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

817 A.2d 160 (Del. 2002)



The elements of a claim for aiding and abetting a breach of a fiduciary duty are (1) the existence of a fiduciary relationship, (2) the fiduciary breached its duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach, and (4) damages to the plaintiff resulted from the concerted action of the fiduciary and the non-fiduciary. 


The Court of Chancery of the State of Delaware in and for New Castle County found that Hallwood Realty Partners, L.P., 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.


Did the trial court err in finding the defendants liable to plaintiff?




The Supreme Court affirmed the trial court's finding of Hallwood Realty Partners, L.P.’s  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.

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