In Hite Hedge LP et al. v. El Paso Corporation, C.A. No. 7117-VCG, (Del. Ch. Oct. 9, 2012), the Delaware Court of Chancery re-affirmed its longstanding commitment to the freedom of contract afforded to alternate entities through their governing agreements. The Court was faced with a motion to dismiss an action for breach of fiduciary duties brought by limited partners against an alleged controlling partner, the general partner and its board of directors. Specifically, the limited partners alleged that the controlling partner, through a merger, sold certain key assets to a third party, upon which the partnership relies for its growth.
The Court relied upon the explicit waiver of fiduciary duties set forth in the partnership agreement and held that the plaintiffs failed to state a viable claim for relief. Specifically, the Court stated that “under the circumstances here, which include an explicit waiver of any fiduciary duties owed by the controlling and general partners to the limited partners, a partnership agreement that allows the controlling partner to engage in business activities ‘to the exclusion of the [p]artnership,’ and a prospectus that declares that the controlling partner has no contractual duty to sell any assets to the partnership, I find that that the Plaintiff limited partners have failed to state a viable claim for relief.” The Court reiterated the fact that The Delaware Revised Uniform Limited Partnership Act, DRULPA, permits the elimination of fiduciary duties by contract where the intent to do so is explicit. See 6 Del. C. § 17-1101(d).
Notwithstanding this “seemingly insurmountable” language in the partnership agreement, the plaintiffs argued that the elimination of fiduciary duties in the agreement does not curtail those owed to the minority unitholders by the controlling unitholder under common law. While an innovative argument, the Court found that the argument was belied by the plain language of the agreement that expanded the exclusion of fiduciary duties to “any Limited Partner”, and that the only duties owed are those created by the partnership agreement itself. The Court further found that the partnership agreement expressly permitted the general partner to compete with the partnership and disclaims liability under the corporate opportunity doctrine.
This case is noteworthy, in that the even though the Court disposed of Plaintiff’s claims for alleged breach of fiduciary duty based upon the express terms of the partnership agreement, it went on to note that when a partnership agreement eliminates fiduciary duties owed to limited partners, the available remedies, if any, are reliant on the Partnership Agreement, not the common law.