In this recent decision, the Court of Chancery reaffirmed that parties to alternative entity agreements are free to order their affairs, including through liability waivers. The case arose from the sale of a software company, wherein the Sellers remained minority investors in the company through a limited partnership with the Buyers, which was governed by a limited partnership agreement. After the sale, the company’s performance suffered, and the Buyers convened a committee to investigate fraud allegedly committed by the Sellers. Litigation ensued.
Sellers brought a variety of claims based on alleged breaches of the limited partnership agreement. Certain of the Buyers moved to dismiss arguing, among other things, that they were insulated from liability based on the limited partnership agreement’s liability waiver. The waiver provided that no limited partner would have any liability based for “any losses of the [p]artnership.” The Court found this provision enforceable, observing that “Delaware courts respect the terms of a partnership’s governing agreements to preserve the maximum flexibility of contract.” Accordingly, the Court dismissed the claims against the limited partner defendants.
