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Volume 46, Issue No. 2 (Spring, 2015)

In Life Partners, Inc. v. Arnold, the Texas Supreme Court (the Court) addressed the issue of whether “life settlement agreements” are securities under the Texas Securities Act and thus subject to the Act’s registration and disclosure requirements. Holding that the transactions at issue are in fact “investment contracts,” and thus “securities,” under the Texas Securities Act, the Court solidified important protections for the investing public and rejoined the vast majority of States in interpreting securities regulations broadly so as to maximize the protection provided to investors. After briefly summarizing the law and facts at issue, this article discusses the Court’s reasoning and analysis in Life Partners and attempts to address some potential impacts of the Court’s decision.

Directors owe fiduciary duties to a corporation on whose Board of Directors (“Board”) they serve and effectively to all of its stockholders. The fiduciary duty of loyalty dictates that directors act in good faith and not allow their personal interests to prevail over those of the corporation. Thus, a director may not use confidential company information, or disclose it to third parties, for personal gain without authorization from his fellow directors. This principle is often memorialized in corporate policies.

In Exxon Mobil Corp. v. Drennan, the Supreme Court of Texas reversed the court of appeals’ judgment in favor of a former executive, William Drennan, III, (“Drennan”) and rendered a judgment for Exxon Mobil (“Exxon”). The dispute between the parties arose from an executive compensation plan, which included a contractual choice-of-law provision designating that New York law would apply as well as a provision for forfeiture of the executive’s bonus awards in the event he engaged in “detrimental activity.” The Court concluded that Exxon’s basis for choosing New York law, the goal of uniformity, was logical and reasonable, both Texas and New York bear some relationship to the parties and the transaction, the forfeiture provision was not a covenant not to compete, and that, under Texas law, application of New York law would not contravene Texas policy; thus, the Court was bound to enforce the contractual choice-of-law provision and apply New York Law. New York permits enforcement of similar detrimental-activity provisions to employment contracts, so the provision would be enforced without regard to whether Texas law would permit such

Partnership law from the beginning contained provisions implementing what has come to be known as the “pick your partner” principle, reflecting the early development of the partnership law provision that admission of a partner to a partnership requires unanimous consent of the partners. As limited partnership and limited liability company statutes developed, the pick your partner principle was embodied in those statutes. The Colorado, Delaware, and Texas limited liability company statutes provide that the interest a member has in a limited liability company is personal property and, subject to agreement, may be assigned. These same provisions, however, also state that, absent agreement otherwise, the assignee only receives the assignor’s rights to profits and losses and distributions and does not receive any rights to participate in management.

In this case, a judgment creditor sought to collect the judgment from individual partners after the insolvent partnership judgment debtor could not pay. The trial court found that American Star’s claim was precluded by the statute of limitations, and the Amarillo Court of Appeals affirmed. The issue in this review is “whether Texas Partnership law requires a plaintiff seeking to enforce a partner’s liability for a partnership debt to sue the partner within the limitations period on the underlying claim against the partnership.” The Supreme Court holds that the limitations period against an individual partner does not begin until the final judgment against the partnership is entered.

This article summarizes several pieces of legislation passed by the Texas Legislature in its 2015 Regular Session that amend primarily the Texas Business Organizations Code (the “Code”). Senate Bill No. 859 (S.B. 859) was authored by Senator Kevin Eltife, sponsored by Representative Rene Oliveira, and became effective on September 1, 2015, with portions becoming effective on January 1, 2016. S.B. 859 makes several technical and substantive amendments to the Code relating to partnerships and limited liability companies.

As the era of failed law firms, both large and small, continues,1 so does debate as to the Unfinished Business Doctrine as most famously embodied in Jewel v. Boxer. Notwithstanding its general acceptance over the last 30 years, it was recently rejected in New York. Demonstrating that New York was not setting a contrary trend, the Colorado Supreme Court subsequently affirmed the doctrine. This uncertainty as to the doctrine’s application mandates that law and other professional firms consider and address the doctrine in their organizational agreements. Failure to do so only increases the likelihood of disputes, the expense of dispute resolution, and perhaps surprise as to the ultimate determination as to whether and how it should apply to a particular firm.