Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.

Hallwood Realty Partners (the Partnership) (defendant) is a limited partnership. Hallwood Realty Corporation (the General Partner) (defendant) is the only general partner and is a wholly owned subsidiary of Hallwood Group Incorporated (HGI) (defendant), a major holder of limited partnership units. The partnership agreement includes a provision that permits the General Partner or its affiliates to have business dealings with the Partnership, but requires these transactions to be on substantially equivalent terms as the Partnership could have obtained from an independent third party. In 1994, HGI owned around five percent of the partnership units then in circulation. Over the next year, the General Partner committed the Partnership to a complex series of transactions which resulted in HGI increasing its share of the partnership units to almost 30 percent, which effectively gave HGI control over the entire entity. The General Partner did not consider whether the terms were comparable to what a non-affiliated party would offer. Another holder of limited partnership units, Gotham Partners, L.P. (Gotham) (plaintiff), sued the Partnership, the General Partner, and two directors of the General Partner for breach of contractual fiduciary duties. The trial court found that the General Partner had breached its fiduciary duty and awarded damages to Gotham, but the court did not grant rescission of the contested transactions and did not factor in a control premium when calculating damages. Gotham appealed the court’s remedy.