about the junior faculty? Or the students? Who protects them?
And what about the country?
A viral (and profane) YouTube rant by Jonathan Pie points out that this sort of fear and “othering” of political opponents is why Trump won, and why Democrats were shocked by his victory. Pie’s right to tell people that they should engage in discussion rather than dismissal of people they disagree with, and colleges and universities should listen to him.
If, that is, it’s not too triggering.
I admit I have zero patience for this sort of nonsense, which simply reinforces the prevailing left-liberalism at law schools like Michigan while further alienating those of us in the law school community who do not share the progressive mind set. One must also ask--even at the risk of starting yet another student protest aimed at yours truly--just how wimpy are liberals that they need Legos to get over an election? Man up, people.
Meanwhile, some university students were so traumatized that they need puppies and coloring books:
The Revolt of the Elites and the Betrayal of Democracy by Christopher Lasch https://t.co/mxjUXkQ7xr Libs & NeverTrumpers need to read this— Professor Bainbridge (@ProfBainbridge) November 12, 2016
Understanding how you can be compassionate and conservative: The Tragedy of American Compassion by Marvin Olasky https://t.co/iQ5LBsEXgS— Professor Bainbridge (@ProfBainbridge) November 12, 2016
Adrian Vermule writes:
In transitional justice, the "thick line" is a deliberate policy of forgetting what went before. I want to suggest a version of the thick line for the 2016 election campaign; more specifically, a one-year moratorium on pointing out the inconsistency or even hypocrisy of others, based on statements they made during the campaign.
Go read the whole thing.
Progressive activist group Common Dreams is worried:
The nation's consumer protection agency, a brainchild of Sen. Elizabeth Warren (D-Mass.), could be imperiled by Donald Trump's presidency, observers are warning.
The U.S. Consumer Financial Protection Bureau (CFPB), established under the 2010 Dodd-Frank Wall Street reform law that passed after the 2007-09 financial crisis, has cracked down on predatory payday lenders; set new standards for the mortgage market; recovered and sent back billions of dollars for consumers harmed by illegal practices of credit card companies, banks, and debt collectors; and generally "worked on behalf of working families," as Warren put it in a video marking the bureau's five-year anniversary in July. ...
As Bloomberg explained on Friday, Trump
could sign legislation proposed by Republicans that would put the agency under Congress's thumb. Lawmakers could also overturn specific CFPB regulations, including one loathed by the industry that made it easier for consumers to sue their banks.
Most importantly, Republicans are poised to get the chance to replace the CFPB's aggressive leader, Democrat Richard Cordray. His term is up in 2018, but Trump may be able to replace him even sooner if a recent court ruling is upheld that gave the president more leeway to oust the agency's director. Trump would be expected to replace Cordray with someone far less interested in pursuing tough oversight.
Here at PB.com, we have been a reliable CFPB critic, so we'd be happy to see it reformed:
Tomorrow, UCLA is a holding a "Processing the Election" event. The event's posted description states:
This event will offer us, as a community, a chance to gather, discuss, and digest yesterday’s Presidential election. Many of us were shocked by last night’s results. For some, this shock was accompanied by earnest excitement about our new President-elect. For others, the results have generated deep anxiety and distress – an understandable response given the rhetoric targeting certain communities throughout the campaign.
As Bruins, as members of a great university, it is our obligation to model how a community comes together in a moment like this to listen, to assess, to move forward. Together. Tomorrow’s CrossCheck Live, which attempts to bring together a range of perspectives and voices from across our campus, has been crafted in that spirit.
I know three of the folks on the panel and the moderator. They are all people of good will whom I like and respect. But they are also very much people of the left (indeed, I think it would be fair to say, very left in most cases). I don't know the rest of the panel members, except by reputation, but as far as I can tell none of them of them are right of center. In fact, as far as I can tell, none of them even fall into the center-left.
This qualifies as a "range of perspectives"?
Who on this panel will speak to--let alone for--students who have "earnest excitement about our new President-elect"? Nobody is the answer.
Sadly, but not surprisingly, this is happening at universities all over the country. What the people putting these programs together don't seem to get is that it is not every student or faculty member shares their world view. As such, while they worry a lot about people being alienated, they are blind to the sense of alienation felt by students or faculty who don't share their PC orthodoxy. Of course, they also don't seem to get that the election result is, in some small--but not, I think insignificant--part, a reaction to the pervasive left-liberal hegemony on college campuses.
Update: I am very pleased to report that they are adding my friend and colleague Eugene Volokh to the panel. Eugene, of course, is the popular head of the libertarian-leaning Volokh Conspiracy blog. He'll be badly outnumbered, but Eugene can more than hold his own.
I noted earlier today that rumor had it that the election result was bad news for the SEC nominations of Hester Pierce and my friend Lisa Fairfax. Sadly, that now seems almost certain. The WSJ reports that:
Tuesday’s GOP victories likely mean President Barack Obama’s four pending nominees for existing SEC and CFTC vacancies won’t advance during the lame-duck session of Congress.
“You have to assume [Supreme Court nominee] Merrick Garland is gone and so are the other Obama nominees,” said Sam Geduldig, a principal at the lobbying firm CGCN Group and a former aide to former House Speaker John Boehner (R., Ohio). That means the Trump administration will likely start fresh next year with a new slate of nominees at the agencies. ...
Ms. White, the current SEC chairman, is expected to step down by the end of Mr. Obama’s term in January.
With Ms. White’s departure, Mr. Trump would likely have three open commissioner positions to fill at the SEC.
Which means Paul Atkins will have a busy transition period.
The Journal is also reporting that:
At present, only three of the five commissioner posts are filled at the SEC. Besides Chairman Mary Jo White, an independent, there is Republican Michael Piwowar and Democrat Kara Stein.
Mr. Piwowar is likely to be appointed as interim chairman until the Senate confirms Mr. Trump’s eventual pick. Mr. Piwowar has dissented on a handful of recent cases, including those involving a high-profile crackdown on disclosures by private-equity firms. But he has supported the vast majority of cases, making it unlikely he would push for a very different enforcement approach.
I think Piwowar will do a great job as interim chair. he's a very sound guy with a deep knowledge of the capital markets. But he's not a lawyer (he's an economist). Not that that's a bad thing, it's just unusual. Correct me if I'm wrong, but while the SEC has had non-lawyer commissioners before (Charles Cox springs to mind), none have been commission chair--interim or otherwise.
Update: Oops. Cox was acting chair in 1987, so I stand corrected.
The WSJ is reporting that:
In a sign of Mr. Trump’s rightward tilt [on financial regulation], former SEC Commissioner Paul Atkins is heading up the president-elect’s transition team’s work concerning the SEC, the Commodity Futures Trading Commission and other financial regulators that historically operate independently of the White House ....
Mr. Atkins is an outspoken opponent of a range of postcrisis regulations, particularly the Dodd-Frank overhaul, as well as controversial reforms to money-market mutual funds. He is currently chief executive of consulting firm Patomak Global Partners LLC.
At the risk of being accused of buttering him up, I've long been a fan of Paul Atkins. In his time on the SEC, he was "the leading intellectual voice on the Commission." (Post from 2009) So the SEC, CFTC, etc are in good hands. Paul will make good decisions.
There are currently two vacancies on the SEC with Hester Pierce and my friend Lisa Fairfax having been nominated to fill those vacancies. They were nominated ages ago, but there has been very little movement. Some Democrat senator put a hold on Pierce (I'm guessing Liz Warren), which prompted somebody on the GOP side to stall Fairfax in retaliation. The betting now seems to be that their nominations are unlikely to be confirmed by the Senate. That's too bad. They're both eminently qualified.
Will their nominations be withdrawn? If so, would Trump renominate them? (Remember that by law no more than 3 SEC members can be from the same party, so a Trump SEC likely would be 3 Republicans to 2 Democrats when fully staffed.)
In addition, the question now looms: Who will be nominated to serve as the new SEC Chair, since Mary Jo White is widely expected to step down?