Fifth Circuit Holds That Fiduciary Obligations to General Partner Can Extend to Partnership

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The U.S. Court of Appeals for the Fifth Circuit held that a corporate fiduciary who exercises substantial control over a limited partnership managed by a corporation can owe fiduciary obligations to the partnership itself.

David Harwood was a Director and the Chief Operating Officer of B&W Finance Co., Inc., which was the sole general partner of FNFS, Ltd., a limited partnership engaged in consumer lending operations. Mr. Harwood, who managed B&W's daily affairs, exercised substantial control over FNFS, and withdrew more than $800,000 of FNFS funds as personal loans that he allegedly neglected to properly record. The B&W board terminated Mr. Harwood, who filed for Chapter 7 bankruptcy, and B&W challenged Mr. Harwood's ability to discharge his debts to FNFS because he accrued this debt through defalcation while acting as a fiduciary.

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Published In: Bankruptcy Updates, Business Organization Updates, Business Torts Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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