In Re Usacafes, L.P. Litigation

600 A.2d 43 (1991)

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Nature of the Case

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Facts

Metsa Acquisition Corp. purchased substantially all the assets of USACafe, L.P. at a cash price of $72.6 million or $10.25 per unit. P, the holders of limited partnership units brought a class action suit. P alleged a breach of the duty of loyalty in that the sale of the partnership assets was at a low price favorable to Metsa because the directors of the General Partner received substantial side payments that induced them to sell. P alleges that the General Partners, the Wylys, the owners of the general partnership shares in the form of a corporation called USA Cafes General Partner, Inc., received $11 million in payments that were disguised as consideration for personal covenants not to compete, and got $1.5 million for release of a nonexistent claim. Other director defendants were forgiven the payment of a $956,169 loan from the Partnership, given an employment agreement with the Partnership that contemplated a one-million-dollar cash payment in the event, then imminent, of a 'change in control', another was forgiven repayment of a $229,701 loan; and other directors were given employment agreements providing for a $60,000 payment in the event of a change in control. In sum, it is alleged that between $15 and $17 million was or will be paid to the directors and officers of the General Partner by or with the approval of Metsa; those payments are alleged to constitute financial inducements to the directors of the General Partner to refrain from searching for a higher offer to the Partnerships. P claims that these inducements made the Directors refrain from searching for a higher offer. P also alleges that the directors were not sufficiently informed to make a valid business judgment on the sale and that partnership unitholders pursuant to the reorganization of the USACafes business into the limited partnership were misled by a December 5, 1986, prospectus. P also alleges that Metsa knowingly participated in the other defendants' alleged breaches of duty in connection with the sale by offering and making personal payments to those controlling the General Partner designed to induce those persons to breach fiduciary duties they owed to the limited partners. The Wylys moved to dismiss under Rule 12(b)(6); they did not owe a fiduciary duty to P. They admit that the General Partner did owe fiduciary duties to the limited partners, but they as directors of the General Partner owe no such duties to those persons and that the remedy of the limited partners for breach of the duties of loyalty and care, it is said, is against the General Partner only and not its directors.