The Delaware Supreme Court affirmed the dismissal of a conflict of interest lawsuit relating to a merger transaction between a publicly traded Delaware limited partnership and its general partner's controller. The claimant, a limited partner, argued that the general partner, its controller and the directors of the general partner breached contractual duties owed under the limited partnership agreement.
The court found that the limited partnership agreement replaced default fiduciary duties (such as loyalty and care) with a contractual duty that required the merger to be approved in "good faith" (as defined in the agreement) by the conflicts committee of the board of directors of the general partner. The "good faith" standard required a subjective belief that the merger was in the best interests of the limited partnership. The court affirmed the dismissal of the claim after finding the claimant would be unable to successfully plead and prove that (i) the conflicts committee believed it was acting against the best interests of the limited partnership in approving the merger or (ii) the conflicts committee consciously disregarded its duty to develop a subjective belief that the merger was in the best interests of the limited partnership.
Allen v. Encore Energy Partners, L.P., No. 534, 2012 (Del. Sup. Ct. July 22, 2013)