In one recent case, the Delaware Court of Chancery dismissed claims by former unaffiliated unitholders of a limited partnership against its general partner, directors and parent for breach of contractual duties and breach of the implied contractual covenant of good faith and fair dealing. The complaint alleged that the general partner breached its contractual duties, and also the implied contractual covenant of good faith and fair dealing, owed to the plaintiffs by proposing, approving and consummating a merger, which, according to the plaintiffs, was an unfair exchange.
Here, an express limitation in the partnership agreement provided that the general partner owes no duties or liabilities, including fiduciary duties, to the partnership or any limited partner, other than those expressly set forth in the partnership agreement. The partnership agreement expressly provided for a contractual duty of good faith, only. According to the court, because the partnership agreement addressed the duties owed by the general partner and the standards necessary for fulfilling them, the defendants did not breach such duties. The court also reiterated its position that the implied contractual covenant of good faith and fair dealing is a limited gap-filling tool, and that, as such, the defendants only owed those duties expressly set forth in the partnership agreement.
In Re Encore Energy Partners LP Unitholders Litig., Cons. C.A. No. 6347-VCP (Del. Ch. Aug. 31 2012) (Parsons, V.C.).
Similarly, in another recent case, the court declined to read into the terms of a limited partnership agreement the implied covenant of good faith and fair dealing in connection with the removal of a general partner because the plain language of the agreement gave limited partners the discretion to remove general partners, requiring only that they act in "good faith" when taking such actions. For numerous reasons, the limited partners decided to remove a general partner, who in turn argued the limited partners were also bound by the implied covenant of good faith and fair dealing, and that the limited partners failed to show they acted in good faith.
Here, the court held that when a contract states how a grant of discretion is to be exercised, there is no place for the implied covenant of good faith and fair dealing in that provision, and that the limited partners acted in good faith in this instance.
Policemen's Annuity and Benefit Fund of Chicago v. DV Realty Advisors LLC, C.A. No. 7204-VCN (Del. Ch. Aug. 16, 2012).