An opinion that observes “Obviously the jury was not overly enamored with Appellants.” is worth discussing. The decision is Stephens et al v. Three Finger Black Shale Partnership et al.
What to know about partnerships
Parties to a transaction need to be mindful that if a business deal is a partnership, there will be rights and duties not present in arms-length commercial transactions. The main question in Stephens: Was a partnership formed by a letter agreement, a participation agreement and the actions of the parties?
A partnership is “ … an association of two or more persons to carry on a business for profit as owners regardless of whether the persons intend to create a partnership or the Association is called a partnership joint venture or other name.
Under the Business Organization Code, five factors determine whether a business venture is a partnership:
- Receipt or right to receive a share the profits
- Expression of an intent to be partners
- Participation in or right to participate in control
- Agreement to share losses or liabilities
- Agreement to contribute money.
The court looks at the totality of the circumstances to arrive at the answer. No one particular factor governs the question.
The facts and the decision
The parties are numerous, so we will name only a few. In connection with a lease play in Fisher County there was the “Alpine Letter Agreement” and a Participation Agreement and amendments (in which some parties were called “partners”). There was an original group, joined by new investors, all of whom were going to share in the proceeds of a lease sale. Devon agreed to acquire the leases, plus more acreage; Taylor applied the Devon down payment to his investment and lied about it; Paradigm and Lazy T failed to complete their funding and lied about it; some players proceeded to buy more leases to the exclusion of others and lied about it.
After a 69 page jury charge, there was a multimillion dollar judgment for actual and exemplary damages in favor of two separate groups of plaintiffs and intervenors against several groups of defendants.
In the end, the court of appeal determined that there was no evidence of a partnership, which meant that no fiduciary duty was owed by the defendants. This had a bearing on the damage awards. A judgment in favor of “Three Finger Black Shale Partnership” was reversed. The equitable remedy of disgorgement and restitution rendered by the trial court was also reversed because there was no proof of a fiduciary relationship and a breach of the duties arising from it.
The claim by the individual partners was rejected because they had elected to take the recoveries in favor of Three Finger and not themselves. A similar recovery by different players against other players was also rejected. Those parts of the case were remanded to give them another bite at the rotten apple.
See pages 11 through 17 of the opinion for the acts of the myriad parties in light of each of the factors.
See pages 7 through 10 for the differences between standing and capacity and the effect of a divorce on ownership of litigation claims.
The dishonest lawyer
See pages 20 through 26 of this never-ending opinion for lawyer Kerwin Stephens’ futile effort to wiggle out of an attorney-client relationship, how he breached his fiduciary duty to clients with whom he did business deals, and how his behavior was reprehensible enough to inspire the jury to award exemplary damages.
After remand the nefarious players might not get away with their nefarious acts … least of all the dishonest lawyer.