Question

Please read case and answer questions below true or false with an explanation.

Case 6: Case Problem 3, p. 1066) (Mallor 16^th Ed. Chap 40): Olson v. Halvorsen, 986 A.2d 1150 (Del. S. Ct. 2009)

In 1999, Andreas Halvorsen, David Ott, and Brian Olson formed a hedge fund, Viking Global Investors LLC. The LLC's written agreement provided that the three founders would operate Viking, and divide all of its profits annually. If any one of them left Viking, he would receive only his capital account balance and earned compensation that had accrued and not been paid. In August 2005, the LLC management committee terminated Olson's membership in the LLC because the returns on his portfolio of investments were disappointing. The LLC bought out Olson by returning the amount in his capital account and paying his 2005 compensation, which amounted to over $100 million. Olson sued the LLC and the other members alleging that subsequent to executing the written agreement, they had agreed orally to pay the fair market value of a member's interest upon his leaving the LLC. He also argued that Delaware's LLC statute required payment of fair value.

1. The purported agreement among Halvorsen, Ott and Olson to pay the fair market value of a member’s interest upon leaving the LLC is unenforceable under the Statute of Frauds, because it is not evidenced by a signed writing; hence Olson is entitled to receive his capital account balance plus his accrued compensation.
2. If Halvorsen, Ott and Olson formed their hedge fund as a limited liability limited partnership in which they served as general partners, the default rule governing payment to a dissociating member provides that Olson would be entitled to receive the book value of his ownership interest in the LLLP upon dissolution.
3. In the absence of a contrary provision in the operating agreement, Olson can transfer his ownership interest in the LLC to others and, if his creditors obtain a charging order on his ownership interest in the event he defaults on his obligations, the remaining members may expel Olson from the LLC.
4. Halvorsen, Ott and Olson have formed a member-managed LLC, are each entitled to an equal vote in deciding ordinary matters, and can approve such matters by majority vote.
5. Halvorsen, Ott and Olson have limited liability for the obligations of the hedge fund, owe fiduciary duties to the LLC and its members, share profits equally in the absence of a contrary provision in the operating agreement, and, upon a unanimous vote, can merge the LLC or convert it into a limited partnership.

Answer 1

Did the court agree with Olson:-

No.  The court held that the oral agreement was not enforceable under the Statute of Frauds, as it required more than one year for completion.  The court enforced the written buyout agreement based on “cap and comp,” that is, a return only of contributed capital and earned compensation not yet distributed, on the grounds that there was no evidence the agreement had been superseded.  Olson v. Halvorsen, 986 A.2d 1150 (Del. S. Ct. 2009).