Court Of Chancery Interprets LLP Exculpation Clause
In re Inergy L.P. Unitholder Litigation ,C.A. 5816-VCP (October 29, 2010)
Delaware has consistently recognized that an LLP agreement may define the measure of the duties owed to limited partners by the general partner and those who control the GP. While the duty to act in good faith always remains, fiduciary duties may be disclaimed. The problem is how to do so and still be left with a clear standard to apply. Again and again the Court has had to interpret complicated and usually conflicting language in limited partnership or LLC agreements. If it takes a long opinion to explain what these provisions mean, then how clear can they be in the first place.
In this case, the Court concludes that the agreement applies a subjective test of whether the transaction is fair in the view of the general partner. Of course, that still means the decision has to be made on good faith. Indeed, the decision also holds that if the manager relies on the advice of competent counsel, then good faith may be presumed if that is what the partnership agreement provides [and take it from me it always does]. That is good news for us lawyers whose place at the table is now assured.
Finally, it needs to be said once again that the Court issued a 51 page opinion in a very complicated case in just 7 days. Only in Delaware do you get that level of service, consistently.