Where these disputes come from
Private equity disputes tend to arise between investors and fund managers, between a sponsor and the management or minority owners of a portfolio company, or between the parties to an acquisition or exit. The claims often involve fiduciary duty, breach of the limited partnership agreement or a side letter, disputed valuations, or post-closing price adjustments. Many funds and portfolio companies are organized in Delaware, and their documents often send disputes to Delaware courts or to arbitration. Fund agreements frequently narrow or modify the duties managers owe, and Delaware law gives the parties to these entities wide room to do that. The exact wording of the governing documents is therefore unusually important.
Documents to collect
Start with the limited partnership agreement or operating agreement, any side letters, the subscription documents, and the private placement memorandum. For a portfolio company, gather the shareholders' or members' agreement, the acquisition agreement, and board minutes and written consents. Investor reports, capital account statements, and valuation materials are often central. Keep your communications with the sponsor or the other side, and be careful about sharing confidential fund information with anyone else, since most agreements restrict it. If you are a fund manager facing a claim, put a litigation hold in place and notify your insurers.
Choosing the right first move
We look at the dispute-resolution clause first, because it decides whether the matter goes to court, to arbitration, or to an internal process such as an advisory committee. Some agreements require notice and a chance to cure before a claim can be brought. Investors sometimes have information rights that can be used before any lawsuit, and what those rights produce can shape the case. We also consider whether a regulator, such as the SEC for registered advisers, has an interest in the conduct. The goal of an early review is to find the most efficient forum and the strongest claims or defenses available.
