## Facts

- Two Arizona limited partnerships (the CORF entities) provided consulting and management services for Medicare-compliant outpatient facilities.
- Milton Guenther was identified in the CORF entities’ organic documents as a limited partner, not a general partner.
- Guenther nonetheless played an active operational role, including managing field operations, lecturing at marketing seminars, and assisting with client site and medical director placement.
- Attorney Timothy A. Shimko and his firm represented the CORF entities and limited partners in nationwide, high-value litigation alleging fraud.
- There was no written fee agreement; Shimko claimed an oral agreement under which individual defendants agreed to be personally liable for all legal fees.
- After the CORF entities did not fully pay, Shimko sued Guenther and others to collect unpaid attorneys’ fees.
- Following a bench trial in the District of Arizona, the court held Guenther (as a “limited partner in control”) and his spouse liable for all unpaid fees and entered an award of $359,668.
- The Guenthers appealed and also challenged the denial of their post-trial request for reconsideration and/or a new trial.

## Issues

1. Whether a law firm representing a limited partnership and its limited partners can satisfy A.R.S. § 29-319’s “reasonable belief” requirement by claiming it believed a limited partner was a general partner, despite the partnership’s organic documents identifying him as a limited partner.
2. Whether the judgment could stand insofar as it imposed on the Guenthers liability for the partnerships’ unpaid fees under A.R.S. § 29-319.
3. Whether further proceedings were required on any personal liability of the Guenthers for fees attributable to legal work performed for them individually.
4. Whether the district court abused its discretion in denying post-trial relief (reconsideration/new trial).

## Decision

- The Ninth Circuit reversed in part, affirmed in part, and remanded.
- The court reversed the imposition of liability on the Guenthers for fees owed by the CORF entities under A.R.S. § 29-319.
- The court held Shimko, as counsel owing fiduciary duties to the CORF entities and their limited partners, was chargeable with knowledge of the organic documents and therefore could not reasonably believe Guenther was a general partner.
- The court remanded for further proceedings limited to whether the Guenthers were personally liable for fees incurred due to Shimko’s representation of them individually.
- The court affirmed the denial of the Guenthers’ post-trial motion.

## Legal Principles

- Under A.R.S. § 29-319, a limited partner may be liable as a general partner only if the third party reasonably believes, based on the limited partner’s participation in control, that the limited partner is a general partner and transacts business on that belief.
- When the claimant is the partnership’s attorney, the “reasonable belief” inquiry is affected by the attorney’s fiduciary duty of care to the client; counsel is chargeable with knowledge of the client’s foundational organizational documents within the scope of representation.
- Counsel cannot expand a limited partner’s statutory liability by disclaiming knowledge of organizational documents that identify the person’s partner status.
- Misapplication of limited-partner control liability does not foreclose separate theories of personal liability for legal fees based on individual representation and agreement; those issues may require fact-specific proceedings on remand.
- Denial of a motion for reconsideration or new trial is reviewed for abuse of discretion, and affirmance is appropriate absent such an abuse.

## Conclusion

The Ninth Circuit held that a law firm representing a limited partnership and its partners could not, consistent with its fiduciary obligations, claim a reasonable belief that a limited partner was a general partner to impose statutory liability for partnership debts under A.R.S. § 29-319; the partnership-fee judgment was reversed in that respect, while questions of any personal fee liability were remanded and the denial of post-trial relief was affirmed.


Shimko v. Guenther, 505 F.3d 987 (9th Cir. 2007)