In a massive three-part opinion, the Dallas Business Court [First Division] has ruled that a majority owner’s exercise of drag-along sale rights conferred under the partnership agreement met both the requirements of the contract and the minimum statutory requirements regarding a partner’s duty of care, loyalty, and good faith.
Primexx Energy Opportunity Fund, LP v. Primexx Energy Corporation, et al. (No. 24-BC01B-0010; May 22, 2025) involved a “drag-along sale” from a private equity investment in a limited partnership. A “drag-along” right allows a majority owner of an entity to force minority owners to sell their interests to a third party, whether they want to or not. In this case, two minority owners sued the controlling partner and managing general partner for breach of fiduciary and contract because, among other things, they didn’t think got what their interests were worth. Defendants filed a traditional summary judgment motion.
This matter has three opinions, so we’ll take them in order. In the first one (2025 Tex. Bus. 9; March 10, 2025), the court considered Plaintiff’s breach and duty causes of action. Primexx Energy Partners (PEP), which is not a party to the litigation, was a limited partnership. PEP owned Primexx Resource Development (PRD), which developed horizontal drilling properties in the Permian. Plaintiffs Primex Energy Opportunity Fund I and II (PEOF) were limited partners in PEP. A third PEP limited partner was BPP HoldCo LLC, an affiliate of Blackstone. Defendant Primexx Energy Corporation (PEC) was PEP’s managing partner. Its nine-member board included five HoldCo directors, two PEOF directors, and two appointed by Fagadu, PEC’s President and CEO. In 2016 PEP sought to reduce debt and raise capital through a deal with the Blackstone Group. Under their agreement, Blackstone agreed to invest $500 million in exchange for a controlling majority on PEP’s board. The deal gave Blackstone (HoldCo) the right to force an in-kind distribution of PEP assets in a “Liquidity Event.” Blackstone also acquired “customary drag-along rights” regarding the sale of partnership units. Subsequently, HoldCo/Blackstone signed on to PEP’s partnership agreement.
Under the partnership agreement, HoldCo and PEC owed PEP and its partner a duty of good faith and fair dealing. But it also limited HoldCo and PEC’s duties by giving them the right to make partnership decisions in their “sole and absolute discretion and in their own sole interests.” As to HoldCo’s drag-along rights, the agreement authorized HoldCo to negotiate and force other unitholders to sell PEP’s business to a third party in an arm’s-length transaction after July 12, 2018. In 2021, that possibility became reality when Callon Petroleum offered to buy PEP for $425 million and 8.5 million Callon shares. Exercising its drag-along right, HoldCo accepted Callon’s final offer of $440 million and 9.2 million shares. PEC’s board approved the sale on August 2, 2021, and the sale closed on October 1. After a couple of false starts in state and federal court, the disgruntled minority owners PEOF sued PEC, HoldCo, and others in state court. In Septemberr 2024, PEOF removed the case to the business court on an agreed motion, dismissed the state court action, and refiled in the 1st Division (Dallas). Defendants moved for summary judgment.
In a 78-page opinion by Judge Whitehill that engaged the language of the partnership agreement and pertinent provisions of the Business Organizations Code, the court granted Defendants’ MSJ. First, Judge Whitehill reviewed the legislative background leading to the current version of the TBOC as it applied to limited partnerships and modified common-law duties and obligations between partners, specifically fiduciary duties. Under § 152.204(d), TBOC, partners are not held to a trustee’s standards, as they were at common law. The statute thus supplanted common-law duties with a lower standard, which includes an obligation that partners act in good faith and in a manner “the partner reasonably believes to be in the partnership’s best interest.” Still, the TBOC permits a partnership agreement to limit these duties, as long as the limitation is not “manifestly unreasonable.” In short, partners do not owe “fiduciary” duties, but merely a duty of good faith. Sec. 152.213, TBOC, further requires partners to provide information on reasonable request. Judge Whitehill, after a thorough review of case authority, stated that this duty was subject to the partnership agreement, but in the absence of an agreement standard, a partner must not “mislead the partnership or other partners where fraud by omission principles would apply absent the partnership relationship,” must disclose material information affecting the partnership or partners that ordinarily would not be expected to be covered by the partnership agreement, and need not disclose immaterial facts.
Defendants argued that PEOF’s claims fail as a matter of law because the agreement gave them the right to do exactly what they did. PEOF, on the other hand, countered that HoldCo/Blackstone violated their duty of good faith by consummating a bad deal at their and the partnership’s expense. Starting from the basic principle that Texas law honors freedom of contract, especially in dealings between sophisticated parties represented by counsel, Judge Whitehill observed that PEOF “agreed to a structure that gave Blackstone, Inc.—acting through HoldCo—a majority of PEC’s board seats; required all Unitholders to fulfill HoldCo’s directions regarding the sale, thereby requiring all partner appointed directors and, thus, PEC to approve the sale at HoldCo’s direction; and removed any discretionary PEC power to disobey HoldCo’s directions regarding the Callon sale.” The question then became whether HoldCo and PEC breached their minimum statutory duties of loyalty and care and its obligation to dischrage them in good faith.
First, the court ruled that PEOF’s claim that common Unitholders may have been paid ahead of preferred Unitholders in violation of the agreement and that HoldCo failed to properly account for and distribute the Callon sale profits in accordance with the agreement could go forward. And, since Defendants didn’t address it, PEOF’s claim that HoldCo unfairly structured the allocation of proceeds to benefit itself and prejudice PEP’s owners could likewise go forward. But as to HoldCo’s drag-along rights, the agreement expressly authorized HoldCo “to negotiate and complete the Callon sale in its sole discretion and interest if it waited at least two years and conducted an arm’s length transaction.” HoldCo waited for five years and conducted an arm’s length transaction. Consequently, “except as to the sales proceeds’ allocation and distribution, HoldCo conclusively met its loyalty duty regarding the Callon sale.”
But did it act in good faith? Under TBOC § 152.206, a partner that owes a duty of care in operating the business or conducting a third-party deal must act without negligence, i.e. in accordance with the business judgment rule. HoldCo met this standard by conducting an arm’s-length sale. Did it discharge this obligation in good faith? Observing that drag-along rights are among the most “fiercely” negotiated aspect of a company’s governing documents, Judge Whitehill looked to the plain language of the agreement and found no requirement that HoldCo “conduct different processes and negotiate a fair price for the partnership as a whole, including PEOFs, instead of a price that suited HoldCo as decided in its sole discretion.” HoldCo merely did what the “PEOFs agreed to five years earlier when they wanted ‘Blackstone’s’ money.” In other words, PEOF asked the court to set aside the agreement and “alter the risk allocation equation and imply non-existent [] fair price and required process terms.” Judge Whitehill declined the invitation to do so. No more did HoldCo have to act in the best interest of the partnership or act in bad faith when it exercised its contractual rights. If the PEOFs had wanted more favorable terms, they could have negotiated for them. Instead, they took Blackstone’s $500 million and ran with it for five years. As to PEOF’s disclosure and notice obligations, Judge Whitehill noted that the agreement, although it mentioned “notice” over 100 times, didn’t include an advance notice requirement with respect to HoldCo’s drag-along rights. The court again declined to rewrite the agreement to mandate that retrospectively.
Plaintiffs made the same arguments against PEC as they did against HoldCo, so the court disposed of them in the same way: no breach of the duties of loyalty or care or PEC’s obligation of good faith in the execution of the Callon sale. In any event, HoldCo controlled PEC’s board, so “PEC had no choice but to do what its directors voted to do, and they all voted to approve the sale and the Transaction Resolutions authorizing PEC’s officers to take actions necessary to complete the sale.” Similarly, Plaintiffs’ breach of contract claims failed because there was no breach.
That left PEOFs’ tort and derivative causes of action for civil conspiracy, aiding and abetting fiduciary breach, and knowing participation in fiduciary breach against HoldCo and PEC. First, neither SCOTX nor the 15th Court of Appeals has recognized aiding and abetting as a separate liability theory apart from civil conspiracy. Judge Whitehill dismissed that claim. Here the court instructed the parties to provide further briefing on several questions that they didn’t address. To sum up, the court denied Defendants’ summary judgment motion as to Plaintiffs’ claims that the Callon sales were not properly distributed and that consideration was not fairly allocated between PEP and Blackstone. Otherwise, Defendants’ MSF was granted.
A little over a month later, the court issued the second Primexx opinion (2025 Tex. Bus. 13; April 15, 2025) that denied PEOFs’ motion for reconsideration. Judge Whitehill was constrained to observe that “[t]he court’s MSJ opinion did not conclude, as PEOFs contend, that HoldCo was ‘allowe[ed] to act in bad faith’ so long as it ‘rel[ies] on a contractual provision purportedly permitting its conduct.’ Instead, as the court stated, movants’ summary judgment motion distilled to whether there was a genuine issue of material fact regarding whether they failed to act in good faith (that is, acted in bad faith) regarding the Callon sale.” Judge Whitehill went on to reject PEOFs’ effort to remake arguments previously rejected by the court. [Judging from the meticulous care with which Judge Whitehill dealt with Plaintiffs’ motion for reconsideration, one has to wonder exactly why Plaintiffs’ counsel contended that he “allowed [HoldCo] to act in bad faith.” That doesn’t appear to be the best way to approach the court when you’re asking for something you already asked for and didn’t get.]
Primexx III (2025 Tex. Bus. 21; May 22, 2025) took up PEOFs’ claims against Doyle, a PEC director and CEO while the Callon sale was negotiated and approved, and the remaining Blackstone defendants (other than HoldCo). The question here was whether the partnership agreement exempted Doyle and the Blackstone defendants from civil conspiracy, aiding and abetting, and knowing participation liability for any claims PEOFs may have had against HoldCo and PEC. Judge White concluded that the agreement waived such claims because Doyle and the Blackstone Defendants come within the class of person that the agreement exempts from potential liability, and that section of the agreement applies “notwithstanding anyother TAPA terms, including [the agreement’s] terms disclaiming third-party beneficiaries.” Plaintiffs argued that the agreement’s “entire agreement” clause excluded Doyle from the exemption because the agreement “shall not be deemed for the benefit of creditors or any other Persons.” Though the agreement’s waiver of liability provision appeared to benefit Doyle, Judge White acknowledged, the waiver provision applies notwithstanding any other provision of the agreement.
He further ruled that the TBOC did not preclude the parties from entering into a liability waiver agreement on the basis that the statute prohibited parties from eliminating “certain unwaivable partner responsibilities.” As an initial matter, the statute applies to partners and Doyle was not one of those. Second, the agreement waived liability, not any partners’ duties. The same went for the Blackstone Defendants, who were affiliates of a partner, HoldCo, and thus came within the waiver’s application to “partner affiliates.” The court thus dismissed with predjuce PEOFs’ claims against Doyle and the Blackstone Defendants.
We very much doubt anyone will get to the end of this case discussion, but in case you do, we would like to remark on the speed with which the business court disposed of this fairly complex, multi-party case with contractual, tort, and business law implications. This case was removed to the business court in September 2024. Judge Whitehill had a massive, comprehensively researched opinion out in early March 2025. We dare say that if this case had been in a Dallas County district court, we’d still be sitting around in pre-trial limbo without any rulings whatsoever. The savings in transactional costs and judicial resources in just this single case are immense. Given the relatively small amount of state resources dedicated to these courts, they are going to return that investment many times over, and we are going to get a lot of good law in the bargain.
