The recent decision of ESG Capital Partners II, L.P. v. Passport Special Opportunities Master Fund L.P., C.A. No. 11053-VCL (Dec. 16, 2015) involves the Court adjudication of defendants’ motion to dismiss. The complaint alleges the defendants made preferential distributions of shares of Facebook by ESG Capital Partners II, LP (the “Partnership”), which was formed for the limited purpose of purchasing stock in Facebook before the company’s then-anticipated IPO. Once Facebook had completed a successful IPO, the Partnership was required to distribute to its investors either the Facebook shares themselves or their cash value, after which the Partnership would dissolve.
In analyzing whether to dismiss the various counts of the complaint, the Court predictably explained that the LP agreement governed the rights of the limited partners to the partnership distributions.
Of note, the Court granted the motion in part for claims against Passport Capital LLC, which it found to not be a limited partner and did not receive a preferential distribution. In so doing, the Court noted that the “foundation for potential liability in this case is the Favored LPs‘ receipt of Facebook shares exceeding what they should have received based on their Percentage Interests in the Partnership. Passport Capital is not a Favored LP. It manages the Passport Fund.”
The Court found that discovery may unveil potential claims for disgorgement against Passport Capital if the Facebook shares found their way to that entity, but at this stage the Court declined to find that a claim presently exists against such entity.