The Delaware Supreme Court on June 10 brought back to life claims alleging liability for a general partner’s failure to act in good faith and to deal fairly with limited partners. Until the court’s decision in Gerber v. Enterprise Products Holdings, 2013 LEXIS ____ (June 10, 2013), the Court of Chancery permitted general partners to almost escape liability to the limited partners by adopting sweeping exculpation language in limited partnership agreements. Gerber has now limited the protection such language was thought to provide.
The background to Gerber helps explain its potential significance. The Delaware Revised Uniform Limited Partnership Act (and the Delaware Limited Liability Company Act as well) permits the partners or members to set the terms of their relationship in their partnership agreement. Freedom of contract is king. The DRULPA even permits the partner by their agreement to eliminate the traditional fiduciary duty partners owe to one another. But, there is one exception to that freedom of contract.
