Case Title: Norton v. K-Sea Transportation Partners, L.P., et al.

Citation: 

Docket Number: 238, 2012

State: delaware

Court: Delaware Supreme Court

Date: 2013-05-28T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
EDWARD F. NORTON, III and  
) 
KEN POESL, 
 
 
 
)  No. 238, 2012 
 
 
 
 
 
 
) 
 
Plaintiffs Below Appellants, 
)  Court Below:  Court of Chancery 
 
 
 
 
 
 
)  of the State of Delaware 
v. 
 
 
 
 
 
) 
 
 
 
 
 
 
)  C.A. No. 6301 
K-SEA TRANSPORTATION  
) 
PARTNERS L.P., K-SEA GENERAL 
) 
PARTNER L.P., K-SEA GENERAL  ) 
PARTNER GP LLC, JAMES C. 
) 
BAKER, TIMOTHY J. CASEY, 
) 
JAMES J. DOWLING, BRIAN P. 
) 
FRIEDMAN, KEVIN S.  
 
) 
McCARTHY, GARY D. REAVES, ) 
ANTHONY S. ABBATE,  
 
) 
BARRY J. ALPERIN and FRANK 
) 
SALERNO,  
 
 
 
) 
 
 
 
 
 
 
) 
 
Defendants Below Appellees. ) 
 
Submitted:  February 8, 2013 
Decided:  May 28, 2013 
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and 
RIDGELY, Justices, constituting the Court en Banc. 
 
 
Upon appeal from the Court of Chancery.  AFFIRMED. 
 
 
Carmella P. Keener, Rosenthal, Monhait & Goddess, P.A., Wilmington, 
Delaware.  Of Counsel:  Ethan D. Wohl (argued) and J. Elazar Fruchter, Wohl & 
Fruchter LLP, New York, New York, attorneys for appellants. 
 
 
Srinivas M. Raju and Jillian G. Remming, Richards, Layton & Finger, P.A., 
Wilmington, Delaware.  Of Counsel:  Blair Connelly (argued), Latham & Watkins 
LLP, New York, New York; Alan E. Kraus, Latham & Watkins LLP, Newark, 
New Jersey attorneys for appellees. 
 
STEELE, Chief Justice: 
2 
 
In this appeal, we consider a general partner’s obligations under a limited 
partnership agreement.  The plaintiffs allege that the general partner obtained 
excessive consideration for its incentive distribution rights when an unaffiliated 
third party purchased the partnership.  Importantly, the plaintiffs do not allege that 
the general partner breached the implied covenant of good faith and fair dealing.  
We conclude that the limited partnership agreement’s conflict of interest provision 
created a contractual safe harbor, not an affirmative obligation.  Therefore, the 
general partner needed only to exercise its discretion in good faith, as the parties 
intended that term to be construed, to satisfy its duties under the agreement.  The 
general partner obtained an appropriate fairness opinion, which, under the 
agreement, created a conclusive presumption that the general partner made its 
decision in good faith.  Therefore we AFFIRM the Court of Chancery’s dismissal 
of the complaint. 
I. FACTUAL AND PROCEDURAL BACKGROUND1 
A. The Parties 
This case arises out of the Merger of K-Sea Transportation Partners L.P. (K-
Sea or the Partnership) and Kirby Corporation.  K-Sea operates a barge and 
                                          
 
1 Unless otherwise stated, these facts are drawn from the plaintiffs’ Verified Consolidated 
Amended Class Action Complaint (the Complaint) and the Vice Chancellor’s opinion.  In re K-
Sea Transp. Partners L.P. Unitholders Litig., 2012 WL 1142351 (Del. Ch. Apr. 4, 2012).   
3 
 
tugboat fleet that transports refined petroleum products between American ports.  
Before the Merger, K-Sea was a publicly traded Delaware limited partnership.  The 
Fourth Amended and Restated Agreement of Limited Partnership (the LPA) 
created K-Sea’s governance structure.  Plaintiffs Edward F. Norton III and Ken 
Poesl (Norton) represent a class consisting of K-Sea’s unaffiliated former common 
unitholders. 
 
K-Sea’s general partner is K-Sea General Partner L.P. (K-Sea GP), which is 
also a Delaware limited partnership.  K-Sea GP’s general partner is K-Sea General 
Partner GP LLC (KSGP), a Delaware limited liability company that ultimately 
controls K-Sea.  Anthony S. Abbate, Barry J. Alperin, James C. Baker, Timothy J. 
Casey, James J. Dowling, Brian P. Friedman, Kevin S. McCarthy, Gary D. Reaves 
II, and Frank Salerno served on KSGP’s board of directors (the K-Sea Board) 
during the Merger negotiations.  Directors Abbate, Alperin, and Salerno comprised 
the K-Sea Board’s Conflicts Committee.  K-Sea, K-Sea GP, KSGP, and the K-Sea 
Board members are the Defendants in this action. 
B. K-Sea’s Capital Structure and Ownership 
At the time of the Merger, K-Sea’s equity was divided among K-Sea GP, the 
common unitholders, and a class of preferred units held by KA First Reserve, LLC 
(KAFR).  The common unitholders held 49.8% of the total equity, KAFR held 
49.9%, and K-Sea GP’s general partner interest comprised the remaining 0.3%. 
4 
 
In addition to its general partner interest, K-Sea GP held incentive 
distribution rights (IDRs) through a wholly owned affiliate.2  These IDRs entitled 
K-Sea GP to increasing percentages of K-Sea’s distributions once payments to the 
limited partners exceeded certain levels.3  K-Sea GP would not receive payments 
on the IDRs until quarterly distributions reached $0.55 per unit. K-Sea’s 
conservative estimates indicated that annual distributions would not reach $0.55 
per unit until 2015.  Norton extrapolates these projections to show that K-Sea 
would not reach the $0.55-per-unit quarterly threshold until the mid-2030s.  Based 
on these projections, the IDRs were worth as little as $100,000. 
C. The K-Sea Board Issues Phantom Units to the Conflicts Committee 
Members 
 
In December 2010, the K-Sea Board approved incentive compensation for 
the Conflicts Committee members,4 each of whom received 15,000 phantom K-Sea 
common units.  These phantom units vested over five years, but became 
immediately payable if a change of control occurred.  These phantom units 
represented a significant component of Abbate’s, Alperin’s, and Salerno’s equity 
                                          
 
2 For simplicity, this opinion refers to the IDRs as if K-Sea GP held them directly. 
3 Many master limited partnerships use IDRs to incentivize the general partner to maximize cash 
flow for the limited partners.  See Lonergan v. EPE Holdings LLC, 5 A.3d 1008, 1012 (Del. Ch. 
2010).  As distributions to the limited partners increase, IDRs give the general partner a greater 
percentage of the cash flows generated by the limited partnership.  Id. 
4 Director Casey, who serves as KSGP’s CEO, received 75,000 K-Sea phantom units in 
December 2010 as well. 
5 
 
interests in K-Sea.5  The LPA, however, prohibited Conflicts Committee members 
from holding any ownership interest in K-Sea other than common units.6 
D. Kirby Approaches K-Sea and Negotiates the Merger 
Shortly after the phantom unit grant, Kirby’s CEO communicated with 
McCarthy, who also served as a director designee of KAFR, to discuss a strategic 
transaction between Kirby and K-Sea.  On February 2, 2011, McCarthy informed 
Dowling, the K-Sea Board’s Chairman, of those discussions.  K-Sea and Kirby 
then extended a confidentiality agreement they had previously signed, and K-Sea 
provided Kirby with due diligence. 
On February 9, 2011, Kirby offered to pay $306 million for K-Sea’s 
common and preferred units.  After discussing the offer with the K-Sea Board, 
McCarthy rejected it and informed Kirby that future offers should include 
consideration for K-Sea GP’s general partner interest and its IDRs.  Kirby 
                                          
 
5 Before the phantom unit grant, Abbate, Alperin, and Salerno owned 28,500, 13,500, and 7,800 
K-Sea common units, respectively. 
6 The LPA defines the Conflicts Committee as 
a committee of the [K-Sea Board] composed entirely of two or more directors 
who are not (a) security holders, officers or employees of [K-Sea GP], (b) 
officers, directors or employees of any Affiliate of [K-Sea GP] or (c) holders of 
any ownership interest in the Partnership Group other than Common Units and 
who also meet the independence standards required of directors who serve on an 
audit committee of a board of directors by the Securities Exchange Act of 1934 
. . . and by the National Securities Exchange on which the Common Units are 
listed for trading. 
App. to Opening Br. at A026 (emphasis added). 
6 
 
responded the next day with a $316 million offer for all of K-Sea’s equity interests, 
but McCarthy again rejected the offer as inadequate.  On February 15, 2011, Kirby 
offered $329 million for K-Sea, which included an $18 million payment for the 
IDRs (the IDR Payment).7 
E. K-Sea Activates its Conflicts Committee to Consider the Merger 
When the K-Sea Board met to consider Kirby’s new offer, it acknowledged 
that the IDR Payment created a “possible conflict of interest”8 and referred the 
proposed Merger to the Conflicts Committee for a recommendation.  Under the 
LPA, the Conflict Committee’s approval of a transaction would constitute “Special 
Approval,” which purportedly would limit the unitholders’ ability to challenge the 
transaction. 
The Conflicts Committee hired Stifel, Nicolaus & Co. (Stifel) and DLA 
Piper LLP as its independent financial and legal advisors, respectively.  Stifel 
valued K-Sea’s common units using a distribution discount model based on K-
Sea’s internal projections.  After valuing the common units, Stifel opined that the 
                                          
 
7 The parties’ briefs are unclear about whether Kirby paid K-Sea GP $18 million for the IDRs 
alone or for the general partner interest as well as the IDRs.  K-Sea and Kirby’s Amended 
Registration Statement Form S-4 indicates that the $18 million was for the IDRs alone, but the 
distinction is not material to our decision.  App. to Opening Br. at A169.  We may consider the 
LPA and portions of the Form S-4 because the Complaint incorporates them by reference.  In re 
General Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006). 
8 Norton does not provide a citation for this quotation.  Because the phrase appears in the S-4, we 
attribute the quote to the K-Sea Board for the purposes of a motion to dismiss.  App. to Opening 
Br. at A240. 
7 
 
consideration K-Sea’s unaffiliated common unitholders received9 was fair from a 
financial viewpoint.10  The fairness opinion expressly did not consider “the fairness 
of the amount or nature of any compensation to any of the officers, directors or 
employees of K-Sea or its affiliates . . . relative to the compensation of the public 
holders of K-Sea’s equity securities.”11 
F. The K-Sea Board Approves the Merger and the Transaction Closes 
 
After reviewing Stifel’s fairness opinion, the Conflicts Committee 
unanimously recommended the Merger to the K-Sea Board, which also approved 
it.  Like Stifel’s fairness opinion, the Conflicts Committee’s recommendation did 
not refer to the IDR Payment.  K-Sea and Kirby then entered into a definitive 
merger agreement and disseminated a Form S-4 recommending that the common 
unitholders vote in favor of the Merger.  A majority of K-Sea’s unitholders voted 
in favor of the transaction, and the Merger closed on July 1, 2011.  As finally 
negotiated, K-Sea’s common unitholders received $8.15 per unit12 and K-Sea GP 
                                          
 
9 Although Stifel’s opinion only addressed the Merger’s fairness to the unaffiliated common 
unitholders, the record indicates that Kirby treated all common unitholders identically. 
10 Id. at A296. 
11 Id. at A250 (internal quotation marks omitted). 
12 K-Sea’s common unitholders had the option to receive either a cash payment or a combination 
of cash and Kirby stock.  KAFR received the same value for each preferred unit, but the Merger 
Agreement required it to accept the cash–stock combination. 
8 
 
received $18 million for the IDRs.  The consideration represented a 26% premium 
over K-Sea’s March 11, 2011 closing price.  
G. Procedural History 
Shortly after K-Sea announced the Merger, Norton filed a class action 
complaint in the Court of Chancery.  As amended, the Complaint contained four 
counts.  Count I alleged that the Conflicts Committee members breached their 
fiduciary duties by recommending the Merger without evaluating the IDR 
Payment’s fairness.  In Count II, Norton contended that K-Sea GP, KSGP, and the 
K-Sea Board members breached the LPA by proposing, approving, and 
participating in an unfair transaction based on an inadequate review process.  In 
Count III, Norton accused K-Sea GP, KSGP and the K-Sea Board of breaching the 
LPA by approving the Merger in reliance on the improperly constituted Conflicts 
Committee’s Special Approval.  Count IV alleged that K-Sea GP, KSGP, and the 
K-Sea Board breached their duty of disclosure by authorizing the dissemination of 
a materially misleading Form S-4.  The Vice Chancellor denied Norton’s motion 
for expedited discovery.13 
After the parties submitted initial briefing on Defendants’ motion to dismiss, 
the Vice Chancellor contacted the parties and advised them that he had reached a 
                                          
 
13 In re K-Sea Transp. Partners L.P. Unitholders Litig., 2011 WL 2410395 (Del. Ch. Jun. 10, 
2011). 
9 
 
preliminary decision to grant the Defendants’ motion.  His rationale relied upon an 
interpretation of the LPA that neither party had argued nor briefed, and so he 
invited supplemental briefing.  After reviewing the parties’ submissions, the Vice 
Chancellor dismissed Norton’s Complaint.14  Norton appeals from the Vice 
Chancellor’s dismissal of Counts I, II, and III of that Complaint.15 
II.  STANDARD OF REVIEW 
 
We review the Vice Chancellor’s decision to grant a motion to dismiss under 
Court of Chancery Rule 12(b)(6), de novo.16  When reviewing a motion to dismiss, 
we accept all well-pleaded allegations as true and draw all reasonable inferences in 
the plaintiff’s favor.17  Dismissal is appropriate only if we conclude that the 
plaintiff would not be entitled to relief under any set of facts that he could prove to 
support the claims asserted.18  We do not, however, credit conclusory allegations 
                                          
 
14 In re K-Sea Transp. Partners L.P. Unitholders Litig., 2012 WL 1142351 (Del. Ch. Apr. 4, 
2012). 
15 Norton does not appeal the Vice Chancellor’s dismissal of Count IV.   
16 In re General Motors (Hughes) S’holder Litig., 897 A.2d 162, 167–68 (Del. 2006) (citing 
Malpiede v. Townson, 780 A.2d 1075, 1082 (Del. 2001)). 
17 Id. at 168 (citing Malpiede, 780 A.2d at 1082). 
18 Gantler v. Stephens, 965 A.2d 695, 703 (Del. 2009) (citing Feldman v. Cutaia, 951 A.2d 727, 
731 (Del. 2008)). 
10 
 
that are not supported by specific facts, or draw unreasonable inferences in the 
plaintiff’s favor.19   
III.  ANALYSIS 
A. What Contractual Standards Apply to the Merger? 
Limited partnership agreements are a type of contract.  We, therefore, 
construe them in accordance with their terms to give effect to the parties’ intent.20  
We give words their plain meaning unless it appears that the parties intended a 
special meaning.21  When interpreting contracts, we construe them as a whole and 
give effect to every provision if it is reasonably possible.22  A meaning inferred 
from a particular provision cannot control the agreement if that inference conflicts 
with the agreement’s overall scheme.23  We consider extrinsic evidence only if the 
contract is ambiguous.24  A contract is not ambiguous “simply because the parties 
do not agree upon its proper construction,” but only if it is susceptible to two or 
                                          
 
19 Id. at 704 (citing General Motors, 897 A.2d at 168). 
20  In re Nantucket Is. Assocs. Ltd. P’ship Unitholders Litig., 810 A.2d 351, 361 (Del. Ch. 2002). 
21 AT&T Corp. v. Lillis, 953 A.2d 241, 252 (Del. 2008) (citing Lorillard Tobacco Co. v. Am. 
Legacy Found., 903 A.2d 728, 739 (Del. 2006)). 
22 GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012) 
(citing E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)). 
23 Id. (citing E.I. du Pont de Nemours & Co, 498 A.2d at 1113). 
24 AT&T, 953 A.2d at 253 (citing Appriva S’holder Litig. Co. v. EV3, Inc., 937 A.2d 1275, 1291 
(Del. 2007)) 
11 
 
more reasonable interpretations.25  If the contractual language at issue is 
ambiguous and if the limited partners did not negotiate for the agreement’s terms, 
we apply the contra proferentem principle and construe the ambiguous terms 
against the drafter.26 
The Delaware Revised Uniform Limited Partnership Act (DRULPA) gives 
“maximum effect to the principle of freedom of contract and to the enforceability 
of partnership agreements.”27  Parties may expand, restrict, or eliminate any 
fiduciary duties that a partner or other person might otherwise owe, but they “may 
not eliminate the implied contractual covenant of good faith and fair dealing.”28 
B. The LPA’s Provisions Governing Mergers and Creating Contractual 
Fiduciary Duties 
 
Unfortunately, limited partnership agreements that attempt to modify, rather 
than eliminate, fiduciary duties often create a Gordian knot of interrelated 
standards in different sections of the agreement.29  This LPA requires us to parse 
several provisions to determine which standards apply to the Merger.  The LPA 
                                          
 
25 Id. at 252 (quoting Lorillard, 903 A.2d at 739). 
26 SI Mgmt. L.P. v. Wininger, 707 A.2d 37, 43 (Del. 1998). 
27 6 Del. C. § 17-1101(c). 
28 6 Del. C. § 17-1101(d). 
29 See, e.g., Gelfman v. Weeden Investors., L.P., 792 A.2d 977, 986 (Del. Ch. 2001) (bemoaning 
the “head-spinning quality” of a limited partnership agreement). 
12 
 
creates procedures for mergers in Article XIV.  Section 14.2 of Article XIV 
establishes that K-Sea GP must approve any proposed merger.  K-Sea GP may 
consent to a merger “in the exercise of its discretion.”30  Section 7.9(b), which 
attempts to clarify the nebulous “discretion” standard, provides: 
Whenever this Agreement . . . provides that [K-Sea GP] . . . is 
permitted or required to make a decision (i) in its “sole discretion” or 
“discretion,” . . . except as otherwise provided herein, [K-Sea GP] . . . 
shall be entitled to consider only such interests and factors as it desires 
and shall have no duty or obligation to give any consideration to any 
interest of, or factors affecting, the Partnership . . . [or] any Limited 
Partner . . . [and] (ii) it may make such decision in its sole discretion 
(regardless of whether there is a reference to “sole discretion” or 
“discretion”) unless another express standard is provided for . . . .31 
 
Therefore, when K-Sea GP decides whether to consent to a merger, it may 
“consider only such interests and factors as it desires and shall have no duty or 
obligation to give any consideration to any interest of, or factors affecting” K-Sea 
or its limited partners.32  The limited partners’ ultimate right to reject a merger 
under Section 14.3 practically limits that discretion however.33   
                                          
 
30 App. to Opening Br. at A141. 
31 Id. at A118. 
32 Id. 
33 The LPA requires a “Unit Majority” to approve a merger or consolidation.  Id. at A142.  A 
Unit Majority is a majority of the “Outstanding Common Units,” which includes KAFR’s 
preferred units on an as-converted basis.  Id. at A042.  The LPA contains an exception to this 
rule.  K-Sea GP can merge the Partnership solely to effect a change in the Partnership’s legal 
form so long as the parties retain the same liabilities, rights, obligations, and federal income tax 
status.  Id. 
13 
 
 
The LPA limits Section 14.2’s broad grant of discretion in Section 7.10(d), 
which provides: 
Any standard of care and duty imposed by [the LPA] or [DRULPA] 
. . . shall be modified, waived or limited, to the extent permitted by 
law, as required to permit [K-Sea GP] to act under [the LPA] . . . and 
to make any decision pursuant to the authority prescribed in [the 
LPA], so long as such action is reasonably believed by [K-Sea GP] to 
be in, or not inconsistent with, the best interests of the Partnership.34 
 
If K-Sea GP were subject to common law fiduciary duties, it could not consent to a 
merger in its sole discretion.35 Therefore, Section 7.10(d) eliminates any duties that 
otherwise exist and replaces them with a contractual fiduciary duty—namely, that 
K-Sea GP must reasonably believe that its action is in the best interest of, or not 
inconsistent with, the best interests of the Partnership. 
 
Finally, the LPA broadly exculpates all Indemnitees (which no party 
disputes includes all the Defendants) so long as the Indemnitee acted in “good 
faith.”36  Although the LPA regrettably does not define “good faith” in this context, 
                                          
 
34 Id. at A119 (emphasis added).  The LPA’s addition of the term “reasonably” distinguishes it 
from limited partnership agreements that Delaware courts have interpreted as establishing a 
purely subjective good faith standard.  See, e.g., In re Atlas Energy Res., LLC Unitholder Litig., 
2010 WL 4273122, at *12 (Del. Ch. Oct. 28, 2010) (noting that “while under Delaware’s 
common law, ‘the objective elements of good faith dominate the subjective element,’ . . . only 
the subjective intent of [the entity’s] officers and directors matters when determining whether 
they acted in good faith”). 
35 See Miller v. Am. Real Estate Partners, L.P., 2001 WL 1045643, at *8 (Del. Ch. Sept. 6, 
2001). 
36 App. to Opening Br. at A116. 
14 
 
we cannot discern a rational distinction between the parties’ adoption of this “good 
faith” standard and Section 7.10(d)’s contractual fiduciary duty, i.e., an Indemnitee 
acts in good faith if the Indemnitee reasonably believes that its action is in the best 
interest of, or at least, not inconsistent with, the best interests of K-Sea.37  If we 
take seriously our obligation to construe the agreement’s “overall scheme,”38 we 
must conclude that the parties’ insertion of a free-standing, enigmatic standard of 
“good faith” is consistent with Section 7.10(d)’s conceptualization of a reasonable 
belief that the action taken is in, or not inconsistent with, the best interests of the 
Partnership.  In this LPA’s overall scheme, “good faith” cannot be construed 
otherwise. 
Thus, while the LPA does not require K-Sea GP to consider any particular 
interest or factor affecting the Partnership when exercising its discretion, K-Sea GP 
still must reasonably believe that its ultimate course of action is not inconsistent 
with K-Sea’s best interests.  Therefore, unless another provision supplants this 
standard, in order to state a claim that withstands Rule 12(b)(6), Norton must 
allege facts supporting an inference that K-Sea GP had reason to believe that it 
                                          
 
37 See Gelfman v. Weeden Investors., L.P., 792 A.2d 977, 986–87 (Del. Ch. 2001) (interpreting 
similar language). 
38 GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012) 
(citing E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)). 
15 
 
acted inconsistently with the Partnership’s best interests when approving the 
Merger. 
C. Does Section 7.9(a) Impose Additional Obligations that Supplant 
Section 14.2’s Discretion Standard? 
 
Norton contends that the LPA’s generally applicable discretion standard for 
mergers must yield to Section 7.9(a), the provision governing conflicts of interest, 
which he argues requires K-Sea GP to establish that the Merger was fair and 
reasonable.  The LPA contemplates that conflicts of interest may arise, and Section 
7.9(a) establishes procedures for curing these conflicts.  Section 7.9(a) provides: 
Unless otherwise expressly provided in [the LPA], . . . whenever a 
potential conflict of interest exists or arises between [K-Sea GP], on 
the one hand, and the Partnership . . . on the other, any resolution or 
course of action by [K-Sea GP] in respect of such conflict of interest 
shall be permitted and deemed approved by all Partners, and shall not 
constitute a breach of [the LPA] . . . or of any duty stated or implied 
by law or equity, if the resolution or course of action is, or . . . is 
deemed to be, fair and reasonable to the Partnership.  [K-Sea GP] 
shall be authorized but not required . . . to seek Special Approval of 
such resolution.  Any . . . resolution of such conflict of interest shall 
be conclusively deemed fair and reasonable to the Partnership if such 
conflict of interest or resolution is (i) approved by Special Approval 
. . . , (ii) on terms no less favorable to the Partnership than those 
generally being provided to or available from unrelated third parties or 
(iii) fair to the Partnership . . . .  [K-Sea GP] shall be authorized . . . to 
consider (A) the relative interests of any party to such conflict, 
agreement, transaction or situation and the benefits and burdens 
relating to such interest . . . and (D) such additional factors as [K-Sea 
GP] . . . determines in its sole discretion to be relevant, reasonable or 
appropriate under the circumstances.  Nothing contained in [the LPA], 
however, is intended to nor shall it be construed to require [K-Sea GP] 
16 
 
(including the Conflicts Committee) to consider the interests of any 
Person other than the Partnership. . . .39 
 
If Section 7.9(a) requires K-Sea GP to establish that the Merger was fair and 
reasonable to K-Sea, we must consider whether the grant of phantom units to the 
Conflicts Committee tainted the Special Approval process.  If, however, Section 
7.9(a) does not impose that affirmative obligation on K-Sea GP, we do not need to 
reach the issue unless Norton has pleaded a violation of the LPA’s more lenient 
discretion standard. 
Section 7.9(a) applies “whenever a potential conflict of interest exists or 
arises.”40  Norton alleges that the IDR Payment created a conflict of interest 
because K-Sea GP did not share the IDR Payment with any other unitholder.  The 
IDR Payment motivated K-Sea GP to increase the amount of consideration K-Sea 
GP received at the expense of the consideration paid to the other unitholders.  
Accepting these well-pleaded allegations as true,41 the IDR Payment created a 
conflict of interest and Section 7.9(a) applies by its terms.  Section 7.9(a)’s 
applicability does not necessarily mean that it displaces Section 14.2’s discretion 
standard, however.  If Section 7.9(a) is only a safe harbor, the phrase “whenever a 
                                          
 
39 App. to Opening Br. at A117. 
40 Id. 
41 In re General Motors (Hughes) S’holder Litig., 897 A.2d 162, 167–68 (Del. 2006) (citing 
Malpiede v. Townson, 780 A.2d 1075, 1082 (Del. 2001)). 
17 
 
potential conflict of interest exists or arises” merely means that the safe harbor is 
available whenever there is a potential conflict of interest. 
The provision’s plain language indicates that if K-Sea GP’s resolution of a 
conflict of interest is fair and reasonable or is deemed to be fair and reasonable, 
that resolution is not a breach of the LPA.  This statement’s contrapositive is that if 
K-Sea GP’s resolution of a conflict of interest is a breach of the LPA, then it is not 
fair and reasonable.  Norton arrives at his construction by inverting Section 7.9(a), 
i.e., he argues that a resolution of a conflict of interest that is not fair and 
reasonable is a breach of the LPA.  Unlike the contrapositive, Section 7.9(a)’s 
inverse does not necessarily follow. 
 
Recognizing that Section 7.9(a)’s text does not mandate his construction, 
Norton argues that other portions of the section and the LPA weigh in its favor.  
Section 7.9(a) states that “[K-Sea GP] shall be authorized but not required . . . to 
seek Special Approval.” 42  Norton contends that, because under the LPA Special 
Approval is optional, that implies that Section 7.9(a) as a whole is mandatory.  We 
disagree.  Read in context, this language means that K-Sea GP is not required to 
obtain Special Approval in every case where a conflict of interest arises.  For 
example, K-Sea GP may determine that the transaction is “on terms no less 
favorable to the Partnership than those . . . available from unrelated third parties” 
                                          
 
42 App. to Opening Br. at A117. 
18 
 
or “fair to the Partnership” to resolve the conflict.43  That example underscores that 
K-Sea GP does not need to resolve a conflict of interest through the Conflicts 
Committee.  The language does not make the entire Section mandatory by 
implication. 
Other LPA provisions support the Vice Chancellor’s construction of Section 
7.9(a).  Section 7.6(d) governs transactions between K-Sea GP and the Partnership, 
which necessarily involve a conflict of interest.  That Section begins by stating that 
“[n]either [K-Sea GP] nor any of its Affiliates shall sell . . . any property to, or 
purchase any property from, the Partnership . . . except pursuant to transactions 
that are fair and reasonable to the Partnership.”44  This language creates an 
affirmative obligation—K-Sea GP may not engage in a transaction with the 
Partnership unless the transaction is “fair and reasonable.”45  Section 7.6(d) 
indicates that the LPA’s drafters knew how to impose an affirmative obligation 
when they so intended, and that Section 7.9(a)’s language does not result from 
sloppy drafting. 
                                          
 
43 Id. 
44 Id. at A114. 
45 See also Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC, 986 A.2d 370, 386–87 (Del. Ch. 
2010) (analyzing transactions between an affiliate of the general partner and the limited 
partnership under a similar provision). 
19 
 
Section 7.9(c) also weighs against Norton’s interpretation.  That Section 
provides that “[w]henever a particular . . . resolution of a conflict of interest is 
required . . . to be ‘fair and reasonable’ . . . the fair and reasonable nature of such 
. . . resolution shall be considered in the context of all similar or related 
transactions.”46  This language indicates that not all resolutions of conflicts of 
interest are required to meet a “fair and reasonable” standard. 
This LPA differs from the limited partnership agreement in Gelfman v. 
Weeden Investors, which Norton contends supports his interpretation.47  In 
Gelfman, the conflict of interest provision required the general partner to “resolve 
such conflict of interest” and then mandated that, in resolving the conflict, the 
general partner consider specific factors.48  No similar mandate appears in Section 
7.9(a). 
Therefore, the Vice Chancellor correctly held that Section 7.9(a) is “a 
permissive safe harbor.”49  Our construction of the LPA indicates that Section 
14.2’s “discretion” standard applies to mergers generally, and that K-Sea GP may 
                                          
 
46 App. to Opening Br. at A118. 
47 Gelfman v. Weeden Investors., L.P., 792 A.2d 977 (Del. Ch. 2001). 
48 Id. at 985. 
49 In re K-Sea Transp. Partners L.P. Unitholders Litig., 2012 WL 1142351, at *8 (Del. Ch. Apr. 
4, 2012); see also In re Encore Energy Partners LP Unitholder Litig., 2012 WL 3792997, at *12 
(Del. Ch. Aug. 31, 2012) (referring to a similar provision as a “contractual safe harbor”); In re 
Inergy L.P. Unitholder Litig., 2010 WL 4273197, at *12 n.109 (Del. Ch. Oct. 29, 2010) (same). 
20 
 
(if it so chooses)  take advantage of Section 7.9(a)’s safe harbor provisions to 
resolve any conflict of interest relating to a merger.50  A resolution of a conflict of 
interest that is actually, or is deemed to be, fair and reasonable is deemed approved 
and is not a breach of the LPA.  If K-Sea GP does not meet that standard, however, 
that does not automatically put K-SEA GP in breach of the LPA.51 
This interpretation achieves the goal of giving each LPA term an 
independent meaning.52  If Section 7.9(a) were construed to impose an affirmative 
obligation on K-Sea GP, it would be unclear whether Section 7.6(d)’s affirmative 
obligation relating to transactions between K-Sea GP and K-Sea—which addresses 
a specific conflict of interest and contains parallel provisions—has any 
independent meaning or serves any independent purpose.   
                                          
 
50 See DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“Specific language 
in a contract controls over general language, and where specific and general provisions conflict, 
the specific provision ordinarily qualifies the meaning of the general one.”) (citations omitted); 
Katell v. Morgan Stanley Grp., Inc., 1993 WL 205033, at *4 (Del. Ch. Jun. 8, 1993) (holding 
that specific provisions in a limited partnership agreement ordinarily qualify general ones). 
51 Our conclusion does not alter the holding of Sonet v. Timber Co., L.P., 722 A.2d 319 (Del. Ch. 
1998).  In Sonet, the Chancellor assumed that a similar conflict of interest provision imposed a 
fair and reasonable standard “‘[u]nless otherwise expressly provided’” and concluded that the 
conflict of interest provision must yield to the “sole discretion” standard in that LPA’s merger 
provision.  Id. at 325–26 (alteration in original).  He reasoned that “[i]t makes no sense, 
therefore, for the decision to merge to be ‘deemed’ approved because, pursuant to [the merger 
provision], it must actually be approved.”  Id. at 325.  Here, we conclude that Section 7.9(a) does 
not impose a “fair and reasonable” standard, and therefore does not conflict with Section 14.2’s 
discretion standard—a result that is consistent with the Chancellor’s conclusion in Sonet that a 
discretion standard governed mergers.  Id. at 326. 
52 See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing Kuhn Constr., 
Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010)) (noting that Delaware 
courts interpret contracts to avoid rendering any part of the contract mere surplusage). 
21 
 
 
Defendants’ initial failure to argue for this construction of the LPA does not 
alter our analysis.  Because Section 7.9(a) is unambiguous, we will not rely on 
extrinsic evidence to aid our interpretation of the LPA.53  Norton’s reliance on 
Sonitrol Holding Co. v. Marceau Investissements54 is misplaced.  In Sonitrol the 
defendant’s interpretation of the contract directly contradicted its previous 
interpretation and its own documents confirmed the plaintiff’s interpretation.55  
Here, although Defendants did not argue that Section 7.9(a) was permissive until 
the Vice Chancellor asked for supplemental briefing, Norton cites no portion of the 
record where Defendants argued Section 7.9(a) was mandatory.56 
 
Because Section 7.9(a) does not impose any additional affirmative duties on 
K-Sea GP, our analysis focuses on the otherwise controlling standard—whether K-
                                          
 
53 GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del 2012) 
(citing Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)). 
54 607 A.2d 1177 (Del. 1992).  In Sonitrol, we held that the relevant agreement was 
unambiguous, and therefore the discussion of the defendant’s presuit conduct was dicta.  See id. 
at 1182 (“Because we find the language of Section 4.7 unambiguous on its face, we need not 
consider any extrinsic evidence when interpreting the section.”). 
55 Id. at 1182. 
56 Similarly, while we will construe an ambiguous partnership agreement against the drafter 
under the contra proferentem doctrine, that doctrine only applies if the partnership agreement is 
ambiguous.  SI Mgmt. L.P. v. Wininger, 707 A.2d 37, 43 (Del. 1998); see also Bank of N.Y. 
Mellon v. Commerzbank Capital Funding Trust II, —A.3d—, 2013 WL 1136821, at *9 (Del. 
Mar. 19, 2013) (construing an agreement against the drafter to give effect to a purchaser’s 
“reasonable expectations”); Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del. 1996) 
(same).  Here, however, the LPA is not “fairly susceptible” to different interpretations and 
therefore contra proferentem is inapplicable.  SI Mgmt., 707 A.2d. at 42 (citing Eagle Indus., 702 
A.2d at 1232). 
22 
 
Sea GP exercised its discretion to approve the Merger in good faith, (i.e., with a 
reasonable belief that its actions were in, or not inconsistent with, the best interests 
of K-Sea).57  In order to state a claim that survives a motion to dismiss under Rule 
12(b)(6), Norton must plead facts supporting a reasonable inference that K-Sea GP, 
the only defendant with a duty relating to the Merger’s approval, acted 
inconsistently with the Partnership’s best interests.  If Norton’s complaint cannot 
establish a breach of the contract’s “good faith” standard, we need not reach 
whether the phantom unit grant disqualified the Conflicts Committee members and 
invalidated the Special Approval process. 
Here, Norton has alleged that the IDR Payment created a conflict of interest 
between K-Sea GP and the Partnership because K-Sea GP obtained consideration 
that did not flow to the common unitholders.  At the motion to dismiss stage we 
must draw all inferences in Norton’s favor.  We therefore could conclude that K-
Sea GP used its position to extract an excessive amount of consideration for its 
IDRs at the expense of the limited partners.  That permits us to infer that K-Sea GP 
may not have acted in good faith when it approved the Merger and submitted it to 
                                          
 
57 Our construction of Section 7.9(a) is consistent with the Chancellor’s conclusion in Gelfman v. 
Weeden Investors, L.P., 792 A.2d 977 (Del. Ch. 2001).  The Gelfman limited partnership 
agreement required the general partner to consider specific factors when resolving a conflict of 
interest, which the Vice Chancellor concluded must yield to the “sole discretion” standard in 
another section of the limited partnership agreement.  See id. at 985–86 (“[W]henever a conflict 
of interest exists . . . the General Partner shall resolve such conflict of interest . . . .”).  Here, 
there is no conflict, because Section 7.9(a) does not impose any such mandatory obligation.   
23 
 
the unitholders for approval.  That raises the next issue, which is whether Norton 
has pled a cognizable claim that K-Sea GP did not act in good faith. 
D. Did the Investment Banker’s Fairness Opinion Create a Conclusive 
Presumption of Good Faith? 
 
In addressing that issue, we must consider yet another LPA provision 
addressing K-Sea GP’s obligation to act in “good faith.”  That provision creates a 
conclusive presumption that K-Sea GP has acted in good faith if K-Sea GP relies 
on a competent expert’s opinion.  Section 7.10(b) provides that 
[K-Sea GP] may consult with . . . investment bankers . . . and any act 
taken or omitted to be taken in reliance upon the opinion . . . of such 
Persons as to matters that [K-Sea GP] reasonably believes to be within 
such Person’s professional or expert competence shall be conclusively 
presumed to have been done or omitted in good faith and in 
accordance with such opinion.58 
 
The Conflicts Committee obtained Stifel’s opinion that the consideration that 
Kirby paid to K-Sea’s unaffiliated common unitholders was financially fair.  No 
party alleges that Stifel lacked the requisite expertise to render that opinion.  
Norton nowhere claims that the opinion did not state that the Merger was fair, nor 
does he allege that the analyses underlying the fairness opinion were flawed.  
Rather, he alleges that K-Sea extracted a larger portion of the consideration than 
the IDRs’ value justified.  We note also that Norton does not claim on appeal that 
Defendants’ actions breached the implied covenant of good faith and fair dealing. 
                                          
 
58 App. to Opening Br. at A119 (emphasis added). 
24 
 
 
Norton argues that K-Sea GP is not entitled to a conclusive presumption of 
good faith because Stifel did not specifically address the IDR Payment’s fairness—
the reason why K-Sea GP activated the Conflicts Committee.  He concedes that the 
unaffiliated unitholders received a fair price, and he correctly notes that a limited 
partnership’s value is not a single number, but a range of fair values.59  While we 
understand Norton’s frustration, the LPA’s provisions control. 
The LPA does not require K-Sea GP to evaluate the IDR Payment’s 
reasonableness separately from the remaining consideration.  Section 7.9(a) 
explicitly states that nothing in the LPA shall be construed to require K-Sea GP to 
consider the interests of any person other than the Partnership.  That Section 
authorizes (but does not require) K-Sea GP to consider the “relative interests of 
any party to such conflict.”60  These provisions indicate that K-Sea GP was not 
required to consider whether the IDR Payment was fair, but only whether the 
Merger as a whole was in the best interests of the Partnership (which included the 
general partner and the limited partners).61  Because of those clear provisions, 
                                          
 
59 Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 466 (Del. Ch. 2011) (quoting Cede & Co. v. 
Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. Dec. 31, 2003) (internal quotation marks 
omitted), aff’d in part, rev’d in part on other grounds, 884 A.2d 26 (Del. 2005)). 
60 App. to Opening Br. at A118–19. 
61 The Defendants argue that Stifel’s opinion went beyond the LPA’s requirements because it 
stated that the consideration Kirby paid to the limited partners was fair, as opposed to the 
consideration paid to K-Sea as a whole.  We do not address whether, under these facts, a fairness 
25 
 
Norton had no reasonable contractual expectation that K-Sea GP or the Conflict 
Committee’s retained investment banker would specifically consider the IDR 
Payment’s fairness. 
 
Because Stifel’s opinion satisfied the LPA’s requirements, we next address 
whether that opinion entitles K-Sea GP to a conclusive presumption of good 
faith.62  Although the Conflicts Committee of the K-Sea Board actually obtained 
the fairness opinion, it is unreasonable to infer that the entire K-Sea Board did not 
rely on the opinion that a K-Sea Board subcommittee obtained.  Similarly, because 
K-Sea GP is a “pass-through” entity controlled by KSGP, the only reasonable 
inference is that K-Sea GP relied on the fairness opinion.  K-Sea GP is therefore 
conclusively presumed to have acted in good faith when it approved the Merger 
and submitted it to the unitholders for a vote.  That process satisfied K-Sea GP’s 
contractual duty to exercise its discretion in “good faith” (as this LPA defines the 
term). 
 
Norton willingly invested in a limited partnership that provided fewer 
protections to limited partners than those provided under corporate fiduciary duty 
                                                                                                                                        
opinion that only addressed a transaction’s fairness to the limited partnership as a whole would 
satisfy a general partner’s duties under the LPA or any other legal theory. 
62 We note that the conclusive presumption provision purports to dramatically restrict the 
unitholders’ ability to challenge a conflicted transaction.  Our discussion of that provision is 
limited to the facts before us.  Because the parties raise no issue regarding the Vice Chancellor’s 
discussion addressing the implied covenant of good faith and fair dealing, we do not opine or 
otherwise comment on the implied covenant of good faith and fair dealing in this Opinion. 
26 
 
principles.  He is bound by his investment decision.  Here, the LPA did not require 
K-Sea GP to consider separately the IDR Payment’s fairness, but granted K-Sea 
GP broad discretion to approve a merger, so long as it exercised that discretion in 
“good faith”.  Reliance on Stifel’s opinion satisfied this standard.  By opining that 
the consideration Kirby paid to the unaffiliated unitholders was fair, Stifel’s 
opinion addressed the IDR Payment’s fairness, albeit indirectly.  Kirby presumably 
was willing to pay a fixed amount for the entire Partnership.63  If K-Sea GP 
diverted too much value to itself, at some point the consideration paid to the 
unaffiliated unitholders would no longer be “fair.” 
  
Furthermore, the LPA does not leave K-Sea’s unitholders unprotected.  K-
Sea GP’s approval merely triggered submission of the Merger to the unitholders 
for a majority vote.64  If the unitholders were dissatisfied with the Merger’s terms, 
“their remedy [was] the ballot box, not the courthouse.”65  Here K-Sea GP is 
                                          
 
63 See, e.g., In re John Q. Hammons Hotels Inc. S’holder Litig., 2009 WL 3165613, at *12 (Del. 
Ch. Oct. 2, 2009) (noting that majority and minority shareholders “were in a sense ‘competing’” 
for portions of the consideration that a third party was willing to pay for a corporation). 
64 App. to Opening Br. at A142 (“[K-Sea GP], upon its approval of the Merger Agreement, shall 
direct that the Merger Agreement be submitted to a vote of Limited Partners . . . .”). 
65 Sonet v. Timber Co., L.P., 722 A.2d 319, 326 (Del. Ch. 1998).  In Sonet, the limited 
partnership agreement required a supermajority vote to consent to mergers, unlike the majority 
vote requirement in this LPA.  Id. at 324.  In both Sonet and this case, the general partner did not 
control the vote’s outcome, so the distinction is not material.  We do not express an opinion 
regarding whether a vote controlled by the general partner under these facts would create a 
viable cause of action. 
27 
 
conclusively presumed to have approved the Merger in good faith, and a majority 
of the unitholders voted to consummate it.  The LPA required nothing more. 
 
E. Does the Complaint Plead a Claim Against the Remaining Defendants?  
 
Norton’s remaining claims are against the K-Sea Board members and KSGP.  
Here, we have held that K-Sea GP, the only Defendant with any duty relating to 
the approval of the Merger, is conclusively presumed to have acted in good faith 
and therefore has not breached the LPA.  While that conclusive presumption only 
applies to K-Sea GP, Norton’s only claim against the other defendants is that they 
caused K-Sea GP to enter into the Merger.  Norton cannot state a cognizable claim 
for relief against the other defendants for causing K-Sea GP to take an action that 
did not breach K-Sea GP’s duties under the LPA.66  Accordingly, we uphold the 
dismissal of Norton’s claims against the remaining defendants.67  
                                          
 
66 See Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 795 A.2d 1, 34 (Del. Ch. 2001) 
(holding that a corporate general partner’s directors “cannot be held liable for breach of fiduciary 
duty in a situation where the [g]eneral [p]artner, because of its compliance with a contractual 
safe harbor, does not owe such liability”), aff’d in part, rev’d in part on other grounds, 817 A.2d 
160 (Del. 2002); Gelfman v. Weeden Investors., L.P., 792 A.2d 977, 992 n.24 (Del. Ch. 2001) 
(noting that a corporate general partner’s directors’ ability to disclaim liability for a breach of 
fiduciary duty depends on whether the corporate general partner has “properly invoked a 
contractual safe harbor”). 
67 The Vice Chancellor also concluded that Norton could not plead a breach of the implied 
covenant of good faith and fair dealing.  He concluded that the LPA’s conclusive presumption of 
good faith barred a claim under the implied covenant.  In re K-Sea Transp. Partners L.P. 
Unitholders Litig., 2012 WL 1142351, at *9–10 (Del. Ch. Apr. 4, 2012) (citing Gerber v. 
Enterprise Prods. Holdings, LLC, 2012 WL 34442, at *12–13 (Del. Ch. Jan. 6, 2012)).  Because 
Norton does not appeal the Vice Chancellor’s implied covenant holding, this argument is not 
before us on this appeal. 
28 
 
IV. 
 CONCLUSION 
For these reasons, Norton has not stated a claim for relief that survives 
Defendants’ Rule 12(b)(6) motion.  Accordingly, the Court of Chancery’s 
judgment is AFFIRMED.