Chancery Court Refuses to Fill Gaps In LP Agreement That Nixed Fiduciary Duties

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June 12 — The parties to a limited partnership agreement that explicitly eliminated fiduciary duties left no room for the court to fill in gaps with the implied covenant to act in good faith and deal fairly, the Delaware Court of Chancery ruled June 12 .

The implied covenant is a doctrine by which Delaware law supplies implied terms to fill gaps in the express provisions of an agreement, but this is done “cautiously” and rarely, Vice Chancellor J. Travis Laster wrote in his opinion.

At issue in this case was whether the general partners had a duty to inform the LP's conflicts committee about an opportunity to buy an increased share of a gas pipeline project, when the committee had its own legal counsel and other experts. The LP agreement was silent on the point, so a gap existed, Laster found.

In granting the defendant's motion for summary judgment, Laster refused to apply the covenant or imply a duty to volunteer information after he considered several factors.

Chief among the factors was that the drafters of the LP agreement used the “contractual freedom” provided by Delaware law to “expand the General Partner's freedom of action and dial back the protections that otherwise would exist if fiduciary duties applied,” the opinion states.

“Confronted with a situation where common law fiduciary duties could require the General Partner to disclose information to the Partnership, the LP Agreement specified that the General Partner would not have a duty to communicate the information to the Partnership or liability for failing to do so,” according to the opinion.

Had drafters intended for a disclosure obligation to exist, they would have included specific language, the court determined.

The court found no reason to add fiduciary duties back in the agreement to fill “gaps” and it did not find evidence to support a reasonable inference that the general partner knowingly provided incorrect information to the conflicts committee.

The Delaware firm of Rosenthal, Monhait & Goddess PA represented the plaintiffs, while Potter Anderson & Corroon LLP of Delaware represented the defendants. Morris James LLP of Delaware represented nominal defendant El Paso Pipeline.

The opinion is available at