The Delaware Supreme Court recently issued several decisions that some argue go a long way toward eliminating any duty by controllers of limited partnerships or limited liability companies to act in good faith and to deal fairly. In Norton v. K-Sea Transportation Partners L.P., 67 A.3d 354 (Del. 2013), and Brinckerhoff v. Enbridge Energy, 67 A.3d 69 (Del. 2013), both issued the same day, the court held that a limited partnership agreement effectively exculpated managers of limited partnerships in conflicted transactions.
More recently, in Allen v. Encore Energy Partners L.P., No. 534, 2012, 2013 Del. LEXIS 378 (Del. July 22, 2013), the Supreme Court may have gone even further by sanctioning a limited partnership agreement’s exculpation of managers who subjectively believed their actions were in good faith, even if objectively they acted unreasonably. Given the obvious difficulty of proving a manager subjectively believed he or she was acting improperly, plaintiffs may never be able to prevail in such cases despite evidence the managers favored the controlling partners or members over the minority interest owners. While recent, well-publicized verdicts show that some defendants will brag about their lack of loyalty to investors, those cases shock us partly because they are so rare. Even in the age of social media, frank confessions of wrongdoing by managers does not happen often.
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