## Facts

- American Real Estate Partners, L.P. (AREP) was a Delaware limited partnership formed to acquire, hold, and manage real estate and related investments.
- American Property Investors, Inc. (API) served as AREP’s general partner and controlled AREP’s management and operations.
- Carl C. Icahn was API’s sole shareholder and CEO and allegedly controlled API and, indirectly, AREP.
- AREP’s partnership agreement authorized the general partner and its affiliates to engage in other ventures, including ventures competing with AREP, and stated there was no obligation to present investment opportunities to AREP.
- Limited partners brought a derivative action on AREP’s behalf against API, Icahn, an Icahn-affiliated company (Bayswater), and API directors.
- Plaintiffs alleged defendants breached fiduciary duties, chiefly by diverting partnership opportunities and profits to Icahn-controlled affiliates in transactions within AREP’s line of business.
- Defendants moved to dismiss under Court of Chancery Rule 12(b)(6), arguing the agreement permitted the challenged conduct and the complaint did not plead a viable fiduciary-duty claim.

## Issues

1. Whether the derivative complaint stated a claim for breach of fiduciary duty (including loyalty-based corporate/partnership opportunity and self-dealing theories) against the general partner, its controller, and affiliates.
2. Whether the limited partnership agreement’s conflict-permitting provisions displaced or narrowed default fiduciary obligations such that the alleged diversion of opportunities was not actionable absent allegations outside the agreement’s authorization.

## Decision

- The Court of Chancery granted the motion to dismiss for failure to state a claim.
- The court treated the partnership agreement as controlling and concluded its provisions permitted the general partner and affiliates to compete and to retain opportunities and profits without presenting them to AREP.
- The court held the complaint did not plead facts showing conduct beyond what the agreement allowed or otherwise constituting a legally cognizable fiduciary breach within the contractual framework.
- The Delaware Supreme Court affirmed, agreeing that the complaint did not sufficiently allege a breach of fiduciary duty and expressly declined to address other issues raised on appeal.

## Legal Principles

- In a Delaware limited partnership, the partnership agreement generally governs the parties’ duties and may restrict or eliminate default fiduciary duties, subject to the implied covenant of good faith and fair dealing.
- When an agreement authorizes competition and disclaims any obligation to present opportunities to the partnership, a claim framed solely as “usurpation” of opportunities must plead facts showing a violation of an express contractual limit, a residual non-displaced duty, or the implied covenant.
- A derivative complaint must identify specific, actionable conduct and a viable legal theory consistent with the governing agreement; conclusory characterizations of unfairness are insufficient to survive Rule 12(b)(6).

## Conclusion

The courts dismissed the limited partners’ derivative fiduciary-duty claims because the partnership agreement permitted the general partner and its affiliates to pursue competing ventures and retain opportunities, and the complaint did not plead facts establishing a breach that survived those contractual provisions.


Kahn v. Icahn, No. 15916-NC, 1998 WL 832629 (Del. Ch. Nov. 12, 1998)