The Texas Supreme Court has provided clarity on the fiduciary duties between business partners, particularly in the context of limited partnerships. The case, Bertucci v. Watkins, involved a dispute between two business partners, Anthony R. Bertucci and Eugene L. Watkins, who were engaged in developing low-income housing projects through various entities they co-owned. Bertucci’s estate contended that Watkins had not properly managed or distributed the partnership’s funds and instead had diverted funds for his own personal use.
Clarification on Fiduciary Duties
The Court’s opinion, delivered by Justice Jeffrey S. Boyd, addressed the complex issue of whether a limited partner can assume fiduciary duties to other limited partners by acting as a general partner. Bertucci’s estate argued that Watkins owed fiduciary duties directly to Bertucci as an individual partner. In response, Watkins countered that fiduciary duties were only owed to the partnership.
The Court explained that limited partners generally do not owe each other fiduciary duties. However, the Court expressly declined to make a broad ruling on this matter, stating, “We need not decide here whether, as a general matter, a limited partner may assume fiduciary duties to other limited partners by acting as a general partner.”
Role of Limited Partners
The court emphasized that any fiduciary duty a limited partner could owe to another limited partner would have to be based on actions outside the realm of the limited partner’s position. The opinion explained, “Any fiduciary duty a limited partner could owe to another limited partner would at least have to be based on actions that are not within the realm of the limited partner’s position.”
Bertucci had argued that Watkins misappropriated funds not in his capacity as a limited partner but as the “managing, operational, and accounting partner.” The Court clarified that, “A partner who describes himself as a ‘managing’ or ‘operational’ partner to a third party is not necessarily assuming the legal role of managing partner.”
Conclusion
The Texas Supreme Court’s decision in Bertucci v. Watkins provides important guidance on the fiduciary duties between business partners, particularly in the context of limited partnerships. By focusing on the derivative claims and clarifying the conditions under which fiduciary duties may arise, the court has set a precedent that will influence future disputes involving business partners in Texas.
