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

Gotham Partners, L.P. v. Hallwood Realty Partners, L.P. case brief summary
817 A.2d 160 (2002)

CASE SYNOPSIS

The Court of Chancery of the State of Delaware in and for New Castle County found that defendants, a real estate limited partnership and its controlling entities and persons, were jointly and severally liable to plaintiff, the largest limited partner, after defendants entered into transactions (a reverse split, an unit option plan, and an odd lot tender offer) which, inter alia, increased the controlling group's control. The parties appealed.

DISCUSSION

• The supreme court affirmed the trial court's finding of defendants' breach of the partnership agreement provisions and the entire fairness standard and summarized the transactions. 
• The controlling entities' interest increased from 5.1 percent to 11.4 percent under a unit option plan and reverse split. 
• The reverse split created more odd lots. 
• An odd lot tender offer and subsequent resale of those units to the controlling entities (increasing their interest from 11.4 percent to 29.7 percent--66.67 percent was required to remove a general partner) was a "resale" and not a new unit issue exempted from the limited partner consent. 
• That consent was needed and not obtained. 
• The value of the units purchased by the controlling entities was required to, but did not, include a control premium element. 
• The limited partner delayed seeking rescission or voting sterilization and damages. 
• The supreme court instructed, upon remand, for the trial court to redetermine a rationally articulated rescission-substitute remedy, comprised of rescission, sterilization, and damages, to put the limited partner in the position it would have been in if defendants had complied with the partnership agreement.

CONCLUSION
The supreme court affirmed the trial court's judgment for joint and several liability for breach of the provisions of the partnership agreement providing for contractually created fiduciary duties substantially mirroring traditional corporate law fiduciary duties and for the controlling group to treat partners in accord with the entire fairness standard, and reversed and remanded for a redetermination of appropriate remedies.


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