Main Menu

Showing 51 posts in LP Agreements.

Court Of Chancery Explains Scope Of Fiduciary Duty Waiver

Posted In LP Agreements

In Re Kinder Morgan Inc. Corporate Reorganization Litigation,  C.A. 10093-VCL (August 20, 2015)

This is a great explanation of the scope of the waiver of a general partner or other fiduciary’s duties under the terms of an LP agreement. More ›

Share

Supreme Court Upholds Oral Resignation

Posted In LP Agreements
Biolase v. Oracle Partners L.P., No. 270, 2014 (June 12, 2014) This decision holds that a member of a board may resign orally and no writing is required to do so. Share

Court Of Chancery Explains How To Decide If The Implied Covenant Applies

Posted In LP Agreements
In re: El Paso Pipeline Partners L.P. Derivative Litigation, C.A. 7141-VCL (June 12, 2014) This is an important decision because it explains when to fill any contractual gaps with the duties imposed by the implied covenant to act in good faith and to deal fairly.  Of course, the short answer is the covenant rarely applies, but that does not explain how to figure out when it does. This decision looks to what the parties agreed to otherwise in analogous situations to see if the so-called gap should be filed by the covenant.  The basic question was did the GP have a duty to disclose material facts to a conflict committee absent any provision for that disclosure.  Reasoning in part that the LP agreement eliminated fiduciary duties that would have imposed such an obligation, the Court held there was no reason to add those duties back in by filling any "gap" that existed in the LP agreement as to such a duty. Share

Court Of Chancey Resolves Status Of Former GP

Posted In LP Agreements

Policemen's Annuity and Benefit Fund of Chicago, Illinois v. DV Realty Advisors LLC, C.A. 7204-VCN (November 27, 2013)

What is the status of a general partner in a Delaware limited partnership after that GP is removed? As this decision points out, the answer is not clear and it may be just a holder of an economic interest, but not a limited partner. That question can be resolved by a provision in the partnership agreement and that is the better course as it will then help to determine the former GP's buy out rights.

Share

Court Of Chancery Again Affirms Use of Conflict Committee

Posted In LP Agreements

Natural Energy Development Inc. v. Shakespeare-One Limited Partnership, C.A. 4836-CS (July 22, 2013)

The Court of Chancery once again has affirmed that the proper use of a conflicts committee may immunize a transaction from attack.  This is now a common feature of LLP and LLC agreements but each agreement's terms are critical to its impact and its implementation.

Share

Delaware Supreme Court Affirms Contractual Exculpation

Posted In LP Agreements

Norton v. K-Sea Transportation Partners L.P., No. 338, 2012 (May 28, 2013)

This decision affirms the consensus that a limited partnership agreement may set the standards for resolving a conflicted transaction and thereby absolve the controllers from any liability.

Share

Court Of Chancery Explains LLP Law

Posted In LP Agreements

Metropolitan Life Insurance Company v. Tremont Group Holdings Inc., C.A. 7092-VCP (December 20, 2012)

While not having anything new, this decision is an excellent summary of the law on LLP agreements, such as their exculpation provisions.

Share

Court Of Chancery Nails Down "Good Faith" By A Conflicts Committee

Posted In LP Agreements

In re: Encore Energy Partners LP Unitholder Litigation, C.A. 6347-VCP (August 31, 2012)

Delaware limited partnership agreements frequently have provisions governing how to deal with conflict of interests between the GP, the limited partners and the owners of the GP.  This decision sets out the language needed to protect the GP and its owners from attacks in conflict transactions when the deal is approved by a conflicts committee.  If the committee acts in the subjective good faith belief the transaction is in the best interests of its constituency, an attack alleging objective unfairness will be dismissed.

This then may be the definitive guide to drafting limited partnership agreements.  And while the Court recognizes that the decision offers little protection for limited partners, it points out that is part of the risk they bear when they invest in such LPs.

This decision was affirmed on July 22, 2013.

Share

Court Of Chancery: When Termination Is In Good Faith

Posted In LP Agreements

Policemen's Annuity and Benefit Fund of Chicago v. DV Realty Advisors LLC,  C.A. 7204-VCN (August 16, 2012)

While this issue continues to come up, it is still not clear when limited partners may terminate a manager when their limited partnership agreement only says they must act in "good faith."  Absent some more definitive standard, this decision holds the termination must be done honestly in fact and observe reasonable commercial standards.  Now is that clear enough?  In any case, if the manager fails to meet the deadline for submitting an annual financial statement, you may  "in good faith" fire her.

Affirmed, Del Supr. August 26, 2013

Share

Court Of Chancery Explains Drag Along Rights

Posted In LP Agreements

Dawson v. Pittco Capital Partners L.P., C.A. 3148-VCN (April 30, 2012)

This is an interesting decision because it explains the limits of drag along rights.  While some old case law and some new contract language try to spell out when a stockholder, creditor or other interested party may have their rights affected by a corporate transaction taken without their consent, this makes it clear that there needs to be very explicit authority to do so, particularly when we are talking about drag along rights that are contractually based.

Share

Court Of Chancery Upholds Limited Review Permitted By LP Agreement

Posted In LP Agreements

In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. 6301-VCP (April 4, 20120)

This is another example of how an LP agreement may limit the review of a transaction by a court at the request of a dissatisfied partner.  The partnership agreement provided that the GP only needed to act in good faith in approving a sale and defined good faith, in part, as established by reliance on an expert's advice.  Since that was present, the court dismissed the complaint.

Share

Court Of Chancery Restricts Transfer Of LLP Interest

Posted In LP Agreements

In re Estate of Everett T. Conaway, C.A. 6056-VCG (February 15, 2012)

This decision upholds transfer restrictions in a limited partnership agreement.

Share

Court Of Chancery Upholds Reliance On Banker To Show Good Faith

Posted In LP Agreements

Brinckerhoff v. Enbridge Energy Company Inc.,  C.A. 5526-VCN (September 30, 2011)

This is a significant decision for 2 reasons.  First, it confirms the widely-held belief that the Tooley test to determine if a complaint is direct or derivative applies to limited partnerships.

Second, it interprets language in the LLP agreement permitting the general partner to rely on the advice of an investment banker as constituting proof of "good faith" in deciding to do a deal with an affiliate of that general partner.  This is important because while Delaware law permits LLP agreements to waive many duties owed by a GP, the duty to act in "good faith" cannot be waived. Hence, the ability to effectively define in the LLP agreement what will constitute good faith is another way to limit claims against the GP even for self-dealing.

This decision was affirmed on MAy 28, 2013.

Share

Court of Chancery Denies Expedited Process in Merger of Limited Partnership Even Though Plaintiff Stated Colorable Claim

Posted In LP Agreements

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | July 13, 2011

The Court of Chancery often hears applications for expedition of a plaintiff's motion to enjoin a merger transaction. While the court "has followed the practice of erring on the side of more hearings rather than fewer" (Giammargo v. Snapple Beverage Corp. (1994)), it will not schedule an expedited hearing unless the plaintiff can show good cause.

The June 10 opinion in In Re K-Sea Transportation Partners L.P. Unitholders Litigation illustrates that, even where a plaintiff can state a colorable claim, the court will not schedule an expedited hearing if the plaintiff fails to show "a sufficient possibility of a threatened irreparable injury, as would justify imposing on the defendants and the public the extra (and sometimes substantial) costs of an expedited preliminary injunction proceeding," (citing Giammargo).

The K-Sea case also illustrates that when parties to agreements governing limited partnerships, limited liability companies or other alternative entities modify or eliminate fiduciary duties, a Delaware court will enforce the agreements as written. Courts will not undo what one party now believes is a bad bargain through the application of fiduciary duties or the implied covenant of good faith and fair dealing.

PARTNERSHIP ACQUISITION

K-Sea involved the acquisition of a Delaware partnership. The acquirer sought to acquire the limited partnership by merger for either cash or a combination of cash and the acquirer's stock. Representatives of the board of directors of target's general partner negotiated the terms of the merger agreement. A special committee approved the transaction.

The plaintiffs argued that the special committee's approval did not comply with the K-Sea Limited Partnership Agreement (LPA) for two reasons. First, the special committee failed to consider separately an $18 million payment to the general partner for its incentive distribution rights (IDRs). Second, the members of the special committee were not independent because shortly before the beginning of merger negotiations with the acquirer, the target granted them each 15,000 phantom units that would immediately vest upon a change of control.

The plaintiff-unitholders also challenged the disclosure provided the common unitholders in the registration statement.

  More ›

Share

Court of Chancery Applies Delaware Law To German Investment

Posted In LP Agreements

QVT Fund LP v. Eurohypo Capital Funding LLC I,   C.A. 5881-VCP (July 8, 2011)

When will Delaware law apply to a dispute is often not an easy question to resolve.  That is true even when the parties had agreed to sue under Delaware law but the issue presented may involve foreign law as well.  Here the Court sorted through a complicated deal involving the internal affairs of a German bank and held that some of the issues might be governed by German law but the main dispute was subject to Delaware law. This analysis is thus a useful guide in other complicated choice of law situations.

Share
Back to Page