Supporting Parties' Right to Control the Scope of Commercial Relationships
The Massachusetts Appeals Court also agreed with NELF’s position in the case of Fronk v. Fowler, involving clarification of the business opportunity doctrine. Under that doctrine, corporate executives, partners, and other fiduciaries must disclose business opportunities to the corporation or partnership rather than pursue them for their own benefit. Here the parties’ limited partnership was devoted to ownership and management of a single piece of real estate and expressly permitted the general partners, who were real estate developers, to pursue other real estate opportunities on their own behalf. The appellant limited partners nonetheless argued that the general partners had to bring to the partnership an opportunity that arose to purchase another parcel in the same vicinity, a position that called into question the very ability of parties to maintain single-purpose or special-purpose entities.
In its decision, the Appeals Court, relying in part on a number of the authorities cited in NELF’s amicus brief in support of the general partners, agreed with NELF that where parties have by agreement expressly limited the scope of a business enterprise, an opportunity beyond its scope cannot properly be considered a business opportunity triggering fiduciary disclosure obligations. The court further found that this partnership agreement expressly allowed the challenged actions by the general partners and that, in such circumstances, “ ‘the obligations of the parties are determined by reference to contract law, and not by the fiduciary principles that would otherwise govern.’ ” The decision is of considerable importance, given the prevalence and role of limited-purpose entities in the real estate industry and the negative impact on commercial activity that could be expected if parties were unable to control the scope of their commercial relationships.
The Massachusetts Appeals Court also agreed with NELF’s position in the case of Fronk v. Fowler, involving clarification of the business opportunity doctrine. Under that doctrine, corporate executives, partners, and other fiduciaries must disclose business opportunities to the corporation or partnership rather than pursue them for their own benefit. Here the parties’ limited partnership was devoted to ownership and management of a single piece of real estate and expressly permitted the general partners, who were real estate developers, to pursue other real estate opportunities on their own behalf. The appellant limited partners nonetheless argued that the general partners had to bring to the partnership an opportunity that arose to purchase another parcel in the same vicinity, a position that called into question the very ability of parties to maintain single-purpose or special-purpose entities.
In its decision, the Appeals Court, relying in part on a number of the authorities cited in NELF’s amicus brief in support of the general partners, agreed with NELF that where parties have by agreement expressly limited the scope of a business enterprise, an opportunity beyond its scope cannot properly be considered a business opportunity triggering fiduciary disclosure obligations. The court further found that this partnership agreement expressly allowed the challenged actions by the general partners and that, in such circumstances, “ ‘the obligations of the parties are determined by reference to contract law, and not by the fiduciary principles that would otherwise govern.’ ” The decision is of considerable importance, given the prevalence and role of limited-purpose entities in the real estate industry and the negative impact on commercial activity that could be expected if parties were unable to control the scope of their commercial relationships.
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