[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

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No. 14-14526

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D.C. Docket No. 1:12-cv-20695-MGC

HUGH F. CULVERHOUSE, 

individually and on behalf of all others similarly situated,

 Plaintiff-Appellant,

versus

PAULSON & CO. INC., 

PAULSON ADVISERS LLC, 

 Defendants-Appellees.

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Appeal from the United States District Court

for the Southern District of Florida

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(June 30, 2015)

Before WILLIAM PRYOR, JULIE CARNES, and SILER,∗ Circuit Judges.

WILLIAM PRYOR, Circuit Judge: 

 ∗ Honorable Eugene E. Siler, Jr., United States Circuit Judge for the Sixth Circuit, sitting by 

designation.

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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 

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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 “passthrough” 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 

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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 Cruises, Inc., 704 F.3d 882, 891 (11th Cir. 2013).

III. DISCUSSION

Under Delaware law, a derivative suit “enables a stockholder to bring suit on 

behalf of the corporation for harm done to the corporation.” Tooley v. Donaldson, 

Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2004). But “a stockholder who 

is directly injured . . . retain[s] the right to bring an individual action for injuries 

affecting his or her legal rights as a stockholder.” Id. Any recovery obtained in a 

derivative suit “must go to the corporation,” while any recovery in a direct action 

“flows directly to the stockholders, not to the corporation.” Id. Stockholders

seeking to maintain a derivative action must “state with particularity . . . any effort

by the plaintiff to obtain the desired action from the directors or comparable 

authority and, if necessary, from the shareholders or members; and . . . the reasons 

for not obtaining the action or not making the effort.” Fed. R. Civ. P. 23.1(b)(3). 

Investors who file a direct action need not comply with this requirement. 

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Culverhouse argues that his claims against Paulson & Co. and Paulson 

Advisers are direct under Anglo American Security Fund, L.P. v. S.R. Global 

International Fund, L.P., 829 A.2d 143 (Del. Ch. 2003). In Anglo American, the 

Delaware Chancery Court held that claims brought by former limited partners of a 

hedge fund against the fund and the fund’s general partner and auditor were direct. 

Id. The limited partners contended that the general partner had “withdr[awn] funds 

from [his] capital account in violation of the partnership agreement; that this 

withdrawal exceeded the balance in the account; and that timely disclosure of the 

withdrawal was not given to the limited partners.” Id. at 151. The Chancery Court 

acknowledged that “Delaware . . . limited partnership cases have agreed that a 

diminution of the value of a business entity is classically derivative in nature,” but 

held that the limited partners’ claims were direct because “the operation and 

function of the Fund . . . diverge[d] . . . radically from the traditional corporate 

model,” id. at 151–152. The Chancery Court explained that the fund in Anglo 

American “operate[d] more like a bank with the individual partners each having 

[separate] accounts,” id. at 154, than a traditional corporation or limited 

partnership, because losses “confer[red] only a fleeting injury to the Fund” that 

accrued “irrevocably and almost immediately to the current partners but [did] not 

harm those who later bec[a]me partners,” id. at 152. And because the fund in Anglo 

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American had “no going-concern value” other than the general partner’s interest in 

management fees, id. at 154, did not issue transferable shares, and liquidated the 

interests of withdrawing partners, “[a]ny recovery obtained by the Fund in a 

derivative action [could not] provide a remedy to wronged former partners nor to 

their (non-existent) successors in interest,” id. at 152. Instead, “if the Fund,” as 

opposed to individual partners, “were to recover damages for diminution of Fund 

value,” limited partners admitted after the losses were incurred “would receive a 

windfall.” Id. at 153. 

The fund in Anglo American is similar to Paulson Advantage Plus and 

HedgeForum. Like the fund in Anglo American, Paulson Advantage Plus and 

HedgeForum are structured so that all profits and losses are allocated to investors’ 

individual capital accounts, and neither fund issues transferable shares. As in Anglo 

American, any losses suffered by Paulson Advantage Plus and HedgeForum accrue 

“irrevocably and almost immediately to” investors, but do not harm those who 

invest after the losses, id. at 152. And any recovery in this litigation could not 

“provide a remedy to wronged former partners nor to their (non-existent) 

successors in interest,” id. 

But later developments in Delaware law make us hesitant to hold that Anglo 

American controls this appeal. After Anglo American was decided, the Delaware 

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Supreme Court clarified the law of derivative suits. In Tooley, the Delaware 

Supreme Court explained that an analysis of whether claims are direct or derivative 

“must be based solely on the following questions: Who suffered the alleged 

harm—the corporation or the suing stockholder individually—and who would 

receive the benefit of the recovery or other remedy?” 845 A.2d at 1035. In 

establishing these steps as the “sole[]” inquiries relevant to an analysis of whether 

a claim is direct or derivative, the Court “expressly disapprove[d]” of the “special 

injury” test employed in some of its previous opinions, according to which “a 

claim is necessarily derivative if it affects all stockholders equally.” Id. at 1039

(internal quotation marks omitted). Although the analysis in Anglo American

appears consistent with the analytical framework set forth in Tooley, the Southern 

District of New York has questioned whether Anglo American remains good law 

after Tooley. See Newman v. Family Mgmt. Corp., 748 F. Supp. 2d 299, 314 n.12 

(S.D.N.Y. 2010); Saltz v. First Frontier, LP, 782 F. Supp. 2d 61, 78 n.15 

(S.D.N.Y. 2010). Accordingly, we conclude that this appeal depends on the 

resolution of unsettled Delaware law.

IV. CERTIFICATION

We certify the following question to the Delaware Supreme Court: Does the 

diminution in the value of a limited liability company, which serves as a feeder 

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fund in a limited partnership, provide the basis for an investor’s direct suit against 

the general partners when the company and the partnership allocate losses to 

investors’ individual capital accounts and do not issue transferable shares and 

losses are shared by investors in proportion to their investments?

QUESTION CERTIFIED.

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