Archive: December 2015

Chancery Court Grants in Part and Denies in Part Motion to Dismiss in Fraud Dispute

By Eric Feldman and James Parks

On a motion to dismiss in Prairie Capital III, L.P. v. Double E Holding Corp., the Delaware Court of Chancery, granting in part and denying in part the defendant’s motion, re-enforced the importance of bargained-for contractual terms in the context of a dispute over a transaction consummated pursuant to a stock purchase agreement.

The case involves a transaction between two private equity firms, Prairie Capital Partners and Incline Equity Partners. Prairie Capital Partners, through its sponsored funds Prairie Capital III, L.P and Prairie Capital III QP, L.P. (collectively, “Prairie Capital”), owned Double E Parent LLC (the “Company”), a portfolio company, which it sold to Double E Holding Corp., which was an acquisition vehicle formed by Incline Equity Partners III, L.P., which was sponsored by Incline Equity Partners (collectively the “Buyer”). Prairie Capital III L.P. and Prairie Capital III QP, L.P. (the “Sellers”) were the principal sellers, and the Stock Purchase Agreement (the “SPA”) was signed and the transaction closed on April 4, 2012.  The SPA established an escrow fund for a limited period of time for the parties’ respective indemnification obligations and included procedures to make a claim against such escrow fund.

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Chancery Court Holds That a Limited Partner’s Claims are Dual-Natured and Can Be Pursued After a Related-Party Merger; $171 Million Award to Be Recovered Pro Rata By Unaffiliated Limited Partners

By Scott Waxman and Joshua Haft

The Chancery Court held that a plaintiff’s claim that a general partner was liable for breach of a limited partnership agreement, for which the general partner was previously found liable by the Chancery Court, was best viewed as a dual-natured claim.  Dual-natured claims should be viewed as derivative for purposes of Chancery Court Rule 23.1 and the demand doctrine, but should be viewed as direct for purposes of claim termination after a merger that extinguished a limited partnership.  Thus, the Chancery Court granted pro-rata recovery of a liability award for breach of a limited partnership agreement to limited partners who were not affiliated with the general partner at the time of the related-party merger that resulted in termination of the limited partnership.

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Chancery Court Denies Defendant Fund Manager’s Request to Pay Ongoing Legal Fees from Disputed Assets; Permits Payment of Administrative Fees Incurred in Completing Necessary SEC and Tax Filings

By Scott Waxman and Max Kaplan

By letter-order dated November 25, 2015, Vice Chancellor John W. Noble issued a “Status Quo Order” in Capital Link Fund I, LLC v. Capital Point Management, LP. By this order, the court approved disbursement of certain administrative fees sought by defendants from the assets in dispute, but denied defendants’ request to pay its legal fees from the same disputed assets.

Plaintiffs in this action are limited partners to an investment fund of which defendant Capital Point Management, LP (“CPMLP”) is the general partner. In July of 2014, CPMLP caused the partnership to sell all of its assets to defendant Princeton Capital Corporation (“Princeton Capital”)—a CPMLP affiliate. Plaintiffs allege that CPMLP, in violation of the controlling partnership agreement, did so without providing notice to or obtaining approval from the limited partners or the partnership’s Board of Advisors.

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