In a May 6, 2011, decision by Justice Kornreich, the court granted in part and denied in part defendant-hedge fund partners’ motion to dismiss plaintiff-fund liquidator’s action for breach of a limited partnership agreement (LPA) among defendants and the fund. In light of “serious economic concerns” resulting from the Lehman Brothers bankruptcy in September 2008, the fund dissolved. A year earlier, defendants had begun to redeem their initial investment in the fund. The fund’s liquidator ultimately brought suit under Delaware law, asserting claims for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received, and essentially alleging that defendants had been improperly overpaid through their redemptions under the LPA. Defendants moved to dismiss the claims. The court honored the choice-of-law provision in the LPA, applied Delaware contract law, and granted defendants’ motion as to plaintiff’s claims for breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received because their alleged obligation to return the overpayments expressly was governed by specific provisions in the LPA, a valid and enforceable contract. The court otherwise dismissed defendants’ motion as to plaintiff’s claim for breach of contract primarily because the claim raised issues regarding hedge fund “reserves,” which concern practices of “custom and usage in the hedge fund industry that cannot be properly determined by the court in the context of a motion to dismiss and in the absence of expert testimony.”

Deloitte (Cayman) Corporate Recovery Servs., LTD v Sandalwood Dept Fund A, LP, Sup Ct, New York County, May 6, 2011, Kornreich, J., Index No. 650735/2010