## Facts

- Rincon Country Mobile Home Park, Ltd. was formed in 1974 as an Arizona limited partnership with Robert and Mildred O’Leary as the sole general partners and 38 limited investors.
- The O’Learys held 62.1% of the partnership units; the remaining investors held 37.9%; the plaintiff limited partners collectively owned about 5%.
- The partnership acquired 36.46 acres adjacent to the mobile home park for $47,625; the parcel was undeveloped and not used for constructing the park.
- The parcel was zoned suburban ranch; about 11 acres lay in the Pantano Wash and were treated as unusable; rezoning efforts contemplated conveying those 11 acres to the county.
- In 1978, the partnership sold the mobile home park on an installment basis for $4,000,000; the partnership continued and retained the undeveloped parcel.
- The O’Learys later acquired for themselves 25 acres of the partnership’s undeveloped land; limited partners alleged self-dealing and breach of fiduciary duty and sought a constructive trust or damages.
- After a bench trial, the superior court awarded $60,650 compensatory damages, $10,000 punitive damages, and $13,125 attorney’s fees.

## Issues

1. Whether the general partners breached fiduciary duties by acquiring for themselves 25 acres of partnership land.
2. Whether the partnership agreement authorized the general partners to purchase partnership land at market value without limited-partner consent.
3. Whether punitive damages may be awarded for a general partner’s conduct in a fiduciary-duty dispute, and under what standard.
4. Whether the trial court applied a legally correct method for computing compensatory damages.
5. Whether attorney’s fees were available under A.R.S. § 12-341.01(A) where the fiduciary-duty claim depended on the partnership agreement.

## Decision

- The court held the partnership agreement authorized the general partners to purchase partnership land at market value without obtaining consent from limited partners.
- The court concluded the trial court used an incorrect method to calculate compensatory damages and ordered a new trial on compensatory damages.
- The court recognized punitive damages are not categorically barred in this setting and may be awarded upon proof of malice or reckless disregard for the limited partners’ rights.
- The court treated the dispute as arising from the partnership agreement for purposes of A.R.S. § 12-341.01(A), supporting an attorney-fee award in an appropriate case.

## Legal Principles

- General partners owe fiduciary duties to limited partners, but the scope and permissibility of challenged conduct is evaluated in light of the express terms of the partnership agreement.
- Self-dealing is not per se improper when expressly authorized by the partnership agreement and carried out at fair market value; liability depends on unfair advantage, lack of fairness, or deviation from contractual authority.
- Compensatory damages in a dispute over an authorized market-value purchase must be tied to legally supportable measures (including any proven difference between market value and the price paid, plus provable consequential loss), not speculative partnership-loss theories.
- Punitive damages in fiduciary-duty cases require proof of malice, an “evil mind,” or reckless indifference to the rights of others.
- A claim framed as breach of fiduciary duty can “arise out of a contract” under A.R.S. § 12-341.01(A) when the asserted duties and alleged breach depend on the partnership agreement’s express provisions.

## Conclusion

The court construed the limited partnership agreement to allow the general partners to buy partnership land at market value without limited-partner consent, required a new trial on compensatory damages due to an erroneous valuation method, and confirmed that punitive damages and attorney’s fees may be available when supported by the governing standards and the contract-based nature of the dispute.


Jerman v. O’Leary, 145 Ariz. 397, 701 P.2d 1205 (Ct. App. 1985)