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Delaware Supreme Court Clarifies Limited Partnership Disclosure Law in Dohmen v. Goodman

News & Media Mentions

July 10, 2020

Sarah EnnisOn a certification of question of law from the United States Court of Appeals for the Ninth Circuit, the Delaware Supreme Court ruled that the general partner’s request to a limited partner for a one-time capital contribution did not constitute a request for limited partner action such that the general partner had a fiduciary duty of disclosure. Further, the Court concluded that even if the general partner had a fiduciary duty of disclosure, a limited partner cannot recover compensatory damages without proving reliance and causation.

In 2010, Bert Dohmen decided to set up a domestic hedge fund. He formed Croesus Fund LLP in 2011 as a Delaware limited partnership, which Albert Goodman invested $1 million into in late 2011. On May 14, 2012, Dohmen informed Goodman that the fund only had two investors and he would not be accepting new ones. Goodman was given the option to withdraw his investments from the fund at this time, but declined to do so. 

Goodman filed a lawsuit against Dohmen on January 5, 2015, for alleged fraud by misrepresentation, securities fraud, breach of fiduciary duty, and other claims arising from his investment in the hedge fund managed by Dohmen. He claimed that the drop in his investment’s value was directly attributable to the fact that the fund had only two investors, and not due to market forces or poor trading decisions. 

In the end, Dohmen was vindicated and the Court ruled that a limited partner under Delaware law cannot recover compensatory damages without proving reliance and causation, which did not exist in this case.  

Dohmen was represented by Sarah Ennis of Morris James LLP and Andrew B. Holmes and Matthew D. Taylor of Holmes Taylor Scott & Jones LLP.

View the full article on Law360. 

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