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A Texas Lottery Club Dodges Being Considered a General Partnership

On Behalf of | Aug 2, 2016 | Business Management, Partnerships, Texas Law Update, Uncategorized

In our previous blog series on general partnership, we talked about what general partnership is, how it is formed, and why it is important for business owners to know about it.  We mentioned that one of the most peculiar features of a general partnership is that it can be formed inadvertently and that, once formed, each partner is personally liable for the partnership’s obligations.  In a subsequent blog series “Can I Be Held Liable as Partner When in Fact I am Not?”, we delved a little deeper and looked at situations where someone who is not a partner in a general partnership may be held liable to a third party.  Although the so-called partnership by estoppel can arise in certain limited situations, as we explained, it is usually not the label, but the parties’ intent, that controls the question of whether there is a general partnership.  Domingo v. Skidmore is a cautionary tale of how this can play out in real life.[1]

In Domingo v. Skidmore, Domingo and Mitchell, friends for thirty years and also co-workers, played the Texas Lottery on numerous occasions by agreeing to pool their money and splitting all winnings equally.  At some point, Mitchell received an email invitation from another friend, Skidmore, to join a select group of friends and co-workers to socialize, pool their money, and pick numbers to play the lottery (“LGroup”).  That email also asked recipients to let Skidmore know if there was someone else they wanted to invite.  Being a good friend, Mitchell asked Domingo to participate and offered to cover her cost and be reimbursed at a later time.  When LGroup finally met, however, Mitchell paid her contribution and submitted her numbers but did not mention Domingo’s name to the group or contribute for Domingo to participate in the drawings.  Subsequently, one of the tickets purchased by the group won, resulting in winnings of $20,925,315.23.  Domingo, excluded from a share of the winnings, promptly filed a lawsuit, claiming that but for Mitchell’s broken promise, she would have been entitled to a share.

One of the theories advanced by Domingo was that LGroup was a general partnership, Mitchell entered into an oral contract for Domingo to join the group, and that Mitchell had the authority to do so under a general partnership.  If you recall, to determine whether a general partnership exists under Texas law, courts look at several factors, including expression of intent to be partners in the business, receipt or right to receive a share of profits, right to participate in control of the business, agreement to share losses or liability for claims by third parties against the business, and contributing money or property to the business.  At trial, Skidmore testified that her intent for the initial meeting was to gather with friends and co-workers of her choosing for the purpose of socializing, pooling their money to play the lottery, and establishing LGroup and, thus, there was no official LGroup prior to that meeting.  Additionally, there was no evidence that all members of LGroup expressed an intent to be partners, participate in control of LGroup, or be liable for claims by third parties.  Although it is not necessary for all five factors to be present to establish the existence of a partnership, in this case, the court said, there was no conclusive evidence establishing any of the factors.  Accordingly, the court found that there was no partnership.

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This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] Domingo v. Skidmore, No. 07-09-0392-CV, 2011 WL 4478385 (Tex. App.–Amarillo Aug. 31, 2011, no pet.) (mem. op.).  All references to the case are from this citation.