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International Equity Investments, Inc. v. Opportunity Equity Partners Ltd.


January 30, 2007


The opinion of the court was delivered by: Lewis A. KAPLAN,District Judge.


In the late 1990s, Citibank, N.A. ("Citibank"), International Equity Investments, Inc. ("IEII"), a wholly-owned subsidiary of Citibank, and Opportunity Equity Partners, Ltd. ("Opportunity Equity"*fn1 ), an entity controlled by Daniel Valente Dantas, formed CVC/Opportunity Equity Partners, L.P. (the "CVC Fund"), a Cayman Islands exempted limited liability partnership. Under the limited partnership agreement, IEII was the sole limited partner and provided the entire $728 million capital investment.*fn2 Opportunity Equity was the sole general partner.

Conflicts eventually ensued between Dantas and Citibank, resulting, in 2005, in IEII's removal of Opportunity Equity as the CVC Fund's general partner. IEII and Citigroup Venture Capital International Brasil ("CVC Brazil"), the new general partner that replaced Opportunity Equity and a subsidiary of IEII, appearing on its own behalf and on behalf of the CVC Fund, have sued Opportunity Equity and Dantas on several grounds.*fn3 Opportunity Equity has counterclaimed. Plaintiffs now move to dismiss four of Opportunity Equity's counterclaims.


This action has been before the Court several times on preliminary injunction motions and defendants' motion to dismiss.*fn4 The Court assumes familiarity with the facts described in those opinions and sets forth only those relevant to the instant motion.

As this is plaintiffs' motion to dismiss, the Court here assumes the truth of the facts alleged in Opportunity Equity's counterclaims. The counterclaims, however, rely heavily on two contracts, the CVC Fund's limited partnership agreement and an Operating Agreement setting forth a strategy of coordinated investments with other entities. These contracts are before the Court as attachments to plaintiffs' moving papers*fn5 and are relied heavily upon by all parties. The Court therefore considers them,*fn6 and is "not constrained to accept the allegations of the [counterclaims] in respect of the construction of the [contracts], although -- at this stage in the proceedings -- [the Court] will strive to resolve any contractual ambiguities in [Opportunity Equity's] favor."*fn7

A. The Contracts

1. The Partnership Agreement

The Amended and Restated Limited Partnership Agreement of December 30, 1997 ("Partnership Agreement"), is the agreement among Opportunity Equity,*fn8 Citibank (as the "initial limited partner") and IEII.*fn9 It is governed by the law of the Cayman Islands*fn10 and identifies the "entire agreement" between the parties as the Partnership Agreement, the Operating Agreement, and three other documents.*fn11

The stated objective of the CVC Fund is to "invest through publicly bid and privately negotiated equity and equity-related investments in companies based and primarily operating in Brazil."*fn12 The Partnership Agreement, echoing the substance of the Operating Agreement as described below, sets forth provisions for "side-by-side" investment with other entities.*fn13 In essence, the CVC Fund invests and divests in conjunction with other funds managed by entities under common control with Opportunity Equity.*fn14

Opportunity Equity initially was the CVC Fund's sole general partner*fn15 and thus charged with exclusive authority over the "management, control, operation and policy" of the partnership.*fn16 The Partnership Agreement contemplates a limited role for other entities, however. Forty percent of the general partner's Investment Committee, responsible for the CVC Fund's investment decisions, is appointed by IEII.*fn17 An Advisory Committee, made up of the limited partners, approves or rejects asset appraisal, exceptions to the investment policy, resolution of conflicts of interest, and various other discrete matters.*fn18

The general partner is expressly acknowledged to be a fiduciary of the limited partners.*fn19 It is liable for repaying the debts and obligations of the CVC Fund, but is indemnified by the partnership to the extent that it acts in good faith and without breaching its fiduciary duty.*fn20 The general partner's compensation is a management fee and a share of the partnership's profit called a "carried interest."*fn21 Opportunity Equity characterizes the carried interest as "approximately 20% of the capital appreciation of the Portfolio Assets upon divestment, after IEII was reimbursed for its capital contribution plus a preferred return of 10% per year on a compound basis."*fn22

Limited partners are precluded from participating in the management, control or direction of the CVC Fund's affairs and from transacting business for the CVC Fund.*fn23 They may consult with the general partner, however, as part of the Advisory Committee,*fn24 and participate in the Investment Committee. Further, they have the authority to remove the general partner with or without cause.*fn25 Limited partners are expressly not liable for the debts and obligations of the partnership*fn26 and "may engage in any business of any kind whatsoever, including those which conflict or compete with the activities of the [CVC] Fund or any [CVC Fund investment]."*fn27

2. The Operating Agreement

The Operating Agreement, governed by New York law,*fn28 was executed on December 30, 1997 among Opportunity Equity, Citibank "or an affiliate thereof," Dantas, and other parties.*fn29

It sets forth a coordinated investment strategy of the CVC Fund, another fund managed by an entity thus under common control with Opportunity Equity ("On-Shore Fund"), and one or more funds to be established with funds from an entity separate from but affiliated with Opportunity Equity ("Opportunity Funds").*fn30 The Opportunity Funds, under the terms of the agreement, were to be managed by Opportunity Equity or an entity under common control with Opportunity Equity.*fn31

The Operating Agreement contemplates that the funds would invest and divest on a side-by-side basis.*fn32 Any variation from this strategy by the CVC Fund or the Opportunity Funds is allowed only with IEII's prior written consent.*fn33 The agreement resulted from the "objective" of the CVC Fund and the On-Shore Fund "of generating superior rates of return through joint investments . . . ."*fn34

Although Citibank or an affiliate were parties to the contract, none of the substantive provisions placed any constraints on their actions. The Operating Agreement expressly stated that "neither Citibank nor any affiliate of Citibank will have any obligation to any Party hereto under this Agreement" and noted that, while the agreement "shall be binding on and inure to the benefit of" the parties, in the case of Citibank it only "shall inure to the benefit of" Citibank or its affiliates.*fn35

B. The Counterclaims

The counterclaims allege that plaintiffs conspired with certain investors in the On- Shore Fund to deprive Opportunity Equity of its share of the value of the CVC Fund's investments.*fn36

Opportunity Equity alleges that the side-by-side investment strategy constituted a joint venture.*fn37 The benefit to the joint venturers was the ability to "structure their investments to meet their particular needs, while at the same time, securing control premiums for their investments."*fn38

"The side-by-side concept was necessary to the success of the joint venture because Opportunity and the other investors Opportunity brought into the venture would not have made investments . .. without iron-clad assurances that they would have the right to participate in the control premium if and when the investments were sold."*fn39 Indeed, "[n]either Opportunity nor [IEII] would have entered into the joint venture without the assurance that all investments would be protected by the side-by-side agreement."*fn40

Opportunity Equity managed the CVC Fund to IEII's satisfaction for several years.*fn41

According to the allegations, the relationship between the parties soured after a management shift at Citibank.*fn42 IEII, despite its position as the CVC Fund's limited partner, secretly entered into a Memorandum of Understanding on behalf of the CVC Fund with investors in the On-Shore Fund to "cut[] Opportunity out of the control premium."*fn43 Opportunity Equity alleges also that IEII negotiated with third parties regarding a CVC Fund investment on behalf of the CVC Fund.*fn44

On March 9, 2005, IEII "purportedly terminate[d]" Opportunity Equity as general partner of the CVC Fund.*fn45 When the counterclaims were filed, Citibank and/or IEII was in the process of negotiating the sale of the CVC Fund's investments.


A. Breach of Fiduciary Duty (First Counterclaim)

Opportunity Equity pursues this claim on two theories: breach of fiduciary duties under the Partnership Agreement and breach of fiduciary duties owed as a joint venturer. Although the counterclaim is brought against all plaintiffs, Opportunity Equity subsequently stated that it pursues it only against IEII and CVC Brazil in its individual capacity.*fn46

1. Fiduciary Duties Owed Under the Partnership Agreement


Opportunity Equity argues that IEII, a limited partner owing no fiduciary duties under either the Partnership Agreement or Caymans law, assumed management duties for the CVC Fund and thus incurred the fiduciary obligations of a general partner. Plaintiffs argue first that no such fiduciary duties can be assumed by a limited partner under Cayman law. They contend also that IEII's actions did not constitute an assumption of management duties.

The Partnership Agreement is governed by the Caymans Exempted Limited Partnership Law ("Limited Partnership Law"),*fn47 which does not expressly address the issue. Certain provisions, however, do provide that a limited partner taking part in the conduct of the business shall be liable to third parties engaging in dealings with the limited partner.*fn48 It is silent as to the assumption of fiduciary duties to the other partners.

Plaintiffs' expert urges that this silence constitutes the exclusion of any other liabilities, citing the canon of statutory construction expressio unius est exclusio alterius.*fn49 However, the Limited Partnership Law expressly repudiates this construction, stating that "[t]he rules of equity and of common law applicable to partnerships . . . shall apply to an exempted limited partnership, except insofar as they are inconsistent with the express provisions of this Law."*fn50 If there is a common law rule that limited partners taking a management role assume fiduciary duties to other partners, it would not be "inconsistent" with the Limited Partnership Law provision regarding liability to third parties.

According to the authorities provided by both parties' experts, there indeed appears to be such a common law rule. The authorities provided by Opportunity Equity's expert support the proposition, familiar in American law as well, that a person assuming an office assumes also the fiduciary duties of that office.*fn51 Although under the Partnership Agreement, the general partner expressly acknowledges fiduciary duties only to the limited partners,*fn52 this does not replace fiduciary duties under general partnership law principles which provide that "[e]ach partner owes to the others a duty of honesty and good faith."*fn53 Thus, under Caymans law, a limited partner taking management control assumes fiduciary obligations to all other partners.

The question thus becomes whether IEII took actions amounting to assumption of management control. At least some of Opportunity Equity's allegations are sufficient to survive this motion to dismiss. It alleges, for example, that Citibank negotiated on behalf of the CVC Fund to sell certain investments*fn54 and that IEII entered into agreements on behalf of the CVC Fund prior to Opportunity Equity's removal as general partner.*fn55 IEII contends that these were simply negotiations designed to protect its interests as it proceeded to remove Opportunity Equity as general partner. That, however, cannot be resolved on a motion to dismiss.

Accordingly, plaintiffs' motion to dismiss the counterclaim for breach of fiduciary duty under the Partnership Agreement against IEII is denied. Whether Opportunity Equity ultimately can prove that IEII did assume management duties or that IEII breached any fiduciary duties it may have owed Opportunity Equity are questions for another day.

b. CVC Brazil

Opportunity Equity next argues that CVC Brazil, as the CVC Fund's new general partner, owes Opportunity Equity fiduciary duties arising from (1) Opportunity Equity's "carried interest," and (2) the Partnership Agreement provision converting a general partner's interest to a limited partnership interest upon the general partner's removal.*fn56

Opportunity Equity's "carried interest" is part of the contractual compensation for its performance as general partner of the partnership. The parties' experts offer contradictory conclusions -- both unsupported by any authority -- regarding whether this is sufficient to give rise to a fiduciary relationship.*fn57 The general partner owes fiduciary duties to limited partners pursuant to the Partnership Agreement and the Limited Partnership Act and to other general partners, as discussed above. Opportunity Equity provides no authority, however, to support the proposition that a general partner owes duties to a party with a non-partnership interest in the partnership.

Opportunity Equity urges that it is owed fiduciary duties because it became a limited partner upon its removal pursuant to a provision in the Partnership Agreement providing that the general partner's removal shall not be effective "until the General Partner's Interest has been converted to a Limited Partnership Interest in the Partnership."*fn58 The Partnership Agreement provides also, however, that the general partner is a fiduciary "to the Limited Partners."*fn59 "Limited Partners" are "Persons listed on Appendix II as Limited Partners."*fn60 In the Partnership Agreement before the Court, Opportunity Equity is not so listed, and it has made no allegations that the Appendix has been amended to include it. Further, as this Court has previously noted, Opportunity Equity made a judicial admission that IEII is the only limited partner in the CVC Fund.*fn61 This precludes a finding that Opportunity Equity became a limited partner upon its removal.

Plaintiffs' motion to dismiss this claim as it relates to CVC Brazil's duties under the Partnership Agreement is granted.

2. Fiduciary Duties Owed As Joint Venturers

Finally, Opportunity Equity presses this claim against IEII on the theory that IEII owed it fiduciary duties as a joint venturer.*fn62 Although the relationship between the two parties with respect to the CVC Fund clearly is governed by the Partnership Agreement, Opportunity Equity argues that fiduciary duties are owed pursuant to a related but separate venture, the side-by-side investment strategy, and identifies three contracts that allegedly constitute "joint venture documentation" -- the Operating Agreement, the Partnership Agreement, and the Private Placement Memorandum.*fn63

Under New York law,*fn64 five elements must be present to form a joint venture: "(1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses."*fn65

The documents to which Opportunity Equity refers perhaps might be construed to create a joint venture among the investment funds that invested on a side-by-side basis. They do not appear, however, to evidence a "joint venture" relationship between Opportunity Equity and IEII, as neither assumed additional or different roles pursuant to the side-by-side agreement than they did as partners governed by the Partnership Agreement. As partners in the CVC Fund and as participants in a side-by-side investment strategy, IEII provided capital to the CVC Fund and Opportunity Equity managed it for the CVC Fund. Opportunity Equity and IEII chose an exempted limited partnership as the vehicle for their relationship. Under the Partnership Agreement, Opportunity Equity owed fiduciary duties to IEII, but IEII owed none to Opportunity Equity. "The courts will not imply a joint venture relationship where the evidence indicates that the parties created a different business form."*fn66

On occasion, courts have looked behind the characterizations made in parties' formal agreements to determine whether the elements of a joint venture nonetheless are present.*fn67 Here, however, at least one of the joint venture elements is absent.*fn68 By the plain terms of the agreements, IEII exercised no control over the business of the side-by-side investments.*fn69 The limited provisions for IEII's advisory and oversight role*fn70 do not alter the fact that the management of the CVC Fund's involvement in the side-by-side investments was exclusively in Opportunity Equity's control.*fn71 The counterclaims do not allege otherwise.*fn72 Thus, there was no joint control over the enterprise.

Accordingly, plaintiffs' motion to dismiss the claim under a joint venturer theory is granted.

B. Breach of Implied Covenant of Good Faith (Third Counterclaim)

Opportunity Equity presses this claim only with respect to the Operating Agreement,*fn73 which is governed by New York law.*fn74

Under New York law, "[i]mplicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance."*fn75 The covenant protects a party's reasonable expectations under the contract.*fn76 "Integral to a finding of a breach of the implied covenant is a party's action that directly violates an obligation that may be presumed to have been intended by the parties."*fn77

The threshold question is which parties here were bound by the contract. Opportunity Equity was a party to the Operating Agreement.*fn78 Neither the CVC Fund nor CVC Brazil was a party to the Operating Agreement. Although the counterclaim is alleged against all plaintiffs, Opportunity Equity's brief presses it only with respect to IEII. In any event, since neither the CVC Fund nor CVC Brazil was a party to the Operating Agreement, neither incurred any obligation to act in good faith pursuant to it, and no such claim can be sustained against them.

Opportunity Equity contends that IEII was a party designated as "an affiliate [of Citibank]."*fn79 As the contractual language is ambiguous and Opportunity Equity is entitled to all advantageous interpretations of the contracts considered by the Court, the Court accepts this for the purposes of this motion.

The inquiry thus becomes the scope of the parties' reasonable expectations under the Operating Agreement. The Operating Agreement, by its express terms, imposed no obligations on IEII.*fn80 The substantive provisions do not contradict this term, imposing limitations only on the actions of Opportunity Equity and third parties. It simply cannot be a "reasonable expectation" of a party to this contract that IEII incurred any obligations at all.

Opportunity Equity urges the reasonable expectation that "it would be permitted to act jointly with its affiliates and [other parties] in order [to] pursue the side-by-side investments that would generate the 'superior rates of return' that would maximize [Opportunity Equity's] own return based on its Carried Interest."*fn81 This argument fails for two reasons.

First, to the extent that the argument is based on IEII's removal of Opportunity Equity as general partner of the CVC Fund, the Partnership Agreement provided IEII with mechanisms to remove Opportunity Equity with or without cause.*fn82 Although the parties dispute whether or not such a contractual right precludes a violation of the implied covenant of good faith, the answer is immaterial -- the implied covenant resides in the Operating Agreement, not the Partnership Agreement. The significance of the removal provisions lies in Opportunity Equity's reasonable expectations under the Operating Agreement. Opportunity Equity was well aware of this provision in the Partnership Agreement at the time the Operating Agreement was executed.*fn83 It cannot now claim that IEII's exercise of its contractual right under the Partnership Agreement violated Opportunity Equity's reasonable expectations under the Operating Agreement.

Second, to the extent that Opportunity Equity's argument is based on the allegation that "Plaintiffs have simply abandoned the goal of achieving the 'superior rates of return' on the CVC Fund investments in order to pursue Citibank's global commercial interests,"*fn84 such actions by IEII do not violate Opportunity Equity's stated reasonable expectations, which were "that it would be permitted to act . . . to pursue the side-by-side investments . . . ." IEII's actions have not precluded Opportunity Equity from "pursu[ing]" investments. In any event, "the implied covenant does not extend so far as to undermine a party's 'general right to act on its own interests in a way that may incidentally lessen' the other party's anticipated fruits from the contract,"*fn85 especially where, as here, the agreement expressly states that "[a]ny Limited Partner may engage in any business of any kind whatsoever, including those which conflict or compete with the activities of the Fund or any Portfolio Investment."*fn86

C. Unjust Enrichment (Fourth Counterclaim)

Opportunity Equity alleges that it took actions "above and beyond those required by its contractual obligations under the [Partnership Agreement]" which "provided substantial benefits to Plaintiffs."*fn87 It thus seeks a remedy for unjust enrichment.

The parties argue both Caymans and New York law. In both jurisdictions, the existence of an adequate legal remedy precludes a remedy for unjust enrichment.*fn88 Under New York law, this proposition has led to the logical corollary that "[t]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter."*fn89 If no contract governs the matter, Opportunity Equity must still establish "1) that [plaintiff] benefitted; 2) at [Opportunity Equity's] expense; and 3) that 'equity and good conscience' require restitution."*fn90

The actions Opportunity Equity alleges it took "above and beyond" the contract were (1) paying out-of-pocket litigation and arbitration expenses on behalf of the CVC Fund, which were reimbursed pursuant to the Partnership Agreement until 2004, when such reimbursement ceased "in breach of [Citibank's] contractual obligations under the [Partnership Agreement],"*fn91 (2) purchasing shares on behalf of the CVC Fund and third-parties*fn92 to prevent a hostile takeover of a company in which the CVC Fund was invested,*fn93 (3) "rais[ing] funds" to purchase shares to prevent a takeover of another company in which the CVC Fund was invested,*fn94 and (4) "endur[ing] years of abuse and defamatory statements in the press" by third parties.*fn95

A quasi-contractual remedy is clearly unavailable for the first of these actions, as Opportunity Equity asserts that the allegedly wrongful act was a breach of the contract between the parties.

The second and third reflect actions taken as an investment manager, allegedly to protect the CVC Fund's investment. This subject matter is covered by the Partnership Agreement and the Operating Agreement, so a quasi-contract remedy is precluded for that reason alone. Even were it not, Opportunity Equity has not shown how any benefit that accrued to plaintiffs was at Opportunity Equity's expense or, accordingly, how "equity and good conscience" require a remedy. Opportunity Equity concedes that it benefitted from the second action, noting that absent its action, "[t]he value of the joint venturers' stake in Brasil Telecom would have been dramatically reduced."*fn96 As one of the alleged joint venturers, Opportunity Equity will not be heard now to argue that any benefit to the plaintiffs was at its expense. Similarly, Opportunity Equity's allegations state that it will be rewarded under the provisions of the Partnership Agreement for efforts that protected the CVC Fund's investments.*fn97 Thus, the Court cannot conclude that "equity and good conscience" require a restitutionary remedy, if one even were available.

Finally, Opportunity Equity makes no allegation, nor is there any indication, that plaintiffs benefitted in any way from the alleged defamatory statements made about Opportunity Equity by third parties. In any event, any possible benefit would be too remote to support a claim.*fn98

D. Declaratory Judgment (Second Counterclaim)

Opportunity Equity seeks a declaratory judgment that "it is entitled to its share of the profits from the sale of the assets of [the CVC Fund]" pursuant to its contractual entitlement under the Partnership Agreement. Opportunity Equity's claim for declaratory relief presents no "actual controversy" and thus plaintiffs' motion to dismiss is granted.

The Declaratory Judgment Act authorizes federal courts to provide declaratory relief "[i]n a case of actual controversy."*fn99 This language "incorporates into the statute the case or controversy limitation on federal jurisdiction found in Article III of the Constitution."*fn100 Thus, there must be "a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."*fn101

Here, Opportunity Equity alleges that sales triggering its alleged entitlement are imminent. The counterclaims, however, make no allegations suggesting that the CVC Fund denies Opportunity Equity's claimed entitlement, and plaintiffs have taken no such stand before the Court.*fn102

Absent allegations that the CVC Fund will not pay Opportunity Equity any carried interest that Opportunity Equity may be due under the Partnership Agreement, there is no controversy "of sufficient immediacy and reality" for the Court to adjudicate.


For the foregoing reasons, plaintiffs' motion to dismiss is denied with respect to Opportunity Equity's first counterclaim against IEII for breach of fiduciary duties allegedly owed pursuant to the Partnership Agreement. It is granted in all other respects.


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