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April 24, 2014

CalPERS’ Warning Of Chill Goes Unheeded

Last November, Judge James P. Kleinberg of the Santa Clara Superior Court in San Jose, California ruled on motions for summary judgment in a case brought by former employees of a management company that had been retained by the general partner of multiple investment funds.  These former employees sued the funds for more than $2 million in past due wages and millions more in future wages.  Judge Kleinberg ruled in favor of the employees.  This spring, a jury awarded the plaintiffs $10 million after a three-week jury trial.  See Peter Delevett, Jury Awards $10 Million, Including Punitive Damages, in HRJ Capital LawsuitContra Costa Times (March 14, 2013).  The case name is Wong v. HRJ Capital BD, LLCSanta Clara Sup. Ct. Case Nos. l-09-CV-139520 (Lead) and  1-09-CV-140349

In July, CalPERS submitted a proposed amicus brief in support of the defendants’ motion for a new trial.  CalPERS ended its brief with this stark warning:

CalPERS believes the Court’s decision threatens to fundamentally alter CalPERS’ and other investors’ expectations of their risks and investment returns.  Exposing investors to this additional risk is detrimental to California’s vibrant private fund industry, and to California’s economy in general.

According to this update from Mr. Delevett, CalPERS’ brief was rejected two weeks ago by Judge Patricia Lucas, the judge who presided at the trial.

Judge Kleinberg’s ruling is not precedential and it could be viewed as limited to the specific contractual provisions in the fund agreements.  Be that as it may, I agree with CalPERS.  The result is unexpected and unwelcome.  If there is a lesson here, it may be that seemingly inconsequential language in a lengthy partnership agreement can have costly and surprising consequences.

© 2010-2014 Allen Matkins Leck Gamble Mallory & Natsis LLP

About the Author

Keith Paul Bishop, Business Attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients on compliance,...

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