Hanaway, L. v. The Parkesburg Group, Aplts.
2017 Pa. LEXIS 1941
Pa.2017Background
- In 2005 Parkesburg Group, L.P. (Parkesburg) was formed as a Pennsylvania limited partnership for a residential development; T.R. White was general partner; the Hanaways were limited partners.
- Parkesburg’s partnership agreement gave the general partner "full, exclusive and complete discretion" to manage the business; limited partners had no management authority.
- When limited partners (including the Hanaways) declined further capital and one refused to sell an owned quarry, development stalled; T.R. White sold the Davis tract and the Loue-tract option to a new affiliate limited partnership (PMP) that excluded the Hanaways.
- The Hanaways sued (breach of contract based on the implied covenant of good faith and fair dealing, and other claims). The trial court granted partial summary judgment for the general partner on the contract claim for failure to identify an express contract term breached.
- The Superior Court reversed as to the contract claim, holding the implied covenant (Restatement §205) applied to limited partnership agreements and could supply a contract-based remedy.
- The Pennsylvania Supreme Court granted review and, applying PRULPA as it existed when Parkesburg was formed, reversed the Superior Court: the Court held the implied covenant did not apply to limited partnership agreements formed under the pre-Act 170 PRULPA (which expressly prioritized contractual freedom).
Issues
| Issue | Plaintiff's Argument (Hanaway) | Defendant's Argument (T.R. White) | Held |
|---|---|---|---|
| Does the implied covenant of good faith and fair dealing apply to limited partnership agreements formed under PRULPA (pre-Act 170)? | The implied covenant applies to all contracts in Pennsylvania, including limited partnership agreements; Delaware authority and common-law Restatement support this. | PRULPA (as in effect when Parkesburg formed) did not incorporate that duty; limited partnerships are statutory creatures and PRULPA expressly prioritized freedom to contract — courts should not add duties the legislature omitted. | Held: No. The implied covenant did not apply to limited partnership agreements formed under the prior PRULPA. |
| If the implied covenant applies, can it override explicit contractual terms that give a general partner unfettered discretion? | The covenant is a contract-based duty that simply guides performance of discretionary rights and does not rewrite express terms; it would require discretion be exercised in good faith. | Allowing the covenant to override express terms would judicially re-write parties’ negotiated allocation of authority and conflict with PRULPA’s freedom-to-contract policy. | Court declined to reach this question (unnecessary after holding covenant inapplicable to pre-Act 170 partnerships). |
| Whether courts may import Delaware precedent (DRULPA) or Restatement §205 to interpret PRULPA-governed partnerships | The Hanaways: Delaware principles and Restatement reflect general contract law and are applicable. | T.R. White: Delaware law differs materially (DRULPA was amended to include duty); Pennsylvania statutes and legislative choices differ, so Delaware precedent is not controlling. | Court relied on statutory differences and refused to apply Delaware law to impose the covenant under prior PRULPA. |
| Whether Act 170 (2016 amendments to PRULPA) affects parties’ rights in this case | Hanaways argued Act 170 codifies an existing duty (confirmatory). | T.R. White argued Act 170 shows legislature changed the law and the covenant was not available earlier. | Court: Act 170 is prospective; it does not establish that the covenant existed when Parkesburg was formed or when the alleged breach occurred; so Act 170 does not alter the outcome. |
Key Cases Cited
- Murphy v. Duquesne Univ. of the Holy Ghost, 777 A.2d 418 (Pa. 2001) (contract performance must be in good faith in certain contexts—applied to employment/tenure review).
- Conomos, Inc. v. Sun Co., 831 A.2d 696 (Pa. Super. 2003) (applies Restatement §205 to imply contract terms parties would have agreed to).
- Herzog v. Herzog, 887 A.2d 313 (Pa. Super. 2005) (applies implied covenant in family settlement contract).
- Gerber v. Enterprise Prods. Holdings, L.L.C., 67 A.3d 400 (Del. 2013) (Delaware recognized that implied covenant constrains exercise of contractual discretion in partnership context).
- Winshall v. Viacom Intern., Inc., 76 A.3d 808 (Del. 2013) (Delaware Supreme Court narrowed contours of implied covenant).
- Gilbert v. Synagro Cent., LLC, 131 A.3d 1 (Pa. 2015) (standard of review for summary judgment and legal error).