F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                         DEC 5 2000
                                   TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                             Clerk

 MATTHEW BOWMAN,

               Plaintiff - Appellant,                   No. 99-2317
          v.                                          D. New Mexico
 SP PHARMACEUTICALS, L.L.C.,                  (D.C. No. CIV-98-415-LH/RLP)
 a New Mexico company; SP
 ASSOCIATES, INC., a New Mexico
 corporation; H. JOSEPH LARSEN;
 DONALD E. HAGMAN; and
 FERNANDO A. CORREA da COSTA,

               Defendants - Appellees.


                             ORDER AND JUDGMENT         *




Before TACHA , ANDERSON , and BALDOCK , Circuit Judges.



      Appellant Matthew F. Bowman brought this diversity action against SP

Pharmaceuticals, L.L.C. (“SPLLC”), SP Associates, Inc. (“SPINC”), H. Joseph

Larsen, Donald E. Hagman, and Fernando A. Correa da Costa after the individual

defendants expelled him from a management buyout partnership (the “MBO


      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Partnership”). Appellant’s complaint asserted breach of fiduciary duty, fraud,

prima facie tort, derivative usurpation of corporate opportunity and constructive

trust claims. The district court granted Defendants’ motion for summary

judgment on all claims, holding that (1) because Appellant and the individual

defendants agreed to abandon SPINC, Appellant may not assert claims on its

behalf, and (2) since any opportunity enjoyed by Appellant was contingent on

obtaining financing, the bank’s independent decision not to finance a transaction

involving Appellant requires that summary judgment be granted as to the breach

of fiduciary duty and constructive trust claims.

      On appeal, Appellant contends that the district court erred in granting

summary judgment in favor of Defendants on the breach of fiduciary duty, fraud,

derivative and constructive trust claims because: (1) regardless of the bank’s

position, genuine issues of material fact exist as to whether the individual

defendants breached their fiduciary duties to Appellant; (2) triable issues of fact

exist regarding the individual defendants’ motives and state of mind when they

represented to Appellant that he was a partner; (3) the court failed to take into

consideration that the Letter of Intent (“LOI”) between SPINC and Pharmacia &

Upjohn, Inc. (“P&U”) was never formally transferred to SPLLC; and (4) a

constructive trust may arise because there are triable issues of fact as to whether




                                          -2-
the individual defendants breached their fiduciary duties to Appellant. We

exercise jurisdiction pursuant to 18 U.S.C. § 1291, and affirm.



                                 I. BACKGROUND

      In early 1996, the individual defendants formed the MBO Partnership to

pursue the acquisition of a sterile injectable pharmaceuticals facility (the

“Facility”) from P&U. Appellant agreed to become the fourth partner in the MBO

Partnership in April of 1996. He was to be the vice president of sales and

marketing of the acquiring entity and was to hold an equity share in that entity

equal to that of each individual defendant. The partners agreed that Appellant

would relocate from Ohio to New Mexico after the transaction closed in order to

devote his full attention to the new venture.

      On May 21, 1996, the four partners incorporated SPINC. Appellant and the

individual defendants were SPINC’s sole directors, officers and shareholders.   1
                                                                                    In

December of 1996, SPINC entered into the LOI with P&U. The LOI referred to

Appellant as an officer and director of SPINC and stated that the LOI

memorialized recent negotiations for the purchase of the Facility by “SP

Associates, or its assignee, which will be controlled by the current owners of SP

Associates, Inc.” Appellant’s App. at 280. The LOI provided that P&U would


      1
          The SPINC shares apparently were never issued.

                                           -3-
sell the Facility to SPINC for $20,550,000 and that P&U would not, until the

termination of the LOI, negotiate a sale of the Facility with any other buyer. The

LOI was contingent on SPINC obtaining adequate financing.

       In January of 1997, the four partners met to discuss the transaction. The

results of those discussions are found in a letter from da Costa to Appellant,

Larsen and Hagman dated January 28, 1997 (the “da Costa Letter”).       The da Costa

Letter states that the partners agreed to use NationsBank (“NB”) to finance the

transaction. 

In addition, the da Costa Letter states that the partners,

who were SPINC’s sole directors, officers and shareholders, unanimously agreed

to abandon that entity and use a limited liability company (“LLC”) as the

acquisition vehicle.   

       On January 31, 1997, NB sent a letter to Larsen and Hagman formally

proposing to finance the acquisition of the Facility. The proposed equity and

ownership split was 40% for NB and 60% for the partners. NB’s proposal also

recognized that an LLC would be used to acquire the Facility. On March 28,

1997, Larsen, on behalf of the MBO Partnership, formed SPLLC. Larsen and

Hagman were the initial members, and Larsen the manager, of SPLLC. The

Organizing Operating Agreement authorized Larsen to execute a Membership

Subscription Agreement between SPLLC and NB and a new operating agreement

between SPLLC, NB, da Costa, Larsen, Hagman and others.


                                          -4-
       After receiving data indicating a decrease in the Facility’s projected

financial performance, NB revised the equity and ownership split in its financing

proposal such that its share was increased to 70% and the partners’ share was

decreased to 30%. However, the partners would retain 60% voting control. The

partners attempted in vain to obtain more equity from NB.

       Once it became clear that NB would not increase the partners’ equity

position, Appellant apparently became unsettled about the transaction. It was

Appellant’s opinion that he had more at stake in the venture than the other three

partners because he was the only partner relocating his family and incurring

significant additional debt.   

In an attempt to make up for his reduction

in equity, Appellant made various written proposals to the other partners on May

27, 1997. Appellant suggested that SPLLC pay him performance bonuses

potentially worth millions of dollars, increase his bonus from $35,000 to $45,000

payable immediately, reimburse him for his daughter’s private school tuition, pay

him a $700 a month car allowance, reimburse him for relocation costs, guarantee

a minimum selling price for his home in Ohio and execute an employment

contract guaranteeing his salary and bonus for at least two years.   

       The individual defendants reacted negatively to Appellant’s proposals.

Aside from being unwilling to give Appellant a package worth millions of dollars

more than their own, they feared that Appellant’s attempt to renegotiate his deal


                                            -5-
would jeopardize the MBO Partnership’s ability to finance the acquisition. On

May 28, 1997, da Costa wrote to Larsen and Hagman stating that they should give

Appellant written notice that he was expelled from the MBO Partnership. Larsen

drafted a memo dated May 29, 1997, informing Appellant that he was no longer a

partner in the MBO Partnership. However, the memo was never delivered.

Rather, at the urging of Walker Poole of NB, the partners met and reconciled.

The individual defendants agreed to provide Appellant with a relocation package

and Appellant withdrew his other proposals. On June 2, 1997, shortly after the

partners had resolved their differences, da Costa sent Appellant an e-mail stating,

“I’m delighted you are on board.”   

A June 5, 1997, draft of the

Subscription Agreement and Representation Letter lists Appellant among the

purchasers of membership interests in SPLLC.     

      In early June 1997, the partners received a draft of the SPLLC operating

agreement from NB. It contained a provision allowing NB to force a sale of

SPLLC. The forced sale provision intensified Appellant’s concerns about the

transaction. As a result, on June 10, 1997, Appellant made two alternative

proposals to Larsen and NB. First, Appellant proposed to commute from Ohio to

New Mexico each week, spending Monday through Thursday at SPLLC’s offices

in Albuquerque and Friday through Sunday at home with his family in Ohio.

Appellant offered to stay in New Mexico any weekend that he was needed and


                                         -6-
suggested that the company pay for most of his commuting expenses. In the

alternative, he proposed to take a four week leave of absence from his present

employer to assist with the transition and startup of SPLLC, help recruit a

replacement for himself, return to work for his present employer and participate

in SPLLC only as a board member and passive investor.

      Both of Appellant’s June 10, 1997, proposals were unacceptable to the

other partners and to NB. On June 11, 1997, Walker Poole of NB informed

Larsen that the bank would not finance any transaction in which Appellant was a

participant. Larsen Dep. at 130,   

The individual defendants decided to

expel Appellant from the MBO partnership that day as well.     

14,

1997, Larsen told Appellant that NB would not fund the transaction if he were

involved and that the other partners had decided to proceed without him. Larsen

Dep. at 135-36, 

Appellant continued to stress that he would go

forward with his investment in the Facility even if he was not involved in

management. However, the other partners would not allow him to participate in

the deal in any way. SPLLC’s purchase of the Facility closed on June 30, 1997.

Appellant was not included as an equity member or manager of SPLLC. This

action followed.




                                          -7-
                                    II. DISCUSSION

A.     Fiduciary Duty Claim

       It is a well-settled principle of law that partners owe each other a fiduciary

duty. See GCM, Inc. v. Kentucky Cent. Life Ins. Co.            , 

, 149 (N.M.

1997); Levy v. Disharoon , 

, 89 (N.M. 1988);           Citizens Bank of Clovis

v. Williams , 

, 1230 (N.M. 1981); and N.M. Stat. Ann. § 54-1-21

(effective until July 1, 1997). This fiduciary relationship between partners

“imposes upon all the participants the obligation of loyalty to the joint concern

and of the utmost good faith, fairness, and honesty in their dealings with each

other with respect to matters pertaining to the enterprise.”        Bohatch v. Butler &

Binion , 

, 545 (Tex. 1998). Accordingly, “a partner is not allowed

to gain any advantage over a co-partner by fraud, misrepresentation or

concealment, and for any advantage so obtained he must account to the

co-partner.”   Levy , 749 P.2d at 89.

       The fiduciary duty among partners, however, “applies only to activities

where a partner will take advantage of his position in the partnership for his own

profit or gain.”   Leigh v. Crescent Square, Ltd.    , 

, 1170 (Ohio Ct.

App. 1992). Partners may, without violating the fiduciary duty among them,

expel a partner for business reasons.     See St. Joseph’s Reg’l Health Ctr. v.

Munos , 

, 197-98 (Ark. 1996);         Lawlis v. Kightlinger & Gray    , 562


                                             -8-
N.E.2d 435, 442 (Ind. Ct. App. 1990);      Waite v. Sylvester , 

, 622-23

(N.H. 1989); Leigh , 608 N.E.2d at 1170; Bohatch , 977 S.W.2d at 546; Holman v.

Coie , 

, 523 (Wash. Ct. App. 1974).

       The district court granted Defendants’ motion for summary judgment on the

fiduciary duty claim due to the fact that NB decided that it would not finance a

transaction in which Appellant was involved. Appellant contends that the district

court erred in focusing on NB’s position because genuine issues of material fact

remain as to whether the individual defendants discharged the fiduciary duties

they owed to him. We review a grant of summary judgment de novo, applying the

same legal standard used by the district court.      Simms v. Oklahoma ex rel . Dep’t

of Mental Health & Substance Abuse Servs.          , 

, 1326 (10th Cir.),

cert. denied , 

(1999). Summary judgment is appropriate if the

pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, show that there is no genuine issue as to any material

fact and that the movant is entitled to a judgment as a matter of law. Fed. R. Civ.

P. 56(c).

       There is ample evidence in the record that NB came to an independent

conclusion that it would not fund the transaction if Appellant participated. NB

adopted this position after Appellant made his alternative commuting and passive

investor proposals. Appellant claims that it may still have been possible to obtain


                                             -9-
NB financing with him as a partner and points to Walker Poole’s deposition as

evidence of that possibility. Poole stated that he did not know what his response

would have been had the other partners accepted Appellant’s commuting

proposal. Poole Dep. at 208, Appellant’s App. at 642. However, Poole also

stated that he had concerns about Appellant’s stability and was concerned about

Appellant’s commitment to the transaction. Poole Dep. at 169-70,      

Poole further declared that “it was clear that this was a management team that was

not going to work,” Poole Dep. at 175,    

and that he and his colleagues

at NB “decided that we certainly weren’t willing to commit the kind of capital

that we were going to commit to this opportunity with Mr. Bowman as one of the

four partners.” Poole Dep. at 171,    

We conclude that the district

court’s finding that NB independently decided to exclude Appellant from the deal

is clearly supported by the record.

      Given NB’s position, it appears that had the individual defendants decided

to include Appellant in the transaction after his second round of proposals, they

would have lost their financing for the deal and it would not have happened.

Appellant hints that other financing might have been procured, but provides no

evidence that other financing was available. Moreover, the record indicates that

there was no time to obtain alternative financing. Larsen stated in his affidavit

that “I knew that P&U would not provide management additional time to find


                                           -10-
acquisition financing other than that being offered by NationsBank. If the

transaction did not close promptly, P&U would simply close the facility.” Larsen

Aff. ¶ 45, 

      Because of NB’s position regarding Appellant and the MBO Partnership’s

inability to raise alternative acquisition financing, the individual defendants were

faced with a choice of retaining Appellant as a partner and losing the opportunity

to acquire the Facility or expelling Appellant from the MBO Partnership and

preserving some chance of completing the acquisition. The fiduciary duties the

other partners owed Appellant did not require them to keep him as a partner

where doing so meant frustrating the purpose of the MBO Partnership.

      Once it was determined that Appellant would be expelled, he was promptly

informed. Larsen told Appellant on June 14, 1997, that NB would not fund the

transaction if he were involved and that the other three partners were going ahead

without him. Larsen Aff. ¶ 44,     

Appellant understood this

communication because he stated in a June 20, 1997, e-mail to da Costa that “Joe

and Don want me out.”       

Appellant’s expulsion was again

communicated to him on June 27, 1997, and June 30, 1997, in e-mails from

da Costa. 

These communications show that the other partners did

not deceive Appellant, but were honest and open about their decision and the

reasons therefor. That candor was sufficient to discharge their fiduciary duties to


                                           -11-
Appellant under these circumstances. For the foregoing reasons, we conclude that

the district court did not err in granting summary judgment in favor of Defendants

as to the breach of fiduciary duty claim.



B.     Fraud Claim

       “Actionable fraud consists of misrepresentation of a fact, known to be

untrue by the maker, and made with an intent to deceive and to induce the other

party to act in reliance thereon to his detriment.”   Cargill v. Sherrod , 

, 727-28 (N.M. 1981). Appellant claims that he was defrauded by the

individual defendants. As evidence thereof, he points to a series of

communications beginning with da Costa’s letter to Larsen and Hagman, dated

May 28, 1997, in which da Costa states:

       The position and requests of our estranged partner, as defined in his
       handwritten note to us dated 5/27 are, in my opinion, totally
       unacceptable. . . . My suggestion would be to draft a letter to him
       stating that his positions cannot be accepted by the other partners (or
       the bank) and that, therefore, we (the three of us) have decide[d] that
       we will proceed with a partnership of three.

Appellant’s App. at 519. The following day, Larsen drafted a memo to Appellant

stating, “[a]fter due consideration, we feel that it is in the best interests of all

team members involved to release you from the SP Associates and SP

Pharmaceuticals LLC team.”        

                                             -12-
      Larsen’s memo to Appellant, however, was never delivered. When the

individual defendants informed NB that they were going to expel Appellant,

Walker Poole told them that doing so may jeopardize NB’s willingness to finance

the transaction since Appellant was the only partner with marketing expertise.

Poole suggested that the individual defendants meet with Appellant to see if they

could work out their differences and keep the management team together. The

partners met and were able to resolve their differences. Shortly after this

reconciliation, da Costa sent Appellant an e-mail stating, “Dear Matt: I’m

delighted you are on board.”   

      This reconciliation was short-lived. After Appellant made his alternative

commuting and passive investor proposals, both the partners and NB decided that

he must go. After his expulsion from the partnership and his initiation of this

action, Appellant discovered the May 28, 1997, letter from da Costa to Larsen and

Hagman and the draft expulsion memo dated May 29, 1997. Appellant had been

unaware that his first round of proposals had nearly cost him his partnership. As

a result of this discovery, Appellant alleges that the individual defendants

intended to expel him from the MBO Partnership all along and that their

communications to the contrary, especially da Costa’s June 2, 1997, e-mail,

intentionally misled him to believe in, and detrimentally rely on, his status as a

partner in the MBO Partnership.


                                             -13-
      The district court granted Defendant’s motion for summary judgment on

this claim at the summary judgment hearing. Appellant contends that the district

court erred in so doing because the aforementioned communications between the

individual defendants establish genuine issues of material fact as to their motives

and state of mind at the time those communications were made.

      The record shows that all parties understood that Appellant was a partner in

the MBO Partnership until at least June 10, 1997. It is clear that the individual

defendants intended to expel Appellant from the MBO Partnership on May 29,

1997. However, they changed their minds after meeting with Appellant and

working out their differences. There is nothing in the record to indicate that the

reconciliation between the partners was other than genuine. Moreover, there is

nothing in the record that suggests that the individual defendants intended to

expel Appellant as of June 2, 1997. As a result, da Costa’s June 2, 1997, e-mail

to Appellant was not misleading. Rather, it confirmed the recent reconciliation of

the partners. It was not until Appellant made further demands that both the

partners and NB decided to proceed without him. Because we find that Appellant

has failed to demonstrate the existence of any genuine issues of material fact as to

the elements of fraud, we conclude that the district court did not err in granting

summary judgment on the fraud claim in favor of Defendants.




                                         -14-
C.     Derivative Usurpation of Corporate Opportunity Claim

       Shareholders of New Mexico corporations may bring derivative actions on

behalf of the corporation in order to assert the unenforced rights of the

corporation.   See Petty v. Bank of N.M. Holding Co.       , 

, 446 (N.M.

1990). Appellant contends that the individual defendants breached their fiduciary

duties to SPINC by usurping a corporate opportunity that rightfully belonged to

SPINC, namely the acquisition of the Facility. SPINC has never sought to

enforce its alleged rights with respect to the purchase of the Facility and

Appellant purports to bring his derivative claim in order to vindicate those rights.   2



       As indicated in the da Costa Letter, Appellant and the individual

defendants, the sole directors, officers and shareholders of SPINC, unanimously

decided in January of 1997 to use an LLC as the acquisition vehicle for the

Facility. Their decision was based on legitimate business reasons. The partners

wanted to use a flow through entity for the acquisition and they could not qualify

as a Subchapter S corporation under the Internal Revenue Code because one of

SPINC’s shareholders, da Costa, was not a U.S. citizen. In addition, there were

potential tax advantages to an LLC. Appellant’s App. at 291, Larsen Aff. ¶ 28,




      It appears that Appellant’s derivative action is improperly brought under
       2

New Mexico law as it fails to meet the requirements of N.M. Stat. Ann. § 53-11-
47. We need not address this issue, however, since we reach the merits of
Appellant’s derivative claim.

                                            -15-


Although the partners agreed to abandon SPINC, they never caused

SPINC formally to transfer the LOI to SPLLC.

       The district court granted summary judgment in favor of Defendants on

Appellant’s derivative claim holding that because Appellant was among those

who agreed to abandon SPINC in favor of an LLC, he could assert no claims on

its behalf in connection with that action. Appellant argues that the district court

erred in its holding because the fact that the LOI was never formally transferred

to SPLLC establishes that SPLLC and its members, three of whom are directors

and officers of SPINC, illegally usurped SPINC’s corporate opportunity to

purchase the Facility. We disagree.

       The decision to abandon SPINC was legal. Aside from its sound business

purpose, the decision was made by all of SPINC’s directors, officers and

shareholders. There was no dissent at the time the decision was made and we will

not now allow Appellant to recast himself as a dissenting minority shareholder.

       The only complication in our analysis is the existence of the LOI.

However, that is easily dispensed with. The LOI itself states that with the

exception of the confidentiality and exclusivity provisions, the LOI “does not

bind and will not result in any liability o [sic] the part of either party.”   

The LOI did not bind SPINC to purchase the Facility. When SPINC’s directors,

officers and shareholders unanimously decided to abandon that entity in favor of


                                               -16-
an LLC, SPINC effectively backed out of the deal. As a result, the provisions of

the LOI, other than the confidentiality provision, no longer had any effect. For

the foregoing reasons, we conclude that the district court did not err in granting

summary judgment in favor of Defendants as to Appellant’s derivative claim.



D.      Constructive Trust Claim

        Appellant argues that because, as he alleges, the individual defendants

evicted him from the MBO Partnership thereby wrongfully appropriating his

portion of the buyout opportunity to themselves, he is entitled to a constructive

trust. He asserts that “genuine issues of material fact remain as to whether

Defendants breached their fiduciary duties, which would entitle Bowman to a

constructive trust.” Appellant’s Br. at 45. “A constructive trust arises where a

person who holds title to property is subject to an equitable duty to convey it to

another on the ground that he would be unjustly enriched if he were permitted to

retain it.”   Bassett v. Bassett , 

, 167 (N.M. 1990). The district court

granted summary judgment for Defendants on this claim for the same reasons it

granted summary judgment on the fiduciary duty claims, namely that the

opportunity for an entity partly owned by Appellant to purchase the Facility was

prospective and evaporated when NB decided it would not finance a transaction in

which Appellant was involved.


                                          -17-
      We have already determined that Appellant was legally expelled from the

MBO Partnership for legitimate business reasons. In the alternative, Appellant

claims that he had a contractual entitlement to participate in the transaction

pursuant to the LOI. As discussed above, the only binding provisions of the LOI

were the confidentiality and exclusivity provisions. When Appellant and SPINC’s

other directors, officers and shareholders decided to abandon that entity for

purposes of the acquisition, the LOI lost its buyer and the parties started over.

      Even if the LOI had been in effect in June of 1997, it would have

terminated on June 11, 1997, upon NB’s decision not to extend financing for any

acquisition in which Appellant was involved. The LOI did not require NB

financing, but the record indicates that there was no time to find alternative

financing in June of 1997. Larsen Aff. ¶ 45, Appellant’s App. at 378-79. As a

result, the LOI was terminated since the buyer, an entity involving Appellant,

could not obtain financing for the acquisition.

      Appellant was not the victim of either a breach of fiduciary duties or a

breach of contract. In order for there to be a constructive trust, there must be

some underlying wrong giving rise to the equitable duty of the owner of the

property to convey it to the party from whom it was wrongfully taken. Because

the record shows that the actions taken by the individual defendants were legal,

no constructive trust arises. Accordingly, we conclude that the district court did


                                         -18-
not err in granting Defendants’ summary judgment motion as to Appellant’s

constructive trust claim.



                                  III. CONCLUSION

       Based on the foregoing, we conclude that the district court did not err in

granting Defendant’s motion for summary judgment. We therefore AFFIRM the

district court in all respects.

                                               ENTERED FOR THE COURT


                                               Stephen H. Anderson
                                               Circuit Judge




                                        -19-