In Adam v. Marcos, an attorney and his client agreed to a joint venture/partnership. No. 14-18-00450-CV, 2021 Tex. App. LEXIS 2060 (Tex. App.—Houston March 18, 2021, no pet. history). The attorney sued the client for breaching the agreement. The trial court ruled for the client on the attorney’s breach of the partnership agreement claim and a breach of fiduciary duty claim. The court of appeals affirmed. The court of appeals first held that the partnership agreement was presumptively invalid because the attorney owed fiduciary duties to the client when it was entered into:

Contracts between attorneys and their clients negotiated during the existence of the attorney-client relationship are closely scrutinized. Because the relationship is fiduciary in nature, there is a presumption of unfairness or invalidity attaching to such contracts. The burden is on the attorney to prove the fairness and reasonableness of the agreement. Moreover, as a fiduciary, Marcos had the burden to establish that Adam was informed of all material facts relating to the agreement. Additional important factors in determining the fairness of a transaction involving a fiduciary include whether the consideration was adequate and whether the beneficiary obtained independent advice.

Id. The court of appeals held that the jury’s finding of breach of duty by the attorney supported invalidating the partnership agreement: “Because the jury found that Marcos failed to fulfill his fiduciary duties to Adam in regard to the alleged partnership agreement, and the evidence supports that finding, the presumption that the contract was invalid applies. Thus, the trial court did not err in holding the agreement was invalid and unenforceable.” Id.
Continue Reading Business Divorce: Partnership Agreement Was Invalid Where It Was Entered Into Between A Fiduciary And Principal And Was Otherwise Unfair And The Principal Did Not Owe Fiduciary Duties As A Partner Where There Was No Enforceable Partnership

In TSA-Tex. Surgical Assocs., L.L.P. v. Vargas, one partner sued his other partners for various claims regarding the defendants attempt to squeeze the plaintiff out of the partnership. No. 14-19-00135-CV, 2021 Tex. App. LEXIS 1330 (Tex. App.—Houston [14th Dist.] February 25, 2021, no pet. history). The defendants filed a motion to dismiss under the Texas Citizens Participation Act (TCPA), and the trial court denied the motion. The defendants appealed.

Selected by Texas Bar Today as a “Top 10 Blog Post”

The TCPA was enacted “to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury.” Id. (citing Tex. Civ. Prac. & Rem. Code § 27.002). It does so by authorizing a party to file a motion to dismiss a legal action that “is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association.” Id.

The court of appeals affirmed the denial of the motion to dismiss under the TCPA. The defendants argued that the plaintiff’s claims were based on, related to, or in response to the exercise of free speech because the claims purportedly involve communications regarding the provision of medical services. The court of appeals disagreed:
Continue Reading Business Divorce: Court Affirms Denial Of SLAPP Motion Regarding Partnership Divorce Suit

Parties often begin a business together without thinking through all of the legal details that define their rights. When they eventually divorce, they need to resort to the language in agreements that they entered into and also rely on statutory and common-law principles. In one recent case, the court held that the parties’ agreement’s language

Parties often begin a business together without thinking through all of the legal details that define their rights. When they eventually divorce, they need to resort to the language in agreements that they entered into and also rely on statutory and common-law principles. In one recent case, the court held that the parties’ agreement’s language on the requirements for the formation of a partnership will trump other legal theories.
Continue Reading Business Divorce: Court Held That Parties Did Not Form A Partnership Where Certain Express Conditions Precedent Were Not Met

A business divorce may mean that the owners need to sell the business or the business’s assets. In the following case, some of the owners/officers took advantage of a sale transaction to benefit from that transaction at the expense of their co-owners. In Rex Performance Prods., LLC v. Tate, a company sued its former officers for breaching fiduciary duties related to the sale of the company’s assets. No. 02-20-00009-CV, 2020 Tex. App. LEXIS 10465 (Tex. App.—Fort Worth December 31, 2020, no pet.). The company alleged that the officers intentionally drove down the price of the sale in order to obtain a separate bonus from the buyer. The defendants alleged that the plaintiff knew of the side bonus agreement and consummated the transaction anyway, thereby establishing a waiver or ratification. The trial court granted summary judgment for the defendants, and the plaintiff appealed.
Continue Reading Business Divorce: Court Found That There Was A Fact Question On Whether Officers Violated Fiduciary Duties By Obtaining A Side Bonus From A Purchaser When Negotiating A Sale Of The Company’s Assets

In Gray vs. Ward, Ward and Gray started a limited partnership where Ward was a limited partner and Gray was a limited partner and the manager of the general partner. No. 05-18-00266-CV, 2019 Tex. App. LEXIS 6992 (Tex. App.—Dallas August 9, 2019, no pet.). Ward was also an employee of the partnership, but there was no written employment agreement. Ward wanted to exit the relationship, and the parties had a dispute concerning the amount to buy him out. Ward alleged that Gray fired him, but told employees that Ward resigned. Ward sued Gray and the general partner for breach of contract and fiduciary duties arising out of the buy-out of his interests, wrongful termination related to his firing, and defamation. Gray filed a motion to compel arbitration due to the following arbitration clause in the partnership agreement:

Continue Reading Texas Court Compels A Limited Partner’s Employment And Defamation Claims To Arbitration Due To The Partnership Agreement’s Arbitration Clause