Limited Partners Can Raise Direct Claims Against Boards

A plaintiff alleging conflict-of-interest claims against a limited partnership can pursue his or her litigation directly, instead of derivatively, because the complaint raises contractual, not fiduciary-duty claims, the Delaware Court of Chancery has ruled. The court issued the opinion when it granted class certification to investors suing El Paso Corp. over its $895 million acquisition of a natural gas company.

“If a limited partnership agreement prohibits the actions that were taken, then the limited partners have standing to enforce the limited partnership agreement directly,” said Vice Chancellor J. Travis Laster in Allen v. El Paso Pipeline GP. “The Delaware Limited Partnership Act states that ‘it is the policy of this chapter to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.’ Allowing parties to the limited partnership agreement to enforce the agreement as a contract is consistent with the public policy espoused by the act.”