Texas Court Holds Limited Partners Have Individual Standing to Sue Other Partners

Austin, TX (Law Firm Newswire) June 22, 2021 – The Texas Supreme Court Reverses the Court of Appeals for the Fifth District of Texas in Important Decision Involving Business Organizations

Recently, the Texas Supreme Court issued an opinion reaffirming the court’s commitment to the reasoning behind last year’s holding in Pike v. Texas EMC Management, LLC. The issue presented by Pike and the recent case, Cooke v. Karlseng, is whether a limited partner can sue another limited partner in his individual capacity or whether the partner’s claims can only be brought on behalf of the partnership.

A Quick Summary of the Important Facts

According to the court’s opinion, Cooke formed a limited partnership with several others. In 2006, Cooke sued several other partners, claiming that they used assets from the partnership to open up a new business without compensating him. The case proceeded to arbitration, which resulted in a judgment in Cooke’s favor. For unrelated procedural reasons, the judgment was subsequently reversed.

In the coming years, Cooke added other claims against the original defendants. Some of these claims were derivative claims, brought on behalf of the original partnership he had with the defendants.

The Defendants’ Claims

The defendants sought dismissal of Cooke’s original and amended claims. The defendants’ argument was two-fold. First, Cooke did not have standing or the legal ability to assert a claim against the defendants in his individual capacity. The defendants then argued that because Cooke lacked standing to bring his initial claims, his subsequently filed derivative claims were untimely because they could not relate back to the original action.

The trial court rejected the defendants’ argument; however, on appeal to the Court of Appeals for the Fifth District, the court reversed the trial court’s decision. The Court of Appeals adopted the defendants’ position that Cooke lacked standing to bring the claims on his own behalf, and, as a result, the derivative claims were untimely. Cooke appealed to the Texas Supreme Court.

The Texas Supreme Court’s Opinion

After the Court of Appeals issued its decision, the Texas Supreme Court decided Pike v. Texas EMC Management, LLC. In Pike, the court held that a limited partner could bring a claim against other partners on his own behalf. In light of this recent decision, the Texas Supreme Court reversed the Court of Appeals’ decision, finding that Cooke had standing to bring his initial claims against the defendants. The court declined to rule on the remaining issues and instead remanded the case back to the Court of Appeals so that that court could issue a ruling on those issues.

As Austin business law attorney Gregory D. Jordan, explains “the Cooke case solidifies the current state of Texas law as it pertains to a limited partner’s ability to sue other partners in their individual capacity. Had the Texas Supreme Court had any doubt about its decision in the Pike case, this case would have allowed the court to reverse its course.”

At the Law Offices of Gregory D. Jordan, Attorney Jordan represents businesses in all types of Texas contractual disputes and other business-related issues. Attorney Jordan has over 30 years of relevant experience helping businesses confront the legal issues they are facing throughout Travis County and Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.