Having heard back from the Delaware Supreme Court, the Eleventh Circuit dismissed a claim by an investor in a feeder fund against the master fund's general partners. The Delaware court had clarified that the investor's claim was derivative, not direct. Because the investor was not a partner of the master fund, he could not sue derivatively ( Culverhouse v. Paulson & Co., Inc., February 17, 2016, Pryor, W.).
The plaintiff invested in a feeder fund that, in turn, invested in Paulson Advantage Plus, L.P.. He sued this fund's managers for breach of fiduciary duty, gross negligence, and unjust enrichment resulting from the fund's losing investment in a Chinese forestry company. The Florida district court concluded that the claims were derivative and dismissed for lack of subject-matter jurisdiction. On appeal, though, the Eleventh Circuit was unsure whether Delaware law would hold the claims to be direct or derivative and first certified that question. The Delaware Supreme Court answered that the claims were derivative.
The circuit court then dismissed the lawsuit because the investor was not a partner of the master fund. The district court came to the right result, but it should have dismissed on the merits for failure to state a claim, rather than on jurisdictional grounds. Nevertheless, this error was harmless.