American Star Energy and Minerals Corp. v. Stowers
Supreme Court of Texas, No. 13-0484 (February 27, 2015)
Justice Brown (Opinion)
Relying heavily on the “entity theory of partnership” embodied in the Texas Revised Partnership Act, the Texas Supreme Court held the limitations clock for claims against individual partners based on a partnership liability begins to run only after judgment is final and enforceable against the partnership. Under the TRPA, partners are “jointly and severally liable for all obligations of the partnership.” But “judgment against a partnership is not by itself a judgment against a partner”; and so a creditor must also obtain a judgment against the partner individually in order to collect from him or her for a partnership liability. Even though the TRPA allows individual partners to be sued in the primary lawsuit along with the partnership, the Supreme Court concluded the cause of action against them doesn’t accrue, for limitations purposes, until after final judgment has been obtained against the partnership and there’s been an opportunity to enforce that judgment against partnership assets. In so doing, the Court agreed with the Fifth Circuit’s 2010 disposition of this same issue in Evanston Insurance Co. v. Dillard Department Stores, but diverged from the decisions of several Texas courts of appeals that had addressed the question largely in the context of the predecessor to the TRPA.
American Star secured a judgment against a partnership, S & J Investments, on a contract debt. But the case went up and down through the appellate courts for several years before that judgment became final and enforceable. At that point, American Star found S & J’s assets weren’t sufficient to satisfy the judgment. So, it sued the individual partners. They sought summary judgment, arguing the lawsuit came well after expiration of the four-year statute of limitations. The trial court granted summary judgment to the partners, and a divided court of appeals affirmed. The Supreme Court, however, disagreed and reversed.
The Court began by observing that “enforcement of a partner’s liability is considered the most confusing aspect of partnership law.” Winding its way through the various provisions of the TRPA, and stressing that Act’s “partnership-as-entity” focus, the Court characterized an individual partner’s obligation to satisfy partnership debt as both derivative and contingent—(i) derivative, in that the partner’s liability is wholly dependent on the partnership’s liability, and (ii) contingent, in that under the TRPA a partner is obligated to satisfy a judgment against the partnership “generally only after the partnership fails to do so.” Specifically, TRPA § 152.306(b) provides that a judgment creditor “may proceed against one or more partners or [their] property” only after final judgment has been obtained against the partnership and (with limited exceptions, such as the partnership’s being in bankruptcy), that judgment has remained unsatisfied for at least 90 days.
Noting that the TRPA authorizes a partnership creditor to sue the individual partners in the original action along with the partnership—something American Star did not do here—the partners and the court of appeals invoked the Supreme Court’s 1945 decision in Luling Oil & Gas that “whenever one person may sue another[,] a cause of action has accrued.” Therefore, the partners argued, American Star’s claims against them accrued here at the same time as its claims against the partnership. The Supreme Court, however, explained that the rule in Luling was not “universal”—alluding, for example, to indemnity claims—and rejected its application here.
Neither the TRPA nor the various limitations statutes clearly establish when the cause of action accrues against an individual partner for partnership obligations. But “[i]n light of a partnership’s status as a separate entity and the statutory prerequisites to proceeding against a partner, [the Court held] that the cause of action against a partner does not accrue until a creditor can proceed against a partner’s assets—that is, generally at the expiration of the ninety-day satisfaction period” after final judgment against the partnership itself.
