Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.

Summary

The Delaware Supreme Court held that a limited partnership agreement may establish contractual fiduciary duties substantially mirroring traditional entire-fairness duties. It affirmed liability for the general partner and related parties arising from an improper resale of partnership units that increased the general partner's control, but held that the damages calculation failed to account for a control premium. The court remanded for consideration of an appropriate remedy, including rescission, rescissory damages, sterilization of voting rights, or another method of accounting for the control premium.

Holdings

1. The Odd Lot Resale was a resale of existing partnership units, not an issuance of new units, and therefore was governed by the partnership agreement provisions requiring fair price and fair dealing and an independent Audit Committee review.
2. Although Hallwood Group, Gumbiner, and Guzzetti could not be sued for breach of the partnership agreement because they were not parties to it, they could be held jointly and severally liable for aiding and abetting the general partner's breach of the contractual fiduciary duties.
3. The Court of Chancery had discretion to award compound prejudgment interest and did not abuse that discretion by compounding interest monthly.
4. Rescission is not automatically required for a serious breach or breach of a contractual fiduciary duty; the Court of Chancery has discretion to deny rescission when the plaintiff unjustifiably delays seeking it, provided that the court orders a reasonable alternative remedy.
5. The Court of Chancery abused its discretion by awarding damages without accounting for the control premium resulting from the Odd Lot Resale and by failing to address the applicability of rescissory damages.

Questions Presented

1. Whether the Odd Lot Resale was governed by the partnership agreement's provisions imposing contractual fiduciary duties of entire fairness or by the provision granting the general partner authority to issue units.
2. Whether Hallwood Group, Gumbiner, and Guzzetti could be held jointly and severally liable for aiding and abetting the general partner's breach of contractually created fiduciary duties.
3. Whether the Court of Chancery had discretion to award compound prejudgment interest.
4. Whether rescission was legally required or otherwise warranted despite Gotham's delay in seeking that remedy.
5. Whether the Court of Chancery abused its discretion by calculating damages without accounting for the control premium created by the transaction.

Disposition

reversed_and_remanded