Court Of Chancery Upholds Reliance On Banker To Show Good Faith
This is a significant decision for 2 reasons. First, it confirms the widely-held belief that the Tooley test to determine if a complaint is direct or derivative applies to limited partnerships.
Second, it interprets language in the LLP agreement permitting the general partner to rely on the advice of an investment banker as constituting proof of "good faith" in deciding to do a deal with an affiliate of that general partner. This is important because while Delaware law permits LLP agreements to waive many duties owed by a GP, the duty to act in "good faith" cannot be waived. Hence, the ability to effectively define in the LLP agreement what will constitute good faith is another way to limit claims against the GP even for self-dealing.
This decision was affirmed on MAy 28, 2013.