Texas District Court Rules that Hedge Fund Limited Partners’ Withdrawal Rights Were Not Triggered by Termination of Fund Principal’s Employment with the Fund, where Principal Continued to Exert Influence Over the Fund as 50 Percent Owner of the Fund’s General Partner

Plaintiffs were investors in hedge fund Tuckerbrook/SB Global Special Situations Fund, L.P. (Fund), a fund of funds.  Sumanta Banerjee (Banerjee) was a 50 percent owner of the Fund’s general partner and was employed as its portfolio manager.  The Fund’s limited partnership agreement permitted withdrawal in the event Banerjee ceased to be “directly involved” with the Fund’s general partner or the Fund.  The Fund terminated Banerjee’s employment in March, 2008, and plaintiffs promptly requested redemption of their Fund interests.  The Fund refused and this litigation ensued.  The U.S. District Court for the Southern District of Texas ruled that the Fund and its co-defendants were entitled to summary judgment dismissing plaintiffs’ complaint because the evidence showed clearly that, even though Banerjee was no longer employed by the general partner, he continued to exert substantial influence over the Fund and its operations after the termination of his employment through his ownership interest in the Fund’s general partner.  We describe the facts and circumstances surrounding the lawsuit and explain the rationale for the Court’s decision.

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