In Wimbledon Fund LP-Absolute Return Fund Series v. SV Special Situations Fund LP, C.A. No. 4780-VCS (Del. Ch. June 14, 2010), read opinion here, the Court of Chancery held that a member of an limited partnership was precluded from prematurely withdrawing its investment based on a plain language reading of the limited partnership agreement.
Plaintiff Invests In Defendant, but Seeks Premature Withdrawal
On October 1, 2007, plaintiff Wimbledon Fund LP-Absolute Return Series invested $2 million with defendant SV Special Situations Fund LP in exchange for partnership in SV Fund. In so doing, Wimbledon agreed to be bound by SV Fund’s limited partnership agreement. The LP Agreement restricted members from withdrawing their membership until one year after their initial investment. Further, withdrawals could only occur on June 30 and December 31. In addition, the General Partner of SV Fund had the authority under the LP Agreement to suspend withdrawals to all members of SV Fund. Finally, the members could agree in writing to a waiver of the LP Agreement’s terms.
On February 21, 2008, approximately four months after its initial investment, Wimbledon submitted its request to withdraw its entire investment effective June 30, 2008. By June 30, 2008, SV Fund had not consented or objected to Wimbledon’s request. Rather, in a short letter dated September 30, 2008, SV Fund acknowledged that it had received Wimbledon’s request, but did not specifically address the issue of whether Wimbledon could prematurely withdraw its funds prior to the one year requirement in the LP Agreement. However, on October 31, 2008, SV Fund notified all members that it was suspending all withdrawal requests.
On August 5, 2009, Wimbledon filed an action seeking a declaration that it had withdrawn from and is a creditor of SV Fund. The two issues before the Court were whether: (i) SV Fund consented in the September 2008 Letter to Wimbledon’s premature redemption request; and (ii) SV Fund’s decision to suspend withdrawals, as communicated in its October 2008 letter, applied to Wimbledon’s redemption request. Wimbledon moved for summary judgment and SV Fund filed a cross-motion for summary judgment.
SV Fund Did Not Consent to Withdrawal
The Court held that Wimbledon failed to identify evidence supporting its claim that SV Fund consented to Wimbledon’s request for withdrawal. SV Fund’s only response to Wimbledon’s February 2008 letter was SV Fund’s September 2008 letter – a letter sent after the June 30, 2008 date on which Wimbledon sought to withdraw. Wimbledon’s argument that the September 2008 letter amounted to a retroactive consent was unpersuasive because as the Court noted the letter did not include a clear representation that SV Fund consented to the early withdrawal. Indeed, there was no language in the letter to address the reality of the situation that SV Fund was responding three months after the date on which Wimbledon requested the withdrawal. As the Court said “[a]t best, the language is ambiguous, and ambiguous acts cannot form the basis of a waiver.” The only plausible interpretation, according to the Court, was that SV Fund was forward-looking in its letter to December 31, 2008, the first date on which Wimbledon would be eligible to withdraw. Accordingly, the Court found that Wimbledon had failed to prove that SV Fund had waived the one year requirement for withdrawal.
Wimbledon’s Withdrawal Right Was Suspended
Having ruled that Wimbledon’s effort to withdraw as of June 30, 2008 had failed, the Court next addressed the issue of whether Wimbledon’s request to withdraw was suspended by the October 31, 2008 notice. Wimbledon argued that the suspension applied prospectively and did not affect pending withdrawal requests. However, the LP Agreement plainly provided that “the General Partner shall have the right, it its sole discretion, to suspend all capital withdrawals to Partners” – language that does not preclude an application to pending requests. The Court noted that to construe the language otherwise would render that section of the LP Agreement meaningless. The Court found that SV Fund had the authority to suspend pending withdrawal request and therefore the suspension was effective as to Wimbledon when SV Fund issued its October 2008 letter.
This summary was prepared by Kevin F. Brady and Ryan P. Newell.