Bean v. Fursa Capital Partners, LP, C.A. No. 7566-VCP (Del. Ch. Feb. 28, 2013).

Issue Addressed: Whether the terms of a limited partnership agreement required the general partner to provide audited financial statements to a limited partner. Short Answer: The issue presented cannot be determined on a motion for partial summary judgment.

Short Overview

A limited partner in this case sought from the general partner of the limited partnership, audited financial statements for the years 2008 through 2011 based on the terms of the partnership agreement.  The court granted a motion to dismiss the claim for the year 2008 based on laches, and determined that there were too many factual issues to grant relief at a preliminary stage for the years 2009 through 2011.

Misrepresentation

The court also reviewed the elements of a claim for misrepresentation, and the standard for a motion to dismiss that claim pursuant to Court of Chancery Rule 12(b)(6).  See footnotes 3 through 7.  The court cited to caselaw to support the position that a “breach of contract claim cannot be turned into a fraud claim simply by alleging that the other party never intended to perform.”  See also footnotes 10 through 14 and accompanying text.

Laches

The court also discusses at great length the well-established Delaware law of laches and the prerequisites that must be established to prevail on a laches defense.

The court explained why the request for 2008 audited financial statements fell outside of the statute of limitations, which is 3-years for a breach of contact claim.  The court noted, however, that when specific performance is sought, the bar of laches typically will arise earlier than the end of the limitations period.  See footnotes 20 and 21 and accompanying text.

Regarding the claims for financial statements from 2009 through 2011, the court observed that the plaintiff waited for 2 years to enforce the terms of the partnership agreement to obtain those financial statements and would otherwise have an additional year under the analogous statute of limitations.  At the preliminary stage of the case, the court found that there was no bar of laches for the claims for the financial statements covering the years 2009 through 2011.

The court also described the summary judgment standard and the genuine issues of material fact that prevented the grant of that motion.

The court also observed that the cost of the audited financial statements might be a hardship on the partnership based on affidavit suggesting that the expense of the audit was in the range of $60,000 per year, and in light of the limited ability of the partnership to pay for those audits, as well as the fact that the partners continued to receive both quarterly reports and annual tax return information.

The partnership was in the wind-up phase, and there was a question about the need for the financial statements in that context.

Lastly, on a procedural note, Court of Chancery Rule 56(f) was relied on for the opposition to the motion for summary judgment and the position that the party opposing a motion for summary judgment:  “cannot for reasons stated present by affidavit facts essential to justify the party’s opposition,” and on that basis the court may refuse the application for judgment or may order a continuance to permit discovery to be taken.