Perretta v. Prometheus Development Company, Inc. case brief

Perretta v. Prometheus Development Company, Inc. case brief summary
520 F.3d 1039 (2008)

CASE SYNOPSIS

Plaintiffs, two limited partners suing as representatives of the class of limited partners, sought review of a judgment from the United States District Court for the Northern District of California, which granted Fed. R. Civ. P. 12(b)(6) dismissal of their action for breach of fiduciary duty against defendants, the general partner and its sole officer.

CASE FACTS
Plaintiffs alleged that defendants breached their fiduciary duty of loyalty under Cal. Corp. Code § 16404(b) by imposing a self-dealing merger, on unfair terms, without a valid ratification by disinterested limited partners.

DISCUSSION

• As an initial matter, the court held that the district court abused its discretion in finding in the alternative that plaintiffs were judicially estopped from denying a ratification of the merger. 
• The court further held that plaintiffs' claim for a violation of the duty of loyalty was not extinguished by a valid ratification of the merger under Cal. Corp. Code § 16103(b)(3)(B). 
• The district court erroneously based its determination of what constituted a "majority vote" on the rules in the proxy statement. 
• The court held that only the partnership agreement could vary the unanimous ratification requirement of § 16103(b)(3)(B) and that it would be "manifestly unreasonable" for a partnership agreement to include votes cast by an interested general partner in a ratification vote. 
• Construing the agreement as requiring a vote of the majority of the outstanding limited partner units owned by unaffiliated partners, the court found no valid ratification.

CONCLUSION
The court reversed the judgment and remanded the case for further proceedings consistent with the court's opinion.

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