Opinion ID: 1889298
Heading Depth: 1
Heading Rank: 2

Heading: Preliminary Proceedings in the Court of Chancery

Text: Gotham filed a books and records action in the Court of Chancery in February 1997. On June 20, 1997, Gotham filed another action in the Court of Chancery alleging derivative claims in connection with the Odd Lot Offer and Resale, the Reverse Split, and the Option Plan. Gotham alleged that these transactions were unfair to the Partnership's unitholders because HGI paid an unfairly low price to acquire control over the Partnership. Gotham's claims included breaches by the General Partner of traditional fiduciary duties and contractually based fiduciary duties. The claims also charged Gumbiner and Guzzetti, the General Partner's HGI-affiliated directors, and HGI itself with aiding and abetting those breaches. Gotham and the Partnership negotiated a settlement of the books and records action but the derivative action continued. On summary judgment, the Court of Chancery sustained the contractual fiduciary duty claims and dismissed the traditional fiduciary duty claims on the ground that the Partnership Agreement supplanted traditional fiduciary duties and provided for contractual fiduciary duties by which the defendants' conduct would be measured. [7] The Vice Chancellor found that Sections 7.05 [8] and 7.10(a) [9] of the Partnership Agreement operate together as a contractual statement of the entire fairness standard, with Section 7.05 substantively requiring fair price and Section 7.10(a) substantively requiring fair dealing. [10] No appeal has been taken from this ruling. The Vice Chancellor's summary judgment opinion in this case, however, creates a separate problem. We refer to one aspect of the Vice Chancellor's discussion of the Delaware Revised Uniform Limited Partnership Act (DRULPA) in his summary judgment opinion in this case where he stated that section 17-1101(d)(2) expressly authorizes the elimination, modification or enhancement of ... fiduciary duties in the written agreement governing the limited partnership. [11] It is at least the second time the Court of Chancery has stated in dicta that DRULPA at 6 Del. C. § 17-1101(d)(2) permits a limited partnership agreement to eliminate fiduciary duties. [12] Because the Vice Chancellor's summary judgment order in this matter has not been appealed, his opinion on this point is not before us for review on this appeal. In our view, however, this dictum should not be ignored because it could be misinterpreted in future cases as a correct rule of law. [13] Accordingly, in the interest of avoiding the perpetuation of a questionable statutory interpretation that could be relied upon adversely by courts, commentators and practitioners in the future, we are constrained to draw attention to the statutory language and the underlying general principle in our jurisprudence that scrupulous adherence to fiduciary duties is normally expected. Section 17-1101(d)(2) states: the partner's or other person's duties and liabilities may be expanded or restricted by provisions in the partnership agreement. [14] There is no mention in § 17-1101(d)(2), or elsewhere in DRULPA at 6 Del. C., ch. 17, that a limited partnership agreement may eliminate the fiduciary duties or liabilities of a general partner. Finally, we note the historic cautionary approach of the courts of Delaware that efforts by a fiduciary to escape a fiduciary duty, whether by a corporate director or officer or other type of trustee, should be scrutinized searchingly. [15] Accordingly, although it is not appropriate for us to express an advisory opinion on a matter not before us, [16] we simply raise a note of concern and caution relating to this dubious dictum in the Vice Chancellor's summary judgment opinion. [17]