Hugh F. Culverhouse v. Paulson & Co. Inc.

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

No. 14-14526

United States Court of Appeals, Eleventh Circuit.

Feb. 17, 2016.

813 F.3d 991

observation is partially correct, as it is simply impossible to know the precise positioning of the sear in the moments before the rifle fired. But Powell did find debris in the fire control housing—the type of debris that he previously has observed interfering with the sear engagement in the same type of rifle. Under these circumstances—where evidence also suggests the trigger was not pulled and the only other possibility is that the rifle fired without a trigger pull—it does not require “a metaphysical process”⁴ to infer that the debris in the fire control housing created the condition (a precipitous sear engagement) that would have allowed the rifle to fire upon being jarred. Moreover, the district court incorrectly stated in its discussion of interferences that Powell “has never seen the condition he proposes existed in this rifle at the time of the shooting.”

Seamon, 51 F.Supp.3d at 1214. What Powell actually testified to is that he has never seen this condition in a Model 700 accident rifle—that is, a rifle that has allegedly fired without a pull of the trigger—because by the time he receives an accident rifle for examination, the debris or deposits that would have interfered with the sear‘s position have necessarily been dislodged through the firing of the rifle. Powell did state that he has observed interferences creating low sear engagements in non-accident rifles with Walker trigger systems.

Under these circumstances, we hold that the district court manifestly erred by mischaracterizing Powell‘s opinion and the evidence supporting it, and thus that it was an abuse of discretion for the district court to exclude Powell‘s testimony.

B. Motion for Summary Judgment

As the district court recognized, Defendant‘s motion for summary judgment relied entirely on its motion to exclude Powell‘s opinion; the district court‘s summary judgment decision thus rested entirely on its exclusion of Powell‘s testimony. Therefore, because we reverse the district court‘s decision to grant the motion to exclude, we also reverse the court‘s decision to grant Defendant‘s motion for summary judgment.

IV. CONCLUSION

For the foregoing reasons, we reverse the district court‘s order granting Defendant‘s motion to exclude expert testimony and motion for summary judgment, and vacate the judgment entered for Defendant. The case is remanded to the district court for further proceedings consistent with this opinion.

REVERSED.

Harvey W. Gurland, Jr., Felice K. Schonfeld, Duane Morris, LLP, Jason Kenneth Kellogg, Lawrence Allan Kellogg, Levine Kellogg Lehman Schneider Grossman, LLP, Miami, FL, Robert L. Byer, Robert M. Palumbos, Duane Morris, LLP, Pittsburgh, PA, for Plaintiff-Appellant.

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, for Defendants-Appellees.

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

WILLIAM PRYOR, Circuit Judge:

We certified the following question of state law to the Delaware Supreme Court:

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

Culverhouse v. Paulson & Co., 791 F.3d 1278, 1281 (11th Cir.2015). The Delaware Supreme Court answered our question in the negative. See

Culverhouse v. Paulson & Co., No. 349, 2015, slip op. 1, 2, 133 A.3d 195, 195, 196, 2016 WL 304186 (Del. Jan. 26, 2016). Based on its answer, we now affirm the dismissal of the complaint.

I. BACKGROUND

Hugh Culverhouse invested in HedgeForum Paulson Advantage Plus, LLC, a “feeder” fund that invested in Paulson Advantage Plus, L.P. When the latter lost $460 million on a bad investment, Culverhouse sued its general partners for breach of fiduciary duty, gross negligence, and unjust enrichment. Culverhouse alleged that his claims are “direct” under Delaware law. The district court disagreed and concluded that his claims are “derivative.” The district court ruled that Culverhouse lacked “standing” under Article III of the Constitution and dismissed his complaint for lack of “subject matter jurisdiction.” The district court also denied Culverhouse‘s request for jurisdictional discovery and dismissed his complaint without leave to amend.

On appeal, we concluded that the question whether Culverhouse‘s claims are direct or derivative is “unsettled” in Delaware.

Culverhouse, 791 F.3d at 1281. We certified the question to the Delaware Supreme Court, which held that Culverhouse‘s claims are derivative.

Culverhouse, slip op. at 7-8, 133 A.3d at 198-200. We must now resolve Culverhouse‘s appeal.

II. STANDARDS OF REVIEW

We review the dismissal of a complaint de novo. See

Lord Abbett Mun. Income Fund, Inc. v. Tyson, 671 F.3d 1203, 1206 (11th Cir.2012). We review the denial of jurisdictional discovery and the denial of leave to amend for abuse of discretion. See

Reese v. Herbert, 527 F.3d 1253, 1262 n. 13 (11th Cir.2008).

III. DISCUSSION

The district court correctly dismissed Culverhouse‘s complaint. Now that the Delaware Supreme Court has answered our certified question, we know that Culverhouse‘s claims are derivative, not direct. His derivative claims fail because Culverhouse was never a partner of Paulson Advantage Plus, L.P. See Del. Code Ann. tit. 6, § 17-1002.

Although the district court correctly concluded that Culverhouse‘s claims are derivative, it incorrectly described this defect as jurisdictional. In his complaint, Culverhouse alleged that his claims are direct under Delaware law. Because his theory was “not immaterial and made solely for the purpose of obtaining jurisdiction’ or ‘wholly insubstantial and frivolous,‘”

Black v. Wigington, No. 15-10848, 811 F.3d 1259, 1262, 1270, 2016 WL 278918 (11th Cir. Jan. 22, 2016) (quoting

Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946)), the district court should have accepted it as correct for purposes of jurisdiction, see

Mr. Furniture Warehouse, Inc. v. Barclays Am./Commercial Inc., 919 F.2d 1517, 1520 n. 2 (11th Cir.1990). “[I]n reviewing the standing question, the court must be careful not to decide the questions on the merits for or against the plaintiff, and must therefore assume that on the merits the plaintiffs would be successful in their claims.”

City of Waukesha v. EPA, 320 F.3d 228, 235 (D.C.Cir.2003) (citing

Warth v. Seldin, 422 U.S. 490, 502, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). When the district court later concluded that Culverhouse was wrong and that his claims were derivative, its ruling should have been on the merits. See

Lexmark Int‘l, Inc. v. Static Control Components, Inc., — U.S. —, 134 S.Ct. 1377, 1387 n. 4, 188 L.Ed.2d 392 (2014);

Bond v. United States, 564 U.S. 211, 131 S.Ct. 2355, 2362, 180 L.Ed.2d 269 (2011). That is, the district court should have dismissed Culverhouse‘s complaint for failure to state a claim, Fed.R.Civ.P. 12(b)(6), not for lack of subject-matter jurisdiction, Fed.R.Civ.P. 12(b)(1). See

Williamson v. Tucker, 645 F.2d 404, 415-16 (5th Cir. 1981).

Nevertheless, this labeling error is harmless because Culverhouse‘s complaint should have been dismissed. See

McCallum v. City of Athens, 976 F.2d 649, 650 & n. 1 (11th Cir.1992). Because the complaint fails to state a claim, Culverhouse was also not entitled to jurisdictional discovery. See

Chatham Condo. Ass‘ns v. Century Vill., Inc., 597 F.2d 1002, 1011-12 (5th Cir.1979). And amending his complaint would have been futile. See

Sibley v. Lando, 437 F.3d 1067, 1073 (11th Cir. 2005).

IV. CONCLUSION

We AFFIRM the dismissal of Culverhouse‘s complaint.

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

Notes

4

Seamon, 51 F.Supp.3d at 1214.

Case Details

Case Name: Hugh F. Culverhouse v. Paulson & Co. Inc.

Court Name: Court of Appeals for the Eleventh Circuit

Date Published: Feb 17, 2016

Citation: 813 F.3d 991

Docket Number: 14-14526

Court Abbreviation: 11th Cir.