COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 S. State Street
JOSEPH R. SLIGHTS III Dover, Delaware 19901 VICE CHANCELLOR Telephone: (302) 739-4397 Facsimile: (302) 739-6179
Date Submitted: February 1, 2018 Date Decided: May 1, 2018
Thad J. Bracegirdle, Esquire John L. Reed, Esquire Scott B. Czerwonka, Esquire Derrick B. Farrell, Esquire Wilks, Lukoff & Bracegirdle, LLC DLA Piper LLP (US) 4250 Lancaster Pike, Suite 200 1201 North Market Street, Suite 2100 Wilmington, DE 19801 Wilmington, DE 19801
William D. Johnston, Esquire Tammy L. Mercer, Esquire Young Conaway Stargatt & Taylor, LLP 1000 King Street Wilmington, DE 19801
Re: Eames v. Quantlab Group GP, LLC C.A. No. 2017-0792-JRS
Dear Counsel:
This case concerns the de jure management of Quantlab Group, LP
(“Quantlab LP”), a Delaware limited partnership. Prior to November 6, 2017,
Quantlab LP’s sole general partner was Quantlab Group GP, LLC (“Quantlab GP”).
On November 6, 2017, a voting trustee, acting by written consent on behalf of
approximately 96% of Quantlab LP’s voting limited partnership interests, purported
C.A. No. 2017-0792-JRS May 1, 2018 Page 2
to add Quantlab Group GP II, LLC (“Quantlab GP II”) as a general partner of
Quantlab LP and then remove Quantlab GP from its position as general partner.
Under Quantlab LP’s limited partnership agreement (the “LPA”),1
Quantlab LP’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. With these requirements in mind,
simultaneous with the voting trustee’s actions, Plaintiff, Bruce Eames, acting as a
manager of Quantlab GP, purported to consent to Quantlab GP II’s addition as a
general partner of Quantlab LP so that a general partner would remain upon
Quantlab GP’s subsequent removal. Plaintiffs claim that, by virtue of these actions,
Quantlab GP II is now Quantlab LP’s sole general partner.
The same day these written consents were executed, Plaintiffs filed this action
under 6 Del. C. § 17-110 to confirm that (1) Quantlab GP was removed as general
partner of Quantlab LP and (2) Quantlab GP II was admitted as general partner of
Quantlab LP and rightfully serves in that capacity. On December 14, 2017,
Defendant moved for partial summary judgment on the ground that Quantlab GP II’s
1 The operative LPA is the Fourth Amendment and Complete Restatement of the Agreement of Limited Partnership of Quantlab Group, LP, a Delaware Limited Partnership. See Verified Compl. (“Compl.”), Ex. 1.
C.A. No. 2017-0792-JRS May 1, 2018 Page 3
addition as general partner was invalid under the clear and unambiguous terms of
the LPA, such that Quantlab GP remains Quantlab LP’s sole general partner.2
Defendant’s motion must be granted. Under the unambiguous terms of the
LPA, it was necessary to admit a second general partner before Quantlab GP could
be removed, and admitting a new general partner required Quantlab GP’s consent.
No such consent was obtained; Quantlab GP did not agree in advance to the voting
trustee’s actions by virtue of signing the voting trust agreement giving the trustee his
authority and Eames, in his capacity as a Quantlab GP manager, lacked unilateral
authority to consent to Quantlab GP II’s addition as general partner of Quantlab LP.
Because Quantlab GP II was not properly admitted as general partner of Quantlab
LP, Quantlab GP could not be removed as general partner. Accordingly, Quantlab
GP remains the sole general partner of Quantlab LP.
2 Defendant’s motion is styled “Motion for Partial Summary Judgment.” Def. Quantlab Group GP, LLC’s Opening Br. in Supp. of its Mot. for Partial Summ. J. (“Def.’s Opening Br.”). Granting Defendant’s motion, however, would determine the rightful management of Quantlab LP, the sole issue presented in Plaintiffs’ verified complaint, and moot Defendant’s equitable arguments. See id. 2 n.2. Since I grant Defendant’s motion, I need not (and decline to) address Defendant’s equitable arguments.
C.A. No. 2017-0792-JRS May 1, 2018 Page 4
I. BACKGROUND
In accordance with Court of Chancery Rule 56(c), I have drawn the facts from
the pleadings, uncontested facts in the parties’ submissions, and materials presented
in connection with the motion. Unless otherwise indicated, I have determined that
the following facts are undisputed.
A. Parties and Relevant Non-Parties
Plaintiffs, Bruce P. Eames and Andrey Omeltchenko, are limited partners of
Nominal Defendant, Quantlab LP, a Delaware limited partnership headquartered in
Houston, Texas.3 Plaintiffs hold Quantlab LP Class A limited partnership interests,
which are Quantlab LP’s only limited partnership interests entitled to vote on the
admission and removal of general partners.4 Eames also serves as a manager of
Quantlab GP.5
3 Compl. ¶ 1.
4 Compl. ¶¶ 1–3; see Transmittal Aff. of Ethan H. Townsend, Esq. (“Townsend Aff.”), Ex. B (LPA) §§ 5.3, 5.4. Quantlab LP “currently has the following outstanding classes of limited partnership interests: Class A, Class B, Class C, Class D, Class E, Class G-1 and Class G-2.” Compl. ¶ 1. In addition to the Class A limited partnership interests, Eames holds Class G-2 and Omeltchenko Class D and Class G-2 limited partnership interests. Id. ¶¶ 2–3; see also LPA, sched. A. 5 See Tr. of Oral Arg. Feb. 1, 2018 (“Tr.”) 7:6–14.
C.A. No. 2017-0792-JRS May 1, 2018 Page 5
Defendant, Quantlab GP, is a Delaware limited liability company.6 It was
established in 2008 for the sole purpose of serving as Quantlab LP’s general partner.7
Prior to November 6, 2017, Quantlab GP had served as Quantlab LP’s sole general
partner for approximately ten years.8 It also holds a 1% Class A limited partnership
interest in Quantlab LP.9 Quantlab GP has two members, Marco, LP (“Marco”)10
and AVG Holdings, LP (“AVG”).11
6 Compl. ¶ 4.
7 Townsend Aff., Ex. A (“LLC Agmt.”), pmbl. & § 2.5.
8 Compl. ¶ 4; Def.’s Opening Br. 20.
9 Compl. ¶ 4; LPA, sched. A.
10 Non-party, W.E. Bosarge, Jr. (“Bosarge”), and his family control Marco, which holds 75% of Quantlab GP’s membership interests. Def. Quantlab Group GP, LLC’s Mot. (1) to Compel Compliance With Dispute Resolution Procedures and Arbitration, and (2) for Status Quo Order in Aid of Same, Ex. F (“Bosarge Aff.”) ¶ 2; Tr. 41:10–15. 11 Tr. 41:10–15; see LLC Agmt., pmbl.; Townsend Aff., Ex. C (Amended and Restated Voting Trust Agreement (“VTA”)), pmbl. The Eames family controls AVG, which holds 25% of Quantlab GP’s membership interests. VTA § 4.1 (specifying Eames as the AVG representative). Quantlab GP’s LLC Agreement names “Marco, LLC” and “AVG Holdings, LLC” as its members. See LLC Agmt., pmbl. The record suggests that the Quantlab GP member entities are now Marco LP and AVG Holdings, LP. See Pls.’ Answering Br. in Opp’n to Def. Quantlab Gp. LLC’s Mot. for Partial Summ. J. (“Pls.’ Answering Br.”) 8; Tr. 41:10–15; VTA, pmbl.
C.A. No. 2017-0792-JRS May 1, 2018 Page 6
Non-party, Bosarge, founded Quantlab LP in 1995 “for the purpose of
becoming a world leader in high frequency trading.”12 Bosarge, and Bosarge family
entities, collectively hold 71.96% of Quantlab LP’s Class A limited partnership
interests.13 Bosarge is also a manager of Quantlab GP.14
B. The Relevant Agreements
The parties’ dispute over the rightful management of Quantlab LP implicates
three contracts: Quantlab LP’s limited partnership agreement (the “LPA”), a voting
trust agreement among certain of Quantlab LP’s limited partners (the “VTA”) and
Quantlab GP’s LLC agreement. 15 I discuss each in turn below.
1. The Limited Partnership Agreement
Quantlab LP is governed by the LPA. Pursuant to the LPA, Quantlab LP’s
general partner “shall be responsible for the exclusive management, operation and
12 Bosarge Aff. ¶ 1.
13 Compl., Ex. A, at Ex. A; Bosarge Aff. ¶ 1.
14 Bosarge Aff. ¶ 2.
15 The parties disagree over the extent to which the VTA and LLC agreement are relevant to this dispute. See Pls.’ Answering Br. 8; Def. Quantlab Gp. GP, LLC’s Reply Br. in Further Supp. of its Mot. for Partial Summ. J. (“Def.’s Reply Br.”) 3–4; Tr. 32:3–35:12. I address these arguments below.
C.A. No. 2017-0792-JRS May 1, 2018 Page 7
control of the business and affairs of the Partnership.”16 When more than one general
partner is admitted, management authority is “joint and several.”17 The LPA makes
clear that Quantlab LP’s limited partners may “not take part in the management and
control of the business” and may not “interfere[] in the management of the
Partnership affairs.”18
Pursuant to LPA § 5.3, “additional General Partners may be admitted only
with the consent of all General Partners and the consent of a Super Majority in
Interest of the Limited Partners . . . .”19 And pursuant to LPA § 5.4, “a General
Partner may not be removed unless there is at least one remaining General Partner.”20
16 LPA § 5.2(a).
17 Id.
18 LPA §§ 5.11, 5.13. “Limited Partners” are defined as “Person(s) admitted to the Partnership as original, additional or substituted Limited Partners . . . and includes both Class A Partners (other than the General Partner), Class B Partners, Class C Partners, Class D Partners, Class E Partners [,] Class G Partners, and Partners holding any other class (or sub-class thereof) of Partnership Interests created pursuant to this Agreement.” Id. § 1.88. Section 5.12(b) of the LPA also provides that “[e]xcept as expressly provided in Section 5.12(a) or as required by the Act, the Limited Partners . . . shall have no right to vote or otherwise participate in the management of the Partnership in respect of any Partnership Interest.” Id. § 5.12(b). 19 LPA § 5.3.
20 LPA § 5.4. If there is at least one remaining general partner, a “Super Majority in Interest of the Limited Partners” can remove a general partner. Id. “Super Majority in Interest of the Limited Partners” is defined as more than 80% of Class A-2 Interests. Id. § 1.136.
C.A. No. 2017-0792-JRS May 1, 2018 Page 8
“[I]f a General Partner is in material breach of any of its obligations” or commits
“any act or omission of gross negligence, fraud or malfeasance to the injury of the
Partnership,” however, it may be removed by a “Majority in Interest” even if it is
the sole general partner at the time.21
2. The Voting Trust Agreement
Several of Quantlab LP’s Class A limited partners entered into the VTA in
November 2010 (effective September 2010). The signatories were Marco, AVG,
Eames, Veloce LP, Omeltchenko, Aster Securities (US) LP, Quantlab GP and
David J. Houston.22 The VTA defines Marco, AVG, Eames, Veloce LP,
Omeltchenko and Aster Securities (US) LP as “Limited Partners”23 who combined
The Class A-2 Partnership Interest Holders are identical to the Class A Interest Holders. See LPA, sched. A. 21 LPA § 5.4. “‘Majority in Interest’ means a Partner or Partners whose Class A-2 Percentage Interest represent more than 50 percent of the Class A-2 Percentage Interests of all the Partners.” Id. § 1.91. “Partner,” in turn, “means a Partner (whether limited or general) of the Partnership . . . .” Id. § 1.100. 22 VTA, pmbl.
23 Id.
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their Quantlab LP Voting Interests24 by irrevocably assigning and transferring them
to a Voting Trustee.25 Quantlab GP is not included in the definition of “Limited
Partners.”26 Pursuant to the VTA, the Voting Trustee is empowered to vote the
Limited Partner Interests “as directed by the [majority vote of the] Voting Trust
Committee,” which comprises Bosarge, Eames and Omeltchenko.27
By virtue of the combination of interests reflected in the VTA, the Voting
Trustee holds (and controls) at least 96% of Quantlab LP’s Class A limited
partnership interests, which constitutes a supermajority of Quantlab LP’s voting
24 The VTA refers to the LPA for the definition of “Voting Interest.” VTA, at Recitals. The LPA defined the term “Voting Interest” as the “right of the Class A Partners to vote with respect to their Class A Partnership Interest.” LPA § 1.144. 25 VTA § 2.1. The VTA defines David J. Houston “together with any successors” as the “Voting Trustee.” Id. at pmbl. 26 See VTA, pmbl. Quantlab GP’s signature does appear under the “Limited Partners” designation, however. 27 VTA §§ 4.1, 4.4, 5.2. “The Voting Trust Committee shall consist of three members which initially shall be W.E. Bosarge, Jr (representing Marco and Veloce—the ‘Bosarge Appointee’), Bruce Eames (representing AVG and himself—the ‘Eames Appointee’) and Andrey Omeltchenko (representing Aster and Omeltchenko—the ‘Omeltchenko Appointee’).” Id. § 4.1. “Where the Voting Trust Committee is more than one person, a majority vote of its then-serving members shall be entitled to authorize any official act of the Voting Trust Committee.” Id. § 4.4.
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limited partnership interests.28 While the VTA expressly contemplates that the
parties will amend the LPA to acknowledge that the LPA is “restricted by and subject
to the terms of [the VTA],” it does not appear that the amendment to incorporate the
VTA carried over to the current version of the LPA.29
3. The LLC Agreement
Also relevant to this dispute is the Operating Agreement for the Quantlab
Group GP, LLC (the “LLC Agreement”). The LLC Agreement provides that
Quantlab GP was “formed for the sole purpose of acting as the general Partner of []
Quantlab [] LP,” and “cannot carry on any business other than acting as the General
Partner of [Quantlab] LP without the unanimous consent of all the Members.”30
28 Compl. ¶ 5. Schedule A to the LPA seems to indicate that the Voting Trustee controls close to 99% of the Class A Partnership Interests. While I note that difference here, it does not bear on my decision; thus, I need not (and do not) undertake to reconcile the difference. 29 VTA § 2.4.1. Indeed, the current LPA contains no reference to the VTA.
30 LLC Agmt. § 2.5. “Members” are defined as “an Initial Member [Marco and AVG] or a Person who otherwise acquires a Membership Interest, as permitted under this Agreement, and who remains a Member.” Id. § 1.23. “‘Membership Interest’ means a Member’s right in the Company, collectively, including the Member’s Economic Interest, any right to Vote or participate in management, and any right to information concerning the business and affairs of the Company.” Id. § 1.24.
C.A. No. 2017-0792-JRS May 1, 2018 Page 11
Quantlab GP is a manager-managed LLC.31 Per Section 5.1 of the LLC
Agreement, Quantlab GP’s managers can “act[] alone without approval or consent
of the other Manager[s] . . . to transact business on behalf of and for the benefit of
[Quantlab GP],” subject to the limitations of Section 5.4. Section 5.4, in turn,
provides that a “Manager shall not take . . . [a]ny act that would make it impossible
to carry on the ordinary business of [Quantlab GP] or [Quantlab LP]” or that would
cause “[a] change in the nature of the principal business of [Quantlab GP] or
[Quantlab LP] . . . unless a Majority [] of Members has consented to the taking of
such action.”32
C. Plaintiffs Purport to Admit Quantlab GP II as General Partner of Quantlab LP and Remove Quantlab GP as General Partner
On November 6, 2017, Plaintiffs—acting as a majority of the Voting Trust
Committee—executed a written consent instructing the Voting Trustee to vote the
Voting Trust Interests to admit and appoint Quantlab GP II as general partner of
31 LLC Agmt. § 5.1 32 LLC Agmt. §§ 5.4(a), (e). “‘Majority of Members’ means a Member or Members whose Percentage Interest represent more than 50 percent of the Percentage Interests of all the Members.” Id. § 1.21.
C.A. No. 2017-0792-JRS May 1, 2018 Page 12
Quantlab LP and remove Quantlab GP as general partner.33 The Voting Trustee did
as instructed.34 At or around the same time, Eames, as manager of Quantlab GP,
purportedly consented on behalf of Quantlab GP to add Quantlab GP II as a second
general partner of Quantlab LP.35
D. Procedural Posture
Later that day, Plaintiffs filed a Verified Complaint (the “Complaint”)
pursuant to 6 Del. C. § 17-110 seeking a declaration that Quantlab GP II is the sole
general partner of Quantlab LP. The parties cross-moved for a status quo order. The
Court entered a status quo order on November 30, 2017, keeping Quantlab GP in
place as general partner of Quantlab LP pending the final resolution of this matter.36
33 Compl. ¶¶ 7–8 & Ex. 3 (Nov. 6, 2017 Voting Trust Committee Written Consent); Pls.’ Answering Br. 9; Def.’s Opening Br. 12. By the same written consent, the Voting Trust Committee first admitted Allen Dempster as the new Voting Trustee. Compl., Ex. 3. The parties dispute whether the position of Voting Trustee was vacant at that time. Compl. ¶ 7; see also Def.’s Opening Br. 12 & n.6. Since the resolution of that dispute does not bear on my decision, I need not (and do not) resolve it. 34 Compl. ¶ 11 & Ex. 4 (Nov. 6, 2017 Written Consent of a Super Majority in Interest of Limited Partners of Quantlab LP). Defendant disputes the temporal order of the actions that effected its purported removal. See, e.g., Def.’s Opening Br. 26 (explaining that the addition and removal occurred simultaneously). 35 Compl. ¶ 11 & Ex. 5 (Nov. 6, 2017 Quantlab GP Written Consent).
36 D.I. 14 (Judicial Action Form Status Quo H’rg); D.I. 33 (Tr. of Nov. 21, 2017 H’rg).
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Quantlab GP answered Plaintiffs’ Complaint on December 11, 2017 and then, on
December 14, 2017, moved for partial summary judgment (the “Motion”).
II. ANALYSIS
Under Court of Chancery Rule 56(c), summary judgment will be granted “if
the pleadings, depositions, answers to interrogatories and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.”37
The movant initially bears the burden to demonstrate that no genuine issue of
material fact exists.38 In determining whether the movant has met that burden, the
court must view the evidence in the light most favorable to the non-moving party.39
“When the issue before the Court involves the interpretation of a contract,
summary judgment is appropriate only if the contract in question is unambiguous.”40
37 Ct. Ch. R. 56(c).
38 In re Answers Corp. S’holders Litig., 2014 WL 463163, at *10 (Del. Ch. Feb. 3, 2014).
39 Id.
40 United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 829 (Del. Ch. 2007).
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Ambiguity exists if the court “may reasonably ascribe multiple and different
interpretations to [the] contract.”41
A. The LPA Does Not Permit The Simultaneous Removal and Replacement of the General Partner
Plaintiffs contend that Quantlab GP’s consent was not required for the
addition of a second general partner (Quantlab GP II) because “the limited partners
simultaneously [voted] their interests to remove and replace the incumbent General
Partner” as permitted by the VTA.42 According to Plaintiffs, it would be nonsensical
to create a regime whereby a sole general partner, in essence, would have to facilitate
its own removal by consenting to the addition of a new general partner before any
removal could be effected.43 That interpretation of the agreements “would
effectively negate the entire purpose of the [VTA],”44 which Plaintiffs contend must
be interpreted along with the LPA.45
41 Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1160 (Del. 2010).
42 Pls.’ Answering Br. 6–7.
43 Pls.’ Answering Br. 6.
44 Plaintiffs contend the purpose of the VTA was to “combin[e] the voting power of [the] Class A partnership interests and exercis[e] that collective voting power as a single unit.” Pls.’ Answering Br. 15. 45 Pls.’ Answering Br. 12.
C.A. No. 2017-0792-JRS May 1, 2018 Page 15
Under Plaintiffs’ reading of the agreements, the requirement that more than
one general partner be in place prior to removal of a general partner (Section 5.4 of
the LPA) was intended solely to prevent Quantlab LP’s dissolution for want of any
general partner.46 Since the simultaneous removal and replacement of the sole
general partner assuages that concern, Section 5.4 of the LPA is inapplicable in this
setting. Thus, Quantlab GP could be removed without the prior addition of a new
general partner. At the very least, Plaintiffs contend that the operative contractual
provisions are susceptible to their proffered construction and, therefore, summary
judgment is inappropriate.47
Defendant, on the other hand, argues that the VTA is no longer incorporated
within the LPA. But even if it were, the LPA’s terms clearly provide that
Quantlab GP could not be removed as sole general partner without first adding a new
general partner, and that admitting a new general partner required Quantlab GP’s
consent.48
46 Pls.’ Answering Br. 6 (citing LPA § 14.1(a) (Events of Dissolution, event of withdrawal of a general partner)). 47 Pls.’ Answering Br. 11.
48 Def.’s Opening Br. 25 & n.9.
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After carefully reviewing the agreements, I am satisfied that the LPA’s
express terms support only Defendant’s construction, even if the VTA were intended
to be incorporated into the current LPA. Section 5.4 of the LPA provides that, absent
“for cause” removal, “a General Partner may not be removed unless there is at least
one remaining General Partner.”49 And Section 5.3 provides that the addition of a
new general partner requires the consent of the existing general partner(s) and the
consent of a Super Majority in Interest of the Limited Partners. Thus, the LPA
clearly establishes that (1) Quantlab GP could not be removed as Quantlab LP’s sole
general partner prior to the addition of a new general partner; and (2) Quantlab GP’s
consent was required to admit Quantlab GP II as general partner.50 Had the parties
intended to limit these requirements to allow for simultaneous removal and
replacement of the lone general partner without consent, they easily could have done
49 LPA § 5.4.
50 Plaintiffs assert they could seek to amend the LPA in the future to “eliminate any uncertainty” “concerning the Super Majority’s authority to remove the General Partner for any reason” through the VTA. See Pls.’ Answering Br. 7. While this may be true, they have not yet attempted to do so. My focus at this stage, therefore, must be on the LPA in its current form.
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so.51 Thus, the dispositive question here is whether Quantlab GP consented to add
Quantlab GP II as general partner of Quantlab LP.
B. Quantlab GP Did Not Consent to Add Quantlab GP II as a General Partner of Quantlab LP
According to Plaintiffs, even if the LPA requires Quantlab GP’s consent to
admit a new general partner to Quantlab LP, Quantlab GP had “already provided
[that] consent . . . by signing on to the [VTA] and agreeing to abide by majority rule
of [the Voting Trust Committee, comprising] Bosarge, Eames and Omeltchenko.”52
In this regard, Plaintiffs contend, “[i]t would be inconsistent and nonsensical for
Marco, LP [signatory to and Limited Partner under the VTA] to agree that its
Quantlab [LP] partnership interests would be voted one way, but then use its 75%
interest in Quantlab GP to frustrate the acts of the Voting Trustee to which it had
already consented . . . .”53
51 See Seidensticker v. Gasparilla Inn, Inc., 2007 WL 1930428, at *6 (Del. Ch. June 19, 2007) (Defendants “could have easily included a provision that accounted for MPI’s lengthy valuation process, had they intended for such a provision to exist.”). I note that Section 14.1(a) of the LPA, cited by Plaintiffs in support of their argument, addresses dissolution after the withdrawal of a general partner rather than after its removal. Thus, that section does not support Plaintiffs’ argument. 52 Pls.’ Answering Br. 16; see also id. at 7.
53 Pls.’ Answering Br. 16.
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In addition to invoking the VTA to support their consent argument, Plaintiffs
argue that Eames consented, on behalf of Quantlab GP, to admit Quantlab GP II as
a general partner of Quantlab LP in his capacity as a Quantlab GP manager.54
Invoking Section 5.1 of the LLC Agreement, Plaintiffs maintain that Eames could
take such action without majority vote of Quantlab GP’s members because (1) he
was acting for the benefit of Quantlab GP and (2) his actions did not change Quantlab
GP’s business. As to their first argument, Plaintiffs posit, “what’s in the best interest
of [Quantlab LP] should also be what is in the best interest of [its] general partner.”55
Since Eames consented to Quantlab GP II’s addition as general partner to prevent
Bosarge’s management from causing further loss to Quantlab LP, his conduct was
for Quantlab LP’s benefit and, by extension, for Quantlab GP’s benefit as well.56 As
to their second argument, Plaintiffs submit that Quantlab GP’s business was not
changed because Eames consented only to the addition of Quantlab GP II as a second
general partner—not to Quantlab GP’s removal. Since Quantlab GP remained a
54 Pls.’ Answering Br. 7.
55 Tr. 46:8–10.
56 Tr. 46:10–16.
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general partner of Quantlab LP after Eames’ consent—even if only for an instant—
no change in Quantlab GP’s business occurred.57
In response, Defendant argues that its signature on the VTA does not
constitute consent to the Voting Trustee’s actions because: (1) it transferred neither
its limited nor general partnership interests to the Voting Trustee; (2) the transfer of
the general partnership interest would have violated the LPA; and (3) the VTA is a
separate agreement which was never intended to impact the LLC Agreement or
Quantlab GP’s membership interests.58
Defendant further contends that Eames could not consent to add
Quantlab GP II as general partner without at least the majority vote of Quantlab GP’s
members because the addition of a second general partner was not “for the benefit
of” Quantlab GP and fundamentally changed the nature of its business. In this
regard, Defendant emphasizes that Quantlab LP and Quantlab GP are separate
entities.59 Thus, conduct that benefits one does not necessarily benefit the other.
And there is no scenario where adding Quantlab GP II as a general partner of
57 Tr. 48:7–49:2.
58 Def.’s Opening Br. 25–27; Def.’s Reply Br. 12–15.
59 See, e.g., Tr. 54:2–3 (“[T]he LLC and the LP operate in different worlds.”).
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Quantlab LP could be viewed as benefiting Quantlab GP. Quantlab GP’s purpose is
to act as “the General Partner” of Quantlab LP; it is not to be “a General Partner”
with a 50% vote in Quantlab LP’s management. According to Defendant, since
going from being the general partner to a general partner with a 50% vote is clearly
a change in the nature of Quantlab GP’s business, Section 5.4 of the LLC Agreement
required at least a majority vote of Quantlab GP’s members before the entity could
consent to add a new general partner.
As noted, Plaintiffs argue that Quantlab GP II’s admission as general partner
of Quantlab LP was effected by consent in either or both of two ways: (1) by
Quantlab GP signing the VTA, thus, agreeing in advance to the actions taken by the
Voting Trustee and (2) by Eames separately consenting on behalf of Quantlab GP in
his capacity as manager of Quantlab GP. I address each argument in turn below.
First, Plaintiffs’ argument that Quantlab GP consented in advance to its
removal and replacement by signing the VTA does not comport with the clear terms
of the LLC Agreement. Even if the Court were inclined to read the VTA into the
LPA (despite the fact that the LPA makes no reference to the VTA),60 that same
60 As previously noted, Defendant disputes that the VTA has any bearing on the current LPA, which explains why the VTA is nowhere referenced in the LPA. Def.’s Reply Br. 3. In this regard, Defendant emphasizes that the LPA has an integration clause at Section 17.12. While Defendant’s argument on this point is persuasive, I need not adopt it
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exercise of blue-penciling could not be justified with respect to the LLC Agreement.
It is clear that none of Quantlab GP’s members ever agreed to have their Quantlab
GP membership interests voted by the Voting Trustee.
Moreover, Quantlab GP did not consent to have its limited partnership
interests voted by the Voting Trustee; Quantlab GP is not one of the VTA’s “Limited
Partners” and did not transfer its limited partnership interest to the Voting Trustee.61
Thus, it did not consent in advance to any action taken by the Voting Trustee.
And, even if Quantlab GP had transferred its limited partnership interest, thus
indicating its consent to have that interest voted by the Voting Trustee, it did not
(and, indeed, could not) transfer its general partnership interest or its contractual
rights under the LPA to the Voting Trustee. The LPA provides that Quantlab LP’s
general partner is its only manager and specifically prohibits its limited partners from
participating in management.62 Thus, any attempted transfer of Quantlab GP’s
because I am satisfied that Plaintiffs’ construction of the operative agreements is not reasonable even assuming the VTA somehow modifies the LPA. 61 VTA, pmbl. (“Collectively, Marco, AVG, Eames, Southport and Omeltchenko are referred to as the “Limited Partners.”). Pursuant to Recital J of the VTA, only “[t]he Limited Partners desire[d] to combine their voting power” and agreed that their interests “shall be voted as provided in” the VTA. 62 LPA § 5.13(a) (“A Limited Partner will breach this Agreement if the Limited Partner . . . (2) interferes in the management of the Partnership affairs . . . .”). The intent to give
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general partnership interest or rights to the Voting Trustee would be invalid under
the LPA.
Therefore, even assuming the VTA is still in effect, nothing in that agreement
suggests that Quantlab GP consented to allow the Voting Trustee to act on its
behalf.63 More simply stated, the VTA is not Plaintiffs’ “golden ticket” to
Quantlab LP’s levers of control.
Second, Plaintiffs’ argument that Eames consented to the admission of
Quantlab GP II on behalf of Quantlab GP fails because Eames lacked any authority
unilaterally to consent to the admission of a new general partner. Pursuant to
separate legal significance to the limited and general partner votes is further demonstrated by certain actions listed in Sections 5.3 and 5.6, requiring both the consent of the general partners and a vote/consent of the super-majority of Quantlab LP’s limited partners. If the general partner vote was or could be combined with the limited partner votes, these requirements would be a nullity. See E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del. 1985) (“[W]e would in effect be reading such prohibition out of the License Agreement. To do so would be to violate the cardinal rule of contract construction that, where possible, a court should give effect to all contract provisions.”). 63 Pls.’ Answering Br. 7. Plaintiffs point to a 2012 statement made by Quantlab LP’s associate general counsel and a proposed amendment to the VTA presented by Bosarge that same year, arguing that both show that “the Voting Trustee retains the ability to vote all Class A partnership interests for any matter requiring a vote, including the removal and admission of the General Partner of Quantlab [LP].” Id. at 5. That argument is unavailing. To start, the LPA’s terms are unambiguous. Thus, I cannot consider extrinsic evidence to interpret the contract. Even if I could, however, neither the statement nor the proposal addresses the separate rights of the general partner. Thus, neither support Plaintiffs’ position.
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Section 2.5 of the LLC Agreement, Quantlab GP “cannot carry on any business other
than acting as the General Partner of [Quantlab LP] without the unanimous consent
of all of [Quantlab GP’s members].”64 Section 5.1 of the LLC Agreement provides
that a manager can act unilaterally on behalf of Quantlab GP only when acting “for
the benefit of [Quantlab GP].”65 And per Section 5.4, a manager may not “take . . .
[a]ny act that would make it impossible to carry on the ordinary business of
[Quantlab GP] or [Quantlab LP]” or that would cause “[a] change in the nature of
the principal business of [Quantlab GP] or [Quantlab LP]” without the consent of
the majority of Quantlab GP’s members.66
When Eames purported to consent (on behalf of Quantlab GP) to add Quantlab
GP II as a general partner of Quantlab LP—whatever his reason(s) for doing so—he
changed Quantlab GP’s business from acting as the general partner of Quantlab LP
to being a general partner (with only a 50% vote). And, he purported to take this
action without first receiving the consent of the majority of Quantlab GP’s members.
His unilateral action violated Sections 2.5 and 5.4 of the LLC Agreement.
64 LLC Agmt. § 2.5 (emphasis supplied).
65 LLC Agmt. § 5.1.
66 LLC Agmt. §§ 5.4(a), (e).
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Furthermore, Eames’ unilateral action cannot be characterized as “for the
benefit of” Quantlab GP. By eliminating Quantlab GP’s role as Quantlab LP’s sole
manager, Eames set Quantlab GP adrift with no purpose or function. Before he
could neutralize Quantlab GP in that manner, Eames was obliged to secure the
consent of the majority of Quantlab GP’s members. In this case, he failed to do so.
Consequently, his purported consent on behalf of Quantlab GP is without legal
effect.
C. Contextual Considerations
Before concluding the contract construction exercise here, I pause to consider
the LPA in its real-world commercial context, as our law requires.67 Plaintiffs are
correct to note that, under Defendant’s construction of the LPA, Quantlab GP may
not be removed as general partner unless it first consents to the addition of another
67 See Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912, 926–27 (Del. 2017) (“The basic business relationship between [contract] parties must be understood to give sensible life to any contract.”); Heartland Payment Sys., LLC v. Inteam Associates, LLC, 171 A.3d 544, 557 (Del. 2017) (“Before stepping through the specific contractual provisions it is helpful to look at the transaction from a distance, because ‘[i]n giving sensible life to a real-world contract, courts must read the specific provisions of the contract in light of the entire contract.’” (quoting Chicago Bridge, 166 A.3d at 913–14))).
C.A. No. 2017-0792-JRS May 1, 2018 Page 25
general partner (absent good cause for Quantlab GP’s removal).68 As Plaintiffs
observe, this construction of the LPA allows the general partner to control the timing
and circumstances of its own removal. Even so, as discussed below, this regime
makes perfect sense given the significant ownership stake of Bosarge and his family
entities in Quantlab LP.
By providing that Quantlab GP would serve as Quantlab LP’s general partner
with certain consent rights, the parties positioned Bosarge and his family to protect
their 75% ownership interest in Quantlab GP. By transferring the majority of
Quantlab LP’s Class A limited partnership interests (of which Bosarge and Bosarge
family entities hold a majority) to a voting trustee directed by majority vote of a
voting trust committee, the parties assured Eames that Bosarge could not single-
handedly take over Quantlab LP.69 And, by providing that certain actions, such as
the addition of a new general partner, require the vote of both the existing general
partner and the majority of the Class A limited partnership interests, the LPA
68 Pls.’ Answering Br. 6, 12.
69 See Pls.’ Br. in Resp. to Def.’s Mot. for Status Quo Order and in Supp. of their Cross- Mot. for Order Maintaining Status Quo 4 (“[T]he entire purpose of the [VTA] was to ensure that Mr. Bosarge could not exercise exclusive control over the affairs of Quantlab [LP] in the event of a dispute between Mr. Bosarge and Mr. Eames.”).
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protects both sets of interests.70 While certain of the limited partners may now be
displeased with their inability to direct Quantlab LP’s day-to-day business, this
arrangement reflects a bargained-for allocation of interests and influence. Of course,
should Quantlab LP’s limited partners agree at some point that this scheme is no
longer desirable, they can, by a super majority vote, amend the LPA to change the
arrangement.71
III. CONCLUSION
For the reasons set forth above, Defendant’s Motion for Partial Summary
Judgment is GRANTED. Defendant shall submit an implementing order, on notice
to Plaintiffs, within ten (10) days.
Very truly yours,
/s/ Joseph R. Slights III
70 Other actions requiring both votes are listed in Section 5.6 of the LPA and include, inter alia, encumbering partnership assets and admitting “additional or substitute partners except as otherwise provided in Sections 5.3, 14.3, or Article XI of [the LPA].” LPA §§ 5.6(a), (l). 71 LPA § 5.12(a).