In his recent opinion in In re El Paso Pipeline Partners L.P. Derivative Litigation, No. 7141-VCL (Del. Ch. June 12, 2014), Vice Chancellor J. Travis Laster dismissed, on summary judgment, claims by unit holders in a master limited partnership (MLP) asserting that the general partner (GP) of the MLP and the board of directors of the GP had breached express and implied terms of the limited partnership agreement, and that the parent of the MLP aided and abetted the alleged breach and tortiously interfered with contract. The decision highlights how challenging it can be for investors in limited partnerships and limited liability companies to successfully assert claims against the general partners and managing members of such entities under Delaware law.
The Delaware Revised Uniform Limited Partnership Act (DRULPA) and the Delaware Limited Liability Company Act allow participants in LPs and LLCs to eliminate fiduciary duties. As the Delaware Court of Chancery observed in In re Inergy L.P. Unitholder Litigation, No. 5816-VCP2010, Del. Ch. LEXIS 217, at 46 (Del. Ch. Oct. 29, 2010): “DRULPA explicitly acknowledges that its provisions seek ‘to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.’” (The same applies for LLCs: “It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”) This freedom does not, however, permit participants in LPs and LLCs to contract away the covenant of good faith and fair dealing that is implied in contracts governed by Delaware law: “The partner’s or other person’s duties may be expanded or restricted or eliminated by provisions in the partnership agreement; provided that the partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”
