Alpha Beta Capital Partners, L.P. v. Pursuit Inv. Mgmt., LLC

• Decision Date: 08 October 2019
• Docket Number: AC 39388
• Citation: 193 Conn.App. 381,219 A.3d 801
• Court: Connecticut Court of Appeals
• Parties: ALPHA BETA CAPITAL PARTNERS, L.P. v. PURSUIT INVESTMENT MANAGEMENT, LLC, et al.

193 Conn.App. 381

219 A.3d 801

ALPHA BETA CAPITAL PARTNERS, L.P.

v.PURSUIT INVESTMENT MANAGEMENT, LLC, et al.

AC 39388

Appellate Court of Connecticut.

Argued November 27, 2018

Officially released October 8, 2019

Michael S. Taylor, with whom were Brendon P. Levesque, and, on the brief, James P. Sexton, Hartford, and Megan L. Wade, for the appellants-cross appellees (named defendant et al.).

Edward P. Dolido, pro hac vice, with whom were James C. Graham, New Haven, and, on the brief, Anthony C. Famiglietti, Bijan Amini, and Kelly McCullough, for the appellee-cross appellant (plaintiff).

Lavine, Bright and Bishop, Js.

BRIGHT, J.

This appeal arises out of a dispute between the plaintiff, Alpha Beta Capital Partners, L.P., and the defendants Pursuit Opportunity Fund I, L.P. (POF), Pursuit Opportunity Fund I Master Ltd. (POF Master), Pursuit Capital Management Fund I, L.P. (PCM), Pursuit Capital Master (Cayman) Ltd. (PCM Master), Pursuit Partners, LLC (Pursuit Partners),¹ Pursuit Investment Management, LLC (PIM), Northeast Capital Management, LLC (Northeast), Anthony Schepis, and Frank Canelas, Jr. The central issue of this appeal is the defendants' claim that the court improperly interpreted the agreements between the parties to hold that certain defendants were liable for their failure to distribute to the plaintiff its share of a substantial contingent asset in which it had an interest.

The defendants appeal, and the plaintiff cross appeals, from the judgment of the trial court, rendered after a bench trial, partially in favor of the plaintiff as to certain defendants on its complaint and in favor of the plaintiff on the defendants' counterclaim.² The defendants also appeal from the orders of the trial court granting the plaintiff's postjudgment motion to increase the amount of a previously secured prejudgment remedy, and granting the plaintiff's motion for discovery to secure the additional prejudgment remedy attachment.

Addressing the parties' various contentions, we conclude that (1) the court properly interpreted the agreements between the parties in concluding that the plaintiff prevailed on its breach of contract claim, (2) the court properly rejected the defendants' breach of contract counterclaim, (3) the court properly concluded that the plaintiff prevailed on its breach of the implied covenant of good faith and fair dealing claim, (4) the court properly concluded that the plaintiff could not prevail on its conversion claim, (5) the court properly struck the plaintiff's Connecticut statutory causes of action, (6) the court improperly concluded that all of the defendants who had signed the settlement agreement were liable for breach of contract and for breach of the implied covenant of good faith and fair dealing, (7) the court properly determined the amount of damages awarded to the plaintiff, (8) the court properly granted the plaintiff's motion to increase the amount of the prejudgment remedy, and (9) the defendants' claim that the court improperly granted the plaintiff's motion for postjudgment discovery was not properly preserved, and, thus, we decline to review it. Accordingly, we affirm in part and reverse in part the judgment of the trial court.

The following facts, as found by the trial court, and procedural history are relevant to our resolution of this appeal. The plaintiff is a limited partnership organized under the laws of the state of Delaware. POF and PCM are both hedge funds³ that were formed as Delaware limited partnerships. POF Master and PCM Master are both hedge funds that were formed as Cayman Islands limited liability companies. The vast majority of investments in POF Master were made by POF, and, likewise, the vast majority of investments in PCM Master were made by PCM. Pursuit Partners⁴ and PIM are Delaware limited liability companies, each with a principal place of business in Greenwich, Connecticut. PIM provided advisory and investment management services to POF, PCM, POF Master, and PCM Master. Northeast is a limited liability company that became the general partner of PCM on February 17, 2014, which was after the prior general partner, Pursuit Capital Management, LLC (Pursuit Management), had filed for bankruptcy. Schepis and Canelas are individuals who reside in Greenwich, Connecticut, and who, together, formed, operated, and controlled all of the other defendants. At one point in time, the defendants cumulatively managed assets in excess of $600 million. During all relevant times, the plaintiff was represented by the law firm Reed Smith, and the defendants were represented by the law firm DLA Piper.

In approximately 2007, the plaintiff invested in both POF and PCM.⁵ In return, the plaintiff acquired limited partnership interests in POF and PCM, and became a signatory to both the POF and PCM limited partnership agreements. Also invested in POF and PCM at that time was the Schneider Group, which was comprised of various persons and entities, including Leslie Schneider, Lillian Schneider, Claridge Associates, LLC, and Jamus Scott, LLC. In 2007 and 2008, all of the defendants were experiencing significant financial difficulties as a result of the volatility of the global securities market. More specifically, in 2007, POF Master and PCM Master had purchased certain securities known as collateralized debt obligations (CDOs)⁶ from UBS AG, or its affiliate, for substantial sums of money. Shortly thereafter, the value of the CDOs precipitously dropped and, in 2008, Pursuit Partners and PIM commenced a civil action in the Connecticut Superior Court against UBS AG and Moody's Corporation (UBS litigation), alleging "a fraud ... committed by [UBS AG and UBS Securities, LLC], upon [POF Master and PCM Master] in connection with [those entities'] purchase of CDOs from [UBS AG and UBS Securities, LLC]." Pursuit Partners, LLC v. UBS AG , Superior Court, judicial district of Stamford-Norwalk, Complex Litigation Docket, Docket No. CV-08-4013452-S (September 8, 2009) (48 Conn. L. Rptr. 557, 558, 2009 WL 3286011 ). POF Master and PCM Master were not parties to that action even though they were the actual purchasers of the CDOs from UBS AG and UBS Securities, LLC.

In 2009, the investors in POF and PCM were provided an opportunity to redeem their investments and to withdraw their partnership interests from POF and PCM. A majority of the investors chose to redeem. In September, 2009, the plaintiff redeemed its investment in POF, which extinguished its interest in POF except for certain holdbacks⁷ to indemnify potential future expenses of POF. Nevertheless, the plaintiff, as well as the Schneider Group, chose to remain invested in PCM and, as a result, between them, they cumulatively held approximately two thirds of the equitable interest in PCM.

On or about April 1, 2009, the plaintiff executed the "Amended and Restated Limited Partnership Agreement" (LPA) for PCM, which was drafted by one or more of the defendants under the supervision of Schepis and Canelas. The LPA did not require or contemplate any new investment; rather, the plaintiff retained its interest in PCM consistent with the terms of the LPA on the basis of its previous investment in PCM. The LPA contained certain provisions for withdrawals by and distributions to limited partners.

In 2010, the plaintiff commenced a civil action in the Supreme Court of the state of New York (2010 New York action) against PIM, Schepis, and Canelas. Therein, the plaintiff alleged that PIM, Schepis, and Canelas were liable for substantial damages caused by their "tortious conduct involving the management of its investments in the hedge funds." Contemporaneously, the plaintiff filed a separate arbitration proceeding against POF and PCM, claiming similar losses for similar tortious conduct. In that proceeding, the plaintiff alleged, among other things, that one or more of the defendants had paid themselves compensation on the basis of a highly inflated value of the CDOs, notwithstanding their knowledge that the CDOs had little or no value.⁸

On or about April 8, 2011, the plaintiff, PIM, Schepis, Canelas, Pursuit Management, POF, and PCM executed the "Confidential Settlement Agreement and Mutual Release" (CSA) to resolve the 2010 New York action and the arbitration proceeding. The CSA was comprised of fifteen sections and provided at the outset that "the [p]arties hereby agree as follows ...." In §§ 1, 2, 5, and 6, the CSA provided that the plaintiff was to execute a dismissal with prejudice as to both the 2010 New York action and the parallel arbitration proceeding, and that the plaintiff agreed to a mutual release with PIM, Schepis, Canelas, Pursuit Management, POF, and PCM of all claims that were, or could have been, raised therein.

As consideration for the plaintiff's withdrawal and release, § 3 of the CSA required PIM to pay the plaintiff a settlement payment of $2.2 million and a redemption payment of $1,418,033. Pursuant to § 3 (b) (i) and (iii) of the CSA, the amount of the redemption payment represented the plaintiff's pro rata share, approximately 32.083612 percent, of the net asset value (NAV) in PCM as of February 28, 2011,⁹ minus a holdback of "$250,000 for the purpose of funding necessary costs ... associated with the ongoing [UBS litigation]" and minus "an additional holdback in the amount [of] $200,000 to pay legal fees and expenses with respect to which PCM has an obligation to indemnify." Section 3 (b) (ii) of the CSA provided detailed mandates regarding these holdbacks, including that PIM shall not use any prior holdbacks in connection with the UBS litigation, that the plaintiff shall "be entitled to periodic updates on the status of the holdbacks," and that the plaintiff "will be provided with the opportunity to pay additional expenses necessary for the UBS [l]itigation" if the UBS litigation holdback was insufficient.

In addition, § 4 of the CSA secured the plaintiff's interest in two of PCM's contingent assets. Section 4 of the CSA...