MapleWood Equity Partners (Offshore) is managed by Coral Gables, Fla.-based MapleWood Partners, a buyout firm that closed its inaugural fund, MapleWood Equity Partners, in 2000. MapleWood Equity Partners along with MapleWood’s offshore fund closed with a combined total of $135 million. Limited partners in MapleWood Equity Partners include BankBoston Investments, Bank of America Capital Corp., Casita, CIBC Capital Corp., GE Capital Corp., University of Chicago Endowment, Travelers Insurance Co., Phoenix Home Life and Key Corporate Capital.
The funds focused on investing in U.S.-based middle market buyout deals. In August 2000, MapleWood acquired AMC Computer Corp., a New York-based supplier of high-end computer equipment, software and IT services, in a transaction valued at more than $100 million. Equity for the deal came out of both funds. Financing for the deal was provided by GE Capital and Key Corporate Capital.
It is MapleWood’s investment in AMC Computer that is the cause of the disagreement between Casita and MapleWood, according to the complaint filed by Casita in New York Supreme Court. At the time of MapleWood’s investment in AMC, Casita and two other limited partners made equity co-investments in the company. Earlier last year, a capital restructuring of AMC turned MapleWood from a majority shareholder to a minority shareholder in the company.
After the capital restructuring, a dispute of the appropriateness of loans to AMC from Eugenia VI Venture Holdings resulted in Eugenia filing lawsuits against members of both AMC and MapleWood’s management, including MapleWood Managing Principal Robert Glaser. Those cases are still pending.
Last September, MapleWood issued a capital call, seeking $3.75 million from LPs, of which $2 million was to be used for litigation, according to Casita’s complaint. Casita’s share of the capital call was $700,000. Casita’s lawsuit maintains that the capital call MapleWood made was inappropriate because the capital called down was going to be used to defend MapleWood in lawsuits stemming from the AMC Computer investment. Casita also claims that the capital call does not apply to the Offshore fund that it is an investor in, but the parallel U.S.-based fund. It also says it is not obligated to meet the capital call because the time frame for investment (five years from the subscription agreement) has passed.
After missing the capital call in late September, Casita sought an injunction in early October against MapleWood’s declaring them in default and knocking down Casita’s interest in the fund. In its complaint, Casita says it will fulfill the capital call if a court determines the capital call was proper and per court order, Casita put up a $700,000 bond.
Glaser says that his firm disputes Casita’s claims. He says that while wrongdoing on the part of MapleWood would make such a capital call inappropriate, no court has found any MapleWood partner or employee in the wrong over the AMC Computer matter. The GP/LP agreement covers the costs of litigation associated with investments of the fund.
In replying to Casita’s complaint, MapleWood’s attorneys petitioned successfully for Casita’s attorneys to be removed from the case, citing a conflict of interest. Attorneys Dennis Friedman, Scott Kislin and the law firm of Gibson Dunn & Crutcher were disqualified from the case because Friedman, Kilsin and others had represented MapleWood while working at a previous law firm.
New York Supreme Court Justice Bernard Fried issued the order disqualifying the plaintiff’s attorneys that was filed on Feb. 22. According to the order, the disqualified attorneys have five days to serve notice to Casita on the ruling and Casita has 30 days from that time to respond to the court with new legal representation. Fried decided last year that he would not hear any arguments in the case until the matter of the plaintiff’s attorneys was finalized. According to Justice Fried’s clerk’s office, no hearings are yet scheduled in the case.
Attorneys on both sides of the case either declined to speak about the case or did not return phone calls seeking comment. Casita LP could not be reached for comment.
Attorneys that represent both general partners and limited partners in the private equity industry say that these kinds of lawsuits are rare. “By and large the industry has been very good at policing itself,” says Joseph Smith, a partner at law firm Dewey Ballantine who specializes in private equity. He says that he has seen lawsuits arising from what LPs contend are inappropriate capital calls, but those were usually filed after the LPs made the capital call. “The real issue is going to be the appropriateness of the capital call and if the general partner was acting in accordance with its fiduciary obligations. That is why it’s a sensitive case.”
Robert Matlin, a partner and co-head of the private equity practice with Kirkpatrick & Lockhart Nicholson Graham, says that Casita’s technical point of MapleWood calling on the wrong fund in its capital call letter may give the court a narrow issue upon which to base a summary judgment. However, he says that cases like these are usually settled out of court. “I would expect there will be a settlement,” Matlin says. “At the end of the day the fund really has no interest in spending dollars here. It’s just not productive. The plaintiff is under the same motivation.”