Limited partner Casita LP has filed a lawsuit against general partner MapleWood Equity Partners, seeking to stop from being stripped of its investor rights after it missed a capital call.
MapleWood Equity Partners is managed by Coral Gables, Fla.-based MapleWood Partners, a buyout firm that closed a $135 million fund in 2000. LPs in the fund and a related offshore fund 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 one deal in August 2000 – which is the cause of the disagreement between Casita and MapleWood – 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.
At the time of MapleWood’s investment in AMC, Casita and two other LPs made equity co-investments in the company, according to the complaint. Then early last year, a capital restructuring of AMC turned MapleWood from a majority shareholder into 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 AMC and MapleWood’s management, including MapleWood Managing Principal Robert Glaser. Those cases are still pending.
In 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 alleges that the capital call 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.
Casita also claims that 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 September, Casita sought an injunction in early October against MapleWood, which had declared Casita in default and knocked down Casita’s interest in the fund.
Attorneys from both sides either declined to speak about the case or did not return phone calls seeking comment.
But attorneys that represent GPs and LPs 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 Dewey Ballantine. “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.