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Volume XII, Number 230

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Partner Had Capacity To Sue Other Partner For Breach Of Fiduciary Duty

In Power v. Power, one brother sued the other brother for breach of fiduciary duty related to their partnership in real estate investing. No. 05-19-01557-CV, 2022 Tex. App. LEXIS 2926 (Tex. App.—Dallas May 3, 2022, no pet. history). The trial court found for the plaintiff, and the defendant appealed. The court first addressed whether the plaintiff had standing to sue in his individual capacity (and not on behalf of the partnership):

“Whether a claim brought by a partner actually belongs to the partnership is . . . a matter of capacity because it is a challenge to the partner’s legal authority to bring the suit.” Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 779 (Tex. 2020). Section 152.210 of the Texas Business Organizations Code provides that one partner is liable to other partners for violating a duty to the other partners that causes harm to the other partners. Tex. Bus. Orgs. Code § 152.210(2). A partner owes other partners a duty of care. See id. § 152.204(a)(2). A partner’s duty of care to other partners “is to act in the conduct and winding up of the partnership business with the care an ordinarily prudent person would exercise in similar circumstances.” Id. § 152.206(a). A partner shall discharge his duties to the partnership and other partners in good faith and in a manner the partner reasonably believes to be in the best interest of the partnership. Id. § 152.204(a), (b). Section 152.211 delineates the authority of partners and partnerships to bring claims and seek various remedies. Pike, 610 S.W.3d at 779-80. Section 152.211 provides that one partner “may maintain an action against . . . another partner for legal or equitable relief” to, among other things, enforce a partner’s rights under Sections 152.204 and 152.206 and to “enforce the rights and otherwise protect the interests of the partner, including rights and interests arising independently of the partnership relationship.” See Tex. Bus. Orgs. Code § 152.211(b)(2)(A), (b)(3).

The jury found Craig and Braden created a partnership to purchase, develop, and sell properties. Craig does not challenge this finding and, thus, it is binding on this Court… As a partner, Craig owed a duty of care to Braden, see TEX. BUS. ORGS. CODE § 152.206(a), and was required to discharge his duties to Braden in good faith, see id. § 152.204(a), (b). The business organizations code allowed Braden to maintain an action against Craig for relief from Craig’s violations, if any, of these duties and to enforce and protect his interest as a partner. Braden did just that. Braden in his individual capacity sued Craig in his individual capacity for breach of fiduciary duty, fraud, fraud by non-disclosure, statutory fraud, and civil theft alleging Braden was injured by Craig’s actions. Braden produced evidence showing that Craig failed to pay Braden his proportionate share of profits generated by the partnership and made false representations to Braden about the financial condition of their businesses. In doing so, Craig breached his duty of care to Braden and caused injury to Braden. Braden’s alleged damages were suffered by him personally rather than by the partnership. Thus, Braden had capacity to assert the claims he did. We note that Braden did not claim, for example, that Craig’s actions reduced the value of the partnership or devalued his ownership interest, which would be an injury to the partnership. Rather, he contended Craig hid assets from him and failed to pay him his share of the partnership profits. Any recovery Braden sought was not a partnership asset; it was his individual share of the partnership assets that Craig allegedly took and to which Braden personally was entitled.

Id. The court then affirmed the jury’s finding on when the plaintiff should have discovered the wrongful conduct, which was inside the limitations period. The court then reversed the judgment on the basis of a spoliation instruction in the charge. The court remanded for a new trial.

© 2022 Winstead PC.National Law Review, Volume XII, Number 178
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About this Author

David Johnson Financial Institution lLtigation Winstead Law Firm Fort Worth Texas
Managing Shareholder - Fort Worth

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the Texas Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. 

David's financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class...

817.420.8223
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