Brian Olson, a hedge fund operator, sued his investing partners, Andreas Halvorsen and David Ott, for breach of contract, claiming
Brian Olson, a hedge fund operator, sued his investing partners, Andreas Halvorsen and David Ott, for breach of contract, claiming that they had orally amended the compensation provisions in the operating agreements of their limited liability companies (LLCs). The written agreements provided that if a founder left, he would receive only his capital account and earned compensation for that year. Over a year-and-a-half period, Olson's lawyers prepared and circulated nine drafts of a new operating agreement that would have given each founder a declining percentage of his interest for six years upon retirement or death. None of the three founders ever signed this new operating agreement. Although Olson was paid more than $100 million after he left the LLCs in 2005 (which represented his 2005 earned compensation and capital accounts), he claimed that Halvorsen and Ott had orally agreed to pay him the six-year declining interest contemplated by the draft operating agreement.
The LLCs were formed under Delaware law, which for more than a century has provided that contracts that cannot be performed within a year must be in writing. A Delaware statute enacted decades later provides that an LLC is not required to sign its "limited liability agreement." The Delaware LLC Act defines this to include "any agreement (whether referred to as a limited liability company agreement, operating agreement or otherwise) written, oral or implied, of the member or members as to the affairs of a limited liability company and the conduct of its business." (6 Del. C. § 18-101(7).)
Is Olson entitled to receive more than his 2005 earned compensation and capital account? How could Olson have avoided this lawsuit?
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