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Chancery Holds That A General Partner Of A Limited Partnership Cannot Breach Fiduciary Duties It Does Not Owe

JER Hudson Group XXI LLC, et al. v. DLE Investors, LP, C.A. No. 2021-0478-MTZ (Del. Ch. May 2, 2022)
Under Delaware law, the purpose of a limited partnership and a general partner’s authority and fiduciary duties may be defined by the terms of a limited partnership agreement (“LPA”). In this post-trial decision, the Court of Chancery held, among other things, that a limited partner failed to prove fiduciary claims against a general partner because the partnership’s express purpose and the general partner’s fiduciary duties did not require it to take actions the limited partner alleged would be value-maximizing. 

Specifically, the partnership’s purpose was to find investors to raise capital under a federal affordable housing program. In exchange, the investors received federal tax credits. Eventually, the property was sold to a nonprofit at a below-market price, as contemplated by the program and consistent with actions taken by similar partnerships. Rejecting the limited partner’s challenge to the sale, the Court reasoned that the general partner’s authority was limited by the partnership’s purpose. In a similar fashion, the LPA disclaimed the general partner’s fiduciary duties, except for the duty of “safekeeping and use of all funds and assets of the [partnership]…for the exclusive use of the [partnership].” With a purpose and duties so limited, the Court found that the general partner did not breach its fiduciary duties.



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