Meyer v. Hatteras Inv. Partners, L.P., 2025 NCBC 62.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WAKE COUNTY 24CV027958-910
JOSEPH MEYER; HENRY G. SCHWARTZ, JR., AS CUSTODIAN OF THE HENRY G. SCHWARTZ, JR. IRA; JAMES M. ALLAND, AS CUSTODIAN OF THE JAMES M. ALLAND IRA; and CAROL C. COLLIER, AS CUSTODIAN OF THE CAROL C. COLLIER IRA, ORDER AND OPINION ON Plaintiffs, DEFENDANTS’ MOTION TO DISMISS UNDER RULE 12(B)(1) AND v. PLAINTIFFS’ MOTION FOR VOLUNTARY DISMISSAL WITHOUT HATTERAS INVESTMENT PREJUDICE PARTNERS, L.P.; DAVID PERKINS; H. ALEXANDER HOLMES; STEVE [PUBLIC]1 E. MOSS; GREGORY S. SELLERS; and THOMAS MANN,
Defendants,
and
HATTERAS MASTER FUND, L.P.,
Nominal Defendant.
1. THIS MATTER is before the Court on the Defendants’ Motion to Dismiss
Under Rule 12(b)(1) (Defendants’ Motion), (ECF No. 39 [Defs.’ Mot.]), and the
Plaintiffs’ Motion for Voluntary Dismissal Without Prejudice (Plaintiffs’ Motion),
(ECF No. 75 [Pls.’ Mot.]) (collectively the Motions).
1 Because certain materials referenced in this Order and Opinion were filed under seal, the
Court’s ruling was provisionally filed under seal on 3 October 2025. The Court then permitted counsel for the parties to confer and advise the Court whether they contend any matters referenced herein should be sealed. Having afforded the parties this opportunity, the Court now files its Order and Opinion on the public record. 2. For the reasons set forth herein, the Court GRANTS Defendants’ Motion,
DISMISSES this action without prejudice, and DENIES Plaintiffs’ Motion as
MOOT.
Lee Segui PLLC, by Eric Greenlee Steber, Matthew Lee, and Jeremy Williams; Malmfeldt Law Group, P.C., by Paul Malmfeldt; and Silver Law Group, by Scott Silver, for Plaintiffs.
Parker Poe Adams & Bernstein LLP, by Melanie Black Dubis and Corri Ann Hopkins, for Defendants David B. Perkins and Hatteras Investment Partners, L.P.
Bell, Davis & Pitt, P.A., by Edward B. Davis and Joshua B. Durham, and Pollack Solomon Duffy LLP, by Joshua Solomon, for Defendants Thomas Mann, Gregory S. Sellers, Steve E. Moss, and H. Alexander Holmes.
Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by William Gregory Gaught, Jennifer K. Van Zant, Clint S. Morse, and Gabrielle E. Supak, for Nominal Defendant.
Earp, Judge.
I. INTRODUCTION
3. According to the Complaint, in December 2021, the individual Defendants,
all directors of Nominal Defendant Hatteras Master Fund, L.P. (the Master Fund),
caused the Master Fund to sell its alternative asset portfolio to The Beneficient
Company Group, L.P. (Ben) in exchange for near valueless equity in Ben. Plaintiffs,
limited partners in the Master Fund’s four feeder funds (Feeder Funds), allege that
Defendants breached their fiduciary duties to the Master Fund by proposing and
approving this deal, which purportedly caused the Master Fund to lose approximately
98% of its value. 4. Plaintiffs bring this action derivatively on behalf of the Master Fund.
Defendants oppose the action, arguing that Plaintiffs lack standing to sue because
they are not owners of the Master Fund, and because Plaintiffs have failed to satisfy
pre-suit statutory demand requirements.
5. Both sides move to dismiss. Defendants argue that dismissal should be
with prejudice pursuant to Rule 12(b)(1) of the North Carolina Rules of Civil
Procedure (the Rules). Plaintiffs maintain that the Court should approve a voluntary
dismissal without prejudice pursuant to Rule 41.
II. FACTUAL BACKGROUND
6. The Court does not make findings of fact but recites the factual allegations
relevant to its determination of the Motions. Deleuran v. Thompson, 2025 NCBC
LEXIS 109, at *1 (N.C. Super. Ct. Aug. 22, 2025); Cone v. Blue Gem, Inc., 2023 NCBC
LEXIS 127, at *2 (N.C. Super. Ct. Oct. 13, 2023).
7. The Master Fund is a Delaware limited partnership with a primary office
in North Carolina. (Compl. ¶ 25, ECF No. 3.) The Master Fund is registered as an
investment company under the Investment Company Act of 1940. (Compl. ¶ 25.)
8. The Feeder Funds are (1) Hatteras Core Alternatives TEI Fund, L.P.,
(2) Hatteras Core Alternatives TEI Institutional Fund, L.P., (3) Hatteras Core
Alternatives Fund, L.P., and (4) Core Alternatives Institutional Fund, L.P. (Compl.
¶ 3 n.1.) The Feeder Funds are limited partners of the Master Fund. (Compl. ¶ 30.)
While the Feeder Funds invest substantially all their assets in the Master Fund,
Plaintiffs allege that only two of the Feeder Funds do so directly. (See Compl. ¶ 30 n.4.) Hatteras Core Alternatives TEI Fund, L.P. and Hatteras Core Alternatives
TEI Institutional Fund, L.P. invest in the “Offshore Funds” which, in turn, invest in
the Master Fund. (Compl. ¶ 30 n.4.)
9. Each Plaintiff is a limited partner in one of the Feeder Funds. (Compl.
¶¶ 3 n.1, 15–18.) Plaintiff Joseph Meyer has owned limited partnership units in the
Core Alternatives Institutional Fund, L.P. since 2021. (Compl. ¶¶ 3 & n.1, 15.)
Plaintiff Henry G. Schwartz, Jr. has owned limited partnership units in the Hatteras
Core Alternatives TEI Institutional Fund, L.P. since October 2008.2 (Compl. ¶¶ 3 &
n.1, 16.) Plaintiffs James Alland and Carol C. Collier have owned limited partnership
units in the Hatteras Core Alternatives TEI Fund, L.P. through their IRAs since
December 2009 and December 2011, respectively. (Compl. ¶¶ 3 & n.1, 17–18.)
Collectively, the Feeder Funds in which Plaintiffs are limited partners own
approximately 85% of the Master Fund. (Compl. ¶ 79.)
10. Defendant Hatteras Investment Partners, L.P. (the Adviser) is a Delaware
limited partnership with a primary office in North Carolina. (Compl. ¶ 19.) The
Adviser is registered as an investment adviser under the Investment Advisers Act of
1940. (Compl. ¶ 19.) The Adviser is the general partner of each of the Feeder Funds,
2 Defendants correctly point out that Henry G. Schwartz, Jr. (Schwartz) is a custodian of the
Henry G. Schwartz, Jr. IRA. However, the Complaint alleges that Schwartz himself is a limited partner in one of the Feeder Funds. (Br. Supp. Defs.’ Mot. 9, ECF No. 40 [Defs.’ Br. Supp.]; see Compl. ¶¶ 16, 77.) Plaintiffs contend that the Court can reasonably conclude from the Complaint’s allegations that Schwartz’s IRA is the one who owned partnership units in one of the Feeder Funds. (Pls.’ Br. Opp. Defs.’ Mot. 5 n.4, ECF No. 60 [Pls.’ Br. Opp’n].) Because this argument does not affect the outcome of the Motions, the Court declines to address it. as well as the Master Fund (collectively, the Funds). (Compl. ¶ 19.) The Adviser
manages the Funds subject to the control of the Funds’ directors. (Compl. ¶¶ 30, 32.)
11. The individual Defendants David B. Perkins (Perkins), H. Alexander
Holmes, Steve E. Moss, Gregory S. Sellers, and Thomas Mann are Directors on the
board of each of the Funds. (Compl. ¶¶ 3 & n.1, 20–24.)
12. Perkins is the founder, chief executive officer, and majority owner of the
Adviser. (Compl. ¶ 20.)
13. Each of the Funds has an agreement of limited partnership that shields
both its directors and its general partner from liability absent a judicial finding of
willful misfeasance, gross negligence, or the like:
Directors and the General Partner, including any officer, director, Partner, member, principal, employee or agent of any of them, will not be liable to the Partnership or to any of its Partners for any loss or damage occasioned by any act or omission in the performance of the Person’s services under this Agreement, in the absence of a final judicial decision on the merits from which no further right to appeal may be taken that the loss is due to an act or omission of the Person constituting willful misfeasance, bad faith, gross negligence or reckless disregard of the Person’s duties under this Agreement.
(Compl. ¶ 34 n.6.)
A. Ben, Perkins, and the Adviser
14. In 2021, Ben was a startup company that purportedly offered “liquidity
products” to those holding alternative assets. (Compl. ¶ 38.) On 5 November 2021,
GWG Holdings, Inc. (GWG), Ben’s parent company from December 2019 through
November 2021, filed a 10-K revealing that (a) Ben was being investigated by the
Securities and Exchange Commission (SEC); (b) Ben’s alternative asset portfolio had substantially declined in value; and (c) Ben was “hemorrhaging cash.” (Compl. ¶¶ 13,
38–39, 41.)
15. In the months prior to December 2021, Perkins had a series of meetings
with Brad Heppner, Ben’s founder and manager. (Compl. ¶¶ 39, 49.) During these
meetings, Ben offered the Adviser certain business opportunities contingent upon the
completion of a later transaction in which the Master Fund would transfer its
alternative asset portfolio to Ben in exchange for Ben securities (the Ben
Transaction). (See Compl. ¶¶ 6, 49.) Among those opportunities were (a) an
investment advisory contract in which the Adviser would receive compensation for
managing the assets involved in the Ben Transaction; and (b) a joint venture in which
the Adviser and Ben would create new investment funds, and the Adviser would
receive additional fees for managing the new funds’ assets. (Compl. ¶¶ 50–51.)
16. During the discussions between Perkins and Heppner, Ben provided to
Perkins an offering document describing the risks associated with the Ben securities.
(Compl. ¶¶ 52–53.) Such risks included that Ben had no “significant operating
history or established customer base”; the Ben securities would “be considered illiquid
until their stated maturity”; there was “no public market for the [Ben securities]”;
and the holder of the Ben securities would have to hold them “indefinitely” if Ben
“never engage[d] in a public listing[.]” (Compl. ¶ 53.) Perkins also learned that if
Ben undertook a public listing, the holder of the Ben securities could not sell such
securities until the expiration of a three-month lockup period. (Compl. ¶¶ 12, 54.) B. The Ben Transaction
17. On 7 December 2021, the Directors held a telephone meeting. (Compl.
¶¶ 6, 10.) During the meeting, Perkins represented that an unnamed purchaser had
offered to transfer its securities to the Master Fund in exchange for all the Master
Fund’s alternative assets. (Compl. ¶ 6.) The plan was for the Master Fund to deliver
the purchaser’s securities to the Feeder Funds’ limited partners (Plaintiffs), who
would then be able to liquidate them if desired. (Compl. ¶ 6.) Perkins represented
that the Adviser had conducted “thorough due diligence” of the unnamed purchaser
even though the Adviser had not retained a financial professional to evaluate the Ben
securities. (Compl. ¶ 60.)
18. Perkins knew but did not disclose that the purchaser was Ben. (Compl.
¶ 7.) The remaining Directors, without knowing the identity of the purchaser,
approved the transaction. (Compl. ¶ 10.) It closed later that day. (Compl. ¶ 10.)
Subsequently, the Ben securities dramatically dropped in value and, as a result, the
Master Fund lost approximately 98% of its value. (Compl. ¶¶ 1, 71, 73.)
III. PROCEDURAL BACKGROUND
19. Plaintiffs filed their Complaint on 4 September 2024.
20. Defendants filed their Rule 12(b)(1) motion and a supporting brief on 12
November 2024. (Defs.’ Mot.; Br. Supp. Defs.’ Mot., ECF No. 40 [Defs.’ Br. Supp.].)
Plaintiffs filed their response on 20 December 2024, (Pls.’ Br. Opp. Defs.’ Mot., ECF
No. 60 [Pls.’ Br. Opp’n]), and Defendants filed a reply on 9 January 2025, (Reply Br.
Supp. Defs.’ Mot., ECF No. 70 [Defs.’ Reply]). 21. On 26 June 2025, Plaintiffs filed their motion requesting that the Court
approve a voluntary dismissal. (Pls.’ Mot.; Pls.’ Br. Supp. Pls.’ Mot., ECF No. 76 [Pls.’
Br. Supp.].) Defendants filed their response on 9 July 2025, (Defs.’ Br. Resp. Pls.’
Mot., ECF No. 78 [Defs.’ Resp. Br.]), and Plaintiffs filed their reply on 17 July 2025,
(Pls.’ Reply Br. Supp. Pls.’ Mot., ECF No. 79 [Pls.’ Reply].)
22. Both Motions have been fully briefed, and the Court held a hearing on the
Motions on 4 September 2025. (See ECF No. 82.) They are now ripe for resolution.
IV. LEGAL STANDARD
23. Whereas in most circumstances a plaintiff may voluntarily dismiss an
action before resting his case on notice to the other parties, Plaintiffs in this case
appropriately seek the Court’s approval to do so. This is because under North
Carolina law, a derivative action on behalf of a limited partnership “shall not be
discontinued, dismissed, compromised or settled without approval of the court.”
N.C.G.S. § 59-1005.3
24. To determine whether to approve a voluntary dismissal in a derivative
action, the Court applies a balancing test, weighing “(1) any legitimate corporate [or
LLC] claims as brought forward in the derivative . . . suit against (2) the corporation’s
[or LLC’s] best interests.” Weatherspoon Fam. LLC v. Hatteras Inv. Partners, L.P.,
3 Likewise, when the plaintiff moves to voluntarily dismiss an action under Rule 41(a)(2),
“[the] action or any claim therein shall not be dismissed at the plaintiff’s instance save upon order of the judge and upon such terms and conditions as justice requires.” N.C.G.S. § 1A-1, Rule 41(a)(2). However, the effect of a dismissal pursuant to Rule 12(b)(1) versus a dismissal pursuant to Rule 41(a)(2) can be significant. The latter rule contains a savings provision that permits a new action based on the same claim to be commenced within one year after dismissal unless the judge specifies a shorter time. 2025 NCBC LEXIS 97, at *12 (N.C. Super. Ct. July 31, 2025) (quoting Alford v. Shaw,
327 N.C. 526, 540 (1990)).4
25. Whether an action should be dismissed under Rule 41(a)(2), and whether
that dismissal is with or without prejudice, are matters within the Court’s discretion.
In re Se. Eye Ctr.-Pending Matters, 2020 NCBC LEXIS 133, at *2–3 (N.C. Super. Ct.
Nov. 12, 2020) (citing West v. G.D. Reddick, Inc., 38 N.C. App. 370, 372 (1978)); Sloan
v. Inolife Techs., Inc., 2017 NCBC LEXIS 45, at *18 (N.C. Super. Ct. May 22, 2017).
26. However, a court shall dismiss the action when it appears that the court
lacks subject matter jurisdiction. N.C.G.S. § 1A-1, Rule 12(h)(3). A defect in subject
matter jurisdiction may be raised by a party or by the court sua sponte. Conner Bros.
Mach. Co. v. Rogers, 177 N.C. App. 560, 561 (2006). “Standing is a necessary
prerequisite to a court’s proper exercise of subject matter jurisdiction.” In re Z.G.J.,
378 N.C. 500, 504 (2021) (internal quotation marks omitted).
V. ANALYSIS
27. Plaintiffs contend that the Court should dismiss this action without
prejudice pursuant to Rule 41(a)(2) for two primary reasons: (1) under Delaware law,
whether a limited partner in a feeder fund has standing to bring a derivative claim
on behalf of a master fund is a question of first impression that they believe should
be decided in Delaware (and another action arising out of the Ben Transaction has
4 The logic of the Alford balancing test applies equally to derivative actions involving limited
partnerships. The test is derived from two sources: Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981), and N.C.G.S. § 55-55(c), the predecessor to N.C.G.S. § 55-7-45. See Alford, 327 N.C. at 540; Alford v. Shaw, 320 N.C. 465, 469–71 (1987). Notably, N.C.G.S. § 55-7-45 is substantially similar to N.C.G.S. § 59-1005, both of which require court approval for the dismissal of a derivative proceeding. Compare N.C.G.S. § 55-7-45, with id. § 59-1005. been filed in Delaware by an investor in one of the Feeder Funds, such that the
Delaware Court of Chancery will soon address this issue); and (2) Defendants have
supposedly engaged in “dilatory tactics” that have wasted judicial resources and
delayed the progression of this action. (Pls.’ Br. Supp. 4–7.)
28. Even while arguing for dismissal, Plaintiffs assert that they may need to
re-file this action in North Carolina at a later date, (Pls.’ Reply 4), although this
assertion conflicts with the affidavit Plaintiffs’ counsel submitted.5 (Decl. Paul
Malmfeldt, ECF No. 76.2.)
29. Defendants do not oppose Plaintiffs’ Motion to the extent it seeks dismissal.
(Defs.’ Resp. Br. 1.) However, Defendants contend that the Court should dismiss this
action with prejudice or, alternatively, eliminate the one-year savings provision in
Rule 41(a)(2) such that Plaintiffs cannot re-file this action. (Defs.’ Resp. Br. 1.)
30. In support of their argument, Defendants point to their motion to dismiss
for lack of standing and argue that Plaintiffs’ derivative claim is not legitimate and
therefore fails the Alford balancing test. Defendants also contend that they have not
engaged in, nor do they plan to engage in, dilatory tactics; Plaintiffs’ representation
that they do not plan to re-file this action warrants barring their ability to do so; and
Plaintiffs have wasted judicial resources by filing a motion for voluntary dismissal in
5 “While Plaintiffs reserve all of their rights, they have no intention of initiating a new derivative action against Defendants relating to the Master Fund’s transaction with The Beneficient Company Group, L.P. . . . in the Court of Chancery, in arbitration, or in any other forum.” (Decl. Paul Malmfeldt ¶ 24.) this action and in a related action6 after substantial motion practice. (Defs.’ Resp.
Br. 11–12, 14–15.)
31. If Plaintiffs lack standing to bring this action, then Defendants’ Motion to
dismiss for lack of subject matter jurisdiction has merit, the claim is not legitimate,
and Plaintiffs’ Motion to dismiss pursuant to Rule 41(a)(2) cannot succeed. Therefore,
because resolution of Plaintiffs’ Motion depends on the Court’s determination of
Defendants’ Motion, the Court directs its attention to Defendants’ arguments
regarding Plaintiffs’ standing to bring this action.
32. The Master Fund is a Delaware limited partnership. (Compl. ¶ 25.) As
such, the Court uses Delaware law to determine whether Plaintiffs’ claim is
legitimate. See N.C.G.S. § 59-901 (“[T]he laws of the jurisdiction under which a
foreign limited partnership is organized govern its organization and internal affairs
and the liability of its partners[.]”); see also Edgar v. MITE Corp. 457 U.S. 624, 645
(1982) (“The internal affairs doctrine is a conflict of laws principle which recognizes
that only one State should have the authority to regulate a corporation’s internal
affairs[—]matters peculiar to the relationships among or between the corporation and
its current officers, directors, and shareholders[—]because otherwise a corporation
6 On 4 December 2024, the complaint in Weatherspoon Family LLC v. Hatteras Investment
Partners, L.P. was filed. That action also arises out of the Ben Transaction, and counsel for the plaintiff there are also counsel for Plaintiffs here. See Complaint, Weatherspoon Fam. LLC v. Hatteras Inv. Partners, L.P., 2025 NCBC LEXIS 97 (N.C. Super. Ct. July 31, 2025) (No. 24CV038870-910), (ECF No. 3). The plaintiff in Weatherspoon filed a motion for voluntary dismissal on 9 May 2025. Motion for Voluntary Dismissal Without Prejudice, Weatherspoon, 2025 NCBC LEXIS 97, (ECF No. 51). The Court denied the motion without prejudice on 31 July 2025. Weatherspoon, 2025 NCBC LEXIS 97, at *30–31. could be faced with conflicting demands.”); Ray v. Deloitte & Touche, L.L.P., 2006
NCBC LEXIS 7, at *12–13 (N.C. Super. Ct. Apr. 21, 2006) (“The laws of the state
where the limited partnership was organized control for the purpose of determining
whether the requirements for bringing a derivative action have been satisfied.”).
A. Ownership Requirement
33. To bring a derivative suit on behalf of a Delaware limited partnership, “the
plaintiff must be a partner or an assignee of a partnership interest at the time of
bringing the action and . . . [a]t the time of the transaction of which the plaintiff
complains[.]” 6 Del. C. § 17-1002.
34. Defendants contend that Plaintiffs do not meet this ownership requirement
because Plaintiffs fail to allege that they were partners of the Master Fund at the
time of the Ben Transaction. (Defs.’ Br. Supp. 9.) Instead, Plaintiffs allege only that
they were limited partners of the Feeder Funds. (Defs.’ Br. Supp. 9; see Compl. ¶¶ 15–
18.)
35. Relying on Bamford v. Penfold, L.P., C.A. No. 2019-0005-JTL, 2020 Del. Ch.
LEXIS 79 (Del. Ch. Feb. 28, 2020), Plaintiffs respond that Delaware law already
recognizes double derivative standing in the “alternative entity space,” and they
believe that it should apply to limited partnerships. (Pls.’ Br. Opp’n 18.) Further,
Plaintiffs argue that Delaware law should be expanded to permit limited partners in
a parent entity (here, the Feeder Funds) to sue on behalf of its subsidiary (here, the
Master Fund). (Pls.’ Br. Opp’n 20–21.) 36. In Bamford, the Court of Chancery recognized the standing of limited
partners to sue on behalf of an LLC when the limited partnership’s ownership
interest was directly in the LLC. Bamford, 2020 Del. Ch. LEXIS 79, at *73. However,
the parties agree that Delaware has not addressed whether double derivative
standing exists when the limited partners’ ownership interest is in Feeder Funds that
are one step removed from a Master Fund, as is true here. (Pls.’ Br. Opp’n 18–19;
Defs.’ Reply 3–4; Pls.’ Br. Supp. 16–17.) They also agree that Delaware has not
addressed whether, in that indirect ownership scenario, the parent entity must own
100% of the subsidiary for double derivative standing to exist. (Defs.’ Reply 3–4; Pls.’
Br. Supp. 16–17); see Bamford, 2020 Del. Ch. LEXIS 79, at *72 n.21 (declining to
decide whether the parent must own 100% of the subsidiary LLC); see also Lambrecht
v. O’Neal, 3 A.3d 277, 283 n.14 (Del. 2010) (“Courts in a handful of jurisdictions
appear to recognize, at least implicitly, a right of parent company shareholders at the
time of the alleged wrongdoing to sue double derivatively. . . . To date, the Delaware
courts have not addressed this specific question nor do we purport to do so, expressly
or implicitly, in this [o]pinion.”).
37. Defendants argue that Delaware has only permitted double derivative
standing in the corporate context. (Defs.’ Reply 2.) Even assuming arguendo that
double derivative standing could apply in the limited partnership context,
Defendants contend that the Master Fund does not qualify as a subsidiary because it
is neither wholly owned nor majority controlled by the Feeder Funds owned by
Plaintiffs. (Defs.’ Reply 3–6.) Specifically, Defendants argue that (a) Delaware law does not support Plaintiffs’ concept of aggregating the interests of multiple entities
to create a corporate parent for double derivative standing; and, in any event,
(b) Plaintiffs fail to allege that the Feeder Funds owned by Plaintiffs have voting
control over the Master Fund. (Defs.’ Reply 5–7.)
38. In addition, Defendants maintain that Delaware law requires that both the
parent and the subsidiary be named as nominal defendants in a double derivative
suit, but Plaintiffs have not named the Feeder Funds as nominal defendants. (Defs.’
Reply 3.)
39. As the parties’ positions underscore, whether Plaintiffs meet the ownership
requirement involves unsettled issues of Delaware law. See Sagarra Inversiones, S.L.
v. Cementos Portland Valderrivas, S.A., 34 A.3d 1074, 1079 n.10 (Del. 2011) (“[S]ome
courts in other jurisdictions have recognized a double derivative right in the case of
a less-than-wholly-owned subsidiary, but Delaware courts have not yet ruled on that
issue.”). However, it is not necessary in this instance to determine those issues to
decide the Motions because, as discussed below, Plaintiffs have failed to satisfy the
derivative demand prerequisite to suit.
B. Demand Requirement
40. Before bringing a derivative action under Delaware law, a limited partner
must make a demand on the limited partnership’s general partner unless such an
effort “is not likely to succeed.” See 6 Del. C. §§ 17-1001, 17-1003; JER Hudson GP
XXI LLC v. DLE Invs., LP, 275 A.3d 755, 783 (Del. Ch. 2022) (stating that the limited
partner must “make a demand on the general partner[] of [the] limited partnership . . . unless such a demand would be futile”). If the plaintiff relies on
demand futility, the complaint must “set forth with particularity the effort, if any, of
the plaintiff to secure initiation of the action by [the] general partner or the reasons
for not making the effort.” 6 Del. C. § 17-1003.
41. A complaint properly alleges demand futility if it sets forth particularized
facts that enable the Court to affirmatively answer any of the three following
questions:
(i) whether the [general partner] received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;
(ii) whether the [general partner] faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; and
(iii) whether the [general partner] lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.
See United Food & Commer. Workers Union v. Zuckerberg, 262 A.3d 1034, 1059 (Del.
2021) (articulating demand futility standard for shareholder derivative suits);
Wenske v. Blue Bell Creameries, Inc., C.A. No. 2017-0699-JRS, 2018 Del. Ch. LEXIS
221, at *40–41 (Del. Ch. July 6, 2018) (observing that “[c]orporate standards apply to
limited partnerships in the ‘demand excused’ analysis” and that “[d]emand futility
issues in the partnership context are the same as in the corporate context”).
42. Alleging with particularity the necessary facts to establish demand futility
is a stringent pleading standard. Reith v. Lichtenstein, C.A. No. 2018-0277-MTZ,
2019 Del. Ch. LEXIS 244, at *19 (Del. Ch. June 28, 2019); Brehm v. Eisner, 746 A.2d 244, 254 (Del. 2000). Still, when evaluating whether demand futility is adequately
pled, the Court must “draw all reasonable inferences in the plaintiff’s favor.”
Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019).
43. Here, Plaintiffs admit that they did not make a demand. (See Compl. ¶ 85.)
Accordingly, the Court must determine whether Plaintiffs pled with particularity the
facts necessary to conclude that a derivative demand in this case would have been
futile. See JER Hudson, 275 A.3d at 783.
1. Subject of Demand Futility Allegations
44. Defendants first argue that Plaintiffs’ pleading is inadequate because they
plead futility with respect to the Master Fund’s Directors, not its general partner, the
Adviser. (Defs.’ Br. Supp. 10–12.)
45. Plaintiffs concede that demand futility must be pled as to the general
partner in the limited partnership context. (Pls.’ Br. Opp’n 24, 26 n.10.)
Nevertheless, they contend that demand futility with respect to the Adviser should
be inferred from factual allegations concerning its majority owner and CEO, Perkins.
(Pls.’ Br. Opp’n 23, 27–29.)
46. Defendants respond that allegations about Perkins do not establish
demand futility as to the Adviser. (Defs.’ Reply 9.) Citing Inter-Marketing Group
USA, Inc. v. Armstrong, C.A. No. 2017-0030-TMR, 2020 Del. Ch. LEXIS 391, at *20–
21 (Del. Ch. Jan. 31, 2020),7 they contend that the demand futility analysis “focuses
7 The Court notes that the Rules of the Court of Chancery allow unreported Delaware cases
to be cited as precedent. See Del. Ch. Ct. R. 7(e); Corwin v. Brit. Am. Tobacco PLC, 371 N.C. on the general partner itself (as an entity),” rather than those who own it. (Defs.’
Reply 9.)8
47. By statute, a derivative demand must be made on the general partner of a
limited partnership. See 6 Del. C. § 17-1001. Because Plaintiffs’ position is that a
demand is excused because it would have been futile, the Court reviews the factual
allegations in their entirety to determine whether demand futility as to the Adviser
has been pled with particularity. See Marchand, 212 A.3d at 818 (stating that the
“inquiry at the demand futility stage . . . requir[es] that the plaintiff plead facts with
particularity”); In re Camping World Holdings, Inc. S’holder Derivative Litig.,
C.A. No. 2019-0179-LWW, 2022 Del. Ch. LEXIS 24, at *17 (Del. Ch. Jan. 31, 2022)
(“[W]hat the pleader must set forth are particularized factual statements that are
essential to the claim.” (quoting Brehm, 746 A.2d at 254)).
48. Conclusory allegations about Perkins, the Adviser’s majority owner and
CEO, are not a basis for determining whether a demand on the Adviser itself would
have been futile. It is true that the conduct of an individual who controls a general
partner is typically relevant to the demand futility analysis. See Gerber v. EPE
Holdings, LLC, C.A. No. 3543-VCN, 2013 Del. Ch. LEXIS 8, at *52–55 (Del. Ch. Jan.
605, 614 n.6 (2018). Thus, the Court considers both reported and unreported Delaware cases to have equal authority. See Corwin, 371 N.C. at 614 n.6.
8 The parties also disagree about whether Plaintiffs, having asserted a double derivative suit,
must plead demand futility at both the Master Fund and Feeder Fund levels. (Pls.’ Br. Opp’n 22; Defs.’ Reply 10–11.) Given that whether Delaware recognizes double derivative standing in the master fund and feeder fund context is an issue of first impression, the Court declines to determine at which levels demand futility must be pled. Again, however, demand futility must be pled with particularity at least as to the Adviser. 18, 2013) (demand excused where defendant allegedly caused partnership to overpay
defendant’s affiliates and defendant “dominat[ed] and control[led]” the partnership’s
general partner); Lipman v. GPB Cap. Holdings LLC, C.A. No. 2020-0054-SG, 2020
Del. Ch. LEXIS 340, at *23 (Del. Ch. Nov. 18, 2020) (“A general partner has a
disabling interest for pre-suit demand purposes when it faces a ‘substantial
likelihood’ of liability in connection with the derivative claim(s) asserted against it.
The same can be said for general partners controlled by individuals or entities that
face a substantial likelihood of liability in connection with such claims.” (citation
modified)); Inter-Marketing Grp., 2020 Del. Ch. LEXIS 391, at *35–36 (demand
excused where individual general partner, through board of directors, consistently
failed to establish monitoring system).
49. Here, however, Plaintiffs fail to allege with particularity sufficient facts to
show that Perkins controlled the Adviser. Plaintiffs allege that Perkins was the
“founder, CEO and majority owner” of the Adviser but otherwise make no allegations
concerning the Adviser’s governance. (See Compl. ¶ 3.) Nowhere does the Complaint
allege that Perkins was the Adviser’s general partner, controlled its voting rights, or
otherwise had the ability to make decisions for the Adviser on his own. See 6 Del. C.
§ 17-405 (stating that “[a] partnership agreement may provide for classes or groups
of general partners having such relative rights, powers and duties as the partnership
agreement may provide”); see also id. § 17-1001; cf. Bamford, 2020 Del. Ch. LEXIS
79, at *48–50 (complaint supported a reasonable inference that general partners controlled limited partnership because they exclusively owned the “general
partnership interests”).
50. Similarly, Plaintiffs do not allege that Perkins acted on behalf of the
Adviser at the meeting, nor do they describe the Adviser’s approval of the Ben
Transaction. Instead, the Complaint merely states that “the other Directors all
approved the Ben Transaction on behalf of the Master Fund . . . and the transaction
closed later that day.” (See Compl. ¶¶ 2, 10, 61.)9 While Plaintiffs argue that Perkins’
status as the founder, majority owner, and CEO of the Adviser is sufficient to
establish his control over the Adviser, the Court declines to make this inferential
leap. (See Compl. ¶ 3; Pls.’ Br. Opp’n 6 & n.7.) That the Complaint acknowledges
there are other owners of the Adviser but otherwise omits reference to them is a
notable deficiency. (See Compl. ¶ 3.)
51. Because the allegations regarding Perkins are insufficient, by themselves,
to allege demand futility as to the Adviser, the Court turns to whether the Complaint
alleges particularized facts showing that the Adviser itself either (a) received a
material personal benefit from the Ben Transaction or (b) faces a substantial
likelihood of liability as a result.10 See Zuckerberg, 262 A.3d at 1059.
9 The conclusory language Plaintiffs use in their brief to attribute Perkins’ alleged misconduct
to the Adviser is telling. (See, e.g., Pls.’ Br. Opp’n 29 (“Perkins and, by extension, the Adviser, knew that the securities Ben proposed to issue the Master Fund were illiquid and risky[.]”) (emphasis added).)
10 Plaintiffs do not argue that the Adviser lacked independence from someone who received a
material personal benefit from the Ben Transaction. (See Pls.’ Br. Opp’n 25, 27.) Therefore, the Court does not address that part of the Zuckerberg test. 2. Material Personal Benefit
52. If demand futility is based on the Adviser’s receipt of a benefit, the
Complaint must allege with particularity those facts necessary to show that the
benefit was material to the Adviser. See id. at 1061–62 (plaintiff failed to allege
materiality where complaint did not state that certain benefits were material to the
recipient or that the recipient “received anything other than arm’s lengths terms”);
Hanna v. Paradise, C.A. No. 2024-0228-KSJM, 2025 Del. Ch. LEXIS 165, at *14 (Del.
Ch. July 3, 2025) (“Whether a benefit is material is a question of fact that takes into
consideration the amount, the recipient’s wealth, and the circumstances surrounding
the benefit.”).
53. Plaintiffs argue that they adequately pled that the Adviser received a
material personal benefit from the Ben Transaction. (Pls.’ Br. Opp’n 25–27.) They
point to their allegation that Ben offered the Adviser “lucrative business
opportunities” contingent on the Ben Transaction, including an investment advisory
contract and a joint venture opportunity, as the Adviser’s receipt of a material benefit.
(Pls.’ Br. Opp’n 26; Compl. ¶¶ 49–50.)
54. Defendants respond that, to the extent Plaintiffs plead the receipt of a
material benefit, they fail to do so with particularity. (See Defs.’ Br. Supp. 12–14.)
They contend that Plaintiffs only generally describe the terms of any purported
agreements between Ben and the Adviser, and that Plaintiffs fail to allege with
particularity facts to show that the benefits were material to the Adviser. (See Defs.’
Br. Supp. 14.) 55. The Court agrees with Defendants. The Complaint alleges that Ben offered
the Adviser two business opportunities contingent on the Ben Transaction: an
investment advisory contract and a joint venture where Ben and the Adviser would
form new investment funds. (Compl. ¶¶ 49–51.) As for the advisory contract, the
Complaint alleges that it included the following terms: “The Adviser would receive a
base fee in the amount of on an annual basis of the value of investments held by
[a] special purpose vehicle, as well as a performance allocation of in excess of a
hurdle amount.” (Compl. ¶ 50.) The special purpose vehicle would hold the assets
the Master Fund contributed to Ben, which were valued at $305 million. (Compl.
¶¶ 2, 50.) As for the joint venture opportunity, the Complaint alleges that Ben would
contribute “up to of the net asset value of the assets held by the Ben/[Adviser]
special purpose vehicle.” (Compl. ¶ 51.)
56. Plaintiffs’ description of these two business opportunities does not identify
why either would be material to the Adviser. That the business opportunities Ben
proposed to the Adviser would presumably involve large sums of money is insufficient
to show materiality without facts to put those amounts in context. See Orman v.
Cullman, 794 A.2d 5, 30 (Del. Ch. 2002) (“[T]here is no bright-line dollar amount at
which . . . fees received by a director become material[.]”); In re Goldman Sachs Grp.,
Inc. S’holder Litig., Civil Action No. 5215-VCG, 2011 Del. Ch. LEXIS 151, at *36–37
(Del. Ch. Oct. 12, 2011) (alleged investment of at least $670 million into funds
managed by defendant-director insufficient to show materiality where plaintiff did
not allege defendant “relie[d] on the management of these funds for his livelihood”). 57. Accordingly, Plaintiffs have not adequately pled that the Adviser received
a material benefit from the Ben Transaction such that a derivative demand made on
it would have been futile. The Court now turns to whether Plaintiffs have adequately
alleged demand futility because the Adviser faces a substantial likelihood of liability
on their claim. See Zuckerberg, 262 A.3d at 1059.
3. Substantial Likelihood of Liability
58. “To establish a substantial likelihood of liability, a plaintiff need not
‘demonstrate a reasonable probability of success on the claim.’ ” Ellis v. Gonzalez,
C.A. No. 2017-0342-SG, 2018 Del. Ch. LEXIS 227, at *16 (Del. Ch. July 10, 2018)
(quoting In re China Agritech, Inc., C.A. No. 7163-VCL, 2013 Del. Ch. LEXIS 132, at
*44 (Del. Ch. May 21, 2013)). Instead, “the plaintiff must ‘make a threshold showing,
through the allegation of particularized facts, that [its] claims have some merit.’ ” Id.
(quoting Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993)). “This standard recognizes
that the purpose of the particularity requirement is not to prevent derivative actions
from going forward,” but to ensure that only those supported by a reasonable factual
basis proceed. In re China Agritech, 2013 Del. Ch. LEXIS 132, at *44; Rales, 634 A.2d
at 934.
59. Plaintiffs argue that they have adequately pled that the Adviser faces a
substantial likelihood of liability for breach of fiduciary duty. They point to their
allegations that (a) “Perkins and, by extension, the Adviser” failed to disclose the Ben
securities’ risks and misrepresented that they could be sold for cash; (b) Ben had
offered the Adviser business opportunities contingent on the Ben Transaction; and (c) Perkins represented that the Adviser had conducted “thorough due diligence” of
the Ben securities, but the Adviser did not hire a financial professional to evaluate
these securities, which subsequently dropped in value. (Pls.’ Br. Opp’n 25–30; Compl.
¶¶ 55–60, 71.) Plaintiffs also argue that the Complaint establishes demand futility
because the allegations of wrongdoing are sufficient to overcome the business
judgment rule11 and, if proven, would subject the Adviser (and the Directors) to “non-
indemnifiable liability.” (Pls.’ Br. Opp’n 27–28; Compl. ¶¶ 14, 82–85.)
60. Defendants respond that an allegation that a demand would be akin to
asking a defendant to sue itself is not sufficient to satisfy the pleading requirements
for demand futility. (Defs.’ Br. Supp. 14–15 (citing Cabaniss v. Deutsche Bank Sec.,
Inc., 170 N.C. App. 180, 183–84 (2005) (allegation that demand was futile because it
“would in essence be asking the managers of the general partner to sue themselves”
failed to establish demand futility)); Defs.’ Reply 9–10.)
61. In this case, the Adviser is indemnified unless it is found liable for willful
misfeasance, gross negligence, bad faith, or reckless disregard of its duties. (See
Compl. ¶ 34 n.6.) Therefore, to allege demand futility, the Complaint must allege
with particularity that the Adviser’s conduct reaches those levels. Plaintiffs’ burden
11 “The business judgment rule generally protects the actions of directors, affording them the
presumption directors act on an informed basis and in the honest belief they acted in the best interest of the corporation.” Krim v. ProNet, Inc., 744 A.2d 523, 527 (Del. Ch. 1999). “To overcome the presumption of the business judgment rule, the burden is on the plaintiff to show the defendant directors failed to act (1) in good faith, (2) in the honest belief that the action taken was in the best interest of the company or (3) on an informed basis.” Id. The business judgment rule also applies to general partners in a limited partnership. In re Boston Celtics Ltd. P’ship S’holders Litig., C.A. No. 16511, 1999 Del. Ch. LEXIS 166, at *10–12 (Del. Ch. Aug. 6, 1999). in this regard is a heavy one. See City of Warren Gen. Emps.’ Ret. Sys. v. Roche,
C.A. No. 2019-0740-PAF, 2020 Del. Ch. LEXIS 352, at *55 (Del. Ch. Nov. 30, 2020)
(“To plead gross negligence, a plaintiff must allege conduct that constitutes reckless
indifference or actions that are without the bounds of reason. Because
fiduciaries must take risks . . . they are exposed to liability for breach of fiduciary
duty only if their breach of the duty of care is extreme.” (citation modified)); In re
Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 125 (Del. Ch. 2009) (“[B]ad
faith conduct may be found where a director intentionally acts with a purpose other
than that of advancing the best interests of the corporation, acts with the intent to
violate applicable positive law, or intentionally fails to act in the face of a known duty
to act, demonstrating a conscious disregard for his duties.” (citation modified)); Metro
Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 157 (Del. Ch.
2004) (same); Newman v. KKR Phorm Invs., L.P., C.A. No. 2022-0310-NAC, 2023 Del.
Ch. LEXIS 699, at *13–14 (Del. Ch. Sep. 5, 2023) (“This Court has held on numerous
occasions that to state a bad-faith claim, a plaintiff must show . . . that the decision
under attack is so far beyond the bounds of reasonable judgment that it seems
essentially inexplicable on any ground other than bad faith.” (quoting In re Mead
Westvaco S’holders Litig., 168 A.3d 675, 684 (Del. Ch. 2017)); Cygnus Opportunity
Fund, LLC v. Wash. Prime Grp., LLC, 302 A.3d 430, 463 (Del. Ch. 2023) (“ ‘[W]illful
misconduct’ . . . involves either malicious conduct or ‘conduct designed to defraud or
seek an unconscionable advantage.’ ” (quoting Dieckman v. Regency GP, LP,
C.A. No. 11130-CB, 2021 Del. Ch. LEXIS 28, at *89 (Del. Ch. Feb. 15, 2021))). 62. Once again, Plaintiffs urge the Court to infer that their allegations
regarding Perkins are sufficient to show that the Adviser engaged in conduct that
would subject it to liability for which it would not be indemnified. For the reasons
stated above, the Court declines Plaintiffs’ invitation.
63. Having found that the Complaint alleges neither a material benefit nor a
substantial likelihood of liability as to the Adviser, the Court determines that
Plaintiffs have not adequately alleged demand futility. Consequently, Plaintiffs have
failed to meet a threshold requirement necessary for this Court to have subject matter
jurisdiction.
64. Accordingly, Defendants’ Motion to dismiss this action for lack of subject
matter jurisdiction shall be GRANTED, and this action shall be DISMISSED
without prejudice.12 Kane v. Moore, 2018 NCBC LEXIS 157, at *13, *28, *35–36 (N.C.
Super. Ct. Nov. 26, 2018) (dismissing without prejudice where plaintiffs lacked
standing). Plaintiffs’ Motion for voluntary dismissal without prejudice is DENIED
as moot.
VI. CONCLUSION
65. WHEREFORE, for the foregoing reasons, the Court hereby GRANTS
Defendants’ Motion and DENIES Plaintiffs’ Motion as moot. This matter is
DISMISSED without prejudice.
12 Plaintiffs also argue that the Defendants’ Motion should have been brought under Rule
12(b)(6) because Defendants challenge the sufficiency of the Complaint. (See Pls.’ Br. Opp’n 15–16.) This argument is inapposite because “[s]tanding arguments can be presented under both Rule 12(b)(1) and Rule 12(b)(6)[.]” Deleuran, 2025 NCBC LEXIS 109, at *5 (quoting Finley v. Brown, 2017 NCBC LEXIS 79, at *8 (N.C. Super. Ct. Sep. 1, 2017)). SO ORDERED, this the 10th day of October, 2025.
/s/ Julianna Theall Earp Julianna Theall Earp Special Superior Court Judge for Complex Business Cases