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The limited partners of a company that was formed to invest inEnron-related businesses must still face a suit demanding that they paymore than $75 million to satisfy the partnership’s debt to six banks,the Court of Chancery has ruled. In In re LJM2 Co-Investment L.P. Limited Partners Litigation, ViceChancellor Stephen P. Lamb rejected the defense’s motion to dismiss thelawsuit that LJM2 Co-Investment L.P.’s bankruptcy trustee had filedagainst the company’s limited partners. The trustee, Edward N. Meyer,claimed that the defendants must pay money owed to the company under twounsatisfied capital calls. “We now look forward to bringing the case to conclusion,” Chadbourne &Parke attorney Thomas Hall said in a news release. Members of Chadbourne& Parke’s New York office represent Meyer and the Delaware statutorytrust that was formed under the company’s bankruptcy plan. MorrisNichols Arsht & Tunnell are local plaintiffs’ counsel. The trust is seeking more than $75 million to repay LJM2′s loans, thenews release stated. According to a Chadbourne & Parke spokesman, theplaintiffs have settled with several of the defendants. LJM2 was formed in 1999 to invest in energy and communicationsbusinesses related to Enron, Lamb’s Dec. 21 opinion said. In November 2000, the partnership borrowed $120 million from six banks,including Credit Suisse First Boston and Wachovia Bank NationalAssociation. LJM2 defaulted on its loan after Enron declared bankruptcy in 2001, theopinion said. The banks — relying on a contract signed by LJM2′s general partner –ordered the general partner to make a capital call on the defendants,the opinion stated. Two of the limited partners contributed money dueunder the December 2001 call, but LJM2 returned the funds soon afterthey were submitted. Rather than satisfying the call, most of LJM2′s limited partnersattempted to avoid responding to the call, according to the opinion.They also sought to prevent any further calls by replacing LJM2′sgeneral partner and amending the company’s partnership agreement, theopinion stated. THE PARTNERSHIP According to the opinion, LJM2′s 52 limited partners agreed tocontribute more than $394 million to the venture. The limited partners’overall commitments ranged from $100,000 to as much as $20 million each,Hall told the Delaware Law Weekly. In April 2000, each limited partnermade an initial capital contribution of 15 percent of that partner’soverall commitment. The defendants had also agreed to be bound by a partnership contract,the opinion stated. Section 3.1(a) of the agreement obligated thelimited partners to make additional capital contributions to LJM2 uponthe general partner’s written request but also limited each partner’sobligation to the amount of the partner’s overall commitment. In addition, the partnership agreement provided that limited partnerswould not be obligated to any creditor of the partnership, the opinionsaid. When LJM2′s first general partner, LJM2 Capital Management, secured the$120 million loan, it listed three sources of funds that could be usedto repay the loan, the opinion said. Capital Management said that assetcash flows, asset liquidations and draws on the partners’ capitalcommitments would all be available for loan repayment. As a condition to entering into the credit agreement, the six banksspecified that if LJM2 defaulted on the loan, the banks could requirethe defendants to pay amounts up to the unfunded balance of theircommitments, the opinion stated. THE DISPUTE The banks’ December 2001 call was for a total of $47 million, accordingto the opinion. Before the call’s due date, the defendants executed written consentsthat removed Capital Management as general partner and appointedPartnership Services in its place, the opinion stated. The partners alsoadded a new section to their agreement: Section 6.10 specified that amajority of the limited partners would have to approve any calls issuedby the general partner. Further, an amendment to �3.1(f) of the agreement compromised,i.e., reduced the December 2001 call to zero, rescinded the call andgave a majority of the limited partners the ability to compromise futurecalls, the opinion said. According to the opinion, Partnership Services signed the amendment inJanuary 2002 and purported to exercise its power of attorney to sign onbehalf of all of the limited partners. In a footnote, Lamb stated that the January 2002 amendment did notgarner unanimous approval. Without the requested capital contributions, LJM2 was unable to satisfyits debt and declared bankruptcy in September 2002, according to theopinion. In September 2003, Meyer issued a second capital call to the limitedpartners. The call was not satisfied, the opinion stated. The question left for the court, Lamb said, was whether the limitedpartners’ actions had successfully avoided their capital commitments. ANALYSIS According to the opinion, the defendants argued that �13.1 oftheir partnership agreement gave them broad power to amend the contract.Section 13.1 stated that the majority of the limited partners could,with the concurrence of the general partner, vote to amend the agreementin any respect. The limited partners claimed that even if the agreement was not properlyamended to compromise the December 2001 call, Partnership Services hadvalidly exercised its powers as general partner to rescind the call, theopinion said. But the plaintiffs contended that the Delaware Revised Uniform LimitedPartnership Act requires limited partners’ unanimous consent beforecapital calls may be compromised, the opinion stated. Further, theplaintiffs asserted that prior to January 2002, nothing in thepartnership agreement altered the statute’s unanimity requirement. Looking to the language of the partnership contract, Lamb determinedthat the DRULPA’s unanimity requirement had been incorporated into thedocument. According to the vice chancellor, there was also no dispute that fewerthan all of the limited partners executed consents to the January 2002amendment that compromised the December 2001 call. Lamb rejected the defendants’ claim that Partnership Services’ power ofattorney enabled the entity to consent on behalf of all of the limitedpartners. “The power of attorney granted to the general partner wasintended to give the general partner the power to execute, not the powerto authorize,” Lamb said. Further, although unanimous consent was not required for PartnershipServices to rescind the December 2001 call, the plaintiffs have fairlyalleged that by rescinding the call, the general partner breached itsagreement with the banks and its fiduciary duty to the partnership, theopinion said. “In the circumstances, the complaint adequately states aclaim that the rescission was not effective,” the opinion stated. Partnership Services is not a defendant in the action, according to theopinion. Finally, Lamb ruled that despite �6.10 of the amended partnershipagreement, Meyer did not need the majority of the limited partners’consent to make the September 2003 call. “The complaint adequately alleges grounds on which this court of equitycould enforce the September 2003 call without regard to themajority-limited-partner-consent provisions found in the January 2002amendment.” Michael Goldman of Potter Anderson & Corroon and Joseph McLaughlin ofSimpson Thacher & Bartlett in New York — two of a number of attorneysand law firms representing the defendants — shared oral argument dutieson the motion to dismiss, Hall said. Goldman declined to comment on thematter.

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