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Pine River Performance L.P. v. Kuhn

United States District Court, D. Minnesota

June 29, 2017

Pine River Performance L.P., Pine River Holdings L.P., and PRCM Receivables L.P., Plaintiffs,
v.
Steven Kuhn, Defendant and Counterclaim-Plaintiff,
v.
Pine River Performance L.P., Pine River Holdings L.P., and PRCM Receivables L.P., Counterclaim-Defendants, and Steven Kuhn, Third-Party Plaintiff,
v.
Pine River Capital Management, LLC, and Brian Taylor, Third-Party Defendants.

          Jan M. Conlin, Esq., and Barry M. Landy, Esq., Ciresi Conlin LLP, Minneapolis, MN, on behalf of Plaintiffs and Counterclaim-Defendants Pine River Performance L.P., Pine River Holdings L.P., and PRCM Receivables L.P., and Third-Party Defendant Pine River Capital Management LLC.

          Benjamin B. Plaut, Esq., Law Offices of Benjamin Plaut, Manhattan Beach, CA; Andrew M. Edison, Esq., Edison McDowell & Hetherington LLP, Houston, TX; Karl L. Cambronne, Esq., and Christopher P. Renz, Esq., Chestnut Cambronne, PA, Minneapolis, MN, on behalf of Defendant, Counterclaim-Plaintiff, and Third-Party Plaintiff Steven Kuhn.

          Justin H. Jenkins, Esq., Lisa B. Ellingson, Esq., and Robert R. Weinstine, Esq., Winthrop & Weinstine, PA, Minneapolis, MN, on behalf of Third-Party Defendant Brian Taylor.

          MEMORANDUM OPINION AND ORDER

          ANN D. MONTGOMERY U.S. DISTRICT JUDGE

         I. INTRODUCTION

         On April 19, 2017, the undersigned United States District Judge heard oral argument on Plaintiffs and Counterclaim-Defendants Pine River Performance L.P., Pine River Holdings L.P., and PRCM Receivables L.P. (collectively, “Pine River” or the “Partnership”), and Third Party-Defendant Pine River Capital Management LLC's Partial Motion to Dismiss [Docket No. 49]. The Court also heard oral argument on Third-Party Defendant Brian Taylor's Motion to Dismiss [Docket No. 56]. For the reasons set forth below, the Motions are granted in part and denied in part.

         II. BACKGROUND[1]

         In 2002, Brian Taylor (“Taylor”) founded Pine River, a hedge fund partnership organized under Delaware law and headquartered in Minnetonka, Minnesota. Am. Countercl. Third-Party Compl. [Docket No. 43] ¶¶ 3, 10. Taylor is Pine River's CEO, managing member and 98% owner of Pine River Capital Management LLC (the “General Partner”), and a Limited Partner of Pine River with the largest Partnership Interest. Id. ¶¶ 3, 4. Steven Kuhn (“Kuhn”) joined Pine River as an employee in 2008, and was admitted into the Partnership on January 1, 2009 with a 5% Partnership Interest. Id. ¶¶ 12, 13. Upon joining the Partnership, Kuhn signed the operative limited partnership agreement (“LPA”) in effect at that time, as well as every other LPA presented during his time as a Limited Partner. Id. ¶ 14.

         A. The Alleged “Partnership Percentage Increase Agreement”

         As a result of his positive performance, Kuhn's Partnership Interest grew to 17.5% by 2013. Id. ¶ 27. On February 24, 2014, Kuhn requested to meet with Taylor. Id. ¶ 29. The purpose of the meeting was to discuss a plan and a path for Kuhn to obtain a 25% equity stake in Pine River. Id.

         Kuhn sent Taylor an email the following day memorializing the details of their meeting. Id. The email reads, in relevant part:

And I thank you for agreeing to the framework below, and for having the trust in me to give me this path to 25% ownership, which has been a long time goal of mine. It means a great deal to me.
Given that I will now be buying 0.75% equity this year at a rate of ___ /1%, I will be starting this coming year at 18.25%. At a rate of __ per 1%, we would need to generate __ of profitability for me to get to 2%--subject to max 2% growth per year with carry forwards. I will exclude sources of revenue that are new and which I had very little impact in creating - and I ask that you trust that I will be fair in judging such.

Id. at Ex. A.[2] Taylor responded in an email nine days later, stating “Yes, this sounds good to me.” Id. Sometime thereafter, Kuhn forfeited a sizeable bonus and his Partnership Interest was increased by 0.75%. Id. ¶ 34. Under the LPA, Taylor, as a Limited Partner and as the General Partner, had the ability to effectuate the Partnership Interest increases contemplated in Kuhn's February 25, 2014 email. Id. ¶¶ 36, 38. Kuhn refers to this agreement as the “Partnership Percentage Increase Agreement” (“PPIA”).

         B. New LPA is Signed

         In December 2014, Kuhn was presented with a new LPA that was substantially similar to the prior year's LPA. Id. ¶ 43. Kuhn asked Pine River General Counsel Tim O'Brien (“O'Brien”), who also had ownership interests in Pine River and in the General Partner, if there was anything in the LPA that was disadvantageous to Kuhn. Id. ¶ 43. O'Brien, who was aware of the PPIA, said there was not. Id. Kuhn asked the same question to Pine River's Deputy General Counsel, who gave the same response. Id. ¶ 45.

         The LPA, however, includes the following integration clause:

This Agreement (including any exhibits or attachments to the Agreement referenced herein) constitutes the entire understanding and agreement among the Partners with respect to the subject matter hereof, and supersedes all other prior agreements and understandings among the Partners or between any of them with respect to such subject matter. In the event of any conflict or inconsistency between this Agreement and any other agreement by or among the Partners and/or the Partnership, the terms of this Agreement shall prevail.

Landy Decl. [Docket No. 52] Ex. 1 (“LPA”) § 10.10. Kuhn signed the new LPA.

         C. Events in 2015 and Beyond

         Kuhn alleges that although Taylor initially complied with the terms set forth in the PPIA, in 2015 Taylor began deviating from both the PPIA and the LPA. Id. ¶ 47. Relevant to the current Motions is Kuhn's allegation that Taylor, as General Partner, allocated bonus payments to negate the value of the Partnership Interest Kuhn had purchased pursuant to the PPIA. Id. ¶ 58. Kuhn additionally alleges that in 2016, Kuhn's Partnership Interest was decreased to 17.04%, where it was prior to 2014, despite Kuhn's positive performance in 2015. Id. ΒΆΒΆ 61-63. Finally, Taylor, again acting as General Partner, unilaterally reduced Kuhn's draw by 85% for ...


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