## Facts

- Thomas M. Lavelle organized two limited partnerships to own and operate Canadian Hooters franchises: Canadian Wings Investment Limited Partnership and Manitoba Wings Investment Limited Partnership.
- Lavelle formed Red River Wings, Inc. to serve as general partner for both partnerships, and limited partnership interests were sold to investors.
- After the first restaurant produced favorable returns, a second partnership was formed to open another franchise, again with Red River as general partner.
- A majority group of limited partners became dissatisfied and, on October 25, 1998, voted to remove Red River as general partner and install a new entity, Hoot, Inc.
- The majority group took physical control of the restaurants, including changing locks, and thereafter operated the partnerships through Hoot, Inc.
- After the change in control, the partnerships’ performance allegedly deteriorated, and disputes arose over management decisions, litigation costs, and distributions of partnership assets.
- Red River and aligned minority limited partners sued, alleging breaches of fiduciary duty and related misconduct connected to the ouster and subsequent management.
- The majority-aligned faction and Hoot, Inc. asserted counterclaims, including derivative claims purportedly on behalf of the partnerships.
- The district court entered a consolidated judgment that included significant relief for Red River and the minority faction, and adverse rulings against the majority/Hoot faction.

## Issues

1. Whether the majority-aligned limited partners and the replacement general partner, Hoot, Inc., breached fiduciary duties in removing Red River and in managing partnership affairs afterward.
2. Whether the district court’s damages and remedial orders were supported by the governing partnership agreements, North Dakota limited partnership law, and the evidentiary record.
3. Whether the district court properly dismissed or limited the majority/Hoot faction’s claims, including derivative claims asserted on the partnerships’ behalf.

## Decision

- The North Dakota Supreme Court affirmed in part, reversed in part, and remanded.
- The court affirmed core liability determinations that the majority-controlled faction, including Hoot, Inc., breached fiduciary obligations and engaged in improper conduct tied to the takeover and management of the partnerships.
- The court reversed or modified discrete aspects of the judgment involving particular damages calculations and remedial details.
- The court remanded for further proceedings, including recalculations or reconsideration of certain remedial components consistent with its legal analysis.
- The court largely affirmed adverse rulings against the majority/Hoot faction on their claims and derivative theories.

## Legal Principles

- In limited partnerships, fiduciary duties constrain the exercise of control over partnership affairs; those in control must act in the partnership’s and partners’ interests and avoid self-dealing.
- Majority participants who effectively control partnership governance (including through a controlled general partner) may be treated as owing enforceable fiduciary obligations to minority investors and the partnership.
- Even where a partnership agreement or statute permits removal of a general partner, the process and purpose remain subject to fiduciary-duty limits; formal authority does not excuse disloyal or bad-faith conduct.
- Appellate review generally defers to supported trial-court fact findings while independently reviewing legal conclusions about fiduciary duties, contract interpretation, and statutory requirements.
- When liability is established but damages or accounting-based remedies are legally or methodologically flawed, the proper course is partial reversal and remand for recalculation or correction.

## Conclusion

The court upheld findings that the majority faction and its installed general partner breached fiduciary duties in a takeover and subsequent partnership management, while requiring adjustments to portions of the damages and remedies through partial reversal and remand.


Red River Wings, Inc. v. Hoot, Inc., 2008 ND 117, 751 N.W.2d 206 (N.D. 2008)