Background: Drag-Along Sale Dispute

This case arose from a drag-along sale in which a controlling partner exercised its partnership agreement rights to force an exit event sale of a limited partnership's business. Two minority limited partners—Primexx Energy Opportunity Fund LP and Primexx Energy Opportunity Fund II LP—sued the controlling partner, the managing general partner, and related parties, alleging breaches of fiduciary and contract duties. The minority partners claimed the defendants (i) accepted too low a price; (ii) failed to perform adequate due diligence, consider continuing the business as a viable stand-alone business or other alternatives, and consider whether the sale was fair to the partnership and other partners; and (iii) did not give timely notice of the sale. They also sued the managing partner's chief executive for conspiracy and other derivative theory causes of action.

The Central Legal Issue: Contractual Modification of Statutory Duties

The case presented a fundamental question about the enforceability of partnership agreement provisions that expressly limit a partner's statutory duties of loyalty and care to the greatest extent permitted by law. As the court explained in its syllabus,

Texas's freedom of contract principles give partners wide latitude to expand or limit their conduct standards. But the loyalty and care duties and related performance obligations cannot be eliminated. This partnership agreement expressly limits those duties and obligations to the greatest extent permitted by law. This case centers on the enforceability of those limits.

Drag-Along Rights and Potential Conflicts

The court noted that drag-along rights are a normal vehicle for majority owners to force minority owners—potentially against their will—to sell their interests to a third party on terms and conditions the majority owner decides. As the court observed, conflicts may arise between owners when the majority decides to sell at a price or on terms the minority dislikes, and these issues can be more acute where the parties hold different equity positions. Accordingly, parties creating such agreements often negotiate terms protecting themselves in a future drag-along sale.

The Nature of the Dispute

The opinion addresses the nature, scope, adaptability, and enforcement of a partner's statutory duties of loyalty and care and obligation to perform them in (i) good faith and (ii) a manner it reasonably believes to be in the partnership's best interest when that partner exercised its drag-along rights and sold the partnership's business. The court emphasized that this case centers on whether the partnership agreement's express limitations on those duties and obligations are enforceable under Texas law.