New England Biz Law Update
A trial judge in Massachusetts has ruled that a partner in a multi-billion-dollar hedge fund can bring a malpractice claim against law firm Proskauer Rose for incorporating a provision in his limited partnership agreement that enabled the fund’s general partner to strip him of his stake by carrying out certain permitted transactions.
Plaintiff Robert Adelman, co-founder of a venture capital firm in the life sciences space, was represented by defendant Proskauer in a deal to spin off its hedge fund from its VC operations.
Due to Proskauer’s alleged negligence in drafting the hedge fund limited partnership agreement — which Adelman characterizes as a “botched cut-and-paste job” — a provision wound up in the agreement giving new general partner Behzad Aghazadeh the unfettered right to declare a “strategic transaction” and redeem Adelman’s partnership agreement.
Aghazadeh’s exercise of the option stripped Adelman of his interest in the hedge fund, allegedly costing him an ownership stake said to be worth more than $630 million.
Proskauer asserted that Aghazadeh’s actions constituted contractual and fiduciary breaches that served as an unforeseeable superseding cause of Adelman’s harm, which cleared the law firm of any liability.
But Superior Court Judge Kenneth Salinger disagreed.
“Two of the contract provisions that Proskauer invokes are irrelevant, because the contracts expressly gave the hedge fund manager the right to engage in the transactions notwithstanding those provisions,” Salinger wrote in denying Proskauer’s motion for summary judgment. “The fiduciary duty argument similarly fails because the contracting parties agreed that the hedge fund manager did not owe Adelman any fiduciary duty. … The summary judgment record supports a finding that Proskauer’s alleged negligence caused the loss of Adelman’s share of future hedge fund profits.”
The 21-page decision is Adelman v. Proskauer Rose LLP.
