The website of Fox Paine portrays a veteran private equity firm led by the two men whose names are on the door – Saul Fox and W. Dexter Paine. But a closer look reveals an unusual discrepancy. Fox is chief executive of a firm called Fox Paine & Co., while Paine is the chief executive of a firm called Fox Paine Management III. A recently filed lawsuit partially explains this puzzle.

According to a complaint filed in late August in the Chancery Court of Delaware, Fox is suing Paine and Paine's new management company, charging his long-time business partner with breaches of fiduciary duty, breaches of contract, unjust enrichment and misappropriation of Fox Paine & Co.'s assets in such a way that Fox's firm is in danger of suffering “irreparable” damage.

The court documents paint a picture of a firm with a valuable brand and two founders who no longer wanted to work together, but who nevertheless continued operating under the same roof. Fox apparently initially agreed to allow Paine to form a new fund with Fox Paine as a name but without Fox himself as a manager. Now Fox claims that Paine “raided” the predecessor firm, stealing its professionals and improperly forcing through decisions regarding portfolio companies without Fox's approval.

In a statement, Paine said: “After so many years of working together, Dexter Paine and the employees of Fox Paine Management III are of course disappointed that Saul Fox has filed this suit. It has no merit, and we offered to mediate the issue, but were rebuffed. In setting up and managing Fox Paine Management III, LLC, we obtained a license from Fox Paine & Company and have always adhered to a set of mutually agreed-upon terms for sharing resources and costs.”

Fox, of course, tells a different and far more extensive story in his complaint. Fox Paine & Co. was founded in 1997 by Fox, a former lawyer and Kohlberg Kravis Roberts partner, and Paine, a Kohlberg & Co. investment pro (a firm that was itself the product of a split between Jerome Kohlberg and the two other founders of KKR). The next year, the firm closed its first fund on $500 million. A middle-market buyout brand was born. A second fund in 2000 raised $1 billion.

Fast forward to 2005, and Fox “did not desire to cosponsor another fund with Paine”, according to the complaint. Instead, Fox claims he wanted to “focus more attention on FPC non-fund opportunities”, according to the court documents. No further explanation is given for the split.

However, Fox claims that he agreed to license out the Fox Paine name to Paine's new firm, as well as allow Paine to use the track record, office, computers and, most importantly, the people of Fox Paine & Co., provided this did not interfere with the successful management of the two funds already raised. Fox Paine Management III raised a new fund (it is unclear how much was raised, although industry reports a year ago said the firm was targeting $1 billion).

Fox then claims that, while he was on a trip to Eastern Europe over the summer of 2006, Paine improperly hired away the CFO of Fox Paine & Co., Amy Ghisletta, and “almost every other FPC employee” to become employees of the new management company. Fox claims an email informing the employees that their new employer would be Fox Paine Management III was “concealed” from him.

Since then, the Fox Paine professionals have become “less respectful of, and less responsive to” Fox and his attempts to manage the assets of Fox Paine & Co., the lawsuit claims. Fox claims he confronted one Fox Paine deal pro, asking why he had abandoned “Fox's deal team” to work on Paineled deals, and was told: “It is what it is.” At one point an IT staffer refused to send out an email on behalf of Fox to the LP base, but eventually agreed to show Fox how to send it himself, according to the complaint. Then the firm's internet service “mysteriously went down” for two hours.

There were also disagreements as to what to do with remaining Fox Paine & Co. portfolio companies. Fox claims he was on another trip, this time to Australia, when Paine organised a board meeting at one portfolio company to consider a sale. Fox claims that when he got wind of this he canceled the remainder of his Australian trip to fly back and block the meeting.

Fox is asking for a number of items of relief in the suit, including that the Fox Paine “licensed assets” no longer be used by Paine.