Konover Development Corporation v. Zeller

Supreme Court of Connecticut · 1994 · Corporations

228 Conn. 206 (1994)

Updated August 22, 2026

CorporationsLimited partnershipsFiduciary dutyBurden of proofContract enforcementgeneral partnerlimited partnerfair dealing

Facts

The plaintiff general partner and the defendant limited partner were parties to a limited partnership formed to develop a shopping center. After disputes over land value and project direction, they entered into a letter agreement and later an amendment giving the plaintiff sole discretion to determine if the project was no longer feasible; if it did so, the defendant had to reimburse the plaintiff's out-of-pocket expenses and would receive the partnership assets. When regulatory setbacks, delays, and costs mounted, the plaintiff declared the project infeasible and demanded about $1.1 million in reimbursement. The defendant denied liability and claimed the plaintiff had breached its fiduciary duty.

Issue

When a general partner in a commercial limited partnership exercises a contractual right to terminate the venture based on its sole determination that the project is no longer feasible, what fiduciary standard governs that decision, and what burden and standard of proof apply? The case also asked whether the agreement was void as against public policy and whether evidence of partnership expenses was properly admitted.

Rule

A general partner's decision, made pursuant to a partnership agreement, to terminate a commercial limited partnership because a project is no longer feasible may still be impressed with fiduciary duty when that decision foreseeably and directly causes substantial financial consequences to the limited partner. In determining whether the general partner dealt fairly, the factfinder must consider all the circumstances, including: (1) full and frank disclosure of relevant information; (2) adequacy of consideration received by the limited partner; (3) availability of competent, independent advice to the limited partner; and (4) the parties' relative sophistication and bargaining power. Once a fiduciary relationship exists, the burden shifts to the fiduciary, and fair dealing must be proved by clear and convincing evidence.

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A limited partnership formed in Phoenix to develop a warehouse park names Mesa Crest Management as general partner and Olivia Tran as limited partner. A later amendment gives Mesa Crest sole discretion to abandon the project if it deems further development infeasible, and if it does so, Olivia must reimburse Mesa Crest's out-of-pocket project costs while receiving the partnership assets.

If Mesa Crest exercises that discretion and sues Olivia for reimbursement, which legal standard should govern whether Mesa Crest acted properly?

Explanation. The majority held that a general partner's exercise of contractual discretion to terminate a commercial limited partnership remains impressed with fiduciary duty when the decision foreseeably and directly causes substantial financial consequences to the limited partner. The proper inquiry is not mere contract enforcement or simple reasonableness, but fair dealing under all the circumstances.