Delaware Court of Chancery
2009 WL 1317148
In February 1999, Brian Olsen (plaintiff), Andreas Halvorsen (defendant), and David Ott (defendant) met to discuss the formation of a hedge fund called Viking Global. At that meeting they orally agreed to the basic elements of the business, including compensation. Specifically, they agreed that the business would pay out all profits annually, and that a departing member would be entitled only to accrued compensation and the balance of his capital account – not to an equity percentage of the total value of the business. Viking Global was ultimately organized into a Delaware limited partnership and three Delaware limited liability companies (LLCs). The three founders were partners or members in all the entities. For the limited partnership and first two LLCs, the three founders signed lengthy partnership and operating agreements, respectively. These agreements all included the arrangement that on departure, a principal would receive only accrued compensation and his capital account balance. The fourth entity, Global Viking Founders, LLC (Founders) (defendant), was first proposed by Olsen in mid-1999 as a vehicle for departing founders to be paid an earnout in addition to the agreed-to compensation and capital account funds. Halvorsen and Ott left the topic open to discussion but never expressly agreed to the earnout. Olsen instructed outside counsel to draft an operating agreement for Founders including the earnout arrangement. Various drafts were sent to Halverson and Ott, but they never read or signed them. Olsen had the outside counsel file a certificate of formation for Founders, and funds were occasionally funneled through the entity at Olsen’s direction. Another Viking executive discovered Founders in 2003 and placed the topic on the agenda for management committee meetings. It was never discussed at any meeting. In August 2005, Olsen was officially dismissed from Viking. He was paid his accrued compensation and his capital account balance, but he demanded in addition that he receive an earnout as provided in the Founders operating agreement. Halvorsen and Ott refused, arguing that they had never agreed to that arrangement. Olsen sued Halverson, Ott, and all the Viking entities, seeking the additional funds.
Rule of Law
Holding and Reasoning (Lamb, J.)
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