DV Realty Advisors LLC v. Policemen’s Annuity and Benefit Fund of Chicago

DV Realty Advisors LLC (DVRA) (defendant) was the general partner, and Policemen’s Annuity and Benefit Fund of Chicago (annuity) (plaintiff) the limited partner, in a limited partnership. The partnership agreement provided that the annuity could remove DVRA upon a good-faith determination that removal was in the business’s best interest. The partnership agreement also required DVRA to regularly submit the partnership’s audited financial reports to the annuity. In three successive years, DVRA was late in submitting the financial reports, first by 173 days, then by 303 days, and finally by 337 days. Based on this chronic delinquency, the annuity removed DVRA as general partner and sued for a declaratory judgment that the removal was justified. Because the partnership agreement did not define good faith, the trial court applied the Uniform Commercial Code (UCC), which defined good faith as honesty in fact and the observance of reasonable commercial standards of fair dealing. The court noted that the UCC’s definition of good faith embodied both subjective and objective elements. The court ruled that DVRA’s chronic delinquency gave the annuity a good-faith substantive reason to remove DVRA. The court also found that timely business financial reports were consistent with reasonable commercial standards of fair dealing and that DVRA’s chronic delinquency in furnishing those reports thus supplied an objective good-faith basis for DVRA’s removal. The court entered judgment for the annuity. DVRA appealed to the Delaware Supreme Court.