Thursday, February 14, 2013

Gateway Potato Sales v. G.B. Investment Co. case brief

Gateway Potato Sales v. G.B. Investment Co. case brief summary
170 Ariz. 13

SYNOPSIS: Appellant creditor sought review of a decision by the Superior Court of Maricopa County (Arizona), which granted summary judgment in favor of appellee, a limited partner of defendant debtor. The creditor argued that the limited partner was liable to the creditor beyond the extent of its investment pursuant to Ariz. Rev. Stat. Ann. § 29-319.


-The creditor sold goods on credit to the debtor, a limited partnership. 
-When the debtor defaulted, the creditor sought recovery from the limited partner. 
-The limited partner was granted summary judgment on the grounds that under Ariz. Rev. Stat. Ann. § 29-319(a) it was not liable for the debts of the debtor beyond the extent of its investment. 

-On appeal, the court noted that the creditor had produced an affidavit by the debtor's president describing several ways in which the limited partner exercised control over the operation of the partnership, some of which did not fall within the protected areas listed in § 29-319(b), the "safe harbor" provision of the limited partner liability statute, Ariz. Rev. Stat. Ann. § 29-319. 


The court held that § 29-319 imposed liability on a limited partner whenever the limited partner exercised substantially the same control as a general partner, even if the creditor had no contact with the limited partner and no knowledge of the limited partner's control, and that the affidavit raised substantial issues of material fact sufficient to entitle the creditor to a trial.

-A limited partner may become liable for the obligations of the limited partnership under certain circumstances in which the limited partner has taken part in the control of the business.
-If the control of the limited partner is substantially the same as control by the general partner, the limited partner may be held liable beyond his investment even if he had no contract with the creditor.

OUTCOME: The court reversed the grant of summary judgment in favor of the limited partner.

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