Steven Mizel Roth IRA v. Laurus U.S. Fund,
C.A. 5566-VCN (Del. Ch. Feb. 25, 2011), read opinion here. This
Court of Chancery opinion rejected a request to dissolve a limited partnership
and refused to appoint a receiver in the context of an investment fund that was
in liquidation mode but was not dissolved nor was it winding up as that term in
used in the statute.
The limited partner of a limited partnership sought to
force a dissolution of the LP that had invested most of its assets in an
investment fund based in the Cayman Islands. The plaintiff filed a summary
judgment based on 6 Del. C. Section 17-802 and the defendant filed
a competing motion to dismiss. The usefulness of this case extends also to
litigation involving the attempted dissolution of LLCs to the extent that the
section involved is virtually identical to its counterpart in the LLC statute
and the Delaware Court of Chancery often applies almost interchangeably the
reasoning of decisions involving the counterparts of this section in both
The operative phrase in Section 17-802 that one must
satisfy in order to convince the court to dissolve the LP is "... whether
it is no longer reasonably practicable to carry on the business on the LP in
accordance with its limited partnership agreement". As the Court
emphasized, the test is whether it is "reasonably practicable" as
opposed to whether it is "impossible" to carry on the business. See
cases cited at footnotes 36 to 39. This exacting standard was not
sufficiently pled in the complaint nor was it evident in the limited record
before the Court. Even if the fund were in liquidation mode, it was still
passively investing in accordance with its partnership agreement, and was thus
was still able to carry on its business purpose.
The request for a receiver was likewise found to be
unwarranted. The Court distinguished between a "liquidating trustee"
and a "receiver". Citing to Section 17-101(10) of the Delaware
LP Act, the Court noted that a liquidating trustee carries out the winding
up of a limited partnership but the winding up process cannot occur prior to
the dissolution--which had not yet occurred for the LP in this matter. See
footnote 56 (quoting from a case that describes the three-step process as: (i)
dissolution; (ii) winding up; and finally (iii) termination of a partnership.)
Moreover, the Court explained that Section 17-805 only
allows the Court to appoint a receiver in "narrow circumstances". See
footnote 59. Compare, Hon. J. Travis Laster, The Chancery
Receivership: Alive and Well, The
Delaware Lawyer, Vol. 28, No. 3. at 12 (2010)(discussing, in a
different context, the general equitable powers of the Court of Chancery to
appoint receivers.) In the end, the Court granted the motion to dismiss
pursuant to Rule 12(b)(6).
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Fox Rothschild LLP.
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