## Facts

- 275 Madison Associates, L.P. owned an office building and ground lease at 275 Madison Avenue and was governed by a limited partnership agreement.
- KE Property Management Inc. was a general partner; 275 Madison Management Corp. was the managing general partner.
- The partnership agreement permitted limited partners holding at least 25% of outstanding units to remove a general partner that damaged the partnership through “fraud or willful misconduct.”
- An officer/agent associated with the managing general partner, who was an authorized signatory on partnership bank accounts, diverted about $2 million from partnership accounts between January and May 1990.
- The partnership later experienced financial distress, restructuring of its lender relationship, and notice of default with foreclosure risk.
- As foreclosure loomed, the managing general partner supported filing for bankruptcy protection; KE opposed that strategy.
- A limited partner affiliated with KE (holding at least 25% of units) delivered written notice purporting to remove 275 Madison Management Corp. as managing general partner, citing the $2 million diversion as fraud or willful misconduct that damaged the partnership.
- Two days after the notice, 275 Madison Management Corp. filed a bankruptcy petition on the partnership’s behalf.
- KE filed suit in the Delaware Court of Chancery seeking a declaration that removal was effective and an injunction barring 275 Madison Management Corp. from acting as managing general partner, and moved for summary judgment.

## Issues

1. Whether fraud or willful misconduct by an officer/agent acting for a managing general partner can be treated as fraud or willful misconduct by the managing general partner for purposes of a contractual removal provision.
2. Whether the limited partner’s exercise of the removal right was invalid due to alleged bad faith or pretextual motives related to the bankruptcy strategy.
3. Whether summary judgment was proper where the movant showed an objective contractual basis for removal and the nonmovant offered only conclusory allegations.

## Decision

- The Court of Chancery granted summary judgment for KE.
- The court held the limited partner validly exercised the contractual right to remove 275 Madison Management Corp. as managing general partner because the $2 million diversion constituted fraud or willful misconduct that damaged the partnership and was attributable to the managing general partner through its agent.
- The court rejected the argument that alleged ulterior motives undermined removal where the contractual trigger was satisfied and the nonmovant failed to present competent evidence creating a genuine factual dispute.
- The court concluded that, once removal became effective, 275 Madison Management Corp. lacked authority to act as managing general partner, including to file a bankruptcy petition on the partnership’s behalf.

## Legal Principles

- A limited partnership agreement’s removal clause is enforced according to its objective terms when the specified misconduct condition is met.
- Fraud or willful misconduct by an officer/agent acting with authority in connection with partnership affairs may be attributed to the managing general partner for purposes of an agreement authorizing removal for “fraud or willful misconduct.”
- Allegations that a contractual right was exercised as a pretext do not defeat enforcement absent evidence that the agreement makes motive relevant or that some legal constraint renders the exercise invalid.
- On summary judgment, once the movant makes a prima facie showing that no genuine issue of material fact exists, the nonmovant must present competent evidence; conclusory assertions and speculation are insufficient.

## Conclusion

The court enforced a limited partnership’s removal mechanism by treating an authorized agent’s diversion of partnership funds as fraud attributable to the managing general partner, and granted summary judgment where the opposition offered only unsupported assertions that the removal was motivated by bankruptcy-related strategy.


KE Prop. Mgmt., Inc. v. 275 Madison Mgmt. Corp., No. 12683, 1993 WL 285900 (Del. Ch. July 27, 1993)