GB/Plasman Investors' Limited Partnership v. APP Holdings Limited Partnership et al.

[Indexed as: GB/Plasman Investors' Limited Partnership v.APP Holdings Limited Partnership]

Ontario Reports

Ontario Superior Court of Justice,

Newbould J.

August 22, 2013*

118 O.R. (3d) 201 | 2013 ONSC 5412

Case Summary

• This judgment was recently brought to the attention of the editors.

Partnership — Limited partnership — Right to information — Limited partner applying for order that it be given copies of limited partnership's most recent financial forecast, three-year budget projection and similar documents — Application granted — Limited partners entitled to contract out of right to information provisions of Limited Partnerships Act but information sought by applicant not falling within restriction in limited partnership agreement on access to "books of account reflecting the assets, liabilities, income and expenditures of the Partnership" — Applicant not required to give reason for seeking documents or to establish that it needed them.

The applicant was a limited partner of the respondent (the "limited partnership"). It brought an application for an order that it be given a number of [page202] documents, including a copy of the most recent financial forecast for the limited partnership for the balance of 2013, fiscal 2014 and fiscal 2015, a copy of the current three-year budget forecast for the limited partnership for the same period, and a copy of the most recent "cash day" presentation in respect of the limited partnership. The limited partnership took the position that the information was confidential and relied on a provision in the limited partnership agreement that the general partner has the right to deny access to "books of account reflecting the assets, liabilities, income and expenditures of the Partnership" if, in the opinion of the general partner acting reasonably, such information should be kept confidential.

Held, the application should be granted.

Limited partners may contract out of the right to information provisions in ss. 10 and 12 of the Limited Partnerships Act, R.S.O. 1990, c. L.16. However, the relevant clause in the limited partnership agreement did not prevent the disclosure of the information sought by the applicant, which could not be said to be the "books of account reflecting the assets, liabilities, income and expenditures of the Partnership". Even if the documents fell within the definition of "books", the respondents had provided no evidence of a risk that the applicant would disclose confidential information to someone who could harm the business of the limited partnership. The applicant did not have to provide a reason for wanting information to which it was entitled, or to establish that it needed that information.

Dal Bianco v. 593405 Ontario Ltd., [2004] O.J. No. 3121, [2004] O.T.C. 666, 49 B.L.R. (3d) 80, 132 A.C.W.S. (3d) 789 (S.C.J.), consd

Other cases referred to

Kingsberry Properties Ltd. Partnership (Re), [1997] O.J. No. 5352, 51 O.T.C. 252, 3 C.B.R. (4th) 124, 76 A.C.W.S. (3d) 480 (Gen. Div.); Rochwerg v. Truster (2002), 58 O.R. (3d) 687, [2002] O.J. No. 1230, 212 D.L.R. (4th) 498, 158 O.A.C. 41, 23 B.L.R. (3d) 107, 112 A.C.W.S. (3d) 962 (C.A.)

Statutes referred to

Limited Partnerships Act, R.S.O. 1990, c. L.16, ss. 10, (b), 12, (2)(a), 15(3)

Partnerships Act, R.S.O. 1990, c. P.5, ss. 20, 28, 46

APPLICATION for the production of records.

Robert S. Harrison, for applicant.

David E. Lederman and Hannah Arthurs, for respondents.

NEWBOULD J.: —

Parties

[1] The applicant, GB/Plasman Investors' Limited Partnership (the "applicant"), is a limited partner of the respondent APP Holdings Limited Partnership (the "Limited Partnership"). It applies for production of certain records of the Limited Partnership.

[2] The other two limited partners are Insight LP and PTED General Partnership. The general partner is the respondent APP Holdings Management Inc. The general partner is controlled by affiliates of Insight Equity Holdings LLC ("Insight"). [page203]

[3] The Limited Partnership was formed in December 2011 to acquire the Plasman business. Plasman carries on business as a manufacturer of injection-moulded and painted automotive components (e.g., side mirror housings, licence plate housings, structural plastic "under the hood", etc.). Plasman is a so-called "Tier 1" supplier to OEMs (i.e., original equipment manufacturers) in the automotive industry. Insight, a private equity firm located in Texas, provided financing to acquire Plasman and as a result acquired a 57 per cent interest in the Limited Partnership. The Limited Partnership also acquired the business of GreenBlue Inc. and Invotronics Inc. ("Invo") from shareholders of those businesses who through the applicant became limited partners of the Limited Partnership.

[4] Until recently, GreenBlue carried on the business of managing rights to technology relevant to the business of its wholly owned subsidiary Invo. Until recently, Invo carried on the business of manufacturing electronic components, primarily for the automotive industry. The general partner has now closed the business of Invo.

[5] Through its operating entities, the Limited Partnership's business employs some 1,100 employees and earns revenue in the order of a quarter-billion dollars a year.

Paul LaCroix and Invo

[6] Mr. LaCroix is the president of the applicant. He holds an approximate 25 per cent interest in the applicant. There are a total of 39 minority holders of units in the applicant. Mr. LaCroix was part of the management of and a shareholder in Invo before it was transferred to the Limited Partnership.

[7] The initial equity positions of Insight and the applicant in the Limited Partnership are subject to adjustment based on post-closing financial performance of the Limited Partnership and Invo. A "clawback" was included in the transaction because Insight agreed to value Invo assuming that it would be generating $8 million in annual EBITDA within a relatively short period of time after closing. The respondents claim that Mr. LaCroix made certain representations to the effect that future profitability of Invo was imminent and assured. The clawback re-adjusts the ownership interests in the Limited Partnership if Invo does not ultimately deliver a certain EBITDA.

[8] Mr. LaCroix became vice-chairman and chief development officer of the Limited Partnership upon its formation.

[9] The respondents claim that despite Mr. LaCroix's assurance regarding existing and immediate sales opportunities, by July 2012 Invo was generating far less and had failed to secure [page204] any new business since the closing of the formation of the Limited Partnership and was burning cash at a great rate. No action has been commenced regarding the right to a clawback, but one certainly cannot rule out such an action. The general partner has recently closed the Invo/GreenBlue business.

[10] On July 16, 2012, Mr. LaCroix was terminated, allegedly for cause, by the Limited Partnership. On July 20, 2012, Mr. LaCroix commenced an Ontario action against, among others, the Limited Partnership and the general partner, seeking an injunction to immediately restore him to his prior employment position. The proceeding was later withdrawn by Mr. LaCroix. Mr. LaCroix and another unitholder of the applicant who was also terminated by the Limited Partnership have now sued for damages for wrongful dismissal.

Request for Documents

[11] In the fall of 2012, the applicant began asking for financial documents and reporting about the business affairs of the Limited Partnership and its operating entities. Since then, the applicant and its litigation counsel have requested information and documents from the respondents on several occasions.

[12] In February 2013, Mr. LaCroix contacted Insight LP to discuss a proposal whereby Insight LP would make an offer to purchase the applicant's interest in the Limited Partnership.

[13] In March 2013, Insight LP made a proposal to purchase all of the Limited Partnership units held by the applicant and to settle all outstanding claims which Mr. LaCroix had against the Limited Partnership and the general partner. The March 2013 proposal was rejected because, among other reasons, Mr. LaCroix alleged that inadequate financial disclosure had been provided.

[14] On June 18, 2013, the general partner provided the applicant with copies of the audited financial statements of the Limited Partnership for the year ended December 31, 2012 and a budget for 2013. The applicant takes the position that the budget provided was not complete.

Information Sought on this Application

[15] The applicants seek an order that the following be immediately given to the applicant:

(i) a copy of the most recent financial forecast for the Limited Partnership and its operating entities for the balance of 2013, fiscal 2014 and fiscal 2015;

(ii) a copy of the current three-year budget projection (including any comparison to the budget projection previously [page205] provided to the applicant) for the Limited Partnership and its operating entities, including all supporting documentation in the possession, power or control of the general partner;

(iii) a copy of the most recent "cash day" presentation in respect of the Limited Partnership and its operating entities;

(iv) a copy of each "cash day" presentation or other financial reporting given to the general partner between the issuance of the notice of application and the disposition of this application;

(v) a copy of each "cash day" presentation or other financial reporting given to the general partner after the disposition of this application;

(vi) a copy [sic -- probably meant to say a record] of all payments made by the Limited Partnership and the operating entities in 2012 and 2013 to or on behalf of Insight, its affiliates and their officers, directors, employees, consultants and contractors; and

(vii) a copy of the reconciliation(s) of all fees charged to the Limited Partnership during and after the closing of the transactions that took place on December 29, 2011.

[16] There is no doubt that the three-year financial forecasts and the budgets for the balance of 2013, fiscal 2014 and fiscal 2015 exist and can be readily obtained, as can the information as requested in (vi) and (vii).

[17] The same can be said for the current "cash day" presentation. These are PowerPoint presentations. The general partner receives the "cash day" presentations on a regular monthly basis at meetings attended by 30 or 40 employees along with representatives of Insight. During these presentations, employees of the operating entities present detailed written analysis of the various operating divisions' financial performance, key performance indicators, capital expenditure, banking information, new business opportunities and awards, risk, market assessments and other business information. It is acknowledged by the applicant that some, but not all, of the information is sensitive and confidential.

Respondents' Position

[18] The position of the respondents is that the applicant is not entitled to the information which it seeks. It says that the information is confidential and it relies on a provision in the Limited Partnership agreement that gives the right to the [page206] general partner to deny certain information to a limited partner if it is considered confidential. That provision provides in part:

11.1 Partnership Records

A Limited Partner, however, will not have access to any information of the Partnership contained in its books and records (other that the Register) which the General Partner is required by legal or contractual restriction to keep confidential or which in the opinion of the General Partner acting reasonably, should be kept confidential in the interests of the Partnership.

(Emphasis added)

[19] The applicant says that it has rights in the Limited Partnerships Act to the information and that s. 11.1 of the Limited Partnership agreement cannot limit those rights. Alternatively, it says that s. 11.1 properly interpreted does not apply to the documentation it seeks.

Rights under the Limited Partnerships Act and the Partnerships Act

[20] The applicant relies on rights to information available to limited partners in the Limited Partnerships Act, R.S.O. 1990, c. L.16 ("LPA") contained in ss. 10 and 12:

10. A limited partner has the same right as a general partner,

(a) to inspect and make copies of or take extracts from the limited partnership books at all times;

(b) to be given, on demand, true and full information concerning all matters affecting the limited partnership, and to be given a complete and formal account of the partnership affairs[.]

12(2) A limited partner may from time to time,

(a) examine into the state and progress of the limited partnership business and may advise as to its management[.]

(Emphasis added)

[21] The applicant says that the LPA provides in some sections for a limited partner to contract out of provisions in the LPA (e.g., s. 15(3) dealing with the return of a partner's contribution) but that there are no provisions permitting the contracting out of the rights to information contained in ss. 10(b) and 12(2)(a). Thus, the applicant contends that any restrictions on the right to information contained in s. 11.1 of the Limited Partnership agreement are contrary to the rights of limited partners in the LPA and unenforceable.

[22] The respondents contend that contracting out of those rights is permitted by the Partnerships Act. Section 20 of the Partnerships Act, R.S.O. 1990, c. P.5 provides: [page207]

20. The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealing.

[23] In my view, the respondents are correct on this contention. While the Partnerships Act is a statute dealing with partnerships generally, there is no provision in it that precludes it from applying to limited partnerships set up under the LPA. To the contrary, s. 46 of the Partnerships Act provides that it "is to be read and construed as subject to the Limited Partnerships Act . . .". I take that to mean that the Partnerships Act applies to a limited partnership but if some provision in the Partnerships Act is inconsistent with a provision in the LPA, the LPA is to govern. Farley J. came to the same conclusion in Kingsberry Properties Ltd. Partnership (Re), [1997] O.J. No. 5352, 3 C.B.R. (4th) 124 (Gen. Div.) in stating that a limited partnership was governed not only by the LPA but also by the Partnerships Act except to the extent that the LPA superseded the Partnerships Act.

Effect of Section 11.1 of the Limited Partnership Agreement

[24] The applicant contends that if s. 11.1 [of the Limited Partnership agreement] is binding, properly construed it does not apply to the kind of information sought by the applicant and does not contract out of the wide rights to information protected by ss. 10 and 12 of the LPA.

[25] Section 11.1 provides in full:

11.1 Partnership Records

The General Partner shall keep . . . proper and complete records, including a copy of the Declaration, all Filings and a copy of the Initial Limited Partnership Agreement and this Agreement and any amendments thereto, and books of account reflecting the assets, liabilities, income and expenditures of the Partnership and a record including, among other things, a list of the names and addresses of all the Limited Partners and a record of the number of Units held by each of the Partners (the "Register"). The General Partner shall, from time to time, make all Filings with any governmental authority that are required to be made by the Partnership. Such books, records and registers will be kept available for inspection by and at the sole expense of any Limited Partner or its duly authorized representatives during regular business hours at the office of the General Partner, and a Limited Partner or its representatives shall be entitled to make copies or extracts therefrom with the consent of the General Partners, which consent shall not be unreasonably withheld. A Limited Partner, however, will not have access to any information of the Partnership contained in its books and records (other than the Register) which the General Partner is required by legal or contractual restriction to keep confidential or which in the opinion of the General Partner acting reasonably, should be kept confidential in the interests of the Partnership.

(Emphasis added) [page208]

[26] The applicant says that s. 11.1 refers to "books of account reflecting the assets, liabilities, income and expenditures of the partnership", which is narrower than the reference in s. 10(b) of the LPA to "information concerning all matters affecting the limited partnership" and to a "complete account of the partnership affairs". I agree with that contention. What is covered by s. 10(b) is much broader than the definition of books in s. 11.1 of the Limited Partnership agreement. The same can be said regarding what is covered in s. 12(2)(a) of the LPA by the language "the state and progress of the limited partnership business". In Rochwerg v. Truster (2002), 58 O.R. (3d) 687, [2002] O.J. No. 1230 (C.A.), Cronk J.A., at para. 72, held that "full information of all things affecting the partnership" referred to in s. 28 of the Partnerships Act was broader than the books and records of a partnership. The same is true with respect to ss. 10(b) and 12(2)(a) of the LPA.

[27] Thus, s. 11.1 does not contract out of the rights of a limited partner to information except if it is information that can be said to be the "books of account reflecting the assets, liabilities, income and expenditures of the partnership" that should be kept confidential.

[28] In my view, what is now sought by the applicant as contained in its factum and as confirmed by Mr. Harrison, as set out in para. 15, above, cannot be said to be the "books of account reflecting the assets, liabilities, income and expenditures of the partnership". Thus, I see no reason why the applicant is not entitled to the documents it seeks.

Confidentiality

[29] There is another reason why s. 11.1 does not prevent the disclosure of the information to the applicant. Even if the documents sought fell within the definition of "books" contained in that section, the general partner may refuse disclosure of information if in its opinion, acting reasonably, the information should be kept confidential in the interests of the partnership.

[30] In his affidavit, Mr. Kerlin for the respondents asserts that the "cash creation day" presentations consist of detailed operating information of the businesses of the Limited Partnership[^1] "which the Limited Partnership has a legitimate interest [page209] in preserving the confidentiality of this commercially sensitive information". One would have expected Mr. Kerlin to give evidence that the general partner considered the request of the applicant for information and concluded that it was reasonably required to keep the information confidential and away from the applicant because of some risk of disclosure. No such evidence was given. Regarding the financial forecasts requested by the applicants, these were disclosed and discussed at a meeting in Windsor attended by one minority limited partner.

[31] In any event, the issue of confidentiality would appear to be a non-issue. The respondents have provided no evidence of a risk that the applicant would disclose confidential information to someone that could harm the business of the Limited Partnership, and one may ask why the applicant would do so and undermine its very substantial investment, no doubt worth many millions of dollars.

[32] The applicant concedes that some of the information in the "cash day" presentations is sensitive and confidential, and has offered to sign a confidentiality agreement as set out in para. 14 of Mr. LaCroix's reply affidavit if the court requires it. That confidentiality agreement would be an undertaking by the applicant and Mr. LaCroix not to disclose the documents ordered to be produced to any person other than to (i) Mr. Earl Hughson, a significant indirect investor in the Limited Partnership through his units in the applicant and formerly the president and CEO of Invo and GreenBlue; (ii) Mr. Paul Howard, also a significant indirect investor in the Limited Partnership through his units in the applicant and formerly the chairman of GreenBlue; and (iii) the lawyers and the other professional advisors of the applicant. If necessary, Messrs. Hughson and Howard can also be required to give the same undertaking.

Reason for the Request for Documentation

[33] There have been discussions between the parties since this application was started regarding a form of confidentiality agreement to be signed by the applicant. The parties could not agree on its terms.

[34] The respondents are critical of the applicant for failing to agree to a clause that would prevent the applicant from using any of the information received in any subsequent litigation against the Limited Partnership or the general partner. In my view, the respondents had no right to such protection. For example, one of the concerns of the applicant has been that Insight has been paid more than permitted under the Limited Partnership agreement. If the information provided disclosed that to be [page210] the case, the applicant, a limited partner, would have a right to litigate the issue if not resolved. That is but one example.

[35] One of the terms required by the respondents, and asserted in argument on this application, is that the applicant must establish a reason for wanting the information. In their draft form of confidentiality agreement, the respondents inserted a provision that the information was for the sole purpose of determining the value of the investment of the applicant in the Limited Partnership.

[36] I disagree with the basis assertion that a limited partner must establish a reason for wanting the information which the LPA says the limited partner is entitled to. There may be a number of reasons, including wanting to value the interest of the limited partner. For example, a limited partner may want to examine into the state and progress of the limited partnership business and give advice as to its management, as permitted in s. 12(2)(a) of the LPA. The LPA does not require a reason to be given and the Limited Partnership has no right to require one to be given before information is provided to a limited partner.

[37] The respondents rely on the following statement of Cameron J. in Dal Bianco v. 593405 Ontario Ltd., [2004] O.J. No. 3121, 49 B.L.R. (3d) 80 (S.C.J.) [at para. 32]:

The LPA and the Partnership Agreement must be interpreted in their contexts of governing the relationships of the partners as partners, be they limited or general partners. Disclosure rights should be restricted to the legitimate interests of a partner in his or its capacity as a partner. Assertion of those rights for purposes not related to a legitimate partnership interest constitutes an abuse of the right.

[38] I do not read that statement as requiring a limited partner to provide a reason to the general partner for wanting information as permitted in the LPA. Rather, the statement was made in the context of a limited partner wanting information to be used by a non-partner of which he was its president. This is clear from the following statement of Cameron J. in that case [at para. 34]:

The inspection and audit rights of a partner cannot be extended to uses not related to the legitimate partnership interests of the partner. Those rights cannot be used to obtain information for the use of a non-partner, such as Deem, particularly where the non-partner is likely to use it for the purpose of litigation against the partnership or its general partner. Such a use would be an abuse of the partner's inspection rights under the LPA and under the Partnership Agreement. Deem must seek its information from unrestricted sources or in the litigation process.

[39] In this case, if the respondents established that the applicant wants to use the information unrelated to its legitimate interests as a limited partner, that would be one thing. The respondents, however, have not established that. [page211]

[40] The respondents assert in argument that while at one time there were discussions between the parties regarding Insight acquiring the interests of the applicant, Insight has now terminated those discussions and thus there is no legitimate reason for the applicant to have the information it seeks. For the reasons given, I do not regard that as any reason for the information to be denied by the respondents to the applicant.

[41] The respondents assert in argument that because Mr. LaCroix and Mr. Hughson have sued the Limited Partnership for wrongful dismissal, this should prevent them from having the information as it is asserted they must want the information for their lawsuit. Why that is so is not disclosed in any evidence. Whether the Limited Partnership had cause to terminate them will require a canvassing of past events prior to their termination. The issues appear to relate to alleged misrepresentations made to Insight regarding the prospects of Invo that induced Insight to invest in the Limited Partnership and to allegations of gross negligence and inefficiency and wilful misconduct on the part of Mr. LaCroix and Mr. Hughson. The future prospects of Plasman would not appear to be relevant. There are no future prospects of Invo as the general partner of the Limited Partnership has shut that business down.

[42] The respondents also assert that counsel for the applicant has threatened litigation regarding the clawback asserted by Insight to be available to it because of the failure of the Invo business, and that the information sought may be used in any such litigation. Again, the future prospects of Plasman would not appear to be relevant. There are no future prospects of Invo as the general partner of the Limited Partnership has shut that business down.

[43] In any event, if the information were relevant to the clawback issue, the applicant, a limited partner in the Limited Partnership, would be entitled to it even if there were litigation between the applicant and the Limited Partnership. The information concerns the legitimate interests of the applicant as a limited partner in the Limited Partnership.

[44] The respondents assert that Mr. LaCroix has made clear that the applicant does not need the documentation it seeks. This is based on a statement made by him to minority investors in the applicant after he was shown the 2012 financial statements and a budget for 2013. The respondents refer to the following sentence in his report to the minority investors: "I can tell you that, on the basis of this limited information, the company appears to be stable, making reasonable returns, and at first glance is a safe and valuable investment." [page212]

[45] I do not accept this as a reason to deny the applicant its statutory rights. As stated, it is not for the applicant to establish a need for the information satisfactory to the respondents. Moreover, Mr. LaCroix went on to say in his report to the minority investors that he had not yet received a copy of the extended business plan that he had asked for or any current financial or operational reporting, and that in order to fully assess the value of the business and the security of their investment, he needed this additional information which he had again asked for. Mr. LaCroix explained this again on his cross-examination.

Conclusion

[46] The applicant is entitled to have immediately delivered to it all of the documentation sought by the applicant and referred to in para. 15, above, with the exception of the comparison referred to in para. 15(ii), which I understand does not exist. The documentation is readily available on a computer and easily obtained. It clearly is information of the kind described in ss. 10(b) and 12(2)(a) of the LPA. There are to be no redactions from the documentation.

[47] The respondents say that there should be no order with respect to any future documents as requested in para. 15(v), and says that Cameron J. in Dal Bianco, supra, established the principle that no future documents should be ordered. I do not agree. Cameron J. did not purport to lay down any such principle, nor could he. Each case must be determined on its own facts. In that case, Cameron J. exercised his discretion in dismissing the application for continuing disclosure.

[48] In this case, the respondents have fought the release of the information to the applicant. The applicant has established a right to the information, and the "cash day" presentations will continue monthly and the three-year forecasts updated from time to time. It makes no sense for the applicants to have to come to court each time to seek production of that information. If there is some legitimate reason other than what has been asserted in this application why the information should not be produced, the general partner may move for any appropriate relief.

[49] The respondents have not established any need for confidentiality undertakings to be provided by the applicant. However, the applicant and Mr. LaCroix are prepared to provide an undertaking and should do so as set out in para. 32, above, as should Messrs. Hughson and Howard if they are to be provided with the information. [page213]

[50] The applicant is entitled to its costs. If these cannot be agreed, brief written submissions along with a proper cost outline may be made within ten days and the respondents shall have ten further days to file a brief written reply.

Application granted.

Notes

[^1]: Mr. Kerlin also asserted that while the "cash creation day" presentations contained information of the businesses of the Limited Partnership, they related solely to the business of Plasman and were not information relating to the Limited Partnership. This makes no sense, as the business of the Limited Partnership is Plasman, and counsel for the respondents acknowledged that in argument. It was part of legal argument in the affidavit of Mr. Kerlin dressed up as evidence.

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