## Facts

- A Delaware limited partnership invested in Chicago real estate and was governed by a limited partnership agreement (LPA).
- DV Realty Advisors LLC served as the managing general partner; a separate entity served as a non-managing general partner.
- The LPA granted the managing general partner broad management authority but imposed reporting duties, including timely delivery of annual audited financial statements.
- The LPA authorized the limited partners to remove the managing general partner if they determined, “in good faith,” that removal was “necessary or advisable for the best interest of the Partnership.”
- For multiple consecutive years, DV Realty delivered audited financial statements substantially late, beyond the LPA’s deadlines.
- The limited partners—public pension and retirement funds—viewed timely audits as necessary to meet their own fiduciary, regulatory, and internal-control obligations.
- An advisor to the partnership identified additional management and reporting concerns (“red flags”), increasing the limited partners’ concern about DV Realty’s stewardship and the reliability of information they were receiving.
- Based on chronic audit delays and the advisor’s concerns, the limited partners voted to remove DV Realty and install a replacement.
- DV Realty disputed the removal’s validity; the limited partners sought a declaratory judgment in the Court of Chancery that the removal complied with the LPA.
- The Court of Chancery declared DV Realty properly removed; DV Realty appealed.

## Issues

1. Whether the limited partners subjectively acted in good faith in believing DV Realty’s removal was necessary or advisable for the partnership’s best interests under the LPA.
2. Whether the evidence (including “red flags” and chronic reporting delays) provided an objectively reasonable basis for the limited partners’ good-faith determination.

## Decision

- The Delaware Supreme Court affirmed the declaratory judgment that DV Realty was properly removed under the LPA.
- The Court held the record supported a finding that the limited partners actually believed removal was necessary or advisable for the partnership’s best interests.
- The Court held the limited partners’ determination also satisfied an objective component of good faith because the pattern of late audits, combined with advisor-identified concerns and the limited partners’ institutional obligations, provided a commercially reasonable basis for removal.
- The Court deferred to the Court of Chancery’s factual findings and credibility determinations and found no clear error.

## Legal Principles

- Delaware law gives strong effect to freedom of contract in limited partnerships; governance and removal rights in an LPA are enforced as written, subject to the agreement’s stated constraints.
- When an LPA conditions removal on “good faith” but does not define that term, a court may evaluate good faith using both:
  - subjective honesty in fact (actual belief), and
  - objective observance of reasonable commercial standards of fair dealing.
- Chronic failure to provide timely audited financial statements can support a contractual good-faith determination that removal of a managing general partner is in the partnership’s best interests, particularly where investors have heightened reporting and oversight obligations.
- A decision-maker may rely on aggregated concerns identified by professional advisors; no single concern must be dispositive if the totality provides a reasonable basis.
- Appellate review of trial-level fact-finding is deferential; credibility and evidentiary weight determinations are not disturbed absent clear error.

## Conclusion

The Delaware Supreme Court enforced the LPA’s good-faith removal provision and upheld the limited partners’ removal of the managing general partner, finding both an actual good-faith belief and a commercially reasonable basis grounded in repeated audit-reporting failures and related advisor-raised concerns.


DV Realty Advisors LLC v. Policemen's Annuity & Benefit Fund of Chicago, 75 A.3d 101 (Del. 2013)