Opinion ID: 714979
Heading Depth: 3
Heading Rank: 1

Heading: General Partner Liability

Text: 78 The district court concluded that the general partner of a limited partnership could not be held liable for tortiously interfering with a contract of the limited partnership as long as the general partner was acting within his authority as a general partner. However, this conclusion is not supported by Tennessee law. 79 There is a virtual paucity of Tennessee cases that have spoken directly on the subject. Only one reported case, American Center-Nashville Ltd. v. Smith, 1992 WL 361352, 1992 Tenn.App. LEXIS 986 (Tenn.App.1992), has expressed a view on the matter, although it only did so briefly and in dicta. In American Center, the general partners of a limited partnership were sued, inter alia, for tortiously inducing a breach of contract between the plaintiff and the limited partnership. Id. at 6, 1992 Tenn.App. LEXIS at 16. The Tennessee Court of Appeals disallowed the claim because it concluded that there was no underlying breach of contract to support the plaintiff's allegation. Id. However, the court also announced that, even if the underlying breach had occurred, the plaintiff's claim would have failed because those general partners who had been accused of tortious inducement had acted on behalf of the limited partnership and were within the scope of their agency relationship to the limited partnership. Id. Specifically, the court held: 80 Since an entity cannot induce itself to breach a contract, ... the individual general partners ... can be found to have induced [the limited partnership] to breach the contract with [the plaintiff] only if they were acting on their own behalf. Throughout this entire project, ... [the] general partners ... were acting as [the limited partnership's] agents. 81 Id. Thus, the court indicated that, under Tennessee law, a general partner could be held liable for the tortious interference with a contract if the alleged breach between the partnership and a third party had been induced by a general partner while he was acting on his own behalf. 82 Although the district court in the case at bar concurred with the American Center rationale, it also concluded that when a party acts in his capacity as a general partner and/or under the authority of the general partner's office when the inducement of the breach occurs, he is acting as an agent of the partnership or within the scope of his agency. Order at 4-5, May 14, 1994. The import of this conclusion is that a general partner who utilizes the power of his office to advance his own interests at the expense of the interests of the limited partnership nevertheless acts within the scope of his agency because he takes such actions under the cloak of his office as general partner. Having acted within the scope of his agency, this general partner cannot be personally liable for any torts that are committed as a result of his abuse of the office. Such an extension of immunity from suit for general partners is neither wise nor warranted by Tennessee law. 83 Contrary to the conclusions of the district court, the cases in Tennessee which touch upon the subject of agency do not suggest that an agent who acts within the cloak of authority that is afforded by a certain office, (i.e., office of a general partner) and whose acts are taken on the principal's behalf are necessarily within the scope of the agency. Instead, the reported Tennessee cases on agency reveal that an agent can act within the apparent authority of his office and, at the same time, act on his own behalf and contrary to the interest of the principal. See e.g., Holloway v. Howerdd, 377 F.Supp. 754, 765-66 (M.D.Tenn.1973), aff'd, 536 F.2d 690 (6th Cir.1976) (three separate factors should be considered in determining whether principal is held liable for acts of agent); State v. Candler, 728 S.W.2d 756, 759 (Tenn.Crim.App.1986) (agent who acts within general scope of authority or office in manner that is antagonistic to principal, generally does not bind principal); Kean v. National City Bank, 294 F. 214, 222 (6th Cir.1923), cert. dismissed, 263 U.S. 729, 44 S.Ct. 179, 68 L.Ed. 528 (1924) (agent who acts within authority of office but nevertheless pursues transactions solely on his account and for his benefit temporarily ceases to represent the principal....). 84 Thus, it would be inappropriate to read American Center as a case which supports the proposition that an act performed within the apparent authority of an agent falls automatically within the scope of his agency. A better interpretation of the American Center language would be that in order for an agent to act within the scope of the agency, he must act within the apparent scope of authority of his office and on account of and for the benefit of his principal. Id. (agent who seemingly acts within the scope of his agency can temporarily step[ ] outside of his representative character if he pursues his own interests). 11 85 On the basis of the foregoing, it is clear that American Center means that which it plainly stated; namely, that the general partner of a limited partnership can be held liable for tortiously inducing a breach of contract between the limited partnership and a third party when, in doing so, the general partners were acting on their own behalf rather than on behalf of and in the best interests of the limited partnership. Accord The Savage Is Loose Co. v. United Artists Theatre Cir., 413 F.Supp. 555, 560 (S.D.N.Y.1976) (where a partner induces a breach of contract for his own benefit (as distinct from that of the partnership), or acts in bad faith in inducing the breach, he may be held liable); Bank of New York v. Berisford Int'l, 190 A.D.2d 622, 594 N.Y.S.2d 152 (N.Y.App.Div.1993) (general partner may be liable for interfering with contract of partnership if act is committed in bad faith and for personal pecuniary gain); Kessler v. Levitt, 84 Civ. 282-CSH (slip op. S.D.N.Y., Sept. 10, 1984) (When a partner acts to promote interests other than those of the partnership in causing the partnership to breach its contracts ... the shield of the partnership may no longer be raised.... The reasoning behind this exception to the general rule is that a partner who induces a breach for his own purposes is not longer acting as the partnership. Thus he no longer deserves the insulation from liability granted to those carrying out the business of the partnership). 12 Proof that the general partner was within the apparent authority of his office when he acted on his own behalf is only relevant to the issue of whether the partnership is liable to third parties for his conduct. 13 86