Reported / Citable
Background
Anthony Fenoglio, a limited partner in WP Liquidating, Ltd. (WPL), requested access to the partnership’s books and records after receiving financial information that appeared to show disproportionate distributions and inconsistencies concerning WPL’s assets. Between December 2018 and June 2019, he made several written requests to inspect records for the stated purpose of determining whether WPL’s assets had been properly managed and whether its revenue and expenses had been properly accounted for and allocated.
WPL, its general partner WPL-GP, LLC, and WPL-GP’s sole member, Robert N. Thompson, did not permit the requested inspection. Among other reasons, they questioned Fenoglio’s continuing ownership interest, asserted that the records contained confidential information, required him to sign a confidentiality and limited-use agreement, and alleged that he sought the records for use in other litigation or to harm the partnership. Fenoglio sued for breach of the partnership agreement and violation of his statutory inspection rights. The trial court granted him summary judgment and, under the parties’ agreement concerning entry of a final judgment, awarded $120,000 in attorney’s fees and $296 in costs against WPL and WPL-GP, but not Thompson.
The Court’s Holding
The Eleventh Court of Appeals affirmed. It held that Fenoglio established his statutory right to inspect WPL’s records for the proper purpose of investigating possible financial mismanagement and accounting irregularities. The appellants did not produce more than conclusory allegations or suspicion that Fenoglio acted in bad faith or for an improper purpose. Evidence of strained relations, unrelated litigation, or a hope of discovering troubling information did not create a genuine fact issue.
The court also held that Fenoglio’s refusal to sign WPL’s proposed confidentiality agreement was not evidence of an improper purpose. The authorities cited by the appellants established that a trial court may enter an appropriate protective order for confidential records, not that a partnership may necessarily condition disclosure on its own confidentiality agreement. Because the statutory inspection claim independently supported the judgment, the court declined to decide whether the partnership agreement allowed the general partner to impose the proposed restrictions.
The court rejected the contention that the trial court relied on new summary-judgment grounds raised in Fenoglio’s reply, noting that the trial court expressly said it would not consider new grounds and that the statutory ground stated in the motion supported judgment. It also affirmed the fee award because Section 153.5521 of the Texas Business Organizations Code authorizes attorney’s fees for a successful action enforcing statutory inspection rights.
Key Takeaways
- A limited partner’s stated purpose of investigating suspected financial mismanagement and accounting irregularities is a proper purpose for inspecting partnership records.
- Hostility, unrelated litigation, and conclusory allegations of bad faith do not, without supporting facts, create a genuine issue concerning improper purpose.
- Refusal to sign a partnership-drafted confidentiality agreement does not itself prove an improper inspection purpose; confidentiality concerns may instead be addressed through a court-issued protective order.
- A partner who successfully enforces statutory inspection rights may recover attorney’s fees under Section 153.5521 of the Texas Business Organizations Code.
Why It Matters
The decision reinforces that Texas limited partnerships cannot defeat statutory inspection rights through unsupported accusations about a partner’s motives. Once a limited partner establishes a proper, investment-related purpose and the partnership’s refusal, the partnership must present specific evidence—not merely hostility or suspicion—to raise a fact issue concerning bad faith or improper purpose.
The opinion also distinguishes judicial protection of confidential information from a partnership’s unilateral attempt to condition inspection. Although the court did not conclusively decide what contractual restrictions may be reasonable, it indicated that confidentiality concerns are appropriately presented to the trial court through a request for a protective order.