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Texas High Court Extends Limitations Period for Unpaid Partnership Liabilities

The Texas Supreme Court recently held that the limitations period on a partner’s liability for unpaid partnership liabilities does not begin to run until after judgment has been entered against the partnership, an event that took over a decade in that case and could easily take that long in other complex civil cases.  American Star Energy & Minerals Corp. v. Stowers.

The plaintiff, American Star, filed the underlying suit against a general partnership formed to invest in and manage oil and gas properties. The suit was filed during the first Clinton Administration. After trial, there was an appeal that resulted in reversal shortly after 9/11. The trial court entered a second judgment, which was appealed and ultimately affirmed the same month that Barack Obama received his first nomination. But by that time, the partnership was insolvent and did not pay the $227,884.46 judgment.

American Star then sued the partners, who argued that the claims against them were barred by limitations. The trial court and Amarillo court of appeals agreed, but the Supreme Court did not. The Texas Supreme Court reversed, holding that the limitations period against an individual partner does not begin to run until: (1) there is a final judgment against the partnership; and (2) the creditor has been unsuccessful in obtaining satisfaction from the partnership for 90 days following entry of the judgment.

The Court relied on language in the Texas Revised Partnership Act to the effect that a partnership is “an entity distinct from its partners” that can enter into contracts and be sued in its own name. And, while partners are “jointly and severally liable for all obligations of the partnership,” a judgment creditor “may not … seek judgment against a partner until a judgment is rendered against the partnership” and the judgment remains unsatisfied for 90 days. Thus, Justice Brown, writing for the Court, concluded that a creditor’s claim against the individual partners accrues after the expiration of the 90 day satisfaction period.

Although American Star could have joined the partners in the original suit against the partnership, it would not have changed when American Star could have pursued the assets of the partners directly. Under the Act, the partners' assets are off limits until the partnership fails to pay. For this reason, the claim against the partners was not barred by the general rule that limitations accrues at the time a lawsuit “first can be brought.”

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume V, Number 69
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