Unenforceable Fiduciary Duty Limitations

Ribstein’s Criticisms of the Triple Five v. Simon Decision

Larry E. Ribstein, an authority on fiduciary duties and an advocate of “contractarian” rights, has criticized the Triple Five decisions. Ribstein wrote that it was curious that the court distinguished contractual liability from fiduciary liability. In his comment, Ribstein highlights the district court’s bifurcated consideration of these two issues. The first issue would be whether the exculpatory clause would limit liability from a breach of duties that arose from the contract. The second issue would be whether the exculpatory clause could override the fiduciary duties imposed by statute and the common law. In a state where the power to contract overrides the imposition of fiduciary duties by statute or common law, there is no need to separate these issues because the exculpatory clause has the power to limit duties otherwise imposed by statute, common law, or the contract.

Ribstein’s second criticism questions why the court in Triple Five failed to address another provision in the parties’ agreement. Ribstein writes,

[T]he court did not discuss another provision of the agreement, Article XI (G):

Each Partner . . . may engage in, acquire and possess, without liability or account ability to the other Partner, . . . investments and interests of every nature and description, independently or with others, including but not limited to, any interests or investments similar to or in competition with the Partnership’s business except those which are involved in the development or operation of the Project or Property. No Partner shall be liable to another Partner for failing to offer to the Partnership or the other Partner, or for appropriating or profiting from, any business opportunity, except for those which involve utilization of the Real Estate or which are necessary to the Project.

This provision appears to relate to an interest, such as the interest in the Mall of America that Teachers sold to SPG. But the court may not have addressed this provision because it decided that the language excluded Teachers’ interest.

That is, the first part of the provision expressly excluded “interests or investments . . . which are involved in the development or operation of the Project or Property.” Here, the Teachers’ interest in the Mall of America plainly involved “operation of the Project or Property.”

Similarly, the second part of the provision expressly excludes business opportunities, “which involve utilization of the Real Estate or which are necessary to the Project.” Thus, neither part of this provision gave the partners the right to compete for the Teachers’ interest. For these reasons, the fact that the court did not address this provision appears to have little consequence on fiduciary duty law.

But Ribstein’s criticisms in this area are not limited to the Triple Five decisions. In Bromberg and Ribstein on Partnership, the authors criticize RUPA as “perverse” for the way it limits fiduciary duty waivers. Even more substantial is Ribstein’s challenge to the traditional imposition of fiduciary duties on partnerships, regardless of the partners’ desire. Ribstein has instead pushed for allowing sophisticated parties to, first, agree they may compete for opportunities otherwise belonging to the partnership and, second, limit their duty to disclose. At least one circuit court agrees.

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