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Emirates International Investment Company, LLC v. Ecp Mena Growth Fund

June 15, 2012

EMIRATES INTERNATIONAL INVESTMENT COMPANY, LLC,
PETITIONER,
v.
ECP MENA GROWTH FUND, LLC, ET AL.,
RESPONDENTS.



The opinion of the court was delivered by: John G. Koeltl, District Judge:

MEMORANDUM OPINION AND ORDER

This case involves a dispute over an investment that the petitioner, Emirates International Investment Company ("EIIC" or the "petitioner") made with the respondent ECP Mena Growth Fund (the "Fund"). The parties' underlying dispute concerns the decision of the Fund's manager, ECP Growth Management (the "Manager," and collectively with the Fund, the "respondents") to declare EIIC a "defaulting shareholder" because of an allegedly late capital call payment. The petitioner has moved for a preliminary injunction enjoining the respondents from selling the petitioner's portion of the Fund until the underlying dispute is resolved.

The following constitutes the Court's Findings of Fact and Conclusions of Law on this motion.

I.

A.

EIIC is the largest investor in the Fund, a private equity fund created to invest in the Middle East and North Africa that is managed by the Manager. (See, e.g., Campbell Aff. ¶¶ 3-4.) EIIC pledged $40 million in capital commitments to the Fund in 2007 pursuant to the Shareholders Agreement. (See Campbell Aff. ¶ 3; see also Campbell Aff. Ex. A ("Shareholders Agreement").)

Under the Shareholders Agreement, the Fund may periodically make capital calls requiring the shareholders to contribute capital to the Fund. (See Shareholders Agreement §§ 3.1-3.2.) In 2011, EIIC was late in making a payment on a January 2011 capital call, Capital Call 6, issued by the Manager on behalf of the Fund, although how late is disputed. (Campbell Aff. ¶¶ 10-18 & Ex. D (capital call notice); Wages Aff. ¶¶ 6-24). The parties also dispute how much of the capital call was unpaid. In March, 2011, the Manager represented in an email to EIIC that a distribution from a different fund that was owed to EIIC (the "Africa II Fund distribution") would be applied to Capital Call 6. (See Campbell Aff. Ex. E.) However, there is no dispute that EIIC failed to pay the remaining balance of Capital Call 6 for several months. On April 1, 2011, the Manager sent a letter to EIIC warning EIIC that it would be in default if it did not pay the balance of Capital Call 6 by April 18, 2011. (See Campbell Aff. ¶¶ 11-12 & Ex. F (default notice letter).)

Shortly after Capital Call 6 was issued, EIIC was involved in a shareholder effort to terminate the Commitment Period that allowed the Fund to make Capital Calls, to reduce the Manager's fees, and to wind down the Fund, allegedly due to the Fund's poor performance. (Wages Aff. ¶¶ 9-19.) The parties dispute whether the shareholders in the Fund ever actually agreed to take these measures, but it is plain that, at a meeting of the Shareholders in early April, the Shareholders did ask the Manager to develop a plan to wind down the Fund, and the Manager represented that it would do so. (See Doddy Aff. Ex. A (minutes from April 7, 2011 shareholder meeting).) It is undisputed that EIIC did not pay the balance of Capital Call 6 by April 18, 2011.

On April 19, 2011, the Manager declared an "Event of Default" under the Shareholders Agreement. (Campbell Aff. Ex. I.) The next day, upon receiving notice of the Event of Default, EIIC paid what it believed was the unpaid balance of Capital Call 6. (See Wages Aff. ¶¶ 21-23; see also Campbell Aff. Ex. J.) On April 27, the Manager sent a Second Default Notice to EIIC, stating that the Africa II Fund distribution had not been applied to Capital Call 6, and that the Manager intended to consider EIIC's entire investment in the Fund forfeited, and to bar EIIC from future shareholder deliberations and distributions. (Campbell Aff. Ex. K.) EIIC then paid the remaining balance on Capital Call 6. (See Wages Aff. ¶¶ 25-29; Campbell Aff. Ex. M.) In May, 2011, EIIC wrote to the Manager to remind the manager that the plan to wind down the Fund was due to the shareholders. The Manager replied that, because EIIC was a defaulting shareholder under the agreement, the Manager could not discuss the issue with EIIC. (Wages Aff. ¶¶ 31-32.)

The parties' underlying dispute thus concerns, among other things, what "defaulting shareholder" status pursuant to the Shareholder Agreement entails: the respondents argue that EIIC's past contributions and future distributions are forfeit; EIIC argues that they are not. The parties are currently engaged in an arbitration proceeding before a tribunal of the International Chamber of Commerce to resolve this dispute. (See, e.g., Ungar Black Supp. Decl. Ex. A (Joint Proposed Arbitration Schedule).)

In December, 2011, while the arbitral panel was still being finalized, EIIC filed this motion by Order to Show Cause for a preliminary injunction pending arbitration, requesting that the Court (1) enjoin the Manager from distributing to the other shareholders EIIC's purported share of distributions from the Fund; and (2) require that EIIC's purported share of any distributions be placed in escrow pending the resolution of the arbitration; and (3) declare EIIC's rights under the shareholder's agreement to inspect ECP's books. EIIC also moved for a Temporary Restraining Order, but subsequently withdrew that motion.

B.

The Fund is now allegedly in liquidation. EIIC does not assert that any of the assets of the Fund have been sold since the commencement of this action, but argues that such a sale is imminent.

The Fund purchased five investments in 2008. (See Broome Supp. Repl. Decl. Exs. D ("SAH Inv. Mem."), E ("BACIM Inv. Mem."), F ("Finaccess Inv. Mem."), G ("Shoresal Inv. Mem."), H ("Agromed Inv. Mem.).) In its 2008 investment memoranda to the shareholders, the Fund estimated that it would sell these assets between 2010 and 2012. (See SAH Inv. Mem. at 4, 63 ("primary exit strategy" was 2010 trade sale); BACIM Inv. Mem. at 38-41 (exit expected in "Q1 2012"); Finaccess Inv. Mem. at 52-54 (exit via IPO expected in "Q3 2012"); Shoresal Inv. Mem. at 32 (exit via block sales "starting in April 2010"); Agromed Inv. Mem. ...


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