Also known as: willful misconduct · intentional misconduct · wilful misconduct · willfully misconduct
Written by attorneys — see sources below.
A form of culpable conduct marked by deliberate intent to cause harm or conscious knowledge of wrongdoing. Partnership and LLC statutes treat it as a breach of the duty of care when a partner or member acts with that mental state during company operations or winding up. Agreements may not exonerate or limit liability for such conduct.
Warren Woods, a member of a member-managed LLC, learned that a key asset had appreciated sharply and arranged a secret sale to his own affiliate at a below-market price. He then reported the transaction to the other members as an arms-length deal with an unrelated buyer. The LLC later discovered the self-dealing and sued Woods for breach of the duty of care.
Wayne Walker, the sole general partner of a limited partnership, transferred partnership cash to a personal account to cover gambling debts. He falsified the partnership books to hide the transfers and continued drawing management fees. The limited partners sued Walker for breach of the duty of care.
Wanda Williams, a partner in a construction partnership, directed crews to skip required safety inspections on a major project to meet a bonus deadline. She knew the shortcuts violated state regulations yet ordered the work to proceed. After a worker was injured, the partnership sued Williams for breach of the duty of care.
Wesley Wong and Walter Washington formed a limited partnership and inserted a clause in the agreement that eliminated all liability for any partner conduct. When Wong later diverted partnership assets for personal use, Washington sued. The court refused to enforce the clause as to the diversion.
Willa Whitman, an officer of a public company, approved press releases that she knew contained false revenue figures. Investors who purchased shares after the releases sued under the securities laws. The court examined whether her statements met the standard for willful or intentional misconduct.
When the events giving rise to this enforcement proceeding occurred, the petitioner Aaron was a managerial employee at E. L. Aaron & Co., a registered broker-dealer with its principal office in New York City. Among other responsibilities at the firm, Aaron was charged with supervising the sales made by its registered representatives and maintaining the due diligence files for those securities in which the firm served as a market maker, including the common stock of Lawn-A-Mat Chemical & Equipment Corp. Between November 1974 and September 1975, two registered representatives of the firm, Norman Schreiber and Donald Jacobson, conducted a sales campaign in which they repeatedly made false and misleading statements in an effort to solicit orders for the purchase of Lawn-A-Mat common stock. Schreiber and Jacobson informed prospective investors that Lawn-A-Mat was planning or in the process of manufacturing a new type of small car and tractor that would be marketed within six weeks. Schreiber and Jacobson also made projections of substantial increases in the price of Lawn-A-Mat common stock and optimistic statements concerning the company's financial condition. Lawn-A-Mat, however, had no such plans. These projections and statements were without basis in fact, since Lawn-A-Mat was losing money during the period between November 1974 and September 1975. Upon receiving several complaints from prospective investors, an officer of Lawn-A-Mat informed Schreiber and Jacobson that their statements were false and misleading and requested them to cease making such statements. This request went unheeded. Thereafter, Milton Kean, an attorney representing Lawn-A-Mat, communicated with Aaron twice by telephone and informed him that Schreiber and Jacobson were making false and misleading statements and described the substance of what they were saying. Aaron had reason to know that the statements were false because he knew that the reports in Lawn-A-Mat's due diligence file indicated a deteriorating financial condition and revealed no plans for manufacturing a new car and tractor. Although assuring Kean that the misrepresentations would cease, Aaron took no affirmative steps to prevent their recurrence beyond informing Jacobson of Kean's complaint and directing him to communicate with Kean. In February 1976, the Commission filed a complaint in the District Court for the Southern District of New York against Aaron and seven other defendants in connection with the offer and sale of Lawn-A-Mat common stock. The Commission alleged that Aaron had violated and aided and abetted violations of section 17(a) of the 1933 Act, section 10(b) of the 1934 Act, and Commission Rule 10b-5. Before commencement of the trial, all the defendants except Aaron consented to the entry of permanent injunctions against them. Following a bench trial, the District Court found that Aaron had violated and aided and abetted violations of the three provisions during the Lawn-A-Mat sales campaign and enjoined him from future violations. The Court of Appeals for the Second Circuit affirmed the judgment. The Supreme Court granted certiorari to resolve the conflict in the federal courts as to whether the Commission is required to establish scienter as an element of a Commission enforcement action to enjoin violations of section 17(a), section 10(b), and Rule 10b-5.
View caseWillowbrook Capital terminated an employee after discovering the employee had deliberately falsified expense reports to obtain reimbursements. The employee sued for wrongful discharge, arguing the termination itself constituted misconduct. The court assessed whether the employee's actions rose to willful or intentional misconduct.
Interactive Data Corporation hired John Foley in June 1976 as an assistant product manager at a starting salary of $18,500. As a condition of employment Foley signed a confidential and proprietary information agreement. The company's president told Foley that if he performed his job well he would have a long and rewarding employment with the firm. Over the next six years and nine months Foley received steady salary increases, promotions, bonuses, awards, and superior performance evaluations, rising to branch manager of the Los Angeles office with an annual salary of $56,164 plus a merit bonus. In January 1983 Foley learned that his new supervisor, Robert Kuhne, was under investigation by the FBI for embezzlement from his former employer, Bank of America. Foley reported the information to Vice President Richard Earnest because he was worried about working for Kuhne in a supervisory position. Earnest told Foley not to discuss rumors and to forget what he had heard. In early March 1983 Kuhne informed Foley that the company had decided to replace him for performance reasons and offered a transfer to another division. Foley was later told he could continue as branch manager if he agreed to a performance plan, but when Kuhne met with him the next day Kuhne instead gave Foley the choice of resigning or being fired. Foley was discharged on March 13, 1983. Foley filed suit against Interactive Data Corporation alleging three causes of action: tortious discharge in violation of public policy, breach of an implied-in-fact contract to terminate only for good cause, and tortious breach of the implied covenant of good faith and fair dealing. The superior court sustained the company's demurrer without leave to amend and dismissed the action. The Court of Appeal affirmed the judgment. The Supreme Court granted review.
View caseNo. Uniform partnership and limited partnership acts prohibit agreements from relieving or exonerating a person from liability for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law.
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The duty of care requires partners and members to refrain from grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law. Willful or intentional misconduct requires proof of deliberate intent or conscious wrongdoing rather than mere deviation from the standard of care.
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No. A partner does not violate a duty solely because the conduct furthers the partner's own interest. Liability arises only when the conduct also meets the definition of willful or intentional misconduct or another prohibited category.
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The partner may be held personally liable for resulting losses because the partnership agreement cannot limit or eliminate that liability. The partnership may also seek damages or an accounting.
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…of Nay that would have revealed the fraudulent scheme. Respondents specifically disclaimed the existence of fraud or intentional misconduct on the part of Ernst & Ernst. After extensive discovery the District Court granted Ernst & Ernst's motion for summary judgment and dismissed the action. The court rejected Ernst &…