(1) A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor. In order to bring the action, a limited partner must establish the following:
(a) That those general partners with authority to do so have refused to bring the action or that an effort to cause those general partners to bring the action is not likely to succeed;
(b) That the general partners' decision not to sue constitutes an abuse of discretion or involves a conflict of interest that prevents an unprejudiced exercise of judgment; and
(c) That the plaintiff was a limited partner at the time of the transaction of which the plaintiff complains or the plaintiff's status as a limited partner had devolved upon the plaintiff by operation of law or pursuant to the terms of the partnership agreement from a person who was a partner at the time of the transaction.
Source: L. 81: Entire article added, p. 450, § 1, effective November 1. L. 2004: (1)(c) amended, p. 1447, § 148, effective July 1.
ANNOTATION
Law reviews. For comment, "The Colorado Changes to the Revised Uniform Limited Partnership Act", see 53 U. Colo. L. Rev. 823 (1982).
Partnership formed prior to 1981. The right of the limited partners of a limited partnership formed prior to 1981 to sue derivatively is governed by the Uniform Limited Partnership Law and the common law, and not by this section. Moore v. 1600 Downing St., Ltd., 668 P.2d 16 (Colo. App. 1983).
Compliance with rules of civil procedure required. To bring derivative action, limited partners must comply with this section and also the requirements of C.R.C.P. 23.1. Caley Investments v. Lowe Family Assoc., 754 P.2d 793 (Colo. App. 1988).
Trial court erred in disregarding an independent counsel's conclusion that litigation should not proceed without first addressing whether the independent counsel lacked the authority or ability to make a disinterested and independent decision. Hirsch v. Jones Intercable, Inc., 984 P.2d 629 (Colo. 1999).
The purpose of a special litigation committee (SLC) is to substitute its independent and objective judgment for that of the directors who have been accused of wrongdoing. Such purpose cannot be fulfilled where the committee is given only the power of recommendation while the power of ultimate decision is still retained in the hands of the accused wrongdoers. Greenfield v. Hamilton Oil Corp., 760 P.2d 664 (Colo. App. 1988); Hirsch v. Jones Intercable, Inc., 984 P.2d 629 (Colo. 1999).
New York law adopted as the standard for reviewing the decision of an SLC, because "most courts are ill equipped and infrequently called on to evaluate what are and must be essentially business judgments." The court is limited to one inquiry: Whether the members of the committee are disinterested and independent. The court cannot inquire into the actions of corporate directors taken in good faith and in the exercise of honest judgment. Hirsch v. Jones Intercable, Inc., 984 P.2d 629 (Colo. 1999).
Burden of persuasion is on those seeking dismissal based on an SLC's report. Day v. Stascavage, 251 P.3d 1225 (Colo. App. 2010).
SLC's investigation, which never sought independently to value the property sold at the time of an insider sale, was patently inadequate to reach an informed decision as to the merits of the derivative claims. Day v. Stascavage, 251 P.3d 1225 (Colo. App. 2010).