RJ Assoc., Inc. v. Health Payors' Organization Ltd. Partnership, HPA, Inc

In RJ Assoc., Inc. v. Health Payors' Organization Ltd. Partnership, HPA, Inc., 1999 WL 550350 [Del Ch Ct 1999]), plaintiff RJA, a limited partner, sued the general partner and the other limited partner of the partnership, claiming that defendants breached their contractual and fiduciary duties to plaintiff by making improper deductions for certain expenses from the plaintiff's partnership distributions. Denying defendants' motion to dismiss, the Delaware Chancery Court held plaintiff had stated claims for relief for breach of contract and for breach of the implied duty to act in good faith and fair dealing against both the general partner and the other limited partner. With regard to the breach of fiduciary duty claim, the Court noted that the Partnership Agreement incorporated the traditional fiduciary duties recognized under Delaware through its provision requiring the managing partner to "conduct and manage the affairs for the Partnership in a prudent, businesslike and lawful manner," which plaintiff contended defendants had breached by failing to adhere to the contract's requirements. The Court disagreed with defendants' argument that the fiduciary duty claim was duplicative of the breach of contract claim, holding that "conduct by an entity that occupies a fiduciary position ... may form the basis of both a contract and a breach of fiduciary duty claim" (RJ Assoc., Inc., 1999 WL 550350.) With regard to the liability of the limited partner for breach of fiduciary duty, the Court found that because the partnership agreement did not modify or preempt the fiduciary duties owed by the limited partners to a partnership, section 1521 of the Delaware Uniform Partnership Law 23 controlled the extent of the limited partner's fiduciary duties. The Court found that plaintiff had sufficiently alleged breach of fiduciary duty against the limited partner based on claims that the limited partner, among other things, (1) improperly amended the Partnership Agreement formula so as to no longer distribute gross cash receipts as the Partnership Agreement prescribed, (2) paid excessive and unwarranted access fees to its affiliate, (3) established a competitive business that improperly solicited the Partnership's medical providers.