Red River Wings v. Hoot, Inc.

Thomas Lavelle, who successfully owned and managed several restaurants through a wholly owned corporation, engaged Hooters, Inc. about opening Hooters’ first franchise in Canada. Lavelle and several associates (1) formed a limited partnership to facilitate the venture; (2) formed a new corporation, Red River Wings, Inc. (Red River), to serve as its general partner; and (3) issued limited-partnership interests to a broker, a promoter, and financial investors. The limited partnership distributed healthy returns to the limited partners, so the business parties formed a second limited partnership, with Red River again serving as general partner, to facilitate the opening of a second Canadian Hooters franchise, with largely the same limited partners participating and investing. This venture was still profitable, though less so than the first. A majority group of disgruntled limited partners (defendants) staged a takeover against the will of the remaining minority (plaintiffs), expelling Red River as general partner of the two partnerships and replacing it with Hoot, Inc. (Hoot). The hostile majority of limited partners largely controlled Hoot and acted together with it to manage the limited partnerships under this new arrangement. The takeover proved disastrous, leading to negative returns, unnecessary and costly litigation, and somewhat dubious distributions of partnership assets to cover personal costs of some of the individual partners in the hostile majority. The minority limited partners sued several of the limited partners involved in the takeover in their individual capacities for breach of fiduciary duty. The trial court awarded damages to the minority limited partners. The majority partners appealed to the North Dakota Supreme Court.