Applying Delaware Contract Law To LPA Safe Harbors

By Darren Kaplan (September 20, 2017, 12:49 PM EDT) -- Practitioners in the area of private fund litigation should be thankful for the existence of the Delaware master limited partnership (MLP). MLPs are investment entities created in the petroleum transportation business that provide favorable tax treatment for sponsors and public investors.[1] Like the Delaware limited partnerships that are the preferred business entities for the majority of private investment funds in the United States, MLPs are operated under and governed by limited partnership agreements (LPAs). With their intricate interrelated structures and tendency to engage in self-dealing internal transactions, MLPs are recurring vehicles for the Delaware courts to examine LPA "safe-harbor provisions" intended to shield such transactions from unfairness claims by investors. Thus, the litigation MLPs generate provide private fund attorneys with important guidance on how the Delaware Court of Chancery will construe safe harbor provisions in all varieties of LPAs....

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