Cantor Fitzgerald, L.P., v.
Ainslie, No. 162, 2023 (Del. Jan. 29, 2024)
Here, a limited partnership agreement authorized the partnership to
withhold distributions owed to a partner who withdraws from the
partnership and engages in specified competitive activities. The
partnership attempted to enforce the agreement and several former
partners sued in Delaware. At the trial court level, the Court of
Chancery scrutinized the provision using the standard for
non-compete covenants and found the provision overbroad and
unreasonable and thus invalid on policy grounds. On appeal, the
Delaware Supreme Court reversed and remanded. The Supreme Court
held that forfeiture for competition provisions in partnership
agreements should not be reviewed for reasonableness. Rather, they
should "enjoy ... deference on equal footing with any other
bargained-for-term in a limited partnership agreement." The
Supreme Court's reasoning largely turned on the express policy
of the Delaware limited partnership statute (DRULPA) to give
maximum effect to the principle of freedom of contract and to the
enforceability of partnership agreements.
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