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Brian T. Olson v. O. Andres Halvorsen, David C. Ott, VikingGlobal Investors LP, Viking Global Partners LLC, Viking Global Performance LLC, and Viking Global Founders, LLC, C.A. No. 1884-VCL (Del. Ch. May 13, 2009)

May 13, 2009

At issue was whether a member of various Delaware entities (a limited partnership and various liability companies) should be paid equity interests in such entities after being retired from such companies. The Court decided that, pursuant to an overriding oral agreement which governed each of the entities (and was incorporated into the written organizational documents of some of such entities), the parties had agreed that all profits would be paid out annually with no deferral of compensation and that a departing member would only receive his earned compensation and the balance of his capital account. Therefore, since (i) the oral agreement governing each of the entities had not been superceded, and (ii) the retired member had been paid his annual profits, accrued compensation and the balance of his capital account, he was not entitled to any further payment in respect of any of the companies.

Plaintiff Brian T. Olson (“Olson”) and Defendants Andres Halvorsen (“Halvorsen”) and David C. Ott (“Ott”, and, collectively with Olson and Halvorsen, the “Founders”) formed Viking Global, an investment management firm and hedge fund (“Viking”). The Founders conducted the business of Viking through several Delaware limited liability companies and a Delaware limited partnership. In February 1999, the Founders met (the “February Meeting”) to discuss the terms of Viking’s business. Olson memorialized the terms agreed to by the Founders at the February Meeting in a document (the “Term Sheet”) which included a provision that each Founder would only be entitled to his accrued compensation and capital account balance upon leaving Viking (the “Cap and Comp Provision”). A few months after the February Meeting, the Founders decided to form Delaware limited liability companies and a Delaware limited partnership to conduct Viking’s business. Certificates of formation and a certificate of limited partnership were executed and filed in April 1999. Drafts of limited liability company agreements and a limited partnership agreement (the “Long-Form Agreements”), containing the provisions of the Term Sheet (including the Cap and Comp Provision), were circulated among, but never executed by, the Founders. While the Long-Form Agreements remained in negotiation, the Founders executed initial, short-form limited liability company agreements and a limited partnership agreement (the “Short-Form Agreements”) in order to be able to open bank accounts and enter into a lease. The Short-Form Agreements were not as comprehensive as the Long-Form Agreements but “appear to [have been] drafted in line with the core principles” of the Term Sheet, and each of the Short-Form Agreements contained the Cap and Comp Provision. One of the Long-Form Agreements later was executed; and, because that Long-Form Agreement contained the Cap and Comp Provision, Olson admitted that he was not entitled to any equity interest in that company beyond his accrued compensation and capital account balance. No other Long-Form Agreement was executed.

Olson proposed a new compensation concept to Halvorsen and Ott. Although Halvorsen and Ott thought that the idea sounded interesting, the idea was left open for further discussion. Among other things, this arrangement involved the formation of a new entity called Viking Global Founders, LLC (the “Founders LLC”). Although Olson testified that he circulated a second term sheet to Halvorsen and Ott regarding this proposal, Halvorsen and Ott testified that they did not see this second term sheet prior to the commencement of this litigation. The Court noted that the second term sheet “appears to be instructions to a lawyer, not the basis for a discussion with partners". Olson and the drafting attorneys went through several draft operating agreements which provide for a declining percentage of interest in Viking for six years following a member’s departure. Olson caused drafting counsel to file a certificate of formation for Founders LLC in September 1999. Olson also caused Founders to become a member of one of the other Viking entities. During the ongoing drafting process, Olson did not discuss the changes to what Olson now claimed was the Founders’ LLC “agreement” with Halvorsen and Ott, and several of the changes differ from the Term Sheet. Certain changes admittedly were never discussed with Halvorsen and Ott. The Founders never signed any agreement for Founders LLC or any other document reflecting Olson’s proposed changes, and Halvorsen and Ott testified that they never agreed to Olson’s proposed earnout.

Olson became dissatisfied with his compensation in Viking and demanded that no one at Viking be paid more than he, and announced that he was leaving Viking. Negotiations ensued among the Founders, and the Founders agreed to reallocate their compensation percentages. Halvorsen and Ott testified that, although they agreed to reallocate their compensation percentages because of the value Olson was contributing to Viking at that time, Halvorsen and Ott did not agree, and never would have agreed, to also change the Founders’ retirement benefits, without, at a minimum, requiring Olson (who allegedly had just left Viking) to stay at Viking for a period of time. Because the Founders did not discuss the effect of the renegotiation on departure payments and requiring Olson to stay at Viking for any period of time, the Court concluded that Halvorsen and Ott logically believed that the Cap and Comp Provision remained in effect.

Viking’s president located the draft operating agreement for Founders LLC which contained Olson’s proposed earnout, and he asked the Founders regarding this provision because he had always understood the Founders’ earnout to differ from Olson’s proposed earnout. He testified that each of the Founders confirmed at that time that no agreement had been reached regarding Olson’s proposed earnout structure in the draft Founders LLC operating agreement. In addition, Olson prepared personal financial statements for 2003 and 2004 which did not list the value of the earnout concept that Olson now claimed to have in Viking.

Olson took a sabbatical from Viking, and Halvorsen and the other management committee members unanimously determined that there no longer was a place at Viking for Olson. Accordingly, Olson was retired as a member of the Viking companies. Viking paid Olson his annual compensation as well as the full balance of his capital account in each Viking entity.

Olson commenced this case, alleging breach of contract, breach of fiduciary duty, civil conspiracy, right to fair value and interest in each of the Viking entities, unjust enrichment, accounting, equitable estoppel and promissory estoppel. On cross-motions for summary judgment, the Court granted summary judgment on October 22, 2008 in favor of the Defendants on Olson’s contract claim.

The trial and post-trial argument centered on Olson’s alleged entitlement to fair value for his ownership interest in the Viking entities. Olson admitted that the Founders orally agreed that a departing member only would be entitled to his accrued compensation and the balance of his capital account. Olson failed to prove the existence of any superceding agreement to the contrary. Section 17-604 of the Delaware Revised Uniform Limited Partnership Act and Section 18-604 of the Delaware Limited Liability Company Act provide that, unless otherwise provided in a governing instrument, a withdrawing partner or resigning member, as the case may be, is entitled to fair value of his interest in the partnership or company, as the case may be. The Court previously had concluded that the governing instrument of each of the Viking entities was the oral agreement, the terms of which are reflected in the Term Sheet, and such agreement includes the Cap and Comp Provision. The Short-Form Agreements for certain of the Viking entities also contain the Cap and Comp Provision. Olson failed to demonstrate that the Founders at any time agreed to amend or supercede the terms of the Cap and Comp Provision. Olson’s testimony was the only evidence supporting Olson’s argument that the Founders ever intended to depart from the terms of the Cap and Comp Provision, and such testimony was unsupported by any documentation to that effect. In fact, the evidence overwhelmingly supported the conclusion that the Cap and Comp Provision had never been amended or superceded. Therefore, the Court concluded that Olson was not entitled to fair value for his ownership interest in any Viking entity.

Alternatively, Olson claimed that he was entitled to damages pursuant to theories of promissory estoppel, equitable estoppel, civil conspiracy, unjust enrichment and breach of fiduciary duty. The Court entered judgment in favor of the Defendants as to the equitable estoppel claim, as Olson failed to prove any required element of such claim. The Court also dismissed Olson’s claims of civil conspiracy, unjust enrichment and breach of fiduciary duty because Olson failed “to show deprivation of value to which he was entitled”.

The full opinion is available here