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

January 30, 2007

INTERNATIONAL EQUITY INVESTMENTS, INC., ET AL., PLAINTIFFS,
v.
OPPORTUNITY EQUITY PARTNERS LTD. (F.K.A. CVC/OPPORTUNITY EQUITY PARTNERS LTD.), ET AL., DEFENDANTS.



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

MEMORANDUM OPINION

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.

Background

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 ...


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