Eames v. Quantlab Group GP, LLC, C.A. No. 2017-0792-JRS (Del. Ch. May 1, 2018) (Slights, V.C.)
In this letter opinion, the Court of Chancery held that an attempt to contemporaneously remove and replace the sole general partner of a Delaware limited partnership with a new general partner was without legal effect. The Court ruled that removal and replacement of a general partner of a limited partnership must be conducted strictly in accordance with the clear and unambiguous terms of the applicable limited partnership agreement under Delaware law.
The lawsuit arose from Plaintiff limited partners’ application under 6 Del. C. § 17-110 seeking a declaration from the Court of Chancery that (i) Quantlab Group GP, LLC (the “General Partner”) was removed as general partner of Quantlab Group, LP, a Delaware limited partnership (the “Partnership”), and (2) Quantlab II, LLC (“Quantlab GP II”) was admitted as general partner of the Partnership and rightfully serves in that capacity. Defendant General Partner successfully cross-moved for a status quo order to maintain its position as the sole general partner of the Partnership pending the Court’s final determination. Subsequently, the General Partner moved for partial summary judgment on the ground that the addition of Quantlab II as general partner was invalid under the terms of the Partnership’s limited partnership agreement (the “LPA”), such that the General Partner remains the Partnership’s sole general partner.
Under the terms of the LPA, the Partnership’s general partner may be removed without cause only if at least one other general partner remains, and the addition of a new general partner requires the consent of the then-acting general partner. The Court agreed with the General Partner that these terms of the LPA had not been properly followed. According to the Court’s opinion, the purported addition of Quantlab II as general partner of the Partnership and the removal of the General Partner were simultaneously effectuated pursuant to written consents by the voting trustee, representing approximately 96% of the Partnership’s voting limited partnership interests, and a manager of the General Partner, acting unilaterally on behalf of the General Partner. The Court, denying that such consents were valid, determined that, pursuant to the unambiguous terms of the LPA, it was necessary to admit a second general partner before the General Partner could be removed, and admitting a new general partner required the General Partner’s consent. No such consent had been obtained because the General Partner did not agree in advance to the voting trustee’s actions by virtue of signing the voting trust agreement giving the trustee authority to consent to Quantlab II’s addition as general partner. Likewise, the manager of the General Partner lacked unilateral authority to consent to Quantlab II’s addition as general partner.
In light of these findings, the Court of Chancery held that Quantlab II was not properly admitted as general partner of the Partnership and the General Partner could not be removed as general partner. Accordingly, the General Partner remains the sole general partner of the Partnership.