Perretta v. Prometheus Development Company, Inc.
United States Court of Appeals for the Ninth Circuit
520 F.3d 1039 (2008)
Prometheus Development Co. (PDC), general partner of a limited partnership, proposed merging the partnership into an entity, PIP Partners, owned by PDC's own director Diller, who also personally owned 18.2% of the limited partner units through PIP Partners; the merger would have bought out limited partners, including the Perrettas (plaintiffs), at a set per-unit price. Although the partnership agreement required an absolute majority of limited partner interests to approve a merger, and the merger only passed 50.7% overall, only 46.0% of the unaffiliated limited partners who voted actually approved it — meaning the merger passed only because PIP Partners was allowed to vote its own conflicted units. The Perrettas sued alleging PDC breached its duty of loyalty through self-dealing and an artificially low buyout price; the district court ruled for PDC.
Whether it is unreasonable for a partnership agreement to allow an interested affiliated partner to count its own votes toward ratifying a merger that personally benefits that partner but does not benefit the partnership generally.