Dowd v. Dowd Holdings, Inc. (Cir. Ct. Mont. County)

Filed: July 12, 2010
Opinion by Judge Ronald Rubin

Held:

1. Absent an agreement to the contrary, a partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership. Thus, the corporate general partner of a limited partnership is not entitled to a fee for managing the partnership’s business or disposing of its assets in the ordinary course of the partnership’s business.

2. Payments to the officers of the corporate general partner for services to the partnership are, de facto, payments to the corporate general partner.

3. A provision of the partnership agreement that requires that the partnership to indemnify the general partners for any claim arising out of the conduct of the partnership’s business, as long as they acted within the scope of their authority and in good faith does not insulate the corporate general partner from suit by a limited partner for breach of its contractual obligations under the partnership agreement.

4. In addition to damages, the plaintiff limited partners are also entitled to an award of prejudgment interest.

Facts:

The limited partnership was formed to own, operate, and ultimately sell an 82 acre investment property. After the sale, the corporate general partner withheld $427,250.00 of the proceeds from the sale to pay two of its officers for their efforts in selling the property. The limited partners sued for breach of contract, the contract being the partnership agreement. There was no contract between the corporate general partner and the partnership to pay compensation to the general partner for services rendered to the partnership.

Analysis:

This appears to be an instance where the corporate general partner attempted to "double dip." That is, the general partner attempted to take its share of partnership profits but, off the top, skim various fees allegedly incurred for services for the benefit of the partnership.

Practice Pointer:

If the intent of the parties is to merely split profits, the partnership agreement should have a provision that allows the entity to contract with affiliates of general partners or, in the case of an LLC, the managing members, only if the other partners or members agree. Alternatively, as is often the case, if it is actually intended that the business will contract with a partner or member, either the term of the contract should be agreed upon or the manner in which the terms are determined should be agreed upon.

A copy of the opinion is available in both PDF and Word.