United States v. Sanofi Aventis U.S. LLC

IN THE SUPREME COURT OF THE STATE OF DELAWARE
UNITED STATES OF AMERICA, STATE §
OF CALIFORNIA, STATE OF § No. 256, 2019
COLORADO, STATE OF §
CONNECTICUT, STATE OF §
DELAWARE, DISTRICT OF COLUMBIA, §
STATE OF FLORIDA, STATE OF § Certification of Questions of
GEORGIA, STATE OF ILLINOIS, STATE § Law from the United States
OF INDIANA, STATE OF IOWA, STATE § Court of Appeals for the Third
OF LOUISIANA, COMMONWEALTH OF § Circuit
MASSACHUSETTS, STATE OF §
MICHIGAN, STATE OF MINNESOTA, §
STATE OF MONTANA, STATE OF §
NEVADA, STATE OF NEW JERSEY, § C.A. No. 18-2472
STATE OF NEW YORK, STATE OF §
NORTH CAROLINA, STATE OF §
OKLAHOMA, STATE OF RHODE §
ISLAND, STATE OF TENNESSEE, §
COMMONWEALTH OF VIRGINIA, §
STATE OF WASHINGTON, STATE OF §
WISCONSIN, ex rel. JKJ PARTNERSHIP §
2011 LLP, §
§
Relator Below, §
Appellant, §
§
v. §
§
SANOFI-AVENTIS U.S. LLC, SANOFI- §
AVENTIS U.S. SERVICES, INC., §
AVENTIS, INC., AVENTIS §
PHARMACEUTICALS, INC., BRISTOL- §
MYERS SQUIBB COMPANY, BRISTOL- §
MYERS SQUIBB PHARMACEUTICALS §
HOLDING PARTNERSHIP, §
§
Defendants Below, §
Appellees. §
§
§
§
Submitted: January 15, 2020
Decided: March 17, 2020
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR and
MONTGOMERY-REEVES, Justices, constituting the Court en Banc.
Upon Certification of Questions of Law from the United States Court of Appeals for the
Third Circuit. CERTIFIED QUESTIONS ANSWERED.
Jessica Zeldin, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware; Of
Counsel: William H. Narwold, Esquire, Mathew P. Jasinski, Esquire (argued), Motley
Rice LLC, Hartford, Connecticut; W. Scott Simmer, Esquire, Baron & Budd, P.C.,
Washington, District of Columbia for Appellants.
Kenneth J. Nachbar, Esquire (argued), Coleen W. Hill, Esquire, Morris, Nichols, Arsht &
Tunnell LLP, Wilmington, Delaware; Of Counsel: Anand Agneshwar, Esquire, Arnold &
Porter Kaye Scholer LLP, New York, New York; John P. Elwood, Esquire, Kirk Ogrosky,
Esquire, Daniel S. Pariser, Esquire, Murad Hussain, Esquire, Anna K. Thompson, Esquire,
Arnold & Porter Kaye Scholer LLP, Washington, District of Columbia for Appellees.
VALIHURA, Justice:
We are asked by the United States Court of Appeals for the Third Circuit to answer
three questions of law certified to us in accordance with Delaware Supreme Court Rule 41
(the “Questions”):
1. A limited liability partnership is formed to file and prosecute a specific
lawsuit. Its formational documents say both that the partnership is not “a
separate legal entity distinct from its Partners” under 6 Del. Code § 15-
201(a) and that the “withdrawal of a Partner shall not cause a dissolution
of the Partnership.” If one of the partners leaves the partnership and a
new partner joins, does it stay the same partnership? Or is it a new
partnership?
2. If a “new” partnership was created upon the limited liability partnership’s
change in membership, was the “old” partnership terminated immediately
such that it was actually the “new” partnership that filed the second
amended complaint? Or did the “old” partnership continue to exist long
enough in the winding-up process to file the second amended complaint?
3. If the “old” limited liability partnership did not survive the membership
change, may the original partners continue to prosecute the lawsuit as part
of the “winding up” process?
The Questions arise in connection with the prosecution of a qui tam action under
the False Claims Act (“FCA”),1 In re: Plavix Marketing, Sales Practices and Products
Liability Litigation (No. II),2 brought against Sanofi-Aventis U.S. LLC, Sanofi-Aventis
U.S. Services, Inc., Aventis, Inc., Aventis Pharmaceuticals, Inc., Bristol-Myers Squibb
Company, and Bristol-Myers Squibb Pharmaceuticals Holding Partnership (together, the
“Defendants”). The relator bringing the action, on behalf of the United States and several
states, is JKJ Partnership 2011 LLP, a Delaware limited liability partnership. The
1
31 U.S.C. § 3729, et seq.
2
315 F. Supp. 3d 817 (D.N.J. 2018), appeal docketed, No. 19-2472 (3d Cir. July 3, 2018)
[hereinafter Opinion].
3
partnership consists of three individuals who allegedly are each an “original source” of
knowledge upon which the allegations against Defendants are based.
The Questions arose when one of the partners was replaced by another partner, and
an amended complaint was filed shortly thereafter. Upon the filing of the amended
complaint, the Defendants moved to dismiss, alleging, in-part, that replacing the partner
was impermissible the under the FCA’s “first-to-file” bar. The United States District Court
for the District of New Jersey (the “District Court”) granted the motion on that ground.
The partnership appealed to the Third Circuit, which, in turn, certified the Questions that
relate to the “construction or application of” a Delaware statute “which has not been, but
should be, settled by” this Court.3
This is the opinion of the Court on the certified questions.
I. Factual and Procedural Background
A. The Qui Tam Litigation
Under our Rule 41, we rely only upon the undisputed facts. However, we provide
some background from the District Court’s May 30, 2018 Opinion (the “Opinion”),4 as
supplemented by the record before us, purely to provide context for the reader.
On October 26, 2011, two doctors and a Sanofi sales representative formed JKJ
2011 Partnership LLP (“JKJ”), a Delaware limited liability partnership. According to
3
App. to Opening Br. at A180 (3d Cir. Order of Certification).
4
Opinion, 315 F. Supp. 3d 817.
4
JKJ’s Partnership Agreement (the “Partnership Agreement”), JKJ was formed “to file and
prosecute” a whistleblower action against the Defendants.5
Section 1.03 of the Partnership Agreement states that “the Partnership shall not be
a separate legal entity distinct from its Partners.”6 The District Court explained the likely
reason for this provision:
Although the Third Circuit has not resolved the issue, the consensus of
persuasive precedent suggests that, were JKJ a separate legal entity, the fact
that it did not exist at the time the alleged fraud occurred would prevent it
from being an “original source” with direct knowledge of the fraud under the
pre-amendment FCA.7
On November 4, 2011, nine days after it was formed, JKJ filed the original qui tam
complaint (the “Complaint”) in the District Court, alleging that the Defendants failed to
disclose, as required by law, certain information regarding Plavix,® an antiplatelet drug
used to prevent heart attacks and strokes. The Complaint kept the partners’ identities
anonymous, identifying them as “Partner A,” “Partner B,” and “Partner C.” The
Partnership Agreement identified the partners as Jeffrey Stahl, Kelly Wood, and John
Venditto.8
On February 22, 2017, JKJ filed a second amended complaint (the “SAC”), further
developing its claim of Plavix’s® ineffectiveness for certain patients based on their genetic
makeup. JKJ alleges that Defendants made affirmative misrepresentations by
5
App. to Opening Br. at A110, A112 (Partnership Agreement).
6
Id. at A111.
7
Opinion, 315 F. Supp. 3d at 831.
8
App. to Opening Br. at A110.
5
“systematically and deliberately promot[ing] Plavix through false and misleading
advertising [and other marketing materials] that overstated [the drug’s] efficacy, and
minimized critical adverse event and risk information. Defendants would brand this their
‘Expand and Protect’ strategy.”9 JKJ alleges that Defendants created a logo used on Sales
and Marketing material to reflect this strategy.10 According to JKJ, based upon this
strategy, “Defendants ‘protected’ Plavix by selling the drug’s safety and efficacy in all
patients in spite [of] the fact that Defendants knew it was false.”11
After filing the Complaint, but before filing the SAC, Partner B (John Venditto)
withdrew from JKJ, and was replaced by Dr. Paul A. Gurbel (“Partner G”). On August 9,
2017, the District Court, sua sponte, requested that the parties brief the question of whether
JKJ was a proper relator capable of continuing the litigation in light of the replacement of
Partner B with Partner G.
In response to the Court’s inquiry, on October 11, 2017, Defendants filed a motion
to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and Fed. R. Civ. P. 12(b)(6). In their motion,
Defendants argued that, (i) if JKJ is deemed to be the relator in its own right, the FCA’s
public disclosure bar precludes JKJ’s claims, (ii) if JKJ is deemed to be a pass-through
entity for its members, who are the real relators in this action, then JKJ lacks Article III
associational standing to proceed as the plaintiff in this case, (iii) JKJ’s continuation as the
plaintiff after the substitution of Partner G for Partner B is prohibited by the FCA’s first-
9
Opinion, 315 F. Supp. 3d at 821 (citing SAC, ¶ 249).
10
Id.
11
Id. (emphasis in original).
6
to-file bar, and (iv) any curative amendment to add JKJ’s members as plaintiff relators is
also prohibited by the first-to-file bar. JKJ filed a cross-motion for leave to file a third
amended complaint to name its current members, as well as JKJ, as the relator plaintiffs in
this action.
On May 30, 2018, the District Court dismissed the SAC under Fed. R. Civ. P.
12(b)(1) for lack of jurisdiction. It also denied JKJ’s cross motion for leave to amend. In
determining whether the first-to-file bar applied, the District Court considered whether the
substitution of Partner G for Partner B brought about an intervention of a new private party
into the case.12 It held that because the JKJ that filed the SAC was a different partnership
from the JKJ partnership that had filed the Complaint, there had been an “intervention” of
a new private party in contravention of the first-to-file bar.
The District Court analyzed Delaware partnership law in reaching its conclusion. It
examined Delaware’s previous partnership law regime, the Delaware Uniform Partnership
Act (“DUPA”), and the current statute, the Delaware Revised Uniform Partnership Act
(“DRUPA”), and how they aligned with the “aggregate theory” and the “entity theory” of
partnerships. It explained that although membership changes do not create a new
partnership under DRUPA (which follows the entity model as a default), the DUPA
embraced the aggregate theory, and thus, “the addition or subtraction of members from the
12
Id. at 829–30 (“The first-to-file bar provides that, once a qui tam action has been brought on a
claim, ‘no person other than the Government may intervene or bring a related action based on the
facts underlying the pending action.’” (quoting U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112,
120 (D.C. Cir. 2015) (citing 31 U.S.C. § 3730(b)(5))) (internal quotation marks omitted)).
7
partnership created new partnerships.”13 The court concluded that because the partners
expressly opted out of the entity model in Section 1.03 of the Partnership Agreement, as
permitted by DRUPA under 6 Del. C. § 15-201, “the partnership necessarily became the
aggregate form; that is, the members of the partnership are legally indistinct from the
partnership entity itself.”14 It explained that, “[s]uch an aggregate partnership, which exists
as an association of individuals rather than a separate legal entity, does not survive changes
in membership, but becomes a new partnership between the new and remaining
members.”15 Thus, the District Court reasoned that it was the new partnership that had
filed the SAC:
Once JKJ’s original members opted out of the entity model, as permitted by
§15–201(a), they could not retain the benefits of a legally separate JKJ entity
for litigation purposes. Any finding to the contrary would lead to the absurd
result that JKJ would be permitted to proceed as a relator because it is legally
indistinguishable from, and therefore directly possesses the knowledge of, its
members, but would also be permitted to change its membership without
becoming a different legal entity because it is legally independent and
distinguishable from its present membership. Put simply, JKJ cannot have it
both ways.16
Accordingly, the District Court granted the Defendants’ Rule 12(b)(1) motion and
dismissed the Complaint on the basis that the FCA’s first-to-file rule barred the intervention
of a newly formed partnership as a party-plaintiff.
13
Id. at 833.
14
Id. at 834 (emphasis in original).
15
Id.
16
Id. at 832.
8
JKJ filed a motion to alter or amend the May 30 decision pursuant to Fed. R. Civ.
P. 59(e) on June 26, 2018, which was denied on August 6, 2018.
On June 29, 2018, JKJ filed a notice of appeal to the United States Court of Appeals
for the Third Circuit. It argued that the District Court erred when it held that JKJ’s change
in partners created a new partnership, and that even if the change in partnership had
triggered a dissolution of the original partnership, Partners A, B, and C would remain
relators in the case and could pursue the unfinished business of the partnership (i.e., pursue
the qui tam action to its conclusion).17 The Third Circuit panel certified the Questions to
this Court on June 12, 2019. We accepted certification on June 19, 2019.
B. The Undisputed Facts
In accordance with our Court’s Rule 41, the Third Circuit submitted the following
undisputed facts:18
a. JKJ Partnership 2011 LLP is the relator in this qui tam action. It is a
limited liability partnership organized under Delaware’s Revised
Uniform Partnership Act.
b. JKJ’s partnership agreement says that its sole purpose “is to file and
prosecute” this action.
c. One section of JKJ’s partnership agreement says: “As authorized by
Section 15-201(a) of the Act, the Partnership shall not be a separate legal
entity distinct from its Partners. In the event of any conflict between the
terms of this Section . . . and the terms of any other Section of this
Agreement, the terms of this Section . . . shall control.”
17
App. to Opening Br. at A28–A29 (JKJ’s 3d Cir. Opening Br.).
18
Id. at A179 (3d Cir. Order of Certification). We treat these facts as undisputed for the purposes
of deciding these legal issues. See Duncan v. Theratx, Inc., 775 A.2d 1019, 1021 (Del. 2001).
9
d. Another section of JKJ’s partnership agreement says that the “withdrawal
of a Partner shall not cause a dissolution of the Partnership.”
e. After this action began, one of JKJ’s founding partners withdrew. A new
partner replaced him.
f. The new partner arrangement continued to prosecute this action by filing
a second amended complaint.
II. Standard of Review
Certified questions of law are reviewed de novo.19 This Court reviews
interpretations of written partnership agreements de novo.20 Our review is based on the
facts in the Order of Certification.21 In addition to these undisputed facts, we also refer to
other provisions of the Partnership Agreement that we find relevant to our analysis. To the
extent we refer to the Complaint and SAC, we recognize that the allegations therein are
disputed.
III. Analysis
A. If one of the partners leaves the partnership and a new partner joins, does it stay
the same partnership? Or is it a new partnership?
For the reasons explained below, we hold that the change in membership created a
new partnership and caused a dissolution of the original JKJ.
19
Lambrecht v. O’Neal, 3 A.3d 277, 281 (Del. 2010).
20
See Parkcentral Global, L.P. v. Brown Inv. Mgmt., L.P., 1 A.3d 291, 295–96 (Del. 2010);
Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 170 (Del. 2002).
21
Supr. Ct. R. 41(c)(iv); Waters v. U.S., 787 A.2d 71, 72 (Del. 2001); E.I. DuPont de Nemours &
Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 458 (Del. 1999).
10
1. Background of Statutory Scheme—Partnerships under Common Law, the
Uniform Acts, and Delaware Law
For background purposes, we begin with the two models of partnership identified
by the District Court: the aggregate and entity models.22 The Partnership Agreement at
issue here contains elements of both.
Under the aggregate theory, “a partnership is an aggregate of individuals and does
not constitute a separate legal entity.”23 “The partnership has no legal existence apart from
its members and cannot sue or be sued in the firm name.”24 This is in contrast to the entity
theory of partnership, where the partnership is a legal person, i.e., an entity separate from
its constituent partners.25
The “aggregate concept of partnership was universally accepted” at common law.26
“Historically, a partnership, unlike a corporation[,] did not enjoy ‘entity’ status, [i.e.], it
22
See Opinion, 315 F. Supp. 3d at 834 (“As I have explained, two distinct models of partnership
structure exist—aggregate and entity.”).
23
68 C.J.S. Partnership § 93 (2020); Allan Donn, Robert W. Hillman & Donald J. Weidner,
Revised Uniform Partnership Act Section 201 (2019–2020 ed.) [hereinafter RUPA Annotated §
201].
24
68 C.J.S. Partnership § 93 (2020).
25
See Gary S. Rosin, The Entity-Aggregate Dispute: Conceptualism and Functionalism in
Partnership Law, 42 Ark. L. Rev. 395, 397–98 (1989); Silliman v. DuPont, 302 A.2d 327, 331
(Del. Super. 1972), aff’d sub nom. F.I. Du Pont, Glore Forgan & Co. v. Silliman, 310 A.2d 128
(Del. 1973) (equating “entity” status of a partnership to being considered a “jural person”);
Fairway Dev. Co. v. Title Ins. Co. of Minn., 621 F. Supp. 120, 122 (N.D. Ohio 1985) (noting that
“Ohio follows the common law aggregate theory of partnership, under which a partnership is
regarded as the sum of the persons who comprise the partnership, versus the legal entity theory of
partnership, under which the corporation, like a partnership, is regarded as an entity in itself”).
26
Silliman, 302 A.2d at 331 (citing Rowley on Partnerships, 2d ed., Sec. 1.3); J. William Callison
& Maureen A. Sullivan, Partnership Law & Practice § 3:1 (2019) (“At common law, a partnership
was considered to be an aggregate of the individual partners . . . . Extrapolating the aggregate
11
had not been considered a jural person but a collection of persons with aggregate rights.”27
At common law, a partner dissociating from the partnership would cause dissolution of the
partnership.28
The Uniform Partnership Act (“UPA”), adopted in 1914 by the Conference of
Commissioners on Uniform State Laws, generally adopted the aggregate approach to
partnerships.29 Although it adopted much of the aggregate approach, the UPA did not
wholly embody it. The original drafting committee of the UPA initially was “split on
philosophical grounds over whether the UPA should follow the separate entity theory or
theory to its extreme, a partnership is nothing more than a relationship between persons acting for
a common business purpose.” (emphasis in original)).
27
Silliman, 302 A.2d at 331.
28
See, e.g., Evans v. Gunnip, 135 A.2d 128, 130 (Del. 1957) (noting that upon a partner’s
withdrawal from the partnership, a new partnership was immediately formed between the
remaining partners); Fike v. Ruger, 754 A.2d 254, 263 (Del. Ch. 1999), aff’d, 752 A.2d 112 (Del.
2000) (noting that in a common law general partnership, “each partner may at any time withdraw
and cause a dissolution”); Weeks v. McMillan, 353 S.E.2d 289, 291 (S.C. Ct. App. 1987) (“The
common law rule is that both the admission of a partner and the withdrawal of a partner will effect
a dissolution.”); Citizens Bank of Mass. v. Parham-Woodman Med. Assocs., 874 F. Supp. 705, 708
(E.D. Va. 1995) (“[A]t common law, admission of a new partner dissolved the old partnership and
created a new one.”); Troupe v. Seby, 416 F.2d 514, 519 (9th Cir. 1969) (“It is a well-established
general rule tha[t] an existing partnership is dissolved and a new partnership is formed whenever
a partner retires or a new one is admitted.” (citing Johnson v. Hill, 1 Ariz. App. 290, 402 P.2d 225
at 226 (1965))); Liability of incoming partner for existing debts, 45 A.L.R. 1240 § I (1926) (“It is
settled beyond all question . . . that, upon what we in common parlance designate ‘the admission
of a person into a partnership,’ there is, ipso facto, [ ] a dissolution of the existing copartnership
and the formation of a new one . . . .”). See also Rosin, supra note 25, at 420 (stating that, “[a]t
common law, any change in partner composition resulted in dissolution of the old partnership and
the creation of a new partnership to continue the business”).
29
See Helvering v. Smith, 90 F.2d 590, 591 (2d Cir. 1937) (Hand, J.) (noting that “[t]he Uniform
Partnership Act . . . did not . . . make the firm an independent juristic entity,” and that, “it would
be a palpable perversion to understand the [UPA] as creating a new juristic person”).
12
the aggregate theory.”30 Within the regime are characteristics distinctly based in entity
theory.31 For example, the UPA states that partners are agents of the partnership;32 partners
must account to the partnership for profits arising from their individual use of partnership
property;33 and the partners do not have individual rights to possess and use partnership
property.34
30
Should the Uniform Partnership Be Revised?, 43 Bus. Law. 121, 122 (Nov. 1987); see also
Helvering, 90 F.2d at 91 (noting that, “[t]he Commission did indeed start out to [make partnerships
an independent juristic entity] . . . . But . . . the Conference in 1911 after a very full discussion
chose to retain the pluralistic notion of the firm, as the English chancellors had painfully worked
it out from the bare common-law, which recognized only joint owners and joint obligors”);
Callison & Sullivan, supra note 26, at § 3:1; William Draper Lewis, The Uniform Partnership Act,
24 Yale L. J. 617, 640 (1915) (the successor drafter of the UPA recalling that though his
predecessor prepared two drafts of the act based on entity theory, the members of the Conference
subsequently “all joined in recommending that the Act be drawn on the common law or aggregate
theory”).
31
“Even if the UPA appears on its face to adopt an aggregate approach to partnerships, a close
examination of the UPA demonstrates a preponderance of entity-type characteristics: partnerships
can hold title to property; partners do not have individual rights to possess and use partnership
property, and are required to account to the partnership for profits arising from their individual use
of partnership property; partners are agents of the partnership and can contractually bind it;
partners have financial relationships with the partnership; and, the partnership business can
continue after dissolution, albeit technically in a new partnership.” Callison & Sullivan, supra
note 26, at § 3:1.
32
UPA § 9(1); see also 6 Del. C. § 1509(a) (repealed 1999).
33
UPA § 21; see also 6 Del. C. § 1521 (repealed 1999).
34
UPA §§ 8, 25; see also 6 Del C. §§ 1508, 1525 (repealed 1999). One commentator has argued
that: “These extracts seem more consistent with the entity than with the aggregate view of the
nature of the partnership and illustrate the difficulty, if not impossibility, not only of writing and
talking about the partnership, but of formulating its rights and obligations without treating it as a
legal person.” Judson A. Crane, The Uniform Partnership Act: A Criticism, 28 Harv. L. Rev. 762,
771 (1915). “The evolution of the Uniform Partnership Act and its adoption by more than forty
states has not settled the ‘entity vs. aggregate’ conflict,” and the “Act has been viewed as a realistic
accommodation of entity theory to aggregate practice which leaves unresolved many problems
concerning the legal nature of partnerships, including capacity to be sued.” Silliman, 302 A.2d at
332 n.4 (citing Jensen, Is a Partnership Under the Uniform Partnership Act an Aggregate or an
Entity?, 16 Vand. L. Rev. 377 (1963)).
13
However, the UPA adopted the key aggregate principle of having partnerships be
an aggregation of individuals. Section 6(1) of the UPA defined a partnership as “an
association of two or more persons to carry on as co-owners a business for profit.”35
Generally, under the UPA, a partnership dissolved when a partner left the partnership.36 In
this regard, Section 29 of the UPA stated that “[t]he dissolution of a partnership is the
change in the relation of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.”37 Section 30 of the
UPA provided that, “[o]n dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.”38 Delaware enacted the DUPA, its
version of the UPA, in 1947.39 Section 1506(a) of the DUPA defined a “partnership” as
“an association of 2 or more persons to carry on as coowners a business for profit and
includes, for all purposes of the laws of this State, a registered limited liability
partnership.”40
35
UPA § 6(1).
36
See RUPA Annotated § 201, supra note 23, at Annotated Cmt. 4(c) (stating that, “[u]nder the
U.P.A., a partnership was ‘dissolved’ whenever a partner departed. Some states also interpreted
the U.P.A. to mean that a partnership also is dissolved whenever a new member is added. Neither
is the case under R.U.P.A.”).
37
UPA § 29; see Donald J. Weidner & John W. Larson, The Revised Uniform Partnership Act:
The Reporters’ Overview, 49 Bus. Law. 1, 4 (Nov. 1993) (“The UPA section 29 definition of
dissolution embodies the concept that a partnership is a unique aggregation of individuals, a
specific cast of characters. The unique cast is ‘dissolved’ whenever a partner leaves.”). The
parallel DUPA provision was 6 Del. C. § 1529.
38
UPA § 30; see also 6 Del. C. § 1530 (repealed 1999).
39
6 Del. C. § 1501, et seq. (repealed 1999).
40
6 Del. C. § 1506(a) (repealed 1999).
14
Delaware repealed the DUPA in 1999, and adopted the Delaware Revised Uniform
Partnership Act, 6 Del. C. §§ 15-101 et seq.41 DRUPA is modeled after the model Revised
Uniform Partnership Act (“RUPA”),42 but it also added features drawn from other states’
versions of RUPA, from the Delaware Revised Uniform Limited Partnership Act, and the
Delaware Limited Liability Company Act to increase flexibility and add clarity.43 It is
clear that “RUPA embraces the entity theory of partnership.”44 This was made explicit in
Section 201(a) of RUPA, which states, “A partnership is an entity distinct from its
partners.”45 The Official Comments to the RUPA make the shift clear:
RUPA embraces the entity theory of the partnership. In light of the UPA’s
ambivalence on the nature of partnerships, the explicit statement provided by
41
The effective date of the DRUPA was January 1, 2000 for partnerships formed on or after that
date, and was effective for all other partnerships on January 1, 2002, unless any such partnership
elected to be governed by DRUPA prior to January 1, 2002. 6 Del. C. § 15-1206.
42
See Del. S.B. 176, 140th Gen. Assemb. (1999) (approved July 12, 1999); Hynansky v. Vietri,
2003 WL 21976031, at *5 n.35 (Del. Ch. Aug. 7, 2003) (noting that DUPA was repealed in 1999
and replaced with DRUPA, codified as 6 Del. C. § 15-101, et seq.).
43
At the end of its June 1999 session, the General Assembly adopted amendments to the Delaware
Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq., as well as to the Delaware
Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq.
44
RUPA Annotated § 201, supra note 23, at Official Cmt. 3 (stating that, “[a]lthough the U.P.A.
adopted an entity theory for some purposes, the aggregate model predominated,” and that, “[i]n
R.U.P.A., the reverse is true”); Callison & Sullivan, supra note 26, at §3:1. But like the UPA,
RUPA does not wholly adopt the dominant model; it contains features that reflect the aggregate
theory. Thus, it has been noted that “even under RUPA the better statement is that a partnership
is a hybrid organization that is considered an entity for some purpose and an aggregate for others.”
Id. at n.13.
45
RUPA § 201(a); Weidner & Larson, supra note 37, at 3 (“Before the drafting was complete, it
became clear that the entity approach was adopted in virtually every situation. That approach
provides simpler rules and is consistent with RUPA’s attempt to give partnerships greater stability.
Accordingly, as the project drew to a close, RUPA was amended to include a statement that
partnerships are entities.); RUPA Annotated § 201, supra note 23, at Annotated Cmt. 1 (“Section
201 was added to reflect the fact that many of R.U.P.A.’s provisions are based on an entity
model.”)
15
subsection (a) [of Section 201] is deemed appropriate as an expression of the
increased emphasis on the entity theory as the dominant model.46
The Official Comments to RUPA also explain the motivation behind the shift:
Giving clear expression to the entity nature of a partnership is intended to
allay previous concerns stemming from the aggregate theory, such as the
necessity of a deed to convey title from the “old” partnership to the “new”
partnership every time there is a change of cast among the partners. Under
RUPA, there is no “new” partnership just because of membership changes.47
...
RUPA’s move to the entity theory is driven in part by the need to prevent a
technical dissolution or its consequences. Under RUPA, not every partner
dissociation causes a dissolution of the partnership.48
Under the RUPA’s Section 801, a partnership generally will continue to exist
notwithstanding the dissociation of a partner. The withdrawal of a partner is a
“dissociation” that results in a dissolution of the partnership only in certain limited
circumstances.49 Many dissociations result merely in a buyout of the withdrawing partner’s
interest, as opposed to a winding up of the partnership’s business. The RUPA distinguishes
departures that cause a winding up from those which only cause a buyout of the departing
partners. Article 6 applies to all “dissociations;” Article 7 applies to all dissociations that
result in a buyout of a partners; and Article 8 applies if there is a dissolution and winding
46
RUPA Annotated § 201, supra note 23, at Official Cmt.
47
RUPA Annotated § 201, supra note 23, at Official Cmt.
48
Allan Donn, Robert W. Hillman & Donald J. Weidner, Revised Uniform Partnership Act Section
801, Official Cmt. 1 (2019–2020 ed.) [hereinafter RUPA Annotated § 801].
49
See Christine A. Hurt, D. Gordon Smith, Alan R. Bromberg & Larry E. Ribstein, Bromberg and
Ribstein on Limited Liability Partnerships, The Revised Uniform Partnership Act, and the Uniform
Limited Partnership Act (2001) 557 (2013 ed.) [hereinafter Bromberg & Ribstein] (citing to
Appendix A, Prefatory Note of the UPA).
16
up of the partnership business. Events causing a dissolution and winding up include a
partnership at will having notice of a partner’s express will to withdraw, the expiration of
the term in a term partnership, events agreed to as resulting in the winding up of the
partnership’s business, and judicial dissolutions.50
The synopsis to Delaware’s legislation implementing the DRUPA explains the
major changes as follows:
This Bill contains Delaware’s version of the Uniform Partnership Act of
1994, as amended in 1996 and 1997 by the National Conference of
Commissioners on Uniform State Laws, popularly known as the “Revised
Uniform Partnership Act” or “RUPA.” As such, it will replace Delaware’s
Uniform Partnership Law, 6 Del. C. Chapter 15, which was based upon the
Uniform Partnership Act which was promulgated by the Uniform Laws
Commissioners in 1914. This Bill is a substantial modernization of general
partnership law in that, inter alia, it emphasizes the contractual nature of the
relationship among partners; primarily treats general partnerships as
entities, rather than aggregates; generally provides that a partnership does
not dissolve upon the dissociation of a partner; contains more extensive
treatment of fiduciary duties of partners; and introduces provisions for the
public filing of various types of statements and certificates containing
information about the partnership, including the agency authority of one or
more of its partners.
This Bill applies to general partnerships many of the procedures which have
proven popular for Delaware limited partnerships and Delaware limited
liability companies. It also continues to permit limited liability partnerships.
Adoption of this Bill will continue Delaware’s role as a leading jurisdiction
for the formation of business entities and will permit Delaware to join other
states which have already adopted their version of RUPA.51
50
Weidner & Larson, supra note 37, at 9 (citing to RUPA sections 801(1), 801(2), 801(3) and
801(5) and (6)).
51
Del. S.B. 176 syn. (emphasis added).
17
DRUPA modifies certain of RUPA’s default rules, and also contains other
provisions which have no counterpart in RUPA. Among the latter is Section 15-103(d),
which provides that it is the policy of DRUPA to give maximum effect to the principal of
freedom of contract and the enforceability of partnership agreements. Section 103 of
RUPA provides that the partnership agreement controls in most circumstances. Section
15-103 of DRUPA similarly provides that except for certain mandatory provisions under
DRUPA, “relations among the partners and between the partners and the partnership are
governed by the partnership agreement,” and that, “[t]o the extent the partnership
agreement does not otherwise provide, [DRUPA] governs relations among the partners and
between the partners and the partnership.”52 Thus, RUPA and DRUPA consist largely of
default “gap-filler” provisions that govern when a partnership agreement is silent on an
issue.53
RUPA’s Section 103 also enumerates what cannot be altered by the partnership
agreement. Section 201(a) is not one of those mandatory provisions.54 Section 201
explicitly provides that a partnership is an entity distinct from its partners. Section 15-
52
6 Del. C. § 15-103(a).
53
See Weidner & Larson, supra note 37, at 2 (“Under RUPA, every rule governing the relations
among partners is a default rule unless it is separately listed as a mandatory rule.”).
54
See also RUPA Annotated § 201, supra note 23, at Annotated Cmt. 3 (stating that, “Section
201(a), which states that a partnership is an entity distinct from its partners, is not mentioned in
the Section 103(b) list of rules that cannot be varied by agreement,” and that, “[t]herefore, the
partnership agreement may govern the relations among partners and between the partnership and
the partners according to an aggregate model”).
18
201(a) of DRUPA goes further and explicitly clarifies that it is a default provision that can
be varied by the partnership agreement. It states:
§ 15-201 Partnership as entity.
(a) A partnership is a separate legal entity which is an entity distinct from its
partners unless otherwise provided in a statement of partnership existence or
a statement of qualification and in a partnership agreement.55
In this case, as we explain next, the JKJ Partnership did vary the entity principle embodied
in Section 15-201(a) of DRUPA.
2. JKJ’s Partnership Agreement and its Opt-Out of Separate Legal Entity
Status
Pursuant to Section 1.02 of the Partnership Agreement, JKJ was formed as a limited
liability partnership pursuant to DRUPA.56 Thus, our analysis will proceed under DRUPA.
Pursuant to Section 15-103 of DRUPA, we look to the Partnership Agreement and interpret
its provisions relevant to the Questions.57 The principles we apply to our analysis are
familiar. As noted above, Section 15-103(d) of DRUPA expressly states that, “[i]t is the
policy of [DRUPA] to give maximum effect to the principle of freedom of contract and to
55
6 Del. C. § 15-201(a).
56
The partners agreed to “operate the Partnership as a limited liability partnership under the terms
of [the Partnership] Agreement and [DRUPA].” App. to Opening Br. at A110 (Partnership
Agreement).
57
Obtaining answers to novel legal questions that will have a broad impact within Delaware is a
primary purpose of allowing certification to the Delaware Supreme Court, particularly in the
corporate context. See Citigroup Inc. v. AHW Inv. P’rship, 140 A.3d 1125 (Del. 2016) (answering
certified question regarding “holder” claims); NAF Hldgs., LLC v. Li & Fung (Trading) Ltd., 118
A.3d 175 (Del. 2015) (answering certified question regarding direct claim for breach of contract);
ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) (answering certified question
regarding fee-shifting bylaw). These are novel issues, but because our answer is based principally
on our interpretation of the Partnership Agreement, we view our holding as a narrow one.
19
the enforceability of partnership agreements.”58 With respect to our interpretation of the
Partnership Agreement, partnership agreements are a type of contract. 59 “We, therefore,
construe them in accordance with their terms to give effect to the parties’ intent.”60 “We
give words their plain meaning unless it appears that the parties intended a special
meaning.”61 The “parties’ intentions as reflected in the four corners of the agreement” are
given priority.62 “When interpreting contracts, we construe them as a whole and give effect
to every provision if it is reasonably possible.”63 “A meaning inferred from a particular
58
6 Del. C. § 15-103(d). This Court has also stated in the context of the Delaware Limited Liability
Company Act (noting that, “the following observations relating to limited partnerships applies as
well to limited liability companies”):
The Act’s basic approach is to permit partners to have the broadest possible
discretion in drafting their partnership agreements and to furnish answers only in
situations where the partners have not expressly made provisions in their
partnership agreement. Truly, the partnership agreement is the cornerstone of a
Delaware limited partnership, and effectively constitutes the entire agreement
among the partners with respect to the admission of partners to, and the creation,
operation and termination of, the limited partnership. Once partners exercise their
contractual freedom in their partnership agreement, the partners have a great deal
of certainty that their partnership agreement will be enforced in accordance with its
terms.
Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999) (quoting Martin I. Lubaroff &
Paul Altman, Delaware Limited Partnerships § 1.2 (1999)).
59
Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013).
60
Id.
61
Id.; Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009) (“In interpreting contract
language, clear and unambiguous terms are interpreted according to their ordinary and usual
meaning.” (quoting Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006))
(internal quotation marks omitted)).
62
GMG Capital Inv., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012).
63
Norton, 67 A.3d at 360; see GMG Capital, 36 A.3d at 779 (“In upholding the intentions of the
parties, a court must construe the agreement as a whole, giving effect to all provisions therein.”
(quoting E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985))
(internal quotation marks omitted)).
20
provision cannot control the agreement if that inference conflicts with the agreement’s
overall scheme.”64 We “give each provision and term effect, so as not to render any part
of the contract mere surplusage.”65
The relevant Partnership Agreement provisions are set forth below:
Section 1.01 Definitions. Within the context of this Agreement, the
following terms shall have the following meanings:
“Act” means the Delaware Revised Uniform Partnership Act.
…
“Partners” means the Partners, and any Person subsequently admitted as a
partner in accordance with the terms of this Agreement.
Section 1.02 Formation of Limited Liability Partnership; Name. The
Partners hereby form the Partnership as a limited liability partnership
pursuant to the Act. The Partners hereby agree to operate the Partnership as
a limited liability partnership under the terms of this Agreement and the Act.
Whenever the terms of this Agreement conflict with the Act, the terms of this
Agreement shall control, except with respect to any matters contained in the
Act that cannot be modified or waived by a limited liability partnership
agreement . . . .
Section 1.03 No Separate Legal Entity. As authorized by Section 15-
201(a) of the Act, the Partnership shall not be a separate legal entity distinct
from its Partners. In the event of any conflict between the terms of this
Section 1.03 and terms of any other Section of this Agreement, the terms of
this Section 1.03 shall control.
Section 1.06 Purpose. The purpose and business of the Partnership is to file
and prosecute the Action . . . .
Section 1.07 Term. The term of the Partnership shall commence on the date
of filing of the Statement of Qualification, and the Partnership shall continue
64
Norton, 67 A.3d at 360.
65
Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010); see Osborn
ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (“We will not read a contract to render
a provision or term ‘meaningless or illusory.’”).
21
until the final resolution or settlement of the Action without further right of
appeal.
Section 7.02 Admissions. No transferee of an Interest shall be admitted as
a Partner of the Partnership without the written consent of the Partners. Any
transferee of an Interest who is not admitted as a Partner shall have the rights
of an assignee with respect to distributions and Profits and Losses attributable
to the transferred Interest, but shall have no rights as a Partner under this
Agreement or the Act.
Section 7.03. Withdrawals. No Partner shall have the right to withdraw or
dissociate from the Partnership prior to the dissolution and winding up of the
Partnership except: (i) upon 60 days prior written notice to the non-
withdrawing Partner(s) or (ii) with the written consent of the non-
withdrawing Partner(s). Any assignment of rights in the Action previously
made by a withdrawing Partner pursuant to Section 2.01 shall be
automatically revoked and rescinded effective as of the withdrawal of such
Partner. If after any such pending withdrawal, there shall be only one Partner
remaining, the non-withdrawing Partner shall have the right to admit new
Partner(s) without the consent of the withdrawing Partners.
Section 8.01 Dissolution Events. Subject to Section 1.07, the Partnership
shall be terminated and dissolved upon at such time and on the happening of
such events as shall be determined by the Partners. The death, incapacity,
bankruptcy or any other incapacity or withdrawal of a Partner shall not cause
a dissolution of the Partnership.
Section 8.02 Liquidation.
(a) Winding Up. Upon the dissolution of the Partnership, the
Partnership’s business shall be liquidated in an orderly manner. The Partners
shall determine which Partnership property shall be distributed in-kind and
which Partnership property shall be liquidated. The liquidation of
Partnership property shall be carried out as promptly as is consistent with
obtaining the fair value thereof.66
66
App. to Opening Br. at A110–A114.
22
Section 1.03 of the Partnership Agreement provides that, “[a]s authorized by Section
15-201(a) of the Act, the Partnership shall not be a separate legal entity distinct from its
Partners.”67 Section 1.03 of the Partnership Agreement states in its entirety:
Section 1.03 No Separate Legal Entity.
As authorized by Section 15-201(a) of the Act, the Partnership shall not be a
separate legal entity distinct from its Partners. In the event of any conflict
between the terms of this Section 1.03 and the terms of any other Section of
this Agreement, the terms of Section 1.03 shall control.68
Thus, Section 1.03 expresses a general intent to adopt a key feature of the aggregate model,
namely, that the Partnership not be distinct from its members. The plain meaning of “not
a separate legal entity distinct from its Partners” means that JKJ consists of an association
of Partners A, B, and C.
Despite its opt-out of entity status, Section 1.03 is premised on the notion that at
least some provisions are, or could be viewed as being based on the entity model. 69 This
is evident as Section 1.03 attempts to address how to resolve conflicts between provisions
that derive from the two competing models. In the event that provisions conflict, Section
67
Id. at A111 (Partnership Agreement) (emphasis added); see also id. at A117 (JKJ’s Statement
of Qualification ¶ 5).
68
Id. at A111 (Partnership Agreement § 1.03).
69
JKJ did retain certain features of the entity model, such as the shield of limited liability for the
limited partners by filing a statement of qualification under 6 Del. C. § 15-1001 with the Delaware
Secretary of State. See id. (Partnership Agreement § 1.04); id. at A117 (JKJ’s Statement of
Qualification ¶ 4). It also retained the entity characteristic of having property acquired by a
partnership be partnership property, and that a partner is not a co-owner of partnership property,
both of which can be effected only by providing so in a statement of partnership existence or a
statement of qualification and in a partnership agreement. See id. at A112 (Partnership Agreement
§ 1.08); 6 Del C. §§ 15-203, 15-501.
23
1.03 gives primacy to the aggregate model by declaring that JKJ is not a separate legal
entity distinct from its Partners, and it resolves any conflict by declaring that Section 1.03’s
preference for non-entity status trumps any other conflicting sections of the Partnership
Agreement.
As explained above, DRUPA gap-filler provisions provide, as the default, that a
partnership, for a term or particular undertaking, generally can have partners withdraw
without triggering dissolution of the partnership.70 Question 1 requires us to determine to
what extent any “entity-based” provisions in the Partnership Agreement, and any
applicable entity-based DRUPA default provisions, were overridden once the partners
elected in Section 1.03 to provide that the partnership not be distinct from its partners. The
replacement of Partner B with Partner G changed the composition of JKJ from an
association of partners A, B, and C to an association of Partners A, C, and G. We conclude
that if JKJ is “not distinct” from A, B, and C, then this new aggregation of partners A, C,
and G resulted in a new partnership and dissolution of the old partnership.
In an attempt to avoid this conclusion, JKJ argues that other provisions of the
Partnership Agreement show that it contractually preserved in the Partnership Agreement
certain “entity” features that allow JKJ to change its partnership composition without
triggering dissolution. It points to Section 8.01, which expressly states that partner
withdrawals will not trigger dissolution. Section 8.01 provides in its entirety:
70
For example, Section 15-801(2) provides that a partnership for a term or particular undertaking
does not dissolve upon wrongful dissociation or dissociation by death or related events unless a
majority of partners agree to wind up and dissociate within 90 days after the dissociation. 6 Del.
C. § 15-801(2).
24
Section 8.01 Dissolution Events. Subject to Section 1.07, the Partnership
shall be terminated and dissolved upon at such time and on the happening of
such events as shall be determined by the Partners. The death, incapacity,
bankruptcy or any other incapacity or withdrawal of a Partner shall not
cause a dissolution of the Partnership.71
JKJ also contends that the Partnership Agreement contemplates partner additions.
It again refers us back to Section 1.03 of the Partnership Agreement, which states that JKJ
elected not to be a separate legal entity distinct from its Partners, with “Partners” being a
defined term meaning, “the Partners, and any Person subsequently admitted as a partner in
accordance with the terms of this Agreement.”72 JKJ then points us to Section 1.07’s
“Term” provision (providing that JKJ shall continue until final resolution or settlement of
the action), and also refers to Section 7.02 of the Partnership Agreement, which states that
“[n]o transferee of an Interest shall be admitted as a Partner of the Partnership without the
written consent of the Partners.”73 Finally, JKJ argues that the entire composition of JKJ
can change, and that, following such change, it can still be indistinct from these new
partners.74
71
App. to Opening Br at A114 (Partnership Agreement § 8.01) (emphasis added).
72
Id. at A111. Bromberg and Ribstein comment that with respect to Section 801’s list of events
that do cause a dissolution, RUPA’s “Section 801 is subject to contrary provision in the partnership
agreement pursuant to RUPA § 103, except that the partners may not contract to avoid judicial
dissolution or dissolution for unlawfulness under subsections 801(4)–(6),” and “[t]hus, the
partnership can avoid dissolution by agreement.” Bromberg & Ribstein, supra note 49, at 359.
Similarly, DRUPA’s Section 15-103(b)(6) provides that a partnership agreement may not “[v]ary
the requirement to wind up the partnership business in cases specified in § 15-801(4), (5), or (6).”
6 Del. C. § 15-103(b)(6). This also implies that a partnership agreement can, otherwise, avoid
dissolution by agreement.
73
Id. at A114.
74
When asked whether JKJ could remove every one of its current partners and replace each one
of them and still remain an entity not distinct from its partners, JKJ’s counsel responded: “Yes.”
25
We do not find these arguments persuasive. The suggestion that the Partnership
Agreement contemplates the withdrawal and substitution of new partners without causing
a dissolution contradicts the plain language of Section 1.03, which states that JKJ is not a
separate legal entity distinct from its partners. Thus, JKJ was not distinct from partners A,
B, and C. The withdrawal of B and the substitution of G changed the composition from A,
B, and C to A, C, and G. JKJ cannot be indistinct from A, B, and C and remain the same
entity with a new cast of partners. To the extent the provisions cited by JKJ allow for the
withdrawal and addition of new partners, they conflict with Section 1.03’s rule that JKJ is
not distinct from its partners, and Section 1.03 controls.75 Accordingly, we hold that a new
partnership was formed upon the replacement of Partner B with Partner G, and that the
membership change effected a dissolution of the original JKJ.
See Oral Argument Video, 9:35–9:54,
https://livestream.com/DelawareSupremeCourt/events/8952027/videos/200779358.
75
We note that Section 8.01 of the Partnership Agreement provides that withdrawals may occur
without triggering a dissolution, but Section 8.01 does not address the consequences of adding
partners. The Defendants argue that, “[a] partner’s withdrawal would not allow any new individual
to circumvent the first-to-file bar, nor would it expand the partnership’s aggregate knowledge in a
way that bolsters its claim to ‘original source’ status under the public disclosure bar,” and that, by
contrast, “the addition of new partners would belatedly expand the partnership’s knowledge,
allowing the new partners to participate in a qui tam suit that they could not otherwise file on their
own, see 31 U.S.C. § 3730(b)(5) (2010), and would defeat the first-to-file bar’s purpose of
incentivizing relators to ‘promptly alert the government to the essential facts of a fraudulent
scheme.’” Answering Br. at 20 n.9 (citation omitted). This makes sense to us, because, as the
District Court observed, JKJ’s position was that “this original JKJ partnership was able to serve as
a relator in this case on the basis of its members’ knowledge and legal rights, since the partnership
was not legally distinct from these members.” Opinion, 315 F. Supp. 3d at 831. However, we do
not reach any issues other than the Delaware law issues presented to us. Although Section 8.01 of
DRUPA contemplates that certain dissolution events might be avoided by agreement, based upon
our reading of the Partnership Agreement, we hold that JKJ’s controlling principle in Section 1.03,
that it not be “distinct” from its partners, nevertheless, does not allow for the replacement of Partner
B with Partner G, as happened here, without creating a new partnership and causing a dissolution
of the old JKJ.
26
B. If a “new” partnership was created upon the limited liability partnership’s
change in membership, was the “old” partnership terminated immediately such
that it was actually the “new” partnership that filed the second amended
complaint? Or did the “old” partnership continue to exist long enough in the
winding-up process to file the second amended complaint?
Generally, under DRUPA, dissolution does not terminate the partnership, and the
partnership continues after dissolution only for the purpose of winding up its business or
affairs.76 Further, under DRUPA, the partnership is terminated when the winding up is
complete.77 As we held in response to Question 1, the change in membership effected a
dissolution of the old JKJ. However, we cannot determine from the undisputed facts
whether the winding up was completed. Therefore, we leave that determination to the trial
court.
We are also asked whether the old JKJ continued to exist long enough in the winding
up process to file the SAC. But we are told to accept, as an undisputed fact that, “[t]he new
partner arrangement continued to prosecute this action by filing a second amended
complaint.” We note that paragraph 26 of the SAC alleges that, “Plaintiff/Relator, a
Delaware limited liability partnership, is named JKJ PARTNERSHIP 2011 LLP . . . . There
are three JKJ partners: Paul A. Gurbel, M.D., Jeffrey A. Stahl, M.D., and Kelly D.
76
6 Del. C. § 15-802. Section 15-802(a) of DRUPA provides:
(a) Subject to subsection (b) of this section, a partnership continues after
dissolution only for the purpose of winding up its business or affairs. The
partnership is terminated when the winding up of its business or affairs is
completed.
6 Del. C. § 15-802(a). Section 15-802 bears the heading, “Partnership continues after dissolution.”
77
6 Del. C. § 15-802(a).
27
Evans.”78 Thus, based upon what we are told to accept as an undisputed fact, which is
supported by the SAC itself, we conclude that the new partnership filed the SAC.
Perhaps the more critical question is, did the new partnership have ownership of the
litigation asset so it could pursue the action and file the SAC? It appears that the action
was partnership property at the outset of JKJ.79 Whether the action was retained by the
original partnership or transferred to the new one is a fact-based question that we cannot
determine based upon the undisputed facts.80
C. If the “old” limited liability partnership did not survive the membership change,
may the original partners continue to prosecute the lawsuit as part of the
“winding up” process?
In our answer to Question 2, we concluded that the new partnership filed the SAC.
Thus, it does not appear that the old partnership is prosecuting the action. We note that the
District Court was of the same view. To illustrate, in its letter order denying JKJ’s motion
for reargument, the District Court addressed JKJ’s argument that “the initial JKJ
78
App. to Answering Br. at B183 (SAC ¶26). The parties indicated that Kelly Wood changed her
name to Kelly Evans.
79
App. to Opening Br. at A112 (Partnership Agreement § 2.01) (stating that each of the Partners
contributed and assigned to the Partnership, as an initial capital contribution “all of his or her
rights, title and interest in and to the Action”); see generally 6 Del. C. § 15-204. Section 2.01
further provides that, “[t]he assignment of such rights in and to the Action shall be valued at zero
for Capital Account purposes for each Partner.” App. to Opening Br. at A112.
80
We note that the Defendants referred to John Venditto’s Notice of Withdrawal in support of
their contention that the partners had transferred the litigation asset to the new partnership.
Answering Br. at 30 (“Dr. Venditto’s notice of withdrawal explicitly states that the partnership has
‘no liabilities and no value as of the date of this withdrawal.’”); App. to Opening Br. at A119 (John
Venditto’s Notice of Withdrawal). JKJ responded that the action had no value because that is how
it was treated at the outset in valuing it for Capital Account purposes. The debate at oral argument
about this notice, the value of the action, and whether it was transferred, illustrates the nature of
the factual inquiry which we cannot resolve.
28
partnership still has the power to prosecute this lawsuit as part of ‘winding up’ its affairs.”81
In rejecting this argument, the District Court stated:
In stark contrast to this case, however, Plaintiff cites no authority, and the
Court cannot find any, that stands for the proposition that the original
partnership of JKJ—formed for the main purpose of pursuing this litigation
as a relator—can continue as a viable entity in the same litigation after the
partnership has dissolved. But, even if JKJ partnership could continue to
prosecute this lawsuit, it has chosen not to do so. In fact, the Second
Amended Complaint only names the new JKJ partnership, with Dr. Gurbel
as an added partner, as the sole relator in this lawsuit. Nowhere in that
Complaint does Plaintiff suggest[ ] that the original JKJ partnership is a part
of this action, or that the now-dissolved partnership is winding up its business
by continuing with this case until conclusion. Instead, the opposite is true;
JKJ took conscious steps to replace a partner in the partnership for the sole
purpose of pursuing this litigation as a newly-formed entity. Now, in
hindsight, JKJ seeks to revive its old partnership after this Court’s ruling; the
fact that the original, dissolved JKJ partnership is still part of this case simply
contradicts the record.82
Notwithstanding the District Court’s observation that the old JKJ is not pursuing the
action, and our answer to Question 2 (that the new JKJ filed the SAC), we are now being
asked whether the old partnership can pursue the action. We hold that it cannot. Question
3 appears to assume that the winding up process has not been completed. We will attempt
to answer that question accepting that assumption.
Pursuant to Section 8.02(a) of the Partnership Agreement, and as consistent with
DRUPA, dissolution triggers the winding up process. Section 8.02 of the Partnership
Agreement addresses the “winding up” process and provides:
81
In re: Plavix Mktg., Sales Practices and Prod. Liab. Litig, No. 11-06476(FLW), at 4 (D.N.J.
Aug. 6, 2018), Opening Br. Ex. C.
82
Id.
29
(a) Winding Up. Upon the dissolution of the Partnership, the Partnership’s
business shall be liquidated in an orderly manner. The Partners shall
determine which Partnership property shall be distributed in-kind and which
Partnership property shall be liquidated. The liquidation of Partnership
property shall be carried out as promptly as is consistent with obtaining the
fair value thereof.83
The Partnership Agreement does not expressly address whether, and/or to what extent, the
Partnership can undertake the prosecution or defense of litigation in the winding up phase.84
Assuming arguendo that at least some litigation activity is generally permissible in the
winding up phase, Section 8.02(a) requires the business of the Partnership to be liquidated
promptly or distributed in-kind. The concept of “liquidating” Partnership property is
inconsistent with continuing with carrying on the business for which the Partnership was
established. The Partnership Agreement makes clear that for JKJ, pursuing the action is
the singular purpose for which JKJ was formed. This purpose is explicitly stated in Section
1.06 of the Partnership Agreement entitled, “Purpose,” which states that, “[t]he purpose
and business of the Partnership is to file and prosecute the Action.”85 Although there is
83
App. to Opening Br. at A114 (Partnership Agreement).
84
Compare Section 15-803(c) of DRUPA, which expressly contemplates that the prosecution and
defense of actions can take place in the winding up phase. 6 Del. C. § 15-803(c).
85
App. to Opening Br. at A110. The prefatory “Background” section of the Partnership
Agreement also describes the purpose of JKJ as follows:
The Partners have entered into a Common Interest and Joint Prosecution
Agreement, as the same may be amended from time to time (the “Joint Prosecution
Agreement”) providing for their cooperation in the filing and prosecution of a
whistleblower action as described in the Joint Prosecution Agreement (the
“Action”).
The parties hereby desire (i) to file and prosecute the Action through a limited
liability partnership formed pursuant to the Act and this Agreement and (ii) enter
30
little Delaware case law precisely on point, the Official Comments to Section 801 of RUPA
suggest that continuing with the main business of the partnership is not consistent with
“winding up”:
Under RUPA, “dissolution” is merely the commencement of the winding up
process. The partnership continues for the limited purpose of winding up the
business. In effect, that means the scope of the partnership business
contracts to completing work in process and taking such other actions as
may be necessary to wind up the business. Winding up the partnership
business entails selling its assets, paying its debts, and distributing the net
balance, if any, to the partners in cash according to their interests. The
partnership entity continues, and the partners are associated in the winding
up of the business until winding up is completed. When the winding up is
completed, the partnership entity terminates.86
Generally, cases in both the partnership87 and the corporate context88 suggest that
this allowance for litigation in the winding up phase is, more typically, ancillary to the
into this Agreement to form such limited liability partnership and to set forth their
respective rights, duties and obligations with respect thereto.
Id.
86
RUPA Annotated § 801, supra note 48, at Official Cmt. 2.
87
See, e.g., Caines Landing Wildlife Preserve Ass’n v. Kirkpatrick, 633 A.2d 369, 1993 WL
397606, at *2 (Del. Oct. 1, 1993) (Table) (stating that, “[u]pon dissolution, the partners of a general
partnership have a duty to wind up its affairs,” that “a partnership continues after dissolution only
for the purpose of winding up the partnership affairs, unless the partners agree otherwise or
innocent partners exercise a right to continuation of the business,” and that, “[a]s with a corporation
in dissolution, the business of a dissolved general partnership should continue only if doing so is
consistent with the objective of winding up its affairs” (emphasis in original)); Paciaroni v. Crane,
408 A.2d 946, 955 (Del. Ch. 1979) (noting that “it is generally accepted that once dissolution
occurs, the partnership continues only to the extent necessary to close out affairs and complete
transactions begun but not then finished”).
88
In the corporate context, for example, following dissolution, the corporation may conduct any
business “incidental and necessary to the delegated power to wind up” within the three-year period
after dissolution. McBride v. Murphy, 124 A. 798, 801 (Del. Ch. 1924), aff’d, 130 A. 283 (Del.
1925); see also Broza v. Aluminum Cleaner Corp., 159 A. 430, 432 (Del. Ch. 1932). Generally,
“a dissolved corporation’s powers during the three-year wind up period are limited to closing its
affairs and do not extend to carrying on the business for which it was established.” Edward P.
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main business of the entity, and, thus, normally would not extend to situations where the
primary purpose of the partnership is to pursue that particular litigation. This would be
especially true if the litigation were in its beginning stages.89
Because of the dearth of case law in this area, we confine our holding to the limited
facts presented to us. We hold that the old JKJ may not continue to prosecute the action as
a part of its winding up process, because to do so would be inconsistent with Section 8.02
of the Partnership Agreement, which directs that, “[t]he liquidation of Partnership property
shall be carried out as promptly as is consistent with obtaining the fair value thereof,”90 and
because the action is in its beginning phases and is the sole purpose for which JKJ was
established.
IV. Conclusion
Based on the foregoing, the questions of law certified to the Court by the United
States Court of Appeals for the Third Circuit are answered as follows:
1. A limited liability partnership is formed to file and prosecute a specific lawsuit.
Its formational documents say both that the partnership is not “a separate legal
entity distinct from its Partners” under 6 Del. Code § 15-201(a) and that the
Welch et al., Folk on the Delaware General Corporation Law § 278.02 (2020 ed.) (citing Addy v.
Short, 89 A.2d 136, 163 (Del. 1952)); Gamble v. Penn Valley Crude Oil Corp., 104 A.2d 257, 260
(Del. Ch. 1954) (construing 8 Del. C. § 278 and stating that a dissolved corporation “has the power
to close its affairs but not to carry on the business for which it is established”); Johnson v.
Helicopter & Airplane Servs. Corp., 404 F. Supp. 726, 731 (D. Md. 1975) (observing that under
8 Del. C. § 278, “a corporation’s existence is continued for three years after dissolution,” and that,
“[d]uring that time, the corporation may not conduct the business for which it was originally
incorporated”).
89
We could conceive of a situation where a litigation, which was the main purpose for which a
partnership was formed, was in the final stages of being resolved. We offer no view as to whether
such a scenario may call for a different outcome.
90
App. to Opening Br. at A114.
32
“withdrawal of a Partner shall not cause a dissolution of the Partnership.” If one
of the partners leaves the partnership and a new partner joins, does it stay the same
partnership? Or is it a new partnership?
ANSWER: For the reasons explained above, we hold that the change in
membership created a new partnership and caused a dissolution of the original JKJ.
2. If a “new” partnership was created upon the limited liability partnership’s change
in membership, was the “old” partnership terminated immediately such that it was
actually the “new” partnership that filed the second amended complaint? Or did
the “old” partnership continue to exist long enough in the winding-up process to
file the second amended complaint?
ANSWER: The “old” partnership continues to exist until winding up is complete
and it is terminated. We cannot determine from the undisputed facts whether it was
terminated. We are told in (f) of the undisputed facts that the new partnership filed the
SAC—a fact reflected in paragraph 26 of the SAC. Thus, we conclude that it was the
“new” partnership that filed the SAC. Whether the new partnership possessed the litigation
asset is another factual inquiry that we are unable to determine from the undisputed facts.
3. If the “old” limited liability partnership did not survive the membership change,
may the original partners continue to prosecute the lawsuit as part of the “winding
up” process?
ANSWER: We hold that the old JKJ may not continue to prosecute the action as a
part of its winding up process, because to do so would be inconsistent with Section 8.02 of
the Partnership Agreement, and because the action is in its beginning phases and is the sole
purpose for which JKJ was established.
33