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In
a case of first impression, the North Carolina Supreme Court
held that a limited partner in a project investment partnership
lacked standing to sue the project designers and contractors
for alleged misrepresentations when the limited partner
did not experience an injury "separate and distinct"
from the partnership as a whole and there was no "special
duty" running from the project designers and contractors
to the limited partner. Energy Investors Fund, L.P. v.
Metric Contractors, Inc., 351 N.C. 331, 525 S.E.2d 441
(2000).
Energy
Investors Fund, LLP ("EIF") was a limited partner
in the owner and developer of a waste-to-energy project
in North Carolina, the BCH Energy Limited Partnership ("BCH").
EIF allegedly relied on misrepresentations by the project
designers and contractors when making the decision to invest
$16 million in the project. After the project failed, EIF
sought to recover its lost equity by asserting claims against
the project designers and contractors based on negligence,
negligent misrepresentation and breach of warranty.
EIF
alleged that the project designers and contractors made
oral and written misrepresentations to BCH that they had
sufficient staff, resources, experience and expertise to
design and manage the project in accordance with BCH's specifications.
EIF further contended that these representations were false
and misleading because the designers and contractors did
not, in fact, possess the capabilities and experience they
claimed to have and they negligently designed and constructed
the facility.
In
the absence of North Carolina legal precedent, the Supreme
Court analogized the role of a limited partner in a project
investment to that of a shareholder of a corporation and
endorsed the "well-established general rule... that
shareholders cannot pursue individual causes of action against
third parties for wrongs or injuries to the corporation
that result in the diminution or destruction of the value
of their stock." The only two exceptions to this rule
are if the limited partner alleges that the injury suffered
was "separate and distinct" to the limited partner
or that the injury arose out of a "special duty"
of care from the project designers and contractors to the
limited partner.
Here,
the court concluded that the injury suffered by EIF was
the loss of its investment in the project and that this
injury was identical to the injury suffered by the other
limited partners and the partnership as a whole. One of
the factors the court considered was that EIF did not invest
its funds directly and independently in the project. Rather,
EIF invested in the BCH partnership. The court stated that
"obviously, EIF would not have invested in BCH if it
believed that the project would be unprofitable, but hopes
for profits are hardly unique. That EIF invested an amount
different from other limited partners hardly makes for an
'individual injury.'"
The
court further concluded that EIF had not alleged that the
project designers and contractors owed EIF a special duty
that was "separate and distinct" from any duty
owed to the partnership as a whole. In fact, the court concluded
that EIF already was a limited partner in BCH before the
alleged misrepresentation were said to have occurred, so
the project designers and contractors could not have induced
EIF to join the partnership. Nor did EIF allege that the
project designers and contractors performed any individualized
services for EIF. Accordingly, the court concluded that
EIF lacked standing in its individual capacity to assert
claims against the project designers and contractors.
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