Rahemtulla met Hassam at his religious congregation. Hassam visited Rahemtulla and his wife many times at their home before he pitched his idea to open a steak house restaurant in the Howard Johnson’s Inn. Hassam owned the inn along with several other partners. Hassam told the Rahemtullas that revenues from the steak house could be over $2 million per year. Hassam knew that Rahemtulla had absolutely no experience in the food and beverage industry but offered to help him. Rahemtulla quit his job in the corporate sector and borrowed

$100,000 using his house as collateral. The $100,000 was Rahemtulla’s capital contribution in the partnership. The two entered into a partnership and signed a lease with the Howard Johnson’s Inn partnership for the restaurant space. The restaurant opened, and Rahemtulla began to jointly operate it with Hassam.

From the beginning, the restaurant lost money, and Hassam began to make unilateral decisions that would help cut expenses. The restaurant was dealt a serious financial setback when authorities refused to approve a liquor license for the restaurant, thus lowering revenue potential. After several months, Rahemtulla complained that he had been cheated by Hassam, whose financial reward came from the lease without any concern about the restaurant operations.

Hassam blamed Rahemtulla for incompetence in managing the venture.

Rahemtulla sued Hassam for breach of fiduciary duty and dealing in bad faith.

CASE QUESTIONS

1. What duties did Hassam owe Rahemtulla?

2. Does it matter that Rahemtulla made foolish decisions when he trusted his friend?

3. What potential conflict arose when Hassam created a partnership to lease from another partnership he was part of?