A recent Delaware Court of Chancery decision highlights the importance of explicitly drafted waivers of fiduciary duty in Delaware limited partnership agreements. The decision also addressed the extent of a majority owner's duties to minority holders, generally.  The case arose when El Paso Corporation (the "Corporation") announced its intent to merge with Kinder Morgan, Inc.  El Paso is the owner of the general partner of El Paso Pipeline Partners, L.P., a publicly traded Delaware limited partnership (the "Partnership"). The minority unitholders in the Partnership alleged that the Corporation had an obligation to represent the interests of the Partnership's minority unitholders and that the Corporation extracted value from the merger at the expense of the minority unitholders.

The Court dismissed the claims of the minority unitholders, citing the waiver of the general partner's fiduciary duty contained in the Partnership's limited partnership agreement. The Court characterized the waiver language as "plain and unambiguous" and "insurmountable", stating that the waiver "expressly eliminates any fiduciary duties owed [by the General Partner to minority unitholders]."  The Delaware Revised Uniform Limited Partnership Act permits elimination of fiduciary duties by contract where the intent to do so is explicit.

The Court further stated that a controlling owner "cannot be liable for breaching fiduciary duties owed to minority holders unless it uses control to direct the actions of the entity it controls against the interests of that minority." The plaintiffs in this case did not allege that the Corporation did this; rather they argue that the Corporation should have been prevented by its fiduciary duties from entering into a transaction that might  put the  minority holders at a disadvantage.  The Court dismissed this argument, explaining that it has no support under Delaware law and is directly contradicted by the partnership agreement itself, which expressly permits the Corporation to compete with the Partnership and disclaims liability in connection with fiduciary duties.

Hite Hedge LP v. El Paso Corp., C.A. No. 7117-VCG (Del. Ch. Oct. 9, 2012)