Delaware Supreme Court Holds That Hedge Fund Limited Partner Has Right To Full Partnership List Unless Partnership Agreement Explicitly States Otherwise

In a significant decision for hedge funds, the Delaware Supreme Court recently held in Parkcentral Global, L.P. v. Brown Investment Management, L.P.,1 that a hedge fund must provide a Limited Partner with a list of all partners' names and addresses unless its Partnership Agreement explicitly states otherwise. This case has important consequences for all hedge funds registered in Delaware, including: - Limited Partnership Agreements must be carefully drafted to explicitly address restrictions on disclosure of Partnership names and addresses.

- Confidentiality provisions in Private Placement Memoranda, Investor Privacy Notices, and Federal Privacy Regulations are insufficient to prevent disclosure.

- The same reasoning may apply to other basic partnership information, including tax returns, financial statements, and capital account information.

In Parkcentral, a Limited Partner followed the Fund's procedure for requesting a list of names and addresses for each Partner shortly after the Parkcentral hedge fund (the "Fund") suffered large losses that wiped out investors' capital. The Limited Partner sought to use the list to solicit other Partners to participate in lawsuits against the Fund, and to investigate potential claims. The Fund refused to provide the list. It relied on language in its Private Placement Memorandum ("PPM"), investor privacy notices, federal privacy regulations, and general language in its partnership agreement allowing the General Partner to avoid disclosure that could "harm the partnership" or violate third party confidentiality agreements. The Delaware Supreme Court rejected each of these arguments, and ordered the Fund to turn over the list.

First, the Court ruled that the Fund could not unilaterally issue a PPM or privacy notice to eliminate a Limited Partner's right of access to a partnership list, which is provided under Delaware's Revised Uniform Limited Partnership Act ("DRULPA"). The Court reasoned that under DRULPA, this right can only be restricted by a "partnership agreement," and the Fund's partnership agreement did not explicitly restrict the right of access to the list.2 Although a General Partner can adopt reasonable procedures for obtaining access, it cannot eliminate access without amending the partnership agreement. Second, the Court held that federal privacy regulations do not affect this right of access because those regulations contain an exception for disclosure required by State law and only apply to third parties that are not Limited Partners of the Fund. Third, it held that general partnership agreement provisions concerning "harm to the partnership" and "confidentiality agreements with third parties" do not apply to specific information required to be provided to Limited Partners by DRULPA.

Because the Parkcentral decision relies on the statutory language of DRULPA, its reasoning could arguably apply to other partnership information covered by the Act. This may include tax returns, statements of business and financial condition, and information regarding each Partner's capital account.3 We recommend that you review your Partnership Agreement in light of this ruling and contact us to discuss any further actions that may be necessary.

If you have any questions concerning this Alert or any related matters, please contact Sam Lieberman, 212-573-8164 (slieberman@sglawyers.com), or Ron S. Geffner, 212-573-6660 (rgeffner@sglawyers.com).

1 1A.3d 291 (2010).

2 Id. at 296 (citing 6 Del. C. § 17-305(f)).

3 6 Del. § 17-305(a)(1)-(6).

Cheryl Spratt