                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

LOUIS A. PERRETTA, JR.; FRANK             
PERRETTA,
             Plaintiffs-Appellants,              No. 06-15526
                v.
                                                  D.C. No.
                                               CV-05-02987-WHA
PROMETHEUS DEVELOPMENT
COMPANY, INC.; SANFORD N.                          OPINION
DILLER,
            Defendants-Appellees.
                                          
         Appeal from the United States District Court
           for the Northern District of California
         William H. Alsup, District Judge, Presiding

                   Argued and Submitted
        February 11, 2008—San Francisco, California

                      Filed March 27, 2008

    Before: David R. Thompson and Milan D. Smith, Jr.,
   Circuit Judges, and William Q. Hayes,* District Judge.

             Opinion by Judge Milan D. Smith, Jr.




  *The Honorable William Q. Hayes, United States District Judge for the
Southern District of California, sitting by designation.

                                3097
3100        PERRETTA v. PROMETHEUS DEVELOPMENT


                        COUNSEL

Bruce Adelstein, Los Angeles, California, for the plaintiffs-
appellants.

Richard P. Tricker, Anderson, McPharlin & Conners, Los
Angeles, California; Steffen Johnson, Winston & Strawn,
Washington, DC, for the defendants-appellees.
                PERRETTA v. PROMETHEUS DEVELOPMENT                       3101
                                OPINION

MILAN D. SMITH, JR., Circuit Judge:

   This action for breach of fiduciary duty requires us to
decide what vote of the limited partners of a California lim-
ited partnership is necessary to ratify a self-interested transac-
tion proposed by the partnership’s general partner. We hold
that only the partnership agreement may vary the unanimous
ratification requirement of California law, and that it would be
“manifestly unreasonable” for a partnership agreement to
include votes cast by an interested general partner or its affili-
ates in a ratification vote. We reverse the decision of the dis-
trict court.

    FACTUAL AND PROCEDURAL BACKGROUND

   Prometheus Income Partners, LP (Partnership) was a Cali-
fornia limited partnership, organized to manage two large
apartment complexes in Santa Clara, California.1 Its general
partner was Defendant-Appellee Prometheus Development
Co., Inc. (PDC), a California corporation. PDC is 100%-
owned by the DNS Trust, a trust effectively controlled by
Defendant-Appellee Sanford N. Diller (Diller), who is also
PDC’s sole director, President, and CFO. Plaintiffs-
Appellants Louis and Frank Perretta (Plaintiffs) were limited
   1
     All facts, unless otherwise stated, are taken from the FAC, the Proxy
Statement, or the Partnership Agreement (as those terms are defined in this
opinion). Judicial notice of the Proxy Statement (including the appended
Partnership Agreement) is proper on a Rule 12(b)(6) motion because
Plaintiffs cited it in their FAC, thereby incorporating it by reference. See
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)
(holding SEC filings “whose contents are alleged in a complaint and
whose authenticity no party questions, but which are not physically
attached to the [plaintiff’s] pleading” to have been incorporated by refer-
ence) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)). On
appeal, Plaintiffs do not take issue with the district court’s decision to take
notice of the Proxy Statement, and cite to it themselves in their briefs.
3102            PERRETTA v. PROMETHEUS DEVELOPMENT
partners in the Partnership, and are suing as representatives of
the class of limited partners.2

   In late 2000, PDC notified the limited partners that it was
contemplating a transaction (Merger) whereby the Partnership
would be merged into PIP Partners-General, LLC (PIP Part-
ners), an entity owned by the DNS Trust and Diller’s daugh-
ter, and which owned approximately 18.2% of the limited
partnership units in the Partnership. PDC’s initial proposal
offered consideration of $1,200 per partnership unit, but in
March 2002 the consideration was increased to $1,714 per
unit, and later increased again to $1,736 per unit.

   On June 13, 2002, PDC issued a proxy statement to the
limited partners (Proxy Statement) describing the terms of the
proposed Merger and soliciting the proxy of limited partners
to approve the Merger. In the Proxy Statement, PDC stated
that PIP Partners would “vote neutrally with respect to the
merger proposal, meaning that PIP Partners will vote its units
for or against the proposal in the same proportion as the total
number of units voted by unaffiliated partners.” The Proxy
Statement noted several times that the interests of PDC and its
affiliates were adverse to those of the limited partners unaffil-
iated with PDC.

   In July 2002, the limited partners of the Partnership voted.
Of the 18,995 limited partnership units outstanding, 9,630.73,
or 50.7%, were voted to approve the Merger. This total
included 2,487.23 votes owned by PIP Partners, the affiliate
of the defendants. The unaffiliated limited partners cast
7,143.5 votes in favor (46.0% of the total unaffiliated limited
partner votes), 2,248 votes against, and 320 votes expressly
abstaining. Limited partners holding 5,832.5 units, or 37.5%
  2
   The class is defined as those “persons and entities . . . who held limited
partnership units in the Partnership as of the date the Merger transaction
closed,” but excluding those who are parties to a related non-class action
lawsuit in state court.
               PERRETTA v. PROMETHEUS DEVELOPMENT                     3103
of the unaffiliated limited partner votes, did not vote in person
or return a proxy.3 Thus, 73.6% of the total partnership units
owned by unaffiliated limited partners were actually voted,
but only a plurality of 46.0% of those units were voted to
approve the Merger. If the limited partnership votes of PDC’s
affiliate, PIP Partners, were not counted, an absolute majority
of votes in favor of the Merger would not have been achieved.
According to the Second Amended and Restated Limited
Partnership Agreement of the Partnership (Partnership Agree-
ment), an absolute majority of limited partner interests enti-
tled to vote was necessary to approve the merger.4

   In July 2005, Plaintiffs filed a class action complaint in the
district court against PDC, Diller, and two other officers of
PDC. The defendants filed a Federal Rule of Civil Procedure
12(b)(6) motion to dismiss. In their brief opposing the motion,
Plaintiffs stated: “Plaintiffs do not dispute that a majority of
the unaffiliated limited partners voted in favor of the merger.
Rather, the gravamen of their lawsuit is that they were
induced to do so by statements in proxy materials that were
deliberately false and misleading.”

   The district court granted the defendant’s motion to dismiss
the complaint, with leave to amend. Citing Plaintiffs’ admis-
sion that a majority of unaffiliated limited partners had voted
to ratify the Merger, the district court stated that the limited
partners’ ratification of the Merger would only be disregarded
  3
     These totals appear in defendants’ Reply in Support of their Motion to
Dismiss Plaintiffs’ First Amended Complaint, and appear to have been
accepted by both parties in their briefs before this court.
   4
     The Partnership Agreement states that “Limited Partners shall have the
right, by Majority Vote to take the following actions: . . . Dissolve and
wind up the Partnership.” “Majority Vote,” in turn, is defined as “the vote
of Limited Partners who are entitled to vote, consent or act and are holders
of record of a majority of the outstanding Units.” See also Cal. Corp. Code
§ 15678.2(a) (requiring “a majority in interest of each class of limited
partnerships of each constituent limited partnership” to approve an agree-
ment of merger).
3104         PERRETTA v. PROMETHEUS DEVELOPMENT
if PDC’s disclosure in the Proxy Statement were properly
alleged to be fraudulent. The district court held that Plaintiffs
had not previously done so with the specificity required by
Federal Rule of Civil Procedure 9(b), which requires that “the
circumstances constituting fraud . . . shall be stated with par-
ticularity.”

   In January 2006, Plaintiffs filed a First Amended Com-
plaint (FAC). The FAC named only PDC and Diller as defen-
dants. The Plaintiffs alleged, among other things, that the
ratification was ineffective because PDC failed to properly
disclose eight material matters to the limited partners in the
Proxy Statement. It omitted the allegation that a majority of
unaffiliated partners had approved the Merger, and noted that
if PIP Partners “had simply abstained from voting, the Merger
would not have been approved.”

   PDC and Diller moved to dismiss the FAC, and included
the vote totals summarized above in their moving papers. The
district court granted the motion to dismiss without leave to
amend because it believed that any further amendment would
be futile. The district court held that the vote ratified the
Merger because a majority of the voting unaffiliated limited
partners voted for the Merger, even if they did not make up
a majority of all unaffiliated limited partners entitled to vote.
Alternatively, the district court held that Plaintiffs were “in
any event” judicially estopped to deny that a majority of unaf-
filiated limited partners approved the Merger, notwithstanding
defendants’ subsequent statement to the contrary. Finally, the
district court ruled that the FAC still did not plead circum-
stances constituting fraud in the Proxy Statement with suffi-
cient particularity to satisfy the requirements of Rule 9 (b).
Plaintiffs appealed.

   STANDARD OF REVIEW AND JURISDICTION

  We review de novo dismissals under Federal Rule of Civil
Procedure 12(b)(6). Sanders v. Brown, 504 F.3d 903, 910 (9th
             PERRETTA v. PROMETHEUS DEVELOPMENT              3105
Cir. 2007). “All allegations of fact are taken as true. Conclu-
sory allegations and unreasonable inferences, however, are
insufficient to defeat a motion to dismiss.” Id. (citations omit-
ted). In their complaint, Plaintiffs must aver “enough facts to
state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 127 S. Ct. 1955, 1987 (2007). “Once a
claim has been stated adequately, it may be supported by
showing any set of facts consistent with the allegations in the
complaint.” Id. at 1968.

   We have jurisdiction to review the final decisions of the
district court under 28 U.S.C. § 1291.

                        DISCUSSION

A. A General Partner’s Duty of Loyalty Under
California Law

   [1] Under California law, the general partner of a limited
partnership has the same fiduciary duties as a partner in any
other partnership. Cal. Corp. Code § 15616(b). “The fiduciary
duties a partner owes to the partnership and the other partners
are the duty of loyalty and the duty of care set forth in subdi-
visions (b) and (c).” Cal. Corp. Code § 16404(a). Subdivision
(b) of the statute, in relevant part, states:

    (b) A partner’s duty of loyalty to the partnership and
    the other partners includes all of the following:

         (1) To account to the partnership and hold
         as trustee for it any property, profit, or ben-
         efit derived by the partner in the conduct
         and winding up of the partnership business
         or derived from a use by the partner of part-
         nership property or information, including
         the appropriation of a partnership opportu-
         nity.
3106           PERRETTA v. PROMETHEUS DEVELOPMENT
           (2) To refrain from dealing with the part-
           nership in the conduct or winding up of the
           partnership business as or on behalf of a
           party having an interest adverse to the part-
           nership.

Id. § 16404(b). “A partner may not dissolve a partnership to
gain the benefits of the business for himself, unless he fully
compensates his copartner for his share of the prospective
business opportunity.” Leff v. Gunter, 658 P.2d 740, 745 (Cal.
1983) (quoting Page v. Page, 359 P.2d 41, 44 (Cal. 1961)).
In the FAC, the Plaintiffs allege that the Merger constituted
a self-dealing transaction which violated PDC’s duty of loy-
alty by setting an “unfairly low price.”5

   [2] However, not all self-interested transactions violate the
duty of loyalty. “A partner does not violate a duty or obliga-
tion under this chapter or under the partnership agreement
merely because the partner’s conduct furthers the partner’s
own interest.” Cal. Corp. Code § 16404(e). The question is
not whether the interested partner is benefitted, but whether
the partnership or the other partners are harmed. “Partnership
is a fiduciary relationship, and partners may not take advan-
tages for themselves at the expense of the partnership.” Jones
v. Wells Fargo Bank, 112 Cal. App. 4th 1527, 1540 (2003)
(emphasis added). “There is an obvious and essential unfair-
ness in one partner’s attempted exploitation of a partnership
opportunity for his own personal benefit and to the resulting
detriment of his copartners.” Leff, 658 P.2d at 744. “Thus, a
partner who seeks a business advantage over another partner
bears the burden of showing complete good faith and fairness
to the other.” Everest Investors 8 v. McNeil Partners, 114 Cal.
App. 4th 411, 424 (2003).
   5
     Because this transaction involves self-dealing, PDC’s argument that we
ought to defer to its decision under the business judgment rule is
unfounded. See Everest Investors 8 v. McNeil Partners, 114 Cal. App. 4th
411, 429-30 (2003) (“The business judgment rule does not shield actions
taken . . . as a result of a conflict of interest.”).
             PERRETTA v. PROMETHEUS DEVELOPMENT              3107
   [3] One way a self-interested partner may meet this burden
is to have disinterested partners ratify its actions. The doctrine
of shareholder ratification is well known in the corporate con-
text. However, the only California case specifically address-
ing ratification in a partnership context is Skone v. Quanco
Farms, 261 Cal. App. 2d 237 (1968). In Skone, the court held:

    there is no breach of a fiduciary duty if there has
    been a full and complete disclosure, if the partner
    who deals with partnership property first discloses
    all of the facts surrounding the transaction to the
    other partners and secures their approval and con-
    sent. In fact, it would be incongruous to hold that a
    partner who consented to a partnership transaction,
    with full knowledge of all the facts, may later com-
    plain and seek damages against the other partner
    simply because he benefitted by the transaction.

Id. at 241 (citations and footnotes omitted). California statu-
tory law expressly provides for ratification by a partnership:
“All of the partners or a number or percentage specified in the
partnership agreement may authorize or ratify, after full dis-
closure of all material facts, a specific act or transaction that
otherwise would violate the duty of loyalty.” Cal. Corp. Code
§ 16103(b)(3)(B). The language of both Skone and Cal. Corp.
Code § 16103(b)(3)(B) indicates that, upon a showing of
proper ratification by the partners, any claim against the part-
ner for a violation of the duty of loyalty is extinguished. Thus,
we must determine whether any potential claim Plaintiffs
might have for breach of the duty of loyalty was extinguished
by a valid ratification of the Merger under Cal. Corp. Code
§ 16103(b)(3)(B).

B. Were Plaintiffs Judicially Estopped to Deny a
Ratification of the Merger?

  Before analyzing other aspects of the ratification question,
we address the district court’s holding that Plaintiffs were
3108         PERRETTA v. PROMETHEUS DEVELOPMENT
judicially estopped to argue that the Merger vote was insuffi-
cient because of a representation made by Plaintiffs in their
opposition to defendant’s motion to dismiss the original com-
plaint. In Plaintiffs’ brief in opposition, they wrote: “Plaintiffs
do not dispute that a majority of the unaffiliated limited part-
ners voted in favor of the merger. Rather, the gravamen of
their lawsuit is that they were induced to do so by statements
in proxy materials that were deliberately false and mislead-
ing.” Plaintiffs now characterize this as a “misstatement of
counsel”: what they meant to say was that they did not dispute
that a majority of all limited partners—interested and
disinterested—had approved the merger.

   [4] “Judicial estoppel, also known as ‘preclusion of incon-
sistent positions,’ prohibits a litigant from asserting inconsis-
tent positions in the same litigation.” Humetrix, Inc. v.
Gemplus S.C.A., 268 F.3d 910, 917 (9th Cir. 2001). The doc-
trine “generally prevents a party from prevailing in one phase
of a case on an argument and then relying on a contradictory
argument to prevail in another phase.” Pegram v. Herdrich,
530 U.S. 211, 227 n.8 (2000). The Supreme Court has identi-
fied three factors that “typically inform the decision whether
to apply the doctrine in a particular case”: (1) whether the two
positions are “clearly inconsistent,” (2) whether the party was
successful in asserting the earlier position, and (3) whether the
party seeking to assert the position would derive an unfair
advantage or impose an unfair detriment upon the opposing
party. New Hampshire v. Maine, 532 U.S. 742, 750-51
(2001). We review the decision whether to invoke judicial
estoppel for an abuse of discretion. United States v. Ruiz, 73
F.3d 949, 953 (9th Cir. 1996).

   [5] In this case, we hold that the district court abused its
discretion by invoking judicial estoppel. First, it is not obvi-
ous that the positions are clearly inconsistent, but we will con-
cede that they are for purposes of this analysis. However, the
second factor, success on the prior position, is entirely absent
here. “Absent success in a prior proceeding, a party’s later
             PERRETTA v. PROMETHEUS DEVELOPMENT             3109
inconsistent position introduces no risk of inconsistent court
determinations, and thus poses little threat to judicial integri-
ty.” New Hampshire, 532 U.S. at 750-51 (citation and quota-
tion marks omitted). In this case, Plaintiffs lost the very
motion they were arguing, and it is difficult to see what
advantage they might have derived from the apparent conces-
sion even then. The third factor, unfair prejudice to the oppos-
ing party, appears to be absent as well—the tally of votes
cited above are drawn from Defendants’ Reply in Support of
their Motion to Dismiss Plaintiffs’ First Amended Complaint
and, on appeal, have been accepted by both parties as true.

    Plaintiffs’ explanation for the apparent change in position
—that it merely reflects a misstatement, rather than a tactic—
is also plausible. While plausibility is not one of the three
New Hampshire factors, those factors were not meant to be
exhaustive, and the text of New Hampshire itself lends sup-
port to the idea that it should be taken into account. See id. at
749 (quoting 18 Charles Wright, et al., Federal Practice and
Procedure § 4477 at 782 (1981) (“absent any good explana-
tion, a party should not be allowed to gain an advantage by
litigation on one theory, and then seek an inconsistent advan-
tage by pursuing an incompatible theory”) (emphasis added)).

   Finally, in this case, the district court noted, in justifying
the holding of estoppel, that “the proxy materials indicated
that the facts about the vote could not have been as plaintiffs
allege.” It is not clear what the Proxy Statement, which pre-
ceded the vote, has to do with the factual matter of the final
vote tally. At any rate (as shown below), it was the district
court, not the Plaintiffs, that was mistaken about the impor-
tance of the Proxy Statement in determining how the outcome
of the vote was to be determined. “An abuse of discretion
occurs if the district court based its decision on an erroneous
legal conclusion or a clearly erroneous finding of fact.” Gon-
zales v. Free Speech Coal., 408 F.3d 613, 618 (9th Cir. 2000)
(quotation marks and citation omitted).
3110         PERRETTA v. PROMETHEUS DEVELOPMENT
   [6] We hold that the Plaintiffs are not judicially estopped
from contesting the effectiveness of the ratification of the vote
on the Merger.

C. What Constitutes a “Majority Vote”?

   The district court also held that the Merger was effective
because it was approved by limited partners holding 73.5% of
the units actually voted. It further ruled that those limited
partners who did not vote were not to be included in the cal-
culation. The district court based its determination on the
rules for counting votes set forth in the Proxy Statement.
However, California law and the Partnership Agreement gov-
ern how the outcome of the vote is to be determined, not the
proxy materials.

  [7] Cal. Corp. Code § 16103(b)(3)(B) states: “All of the
partners or a number or percentage specified in the partner-
ship agreement may authorize or ratify, after full disclosure
of all material facts, a specific act or transaction that other-
wise would violate the duty of loyalty.” (Emphasis added). In
Skone, the partnership had only two partners. The ratification
of the one partner’s actions by the other was, therefore, a
unanimous one. 261 Cal. App. 2d at 241. By contrast, this
case involves a limited partnership with approximately 1,000
partners. Nothing in the statute, however, varies the unanimity
requirement in a general partnership based on the number of
partners, and neither does the California Revised Limited
Partnership Act (Act), which also applies in this case, provide
a different default rule for ratification when limited partner-
ships are at issue. The Act commands that, unless otherwise
provided, “limited partnerships shall be governed in the same
manner as general partnerships would be governed.” Cal.
Corp. Code § 15722.

   [8] Moreover, the Act specifies that only “the partnership
agreement” can vary the unanimity requirement and require a
lesser number of partners necessary to ratify a violation of the
               PERRETTA v. PROMETHEUS DEVELOPMENT                     3111
duty of loyalty. The district court observed that the Proxy
Statement, drafted by PDC and sent out shortly before the
vote, purported to set forth what vote was required to approve
the Merger, and in places stated that non-votes would not be
considered.6 But no references to proxy statements appear in
§ 16103(b)(3)(B), and for good reason: allowing the general
partner (which, after all, drafted the Proxy Statement) to uni-
laterally adopt ad hoc rules to ratify its own self-interested
transaction would undermine the very purpose of ratification
—allowing the limited partners to protect themselves. Only
the Partnership Agreement, which the limited partners agreed
to upon joining the Partnership, can vary the statutory require-
ment for what vote is required to ratify.

   [9] The Partnership Agreement, unfortunately, does not
expressly mention the duty of loyalty or ratification; neither
does it address limited partner votes in the presence of a con-
flicted general partner. Rather, it states, in relevant part, that
“Limited Partners shall have the right, by Majority Vote to . . .
[d]issolve and wind up the Partnership.” “Majority Vote,” in
turn, is defined as “the vote of Limited Partners who are enti-
tled to vote, consent or act and are holders of record of a
majority of the outstanding Units.” Nowhere does the Partner-
ship Agreement distinguish between interested and disinter-
ested votes—even in areas where the general partner would
almost always have a conflict of interest. For example, a “Ma-
jority Vote” is required to permit the general partner to per-
form a number of otherwise restricted activities—including
  6
    We note that the Proxy Statement was itself inconsistent with respect
to the effect of non-votes on the election. In the body of the Statement,
under the heading “Vote Required,” it warns: “If you fail to return your
proxy and do not vote in person at the meeting, as a result of the agree-
ment of PIP Partners to vote as have the voting limited partners, the effect
on the merger proposal will depend on how other limited partners vote.”
Earlier, however, in a Q&A summary section, it states: “If you fail to
return your proxy or mark ‘ABSTAIN’ on your proxy, the effect will be
the same as a vote against the merger proposal.”
3112             PERRETTA v. PROMETHEUS DEVELOPMENT
selling the Partnership’s properties to itself or comingling its
funds with that of the Partnership.7

   [10] The lack of any reference in the Partnership Agree-
ment’s voting provisions to duties of loyalty or conflicts of
interest militates in favor of construing the Partnership Agree-
ment’s voting provisions narrowly to involve only the juridi-
cal effectiveness of the Merger pursuant to Cal. Corp. Code
§ 15678.2,8 not to effect ratification under Cal. Corp. Code
§ 16103(b)(3)(B). Following that approach, the Partnership
Agreement has not varied the unanimous ratification rule, and
the ratification fails. However, we do not so construe the Part-
nership Agreement. The fact that a Majority Vote is required
to approve certain potentially conflicted actions of the general
partner makes clear that the Majority Vote is intended to be
the principal way for limited partners to protect themselves
against adverse actions of the general partner. The Majority
Vote explicitly acts as an “approval and consent” of the issue
under consideration, which is the requirement for ratification
under Skone. 261 Cal. App. 2d at 241.
  7
    The Partnership Agreement permits the general partner to own limited
partnership units. It therefore necessarily contemplates the possibility that
certain limited partner units will be subject to a conflict of interest in the
event a Majority Vote is required.
  8
    Cal. Corp. Code § 15678.2(a) provides, in relevant part:
      The agreement of merger shall be approved by all general part-
      ners of each constituent limited partnership and the principal
      terms of the merger shall be approved by a majority in interest
      of each class of limited partnerships of each constituent limited
      partnership, unless a greater approval is required by the partner-
      ship agreement of the constituent limited partnership.
The Plaintiffs’ action here is one against the general partner for breach of
fiduciary duty, not one seeking rescission of the Merger, see Cal. Corp.
Code § 15679.14(e) (distinguishing between “action[s] for breach of fidu-
ciary obligation” and those “to attack the validity of the reorganization or
to have the reorganization set aside or rescinded”), and Plaintiffs expressly
disclaim any attack on the Merger’s juridical effectiveness. We therefore
decline to rule on the validity of the Merger here.
                PERRETTA v. PROMETHEUS DEVELOPMENT                      3113
   [11] We thus look to the Partnership Agreement’s defini-
tion of “Majority Vote” to determine what vote is necessary
to ratify the Merger. While PDC contends that only a majority
of disinterested shareholders actually voting was required to
effect ratification, the Partnership Agreement’s definition of
“Majority Vote” expressly requires a “majority of the out-
standing Units”—making no distinction whether the Units are
voted or not. Those who failed to cast their vote must, there-
fore, be included in the denominator of any vote total.

D. “Manifestly Unreasonable”

   Since the voting provisions of the Partnership Agreement
do not forbid the limited partners from ratifying the actions of
an interested general partner, the plain language of the Part-
nership Agreement places no limit on the ability of an inter-
ested general partner to participate in ratifying its own self-
interested transactions. However, in this case, PDC requires
interested limited partner votes to ratify since only 46% of
total unaffiliated units voted “yes” to the Merger.

   [12] California law permits a partnership agreement to vary
or permit ratifications of violations of the duty of loyalty only
if the provision doing so is “not manifestly unreasonable.”
Cal. Corp. Code § 16103(b)(3).9 Thus, we are required to
  9
   California’s Uniform Partnership Act of 1994 reads, in relevant part:
      The partnership agreement may not do any of the following:
      ***
          (3) Eliminate the duty of loyalty under subdivision (b) of
          Section 16404 or paragraph (3) of subdivision (b) of Section
          16603, but, if not manifestly unreasonable, may do either of
          the following:
            (A) The partnership agreement may identify specific
            types or categories of activities that do not violate the duty
            of loyalty.
            (B) All of the partners or a number or percentage speci-
            fied in the partnership agreement may authorize or ratify,
3114            PERRETTA v. PROMETHEUS DEVELOPMENT
determine whether a provision that allows an interested part-
ner to count its votes in the total required for ratification is
“manifestly unreasonable.”

   There is some authority suggesting that such a provision
might not be manifestly unreasonable. In particular, a com-
ment to the 2001 Uniform Limited Partnership Act,10 explain-
ing the provision allowing ratification upon a specified vote
of the limited partners, notes: “The Act does not require that
the authorization or ratification be by disinterested partners,
although the partnership agreement may so provide. . . .” It
may be argued, then, that in the context of a large limited
partnership, such a provision might not be “manifestly unrea-
sonable.”

   We disagree. We begin with the proposition that California
has a strong public policy against self-interested transactions
by fiduciaries, especially in cases involving changes of orga-
nizational control:

     Self-dealing in whatever form it occurs should be
     handled with rough hands for what it is—dishonest

           after full disclosure of all material facts, a specific act or
           transaction that otherwise would violate the duty of loy-
           alty.
Cal. Corp. Code § 16103(b) (emphasis added). California’s language in
this section differs from its analogue in the Uniform Partnership Act of
1994, which locates the “if not manifestly unreasonable” clause in sub-
paragraph (A). See Unif. Partnership Act of 1994 § 103(b)(3) (amended
1997). By moving the clause up, the California legislature clearly intended
that the “if not manifestly unreasonable” proviso extend to ratification pro-
visions of partnership agreements as well.
   10
      California has adopted the 1976, not the 2001, version of the Uniform
Limited Partnership Act, see Cal. Corp. Code T.2, Ch. 3, Refs & Annos
(West 2006), and the comments to the Uniform Act are in any event not
binding law. The comments simply inform us what the National Confer-
ence of Commissioners on Uniform State Laws thought should not be
“manifestly unreasonable.”
             PERRETTA v. PROMETHEUS DEVELOPMENT              3115
    dealing. And while it is often difficult to discover
    self-dealing in mergers, consolidations, sale of all
    the assets or dissolution and liquidation, the diffi-
    culty makes it even more imperative that the search
    be thorough and relentless.

Jones v. H. F. Ahmanson & Co., 460 P.2d 464, 473 (Cal.
1969). It is for this reason that self-interested transactions are
denied the deference embodied in the business judgment rule,
which ordinarily requires deference to the business decisions
of managers of business enterprises. See McNeil Partners,
114 Cal. App. 4th at 429-30. To the extent ratification repre-
sents an exception to California’s general policy of “thorough
and relentless” scrutiny of self-dealing, we are confident that
a California court would construe it narrowly, with particular
skepticism toward any aspect that might hint of unfairness.

   [13] California statutes in related areas of the law support
the idea that interested partners should not be allowed to
count their votes in a ratification vote. For example, in an
action for rescission of the merger of a limited partnership, “a
party to a reorganization which controls another party to a
reorganization shall have the burden of proving that the trans-
action is just and reasonable as to the limited partners of the
controlled party” unless “a majority in interest of the limited
partners other than limited partners who are directly or indi-
rectly controlled by, or under common control with, another
party to the reorganization approve or consent to the reorga-
nization.” Cal. Corp. Code § 15679.14(c), (d) (emphasis
added). We fail to see why the standard for ratification to
extinguish a claim for violation of fiduciary duty should be
any less than the standard for an action directly challenging
the merger itself.

   For California corporations, the applicable statute mandates
that conflicted actions be ratified in elections “with the shares
owned by the interested director or directors not being entitled
to vote thereon.” Cal. Corp. Code § 310(a)(1). That the rules
3116           PERRETTA v. PROMETHEUS DEVELOPMENT
governing another organizational form expressly prohibits this
sort of calculation provides further evidence that a California
court would find it “manifestly unreasonable” in the partner-
ship context as well, were the issue presented.

   Finally, allowing an interested partner to participate in a
ratification election subverts the very purpose of ratification
itself. The Delaware Court of Chancery described that policy
as follows:

       When unitholders have the contractual opportunity
       to protect themselves against an unfair vote simply
       by voting no, it would be paternalistic and inefficient
       for courts to exercise a supervening judgment to pro-
       tect the unitholders from their own erroneous invest-
       ment decision. It is at best highly doubtful the court
       is in a better position than unitholders to determine
       the economic utility of transactions put to them;
       moreover, it seems a misallocation of judicial
       resources to have courts reassess the fairness of
       transactions that minority unitholders could have
       blocked themselves.

R.S.M. Inc. v. Alliance Capital Mgmt. Holdings L.P., 790
A.2d 478, 498 (Del. Ch. 2001) (footnote omitted).11 Allowing
an interested party to vote, however, only interferes with the
unaffiliated partners’ self-protection. The interested party has
no need to “protect itself” from its own decision, and its con-
tention that the decision also benefits the unaffiliated partners,
unaccompanied by those partners’ affirmative agreement,
need not be taken at face value.

   This is the case notwithstanding PIP Partners’ attempt to
“vote neutrally” by voting its units in the same proportion as
the unaffiliated yes and no votes. PIP Partners’ vote was man-
  11
    In R.S.M., the agreement of the partnership at issue excluded the inter-
ested party from ratification elections. Id. at 487, 497-98.
               PERRETTA v. PROMETHEUS DEVELOPMENT                    3117
ifestly not “neutral,” as it failed to account for those who
failed to return their proxy.12 In defining “Majority Vote” to
mean an absolute majority of all those entitled to vote, rather
than those who actually voted, the Partnership Agreement
reflects a judgment that certain fundamental changes in the
Partnership structure should be taken only with the affirma-
tive approval of limited partners, rather than merely over their
silence. PDC and the limited partners could have struck a dif-
ferent bargain, one closer to the philosophy reflected in the
rule governing shareholder votes in California corporations
(whose default rule counts only those votes cast, see Cal.
Corp. Code § 153), and allowed ratification votes that do not
count abstentions. Nothing in the Partnership Agreement as
written, however, reflects such a bargain.

   [14] We hold that a partnership agreement provision that
allows an interested partner to count its votes in a ratification
vote would be “manifestly unreasonable” within the meaning
of Cal. Corp. Code § 16103(b)(3)(B). We therefore construe
the Partnership Agreement as requiring a vote of the majority
of the outstanding limited partner units owned by unaffiliated
partners. Cf. Cal. Civ. Code § 1643 (requiring that a contract
be interpreted in a manner “as will make it lawful, operative,
definite, reasonable, and capable of being carried into effect,
if it can be done without violating the intention of the par-
ties”). Because the vote obtained “yes” votes from only 46%
of the outstanding units, the defendants have not shown a
valid ratification, and the burden remains on them to “show[ ]
complete good faith and fairness to the other” limited part-
ners. McNeil Partners, 114 Cal. App. 4th at 424.
   12
      A truly “neutral” vote would have allocated only 46% of PIP Partners’
3,451 votes in favor (with 39.5% of its votes abstaining or not voting).
This would have yielded approximately 1,587.5 “yes” PIP Partners votes,
which, added to the votes of unaffiliated limited partners voting yes,
would have meant only 8,731 total “yes” votes. This would have been less
than 50% of the 18,995 votes outstanding, and would have caused the vote
to fail.
3118          PERRETTA v. PROMETHEUS DEVELOPMENT
E.     Disposition of Remaining Issues

   Having concluded that the defendants have failed to dem-
onstrate the existence of a valid ratification, we need not
address whether Plaintiffs’ allegations of fraud in the FAC
meet the particularity requirements of Federal Rule of Civil
Procedure 9(b). Failure to make “full disclosure of all material
facts” will ordinarily cause an otherwise valid ratification to
be disregarded. Cal. Corp. Code § 16103(b)(3)(B); see also
Skone, 261 Cal. App. 2d at 241 (allowing ratification only “if
there has been a full and complete disclosure, if the partner
who deals with partnership property first discloses all of the
facts surrounding the transaction to the other partners and
secures their approval and consent”). In this case, however, no
ratification occurred. By averring that PDC set an “unfairly
low” price, and alleging several specific ways in which the
price was unfairly low (such as a purportedly unreasonable
basis for calculating the consideration, improper deduction of
various fees, and the use of an allegedly outdated appraisal),
Plaintiffs have alleged enough facts to state a claim for which
relief can be granted.

   Defendants also argue that the judgment should be affirmed
on grounds other than those cited by the district court. To the
extent their arguments rely on Plaintiffs’ allegations sounding
in fraud, those arguments fail: the gravamen of Plaintiffs’
claim is not fraud, but PDC’s alleged breach of its fiduciary
duty by imposing a self-dealing transaction, on unfair terms,
without a valid ratification by disinterested limited partners.

   We decline to rule on Defendants’ argument that we should
affirm as to Diller because he, as officer and beneficial owner
of PDC, did not owe fiduciary duties directly to the Partner-
ship. We leave this argument to the district court to rule on
in the first instance, after further briefing.

  Finally, we decline to rule on the preclusive effect, if any,
of any subsequent judgments in parallel litigation conducted
             PERRETTA v. PROMETHEUS DEVELOPMENT            3119
in California state court over claims arising out of the Merger.
This, too, is left to the district court on remand, to consider
in light of our reversal of the prior federal judgment.

                       CONCLUSION

   The judgment of the district court is REVERSED and the
case is REMANDED for further proceedings consistent with
this opinion.
