Monday, March 15, 2010
Season Two of AMC's Emmy-winning drama "Breaking Bad" raises some interesting questions about the division of partnership profits. The two main characters, Walt, played by Bryan Cranston -- pictured left-- and Jesse, played by Aaron Paul, who is fast becoming one of my favorite actors, frequently refer to themselves as "partners" and speak of their meth production and distribution operation as a "partnership." And sure enough, they are indeed two or more persons operating as co-owners a business for profit, so I think they've got that right. The two never seem to have formalized their agreement in a writing, which is not advisable, except that their business is illegal and therefore any agreement would likely be unenforceable in any case and any writing evidencing the nature of their business could land them in jail.
In any case, absent agreement to the contrary, the partners should divide their profits equally, and that is what Walt and Jesse do. Who says that there is no honor among thieves? Jesse is also a very prudent criminal, since he keeps a "rainy day fund." Unfortunately, he keeps the rainy day fund in his car, and when he is briefly arrested in Episode 4, "Down," his savings are seized by the DEA. Jesse gets out of jail, but in order to do so, he has to sever all ties to his "stacks" of "serious cheese," yo. In addition, his parents evict him from his home. In short, Jesse needs money, and he demands that Walt split half of the remaining profits with him. Walt initially refuses, saying that he is not responsible for Jesse's carelessness.
As a matter of law, I think Walt has it right. The partnership profits had been distributed and the money Jesse lost to the DEA was not partnership property. It was Jesse's money, and Walt is not obligated under the partnership agreement to divide his share with Jesse. As a matter of good business dealings, however, and also in order to keep the storyline headed in a reasonable direction, Walt gives in and splits his share with Jesse.
A second problem arises in Episode 6, "Peekaboo," when one of the partnership's informal employees is robbed at knifepoint by a meth addict. As a result, Walt's expected profits were reduced by $1000. Jesse was willing to accept this shortfall as a cost of doing business, but since distribution was Jesse's responsibility, Walt felt that Jesse should absorb the loss and also prevent future losses through an act of retaliation and/or intimidation. The parties did not end up taking their dispute to court however, as an ATM machine served both to make up the earlier loss and dispense with the troublesome meth addict. Need I say more?
Finally, in a drama that plays out over the last three episodes of the season,Jesse decides to reduce his role in the partnership to part-time druglord so that he can become a full-time heroin addict and squeeze to his neighbor and landlord's agent, Jane. As a result, he is in a drug-induced haze when Walt needs him to deliver $1.2 million worth of product. Walt ends up doing it all himself and as a result misses the birth of his daughter. His wife doesn't seem to mind, but boy, Walt had better answer her straight when she asks him about his cell phone! Once again, the parties seem to recognize that they are bound under the Uniform Partnership Act, since they are operating without an agreement, to split their profits 50/50. Walt could have argued that Jesse's conduct constituted a constructive termination, but he chose once again to be a good father-figure for the hapless Jesse, whose share in the profits is now being held in trust by the partnership's attorney.
That gets you up to speed on the vital contracts issues from Season Two. Season Three begins March 21st. The blog is of course not plugging the series as such. We just think it is a useful mechanism for working through some of the problems inherent in running a partnership without a written agreement.