Ingram v. Deere :
Just Calling it a "Partnership"
Doesn't Make it So
On July 3, 2009, over five years after we tried the lawsuit to a Dallas jury, the Supreme Court of Texas affirmed the decision of Dallas County trial court in Ingram v. Deere, 288 S.W.3d 886 (2009). In that case, the jury had stung our client, a licensed behavioral psychologist, with five million dollars in damages which the Plaintiff psychiatrist had argued was his proper share of past and present "partnership" earnings. Essential to his position, of course, was that the jury find a partnership existed in the first place. The jury so found, and thus ensued a battle through the appellate courts that culminated in the highest court in Texas finding that the Court of Appeals got it wrong: No partnership ever existed in the first place. The Supremes reinstated the trial judge's decision, which had rejected the jury' verdict on the ground that it was against "the great weight and preponderance of the evidence."
In ruling for Dr. Ingram, the Court noted that Texas had adopted the Uniform Revised Partnership Act, effective January 1, 1994---over three years before Dr. Deere alleged a partnership was formed. The Court articulated the TRPA's definition of a partnership: it is "an association of two or more persons to carry on a business for profit as owners..." Further, it set out five factors the TRPA states should be considered in determining if a partnership was formed:
(1) receipt or right to receive a share of profits of the business;
(2) expression of an intent to be partners in the business;
(3) participation or right to participate in control of the business;
(4) sharing or agreeing to share:
(A) losses of the business; or
(B) liability for claims by third parties against the business; and
(5) contributing or agreeing to contribute money or property to the business.
Importantly, the Court stated that the intentto form a partnership is no longer essential, as it was under the old Uniform Partnership Act and at common law. Nor, it concluded, is a division of profits, although both intent and profit sharing appear in the "factors" list above. And the TRPA does not, as did the common law, require that venturers share losses to be partners. These evidentiary criteria are highly significant, because Texas common law required proof of all five of the above actors to form a partnership.
Texas finds itself in a minority among the states, joined only by Oregon in enacting a statute that deviates from the old UPA's rules for determining a partnership's existence. This "factors" approach foisted upon the Court by the TRPA, combined with Deere and Ingram's lack of an express written partnership agreement, generated a first-time opportunity for the high court to consider this issue. It states,"The question of how many of the TRPA factors are required to form a partnership is a matter of first impression for this Court."
As one might well expect, the Court eschewed a neat, mathematical approach, choosing instead to embrace the notion that "whether a partnership exists should be decided considering all of the evidence bearing on the TRPA partnership factors." Borrowing from well-established case law in the 1950's and earlier, the Court dubbed this a "totality-of-the-circumstances" test. It bastioned the legitimacy of this test by an extensive footnote citing cases from no less than 16 states, dating back to 1923. The opinion is refreshingly candid in acknowledging the difficulty of applying this new test uniformly to all fact scenarios. But it reasoned that it had little choice, since the legislature left absent form the TRPA any requirement that proof of "some or all of the factors is required to establish a partnership." Thankfully, however, the Court did provide some guidance at both ends of the spectrum by noting (1) that even conclusive proof of merely one factor would normally be insufficient to prove partnership existence; and (2) that conclusive evidence of all five factors would establish existence of a partnership as a matter of law.
The devil is, as the saying goes, in the details. Between the above two poles--- proof of one partnership "factor" and five---is a vast chasm within which courts must, as did the Ingram court, analyze each piece of evidence against the backdrop of the five factors. Thus, this writer suggests, the Court's methodology in so doing will become a template for future decisions rendered on oral partnerships or ventures where written agreement does not address all of the partnership criteria. In the fact pattern before them, the justices found that Dr. Deere met none of the five criteria. The only one he had effectively presented at trial was the income sharing issue, but the court rejected this argument by drawing a clear distinction between a mere division of gross revenues and bottom line "profits." To have held otherwise would mean that a mere royalty agreement---for example, a professional ball player's agent who gets 10% of his client's gross contract--qualifies as a partnership. The parties "share revenue", but clearly the agent neither shares in the expenses, nor bears a risk of loss. Similarly, a royalty owner in an oil and gas lease is not, absent other evidence, a "partner" with the operator or lease owner.
Thankfully for Dr. Ingram, there was spades of evidence negating all five factors. Dr. Deere had received numerous checks indicating he was paid as "contract labor", not splitting profits as a partner. He had never had access to the company checking account, nor participated in the purchase of assets. His name was not reflected in the name of the Clinic, nor the entity which owned it, and did not appear on the office lease. He never contributed any capital to the Clinic, never hired any employees, and didn't know the staff's names. There was no evidence of a loss-sharing agreement. Based on this and the lack of other evidence, the court concluded that Deere had no management or executive control. After an exhaustive analysis, the Court correctly concluded that none of the five factors had been met.
Others may not be so fortunate, or have the wherewithal to prosecute an appeal to the state's highest court. But, with the guidance provided by this opinion, they should not have to. Reduced to its lowest common denominator, the Ingram v. Deere reafffirms the old saw, "If it walks like a duck, quacks like a duck, and waddles like a duck, it must be a duck," but in reverse. If a business venture doesn't walk, quack and waddle like a partnership under the TRPA factors supported by hard evidence, then it simply is not a partnership.