In Inter-Marketing Group USA, Inc. v. Amstrong, C.A. No. 2017-0030-TMZ (Jan. 31, 2019), a unitholder brought a derivative suit against the general partner of a limited partnership and individuals who were allegedly in control of the general partner for breach of fiduciary duty. The general partner moved to dismiss since the limited partnership failed to make a pre-suit demand or plead demand futility. The unitholder argued that a demand was futile given exposure to substantial personal liability if the suit moved forward.
The limited partnership agreement provided that “[a]ny standard of care and duty imposed by [law or the agreement] shall be modified, waived or limited” so long as the general partner acted in what it believed to be in the best interest of the partnership. The general partner argued that this provision eliminated common-law fiduciary duties that formed the basis of the substantial risk of personal liability. The unitholder contended that the provision modified but did not eliminate common-law fiduciary duties. Following the Delaware Supreme Court’s controlling decision in Norton v. K-Sea Transportation Partners L.P. which addressed a provision functionally identical to the one in this case, the Court held that the provision in this case eliminated rather than modified common-law fiduciary duties.
BOTTOM LINE: The following language eliminates common law fiduciary duties and replaces them with a contractual fiduciary duty:
“Any standard of care and duty imposed by this Agreement or under the Delaware Act or any applicable law, rule or regulation shall be modified, waived or limited, to the extent permitted by law, as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the Authority prescribed in this Agreement, so long as such action is reasonably believed by the General Partner to be in, or not inconsistent with, the best interests of the Partnership.”