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Plaintiff,
Index No. __________
-against-
COMPLAINT
PIPE EQUITY PARTNERS, LLC, PIPE SELECT FUND,
LLC, and HULL CAPITAL MANAGEMENT, LLC,
Defendants.
herein, upon personal knowledge as to matters relating to itself and upon information and belief
as to all other matters, alleges as follows against Defendants PIPE Equity Partners, LLC (“PIPE
Equity”), PIPE Select Fund, LLC (“PIPE Select”) (together with PIPE Equity, the “PIPE
NATURE OF ACTION
This is a classic case of “buyers’ remorse” on the part of Defendants, who now —
in an unjustified and lawless manner — seek to break the express agreement between the parties
and thereby deprive Highmount of its legitimate interest in two investment funds, PIPE Equity
and PIPE Select, which are managed by Hull. Under the direction of Hull, PIPE Equity was a
significant investor in another fund, AJW Qualified Partners II, LLC (“AJW”), and sought to
increase its stake in AJW even further in early 2009. To that end, in January 2009, PIPE
Equity acquired Highmount’s interest in AJW — which was significantly smaller than PIPE
Equity’s own interest at the time — in exchange for Highmount obtaining an interest in the PIPE
Funds. The purchase price was based upon the value of Highmount’s AJW interest as
determined and communicated by AJW as of December 31, 2008, and, consistent with fund
industry practice, was “subject to any adjustments arising from AJW’s annual audit”, which had
not been completed. Defendants, however, have not waited for AJW’s audit to be completed, let
alone any principled re-valuation based on audit results. Instead, they simply have proclaimed
— in breach of both contractual and fiduciary duties — that they unilaterally are forcing
Highmount out of the PIPE Funds, unwinding the parties’ transaction, and segregating for
Highmount its originally purchased AJW interest. Despite repeated requests, Defendants have
also refused for many months to provide to Highmount the financial information that Highmount
is contractually obligated to receive, and that is provided to all other investors, concerning its
investment in the PIPE Funds. No lawful, legitimate basis exists for Defendants to take such
Defendants are not only liable to Highmount for actual and punitive damages for their
misconduct, but immediate injunctive relief is warranted to address the irreparable harm to
Highmount from its exclusion as a participant in the ongoing activities of the PIPE Funds and the
THE PARTIES
State of Delaware, with its registered office at 12 East 49th Street, New York, New York, 10017,
with its principal place of business located at the same address. Highmount is an investment
fund that invests capital from members under the direction of its manager, Highmount Capital,
LLC (“Highmount Capital"), which exercises authority, among other things, to make investment-
related decisions, to take legal action, and otherwise administer business affairs on behalf of
Highmount.
2. PIPE Equity is a limited liability company organized under the laws of the
State of Delaware, with its registered office at 350 Madison Avenue, 11th Floor, New York, New
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York 10017, and with its principal place of business located at the same address. PIPE Equity is
an investment fund that invests capital from members under the direction of its manager Hull.
3. PIPE Select is a limited liability company organized under the laws of the
State of Delaware, with its registered office at 350 Madison Avenue, New York, New York
10017, and with its principal place of business located at the same address. PIPE Select is an
investment fund that invests capital from members under the direction of its manager Hull.
4. Hull is a limited liability company organized under the laws of the State of
Delaware, with its registered office at 350 Madison Avenue in New York, New York, 10017,
and with its principal place of business located at the same address.
FACTUAL BACKGROUND
substantial stake in AJW. Based on its own investment strategy and plan, PIPE Equity in
conjunction with Hull was desirous of increasing its holding in AJW. At the time, Highmount
held an interest in AJW that was smaller than the interest that PIPE Equity held. In furtherance
of its investment strategy, PIPE Equity negotiated a transaction with Highmount in order to
acquire Highmount’s interest in AJW. For their part, Hull and PIPE Equity had sophisticated
and Transfer” (the “Agreement”) effective as of January 1, 2009. Under the Agreement,
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Highmount contributed and transferred its right, title and interest in AJW to PIPE Equity “in
exchange for a membership interest in the Assignee [PIPE Equity].” As a material part of the
bargain between the parties, the Agreement establishes that the value of the AJW interest being
acquired by PIPE Equity (the “Contributed Property”) is based on AJW’s own valuation of the
interest at the time as communicated by AJW. Specifically, the agreement provides that the
AJW interest or Contributed Property being acquired by PIPE Equity has a value equal to
$4,629,500, and is “(based on the unaudited value of the Assignor’s [Highmount’s] interest in
AJW Qualified Partners, LLC (“AJW”) as of December 31, 2008), subject to any adjustments
arising from AJW’s annual audit” for 2008. The provision making the valuation “subject to” a
future adjustment if, and only if, warranted thereafter by specific AJW annual audit results, is
consistent with custom and practice in the fund industry where audit findings take varying times
to complete. The Agreement imposes no deadline by which AJW’s annual audit will be issued.
Nor does the Agreement require an AJW annual audit to be issued as a condition of the
9. The valuation set forth in the Agreement was based on valuation data
received by both parties from AJW, which had issued a completed audit for 2007 that itself
10. In recognition that PIPE Equity was a member of AJW prior to the
execution of the Agreement and therefore had access to information from, and direct knowledge
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acknowledges and affirms the sufficiency thereof. In entering into this
Assignment Agreement, Assignee has not been induced by nor has it
relied upon any representations, warranties or statements, whether express
or implied, made by Assignor [Highmount] or any agent, employee or
other representative of the Assignor or any broker or other person
representing or purporting to represent Assignor, whether or not any
representations, warranties or statements were made in writing or orally,
other than those set forth herein.
11. The Agreement contains no provision that provides Hull with the
unilateral right to unwind the transaction and redeem Highmount’s interest in PIPE Equity.
2009, Highmount’s interest in PIPE Equity was divided between the PIPE Funds. At around the
time of the restructuring, a cash distribution was made to Highmount as a result of the
transaction (as well as to all other investors who elected the same restructuring option as
Highmount), which confirmed the parties’ performance under the Agreement and the validity of
B. Without Basis or Justification, Hull Takes Steps to Unwind the Parties’ Transaction
and Redeem Highmount’s Interest in the PIPE Funds
completed audit of AJW as an excuse to force Highmount out of the PIPE Funds. In the course
of several communications in which Hull claimed to Highmount Capital that it could unwind the
transaction and in essence extinguish Highmount’s interest in the PIPE Funds on the grounds that
no AJW audit had yet been issued for 2008, Highmount through its manager made clear that Hull
and the PIPE Funds had no lawful basis for such action. For example, Highmount objected to
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purposes of determining the value of the Contributed Property pursuant to
the Agreement. The fact that no audited financial statements have been
issued confirms that the agreed-upon valuation under which Olympic
received its interest in PIPE Equity and its subsequent interest in both of
the Hull Funds, stands and is not currently subject to adjustment. Hull has
no grounds whatsoever to rescind the Agreement or otherwise interfere in
any way with Olympic’s interest in the Hull Funds.
14. Without addressing the merits of Highmount’s position, Hull reiterated its
intention to unwind the transaction effected by the Agreement by letter dated March 29, 2010.
According to the letter, Hull stated that it planned to cause the AJW interest contributed to PIPE
Equity by Highmount to be segregated from the investment portfolio of PIPE Equity, thereby
extinguishing Highmount’s participation in the PIPE Funds. Recognizing the illegality of this
threat, Hull alternatively stated that, apart from formally rescinding the Agreement, it would
nonetheless seek to reach a similar result by unilaterally redeeming Highmount’s interest in PIPE
response to Hull’s March 29, 2010 letter to Highmount, Highmount again objected to Hull’s
In your letter, Hull Capital Management, LLC (“Hull”) threatens (i) to rescind the
Agreement of Assignment and Transfer between Highmount Olympic and PIPE
Equity Partners, LLC (“PIPE Equity”), dated as of January 1, 2009 (the
“Assignment Agreement”), or (ii) to involuntarily redeem in kind Highmount
Olympic from PIPE Equity as of April 3, 2010. In either case, it appears that Hull
intends to segregate the interests in AJW Qualified Partners II, LLC (“AJW”)
contributed by Highmount Olympic under the Assignment Agreement and hold
them in trust for Highmount Olympic’s benefit. For the reasons set forth below,
Highmount Capital and Highmount Olympic demand that you refrain from
pursuing either course of action, as each is unlawful. The Assignment Agreement
is an enforceable, fully executed contract under which both Highmount Olympic
and PIPE Equity performed.
In the same letter of April 2, 2010, Highmount further noted that Hull’s March 29, 2010 letter
omitted the fact that PIPE Equity was a member of AJW prior to the execution of the Agreement
and that “therefore, each party had access to the same information from AJW.”
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15. During the period since Defendants have been seeking to exclude
Highmount from its rightful participation in the PIPE Funds, Defendants have denied Highmount
— in disregard of contractual obligations —basic financial information about its interest in the
PIPE Funds, including their performance. To that end, Defendants also have terminated
repeated requests to Defendants for financial information have been to no avail, which is
significantly detrimental to Highmount’s ability to carry out its own business affairs.
Funds have been made to investors other than Highmount. For example, in January 2010,
Highmount was entitled to receive cash distributions in excess of $315,000, but Defendants
failed to make any payments to Highmount while other investors received distributions.
grounds that the AJW audit remains outstanding and public disclosures have been made about
alleged “kick backs” and other activities by AJW personnel subject to governmental
extinguish Highmount’s interest in the PIPE Funds. Defendants have never shown that any
alleged activities that have been subject to investigation have a bearing, let alone a material
bearing, on the value of the AJW interests acquired from Highmount by the PIPE Funds.
18. On July 9, 2010, Hull audaciously sent an email to Highmount that it was
“moving forward” in implementing its threats to usurp Highmount’s interest in the PIPE Funds.
Immediately, Highmount objected yet again in writing and stated that Hull’s conduct in
unilaterally unwinding the transaction and extinguishing Highmount’s interest in the PIPE Funds
is unlawful and in breach of the Defendants’ various duties. But Defendants have refused to
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C. Highmount Will Be Irreparably Harmed Absent Injunctive Relief
interest in the PIPE Funds, Highmount faces irreparable injury. For example, without injunctive
relief, Highmount faces the risk of not being able to fully account for its own interest in the PIPE
Funds. Thus, as investors enter and exit Highmount’s investment portfolio in the ordinary course
of business, they are redeeming and receiving interests without a confirmed participation in, and
important financial information (including valuation information) about their indirect investment
in the PIPE Funds. This could affect Highmount’s accounting and inventory, causing ongoing
20. To its ongoing detriment, Highmount was required to write down its PIPE
Funds investments due to the uncertainty created by Defendants’ wrongful actions. Except for
Defendants’ misconduct, this accounting writedown is otherwise unwarranted and has affected
Highmount’s ability to record and collect certain fees, to proceed to completion with its own
audit activities, and to issue certain fund-related tax and other information to Highmount
investors.
interest in the PIPE Funds would be difficult – if not impossible – to fully remedy. Thus,
Highmount could not be returned fully by monetary damages alone to the position it previously
22. Plaintiff repeats and re-alleges each and every allegation contained in
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23. The value of Highmount’s membership interest in the PIPE Funds is based
on the value of the AJW interest contributed to PIPE Equity by Highmount as of January 1, 2009
(known as the Contributed Property), which the parties agreed was $4,629,500 as of
December 31, 2008. No event has occurred that has altered the value of the Contributed
Property as of December 31, 2008, and its valuation at such amount for purposes of
24. Accordingly, the Court should declare that Highmount has a continuing
interest in the PIPE Funds, based on the value of its interest in AJW acquired by the PIPE Funds
under the Agreement, at the valuation of $4,629,500 as of the time of the effective date of the
Agreement.
SECOND CAUSE OF ACTION
(Breach of Contract Against the PIPE Funds)
25. Plaintiff repeats and re-alleges each and every allegation contained in
both Highmount and PIPE Equity performed. In extinguishing the interest of Highmount in the
PIPE Funds, PIPE Equity and PIPE Select have failed to comply with the terms of their
contractual obligations under the Agreement, thereby preventing Highmount from obtaining the
rights for which it bargained. The failure and refusal to provide financial information to
Highmount is in further breach of their obligations. In addition, the failure to make distributions
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27. Defendants have no legal or factual basis to justify Hull’s unilateral action
of extinguishing Highmount’s interest in the PIPE Funds and denying distributions and requested
28. As a direct result of their unlawful actions, PIPE Equity and PIPE Select
are liable for damages in an amount to be determined at trial, but which is believed to be in
excess of $5,000,000.
THIRD CAUSE OF ACTION
(Tortious Interference with Contract Against Hull)
29. Plaintiff repeats and re-alleges each and every allegation contained in
from the PIPE Funds, thereby preventing Highmount from obtaining the rights for which it
bargained. Among other things, Hull’s conduct has prevented Highmount from obtaining
distribution payments and financial information to which Highmount is entitled under the
Agreement.
PIPE Equity’s breach of the Agreement. Hull has no legitimate justification for acting to
32. As a direct result of its unlawful actions, Hull is liable for damages in an
33. Plaintiff repeats and re-alleges each and every allegation contained in
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34. As manager, Hull assumed and is subject to continual fiduciary and other
acting in a manner that places its own and other interests above the interests of Highmount and
not have its interest in the PIPE Funds fully restored, then Highmount will be deprived of its
value of the interest in the funds, which it bargained for and received pursuant to the Agreement.
36. As a direct result of its unlawful actions, Hull is liable for damages in an
37. Plaintiff repeats and re-alleges each and every allegation contained in
Highmount’s interest in the PIPE Funds — for no legitimate reason — has caused direct and
substantial financial detriment to Highmount and to its investors, both of whom rightfully
accepted the Agreement as creating binding legal obligations. As such, Defendants have failed
to act in good faith and have engaged in unfair dealing with Highmount.
39. As a direct result of its unlawful actions, Hull is liable for damages in an
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SIXTH CAUSE OF ACTION
(Injunctive Relief Against All Defendants)
40. Plaintiff repeats and re-alleges each and every allegation contained in
the PIPE Funds – which it would have possessed but for Defendants’ illegal actions – irreparable
harm will occur, as there is an overwhelming chance that unwinding the transaction effected by
the Agreement would not fully return Highmount to the position it previously occupied. A
failure to do so threatens to materially interfere with Highmount’s ability to fully account for its
interest in the PIPE Funds to its own investors and provide various forms of basic information to
investors necessary to manage both the fund’s affairs and individual investors’ own affairs.
Defendants’ misconduct is causing irreparable harm to Highmount, as its investors either redeem
from or subscribe for interests in Highmount in the ordinary course, because the value of its
take action with respect to its interest in the PIPE Funds, including to redeem or seek to sell its
interest in accordance with its rights in the Funds’ governing documents. Highmount thus faces
irreparable harm from being prevented from exercising these rights in a timely manner.
The requested equitable relief is necessary to force Defendants to meet their contractual and
fiduciary obligations. Accordingly, the Court preliminarily and permanently should enjoin each
of the Defendants and any agents or persons acting on their behalf from taking any actions to
extinguish Highmount’s interest in the PIPE Funds or otherwise interfere with Highmount’s
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continued participation in the PIPE Funds on the terms set forth in the Agreement, and without
adjustment prior to any completed AJW audit result for 2008 as stated in the Agreement.
declaring that Highmount has a continuing membership interest in the PIPE Funds, which
is based on the value of the AJW interest contributed by Highmount to the PIPE Funds as
set forth in the Agreement, at the valuation of $4,629,500 as of the effective date of the
Agreement;
(b) On the Second Cause of Action, compensatory damages against the PIPE
Funds in an amount to be proven at trial but believed to be not less than $5,000,000, plus
interest;
amount to be proven at trial but believed to be not less than $5,000,000, plus interest;
amount to be proven at trial but believed to be not less than $5,000,000, plus interest;
(e) On the Fifth Cause of Action, compensatory damages again all Defendants
in an amount to be proven at trial but believed to be not less than $5,000,000, plus
interest;
(f) On the Sixth Cause of Action, equitable relief in the form of a preliminary
and permanent injunction ordering all Defendants and any agents or other persons acting
on their behalf from taking any action to unwind, extinguish or interfere with
Highmount’s continuing PIPE Equity’s interest in the PIPE Funds on the terms set forth
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in the Agreement and without adjustment prior to any completed AJW audit results for
(g) An award of attorneys’ fees and costs against Defendants to the fullest
(i) Granting such other and further relief as the Court deems appropriate.
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