Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.
As always, Rosario summaries are “NMR” and Palley summaries are “SDP".
[related id=1] Greenhouse v. Polychain Fund I Lp & Polychain 2030, 2019 Del. Ch. LEXIS 194[NMR]
The teeny State of Delaware is where many corporations and other business ventures are incorporated in the U.S. What people may not be aware of is that Delaware has a specific court system called the Court of Chancery that handles all corporate litigation in Delaware. That court is extremely influential in the corporate world. This case involves Polychain, a blockchain fund incorporated in Delaware, and Greenhouse a former limited partner in their fund. If you have been paying attention to crypto for awhile Polychain should be familiar to you, because at one point they had a $1 billion in assets under management. So, what’s this dispute about? $$$$. Records. Standing.
At one time, Harry Greenhouse was a limited partner in Polychain. On Nov. 13, 2017, Polychain requested that their limited partners consent to the use of side pockets (these are accounts that typically hold hard to value and often illiquid assets) to hold certain investments. What investments? SAFTs, obviously. For those that don’t remember a SAFT is a Simple Agreement for Future Tokens that was designed to be akin to the SAFE, a Simple Agreement for Future Equity that was created by Y Combinator. Two weeks later Greenhouse informed Polychain he wanted out, and requested a full redemption of his capital account. Greenhouse claims he was told his account would be redeemed one way, Polychain says it was another way. The valuation dispute was focused on those illiquid assets, i.e. SAFTs. There was some back and forth between the parties, and a wire transfer to Greenhouse that he accepted, a demand see the books, a refusal, and ultimately Greenhouse files this lawsuit.
What is the real issue here? Well, during the back and forth Greenhouse made a formal demand to inspect Polychain's books. Why would he do that? So, that he could determine if his redemption amount was what it was supposed to be. Polychain ignored this initial request, and once the lawsuit was filed stated that Greenhouse didn’t have standing to inspect their books.
Standing is the legal concept that a party has to have sufficient connection to a case and harm at issue to bring the lawsuit in question. Limited partners in Polychain have a right, read standing, to inspect their books and records. This is common in partnerships of all types. Looking at the timeline of events shows where Greenhouse went wrong.