Morris, Nichols, Arsht & Tunnell LLP
MONTH-IN-BRIEF (Apr 2024)
Delaware Supreme Court Reverses Court of Chancery Decision, Upholding Forfeiture-for-Competition Provision in Limited Partnership Agreement
Cantor Fitzgerald, L.P. v. Ainslie, No. 162, 2023 (Del. Jan. 29, 2024).
By Michael Maxwell and Timothy Spangler
On January 29, 2024, the Delaware Supreme Court reversed a decision by the Delaware Court of Chancery, finding that a limited partnership can enforce a “forfeiture-for-competition” provision in its partnership agreement. The provision operates to deprive a partner of certain undistributed payments if the partner engages in competitive activities as outlined in the partnership agreement.
The case involved Cantor Fitzgerald, L.P. and former limited partners who voluntarily withdrew from the partnership. Under the operative partnership agreement, after ceasing to be a partner, certain amounts (the “Conditioned Amounts”) were to be paid to the former partner in equal annual installments over a period of four years. Under the partnership agreement, the Conditioned Amounts are forfeited if the former partner undertakes competitive activity within that four-year period as specified in the partnership agreement.