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Court of Chancery Grants Summary Judgment for Defendants in Case Arising From Interpretation of Limited Partnership Agreement

Anglo American Security Fund, L.P. v. S.R. Global Int'l Fund, L.P., C.A. No. 20066-N, 2006 WL 1494360 (Del. Ch. May 24, 2006). Plaintiffs and defendants brought cross-motions for summary judgment on claims arising from disputes over interpretation of limited partnership agreement ("LPA"). Plaintiffs contributed approximately $27 million to defendant S.R. Global International Fund, L.P. (the "Fund"),a hedge fund. The other defendants were the general partner of the Fund ("GP") and Ernst & Young, the accountant for the Fund. The Plaintiffs and the GP were parties to the LPA, which governed the Fund. The LPA provided for an incentive fee to be debited from each limited partner's capital account and credited to the GP's capital account as of the end of the fiscal year. The LPA also provided that the GP had the right to withdraw funds from its capital account as of the last of any month. In 1999, an incentive fee was withdrawn from the limited partners' capital account as of the end of the fiscal year on December 31, 1999 and credited to the GP's capital account. The incentive fee was then withdrawn from the GP's capital account and credited to an accounts payable account after the close of business on December 31, 1999 and eventually disbursed as cash to the GP in February 2000. The allocation of the incentive fee to the GP's capital account was reported in various financial statements to the limited partner in early 2000. The withdrawal from the GP's capital account was not reported to the limited partners until May 2000; Plaintiffs remained invested in the Fund for another 16 months. Plaintiffs alleged that the Fund and GP breached the LPA, breached their fiduciary duties in disclosing the transactions and acted negligently. Plaintiffs asserted claims against Ernst & Young for negligent misrepresentation, aiding and abetting and breach of contract. The Court granted the defendants' motion for summary judgment on all of the claims. The Court held that the Fund and GP acted in accordance with the terms of the LPA in making the challenged allocations and withdrawals and did not breach the LPA. As far as the Plaintiffs' fiduciary duty claims, the Court concluded that Plaintiffs were required to prove they relied on the disclosures relating to the challenged transactions because no shareholder action was requested and Plaintiffs could not prove such reliance. Plaintiffs' negligence claims failed because the LPA exculpated the Fund and GP from liability for negligent conduct, Section 17-407 of the Delaware Revised Uniform Limited Partnership Act protected the GP from liability and Plaintiffs could not establish the necessary reliance. Finally, the Court rejected all of the Plaintiffs' claims against Ernst & Young. Share

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