The Delaware Court of Chancery ruled in favor of a hedge fund investor's breach of contract and fiduciary duty claims.  The claims arose out of the hedge fund manager's decision to "gate" or limit the return of the investor's capital contribution.  This decision, while consistent with the hedge fund's partnership agreement, violated a separate side letter agreement between the investor and the hedge fund.  As to the breach of contract claim, the court found that the partnership agreement specifically contemplated the modification of its terms concerning return of capital contributions for certain investors.  The court went on to find that the hedge fund manager's fiduciary duties also obligated the return of the investor's entire capital contribution.  The hedge fund manager's decision, rather than being based upon a good faith belief that it advanced the best interests of the hedge fund and its investors, was motivated by a self-interested desire of the hedge fund manager to preserve the management fee payment amount.

Paige Cap. Mgmt., LLC v. Lerner Master Fund, LLC, C.A. No. 5502-CS (Del. Ch. Ct. Aug. 8, 2011).