New York Appellate Court Decision Illustrates the Litigation and Publicity Risk Inherent in Sloppy Drafting of Hedge Fund Manager Operating Agreements

Oftentimes, principals of a hedge fund manager find negotiating and documenting their business arrangements to be an uncomfortable task which can result in miscommunications of their intentions as well as haphazard negotiations and sloppy documentation.  A recent case involving a contract dispute between hedge fund manager principals provides lessons on the importance of rigorously and accurately reducing such agreements to writing.  For more on the potential consequences of sloppy drafting, see “Hedge Fund Manager May Be Personally Liable to Third-Party Marketers Based on Ambiguities in Marketing Agreement,” Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012).  In short, a hedge fund principal sued his partner for an unpaid portion of his profit share.  The litigants disagreed concerning the validity and enforceability of various purported oral and written amendments (one of which is alleged to have been forged) to their existing operating agreement and whether the plaintiff’s conduct constituted an implicit waiver of his right to receive the unpaid portion of his profit share pursuant to the existing operating agreement.  This article discusses the factual background in this case as well the decisions and analyses by the state trial and appellate courts.

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