## Facts

- Jerrold M. Sonet owned depository units representing limited partner interests in Plum Creek Timber Company, L.P., a Delaware limited partnership (referred to in the opinion as the “Partnership” and captioned as Timber Company, L.P.).
- Plum Creek owned, managed, and operated approximately 2.4 million acres of timberland and multiple wood-products facilities in the United States.
- The Partnership was managed by its general partner, Plum Creek Management Company, L.P.; P.C. Advisory Corporation I was the ultimate general partner of Management and thus an indirect controller of the Partnership’s management.
- The limited partnership agreement set out governance and the obligations of the general partner. It required the general partner to conduct the Partnership’s day-to-day business in a manner that was “fair and reasonable.”
- For extraordinary transactions—such as a merger or combination of the Partnership with or into another entity—the agreement required approval by a supermajority of the outstanding units (66.7%).
- In 1998, the Partnership announced a plan to convert from a limited partnership into a real estate investment trust (REIT), citing tax advantages.
- The conversion would be accomplished through a merger with another entity, a type of transaction that triggered the agreement’s supermajority unitholder vote requirement.
- Sonet opposed the transaction, alleging that the proposed merger/REIT conversion would shift control and related benefits to management and was improperly conflicted.
- Sonet filed an amended complaint asserting fiduciary-duty claims against the Partnership, its general partner, and the related controlling entity.
- Defendants moved to dismiss the amended complaint under Court of Chancery Rule 12(b)(6), arguing that the partnership agreement’s unambiguous allocation of decision-making authority and the unitholders’ voting veto governed the dispute.

## Issues

1. Where a limited partnership agreement unambiguously gives the general partner sole discretion to set and approve the terms of a merger transaction, and gives unitholders a supermajority vote to veto it, can a limited partner still state a claim for breach of fiduciary duty based on alleged unfairness of the transaction?

## Decision

- The Court of Chancery granted defendants’ Rule 12(b)(6) motion and dismissed the amended complaint.
- The court held that the unambiguous terms of the partnership agreement limited the court’s review of the proposed REIT-conversion merger.
- Because the agreement allocated sole discretion over the transaction’s terms to the general partner and provided a supermajority unitholder vote as the protection mechanism, the court declined to impose additional common-law fiduciary review that would alter the contractual bargain.
- Absent well-pled facts showing the general partner acted outside the authority and process set by the agreement, Sonet’s fiduciary-duty allegations did not state a claim.

## Legal Principles

- Delaware limited partnerships are governed first by contract; the partnership agreement is the main source of the parties’ rights and duties.
- The general partner owes fiduciary duties by default only to the extent those duties are not modified or limited by the partnership agreement as permitted by the Delaware Revised Uniform Limited Partnership Act.
- When a partnership agreement clearly grants the general partner sole discretion to structure and approve a transaction’s terms, courts generally will not replace that allocation with open-ended fiduciary review that conflicts with the agreement.
- A supermajority voting requirement for extraordinary transactions functions as a negotiated investor protection: unitholders can block the deal even if they cannot dictate its terms.
- To survive a motion to dismiss in this setting, a plaintiff must plead a nonconclusory breach of a contractual standard or a fiduciary duty that the agreement has not limited; allegations of conflict or unfairness alone are not enough when the agreement addresses the approval process and authority.

## Conclusion

The Court of Chancery dismissed Sonet’s fiduciary-duty challenge to Plum Creek’s proposed REIT-conversion merger because the partnership agreement unambiguously gave the general partner sole discretion to set the transaction’s terms while giving unitholders a supermajority vote to veto the deal, leaving no basis for the court to add extra-contractual fiduciary review inconsistent with that allocation of authority.


Sonet v. Plum Creek Timber Co., L.P., 24 Del.J.Corp.L. 771, 722 A.2d 319 (1998)