Wimbledon Fund LP – Absolute Return Fund Series. v. SV Special Situations Fund LP, C.A. No. 4780-VCS (Del. Ch. June 14, 2010)
This case arose as a result of a request by a limited partner (the “Limited Partner”) to withdraw from a Delaware limited partnership conducting business as an investment fund (the “Fund”), and the subsequent suspension by the Fund of all pending and future withdrawal requests by any limited partner of the Fund. The case was decided on cross motions for summary judgment, on which the Court ruled in favor of the Fund.
The Limited Partner executed a Subscription Agreement, and thereby bound itself to the terms of the Fund’s limited partnership agreement (the “LP Agreement”) as of October 2007. Four months later, in February 2008, the Limited Partner requested by written notice to withdraw and to have the Fund return the cash it invested in the Fund. The LP Agreement, however, as many limited partnership agreements of investment funds do, restricted limited partners’ ability to withdraw. The LP Agreement expressly provided that no limited partner could withdraw prior to twelve months from the date of the limited partner’s initial capital contribution to the Fund, and after such twelve months only on a June 30 or December 31 withdrawal date.
In September 2008, the Fund responded to the Limited Partner by letter acknowledging the Fund’s receipt of the Limited Partner’s withdrawal request, and noting that “it is in the best interests of the [limited partners] and [the Fund] that the aforementioned withdrawal be made on an in-kind basis.” The Limited Partner claimed that this Fund letter acted as a waiver of the twelve month lock-in period provided for in the LP Agreement, and constituted a consent to the Limited Partner’s withdrawal as of June 30, 2008. The Fund disputed this claim.
The Fund’s notice to all limited partners that it was suspending all pending and future withdrawal requests was delivered in October 2008. Pursuant to the LP Agreement, the Fund’s general partner, on behalf of the Fund, had the right, in its sole discretion, to suspend at any time all limited partner withdrawals so long as, in the opinion of the general partner, doing so would be in the best interests of the Fund or the limited partners. The Limited Partner claimed that the suspension notice by the Fund did not apply to it because such a notice could only apply to future withdrawal requests, and not pending requests. The Fund did not agree.
Section 17-603 of the Delaware Revised Uniform Limited Partnership Act provides that “[a] limited partner may withdraw from a limited partnership only at the time or upon the happening of events specified in the partnership agreement and in accordance with the partnership agreement.” Under the LP Agreement, the Limited Partner could not withdraw from the Fund prior to the end of the twelve month lock-in period without the general partner’s consent. The Court did not agree with the Limited Partner’s assertion that the Fund waived the twelve month period and thereby consented to such an early withdrawal. As support, the Court pointed to the LP Agreement’s integration clause which provided that no provision of the LP Agreement could be modified or waived, unless such modification or waiver was in writing and signed by the party to be charged. The Court also cited to Delaware case law that provides that any waiver of a contractual right must be “unequivocal.” No facts were presented to the Court that showed an unequivocal waiver by the Fund.
As support for its rejection of the Limited Partner’s claim regarding the applicability of the Fund’s suspension notice, the Court discussed the purpose of the LP Agreement’s provision permitting the Fund to suspend withdrawals. The purpose of such a provision is to protect partners from any surges in the number of withdrawal requests that might obligate an investment fund like the Fund to liquidate its investments at a severe discount or make a costly distribution of property in kind. The Court found such a provision would be meaningless if the Fund could not suspend pending withdrawal requests, and could only suspend future requests. As such, the Court refused to allow the Limited Partner to circumvent the unambiguous language of the LP Agreement.