234 A.3d 1161
Del.2020Background
- Croesus Fund, L.P. was formed in Delaware in 2010; Macro Wave Management, LLC (solely controlled by Bert Dohmen) was the general partner; Albert Goodman became a limited partner.
- Goodman made a $500,000 initial subscription, then a second $500,000 subscription after Dohmen emailed that “personal friends … are now liquidating some assets in order to participate,” statements Dohmen knew were false.
- The Fund’s NAV declined substantially; Goodman sued for common-law fraud, securities fraud, and breach of fiduciary duty. The district court found fraud claims failed for loss causation but held Dohmen breached his fiduciary duty (characterizing the misrepresentation as made “when seeking [limited] partner action”) and awarded damages for the Second Investment.
- The Ninth Circuit accepted interlocutory certification to the Delaware Supreme Court on whether a one-time capital contribution request is a request for limited-partner action triggering the fiduciary duty of disclosure and whether, if so, compensatory damages can be recovered without proving reliance and causation.
- Delaware Supreme Court answered: a one-time capital-contribution request is not a request for limited-partner action that invokes the fiduciary duty of disclosure; and even if it were, compensatory damages still require proof of reliance and causation. The Court also stressed a fiduciary must speak honestly when choosing to communicate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a general partner’s one-time capital-contribution request constitutes a "limited-partner action" that triggers the fiduciary duty of disclosure | Goodman: disclosures requesting partner action need not be limited to voting/ownership rights; the solicitation here triggered disclosure duties | Dohmen: requests for partner action are limited to discretionary voting/fundamental ownership actions, not a simple capital contribution request | Held: No — a one-time capital call to a single limited partner is not a request for limited-partner action that invokes the affirmative fiduciary disclosure duty (but a fiduciary must not lie when speaking) |
| If the fiduciary duty of disclosure applied, whether a limited partner may recover compensatory damages without proving reliance and causation | Goodman: materiality should excuse proof of reliance/causation (analogue to presumed damages) | Dohmen: per se damages doctrine is narrow; compensatory recovery requires proof of reliance and causation | Held: No — the per se damages rule is limited (at most) to nominal damages where economic or voting rights are impaired; compensatory damages require proof of reliance and causation |
| Whether misrepresentations to an individual limited partner can breach fiduciary duties even absent an affirmative disclosure duty | Goodman: knowingly false statements made in response to investment inquiries breached fiduciary duties | Dohmen: (implicitly) no affirmative disclosure obligation for an individual capital solicitation | Held: Yes — even though no affirmative duty to disclose existed, a fiduciary who speaks must speak honestly; Dohmen’s misrepresentations breached the duty of loyalty |
Key Cases Cited
- Malone v. Brincat, 722 A.2d 5 (Del. 1998) (delineates disclosure duty in request-for-stockholder-action context and notes elimination of reliance/causation elements in that narrow context)
- In re Tri–Star Pictures, Inc. Litig., 634 A.2d 319 (Del. 1993) (origin of the “per se” damages concept for disclosure breaches tied to transactions that impair stockholders’ economic or voting rights)
- Loudon v. Archer–Daniels–Midland Co., 700 A.2d 135 (Del. 1997) (limits Tri–Star per se damages rule to nominal damages and to disclosure breaches that impair economic or voting rights)
- In re J.P. Morgan Chase & Co. Shareholder Litig., 906 A.2d 766 (Del. 2006) (confirms Tri–Star does not authorize compensatory damages absent proof of reliance/causation; per se rule reaches only nominal damages)
- In re Wayport, Inc. Litig., 76 A.3d 296 (Del. Ch. 2013) (rejects treating individualized insider transactions as requests for stockholder action; analyzes collective-action rationale for disclosure duties)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del. 1995) (reiterates Tri–Star’s limited rule regarding damages for disclosure breaches)