When an offshore fund investor sues in a U.S. court, the defendant may argue that certain claims must be brought derivatively on behalf of the fund, rather than directly by the investor. Cayman law, which frequently governs claims involving offshore hedge funds, presents a number of potential obstacles to derivative claims, however. See “Registered Fund Advisers Delegating to Subadvisers Gain Greater Flexibility From U.S. District Court Ruling to Charge Management Fees
” (Mar. 16, 2017); and “Derivative Actions and Books and Records Demands Involving Hedge Funds
” (Oct. 17, 2014). Defendants have argued, and some New York courts have held, that a plaintiff’s failure to comply with Rule 12A of the Rules of the Grand Court of the Cayman Islands bars a derivative claim in U.S. courts by depriving the plaintiff of standing, whereas a Massachusetts state trial court found that the rule was merely procedural. Last month, the New York Court of Appeals decided this issue, facilitating lawsuits by Cayman fund investors in the U.S., although significant hurdles remain when bringing claims against hedge fund managers and others. In a guest article, Anne E. Beaumont, partner at Friedman Kaplan Seiler & Adelman, outlines the case history leading up to the Court of Appeals’ ultimate decision, as well as the ruling’s implications for investors, funds and managers. For additional insight from Beaumont, see “How Hedge Fund Managers Can Prepare for the Anticipated ‘End’ of LIBOR
” (Aug. 24, 2017); and “Impact on Private Fund Advisers of Obama Administration’s and State Lawmakers’ Actions to Restrict Use of Non-Compete Agreements
” (Nov. 10, 2016).