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Culverhouse v. Paulson & Co., Inc.

United States Court of Appeals, Eleventh Circuit

June 30, 2015

HUGH F. CULVERHOUSE, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
v.
PAULSON & CO. INC., PAULSON ADVISERS LLC, Defendants-Appellees

Appeal from the United States District Court for the Southern District of Florida. D.C. Docket No. 1:12-cv-20695-MGC.

For HUGH F. CULVERHOUSE, individually and on behalf of all others similarly situated, Plaintiff - Appellant: Harvey W. Gurland Jr., Robert L. Byer, Felice K. Schonfeld, Duane Morris, LLP, Miami, FL; Jason Kenneth Kellogg, Lawrence Allan Kellogg, Levine Kellogg Lehman Schneider Grossman, LLP, Miami, FL.

For Paulson & Co. Inc., Paulson Advisers LLC, Defendants - Appellees: Richard A. Edlin, Greenberg Traurig, LLP, New York, NY; Hilarie Fran Bass, Timothy Andrew Kolaya, Brigid F. Cech Samole, Elliot H. Scherker, Greenberg Traurig, LLP, Miami, FL.

Before WILLIAM PRYOR, JULIE CARNES, and SILER,[*] Circuit Judges.

OPINION

Page 1279

WILLIAM PRYOR, Circuit Judge:

This appeal involves a question of Delaware corporate law, which we certify to the Delaware Supreme Court. After Paulson Advantage Plus, L.P., lost approximately $460 million on an investment in a Chinese forestry company, Hugh Culverhouse filed a putative class action against general partners Paulson & Co. Inc., and Paulson Advisers LLC, for breach of fiduciary duty, gross negligence, and unjust enrichment. Culverhouse had invested in HedgeForum Paulson Advantage Plus, LLC, a " pass-through" or " feeder" fund that invests " substantially all of its capital" in Paulson Advantage Plus. Paulson & Co. and Paulson Advisers moved to dismiss for failure to state a claim and for lack of subject matter jurisdiction. After it concluded that Culverhouse's claims were derivative under Delaware law, the district court dismissed his amended complaint for lack of subject matter jurisdiction. Because this appeal depends on the resolution of an unsettled issue of Delaware law, we certify that issue to the Delaware Supreme Court.

I. BACKGROUND

Paulson Advantage Plus is a Delaware limited partnership that invests in corporate securities. Paulson & Co., a Delaware corporation, and Paulson Advisers, a Delaware limited liability company, serve as the general partners of Paulson Advantage Plus. Between 2007 and 2011, Paulson Advantage Plus invested approximately $800 million in Sino-Forest Corporation, a Chinese forestry company. After another investment firm issued a report that Sino-Forest had overstated its timber holdings and engaged in questionable related-party transactions, Paulson Advantage Plus sold its Sino-Forest shares at a loss of approximately $460 million.

After Paulson Advantage Plus sold its Sino-Forest shares at a loss, Culverhouse filed a putative class action against Paulson & Co. and Paulson Advisers for breach of fiduciary duty, gross negligence, and unjust enrichment. Culverhouse had invested in HedgeForum Paulson Advantage Plus, a " pass-through" or " feeder" fund sponsored by Citigroup Alternative Investments, LLC, which invests " substantially all of its capital," in Paulson Advantage Plus. HedgeForum gives investors the opportunity to invest in Paulson Advantage Plus for less than the $5 million minimum required for a limited partner interest.

Paulson & Co. and Paulson Advisers moved to dismiss for failure to state a claim and for lack of subject matter jurisdiction. Paulson & Co. and Paulson Advisers contended that because Culverhouse was an investor in HedgeForum and not a limited partner of Paulson Advantage Plus, they did not owe him fiduciary duties, and that even if they did owe Culverhouse fiduciary duties, he lacked standing because his claims were derivative under Delaware law. The district court ruled that Culverhouse's claims were derivative under Delaware law and dismissed his amended complaint for lack of subject matter jurisdiction. The district court did not address whether Culverhouse failed to state a claim.

II. STANDARD OF REVIEW

" We review dismissal for lack of subject matter jurisdiction de novo." Lobo v. Celebrity ...


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