The Hedge Fund Law Report

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By Topic: Oral Agreements

  • From Vol. 2 No.23 (Jun. 10, 2009)

    Delaware Court of Chancery Enforces Oral Agreement and Rules that Departing Hedge Fund Founder is Not Entitled to Share of Hedge Fund’s Equity

    Plaintiff Olson was one of three founders of the Viking Global hedge fund.  In accordance with their governing documents, Olson’s membership in the fund was terminated by the two other founders in 2005.  Olson sued his erstwhile partners and the various fund entities, claiming that he was entitled to receive the value of his equity interest in the various entities that comprised the fund business (valued at tens of millions of dollars).  On May 13, 2009, the Delaware Court of Chancery ruled that, prior to forming the fund, the founders had agreed that a departing partner would only be entitled to receive any unpaid compensation from the fund and the remaining value of the partner’s capital account (as opposed to any deferred compensation or compensation for the value of an equity interest).  The court also ruled that the oral agreement was not superseded by the operating agreements of the various fund entities or any other subsequent agreement.  Because of the continuing validity of that agreement, and its applicability to Olson’s departure, the court determined that Olson was not entitled to (1) any further compensation from the fund, (2) the fair value of his partnership interest under the Delaware Revised Uniform Limited Partnership Act or Limited Liability Company Act or (3) any equitable remedy.  We explain the facts and holding of the case, and outline the court’s analysis.

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