CASE LAW UPDATE: A SURVEY OF RECENT TEXAS …

CASE LAW UPDATE: A SURVEY OF RECENT TEXAS PARTNERSHIP AND LLC CASES

By Elizabeth S. Miller Professor of Law Baylor University School of Law

Waco, Texas

The University of Texas School of Law

2014 LLCs, LPs and PARTNERSHIPS July 9, 10 & 11, 2014 Austin, Texas

? 2014 Elizabeth S. Miller, All Rights Reserved

TABLE OF CONTENTS

Page

I.

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II.

Recent Texas Cases Involving General Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A.

Existence of Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B.

Partner's Personal Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

C.

Power of Partner to Bind Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

D.

Partner's Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

E.

Fraudulent Inducement to Form and Continue Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

F.

Partnership Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

G.

Interpretation and Enforcement of Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

1.

Fiduciary Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

2.

Financial Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

3.

Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

4.

Transfer Restrictions and Buyout Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

5.

Covenants Not to Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

6.

Withdrawal/Expulsion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

7.

Statute of Frauds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

8.

Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

9.

Arbitration Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

10. Forum Selection Clause.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

H.

No-Compensation Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

I.

Statutory Redemption of Withdrawn Partner.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

J.

Dissolution/Winding Up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

K.

Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

L.

Divorce of Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

M.

Partnership's or Partner's Standing to Sue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

N.

Pro Se Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

O.

Personal Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

P.

Sufficiency of Pleadings and Service of Process on Partners or Partnership. . . . . . . . . . . . . . . . . 70

Q.

Recovery of Attorney's Fees in Suits Against Partnership or Suits Between Partners. . . . . . . . . 70

R.

Limitations in Suit Against Partners After Judgment Against Partnership. . . . . . . . . . . . . . . . . . 71

III. Recent Texas Cases Involving Limited Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

A.

General Partner's Personal Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

B.

Authority of General Partner or Other Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

C.

Statutory Liability Protection of Limited Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

D.

Piercing Veil of Limited Partnership, General Partner, or Affiliate.. . . . . . . . . . . . . . . . . . . . . . . 80

E.

Partnership By Estoppel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

F.

Fiduciary Duty of Partners and Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

G.

Interpretation and Enforcement of Limited Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . 100

1.

Fiduciary Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

2.

Financial Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

3.

Arbitration Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

4.

Transfer Restrictions and Buyout Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

5.

Removal of General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

6.

Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

7.

Withdrawal of Limited Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

8.

Amendment of Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

9.

Attorney's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

i

10. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

11. Unilateral Mistake. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

H.

Partnership Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

I.

Assignment of Interest and Admission of Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

J.

Withdrawal of Limited Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

K.

Dissolution/ Winding Up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

L.

Record Keeping Requirements and Access to Books and Records. . . . . . . . . . . . . . . . . . . . . . . 130

M.

Receivership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

N.

Effect of Merger or Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

O.

Divorce of Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

P.

Derivative Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Q.

Creditor Remedies: Charging Order, Turnover Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

R.

Bankruptcy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

S.

Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

T.

Constitutionality of Margin Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

U.

Property Tax Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

V.

Standing or Capacity to Sue.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

W. Personal Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

X.

Sufficiency of Pleadings and Service of Process on Partners or Limited Partnership. . . . . . . . . 157

Y.

Recovery of Attorney's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Z.

Issue Preclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

AA. Diversity Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

BB. Attorney Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

IV. Texas Cases Involving Limited Liability Companies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

A.

Nature of Limited Liability Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

B.

Pre-Formation Transactions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

C.

Fraud in Formation of LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

D.

LLC Property and LLC Membership Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

E.

Fiduciary Duties and Oppression.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

F.

Limited Liability of Members; Personal Liability of Members Under Agency or Other Law. . . 193

G.

Authority of Member, Manager, or Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

H.

Admission of Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

I.

Conflict Between Regulations/Company Agreement and Articles of Organization/Certificate of

Formation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

J.

Transfer Restrictions and Buyout Provisions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

K.

Capital Contributions and Capital Call Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

L.

Financial Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

M.

Record Keeping Requirements and Access to Books and Records. . . . . . . . . . . . . . . . . . . . . . . 216

N.

Forum Selection Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

O.

Dissolution/Winding Up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

P.

Withdrawal of Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Q.

Veil Piercing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

R.

Fraudulent Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

S.

Creditor's Remedies: Charging Order, Turnover Order, Garnishment. . . . . . . . . . . . . . . . . . . . 249

T.

Franchise Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

U.

Series LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256

V.

Property Tax Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

W. Workers' Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

X.

Wage and Employment Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Y.

Marital Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Z.

Recovery of Attorney's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

AA. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

BB. Personal Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

CC. Service of Process .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

ii

DD. EE. FF. GG. HH. II. JJ. KK. LL. MM. NN. OO. PP.

Venue.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Standing or Capacity to Sue.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Pro Se Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 Derivative Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 Diversity Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 Bankruptcy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 Conflict of Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 Res Judicata. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Effect of Merger or Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Professional LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Attorney-Client Privilege.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Attorney Disqualification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

V.

Texas Cases Involving Registered Limited Liability Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

A.

Limited Liability of Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

B.

Effect of Registration; LLP as "Successor" Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

C.

Effect of Withdrawal of Registration Upon Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

D.

Bankruptcy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

E.

Suits Against Foreign LLPs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

F.

Diversity Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

G.

Pro Se Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

iii

Case Law Update: A Survey of Recent Partnership and LLC Cases

Elizabeth S. Miller

I.

Introduction

This paper summarizes recent Texas cases involving issues of partnership and limited liability company law. Summaries of cases involving general and limited partnerships are provided for the current calendar year and the previous three calendar years. Because limited liability companies and limited liability partnerships are a relatively recent innovation in the law and the body of case law is more limited, summaries of cases involving these types of entities are provided from the inception of the case law on these entities in Texas.

II.

Recent Texas Cases Involving General Partnerships

A.

Existence of Partnership

Box v. Dallas Mexican Consulate General, Civil Action No. 3:08-cv-1010-O, 2014 WL 1012449 (N.D. Tex. Mar. 14, 2014).

Box, a licensed real estate broker, worked with the Dallas Mexican Consulate General ("Consulate") in its search for a new location in Dallas. Box found a building for the Consulate to purchase, but the building was part of a three-building complex that the owner refused to subdivide. Box alleged that Consulate officials agreed to enter into a joint venture arrangement with Box whereby Box and possibly a third-party investor would buy the complex, subdivide it, and sell the building to the Consulate. Ultimately, the Consulate purchased the building from a third party. Box sued the Consulate contending that the Consulate breached the parties' joint venture agreement. The Consulate argued that it was immune from suit, but Box relied on the commercial activity exception to sovereign immunity. Subject matter jurisdiction based on the commercial activity exception depended on the existence of the joint venture, and the court analyzed whether a joint venture between Box and the Consulate existed. The court applied Texas law to the issue of whether a joint venture was formed and set forth the common-law elements of a joint venture as well as the factors in the Texas Business Organizations Code that indicate the existence of a partnership. The court stated that a joint venture must be based on an express or implied agreement and is a question of law for the court. In addition to the intention of the parties, the court identified the elements of a joint venture as: (1) a community of interest in the venture, (2) an agreement to share profits, (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. The court stated that joint ventures are normally indistinguishable from partnerships on the question of formation, and both are governed by the rules applicable to partnerships. The Texas Business Organizations Code sets forth the following five factors indicating the existence of a partnership: (1) receipt or right to receive a share of profits of the business; (2) expression of intent to be partners in the business; (3) participation or right to participate in control of the business; (4) agreement to share or sharing losses of the business or liability for claims by third parties against the business; and (5) agreement to contribute or contributing money or property to the business. Tex. Bus. Orgs. Code ? 152.052(a). The court stated that the "most important factors" are the sharing of profits and control over the business. The court also noted that courts must examine the totality of the circumstances, that no single factor is determinative, and that the evidence in support of the factors is to be considered on a "continuum." The court discussed Box's affidavit and concluded that it was not clear whether Box formed a joint venture with the third-party investor or the Consulate or both. The court stated that the party seeking to prove the existence of a joint venture bears the burden of proof and must present evidence that both parties expressed an intent to be partners. Box did not show any expression by the Consulate of an intent to enter into a joint venture with Box. The court acknowledged that the absence of this factor was not determinative, but the court found Box failed to present evidence on the remaining factors as well. Because a joint venture between Box and the Consulate was never formed, the formation of the joint venture was not commercial activity that would except this claim from the general statutory sovereign immunity enjoyed by the Consulate, and the court was required to dismiss the claim.

Varosa Energy, Ltd. v. Tripplehorn, No. 01-12-00287-CV, 2014 W L 1004250 (Tex. App.?Houston [1st Dist.] Mar. 13, 2014, no pet. h.) (mem. op.).

The plaintiff sought to hold Tripplehorn and Aspen Development Company, LLC ("Aspen") liable on a contract executed by Rollings on the basis that Rollings and Tripplehorn, on behalf of Aspen, formed a joint venture. The court

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concluded that the evidence supported the jury's finding that the parties formed a joint venture under the judicial fourelement definition of a joint venture: (1) a community of interest; (2) an agreement to share profits; (3) an agreement to share losses; and (4) a mutual right of control or management of the enterprise. The evidence showed a community of interest because Rollings and Tripplehorn agreed that each of them would pay half the purchase price of a rig that Rollings would refurbish and to which Tripplehorn would hold title. Then the parties would find a purchaser, and Tripplehorn would convey title to the purchaser. The evidence showed an express agreement to share all profits and losses, and a sharing of control was shown by Rollings' control of the refurbishment and responsibility for purchasing and selling the equipment while Tripplehorn held title and thus controlled whether to enter into a transaction for the sale of the equipment. Although the evidence supported the finding of the existence of a joint venture, an improper judgment was not caused by the trial court's disregard of the finding because the contract entered into by Rollings was only an obligation of Rollings and not an obligation of the joint venture.

MetroplexCore, L.L.C. v. Parsons Transportation, Incorporated, 743 F.3d 964 (5th Cir. 2014). In this contracting dispute, MetroplexCore LLC ("MetroplexCore"), a Texas environmental engineering firm, sued Parsons Transportation Group, Inc. ("Parsons"), an Illinois general contracting firm that contracted with Harris County to design, build, and operate a Houston-area transit system. In an initial bid, Parsons included MetroplexCore as a "team member." Parsons did not win the bid, but several years later, after the initial contractor was unable to proceed, Harris County awarded Parsons (who had a new set of subcontractors) the contract for the remainder of the projects. After a few months, MetroplexCore notified Parsons that MetroplexCore believed it was entitled to a share of the profits. Parsons denied that it had an agreement with MetroplexCore, and MetroplexCore filed suit. In this appeal, MetroplexCore argued that the district court erred in granting Parsons' motion for summary judgment on the issue of the formation and existence of an enforceable joint venture. The court of appeals first set forth the common-law elements of a joint venture: (1) a community of interest in the venture; (2) an agreement to share profits; (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. The court cited Texas case law and the definition of a partnership in Section 152.051(b) of the Texas Business Organizations Code as authority for the commonlaw elements of a joint venture and the proposition that a joint venture is governed by the rules applicable to a partnership. The court next set forth the five statutory factors for determining whether a partnership has been created: (1) receipt or right to receive a share of profits of the business, (2) expression of intent to be partners in the business, (3) participation or right to participate in control of the business, (4) agreement to share or sharing losses of the business or liability for claims by third parties against the business; and (5) agreement to contribute or contributing money or property to the business. Tex. Bus. Orgs. Code ? 152.052(a). The court noted that the statute provides that an agreement to share losses is not necessary to create a partnership and that simply showing the right to share or sharing in gross returns or revenue is not enough by itself to show a partnership. Tex. Bus. Orgs. Code ? 152.052(b)(3), (c). The court stated that the right to share profits and control of the business are generally considered the most important factors in establishing the existence of a partnership. The court acknowledged that MetroplexCore produced evidence of a "community of interest," as defined by Texas courts, but the court stated that this factor alone was insufficient to create a partnership or joint venture. With respect to profit sharing, MetroplexCore argued that there was an agreement to share the profits in 90% and 10% shares based on a letter stating that MetroplexCore would "participate in the contract to a minimum 10% level," but the court stated that the evidence did not make it clear whether MetroplexCore was entitled to 10% of the profits or 10% of some of other feature, such as workload or management responsibility. Further, Parsons produced evidence that it had profit-sharing joint-venture agreements with other collaborators and did not have a similar contract with MetroplexCore. Even if there were a fact question on the profit-sharing element, more evidence was needed to establish the existence of a joint venture, and the court stated that MetroplexCore did not meet either of the remaining common-law elements of a joint venture and did not argue or present evidence of the other statutory factors listed in Section 152.052(a). Finally, even if the evidence could support a finding of the existence of a joint venture with respect to the first phase of the project, it did not create a genuine issue of fact as to the second phase of the project. MetroplexCore's joint venture claim was entirely premised on the second phase of the project, and the district court thus correctly granted summary judgment on the claim.

Reservoir, Inc. v. Truesdell, __ F.Supp.2d __, 2014 WL 808026 (S.D. Tex. 2014). Jarrah and Reservoir, Inc. opened a bar named "Rebels Honky Tonk" in Houston. After Jarrah leased the space for the bar, he enlisted the help of others, including Truesdell, to create and operate the bar. Jarrah and Truesdell worked together during the summer of 2009. Jarrah invested approximately $400,000, and Truesdell contributed no funds but was actively involved in developing the country-western theme for the bar. Truesdell arranged for a designer and an artist to design and paint a logo and a mural. The relationship between Jarrah and Truesdell soured when Truesdell sought a

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written partnership agreement and Jarrah declined the terms requested by Truesdell. Truesdell ceased working on the Houston bar and subsequently opened Rebels Honky Tonk bars in Austin and Oak Ridge (near Houston). Truesdell filed an application with the United States Patent and Trademark Office to register the Rebels Honky Tonk marks, and Jarrah filed this action to protect his common law rights in the marks. The first issue addressed by the court in this opinion was whether Truesdell proved that he entered into a partnership with either Jarrah or Reservoir, Inc. The court relied on the Texas Revised Partnership Act, noting in a footnote that the Texas Revised Partnership Act (TRPA) went into effect January 1, 1994, and expired January 1, 2010. [The court apparently overlooked the fact that the Texas Business Organizations Code, which went into effect January 1, 2006, governs a partnership formed on or after that date. After January 1, 2006, TRPA continued to be in effect until January 1, 2010, but only with respect to partnerships formed before January 1, 2006. In any event, there was no substantive change in the provisions relied on by the court.] The court set forth the five factors identified in TRPA as indicating a partnership: (1) receipt or right to receive a share of profits of the business; (2) expression of intent to be partners in the business; (3) participation or right to participate in control of the business; (4) sharing or agreeing to share losses of the business or liability for claims by third parties against the business; and (5) contributing or agreeing to contribute money or property to the business. Each factor is not necessary to the creation of a partnership, and Texas courts apply a "totality-of-the-circumstances" test. The party asserting the existence of a partnership bears the burden to prove a partnership was created. The court concluded that Truesdell failed to prove that he entered into a partnership with Jarrah or Reservoir, Inc., let alone a partnership permitting Truesdell to use the Rebel Honky Tonk marks. While Truesdell wanted and may have offered to enter into a partnership with Jarrah, Jarrah did not agree to the terms demanded. Truesdell offered no evidence addressing the other TRPA factors. Truesdell admitted that he did not contribute any funds or property to the Houston bar and did not agree to share losses. Thus, the court concluded that neither Jarrah nor Reservoir, Inc. formed any partnership with Truesdell or any of his entities.

Fleming & Associates, L.L.P. v. Barton, 425 S.W .3d 560 (Tex. App.?Houston [14th Dist.] 2014, pet. filed). In 2002, Johnson-Barton Joint Venture ("J&B"), a joint venture formed by lawyers Nick Johnson and Dan Barton, entered into a referral agreement with Fleming & Associates, L.L.P. ("F&A") regarding the referral of Fen-Phen cases by J&B to R&A. The letter agreement had two parts, the first addressing 224 existing cases already in J&B's offices to be forwarded to F&A, and the second addressing future Fen-Phen cases to be referred by J&B to F&A. Each part provided for the division of fees between the parties on a 50-50 basis and addressed the handling of expenses. In 2006, after F&A had favorably resolved most of the original 224 cases and an additional 1,500 cases referred to it by J&B, F&A paid J&B for most of the cases and sent a letter with a "distribution statement" explaining deductions for certain "client non-reimbursable expenses." J&B contended that these deductions were improper because the referral agreement provided that F&A would be responsible for all litigation costs on cases referred to F&A. In 2007, a subsequent dispute developed with regard to expense reimbursements and fees on cases settled after the first distribution. In 2009, Barton, his law firm, and J&B filed suit against Fleming and F&A alleging breach of the referral agreement. The trial court granted J&B summary judgment on its breach of contract claim. F&A's argument that it was entitled to judgment as a matter of law with respect to the J&B's claim under the referral agreement hinged on F&A's argument that its agreement with J&B was a joint venture in which F&A and J&B must share profits and losses equally under Texas joint venture law. F&A also argued that the referral agreement, taken as a whole, reflected the parties' intent to share expenses equally as joint venturers. F&A relied on Section 152.202(c) of the Texas Business Organizations Code (which provides that each partner is credited with an equal share of the partnership's profits and is chargeable with a share of the partnership's losses in proportion to the partner's share of the profits) as well as common law and the predecessor partnership statute for the proposition that an agreement to share losses equally is implied from an agreement to share profits equally. The court of appeals pointed out that the referral agreement only characterized the second part of the agreement (which dealt with future referrals after the initial cases referred under part one of the agreement) as a joint venture. In addition, the court stated that a joint venture is governed by the same rules as a partnership, and the partnership agreement governs the relationship of the partners with respect to most matters. The Texas Revised Partnership Act, which was in effect when the parties entered into the referral agreement, provided that an agreement to share losses was not necessary to create a partnership. Thus, the court rejected F&A's argument that J&B's interpretation placing responsibility for all litigation expenses on F&A under the terms of the agreement was "at odds with Texas statutory and common law on joint venture." Furthermore, the court said that F&A never established that the expenses deducted were attributable to the clients that J&B referred to F&A as opposed to the thousands of other clients referred to F&A from other sources. After reviewing the plain language of the contract and the description of expenses, the court of appeals concluded that the trial court properly granted summary judgment in favor J&B with respect to liability on the referral agreement.

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Eagle TX I SPE LLC v. Sharif & Munir Enterprises, Inc., Civil Action No. 3:13-cv-2365-O, 2014 W L 696523 (N.D. Tex. Feb. 24, 2014).

The plaintiff brought suit in federal court to collect on a delinquent note acquired from the FDIC as receiver of a failed bank. The defendant argued that diversity jurisdiction was lacking based on an alleged partnership between the FDIC and the plaintiff. Applying the statutory five-factor test for determining the existence of a partnership, the court concluded that the agreements entered into between the FDIC and the plaintiff's parent company resulted in a partnership between the FDIC and the plaintiff. Because the FDIC is a federally chartered corporation whose presence in a suit destroys diversity, its partnership with the plaintiff destroyed diversity in this case, and the court dismissed the suit.

When Colonial Bank failed, Branch Banking & Trust Company ("BB&T") acquired certain assets and liabilities of Colonial Bank from the FDIC as receiver pursuant to a purchase and assumption agreement ("PAA") and loss-sharing agreement ("LSA"). Included in the assets acquired by BB&T were secured notes owed by the defendants to Colonial Bank. BB&T transferred the notes and related loan documents to the plaintiff, a wholly owned subsidiary of BB&T. After the notes became delinquent, the plaintiff foreclosed on the collateral and filed this suit to collect the deficiency amounts allegedly owed on the notes. The plaintiff relied on diversity jurisdiction, and the defendants sought dismissal based on an alleged partnership between the plaintiff and the FDIC, a federally chartered corporation whose presence would destroy diversity. The defendants argued that the terms of the PAA and LSA between BB&T and the FDIC created a partnership between those parties, and the court agreed.

The court cited the definition of a partnership in the Texas Business Organizations Code (BOC) as "an association of two or more persons to carry on a business for profit as owners...regardless of whether...the persons intend to create a partnership; or...the association is called a `partnership,' `joint venture,' or other name," and the court set forth the five factors enumerated in the BOC that indicate persons have created a partnership. The five factors are: (1) receipt or right to receive a share of profits of the business; (2) expression of intent to be partners in the business; (3) participation or right to participate in control of the business; (4) agreement to share or sharing losses of the business or liability for claims by third parties against the business; and (5) agreement to contribute or contributing money or property to the business. The court noted that the most important factors are the sharing of profits and control over the business. The court also noted that courts must examine the totality of the circumstances and that no single factor is determinative.

The court next examined the relationship of BB&T and the FDIC with respect to each of the five statutory factors. Although the LSA imposed certain reimbursement requirements on the parties with respect to losses and recoveries by BB&T on the assets, the court stated that these reimbursements were not profits and there was no evidence that BB&T and the FDIC agreed to share profits. Thus, the first factor weighed against a finding that a partnership existed. The court also concluded that the evidence did not show an expression of intent to be partners. The defendants argued that an FDIC press release referring to its "loss-share partners" expressed an intent to be partners, but the court found no evidence that the FDIC was attempting to attach legal significance to the statement. Furthermore, the defendants presented no evidence that BB&T expressed an intent to be partners. Thus, this factor did not weigh in favor of finding a partnership. The court next analyzed control of the business. After reviewing the provisions of the PAA and LSA, the court found that the FDIC had the right to participate in the control of the business. The court pointed to provisions that gave the FDIC rights with respect to the books and records related to the transferred assets and provisions imposing standards on BB&T similar to a partner's statutory duties of loyalty and care. The LSA required BB&T to obtain the FDIC's approval for transactions with affiliates and prohibited BB&T from taking action with respect to related loans to the detriment of the transferred assets. The LSA also required BB&T to exercise its best business judgment and use its best efforts to maximize collections. These standards evidenced the exercise of control by the FDIC according to the court. Additionally, the court pointed to provisions of the PAA and LSA that gave the FDIC the right to exercise authority over BB&T's administration, management, and collection of the transferred assets. The court concluded that the FDIC's rights amounted to the right to make "executive decisions" as opposed to mere "input" into the operation of the business. Thus, the control factor weighed in favor of finding a partnership. The plaintiff did not challenge the defendant's contention that the purpose of the agreements between BB&T and the FDIC was to share losses associated with assets of Colonial Bank; therefore, the loss-sharing factor favored a finding of a partnership. Finally, the court concluded that the FDIC did not contribute or agree to contribute property to the business. Although only two factors weighed in favor of finding a partnership, the court concluded that the FDIC's right to participate in the control of the business and the agreement to share losses established that the parties created a partnership.

Having found that the agreements between the FDIC and BB&T created a partnership, the court proceeded to analyze whether the plaintiff, a wholly owned subsidiary of BB&T, was a partner. After acquiring assets of Colonial Bank by entering into the PAA and LSA with the FDIC, BB&T transferred all of its rights in the assets to the plaintiff, and the plaintiff assumed all of the duties and obligations of BB&T. The court noted that a person may become a partner

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