Unenforceable Fiduciary Duty Limitations

The Significance of Triple Five v. Simon for Partnership Law in Minnesota

The saga of the Triple Five decisions has great significance for partnership law in Minnesota. The case greatly expanded the application of fiduciary duties.231 Moreover, it bolstered courts’ equitable authority to rewrite partnership agreements, including those that affect the rights of third parties not involved in the case.

Fiduciary Duty

The enforcement of fiduciary duties has long protected partners. The expansion of fiduciary duties, however, may have consequences.

Triple Five stands for the proposition that fiduciary duty limitations of the type involved in Triple Five are void. Thus, partners of partnerships with such fiduciary duty limitations, at least in Minnesota, now have greater duties than if those limitations had effect. That is, these partners are now subject to fiduciary duties unrestrained by their fiduciary duty limitations. As a result, individuals or businesses with fiduciary duties to more than one business may find themselves with conflicting fiduciary duties, just as the Simons did. These conflicting duties may even be imposed on publicly held corporations.

The Simons’ partnership and their involvement in SPG caused the Simons to owe fiduciary duties to both Triple Five and SPG. Further, the court held that a publicly traded company can owe fiduciary duties to the partner of one of its minority owners because of the control the partner has in the corporation. This type of conflict had great consequences, as the SPG shareholders and the Simons realized.

Similarly, partners in multiple enterprises may find themselves owing fiduciary duties to multiple entities that eventually have competing interests. While business people may try to plan for the possibility of conflicting fiduciary duties by general contractual limitations on fiduciary duties, courts often disregard such clauses—even when written by sophisticated parties, as in the agreement between Triple Five and the Simons. The result is that people are prevented from participating in ventures that could eventually compete, limiting potential investment and business development.

But some may argue that these economic consequences could be outweighed by the economic benefits that proceed from people’s confidence in the protections offered by a broad application of fiduciary duties. It is also possible that the final holding in Triple Five could be limited to cases in which the court finds that a partner has engaged in “nefarious conduct.”

Statutory Law

The effect that Triple Five will have on the application of statutory partnership law in Minnesota is uncertain. Triple Five and the Simons joined together in a limited partnership, presumably subject to RULPA and its UPA backdrop. But the court relied more on the common law than statute. Moreover, when the court applied statutes, it applied both the UPA and RUPA, citing the UPA for “the duty to account,” RUPA for the proposition that “a partnership is liable for the wrongful acts or omissions of a partner,” and the UPA for a partner’s “duty to render to any partner on demand true and full information as to all things affecting the partnership.” The Eighth Circuit holding in Triple Five suggests that Minnesota partnerships cannot rely merely on statutory language specific to their entity; they must also consider the weight and attention the court gives to the common law.


The courts in the Triple Five decisions assumed the power to rewrite a partnership agreement and replace the managing partner with a limited partner. ULPA-2001 and UPA provide no authority for the court to amend a partnership agreement and remove a general partner from the management role unless based on an agreement of the partners. Even Justice Cardozo in Meinhard v. Salmon refused to upset Salmon’s management and control of the business. The district court cited no authority for such a remedy, but instead presumably relied upon the court’s equitable powers. This power to rewrite partnership agreements has enormous and far-reaching effects on partnership law, partners’ profits and finances, control of partnerships, and the rights of third parties transacting with partnerships or working in collaboration with partnerships because it disregards the clear intent of the partners and upsets others’ reliance on their arrangement. Maybe this extreme equitable remedy, however, is only reserved for partners with the most “nefarious conduct.”

Rights of Third Parties

The Triple Five case is significant for third parties like Teachers and SPG’s shareholders. Teachers became bound under a new managing partner in violation of its partnership agreement. Likewise, the majority of SPG shareholders suffered harm because a few key members of SPG had fiduciary duties to another business. Under the final Triple Five decision, similarly situated shareholders and limited partners will be required to protect themselves. But another view is that the court has protected them by removing managing partner with a history of “nefarious conduct.” Either way, this case has had a profound effect beyond the rights of partners and potentially third parties.

Advice for Partners

How can partners protect themselves? Partners who want full fiduciary duties to apply to their partnership should have no concern under the Triple Five decisions because fiduciary duties will apply by default. But partners seeking to limit fiduciary duties are in a more precarious position because of the uncertainty in ascertaining whether a court would enforce the language they place in their partnership agreement to limit their fiduciary duties.

The uniform partnership laws provide some advice for ways to limit fiduciary duties, and the Exxon decision provides more aggressive methods, albeit more risky.

For example, under RUPA section 103(b), “the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.” Likewise, Exxon suggests that partners may increase the likelihood that their fiduciary duty limitations will be enforceable if their partnership agreement is between parties already in competition, who are highly sophisticated parties, bargaining at arms length, with assistance of legal counsel, and if the partner giving up the right to disclosure is financially compensated for this.

But whether partners follow the advice of the statutes, or opt for the more aggressive approach under Exxon, courts may still apply the common law, especially when a court perceives that equity requires it. This is demonstrated by Triple Five and other cases discussed here, which had a variety of outcomes despite the uniformity of statutory law. Accordingly, courts appear more likely to give effect to fiduciary duty limitations that comply with the applicable partnership statute when the partners do not use the limitations in a way that appears wrongful or deceptive.

The Triple Five decisions have implications for all Minnesota partnerships and people involved with them. It remains unclear whether these decisions were an earthquake for partnership law in Minnesota or merely extreme measures required for exceptionally nefarious conduct in a partnership. As a result, drafting partnership agreements limiting the duty to disclose and the duty not to usurp partnership opportunities has become more precarious since the Eighth Circuit’s decision in Triple Five.

This post is also part of a series of posts on Unenforceable Fiduciary Duty Limitations.

Leave a Public Comment