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Tagged Posts: fiduciary duty’

Can an LLC Be Precluded from Exercising Its Right to Bankruptcy Relief?

October 11, 2016

To be sure, bankruptcy is not something that new and emerging businesses often think about.  But however unpleasant the thought might be, it may become necessary in the course of running a business to get a fresh start.  In the second quarter of 2016, for example, businesses with 1-4 employees constituted 38.39% of business bankruptcy filings, while businesses with 5-9 employees and business with 10-19 employees constituted 18.29% and 9.69%, respectively.[1]  While big businesses are not immune from the risks of bankruptcy, the numbers seem to suggest that the vast majority of bankruptcy petitions are filed by small businesses, making it all the more necessary for them to plan ahead.… Read the rest

Make Sure To Read the Limited Partnership Agreement Before You Sign: Limited Partnership and Fiduciary Duties Under Delaware Law (Part III)

September 1, 2016

In Dieckman v. Regency GP LP,[1] the court noted that limited partnerships are governed by their partnership agreements and by Delaware’s limited partnership law.  As the court emphasized, the explicit policy of the law is “to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.”  In other words, in Delaware, as in many other states, courts would generally respect what the partners agree to in a limited partnership agreement, including expansion or restriction of fiduciary duties under the partnership agreement.  … Read the rest

Make Sure To Read the Limited Partnership Agreement Before You Sign: Limited Partnership and Fiduciary Duties Under Delaware Law (Part II)

August 25, 2016

Dieckman v. Regency GP LP[1] involved the acquisition of Regency Energy Partners LP (“Regency”) by an affiliated entity in a merger.  Dieckman was a former unitholder of Regency.  Dieckman claimed that Regency’s general partner (“GP”) favored the interests of its affiliates in agreeing to an unfair merger price and, by doing so, breached the limited partnership agreement (“LP agreement”).  Specifically, the LP agreement, which governs GP’s relationship with Regency’s limited partners, provided that whenever GP takes action in its capacity as GP, it must do so in good faith, meaning it “must believe that the determination or other action is in the best interests of the Partnership.”  Interestingly, the LP agreement also contained several “safe harbors” designed to shield GP from claims based on a breach of the LP agreement “or of any duty stated or implied by law or equity” due to conflicts of interest in the following situations:

(i) approval by a majority of the members of the conflicts committee; or

(ii) approval by the vote of a majority of the common units (excluding common units owned by GP and its affiliates).… Read the rest

Make Sure To Read the Limited Partnership Agreement Before You Sign: Limited Partnership and Fiduciary Duties Under Delaware Law (Part I)

August 18, 2016

In our previous blog series on Comparison of LLC Statutes, we talked about fiduciary duties in the context of a limited liability company (LLC).  Fiduciary duty is a legal duty to act solely in another person’s interests.  It generally encompasses the duty of care (duty to act in good faith and exercise reasonable care in carrying out obligations to the company) and the duty of loyalty (duty to put the best interests of your company above any personal advantages).  We mentioned that some states, including Delaware, Texas, and New York, allow an LLC agreement to expand, restrict, or even eliminate a manager’s or a member’s fiduciary duty within limits.  … Read the rest

New York Law Update: When Is a Corporate Officer Liable for the Acts of the Corporation? (Part II)

May 3, 2016

Public Sector Pension Investment Board (“PSP”) was a Canadian corporation that invested the pension assets of various Canadian public employees.[1]  Between 2012 and 2013, PSP invested with investment advisor Saba Capital Management, L.P. (“Saba”).  At some point, PSP experienced losses and exercised its redemption right—that’s when an investor can require a company to repurchase shares under specified terms.  Saba calculated the redemption price.  PSP contested the value of certain bonds.  Saba then used a different pricing method to mark the bonds up to higher prices, even though, according to PSP, nothing had changed in the markets since PSP’s redemption so as to justify an adjustment. … Read the rest

New York Law Update: When Is a Corporate Officer Liable for the Acts of the Corporation? (Part I)

April 26, 2016

As you know, we often focus on issues related to personal liability on this blog.  In our multi-post blog series on personal liability of business owners, for example, we discussed types of business entities designed to protect business owners from business debts and liabilities.  In our multi-post blog series on corporate veil piercing, we looked at situations where courts “pierce the corporate veil” to hold LLC members liable for business debts, and in another multi-post blog series on single-member LLCs and creditors’ rights, we looked at situations where single-member LLCs had no charging order protection in the context of bankruptcy.… Read the rest

Delaware Law Update: The Meaning of “Control” in “Controlling Stockholder” (Part II)

April 21, 2016

In Calesa Associates, L.P. v. American Capital, Ltd., a group of minority stockholders of Halt Medical, Inc. (the “company”) filed a lawsuit for breaches of fiduciary duty in connection with a corporate transaction against current and former directors of the company and a stockholder that allegedly controlled them, American Capital, Ltd. and its affiliates (collectively, “American”).[1]  According to the minority stockholders, American owned 26% of the company prior to the transaction at issue and exercised sufficient control over the company’s board of directors. … Read the rest

Delaware Law Update: The Meaning of “Control” in “Controlling Stockholder” (Part I)

April 14, 2016

We write frequently about minority shareholder rights here.  We started with Ritchie v. Rupe, a Texas Supreme Court case that completely changed the lay of the land by making it harder for minority shareholders to bring lawsuits based on oppressive conduct by majority shareholders (see here).  We discussed Bontempo v. Lare (available here), a Maryland case on remedies for shareholder oppression, which, in addition to dissolution, recognized equitable remedies such as accounting for allegedly misappropriated funds, appointment of a receiver for the purposes of continued operation of the corporation, issuance of an injunction to prohibit oppressive conduct, and damages to minority shareholders as compensation for oppressive conduct, to name just a few. … Read the rest

All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.