A recent Delaware Court of Chancery opinion explained the meaning of undefined terms in a limited partnership agreement which required the general partner in the Limited Partnership to use “best efforts” and “sound business practices.” In connection with claims that the general partner breached the agreement, the court in Wenske v. Blue Bell Creameries, Inc., C.A. No. 2017-0699-JRS (Del. Ch. July 6, 2018), explained that it would use dictionary definitions to help illustrate the meaning of those undefined terms. See page 25 and footnotes 91 to 93.
The court did not refer to the more common standard of “commercially reasonably efforts”, but that somewhat related contractual standard has been discussed in cases highlighted on these pages. Instead, the court’s application of dictionary definitions of the terms “best efforts” and “sound business practices” were applied to deny the motion to dismiss for breach of contract.The court also provided helpful contract interpretation principles in connection with how to define terms not defined in an agreement. See footnote 25.
Additional Noteworthy Principles Applicable to Commercial Litigation:
- The court reiterated the well-known Delaware principle that unless expressly disclaimed, alternate entities such as limited partnerships will be subject to default fiduciary duties. See footnote 3.
- The court explained that when fiduciary duties are disclaimed, and a new contractual standard is inserted to replace default fiduciary standards, the appropriate nomenclature for a claim for breach of that standard is a simple breach of contract, and not a breach of a “contractual fiduciary duty.” See pages 35 and 36.
- The court observed in passing what the elements of a claim for piercing the corporate veil are, and even though the plaintiffs did not use that terminology, that is how the court interpreted their claim. The court described why the elements for such a claim were not met. See pages 37 and 38.
- In connection with granting the motion to dismiss the claim for breach of fiduciary duties, the court discussed the well-recognized concept in Delaware that the controllers of a corporate general partner of a limited partnership may owe fiduciary duties to the limited partnership, if such persons exercise control over the limited partnership’s property—but that claim cannot be made if the limited partnership disclaims all fiduciary duties. See pages 42 and 43 and accompanying footnotes. The Delaware decision that articulated that cause of action against controllers of a corporate general partner of an L.P.is known as In re USA Cafes, L.P. Litigation, 6 A.2d 43 (Del. Ch. 1991).