A Partnership is a Party to the Partnership Agreement

A Partnership is a Party to the Partnership Agreement

      A recent decision out of Texas has examined whether a partnership, as distinct from each of the individual partners, is a party to the partnership agreement, finding the answer to be “yes.”  Elkjer v. Scheef & Stone, L.L.P., 2014 WL 1255844 (N.D. Tex. March 27, 2014).

      Kimberly Elkjer was a partner in Scheef & Stone, L.L.P., a law firm, it being organized under Texas law.  She brought claims of gender discrimination under Texas and federal law against the firm.  On the basis of federal question jurisdiction the firm removed the case to federal court, and then the firm sought to stay the case and an order compelling arbitration as provided in the partnership agreement.  Elkjer contested the arbitrability of her claims on several grounds including that the partnership is not a party to the partnership agreement and is therefore not a party to the arbitration clauses therein; hence there was no agreement to arbitrate.

      Disposing of her argument, the Court wrote:

The Court recognizes that Defendant is not a signatory to the Partnership Agreement, but the Court does not find this fatal. This Partnership Agreement is a master agreement of sorts that created an ongoing relationship between the Partners but also between the Partners and the Partnership. The Partnership Agreement addresses much more than just her relationship with the other Partners. It governs the very existence and operation of the limited liability partnership that is Defendant, as well as the terms and conditions of Plaintiff's employment with Defendant. Section 152.002(a) of the Texas Business Organization Code states, “[e]xcept as provided by Subsection (b), a partnership agreement governs the relations of the partners and between the partners and the partnership.” TEX. BUS. ORG. CODE § 152.002(a) (West 2012) (emphasis added). None of the exceptions set forth in subsection (b) apply to this Partnership Agreement, and Plaintiff makes no argument to that effect. The Court reads this statutory language to encompass the partnership, here Defendant, as a party to the Partnership Agreement. The Court could find no statutory requirement that Defendant must sign the Partnership Agreement in order for Section 152.002(a) to apply, and Plaintiff did not provide any such citation. 2014 WL 1255844, *4.

      The Court would determine that Elkjer’s claims were otherwise arbitrable (e.g., there is nothing about a claim under Title VII that precludes its resolution by arbitration).

      There should be no dispute under Kentucky law that the partnership is itself a party to the partnership agreement.  The Kentucky Revised Uniform Partnership Act (2006) provides that “relations among the partners and between the partners and the partnership are governed by the partnership agreement.”  KRS § 362.1-103(1).  Obviously this language is equivalent to that relied upon by the Elkjer court.  Further, the partnership act permits the partnership to seek a partner’s expulsion based upon the partner’s breach of the partnership agreement.  KRS § 362.1-601(5).  It would be most curious if the partnership could bring an action based upon violation of an agreement to which it is not a party.