No Standing in Partnership Dispute

In this partnership dispute, two individual limited partners sued their fellow individual partner (who also signed the limited partnership agreement on behalf of the general partner entity) for, among other things, breach of contract and breach of fiduciary duty.  The jury returned a verdict in favor of the two limited partners, but the trial court granted a JNOV, dismissing those claims for lack of standing.  The Court of Appeals affirmed because “a limited partner does not have standing to sue for injuries to the partnership that merely diminish the value of that partner’s interest” and the plaintiffs’ claims were based solely on their fellow partner’s duties as a partner.

Hodges v. Rajpal

Tax Returns Do Not Conclusively Establish Entity’s Ownership Structure

Dr. Erwin Cruz sued his former business partners, claiming, among other things, that he was a limited partner in an entity called Plano AMI, L.P.  Before trial, the trial court granted Dr. Cruz’s motion for partial summary judgment establishing his ownership interest as a limited partner, based in large part upon the fact that Plano AMI’s tax returns listed Dr. Cruz as a limited partner.

On appeal, the Dallas Court of Appeals reversed that decision, finding that the partnership agreement was ambiguous and that because Plano AMI had later amended its tax returns to list Dr. Cruz as a general partner, Cruz had failed to establish as a matter of law that he was a limited partner.

Plano AMI, L.P. v. Cruz

Attempted Common Law Marriage Leads to General Partnership

Elizabeth Rebeles thought she was in a common law marriage with Paul Leighton, and with good reason — they had been living together since 1984, purchased property and filed tax returns as husband and wife, and started a business together. But after Rebeles filed for divorce in 2006, she discovered that there was no documentation of her divorce from her previous husband, meaning that she could not prove she had ever been validly married to Leighton. The parties nonsuited the divorce case, and Rebeles filed a new suit in which she claimed the parties had formed a general partnership during the time they were together.

The jury found that the parties had indeed formed a partnership back in 1984 and that an event requiring wind-up had occurred in 2006. In accordance with that finding, the trial court wound-up the business and divided the partnership assets. The court of appeals affirmed that aspect of the case, rejecting Leighton’s contention that Rebeles had released  her interest in the partnership through a document she had signed to relinquish “all past, present, and future interest in Paul’s Pit Sand and Gravel, and in Hutchins Sand & Gravel and any dealings by Paul M. Leighton.” That release made no reference to the partnership itself, and both parties testified that they had not intended it to release any claim to other property owned by the partnership. To the court of appeals, those facts supported the jury’s finding that Rebeles had not released her interest in the partnership itself. However, the court of appeals also reinstated a $31,000 verdict in favor of Leighton, based on his claim that Rebeles had breached a post-breakup oral contract for her separately owned company to perform billing and clerical services for one of their jointly owned gravel pits. Even though the oral contract related to the partnership business, there was sufficient evidence to show that the parties were representing their independent interests at the time it was made, and not as agents of the partnership itself. Accordingly, the breach of contract finding could still be harmonized with the general partnership finding, and the court of appeals rendered judgment in favor of Leighton.

Leighton v. Rebeles, No. 05-11-01519-CV

Duty to Treat Partner Fairly Ended When He Was Fired

The members of a limited partnership entered into a partnership agreement providing that they would each relinquish their partnership interest if they departed involuntarily.  The agreement also provided that while no payment was required, the remaining partners could still decide to make a payment to the involuntarily departing partner.  In late 2008, two of the three partners decided to terminate Arvid Leick.  The remaining partners initially offered to pay him in excess of $300,000, but Leick insisted on almost twice that amount.  The partnership and the remaining partners then filed suit seeking a declaratory judgment that Leick had been involuntarily terminated and that they therefore did not owe him anything at all.  Leick counterclaimed.  The jury found that Leick’s termination had been involuntary, but that he still should have been paid what the remaining partners had originally offered.  The trial court reduced the award to $125,000, but still entered judgment in favor of Leick.

On appeal, the partnership claimed that the trial court had erred by improperly instructing the jury that the remaining partners had an obligation to treat the involuntarily terminated partner fairly and reasonably.  The court of appeals reversed and entered a take-nothing judgment against Leick, holding that this instruction was contrary to the plain language of the partnership agreement, which left it up to the remaining partners whether an involuntarily departure would lead to any payment at all.  Although the Texas Revised Partnership Act does require partners to be fair and reasonable to one another, that could not serve as the basis for the jury instruction because Leick was no longer a partner after the day he was terminated.  The court of appeals likewise sustained the trial court’s directed verdict against Leick on his claim for breach of fiduciary duty, since that claim also focused on the other partners’ treatment of him after he was terminated, and there was no fiduciary duty for the parties to remain partners with one another.  Finally, the court vacated the trial court’s award of attorney fees to Leick, but noted that he still might still be able to recover fees on remand under the Declaratory Judgments Act, even though he was no longer the prevailing party.

LG Insurance Management Services, LP v. Leick, No. 05-10-01646-CV