## Facts

- Direct Mail Specialist, Inc. (Direct) provided services to an enterprise operating under the name “Peaceful Bay Resort and Club,” and the value of the unpaid services was conceded to be $10,997.85.
- The defendants were associated with a venture intended to operate as a limited partnership connected to “Peaceful Bay,” with Murr L. Brown intended to be a general partner and the other investors intending to be limited partners.
- The venture’s filings did not satisfy the statutory requirements needed to put the public (and creditors) on notice of limited-partner status.
- An application filed with the Montana Secretary of State concerning the business name listed all defendants as partners but did not indicate that any were limited partners, and there was no other formal indication to Direct that the business was a limited partnership.
- Direct’s dealings were with an entity known to it only as “Peaceful Bay Resort and Club,” and Direct had no actual knowledge that any defendant claimed limited-partner status; any notice argument depended on constructive notice from the public filings.
- After Direct’s claim arose (and litigation began), at least one defendant (including Cheryl L. Brown) attempted to “renounce” or withdraw her partnership interest as a way to avoid liability.
- The parties discussed payment terms involving a promissory note at 15% interest; the interest rate became the basis for a usury/penalties argument and raised a choice-of-law question.

## Issues

1. Whether defendants who intended to be limited partners could avoid personal liability to Direct when the venture’s filings failed to provide statutory notice that any partners were limited partners.
2. Whether a defendant could avoid liability to Direct by renouncing or withdrawing her partnership interest after Direct’s claim had already arisen.
3. Whether usury penalties applied to the contemplated 15% interest obligation, and which state’s law governed that question.

## Decision

- On cross-motions for summary judgment, the court ruled for Direct on the liability issues, treating the defendants (other than the admitted general partner) as general partners as to Direct.
- The court rejected the renunciation/withdrawal defense as ineffective against a preexisting creditor claim.
- The court applied Utah law to the usury question and concluded the 15% rate was not usurious under the governing law; no usury penalties were assessed.

## Legal Principles

- Limited-partner liability protection depends on statutory compliance sufficient to give notice of limited status; when public filings do not indicate limited partners, creditors without actual notice may hold participants liable as general partners.
- A creditor’s constructive notice must come from proper and informative public filings; filings that list people simply as “partners” without identifying limited status do not supply that notice.
- A partner cannot avoid responsibility for an existing obligation by renouncing or withdrawing after the debt is incurred; such action does not defeat a creditor’s already-accrued claim.
- Usury and interest-rate validity may turn on choice-of-law rules; when another state’s law governs the obligation’s performance and permits the agreed rate, usury penalties are not imposed.

## Conclusion

Direct provided services to “Peaceful Bay Resort and Club” and sought to collect the unpaid balance from the individuals behind the venture. Although most defendants claimed they were only limited partners, the venture’s filings failed to indicate any limited-partner status and did not provide the kind of public notice required to limit liability. Because Direct had no actual notice and could not be charged with constructive notice from the defective filings, the court treated the defendants as general partners as to Direct and held them personally liable. The court also held that a later renunciation or withdrawal could not cut off liability for an existing creditor claim, and it rejected a usury-penalties defense because Utah law governed and allowed the 15% interest rate.


Direct Mail Specialist, Inc. v. Brown, 673 F. Supp. 1540 (1987)