1. Why did the court rule that the two partners were personally liable for the debt?

2. Could it be argued that the debt actually was incurred once C&E had notice that it had infringed on Dillard’s trademark? Why or why not?

Chargois and Ernster (C&E) were individuals who formed and registered a limited liability partnership to operate their law prac-tice in 2002. In an attempt to solicit business, C&E developed a website in June 2003 that included a link using Dillard Department Stores’ corporate name and trademarked logo. C&E had represented several Dillard customers, and the website gave potential clients access to content created by C&E that allegedly documented acts of illegal profiling by Dillard. Dillard sued C&E for trademark infringement, cyber piracy, and various business torts. In 2004, while the litigation continued, Chargois and Ernster executed a separation agreement that provided for dissolution of the partnership. C&E’s registration as an LLP was not renewed with state authorities, and the registration expired later that same year. However, the defunct LLP entity remained a party to the Dillard litigation, and no party was substituted on its behalf. On November 2, 2004, the court entered a final judgment ordering “Chargois & Ernster, L.L.P.” to pay Dillard $143,500.

Dillard could not collect on the judgment because the entity had been dissolved and had no assets. Dillard sought a declaration that the two principals were personally liable, jointly and severally, for the 2004 final judgment entered against C&E. Chargois and Ernster argued that they were shielded from any partnership liability or debt by the state LLP statute. The trial court granted judgment for Dillard in the amount of $143,500 against Chargois and Ernster, jointly and severally, and each appealed.

The U.S. Court of Appeals for the Fifth Circuit ruled in favor of Dillard and held Chargois and Ernster personally liable for the judgment owed to Dillard. The court rejected arguments that the partners were insulated from liability because C&E’s debt was incurred when the infringing website was created in June 2003, at which time C&E was still a registered limited liability partnership. Instead, the court found that the debt was incurred when the judgment was entered on November 2, 2004, at which time the LLP had lost its liability-limiting attributes and no longer protected Chargois and Ernster.

“Although the terms ‘debt’ and ‘incurred’ are not defined by the [statute], a plain reading of the statute’s text supports Dillard’s proffered interpretation. Neither partner was necessarily aware in June 2003 that displaying the Dillard’s mark on the law firm website would ultimately lead to a partnership debt. The underlying conduct gave rise to the possibility of a future debt, but to say that a debt was ‘incurred’ at that time unrealistically distorts the meaning of the word. After all, [C&E’s] con-duct may have gone undetected, it may have been adjudged perfectly innocent, or Dillard’s may have opted not to sue. Under any of those scenarios, no debt would ever have been incurred, let alone incurred in June 2003. It was only when the district court entered judgment against [C&E] in November 2004 that a payable debt came into existence. It was then that [C&E] incurred the debt within the meaning of the provision.”