In Forsythe v. ESC Fund Management Co., 2007 WL 2982247 (Del. Ch., Oct. 9, 2007), read opinion here, the Chancery Court allowed a breach of fiduciary claim to proceed despite the absence of a pre-suit demand. The court discussed both the Caremark standard and common law partnership duties, but determined that the language of the parties’ partnership agreement provided the applicable standard to measure the behavior of the defendants. The court also applied the Aronson/Rales pre-suit demand analysis in the context of a general partner of a limited partnership.
The court also discussed those relationships on which fiduciary duties are imposed, and found that the Investment Advisor in this matter had such duties. This is a case where the court’s own summary may be the most pithy overview:
A major bank offered to its most highly paid employees partnership interests
in a fund intended to co-invest with the bank in its proprietary investments. In
accordance with the partnership agreement, the corporate general partner, owned
by its three unaffiliated directors, delegated the responsibility for the fund’s
management to affiliates of the bank. After the fund suffered extreme losses, a
group of limited partners brought suit against, the bank, the general partner, its
directors and the bank’s affiliates for breach of fiduciary duty and breach of the
The defendants have moved to dismiss on various grounds, including failure
to make pre-suit demand on the general partner. The issue raised by this aspect of
the motion is whether the general partner’s oversight duty is governed by the
familiar standard of Caremark or by a higher standard rooted in the partnership
The court concludes the partnership agreement provides the relevant
standard. Particularly in light of the general partner’s full delegation of its
managerial duties to conflicted persons, the residual duty of oversight found in the
agreement imposes a duty upon the general partner to take active steps to satisfy
itself that the conflicted delegates actually discharge their powers loyally to the
fund and in conformity with the partnership agreement. Because the complaint
adequately alleges facts which, if true, show that the general partner did not fulfill
that duty, demand will be excused.
UPDATE: Here is a decision on Oct. 31, denying the Motion for Reconsideration under Rule 59(f).