Culverhouse v. Paulson & Co., Inc.Annotate this Case
The United States Court of Appeals for the Eleventh Circuit certified a question of law arising out of an appeal of a decision by the United States District Court for the Southern District of Florida to the Delaware Supreme Court. Paulson Advantage Plus, L.P. (the “Investment Fund”) was a Delaware limited partnership that invested in corporate securities. Paulson Advisers, LLC, a Delaware limited liability company, and Paulson & Co., a Delaware corporation (the Investment Fund Managers) were the general partners and managers of the Investment Fund. One of the Investment Fund’s limited partners was HedgeForum Paulson Advantage Plus, LLC, (the “Feeder Fund”). The Feeder Fund was managed and sponsored by Citigroup Alternative Investments, LLC. AMACAR CPO, Inc. was the Feeder Fund’s managing member. Along with other investors, Plaintiff-appellant Hugh Culverhouse was a member of the Feeder Fund, not a limited partner in the Investment Fund. Culverhouse filed a putative class action against the Investment Fund Managers in the United States District Court for the Southern District of Florida. The first amended complaint alleged that between 2007 and 2011, the Investment Fund invested about $800 million in a Chinese forestry company. Following another investment firm’s report claiming that the forestry company had overstated its timber holdings and engaged in questionable related-party transactions, the Investment Fund sold its holdings for about a $460 million loss. On appeal of the dismissal for lack of standing, the United States Court of Appeals for the Eleventh Circuit determined that resolution of the appeal depended on an unsettled issue of Delaware law. The Eleventh Circuit posited the question to the Delaware Supreme Court on whether the diminution in the value of a limited liability company, serving as a feeder fund in a limited partnership, provides a basis for an investor’s direct suit against the general partners when the company and the partnership allocated losses to investors’ individual capital accounts and did not issue transferrable shares and losses were shared by investors in proportion to their investments. The Delaware Court answered in the negative.