Edward L. Scarff

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MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	] 	Case No. 03-54723 ASW
]
EDWARD L. SCARFF, 	] 	Chapter 11
]
Debtor. 	]
]
MEMORANDUM DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
ON DEBTOR’S OBJECTION TO PROOF OF CLAIM
BY QUESTOR GENERAL PARTNER, L.P.
Before the Court are cross-motions for summary judgment by
debtor Edward Scarff (“Debtor”) and creditor Questor General
Partner, L.P. (“QGP”), relating to the proof of claim filed by QGP
in Debtor’s Chapter 11 bankruptcy case (“QGP’s Claim”).
Debtor is represented by Jeffrey S. Facter, Esq. and Sean T.
Strauss, Esq. of Shearman & Sterling LLP, and Gayle Green, Esq. of
Binder & Malter, LLP. 	QGP is represented by Harry Hochman, Esq.
and Joshua Fried, Esq. of Pachulski, Stang, Ziehl & Jones LLP, and
Sheldon Toll, Esq. of the Law Office of Sheldon S. Toll.
This Memorandum Decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal
Rules of Bankruptcy Procedure (“Bankruptcy Rule”).
IT IS SO ORDERED.
Signed October 14, 2010
Arthur S. Weissbrodt
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 14, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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1 	Declaration of Sean T. Strauss In Support of Motion of
Debtor-in-Possession Edward L. Scarff for Summary Judgment on
Questor General Partner, L.P.’s Amended Proof of Claim (“Strauss
Dec.”), Exhibits C and E.
2 	Strauss Dec., Exhibit E; Declaration of Robert E. Shields
in Support of Questor General Partner, L.P.’s Opposition to
Debtor’s Motion for Summary Judgment (“Shields Dec.”), Exhibit 1.
3 	Shields Dec., Exhibit 1.
4 	Declaration of Harry D. Hochman in Support of Opposition of
Questor General Partner, L.P. to Debtor’s Motion for Summary
Judgment (“Hochman Dec.”), Exhibit 1 at 20.
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FOR SUMMARY JUDGMENT 2
I.
FACTUAL BACKGROUND
The parties agree on most of the underlying facts relating to
QGP’s Claim.
A. 	Questor Partners Fund and Its Investors
QGP was the general partner of a limited partnership, private
equity fund named Questor Partners Fund (the “Fund”). 1 	The Fund
was formed in late 1994 and invested in underperforming and
troubled companies. 2 	The Fund had four “principals” as identified
in the private offering memorandum and agreement establishing the
Fund -- Debtor, Jay Alix, Melvyn Klein, and Dan Lufkin. 3 	Prior to
their involvement with the Fund, Mr. Lufkin and Debtor had worked
together at Donaldson, Lufkin & Jenrette, a private equity funding
group. 4
Along with the backgrounds of the other three principals,
Debtor’s background as an executive and investor was described to
potential investors in the Confidential Offering Memorandum for the
Fund (the “Offering Memorandum”), a copy of which is attached as
Exhibit 1 to the Declaration of Robert E. Shields in Support of
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5 	Shields Dec., Exhibit 1 at 16-21.
6 	Id.
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FOR SUMMARY JUDGMENT 3
Questor General Partner, L.P.’s Opposition to Debtor’s Motion for
Summary Judgment (the “Shields Dec.”). 5 	The Offering Memorandum
also describes Debtor’s background in private equity acquisitions
of turnaround companies. 6 	The partnership agreement for the Fund
(the “Fund Agreement”) states:
The Principals are experienced investors and fiduciaries,
and the Principals understand their fiduciary obligations
to the Partnership and have agreed to act accordingly.
Declaration of Sean T. Strauss In Support of Motion of Debtor-in-
Possession Edward L. Scarff for Summary Judgment on Questor General
Partner, L.P.’s Amended Proof of Claim (“Strauss Dec.”), Exhibit E
at 44.
Debtor was actively involved with the Fund and the Fund’s
subsidiaries. 	Debtor holds a 13.389% interest in QGP -- 13.223%
Questor Partners Fund, L.P.
(the “Fund”)
Limited Partners: 	General Partner: 	Principals:
Receive Priority Return 	Questor General Partner, L.P. 	Alix
Outside Investors 	(“QGP”) 	Klein
Lufkin
Debtor
Manager: 	General Partner: 	Special Limited 	Ltd Partner 	Ltd Partners
Questor 	Questor Principals, 	Partners 	owned by Debtor, owned by
Management 	Inc. (“QPI”) 	(institutional) 	Pentoga Partners other Principals
Co. (“QMC”)
Shareholders and Directors:
Alix
Klein
Lufkin
Debtor
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7 	Strauss Dec., Exhibits I and R.
8 	Shields Dec., Exhibit 2; Hochman Dec., Exhibit 1 at 89:16.
9 	Shields Dec., Exhibit 2.
10 	Id.
11 	Strauss Dec., Exhibit C.
12 	Id., Exhibits B, G and M.
13 	Id., Exhibit E at 27-28 § 4.2, Exhibit C at 9 § 4.1.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 4
through Pentoga Partners, L.P. (“Pentoga Partners”) and 0.167%
through Debtor’s interest as a shareholder of Questor Principals,
Inc. (“QPI”). 7 	Debtor was a shareholder and active director of
both Questor Management Company, a Delaware corporation (“QMC”) and
QPI. 	QMC is the manager of QGP, and QPI is the general partner of
QGP. 8 	The minutes from the board meetings of these entities prior
to September 17, 1998, demonstrate that Debtor attended all or
substantially all of the meetings. 9 	Debtor also had individual
responsibility for certain portfolio companies held by the Fund,
and Debtor frequently sat on the boards of such companies. 10
The Fund and QGP are limited partnerships formed under, and
governed by, the laws of the state of Delaware. 11 	QMC and QPI are
corporations formed under and governed by the laws of the state of
Delaware. 12
B. 	Distributions to Investors and the Clawback
The Fund made periodic distributions to its general partner,
QGP, which QGP, in turn, distributed pro rata to QGP’s partners. 13
Under the Fund Agreement, a copy of which is attached as Exhibit E
to the Strauss Dec., outside investors who formed the limited
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14 	Strauss Dec., Exhibit E at 4-5, 27-30.
15 	Id., Exhibit E at 65-66 § 10.3.
16 	Id., Exhibit H at 9.
17 	Id., Exhibit C at 9 § 4.1.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 5
partners of the Fund (the “Fund’s Limited Partners”) were
guaranteed a “Priority Return.” 14 	Upon the Fund’s dissolution, if
the “Cumulative Return” to the Fund’s Limited Partners was less
than the Priority Return, then QGP, the general partner of the
Fund, was obligated to repay to the Fund an amount sufficient to
make up the shortfall in the Priority Return to the Fund’s Limited
Partners. 15 	The Offering Memorandum for the Fund states:
[T]he General Partner will be obligated to return to the
Partners any amount previously distributed to the General
Partner as its carried interest to the extent such amount
exceeds 20% of aggregate Net Profits overall.
Shields Dec., Exhibit 1 at 6. 	This return of distributions is
colloquially referred to as a “Clawback.” 16
Under Section 4.1 of the QGP Partnership Agreement (the “QGP
Agreement”), a copy of which is attached as Exhibit C to the
Strauss Dec., distributions were made to QGP’s partners from
“available cash,” which term excludes cash that QPI, in QPI’s
discretion, determined to retain as a reserve for the Clawback and
other liabilities. 17 	Under Section 16 of the QGP Agreement, QPI
could not withhold a Clawback reserve from distributions to QGP’s
“Special Limited Partners,” but QGP’s Special Limited Partners had
an express obligation to return their pro rata share of such
distributions if needed for QGP to honor QPI’s Clawback
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18 	Strauss Dec., Exhibit C at 18 § 16.
19 	Id., Exhibit C, passim. 	It is worth noting here that the
limited partnership through which Debtor held a partnership
interest in QGP, namely Pentoga Partners, appears to have actually
signed the QGP Agreement as a Special Limited Partner. 	There is an
asterisk by the signature block for Pentoga Partners. 	The bottom
of this signature page, as well as Section 16 of the QGP Agreement,
indicate that this asterisk is meant to designate the party as a
Special Limited Partner. 	However, there is such an asterisk beside
the signature block of every limited partner other than Jay Alix,
who is designated as the “initial limited partner.” 	Both Debtor
and QGP have treated Pentoga Partners as a Regular Limited Partner
of QGP in their arguments. 	It also appears from the evidence
submitted that Pentoga Partners, as well as QGP’s other limited
partners who were held by the Fund’s principals or insiders, were
treated in the course of distributions made by QGP as Regular
Limited Partners of QGP. 	The Court will, therefore, assume that
the placement of the asterisk beside the signature block of Pentoga
Partners was an error.
20 	Id., Exhibit H at 9. 	See also Declaration of Arthur J.
Kubert, filed May 18, 2007 (attached as Exhibit 3 to the Hochman
Dec.) at ¶¶ 9-10.
21 	Hochman Dec., Exhibit 3 (Declaration of Arthur J. Kubert
filed May 18, 2007) at ¶ 7.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 6
obligation. 18 	The QGP Partnership Agreement is silent on what would
happen if insufficient funds were withheld from the other non-
“special” partners (the “Regular Limited Partners”) such that QGP
had insufficient funds to pay the Clawback. 19
After the last of the Fund’s investments was written down, QGP
had a Clawback obligation of $33,928,688. 20 	QGP had reserved
$10,300,000 from distributions for the Clawback, leaving a $23.6
million shortfall. 21 	QGP asserts that Debtor’s pro rata share of
this Clawback shortfall totals $2,913,748 –- $2,874,363 of which is
attributable to Debtor’s holdings in Pentoga Partners as a Regular
Limited Partner of QGP, and $39,384 of which is attributable to
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22 	Hochman Dec., Exhibit 3 at ¶ 11.
23 	Hochman Dec., Exhibit 3 at ¶ 12.
24 	Id., Exhibit 4 at ¶ 6; Strauss Dec., Exhibit F.
25 	Strauss Dec., Exhibits D at 10:14-11:4 and L.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 7
Debtor’s interest in QPI, the general partner of QGP. 22 	Debtor
disputes that Debtor has any obligation under the Clawback. 	All
other QGP Regular Limited Partners and QPI shareholders repaid
their proportionate share of the Clawback; only Debtor has failed
to do so. 23
C. 	The Undertaking
On August 13, 1998, QMC’s managing director, Robert Shields,
requested in a distribution memorandum that the Regular Limited
Partners and QPI shareholders execute an Acknowledgment and
Undertaking (the “Undertaking”), a copy of which is attached as
Exhibit K to the Strauss Dec. 24 	The Undertaking states:
[T]he General Partner might not have sufficient funds to
make good on its clawback obligation under Section 10.3 of
the Partnership Agreement.
. . .
[I]n consideration of the distributions previously made to
the undersigned, and to induce the General Partner and
Questor Principals, Inc. to make distributions to the
undersigned in the future from time to time in the
discretion of the General Partner and Questor Principals,
Inc., . . . the undersigned hereby irrevocably agrees and
undertakes . . . to restore to the General Partner and to
Questor Principals, Inc. any distributions . . . made to
the undersigned . . . to meet [QGP’s] clawback obligations
under Section 10.3 of the Partnership Agreement.
Each of QGP’s Regular Limited Partners and QPI shareholders signed
the Undertaking. 25 	Debtor executed two copies of the Undertaking on
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26 	Strauss Dec., Exhibit I.
27 	Response of Debtor-In-Possession Edward L. Scarff to the
Separate Statement of Undisputed Facts in Support of Questor
General Partner, L.P.’s Motion for Summary Judgment, filed
September 4, 2009, at ¶ 24.
28 	Hochman Dec., Exhibit 3 at ¶ 8, Exhibit 4 at ¶ 10.
29 	Declaration of Edward L. Scarff, Debtor-In-Possession, In
Support of Opposition to Questor General Partner, L.P.’s Motion for
Summary Judgment or Summary Adjudication of Issues on Objection to
Proof of Claim #16, filed June 28, 2007.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 8
or about October 16, 1998 -- one on behalf of Pentoga Partners as
its general partner and one individually as a shareholder of QPI. 26
D. 	Distributions Made by QGP to Debtor
Both Debtor and QGP agree that Debtor received a total of
$3,799,328 in distributions from QGP. 27 	Most of those distributions
were made after October 16, 1998, the date that Debtor signed the
Undertaking. 28 	The evidence submitted by the parties, shows the
following distributions made to Debtor by QGP: 29
Date 	As Regular Limited Partner 	As QPI shareholder
3/14/98 	$50,343.00
7/30/98 	$641,080.00 	$15,844.19
8/13/98 	Undertaking distributed
10/16/98 	Undertaking signed by Debtor
1/13/00 	$1,814,759.56 	$33,788.00
4/26/00 	$389,360.00 	$1,666.67
7/10/10 	$66,389.28
8/17/00 	$503,966.48 	$6,000.00
As outlined above, Debtor received a total of $2,815,929.99 in
distributions from QGP ($2,774,475.32 from his interest as a
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30 	No details were provided by the parties regarding the
$276,130.82 in distributions made to Debtor by QGP prior to
March 14, 1998.
31 	Strauss Dec., Exhibit M.
32 	Id., Exhibit M at ¶¶ 1(a), 5(b), 1(b), 2 and 4.
33 	Id., Exhibits AA-GG.
34 	Hochman Dec., Exhibit 3 at ¶ 12.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 9
Regular Limited Partner of QGP and $41,454.67 from his interest as
a shareholder of QPI) after Debtor’s execution of the Undertaking. 30
E. 	The Exit Agreement
On March 31, 1999, Debtor and Mr. Klein entered into an
agreement with Mr. Lufkin, Mr. Alix, QPI, and QMC (the “Exit
Agreement”). 31 	Under the Exit Agreement, Debtor and Klein sold
their stock in QMC, entered into consulting agreements with QMC
under which they were each paid $2,375,000, exchanged their voting
stock in QPI for non-voting stock, resigned their directorships and
terminated their status as principals. 32 	Debtor and Klein continued
to receive distributions after the effective date of the Exit
Agreement. 33 	Indeed, all distributions made to Debtor after his
execution of the Undertaking were also made after the effective date
of the Exit Agreement, as noted above. 	Klein -- like every other
Regular Limited Partner other than Debtor -- has repaid his
proportionate share of the Clawback. 34
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35 	Strauss Dec., Exhibit N.
36 	Strauss Dec., Exhibit I. 	This proof of claim states that
it “amends” an “informal” claim made on “October 2-3, 2003.”
37 	Strauss Dec., Exhibit R.
38 	Id.
39 	Id.
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 10
F. 	Debtor’s Bankruptcy Filing and QGP’s Claim
Debtor filed his Chapter 11 petition on July 21, 2003. 35 	On
November 30, 2005, QGP filed a proof of claim in the amount of
$2,913,748 on the basis of a “clawback claim.” 36 	QGP amended this
proof of claim on December 12, 2007. 37 	QGP’s amended proof of claim
seeks $2,913,748 on the following bases: (1) breach of contract for
Debtor’s alleged breach of the Undertaking, (2) promissory estoppel
with respect to the Undertaking, (3) unjust enrichment, and
(4) breach of fiduciary duty. 38 	QGP asserts that Debtor is
responsible for Debtor’s proportionate share of the balance owing on
the Clawback, which totals $2,913,748 ($23,628,688 shortfall in the
Clawback multiplied by Debtor’s roughly 13.389% overall interest in
QGP held by Debtor equals $3,163,748; $3,163,748 subtotal minus
$250,000 in consulting fees owed to Debtor equals the $2,913,748
claim by QGP). 39
II.
ANALYSIS
Both parties have moved for summary judgment in this matter.
Federal Rule of Civil Procedure 56, made applicable by Bankruptcy
Rule 7056, provides that summary judgment shall be granted where the
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40 	QGP’s motion for summary judgment initially included QGP’s
claims for promissory estoppel and unjust enrichment. 	However, QGP
withdrew these arguments in QGP’s final reply at footnote 1.
Questor General Partner, L.P.’s Reply in Support of Motion for
Summary Judgment at 2 n.1. 	Therefore, QGP’s motion for summary
judgment rests solely upon QGP’s claims of breach of contract under
(continued...)
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
FOR SUMMARY JUDGMENT 11
pleadings, depositions, answers to interrogatories, admissions or
affidavits show that there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law.
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); North Slope
Borough v. Rogstad (In re Rogstad), 126 F.3d 1224, 1227 (9 th Cir.
1997). 	“For an issue to be ‘genuine,’ there must be evidence such
that a reasonable jury could reach a verdict in favor of the
nonmoving party.” 	Summers v. Teichert & Sons, Inc., 127 F.3d 1150,
1152 (9 th Cir. 1997) (citing Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986)).
The moving party has the burden of establishing the absence of a
genuine issue of material fact. 	Celotex, 477 U.S. at 323. 	If the
moving party meets this burden, the nonmoving party must go beyond
the pleadings and identify facts demonstrating a genuine issue for
trial. 	Id. at 324. 	Accordingly, the nonmoving party has a duty to
present affirmative evidence in order to defeat a properly supported
motion for summary judgment. 	Anderson, 477 U.S. at 257.
As set forth above, the parties agree on almost all of the
underlying facts. 	The dispute between the parties is with respect
to the legal implications of those facts. 	Therefore, this matter
does appear to be ripe for summary adjudication. 	The issues of
material fact alleged by each party with respect to the opposing
party’s motion for summary judgment are extremely limited. 40 	The
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the Undertaking and breach of fiduciary duty. 	However, Debtor
seeks summary judgment with respect to QGP’s claims for promissory
estoppel and unjust enrichment.
41 	Opposition of Questor General Partner, L.P. to Debtor’s
Motion for Summary Judgment, filed July 30, 2009, at 28:4.
42 	Memorandum of Points and Authorities in Opposition to
Motion of Questor General Partner, L.P. for Summary Judgment, filed
September 4, 2009, at 8-9 and 18-19.
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FOR SUMMARY JUDGMENT 12
only potential issues of material fact noted by QGP as precluding
summary judgment in Debtor’s favor relate to QGP’s claims of
promissory estoppel and breach of contract. 41 	As to QGP’s claim of
promissory estoppel, QGP argues that the issue of whether QGP
reasonably relied upon the promise of repayment made by Debtor in
the Undertaking precludes the granting of summary judgment in
Debtor’s favor. 	As to QGP’s breach of contract claim, QGP asserts
that the issue of whether QGP owed a fiduciary duty to Debtor, given
Debtor’s status and various roles in the Fund-related entities,
precludes the granting of summary judgment in Debtor’s favor. 	In
return, Debtor argues that the issue of whether Debtor played a role
in the distributions made by the Fund and QGP –- specifically,
whether and how distributions were made –- precludes summary
judgment in QGP’s favor on the issues of breach of fiduciary duty
and breach of contract under the Undertaking. 42 	The impact of these
potential issues of material fact will be addressed below.
The cross-motions boil down to diametrically opposed legal
arguments on five main issues:
(1) 	Whether or not Debtor has a fiduciary duty to repay an
amount equal to the value of Debtor’s proportionate share
of the Clawback;
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43 	In re USACafes, L.P. Litig., 600 A.2d 43, 49 (Del. Ch.
1991) (holding, in a suit by a class of limited partners, that
individual directors of the limited partnership’s corporate general
partner owed fiduciary duties to the limited partnership in their
directorial capacities, thereby rendering the individual directors
amenable to personal jurisdiction under Delaware Code § 3114); In
re Integrated Resources, Inc., No. 90-B-10411 (CB), 1990 WL 325414
(Bankr. S.D.N.Y. Oct. 22, 1990) (holding, under Delaware law, that
the parent of the general partner of a limited partnership owed a
fiduciary duty to the limited partners not to sell a controlling
interest in the general partner to a looter).
MEMORANDUM DECISION ON CROSS-MOTIONS 	Case No. 03-54723 ASW
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(2) 	Whether or not Debtor breached Debtor’s contract with QGP
under the Undertaking by not repaying the Clawback;
(3) 	Whether QGP’s claim for relief under the theory of
promissory estoppel fails, as a matter of law, for lack of
reasonable reliance;
(4) 	Whether QGP’s claim for relief under the equitable theory
of unjust enrichment fails, as a matter of law, because an
express contract controls the relationship between QGP and
Debtor; and
(5) 	Whether the applicable statute of repose bars QGP’s claims
for breach of fiduciary duty, promissory estoppel and
unjust enrichment.
The Court will consider each of these issues separately.
A. 	Fiduciary Duty Owed by Debtor
Both parties seek summary judgment as to QGP’s claim of breach
of fiduciary duty by Debtor.
QGP points out that Debtor was one of four principals of the
Fund who controlled the Fund through the Fund’s general partner,
QGP. 	These same four principals, notes QGP, served as directors of
both QGP’s corporate general partner, QPI, and QGP’s manager, QMC.
Under Delaware law, argues QGP, such principals have fiduciary
duties that extend to QGP, the Fund and the Fund’s investors. 43 	QGP
argues that the distributions to Debtor were assets of the Fund of
which Debtor was a fiduciary. 	The distributions were made to QGP
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subject to the Clawback. 	To retain the funds in the face of the
Clawback obligation is “to use control over the partnership’s
property to advantage the corporate director at the expense of the
partnership.” 	In re USACafes, L.P. Litig., 600 A.2d 43, 49 (Del.
Ch. 1991).
As evidence of the industry standard for private equity
investment firms, QGP cites J AMES SCHELL , PRIVATE EQUITY F UNDS : BUSINESS
STRUCTURE AND OPERATIONS (2007) (“P RIVATE EQUITY F UNDS ”). 	The treatise was
submitted as an exhibit to the declaration of Harry Hochman, an
attorney for QGP, in support of QGP’s motion for summary judgment.
Hochman Dec., Exhibit 2. 	Debtor has objected to QGP’s references to
PRIVATE EQUITY FUNDS as “inadmissible hearsay on the purported practice
in the private equity industry.” 	Memorandum of Points and
Authorities in Opposition to Motion of Questor General Partner, L.P.
for Summary Judgment, filed September 4, 2009, at 6 n.4. 	Since
Federal Rule of Evidence 803(18) has not been satisfied, the
treatise is not admissible, and Debtor’s objection is sustained.
Debtor, in turn, argues that QGP has failed to establish a
fiduciary duty owed by Debtor to QGP, the Fund or the Fund’s
investors. 	Debtor argues that the term “principal” is used
ambiguously in the Fund Agreement and Offering Memorandum. 	Debtor
insists Debtor’s role as a “principal” had nothing to do with the
administration of the Clawback or the distributions made by the Fund
and QGP. 	Debtor correctly points out that the record does not show
any hands-on control or participation by Debtor with respect to
distributions made by the Fund and QGP. 	Debtor insists that
Debtor’s sole roles in the Fund were to find and evaluate
investments. 	Finally, Debtor notes that Debtor never owned a
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44 	James G. Leyden & Laura Dietrich, Delaware Limited
Liability Companies and Limited Partnership, 1782 PLI/C ORP 43, 58
(2010).
45 	USACafes, 600 A.2d 43; Integrated Resources, 1990 WL 325414
(citing Delaware cases).
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majority interest in QPI or QMC and, therefore, did not owe any
fiduciary duties as a controlling shareholder.
QGP responds that, even though Debtor may not have participated
in the day-to-day mechanics of the distributions, Debtor was well-
advised of, and in fact was one of four principals who controlled,
the overall operations and financial condition of the Fund and the
Fund’s component parts. 	QGP argues that while Debtor could not
unilaterally decide whether distributions should be made or in what
amount, Debtor, as a director of QMC and QPI, had a fiduciary
obligation to voice any opposition or disagreement Debtor may have
had with respect to such distributions.
To find in QGP’s favor on this cause of action, the Court must
find (1) Debtor had a fiduciary duty to the Fund and the Fund’s
investors and (2) such a fiduciary duty created an implicit Clawback
obligation by Debtor. 	The Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. § 17-101, et seq. (the “DRULPA”) does not
specifically set forth the scope of the duties a partner owes to the
limited partnership and to other partners, nor does the DRULPA state
whether any such duty even exits. 44 	However, Delaware courts have
held that an entity controlling a general partner may owe fiduciary
duties to a limited partnership and the limited partners thereof to
the extent that such general partner controls property of the
limited partnership for the benefit of the entity. 45 	Delaware
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46 	Leyden, supra note 44, at 59 (citing Twin Bridges L.P. v.
Draper, C.A. No. 2351-VCP, slip op. at 31 (Del. Ch. Sept. 14, 2007)
(holding that for fiduciary duties, “unless the partnership
agreement is silent or ambiguous, a court will not look for
extrinsic guidance elsewhere, so as to give maximum effect to the
principle of freedom of contract and maintain the preeminence of
the intent of the parties to the contract.” (footnotes and
quotations omitted)); Cont’l Ins. Co. v. Rutledge & Co., 750 A.2d
1219, 1235 (Del. Ch. 2000) 	(“Where a contract clause amends the
fiduciary duties a general partner owes the limited partners, a
court will give full force to the terms of the contract.” (footnote
omitted)); Gotham Partners L.P. v. Hallwood Realty Partners L.P.,
C.A. No. 15754, 2000 WL 1476663, at *10 (Del. Ch. Sept. 27, 2000)
(noting that Section 17-1101(d)(2) of the DRULPA “expressly
authorizes the elimination, modification, or enhancement of these
fiduciary duties in the written agreement governing the limited
partnership.” (footnote omitted)); Sonet v. Timber Co., L.P., 722
A.2d 319 (Del. Ch. 1998) (“[P]rinciples of contract preempt
fiduciary principles where the parties to a limited partnership
have made their intention to do so plain.”)).
47 	Leyden, supra note 44, at 61-62 (citations omitted).
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courts have “recognized the broad rights of partners to
contractually define their business understanding as well as to
modify fiduciary duties that may otherwise be applicable.” 46 	If the
terms of a limited partnership agreement do not define the fiduciary
duty of a partner, manager, or other person controlling a limited
partnership, “such duty and liability for breach of such duty will
be left for the courts to define.” 47
The Fund Agreement, Offering Memorandum and QGP Agreement
clearly set forth the general concept of a Priority Return to the
Fund’s Limited Partners, a Clawback obligation by QGP, and, as
stated in the Fund Agreement, “fiduciary obligations” by the four
principals to the Fund and the Fund’s component parts. 	Neither
party has cited any provision in the Fund Agreement, QGP Agreement,
or other document whereby the parties indicated a “clear intent” to
preempt the default fiduciary duties of the parties to the QGP and
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Fund limited partnerships. 48 	Even if Debtor did not have direct
control over the distributions made to QGP’s limited partners,
Debtor was an insider with extensive knowledge and control of the
financial condition and operations of the Fund and its component
parts. 	Given Debtor’s position and knowledge of a potential
Clawback obligation by QGP, it is only equitable to recognize a
fiduciary duty by Debtor to QGP, the Fund, and the Fund’s outside
investors.
A much harder question is whether this fiduciary duty survived
the Exit Agreement. 	This is Debtor’s final defense to QGP’s claim
of breach of fiduciary duty by Debtor. 	The Exit Agreement is dated
March 31, 1999. 	The vast majority of the distributions made to
Debtor from QGP -- in fact, the entire $2,815,929.99 in post-
Undertaking distributions at issue herein -- were made after the
effective date of the Exit Agreement. 	Through the Exit Agreement,
Debtor sold his stock in QMC, entered into a $2,375,000 consulting
agreement with QMC, exchanged his voting stock in QPI for non-voting
stock, resigned his directorships in Fund-related entities and
terminated his status as “principal.” 	With respect to his former
roles as a director and/or officer of various Fund-related entities,
Debtor notes that “[t]he fiduciary relationship between a
corporation and an officer or director terminates when the person
ceases to act as such because of resignation or removal.” 	W ILLIAM E.
K NEPPER & D AN A. BAILEY , LIABILITY OF C ORPORATE OFFICERS AND DIRECTORS § 1.07[1]
(7th ed. 2007). 	See also 18B A M. JUR . 2D Corporations § 1461 (2008)
(“After there has been a severance of official relationship, either
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because of resignation or removal, generally, a director or officer
occupies no relation of trust or confidence to the corporation.”).
The problem with Debtor’s argument with respect to the Exit
Agreement, as rightfully noted by QGP, is that Debtor did not
cleanly break Debtor’s ties and disassociate from the Fund and the
Fund’s related entities. 	Debtor entered into a very lucrative
consulting agreement with QMC. 	Debtor also continued Debtor’s
status as a Regular Limited Partner of QGP, although there appears
from the correspondence to have been at least some initial
discussions of making Debtor a Special Limited Partner of QGP
instead. 	Shields Dec., Exhibit 3. 	Debtor’s decision to remain a
Regular Limited Partner appears to be a deliberate and very
significant distinction. 	As noted by QGP, Debtor “voluntarily
continued to receive funds that were being distributed by
fiduciaries to fiduciaries” rather than taking himself out of that
loop and electing to be treated as a non-insider, Special Limited
Partner. 	Memorandum of Points and Authorities in Support of Questor
General Partner, L.P.’s Motion for Summary Judgment (“QGP’s MPA”) at
14:12-14. 	Even after the Exit Agreement, Debtor appears to have
been in a position of “trust” and “confidence” in Debtor’s dealings
with QGP and the Fund’s other component parts. 	B LACK ’ S LAW DICTIONARY
(9 th ed. 2009) (definition of “fiduciary”); 18B A M. JUR . 2 D
Corporations § 1461 (2008).
Debtor continued to play extensive roles in the Fund and the
Fund’s component parts, even after Debtor’s execution of the Exit
Agreement. 	The Exit Agreement does not clearly indicate a specific
intent to eliminate any fiduciary duties owed by Debtor. 	To the
contrary, the Exit Agreement states:
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[N]othing in this Agreement is intended to affect any of
the rights or obligations of [Debtor or his affiliates] as
limited partners in Questor General Partner, L.P. or
Questor Side-by-Side Partners, L.P. or Questor Partners
Fund, L.P.
Strauss Dec., Exhibit M at ¶ 4. 	For these reasons, the Court finds
that Debtor continued to owe a fiduciary duty to QGP, the Fund and
their respective limited partners even after Debtor’s execution of
the Exit Agreement.
The Court finds that no genuine issue of material fact exists
with respect to Debtor’s role as a fiduciary of QGP, the Fund and
the Fund’s other component parts. 	Summary judgment is warranted in
QGP’s favor as to QGP’s claim of breach of fiduciary duty, subject
only to the Court’s consideration of the issue of the statute of
repose, which will be discussed below.
B. 	Breach of Contract Under the Undertaking
The primary cause of action asserted in QGP’s amended proof of
claim is breach of contract, specifically Debtor’s alleged breach of
the Clawback obligations set forth in the Undertaking. 	QGP argues
that the Undertaking constituted an executory contract between QGP
and Debtor under which Debtor agreed to return the sums necessary to
satisfy the Clawback in order to induce QGP to make further
distributions to Debtor. 	The Undertaking became non-executory, QGP
asserts, upon QGP’s performance in making such further payments.
QGP argues Debtor has breached the Undertaking by failing to repay
the $2,913,748 owed to satisfy the Clawback.
Debtor raises several defenses to this breach of contract claim.
First, Debtor argues the Undertaking is unenforceable for lack of
consideration. 	Next, Debtor argues that the Undertaking constitutes
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an invalid amendment to the QGP Agreement. 	Finally, Debtor asserts
the Undertaking is unenforceable because it was obtained through
QGP’s failure to disclose the materiality of the change effected by
the Undertaking, thereby constituting a breach of the fiduciary duty
owed by QGP to Debtor as one of its partners.
1. 	Lack of Consideration
“A valid contract ‘requires good or valuable consideration.’”
Frazier v. Am. Airlines, Inc., 434 F.Supp.2d 279, 291 (D. Del. 2006)
(quoting Haft v. Dart Group Corp., 841 F.Supp. 549, 573 (D. Del.
1993)). 	Consideration is that which is given to induce a promise or
performance in return. 	Affiliated Enterprises, Inc. v. Waller, 5
A.2d 257, 259 (Del. Super. Ct. 1939). 	Under Delaware law,
“consideration for a contract can consist of either a benefit to the
promiser or a detriment to the promisee.” 	First Mortgage Co. of Pa.
v. Fed. Leasing Corp., 456 A.2d 794, 795-96 (Del. 1982).
With respect to Debtor’s lack of consideration defense, Debtor
correctly notes that prior distributions –- which the Undertaking
itself states are part of the consideration given by QGP –- are not
valid consideration to make a contract enforceable. 	Cont’l Ins. Co.
v. Rutledge & Co., Inc., 750 A.2d 1219, 1232 (Del. Ch. 2000) (citing
McAllister v. Kallop, Civ. A. No. 12856, mem. op. at 14, 1995 WL
462210, at *14-*15 (Del. Ch. July 28, 1995)). 	Next, Debtor argues
that QGP’s promise to make future distributions, in the sole
discretion of QGP and QPI, is illusory and, therefore, also invalid
as consideration. 	See Superior Tube Co. v. Del. Aircraft Indus.,
4 F.R.D. 139, 140 n.3 (D. Del. 1944); Lowe’s of Hagerstown, Inc. v.
Nanticoke Real Estate, Inc., No. C.A. 78C-MY4, 1979 WL 181201, at *2
(Del. Super. Ct. May 5, 1979). 	Finally, Debtor asserts QGP’s
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subsequent distributions do not constitute consideration because QGP
had a pre-existing duty under the QGP Agreement to pay Debtor if QGP
paid any other Regular Limited Partner. 	First State Staffing Plus,
Inc. v. Montgomery Mut. Ins. Co., No. Civ. A. 	2100-S, 2005 WL
2173993, at *9 (Del. Ch. Sept. 6, 2005) (citing Cont’l Ins. Co., 750
A.2d at 1232); Seidel v. Lee, 954 F.Supp. 810, 817 (D. Del. 1996)
(citing R ESTATEMENT (S ECOND ) OF CONTRACTS § 73 (1979)).
QGP does not contest the argument that distributions made prior
to Debtor’s execution of the Undertaking cannot serve as the
consideration given for the contractual obligations provided in the
Undertaking. 	However, “[t]he fact that part of what is bargained
for would not have been consideration if that part alone had been
bargained for does not prevent the whole from being consideration.”
R ESTATEMENT (S ECOND ) OF CONTRACTS § 80(2) (1979). 	Therefore, the Court
must determine whether the distributions made by QGP after Debtor
executed the Undertaking suffice as the consideration given by QGP
for Debtor’s obligation under the Undertaking to return the funds to
cover any Clawback obligation if and when asked to do so.
First, QGP responds to Debtor’s defense that QGP’s promise to
make future distributions in QGP’s sole and absolute discretion was
illusory consideration and insufficient to make the Undertaking
binding upon Debtor. 	QGP notes that: “Where a contract is
executory, the promises of each party supply the consideration
necessary to support the promises of the other. . . . [A]
conditioned promise becomes absolute when the condition is
performed.” 	Mobil Oil Corp. v. Wroten, 303 A.2d 698, 701 (Del. Ch.
1973), aff’d, 315 A.2d 728 (Del. 1973). 	Therefore, argues QGP, when
QGP decided it was appropriate to make a further distribution after
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the execution of the Undertaking, QGP’s performance in making such a
distribution made the Undertaking non-executory and, therefore,
binding upon Debtor.
Finally, QGP responds that Debtor’s last defense –- that QGP had
a pre-existing obligation to make a distribution to Debtor if QGP
made a distribution to any other Regular Limited Partner –- is a red
herring. 	Although it may be true that QGP was obligated under the
QGP Agreement to make a distribution to Debtor if QGP made a
distribution to any other Regular Limited Partner, QGP was not
required to make any distribution to such Regular Limited Partners.
Mr. Shields stated in his declaration that QGP “would have
reserved such funds rather than distribute them” if the Regular
Limited Partners had failed to execute the Undertaking. 	Hochman
Dec., Exhibit 4 at ¶ 18. 	While Debtor contends that this was never
communicated to him, Debtor’s subjective understanding or intent is
irrelevant. 	For the same reason, however, the Court finds Mr.
Shield’s statement equally irrelevant. 	The motivations of the
parties in entering into the contract are irrelevant.
Under Delaware law, the proper interpretation of language
in a contract is a question of law. 	When interpreting a
contract, a court’s task is to satisfy the reasonable
expectations of the parties at the time they entered into
the contract. 	In doing so, a court will only look at
evidence outside the contract where the provisions in
controversy are reasonably or fairly susceptible of
different interpretations or may have two or more different
meanings.
Alliance Data Sys. Corp. v. Blackstone Capital Partners V L.P., 963
A.2d 746, 759-60 (Del. Ch. 2009) (citations and quotations omitted).
With respect to provisions of a limited partnership agreement:
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Only if the partners have not expressly made provisions in
their limited partnership agreement or [] the agreement is
inconsistent with mandatory statutory provisions, will [a
court] look for guidance from the statutory default rules,
traditional notions of fiduciary duties, or other extrinsic
evidence.
In re LJM2 Co-Investment, L.P., 866 A.2d 762, 777 (Del. Ch. 2004).
The simple controlling fact is that nothing in the QGP Agreement
obligated QGP to make distributions to the Regular Limited Partners
rather than reserve such funds for potential future liabilities -–
either before or after the execution of the Undertaking. 	There is
no ambiguity on this point.
Debtor argues that this position is “absurd because such conduct
would have violated QGP’s purported contractual obligations
to the other limited partners who had signed the Undertaking.”
Memorandum of Points and Authorities in Support of Motion of Debtor-
in-Possession Edward L. Scarff for Summary Judgment on Questor
General Partner, L.P.’s Amended Proof of Claim (“Debtor’s MPA”) at
14:7-9. 	The Court disagrees. 	While Debtor is correct that the QGP
Agreement requires distributions to be made to all Regular Limited
Partners if a distribution is made to any individual Regular Limited
Partner, QGP was under no obligation to make any distributions to
any of the Regular Limited Partners -- even after the execution of
the Undertaking.
The issue of consideration for the Undertaking also arises in
another context not addressed by the parties –- could there have
been consideration for the Undertaking if Debtor had a pre-existing
fiduciary duty to return Debtor’s proportionate share of the
Clawback? 	Consideration is some right, interest, profit or benefit
accruing to one party, or some forbearance, detriment, loss or
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49 	Strauss Dec., Exhibit R; Debtor’s MPA at 15:5-7. 	QGP does
argue, however, that such a Clawback obligation can be inferred,
even before the existence of the Undertaking, from the fiduciary
duty owed by Debtor to QGP and the Fund, as discussed earlier.
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responsibility, given, suffered, or undertaken by the other.
R ESTATEMENT (S ECOND ) OF CONTRACTS §§ 17(1), 71 (1979). 	The consideration
given in the Undertaking was not only an agreement by Debtor to
return distributions made to Debtor to the extent necessary to
satisfy the Clawback. 	The consideration also included the addition
of a clearly defined, written contractual obligation to the
harder-to-enforce equitable remedy (of the Regular Limited Partners’
fiduciary obligations), which gave QGP the comfort level necessary
to allow QGP to make the interim distributions requested by the
Regular Limited Partners. 	The Court finds that QGP’s breach of
contract cause of action is an alternative basis of recovery by QGP;
and the breach of contract and breach of fiduciary duty causes of
action are not mutually exclusive.
The Court finds QGP’s points well-taken on this issue and finds
that the Undertaking does not fail for lack of consideration.
2. 	Invalid Amendment to QGP Agreement
Both parties now acknowledge that there is no express Clawback
obligation by Debtor under either the Fund Agreement or the QGP
Agreement. 49 	Debtor argues that the applicable contract between the
parties was the QGP Agreement. 	Since the QGP Agreement references a
Clawback obligation but limits the Clawback obligation to the
Special Limited Partners, the contract is not ambiguous as to
whether Debtor had a Clawback obligation. 	If the contract is not
ambiguous, argues Debtor, then a Clawback obligation on the Debtor’s
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50 	QGP suggests that the Undertaking may instead be viewed as
an independent contract between the parties. 	However, the Court
finds it very difficult to view these obligations as truly
independent when the very purpose of the Undertaking was to
influence the later distributions made by QGP under the QGP
Agreement.
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part cannot be implied through the use of extrinsic evidence --
i.e., the Undertaking. 	See Express Shuttle, Inc. v. Older, No.
Civ.A. 19596, 2002 WL 31458243, at *6 (Del. Ch. Oct. 23, 2002);
United Rentals, Inc. v. Ram Holdings, Inc., 937 A.2d 810, 830 (Del.
Ch. 2007).
What Debtor’s argument fails to account for, however, is raised
by Debtor in another context -- while the QGP Agreement may not be
ambiguous, the Undertaking was, to use the Court’s own words from a
prior hearing as quoted by Debtor, a “very substantial change” in
the contractual rights between the parties. 	Strauss Dec., Exhibit Q
at 7:6-9. 	In other words, the Undertaking was an amendment to the
contract between the parties. 	Black’s Law Dictionary defines
“amendment” as:
A formal revision or addition proposed or made to a
statute, constitution, pleading, order, or other
instrument; specif., a change made by addition, deletion,
or correction; esp., an alteration in wording.
BLACK ’S LAW DICTIONARY (9 th ed. 2009) (definition of “amendment”). 	See
also Katell v. Morgan Stanley Group, Inc., Civ. A. No. 12343, 1993
WL 390525, at *1 n.1, 19 Del. J. Corp. L. 797, 799 n.1 (Del. Ch.
Sept. 27, 1993) (modification changing authority to settle
litigation from two partners to one partner constituted an amendment
to the partnership agreement). 50 	Through the Undertaking, the
Regular Limited Partners agreed to take on an additional contractual
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51 	Debtor cites no controlling authority under the limited
partnership laws of the state of Delaware, but notes that “in the
absence of Delaware authorities addressing an issue in the limited
partnership context, analogues to corporate law may be applied.”
Debtor’s MPA at 16 n.1 (quoting Katell v. Morgan Stanley Group,
Inc., Civ. A. No. 12343, 1993 WL 205033, at *2 (Del. Ch. June 8,
1993)). 	With respect to informed consent under Delaware corporate
law, Debtor cites Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998)
(under Delaware corporate law, board must disclose fully and fairly
all material information when it seeks shareholder action); Zaucha
v. Brody, Civ. A. 15638-ND, 1997 WL 305841, at *5 (Del. Ch. June 3,
1997), aff’d, 697 A.2d 749 (Del. 1997) (full and fair disclosure
required by board when seeking shareholders’ written consent);
Millenco L.P. v. meVC Draper Fisher Jurveston Fund I, Inc., 824
A.2d 11, 19 (Del. Ch. 2002) (invalidating election of directors
because of omission from proxy materials of information bearing on
the independence of two directors); and In re Centcom Cable Income
Partners, L.P. Litig, No. C.A. 14634, 2000 WL 640676 (Del. Ch.
May 5, 2000) (finding limited partners did not impliedly amend the
partnership agreement to allow termination of priority
distributions when the limited partners approved a sales
transaction authorizing the sale of the partnership). 	Further,
Debtor argues that all ambiguities are resolved against QGP as the
drafter of the contract. 	Katell, 1993 WL 205033 at *4; Strauss
Dec., Exhibit D at 25:15-26:7, 27:15-20.
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responsibility -- i.e., to return to funds paid, if necessary -- to
reduce QGP’s risks of a potential Clawback shortfall and thereby
induce QGP to make future distributions to the Regular Limited
Partners at a time when QGP may not have otherwise done so.
This leads to Debtor’s next defense to the enforceability of the
Undertaking -- was the Undertaking an improper and unenforceable
amendment to the Partnership Agreement? 	Debtor notes that the QGP
Agreement requires “written consent” of a “majority of the total
[Regular Limited Partner] interests” for an amendment to be
effective. 	Strauss Dec., Exhibit C at 18-19 § 17. 	Debtor argues
that “written consent” necessarily means informed written consent. 51
Debtor argues that instead of giving full and fair disclosure
regarding the materiality of the change effected by the Undertaking,
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52 	Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.,
817 A.2d 160, 	170 (Del. 2002) (citations and quotations omitted).
See also D EL . CODE ANN . tit. 17, § 1101(c).
53 	Pami-Lemb I Inc. V. Emb-Nhc, LLC, 857 A.2d 998, 1003 (Del.
Ch. 2004).
54 	Continental Ins. Co., 750 A.2d at 1229 (“[I]t is settled
law that contract provisions deeming oral modifications
unenforceable can be waived orally or by a course of conduct just
like any other contractual provision.”).
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the memorandum accompanying the Undertaking presents the endorsement
of the Undertaking as simply a way to “confirm” a supposedly
previous obligation and as a housekeeping matter “for good order’s
sake.” 	See Strauss Dec., Exhibit Q at 53:5-20; Strauss Dec.,
Exhibit F at 2.
QGP responds that if the Undertaking is considered an amendment
to the QGP Agreement, then the Undertaking is a valid and
enforceable amendment to the contract. 	First, QGP argues, without
citing any authority, that partners may freely amend their
partnership agreements at any time and no consideration is
necessary. 	Therefore, per QGP, Debtor’s defense that the
Undertaking lacked consideration fails ipso facto.
Next, QGP notes that the amendment of a Delaware limited
partnership agreement is governed by the DRULPA, which “embodies the
policy of freedom of contract and maximum flexibility.” 52 	QGP notes
that Delaware partnership agreements may be amended by letter
agreements or side letters, 53 and may even be deemed to have been
amended orally, or by a course of conduct, even where, as here, the
partnership agreement requires amendments to be in writing. 54 	Thus,
says QGP, the written Undertaking would certainly “qualify as an
amendment under Delaware law.” 	QGP’s MPA at 18:22-23.
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Although formal written consent is not required for an amendment
under the DRULPA, QGP argues that such formal written consent was,
in fact, given. 	The Undertaking was executed by all of the
shareholders and directors of QGP’s general partner, QPI, as well as
all of the Regular Limited Partners of QGP. 	This written consent to
the amendment by the parties satisfies even the requirements of
Section 17 of the QGP Agreement. 	Even without Debtor’s written
consent to the Undertaking, the Undertaking was still approved by a
majority of the impacted parties, which is sufficient to make the
amendment enforceable.
Next, QGP argues that Debtor is barred from even challenging the
Undertaking as an unenforceable amendment. 	Debtor signed the
Undertaking in 1998 and did not suggest that the Undertaking may
have been an improper amendment to the QGP Agreement until 2007,
some nine years later. 	QGP argues it would be inequitable to allow
Debtor to challenge the Undertaking years later. 	Simon v. Navellier
Series Fund, 2000 WL 1597890, at *8 n.38 (Del. Ch. Oct. 19, 2000)
(stating that it would be inequitable to allow a party to raise a
challenge seven years after an amendment) (citing Cont’l Ins. Co.,
750 A.2d at 1240 (“one who has full knowledge of and accepts the
benefits of a transaction may be denied equitable relief if he or
she thereafter attacks the same transaction”)).
Finally, QGP addresses Debtor’s arguments regarding “informed
consent” and the alleged failure to communicate the materiality of
the change effected by the Undertaking. 	QGP argues that the cases
cited by Debtor -- Brincat and Cencom Cable -- do not support
Debtor’s argument. 	QGP notes that the “informed consent” at issue
in both of those cases was class-based, meaning disclosures made to
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the entire shareholder class eligible to vote on the issue, not
individually-based. 	The other members of the “class” impacted by
the Undertaking are the other Regular Limited Partners of QGP and
shareholders of QPI -- all of whom executed the Undertaking,
returned their pro rata portion of the Clawback when requested to do
so, and presumably are additionally at risk of being responsible for
the unpaid portions of the Clawback attributable to Debtor. 	No
other member of this “class” has alleged being misled or not fully
informed with respect to the Undertaking. 	Debtor’s purported
misunderstanding does not, per QGP, vitiate the acceptance of the
Undertaking as an amendment to the QGP Agreement by every other
member of this class. 	In addition, QGP notes that unlike the
shareholders in Brincat and Cencom Cable, “[Debtor] is not in the
position of a poorly informed, passive investor. 	He was a fully
participating director of QPI and QMC and a Principal of the Fund.”
QGP’s MPA at 21:6-8.
Once again, the Court finds QGP’s arguments well-taken. 	The
Court finds that the requirements of both Section 17 of the QGP
Agreement and the DRULPA are met such that the Undertaking is a
valid amendment to the QGP Agreement. 	Although the language of the
transmittal letter by Mr. Shield’s accompanying the Undertaking may
appear, standing alone and in the absence of the extensive
relationship between the parties, to gloss over the contractual
change created, the record clearly demonstrates that Debtor was not
a misled, poorly informed, passive investor being taken advantage of
by insiders. 	While the Undertaking effectuated a substantial change
in the contractual relationship between the parties, the
Undertaking, at the same time, merely documented a pre-existing
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fiduciary obligation owed by Debtor, as discussed above, to return
Debtor’s proportionate share of the Clawback. 	When the pre-existing
fiduciary obligation is considered, Mr. Shield’s description in his
cover letter and the lack of any opposition to the Undertaking by
the Regular Limited Partners are quite understandable and not at all
“dramatic.” 	The Undertaking was an amendment to the contractual
relationship between the parties made for the benefit of the Regular
Limited Partners, including Debtor.
3. 	Breach of Fiduciary Duty owed by QGP to Debtor
The final defense raised by Debtor in response to QGP’s claim of
breach of contract is an alleged breach of fiduciary duty owed by
QGP to Debtor. 	Debtor notes, “Absent a contrary provision in the
partnership agreement, the general partner of a Delaware limited
partnership owes the traditional fiduciary duties of loyalty and
care to the Partnership and its partners.” 	Gotham Partners, L.P. v.
Hallwood Realty Partners, L.P., 2000 WL 1476663, at *11, 27 Del. J.
Corp. L. 247 (Del. Ch. Sept. 27, 2000) (footnote omitted). 	Debtor
asserts that QGP breached QGP’s fiduciary obligations to Debtor by
failing to disclose the materiality of the change purportedly
effected by the Undertaking.
QGP responds to this argument by pointing out that Debtor
himself was a director of QPI and QMC, the general partner and
manager of QGP. 	For that reason, QGP argues that the fiduciary duty
was owed by Debtor, not to Debtor. 	At best, asserts QGP, this issue
raises a question of fact which would preclude summary judgment in
Debtor’s favor.
This defense by Debtor is essentially the same as Debtor’s
materiality argument on the issue of an alleged improper amendment
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to the QGP Agreement. 	For the same reasons as noted above, the
Court finds this defense equally unpersuasive when viewed as a
potential fiduciary duty owed to Debtor. 	Again, the record clearly
shows that Debtor was not a naive, ill-advised, passive investor.
Debtor was a highly sophisticated investor and one of four
principals who held various roles and titles in the make-up of the
Fund’s component parts.
Although the Gotham Partners decision cited by Debtor references
the default rule of a fiduciary duty standard of care from a general
partner to a limited partner, Gotham Partners goes on to recognize:
But § 17-1101(d)(2) of DRULPA expressly authorizes the
elimination, modification, or enhancement of these
fiduciary duties in the written agreement governing the
limited partnership. . . . Therefore, where the Partnership
Agreement provides the standard that will govern the duty
owed by a General Partner to its partners in self-dealing
transactions, it is the contractual standard and not the
default fiduciary duty of loyalty’s fairness standard that
exclusively controls.
Gotham Partners, 2000 WL 1476663 at *10. 	The Delaware Chancery
Court has also held:
Thus where the parties have a more or less elaborated
statement of their respective rights and duties, absent
fraud, those rights and duties, where they apply by their
terms, and not the vague language of a default fiduciary
duty, will form the metric for determining breach of duty.
In re Marriott Hotel Properties II Ltd. P’ship Unitholders Litig.,
1996 WL 342040, at *5 (Del. Ch. June 12, 1996). 	The Court finds
that the various agreements and relationships between Debtor and the
other principals constitute such an elaborated statement of rights
and duties, and it would be inappropriate to impose the more
general, default fiduciary duty owing by a general partner to a
passive limited partner in this context.
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Summary judgment in QGP’s favor is merited on the basis of QGP’s
claim of breach of contract since the defenses raised by Debtor to
QGP’s breach of contract claim fail as a matter of law, QGP has made
a prima facie showing, and Debtor has failed to identify a genuine
issue of material fact.
C. 	Promissory Estoppel
Debtor’s motion also includes a request for summary judgment as
to QGP’s claim for recovery under the theory of promissory
estoppel. 55
In order to establish a claim for promissory estoppel,
a plaintiff must show by clear and convincing evidence
that: (i) a promise was made; (ii) it was the reasonable
expectation of the promisor to induce action or forbearance
on the part of the promisee; (iii) the promisee reasonably
relied on the promise and took action to his detriment; and
(iv) such promise is binding because injustice can be
avoided only by enforcement of the promise.
Lord v. Souder, 748 A.2d 393, 399 (Del. 2000) (citing Keating v.
Board of Educ. Of Appoquinimink School Dist., 1993 WL 460527, at *4
(Del. Ch. Nov. 3, 1993)).
QGP argues that each of these elements is present with respect
to QGP’s claim against Debtor. 	In signing the Undertaking, Debtor
communicated to QGP that Debtor would return Debtor’s share of any
subsequent distributions made to Debtor if necessary to satisfy the
Clawback obligation. 	QGP asserts QGP reasonably relied on this
promise in making distributions. 	All of QGP’s Regular Limited
Partners made such a promise of repayment, and each distribution
that was made to them included a note reminding the Regular Limited
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Partners of such. 	Every other Regular Limited Partner has remitted
that limited partner’s proportionate share of the Clawback and
honored this promise to QGP.
Debtor responds that QGP cannot establish the element of
reasonable reliance and, therefore, QGP’s entire claim of promissory
estoppel fails. 	First, Debtor argues that QGP’s behavior fails to
show QGP relied in any way on the alleged promise made through the
Undertaking. 	For some time after the Undertaking, QGP continued to
distribute and escrow roughly the same percentages of carried
profits that QGP had distributed and reserved prior to the
Undertaking.
Next, Debtor argues that even if reliance is met, such reliance
could not have been “reasonable.” 	Debtor notes that the Undertaking
imposed upon Debtor an obligation not contained in the QGP
Agreement. 	Rather than disclosing this material change, the
Undertaking was presented to Debtor as a general housekeeping matter
merely confirming -- “for good order’s sake” -- a pre-existing
Clawback obligation. 	Strauss Dec., Exhibit F at 2. 	Debtor argues
that this nondisclosure was a breach of the fiduciary duty of
disclosure owed to Debtor as a limited partner by QGP. 	Because the
“promise” of repayment was obtained through a breach of this
fiduciary duty owed to Debtor, QGP, as a matter of law, could not
have reasonably relied on the alleged promise. 	Notwithstanding the
express language of the Undertaking itself -- which states the
Undertaking is being made “to induce [QGP] and [QPI] to make
distributions to the undersigned in the future” -- Debtor insists
Debtor was never told Debtor’s execution of the Undertaking was
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necessary to induce QGP to make future distributions. 	Strauss Dec.,
Exhibit K.
Again, the Court finds the facts do not support Debtor’s
arguments. 	The Undertaking and each transmittal letter accompanying
a distribution made to Debtor by QGP acknowledge and reaffirm that
the payment being made is “subject to the [Undertaking] previously
signed confirming [Debtor’s] obligation to pay this and all future
distributions back to the General Partner to the extent necessary to
allow the General Partner to make good on its clawback obligation to
the limiteds.” 	Strauss Decl., Exhibits F, L, Z, AA, BB, CC, DD, EE,
FF and GG. 	The evidence presented demonstrates that distributions
were being made to QGP’s Regular Limited Partners to “facilitate
[their] payment of 1997 taxes” on their partnership interests and
because such principals had indicated they “need[ed] the money.”
Strauss Decl., Exhibit F; Shields Decl., Exhibit 3. 	These same
Regular Limited Partners clearly had some degree of control over
these distributions because the Regular Limited Partners not only
disagreed over the allocations proposed but, in fact, asked Mr. Alix
to distribute said funds. 	Shields Dec., Exhibit 3. 	Debtor was one
of four individuals who held interests as Regular Limited Partners
of QGP. 	The evidence does not indicate a breach of fiduciary duty
of disclosure by QGP to such Regular Limited Partners. 	To the
contrary, the Regular Limited Partners clearly received regular
disclosures about the financial status of the Fund and detailed
calculations of the potential Clawback obligation.
Under the facts presented, a reasonable trier of fact could find
that QGP’s reliance on Debtor’s promise, as contained in the
Undertaking, to honor the Clawback was reasonable, under a theory of
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promissory estoppel, even if the Undertaking is not an enforceable
contract. 	Therefore, a genuine issue of material fact exists as to
the issue of reasonable reliance. 	Debtor’s request for summary
judgment on QGP’s claim of promissory estoppel is, therefore,
denied, subject to the potentially applicable statute of repose to
be discussed below.
D. 	Unjust Enrichment
Debtor’s motion also seeks summary judgment as to QGP’s claim of
unjust enrichment.
Unjust enrichment is the unjust retention of a benefit
to the loss of another, or the retention of money or
property of another against the fundamental principles of
justice or equity and good conscience. 	In finding a party
is entitled to an equitable remedy for unjust enrichment,
courts look to several factors: (1) an enrichment, (2) an
impoverishment, (3) a relation between the enrichment and
the impoverishment, (4) the absence of justification, and
(5) the absence of a remedy provided by law. 	Of cardinal
significance is whether a contract already governs the
parties’ relationship. In short, if there is a contract
between the complaining party and the party alleged to have
been enriched unjustly, then the contract remains the
measure of [the] plaintiff’s right.
MetCap Sec. LLC v. Pearl Senior Care, Inc., 2007 WL 1498989, at *5
(Del. Ch. May 16, 2007) (footnotes, citations, and quotations
omitted).
QGP argues that, if the Undertaking is not an enforceable
contract, unjust enrichment would apply to render Debtor liable for
Debtor’s share of the Clawback to the extent Debtor received
distributions in excess of such Clawback. 	Debtor received over $3.4
million, of which $2,913,748 ultimately turned out to be more than
Debtor was entitled to receive. 	QGP argues Debtor was unduly
enriched and QGP was correspondingly impoverished by this
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56 	Claims for unjust enrichment may survive a motion to
dismiss, however, when the validity of the underlying contract is
uncertain. 	Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL
3927242, at *18 (Del. Ch. Oct. 10, 2006); Student Fin. Corp. V.
Royal Indem. Co., 2004 WL 609329, at *7 (D. Del. Mar. 23, 2004).
57 Debtor’s MPA at 21:12.
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overpayment. 	QGP asserts there is no equitable justification to
allow Debtor to retain the distributions, and, if the Undertaking is
invalidated, there would be no remedy at law.
Debtor responds that QGP’s claim of unjust enrichment fails
because an express, enforceable contract controls the relationship
between QGP and Debtor -- namely, the QGP Agreement. 	If, as noted
above, a contract exists, then a claim of unjust enrichment will not
stand. 	Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL
3927242, at *18-19 (Del. Ch. Oct. 10, 2006). 56 	If the Undertaking
fails -- which is the only circumstance under which QGP’s claim of
unjust enrichment would arise -- then the parties are left with the
QGP Agreement’s contractual provisions governing distributions. 	As
stated by Debtor, “[t]here is nothing ‘unjust’ about [Debtor]
asserting his rights under that contract.” 57
The Court finds Debtor’s arguments with respect to QGP’s unjust
enrichment claim compelling. 	There are two potential contracts
governing distributions by QGP to Debtor -- the QGP Agreement and
the Undertaking. 	If the Undertaking is enforceable, then QGP’s
claim of unjust enrichment is inapposite. 	If the Undertaking is not
enforceable, then the parties are necessarily left with the
contractual rights outlined in the QGP Agreement. 	While promissory
estoppel may be a remedy, a valid and enforceable contract precludes
the application of the theory of unjust enrichment. 	Therefore,
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58 	Debtor initially argued in his papers that subsection (c)
applied to all claims to recover distributions made under Delaware
limited partnership law, including claims pursuant to a contract.
Debtor revised this argument when QGP responded by quoting “the
leading treatise on the DRULPA” for the proposition that “the
statute of limitations provided by Section 17-607(c) does not apply
to return obligations contractually provided in a partnership
agreement.” 	M ARTIN I. LUBAROFF & PAUL M. A LTMAN , LUBAROFF & ALTMAN ON
DELAWARE L IMITED P ARTNERSHIPS § 6.10 (2006). 	Debtor’s final position
was that title 6, section 17-607(c) of the Delaware Code bars QGP’s
claims for breach of fiduciary duty, promissory estoppel and unjust
enrichment -- but not QGP’s claim for breach of contract.
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summary judgment in Debtor’s favor is merited as to QGP’s claim of
unjust enrichment.
E. 	Statute of Repose
Debtor’s final defense to QGP’s non-contractual causes of action
is that such causes of action are barred by the applicable statute
of repose. 58 	Debtor cites Delaware Code section 17-607, which
provides as follows:
§ 17-607. Limitations on distribution
(a) A limited partnership shall not make a
distribution to a partner to the extent that at the time of
the distribution, after giving effect to the distribution,
all liabilities of the limited partnership, other than
liabilities to partners on account of their partnership
interests and liabilities for which the recourse of
creditors is limited to specified property of the limited
partnership, exceed the fair value of the assets of the
limited partnership, except that the fair value of property
that is subject to a liability for which the recourse of
creditors is limited shall be included in the assets of the
limited partnership only to the extent that the fair value
of that property exceeds that liability. For purposes of
this subsection (a), the term “distribution” shall not
include amounts constituting reasonable compensation for
present or past services or reasonable payments made in the
ordinary course of business pursuant to a bona fide
retirement plan or other benefits program.
(b) A limited partner who receives a distribution in
violation of subsection (a) of this section, and who knew
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at the time of the distribution that the distribution
violated subsection (a) of this section, shall be liable to
the limited partnership for the amount of the distribution.
A limited partner who receives a distribution in violation
of subsection (a) of this section, and who did not know at
the time of the distribution that the distribution violated
subsection (a) of this section, shall not be liable for the
amount of the distribution. Subject to subsection (c) of
this section, this subsection shall not affect any
obligation or liability of a limited partner under an
agreement or other applicable law for the amount of a
distribution.
(c) Unless otherwise agreed, a limited partner who
receives a distribution from a limited partnership shall
have no liability under this chapter or other applicable
law for the amount of the distribution after the expiration
of 3 years from the date of the distribution.
D EL . CODE A NN . tit. 6, § 17-607.
Debtor argues that title 6, section 17-607(c) of the Delaware
Code is a statute of repose, eliminating any potential liability of
limited partners for distributions after three years. 	Here, the
undisputed facts establish that Debtor received his last
distribution from QGP on August 17, 2000. 	Strauss Dec., Exhibit GG.
Debtor filed his Chapter 11 bankruptcy petition on July 31, 2003.
QGP asserted an informal proof of claim on October 2, 2003 and,
thereafter, filed an “amended” formal proof of claim on November 21,
2005. 	Debtor notes that the assertion of QGP’s claim, even
informally, occurred more than three years after the final
distribution was made to Debtor -- specifically, three years, one
month and fifteen days after such final distribution. 	Therefore,
argues Debtor, even if Debtor had an obligation to return the funds
sufficient to satisfy the Clawback, such an obligation expired prior
to the assertion of QGP’s Claim.
QGP’s response to this statute of repose argument is that the
parties “otherwise agreed” –- as allowed by section 17-607(c) of the
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Delaware Code -- through the Undertaking. 	This, argues QGP, takes
QGP’s claim outside the scope of section 17-607. 	Through the
Undertaking, all of the principals agreed
to restore to the General Partner and to Questor
Principals, Inc. any distributions heretofore or hereafter
made to the undersigned out of the distributions made to
the General Partner pursuant to the GP Carry Distributions
Sections to the extent necessary to furnish the
undersigned’s pro rata share of the amount necessary [for
the Clawback]. . . .
Such agreement, argues QGP, is an acceptance of “liability . . . for
the amount of the distribution after the expiration of 3 years from
the date of the distribution.” 	D EL . CODE ANN . tit. 6, § 17-607(c).
Debtor, in turn, responds that the Undertaking does not mention
section 17-607 or any three-year statute of repose. 	Without such an
express acknowledgment, argues Debtor, the parties did not
“otherwise agree” to waive the provisions of section 17-607(c) of
the Delaware Code. 	Scharf v. Edgcomb Corp., 2004 WL 718923, at *15
(Del. Ch. Mar. 24, 2004) (“[A]s a general matter, a waiver of the
statute of limitations must be express because of the strong policy
considerations underlying the enactment of statutes of
limitations.”), rev’d on other grounds, 864 A.2d 909 (Del. 2004).
QGP responds that even if the Undertaking is not viewed as an
express agreement to waive the provisions of section 17-607(c), the
Undertaking was an implied agreement to accept liability for the
return of distributions over three years after such distributions,
since its express purpose was to assure payment of a Clawback that
is an accounting that is made at the end of the life of the Fund.
As even noted in Scharf:
These [strong policy considerations] have led commentators
to generalize that “[t]he promise of the defendant not to
raise the defense of the expiration of the limitations
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period must either be express or couched in words clearly
conveying the defendant's intention not to plead the
statutory bar.”
Scharf, 2004 WL 718923 at *15 	(quoting United States v. Richardson,
889 F.2d 37, 40 (3d Cir. 1989)).
The central question, therefore, is whether Debtor clearly
conveyed Debtor’s intent to remain liable for the Clawback through
Debtor’s execution of the Undertaking. 	Any ambiguities on this
issue must be resolved against QGP as the drafter of the
Undertaking. 	Holiday Homes of St. John, Inc. v. Lockhart, 678 F.2d
1176, 1184 (3d Cir. 1982) (“ambiguities in a contract should be
resolved against the party who drafted it”); R ESTATEMENT (S ECOND ) OF
CONTRACTS § 206 (1981).
The Court finds that the Undertaking is not ambiguous on this
matter. 	Through the Undertaking, Debtor agreed to be “irrevocably”
“legally bound” to restore any distributions made “to the extent
necessary to furnish the undersigned’s pro rata share” of the
Clawback obligation defined in Section 10.3 of the QGP Agreement.
This was not an indefinite period, as was the issue in Richardson.
The Clawback, by definition, would be determined at the end of the
lifetime of the Fund. 	Although there is no date specified for
determination of the Clawback, the lifetime of the Fund was still a
finite period.
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III.
CONCLUSION
For the above-stated reasons, the Court finds:
(1) 	Partial summary judgment in QGP’s favor is merited as to
QGP’s fiduciary duty cause of action in the amount of
$2,913,748;
(2) 	Partial summary judgment in QGP’s favor is merited as to
QGP’s breach of contract cause of action in the amount of
$2,815,929.99, the total amount of the distributions made
by QGP to Debtor after his execution of the Undertaking;
(3) 	Partial summary judgment cannot be entered in Debtor’s
favor with respect to QGP’s promissory estoppel cause of
action because a genuine issue of material fact exists with
respect to QGP’s reasonable reliance on Debtor’s promise to
repay the Clawback;
(4) 	Partial summary judgment in Debtor’s favor is merited as to
QGP’s unjust enrichment cause of action; and
(5) 	Partial summary judgment in QGP’s favor is merited as to
the inapplicability of Delaware Code section 17-607 on
Debtor’s promise to repay the Clawback.
Counsel for QGP shall prepare a proposed form of order
consistent with the Memorandum Decision, which should be circulated
to Debtor’s counsel for review and approval as to form and content
prior to submission to the Court.
*** END OF MEMORANDUM DECISION ***
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Court Service List
Edward L. Scarff
631 Morningside Rd.
Los Altos, CA 94022
Edward L. Scarff
542 Pentoga Trail
Crystal Falls, MI 49920
Gayle Green, Esq.
Binder & Malter LLP
2775 Park Avenue
Santa Clara, CA 95050
Jeffrey S. Facter, Esq.
Shearman & Sterling LLP
525 Market Street, Suite 1500
San Francisco, CA 94105-2723
Sean T. Strauss, Esq.
Shearman & Sterling LLP
525 Market Street, Suite 1500
San Francisco, CA 94105-2723
Harry Hochman, Esq.
Pachulski Stang Ziehl & Jones LLP
10100 Santa Monica Blvd., 11 th Floor
Los Angeles, CA 	90067-4100
Joshua M. Fried, Esq.
Pachulski Stang Ziehl & Jones LLP
150 California Street, 15 th Floor
San Francisco, CA 94111-4500
Sheldon S. Toll, Esq.
Law Office of Sheldon S. Toll
2000 Town Center
Suite 2550
Southfield, MI 48075
Sheldon S. Toll, Esq.
Law Office of Sheldon S. Toll
2000 Town Center
Suite 2100
Southfield, MI 48075
Office of the U.S. Trustee
280 S. 1 st St. #268
San Jose, CA 95113-3004
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