Perretta v. Prometheus Development Company, Inc.
United States Court of Appeals for the Ninth Circuit
520 F.3d 1039 (2008)
Prometheus Development Co., Inc. (PDC) (defendant) was the general partner of Prometheus Income Partners, LP (Partnership). The Perrettas (plaintiffs) were limited partners in the Partnership. PDC was wholly owned by DNS Trust (DNS). Diller was PDC’s sole director, President, and CFO. PDC notified the limited partners that it was considering merging the Partnership into PIP Partners-General, LLC (PIP Partners), which was owned by Diller and which also owned 18.2 percent of the limited partner units in the Partnership. The merger, if approved, would have resulted in PDC buying out the limited partners for $1,736 per partner unit. PDC sent a proxy statement to the limited partners, which described the merger and stated that PIP Partners would vote its units for or against the merger in the same proportion as the total number of units voted by the unaffiliated partners. The partnership agreement of the Partnership (Partnership Agreement) stated that an absolute majority of the limited partner interests entitled to vote was necessary to approve a merger. The results of the limited partners voting were that 50.7 percent approved the merger. The winning votes included the affiliated PIP Partners. But, only 73.6 percent of the unaffiliated partners voted and of those, only 46.0 percent voted in favor of the merger. If the PIP Partners’ votes were not counted, there would not have been an absolute majority of votes in favor of the merger. The Partnership Agreement allows PIP Partners to vote as limited partners, even with their affiliation with the general partner PDC. The Perrettas sued for damages, alleging that the PDC violated its duty of loyalty to the limited partners by self-dealing in the merger, and setting an artificially low price for the limited partner units. The district court found in favor of PDC.
Rule of Law
Holding and Reasoning (Smith, J.)