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Quantlab Group GP, LLC v. Eames

Court of Chancery of Delaware

March 19, 2019

Quantlab Group GP, LLC, et al.
v.
Eames, et al.

          Submitted: January 22, 2019

          John L. Reed, Esquire Ethan H. Townsend, Esquire DLA Piper LLP

          Thad J. Bracegirdle, Esquire Scott B. Czerwonka, Esquire Wilks, Lukoff & Bracegirdle, LLC

          JOSEPH R. SLIGHTS III VICE CHANCELLOR

         Dear Counsel:

         This decision is the latest chapter in protracted litigation between two factions battling over the de jure management of Quantlab Group LP ("Quantlab LP"), a Delaware limited partnership.[1] I discussed the factual background of the dispute at some length in a previous opinion.[2] Aside from more litigation, nothing much has changed since my last dispatch. Accordingly, I refer interested readers to the factual summary set forth there and turn directly to the relevant procedural history and contentions of the parties.

         I. BACKGROUND

         The control dispute between these parties first came before the Court on November 6, 2017, when Defendants here, Bruce Eames and Andrey Omeltchenko, filed a complaint under 6 Del. C. § 17-110 seeking declarations that: (1) Quantlab Group GP, LLC II ("Quantlab GP II"), an entity affiliated with Eames and Omeltchenko, had been validly elected as a general partner of Quantlab LP; and (2) Plaintiff here, Quantlab Group GP, LLC ("Quantlab GP"), an entity affiliated with W.E. Bosarge, had been validly removed as Quantlab LP's general partner. On December 14, 2017, Quantlab GP moved for partial summary judgment in that action on the ground that the purported election of Quantlab GP II and removal of Quantlab GP as general partner was ineffective as a matter of contract (and, therefore, as a matter of law). The contracts identified by Quantlab GP as relevant to the dispute were: (1) Quantlab LP's fourth amended limited partnership agreement (the "LPA"); (2) Quantlab GP's LLC Agreement, (the "LLC Agreement"); and (3) a voting trust agreement among certain limited partners of Quantlab LP (the "VTA").

         On May 1, 2018, I issued a letter opinion where I determined Quantlab GP II had not been validly elected and Quantlab GP had not been validly removed as a general partner of Quantlab LP.[3] In reaching this conclusion, I did not address the VTA, its validity or its effect on the LPA. Instead, the decision rested on the unambiguous terms of the LPA and the LLC Agreement. The Court's final judgment, entered on May 4, 2018, was not appealed.

         On June 4, 2018, Eames and Omeltchenko, along with their respective wholly-owned LPs, filed an action in Texas against Quantlab GP. In their Texas complaint, Eames and Omeltchenko sought a declaration of their rights under the VTA[4] as a predicate to determining "[w]ho now controls" Quantlab LLC.[5]

         Frustrated by Eames and Omeltchenko's apparent attempt to end-run this Court's May 4, 2018 judgment, on June 26, 2018, Bosarge, through Quantlab GP, moved to enforce or, alternatively, to modify that judgment to incorporate a declaration of rights under the VTA.[6] I denied that motion on July 20, 2018, upon observing that I expressly had not passed on the validity of the VTA in granting summary judgment to Quantlab GP and it did not appear that Eames and Omeltchenko were attempting to relitigate the Delaware action in Texas. I noted, based on notions of comity, that I was not inclined to enter an order here that would or could be read to impede the Texas court's ability to decide how best to adjudicate a discrete matter pending before it.[7]

         Four days after I denied Quantlab GP's motion to enforce or modify, Quantlab GP amended the LPA "[t]o clarify the VTA's lack of effect on the [LPA]."[8] The amended Section 17.12 of the LPA reads, in relevant part:

For avoidance of doubt, this Agreement is not in any way restricted by or subject to the terms of the Voting Trust Agreement and any vote or purported vote by a voting trustee under the Voting Trust Agreement shall have no force or effect on the Partnership, the Agreement, or any matter voted on, consented to, or approved by the Partners.[9]

         Three days after that amendment, on July 27, 2018, Quantlab GP filed this action against the same parties who brought the Texas action and moved for an expedited schedule.[10] Quantlab GP's Complaint seeks a declaration that the amendment to LPA Section 17.12 is valid under 6 Del. C. §§ 17-110 and 17-111, and 10 Del. C. § 6501.[11] It also seeks a declaration that, separate and apart from the amendment, the VTA cannot be employed as a means to modify the LPA or to replace the general partner.[12]

         On August 22, 2018, Defendants moved to dismiss or stay this action in favor of the Texas action. I denied that motion, in large part, based on Defendants' prior representations that the Texas litigation would not address the broader question of who should manage Quantlab LP as general partner, a question that is directly called by the Complaint in this Delaware action.[13] After their motion to dismiss was denied, Defendants filed their Answer and Counterclaims where they deny Plaintiff's claims and assert mirror image Counterclaims for declaratory relief.

         The dispute sub judice, as before, turns on the construction of the constitutive documents of Quantlab LP. The parties have filed cross motions for partial summary judgment where they proffer their respective interpretations of the documents as controlling and, in turn, argue that judgment in their favor is required as a matter of law. Defendants also seek summary judgment on their affirmative defense of "unclean hands."

         Plaintiffs say Defendants cannot use the VTA to amend the LPA in order to effect the removal of the general partner. As recognized in this Court's May 4, 2018 judgment, Quantlab GP currently serves as Quantlab Group's sole general partner. Under Sections 5.3 and 5.4 of the LPA, only Quantlab Group's Class A limited partners have the right to admit or remove the Company's general partner, subject to the general partner's approval rights.[14] Specifically, under Section 5.3 of the LPA, "additional General Partners may be admitted only with the consent of all General Partners and the consent of a Super Majority" of the Class A limited partners.[15]Section 5.4 provides, "a General Partner may not be removed unless there is at least one remaining General Partner," and only a "Super Majority" of the Class A "have the right, for any reason, to remove an existing General Partner."[16] "Super Majority," in turn, is defined in the LPA as the limited partners owning at least 80% of the Class A-2 "Interests."[17]

         The LPA contains an unambiguous Integration Clause at Section 17.12:

This Agreement contains the entire agreement among the Partners with respect to the matters of this Agreement and shall supersede and govern all prior agreements, written or oral, including, without limitation, the Amended Agreement.[18]

         The term "Amended Agreement" is defined in the Second WHEREAS clause as "that certain Third Amendment and Complete Restatement of the Agreement of Limited Partnership."[19] Consistent with this Integration Clause, Plaintiffs argue the LPA does not refer to, rely on or otherwise incorporate other agreements or writings.

         Defendants maintain the VTA governs the voting rights of the voting trust members with respect to the LPA. They also maintain that nothing in the LPA would prevent the parties to the VTA from utilizing the voting trust to effect the removal and replacement of Quantlab LP's general partner.

         II. ANALYSIS

         For reasons I explain briefly below, I am satisfied Counts I and II of Defendants' Counterclaims should be summarily dismissed as duplicative of Plaintiffs' Count II. I also find, as I did before, that the LPA is unambiguous. Based on the only reasonable construction of that fully integrated agreement, I am satisfied its governance provisions are not and cannot be modified by the VTA. Consequently, the VTA cannot be employed as a means to accomplish the removal of Quantlab LP's general partner in a manner inconsistent with the LPA. Having so found, Plaintiffs' motion for summary judgment must be granted.

         A. Summary Judgment Standard

         Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law."[20]"When the issue before the Court involves the interpretation of a contract, summary judgment is appropriate only if the contract in question is unambiguous."[21] In other words, in the procedural context of cross motions for summary judgment, in order to prevail, one of the parties "must establish that its construction of the [contract] is the only reasonable interpretation."[22] If both parties offer arguably reasonable constructions, even if one might appear more reasonable than the other, the Court "may, in its discretion, deny summary judgment [so that it may] . . . inquire into and develop the facts more thoroughly at trial in order to clarify the law or its application."[23]

         B. Defendants' Counts I and II Are Dismissed Summarily

         Counterclaims that are "simply a restatement or specification of the answer denying liability" must be dismissed as contrary to "the purposes of the [Delaware] Declaratory Judgment Act."[24] This result is justified because counterclaims that are redundant of the original claims will be rendered moot by the adjudication of the affirmative claims.[25]

         As Defendants concede, "[their] Counts I and II mirror those of Plaintiff[s'] pleadings."[26] Thus, an adjudication of the claims raised in "Plaintiff[s'] pleadings" will render Defendants' Counterclaims moot. The Counterclaims, therefore, are summarily dismissed.

         C. The LPA Is Not Subject To The VTA

         "[I]n determining whether a contract is fully integrated, the court focuses on whether it is carefully and formally drafted, whether it addresses the questions that would naturally arise out of the subject matter, and whether it expresses the final intentions of the parties."[27] Unlike the restrictions imposed upon the court by the parol evidence rule when construing particular provisions of a contract, the court "may ...


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