Opinion ID: 3051480
Heading Depth: 2
Heading Rank: 1

Heading: A General Partner’s Duty of Loyalty Under

Text: California Law [1] Under California law, the general partner of a limited partnership has the same fiduciary duties as a partner in any other partnership. Cal. Corp. Code § 15616(b). “The fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subdivisions (b) and (c).” Cal. Corp. Code § 16404(a). Subdivision (b) of the statute, in relevant part, states: (b) A partner’s duty of loyalty to the partnership and the other partners includes all of the following: (1) To account to the partnership and hold as trustee for it any property, profit, or ben- efit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of part- nership property or information, including the appropriation of a partnership opportu- nity. 3106 PERRETTA v. PROMETHEUS DEVELOPMENT (2) To refrain from dealing with the part- nership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the part- nership. Id. § 16404(b). “A partner may not dissolve a partnership to gain the benefits of the business for himself, unless he fully compensates his copartner for his share of the prospective business opportunity.” Leff v. Gunter, 658 P.2d 740, 745 (Cal. 1983) (quoting Page v. Page, 359 P.2d 41, 44 (Cal. 1961)). In the FAC, the Plaintiffs allege that the Merger constituted a self-dealing transaction which violated PDC’s duty of loyalty by setting an “unfairly low price.”5 [2] However, not all self-interested transactions violate the duty of loyalty. “A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.” Cal. Corp. Code § 16404(e). The question is not whether the interested partner is benefitted, but whether the partnership or the other partners are harmed. “Partnership is a fiduciary relationship, and partners may not take advantages for themselves at the expense of the partnership.” Jones v. Wells Fargo Bank, 112 Cal. App. 4th 1527, 1540 (2003) (emphasis added). “There is an obvious and essential unfairness in one partner’s attempted exploitation of a partnership opportunity for his own personal benefit and to the resulting detriment of his copartners.” Leff, 658 P.2d at 744. “Thus, a partner who seeks a business advantage over another partner bears the burden of showing complete good faith and fairness to the other.” Everest Investors 8 v. McNeil Partners, 114 Cal. App. 4th 411, 424 (2003). 5 Because this transaction involves self-dealing, PDC’s argument that we ought to defer to its decision under the business judgment rule is unfounded. See Everest Investors 8 v. McNeil Partners, 114 Cal. App. 4th 411, 429-30 (2003) (“The business judgment rule does not shield actions taken . . . as a result of a conflict of interest.”). PERRETTA v. PROMETHEUS DEVELOPMENT 3107 [3] One way a self-interested partner may meet this burden is to have disinterested partners ratify its actions. The doctrine of shareholder ratification is well known in the corporate context. However, the only California case specifically addressing ratification in a partnership context is Skone v. Quanco Farms, 261 Cal. App. 2d 237 (1968). In Skone, the court held: there is no breach of a fiduciary duty if there has been a full and complete disclosure, if the partner who deals with partnership property first discloses all of the facts surrounding the transaction to the other partners and secures their approval and consent. In fact, it would be incongruous to hold that a partner who consented to a partnership transaction, with full knowledge of all the facts, may later complain and seek damages against the other partner simply because he benefitted by the transaction. Id. at 241 (citations and footnotes omitted). California statutory law expressly provides for ratification by a partnership: “All of the partners or a number or percentage specified in the partnership agreement may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.” Cal. Corp. Code § 16103(b)(3)(B). The language of both Skone and Cal. Corp. Code § 16103(b)(3)(B) indicates that, upon a showing of proper ratification by the partners, any claim against the partner for a violation of the duty of loyalty is extinguished. Thus, we must determine whether any potential claim Plaintiffs might have for breach of the duty of loyalty was extinguished by a valid ratification of the Merger under Cal. Corp. Code § 16103(b)(3)(B).