## Facts

- K-Sea Transportation Partners L.P. was a publicly traded Delaware limited partnership with a general partner holding incentive distribution rights (IDRs).
- Kirby Corporation agreed to acquire K-Sea in a merger valued at about $329 million, including roughly $18 million paid for the general partner’s IDRs.
- The IDR consideration created a conflict because the general partner would receive different and additional merger consideration relative to common unitholders.
- The limited partnership agreement (LPA) eliminated or modified common-law fiduciary duties and replaced them with contractual standards, including a requirement that the general partner “reasonably believe” its action was in, or not inconsistent with, the partnership’s best interests.
- The LPA imposed a contractual good-faith obligation and provided a conclusive presumption of good faith when the general partner relied on an expert opinion (and related contractual approval mechanisms).
- The general partner formed an independent conflicts committee, which retained Stifel, Nicolaus & Company; Stifel issued a fairness opinion that the merger consideration to unaffiliated common unitholders was fair from a financial point of view.
- The conflicts committee recommended the merger; the general partner approved it; and a majority of unaffiliated unitholders voted in favor.
- Unaffiliated unitholders sued for breach of the LPA, alleging the general partner extracted excessive consideration for the IDRs; they did not plead a claim for breach of the implied covenant of good faith and fair dealing.

## Issues

1. Whether the LPA’s conflict-of-interest provision imposed mandatory procedures for conflicted transactions or instead provided optional contractual safe harbors.
2. Whether the general partner satisfied the LPA’s contractual good-faith standard where the agreement provided a conclusive presumption of good faith upon reliance on an expert opinion and related approvals.
3. Whether plaintiffs stated a breach-of-contract claim given the LPA’s elimination of fiduciary duties and plaintiffs’ failure to plead an implied-covenant claim.

## Decision

- The Delaware Supreme Court affirmed dismissal for failure to state a claim.
- The court held the conflict-of-interest provision created a contractual safe harbor, not an affirmative obligation to follow a particular process.
- The court held the general partner’s duty was to act in contractual good faith as defined by the LPA, not to satisfy traditional fiduciary standards.
- Because the conflicts committee relied on a financial advisor’s fairness opinion and the LPA’s contractual conditions were met, the conclusive presumption of good faith applied and plaintiffs did not plead facts sufficient to state a contractual breach.

## Legal Principles

- Delaware alternative-entity law gives broad effect to freedom of contract, including the ability to restrict or eliminate fiduciary duties (subject to the implied covenant of good faith and fair dealing).
- An LPA conflict provision will be read as an optional safe-harbor framework unless the contract clearly imposes mandatory procedural obligations.
- Where an LPA defines “good faith” and provides a conclusive presumption triggered by reliance on expert advice and specified approvals, courts enforce that presumption according to its terms in evaluating express-contract claims.
- The implied covenant of good faith and fair dealing is a narrow gap-filling doctrine and cannot be used to reintroduce fiduciary review that the parties eliminated by contract; if not pled, review is confined to the contract’s express terms.

## Conclusion

The court enforced the LPA’s customized governance regime, treating the conflicts provision as an optional safe harbor and applying the LPA’s conclusive presumption of good faith once the conflicts committee relied on an expert fairness opinion, leaving the unitholders’ express contract claim insufficient as pleaded.


Norton v. K-Sea Transportation Partners L.P., 67 A.3d 354 (Del. 2013)