## Facts

- Cablevision Programming Investments (CPI) was a limited partnership formed to invest in cable and pay‑TV programming ventures, with Charles F. Dolan and a Dolan-controlled corporation serving as general partners.
- Joel Labovitz and other investors bought about 73% of CPI’s limited partnership units for roughly $12.49 million.
- CPI reported substantial earnings (over $34 million in 1985 and just under $18 million in 1986), and limited partners reported their pro rata shares as taxable income.
- Plaintiffs alleged CPI had cash available but Dolan made only nominal cash distributions, causing limited partners to incur large tax liabilities on undistributed earnings (“phantom income”) that they had to pay from personal funds.
- The partnership agreement granted the general partner “sole” and “exclusive” discretion over cash distributions, while also stating CPI would seek annual distributions approximating taxable income, subject to business needs and obligations.
- In November 1986, a Dolan-controlled affiliate offered to buy limited partners’ interests for about two‑thirds of book value; over 90% accepted.
- Plaintiffs alleged Dolan intentionally withheld reasonable distributions to create economic pressure and coerce a bargain-price sale of the limited partners’ interests to an affiliate he controlled.

## Issues

1. Whether a general partner’s contractually “sole and exclusive” discretion over distributions permits conduct alleged to be economic coercion designed to force limited partners to sell at a bargain price, or instead can constitute breach of fiduciary duty.
2. Whether the partnership agreement and offering materials constituted “affirmative matter” barring judicial scrutiny and supporting dismissal under 735 ILCS 5/2‑619(a)(9).

## Decision

- The appellate court reversed the dismissal and remanded for further proceedings.
- The court held that broad contractual discretion does not eliminate a general partner’s fiduciary duties of loyalty, good faith, and fairness to limited partners.
- The court ruled that partnership documents do not provide immunity from judicial review of alleged self-interested conduct absent actual fraud.
- Accepting the complaint’s allegations as true at the dismissal stage, the court found plaintiffs stated a triable claim that Dolan used distribution control to pressure a below-value sale.
- The court indicated plaintiffs were entitled to a trial at which Dolan, as fiduciary, would bear the burden to prove he acted fairly.

## Legal Principles

- A general partner in a limited partnership owes fiduciary duties to limited partners, including duties of loyalty, good faith, and fairness in dealings with partnership funds and partner interests.
- Contractual grants of broad or exclusive managerial discretion do not authorize self-dealing or coercive conduct inconsistent with fiduciary obligations.
- When a fiduciary benefits from a transaction involving beneficiaries’ interests, the fiduciary bears the burden to show fairness.
- On a motion to dismiss under 735 ILCS 5/2‑619(a)(9), contractual documents do not defeat a fiduciary-duty claim as a matter of law when the complaint plausibly alleges abuse of discretion for self-interested purposes.

## Conclusion

The court held that a general partner’s “sole and exclusive” discretion over distributions does not insulate alleged coercive self-interest from review and that claims of distribution manipulation to force a bargain buyout must proceed so the fiduciary can be required to prove fairness.


Labovitz v. Dolan, 189 Ill. App. 3d 403, 545 N.E.2d 304 (Ill. App. Ct. 1st Dist. 1989)