Gateway Potato Sales v. G.B. Inv. Co.

170 Ariz. 137, 822 P.2d 490 (Ct. App. 1991)

 

RULE:

Where activities do not fall within the "safe harbor" of Ariz. Rev. Stat. Ann. § 29-319(b), it is necessary for a court to determine whether such activities amount to "control." In the absence of actual knowledge of the limited partner's participation in the control of the partnership business, there must be evidence from which a trier-of-fact might find not only control, but control that is substantially the same as the exercise of powers of a general partner. 

FACTS:

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 the limited partner was not liable for the debts of the debtor beyond the extent of its investment. The case was appealed.

ISSUE:

Is the limited partner liable to the creditor beyond the extent of its investment?

ANSWER:

Yes

CONCLUSION:

The court reversed the grant of summary judgment in favor of the limited partner. 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 the "safe harbor" provision of the limited partner liability statute 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.

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