Lone Star R E. Management Company II, Ltd v Hugh J. Ward. III
| Jurisdiction | Bermuda |
| Judge | Hargun CJ |
| Judgment Date | 12 January 2023 |
| Docket Number | CIVIL JURISDICTION COMMERCIAL COURT |
| Court | Supreme Court (Bermuda) |
[2023] SC (Bda) 2 Civ.
In The Supreme Court of Bermuda
The Hon. Chief Justice
CIVIL JURISDICTION COMMERCIAL COURT
2022:19
(As General Partner of Lone Star Real Estate Partners II, L.P.)
(As General Partner of Lone Star Real Estate Partners III, L.P.)
(As General Partner of Lone Star Real Estate Partners IV, L.P.)
Mr Rhys Williams and Ms Ariana Caines of Conyers Dill & Pearman for the Plaintiffs
Mr Dantae Williams of Marshall Diel & Myers for the Defendant
These proceedings were commenced by the Plaintiffs by Generally Endorsed Writ of Summons dated 27 January 2022 claiming injunctive relief and/or permanent injunction and/or damages by reason of the Defendant's (1) breach of the express terms of confidentiality contained in the Amended and Restated Limited Partnership Agreements between the Plaintiffs and the Defendant dated 1 October 2010, 1 November 2013, and 1 May 2015; (2) breach of duty of confidence owed to the Plaintiffs in respect of all confidential information of the Plaintiffs; (3) breach of the implied term of good faith and fidelity to the Plaintiffs; and (4) breach of this implied term as to the duty not to misuse any information confidential to the Plaintiffs.
By an ex parte Order dated 28 January 2022 the Court ordered that unless given prior written permission by the Plaintiffs or permitted to do so by a further order of the Court, the Defendant must not use, copy, disseminate, sell or otherwise disclose to any third party any Confidential Information (as defined in paragraph 1.2 of the Order) acquired directly or indirectly by the Defendant. The Court also ordered that the Defendant must preserve and must not otherwise alter or dispose of the Confidential Information in its possession without the express permission of the Plaintiffs.
On 28 November 2022 the Court heard an application on behalf of the Plaintiffs seeking an order pursuant to RSC Order 24 rule 3 and/or rule 7 that the Defendant provide discovery by list within 21 days stating whether any document falling within the following categories of documents is, or has at any time been, in his possession, custody or power, and if not then when he parted with it and what has become of it:
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(a) All documents containing Confidential Information (as defined in the Order dated 28 January 2022).
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(b) All correspondence by which Defendant disclosed Confidential Information to any third party, private or governmental.
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(c) All non-privileged correspondence in which Defendant discussed or referred to the Confidential Information, or otherwise relating to the Confidential Information.
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(d) All non-privileged documentation of meetings or phone calls in which Defendant disclosed Confidential Information to any third party, private or governmental.
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(e) All documents (whether or not containing confidential information) belonging to the Plaintiffs.
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(f) All documents received by the Defendant in his capacity as an employee of Hudson Americas, LLC (“ Hudson”), Lone Star U.S. Acquisitions, LLC, and Lone Star North America Acquisitions (NY), LLC, or in his capacity as a limited partner and which remain in his possession, custody or power.
The Court also notes that the there are three additional applications pending, namely, an application by the Plaintiffs requesting further and better particulars of the Defence; an application by the Defendant requesting further and better particulars of the Statement of Claim; and an application by the Defendant that the Statement of Claim be struck out and/or summarily dismissed principally on the ground that the claims asserted by the Plaintiffs against the Defendant disclose no reasonable cause of action. It is agreed by Counsel that the applications for further and better particulars should await the outcome of the present discovery application.
The background to these proceedings is set out in the first affidavit of Rebecca Williams Smith, the Senior Managing Director of Lone Star Global Acquisitions, LLC, dated 27 January 2022 Ms Williams Smith states that the Plaintiffs, incorporated in Bermuda, are the general partners of their respective Bermuda Limited partnerships, and together they and their affiliated entities and individuals are engaged in private equity investments (together the “ LS Group”). Lone Star was founded by Mr John Grayken in 1995. Lone Star has organised over twenty funds (“ the Funds”) with aggregate capital commitments totalling over $85 billion. The Funds' capital largely comes from sophisticated institutional investors, such as corporate and public pension funds, sovereign wealth funds, university endowments, foundations, and high net worth individuals.
Lone Star Global Acquisitions, Ltd, (“ LSGA”) is another Bermuda exempted company registered as an investment adviser with the United States Securities and Exchange Commission and has been engaged to provide investment services to the Funds.
In addition to the investment services provided by LSGA and its subsidiaries, the Funds have also engaged Hudson to provide complimentary investment services, such as due diligence, analysis, and asset management, along with ancillary administrative services such as legal, compliance, accounting, cash management, tax, information systems, human resources, and operating company oversight. Hudson is engaged through a services agreement with each Fund and is paid a fee for these services.
The Defendant's professional relationship with Lone Star and Hudson began in 2010, during which time he had numerous roles and acted in a variety of capacities, both as an employee of one or more Hudson and Lone Star entities, and as a limited partner of the Plaintiffs.
The Defendant began his employment as Senior Vice President of Underwriting, Real Estate-Americas for a Hudson predecessor entity. As part of this position, the Defendant was responsible for the analysis and structuring of the economic feasibility of short and medium-term distressed real estate investments, and he was expected to analyse and structure new transactions and make recommendations to Lone Star senior executives.
In early 2013, the Defendant's employment was transferred to Lone Star U.S. Acquisitions, which at the time was a subsidiary of LSGA, and thereafter he became a high-ranking employee and officer within the LS Group and continued to provide investment services to the Funds, including to their respective Partners-GP, the Plaintiffs in these proceedings. In mid-2016, the Defendant's employment was again transferred to Lone Star North America Acquisitions (NY), LLC, now known as Lone Star Americas Acquisitions, Inc, a subsidiary of LSGA.
The Defendant was ultimately elevated to Co-Head of North American Commercial Real Estate before the end of his tenure in 2018. The Defendant was responsible for originating investments and overseeing such investments during the life of the Funds that he was involved with. The Defendant's employment with the LS Group ended with its termination on 1 March 2018.
The claims brought in these proceedings are brought by the entities with whom the Defendant had a limited partnership agreement and whose confidential information, it is claimed, is in the possession of the Defendant.
It appears that in early 2018, the Defendant came to the view that fees being paid by the Funds to Hudson were too high. Shortly after the Defendant's departure, Lone Star North America began receiving enquiries from various regulatory bodies regarding the Defendant's belief that the Funds were paying inflated fees to Hudson.
On 29 October 2020, the Defendant filed a Complaint in the Illinois courts along with 12 exhibits of over 300 pages, which the Plaintiffs claim contain highly confidential and commercially sensitive information. It appears that initially, the Complaint was filed under seal pursuant to the requirements of the Illinois False Claims Act, the statute under which the claims were brought. In the Illinois proceedings the Defendant claims damages in an amount equal to three times the amount of damages the Government Plaintiffs sustained as a result of the unlawful conduct of the defendants. The Defendant also seeks an order awarding him the maximum award allowed under the False Claims Act. If the Defendant is successful in the Illinois proceedings, he is seeking, according to Counsel for the Plaintiffs in these proceedings, a sum in the region of US $25 million.
The present state of the pleadings in the Bermuda proceedings is that the Plaintiffs filed their Statement of Claim on 13 April 2022. The Defendant filed his Defence on 24 June 2022. Following the filing of the Defence, the Plaintiffs' attorneys wrote to the Defendant's attorneys expressing the view that the Defendant's blanket denials result in a complete denial that he has any confidential information whatsoever, although he also avers that he is embarrassed in his Defence due to the Plaintiffs' failure to properly particularise what confidential information they assert he has. The Plaintiffs' attorneys took the position that in the present circumstances it was necessary for the Defendant to fully disclose what documents he has in his possession at this stage of the proceedings, so that the Plaintiffs can fully particularise their claim as to what information they say that the Defendant has in its possession which is subject to a duty of confidentiality. The Plaintiffs' attorneys also stated that specific discovery at this stage would significantly narrow the issues in dispute between the parties and would also allow the parties to consider whether to amend their pleadings at this stage.
In response the attorneys...
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