Joint Venture Partners can be Legally Liable for an Obligation of the Joint Venture
A recent case from the US District Court in San Francisco held that the partners of a joint venture agreement could be held liable for the debts and obligations of the joint venture and could be sued as part of the action against the joint venture. Under California law, joint ventures are treated the same — legally speaking — as general partnerships. Thus, in general, the California Uniform Partnership Act of 1994 is the applicable governing statute. Section 16306 states that “all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.” See Cal. Corp. Code § 16306(a). For purposes of the statute, the signatories to a joint venture agreement are partners. The concept of “jointly and severally” means that each partner can be held liable individually for the whole of the debt/obligation owed.
What was murky under the law was whether the partners to a joint venture agreement could be sued in the same lawsuit against the joint venture. The court answered “yes.” See Fisk Elec. Co. v. Webcor Builders, Inc., Case No. 18-cv-07671-EMC (US Dist. N.D. Cal. March 27, 2019) (note that Webcor Builders, Inc. was incorrectly sued; it should have been Webcor Construction, L.P.). In that case, Webcor Construction L.P. (“Webcor”) and Obayashi Corporation entered into a joint venture agreement, the Webcor/Obayashi Joint Venture (“WO Joint Venture”). The WO Joint Venture entered into various building and construction contracts, including one with Fisk Electric Company. The WO Joint Venture fell behind in its payments and other disputes arose with Fisk. Fisk eventually sued claiming breach of contract and violation of California’s prompt payment statutes. Fisk sued WO Joint Venture and also the two partners of the joint venture.
In response, the two partners sought dismissal from the suit claiming that a lawsuit against them was premature. They argued that they could be sued only in a separate proceeding after the joint venture was held to be liable and the assets of the joint venture are not enough to satisfy its liability to the plaintiff. Under California law, partners only become liable if there are not enough assets in the partnership to satisfy a judgment, debt, or obligation.
As noted above, the judge ruled against the partners. The court held that it was “appropriate” for the plaintiff, Fisk, to sue the partners, Webcor and Obayashi, as defendants to the breach-of-contract claim and the claim for violation of prompt-payment statute based on the joint-and-several liability theory. However, the court did require precise pleadings whereby Fisk would make it clear that the partners were being sued as partners and under the Uniform Partnership Act.
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If you would like more information about joint ventures, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.