Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
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 http://www.bloomberglaw.com/public/document/IN_RE_EL_PASO_PIPELINE_PARTNERS_LP_DERIVATIVE_LITIGATION_No_7141V.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)