Week 5 Case Study McBeth V. Carpenter
By: Carolyn Crump
Issue - Whether or not a general partner has a fiduciary duty to limited liability partners and the extent of that duty? The suit alleged common law and statutory fraud, negligent misrepresentation, conversion, and breach of contract.
Rule of Law – In a limited partnership, a general partner assumes responsibility for the management of the partnership and liability for all partnership debts.
Analysis - In 2004, Carpenter entered into a contract with Austin Estates, L.P. (“Austin Estates”) for the purchase of property in Travis County, Texas. Unable to raise the necessary funds to complete the transaction, Carpenter contacted McBeth and her then-husband, Reynolds, seeking to interest them in making an investment in the proposed purchase. During these discussions, Carpenter made various representations regarding the property. The statements which later became the focus of litigation concerned the status of certain water entitlements accruing on the land. Carpenter informed the Plaintiffs that disputes had arisen with the City of Austin regarding water and wastewater services available to the property. A similar dispute had prevented the previous buyer from closing on the property. Nevertheless, Carpenter assured the Plaintiffs that these water service conflicts would not be a significant obstacle to the purchase. Carpenter also set forth his interest in entering into a partnership agreement to purchase, develop, and sell the Travis County property, and the investment opportunities involved in the transaction. Based on these representations, on May 3, 2004, McBeth, Reynolds, and Carpenter executed a written agreement (“May agreement”). The May agreement provided that McBeth and Reynolds would supply the earnest money to hold open the property purchase option, use their best efforts to obtain a loan for the transaction, and enter into a limited partnership with Carpenter...