A recent case from the District Court of Colorado demonstrates problems that can arise without a written agreement. Similar to a contract, partnership agreements should include the name of the parties involved, the terms of partnership, and each partners’ duties. In this “he said, he said” case, a written agreement might have averted some problems, or at least made them easier to resolve.
The plaintiff was a farmer and producer of specialty hemp seeds. The farmer alleged that he and the partner entered into an oral partnership agreement for the purpose of growing, selling, and distributing specialized hemp starts (young plants) across the United States using the farmer’s expertise and nationwide distribution network for the benefit of the partnership. The two agreed that the partner would pay the farmer a 10 percent management fee for overseeing the growing of the starts. The farmer soon determined that this was a “very bad choice” and brought this lawsuit claiming that the partner breached the agreement. The partner filed a motion to dismiss claiming that the farmer failed to join necessary parties and failed to state a claim.
At this early stage of litigation, the district court, without a written agreement, relied on the farmer’s verified complaint to determine whether the lawsuit must be dismissed. In the complaint, the farmer stated that after he entered into the agreement with the partner personally, the partner ordered for himself, for distribution to related entities, nearly $4.6 million worth of the partnership’s hemp starts and then did not pay for those plants. Additionally, the farmer alleged that the partner failed to pay the $406,621.45 management fee.
Failure to Join Indispensable Parties
The partner claimed that he was not liable for these debts because his LLC had entered into the partnership. Because of that, he argued that the LLC must be joined as a necessary party under Rule 19. Despite the farmer’s original complaint alleging that the starts were sold to both the partner and his LLC, there was no reason to believe the LLC was a necessary party. Accepting the farmer’s verified complaint as true, the court found that the partnership was solely between the farmer and the partner, not the LLC.
Failure to State a Claim
The partner claimed that the farmer failed to state a claim for breach of the partnership agreement, breach of fiduciary duties, and for promissory estoppel. Under Colorado law, a plaintiff cannot sue for breach of a partnership without first providing an accounting. Because the verified complaint claimed an accounting was provided, this claim was adequately pled. The court determined that, at this early stage, the allegations were to be taken as true and the claims should survive the motion to dismiss.
Leago v. Ricks, 2021 WL 1192939 (D. Colo. March 30, 2021).
Additional Hemp Resources
For an update on current hemp regulations, read Iowa Outdoor Hemp License Applications Due May 1.
Potential growers should also carefully consider whether there is a profitable market for hemp. For further reading, see Iowa State Extension article “The Opportunities and Challenges with Hemp” by Dr. Chad Hart.
For more information on the federal regulation of hemp, visit: https://www.usda.gov/topics/hemp.
For more information on growing hemp in Iowa, applying for a state license, and hemp in animal food, visit https://iowaagriculture.gov/hemp. All questions about applying for a hemp license or seed permit should be directed to firstname.lastname@example.org or (515) 725-1470.