A conclusive presumption of good faith contracted into an oil and gas company’s limited partnership agreement cannot preclude a unitholder’s lawsuit because the concept of good faith described in the contract is "very different" from the concept found in the implied covenant of good faith and fair dealing, the Delaware Supreme Court has ruled. The high court’s decision reverses a Delaware Court of Chancery ruling dismissing the unitholder’s claims because all common-law fiduciary duties, including good faith, were waived in place of specifically contracted duties.
"The flaw in the court’s reasoning stems from a decision by the LPA’s drafters to define a contractual fiduciary duty in terms of ‘good faith’ a term that is also and separately a component of the ‘implied good faith and fair dealing,’" Justice Jack B. Jacobs said in Gerber v. Enterprise Products Holdings, a Monday decision. "Although that term is common, the LPA’s contractual fiduciary duty describes a concept of ‘good faith’ very different from the good-faith concept addressed by the implied covenant."
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