FAILURE TO OBSERVE LIMITED PARTENERSHIP FORMALITES MEANT ENTITY TREATED AS GENERAL PARTENERSHIP AND HAS PERSONAL LIABILITY
The parties did not observe formalities regarding the entities involves in their brewery operation, so the court held defendant was personally liable for the value of plaintiff’s interest.
The parties entered into an agreement for the operation of a brewery. The written agreement provided that plaintiff was a 12 percent limited partner and defendant was an 87 percent limited partner. The remaining one percent interest belonged to a corporation known as Battlefield Brew Works, Inc., which was listed as the general partner of the brewing operation. The articles of incorporation for Battlefield identified defendant as the sole shareholder, as well as the president, treasurer and secretary. The parties had an understanding that plaintiff would oversee the brewing and restaurant operations, and defendant would handle the financial side.
Although plaintiff did not make a financial investment in the partnership, he testified that his contribution to the business consisted of sweat equity. Plaintiff expected that his share in the partnership would increase with these contributions. Tax returns corroborated this understanding. In 2015, the parties’ business relationship deteriorated and defendant brought on an additional partner to take over the day-to-day responsibilities of the brewery. Plaintiff tendered his resignation in October 2016 and he was removed as a partner. He filed this lawsuit to obtain judgment for the value of his partnership interest. The court entered judgment in favor of plaintiff for $31, 000 in damages, and defendant filed a post-trial motion in which he argued that the court improperly awarded judgment against him personally.
Defendant insist that he was a limited partner so he was not personal responsible for the debts of the partnership. He relied on 15 Pa. C.S.A. 8633 in support of his protected status. At the bench trial, neither party presented any evidence that they had filed a certificate of limited partnership with the Pennsylvania Department of State, as required by 15 Pa. C.S.A 8621(a). The court held that protections offered by 8633 only applied when a certificate of limited partnership had been properly filed with the state. The lack of such a filing here meant that the entity had to be treated as a general partnership. In re Selheimer & Co, 315 B.R. 384
The evidence supported the conclusion that the parties operated the business as a general partnership with defendant as the general partner. None of the tax documents reflected the existence of Battlefield as general partner. Defendant had executed the partnership documents and tax information individually and as a partner. Therefore, the court held defendant was personally liable for the obligations of the business.
Defendant also objected to the amount of damages. The court noted that this had been a loosely managed business and the testimony was inconsistent and sometimes self-serving. However credible evidence regarding the actual value of the partnership inventory and equipment existed, so the court was able to base its calculation of plaintiff’s interest on that, minus the outstanding liabilities. Plaintiff had worked in the brewery business without pay, so the court concluded the amount of the judgment was reasonable
.
RE: Digest of Recent Opinions, Pennsylvania Law Weekly, Kulick v. Lemley, PICS Case No. 20-1091 (C.P. Adams, august 19, 2020
Kindly visit our Business Planning/Law and Business & Commercial Litigation website or contact one of our Business Litigation Attorneys, Philadelphia or Business Law Attorney, Philadelphia for more information on this topic.