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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

Covenant Not To Compete When Buying or Selling a Business (Part V)

July 21, 2016

Texas.

In Texas, as in many other states, a covenant not to compete is enforceable if: (i) it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; (ii) it is reasonable as to time, geographic area, and scope of activity to be restrained; and (iii) the restraint imposed is no greater than is necessary to protect the goodwill or other business interests at issue.[1]  If the first two conditions are met but the restraint imposed is greater than necessary, Texas courts have the authority to reform the covenant to the extent necessary to make it reasonable as to time, geographic area, and scope of activity.… Read the rest

Covenant Not To Compete When Buying or Selling a Business (Part IV)

July 14, 2016

New York: Sale of Business and Good Will Beyond the Label.

In New York, non-competes used to be strongly disfavored by courts.[1]  Over time, however, courts came to recognize that there are situations in which it was not only desirable but essential to enforce non-competes.[2]  For example, in the context of a sale of a business along with its good will as a going concern, New York courts enforce a covenant not to compete because a seller of a business should not be allowed to recapture the good will of the very business he or she transferred for value by competing against the buyer.… Read the rest

Covenant Not To Compete When Buying or Selling a Business (Part III)

July 5, 2016

Florida: Reasonableness Matters.

In Florida, restrictive covenants are not prohibited, so long as they are reasonable in time, area, and line of business.[1]  In the context of the sale of a business or professional practice, Florida courts generally presume reasonable if the restriction is less than three years in duration and unreasonable if more than seven years in duration.  Additionally, the person seeking to enforce a restrictive covenant must: (i) show the existence of a legitimate business interest justifying the restriction, such as trade secrets, other valuable confidential business or professional information, substantial relationships with customers/patients/clients, goodwill, or special training; and (ii) prove that the restraint is reasonably  necessary to protect the legitimate business interest.… Read the rest

Covenant Not To Compete When Buying or Selling a Business (Part II)

June 28, 2016

California: It All Comes Down to Goodwill.

Generally speaking, non-competes are void under California law.[1]  Exceptions do exist.  In the context of the sale of goodwill in a business, for example, the seller may agree not to compete with the buyer so long as the buyer carries on a like business.[2]  This makes sense because it would be unfair for the seller to engage in a competitive business that diminishes the value of the business sold.  So how does this work in practice?… Read the rest

Covenant Not To Compete When Buying or Selling a Business (Part I)

June 16, 2016

If your business employs skilled workers, or you have been one, you may be familiar with non-compete agreement, also known as covenant not to compete.  For those who are less familiar with the subject, it is a contractual provision under which one party agrees not to compete in the same business, usually for a specific time period and/or in a defined geographic area.  For example, in the context of employment, an employee may sign an employment agreement and agree not to work for a competitor of the employer for, say, three years after termination of the employment. … 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.