May I ask (as a non-logician and a non-native speaker of English) why this does not commit the existential fallacy? I agree that A, B and D do not follow. But I do not see how C follows, either.
As I understand it, the existential fallacy is where a proposition with existential import is inferred illegitimately from a proposition with no existential import, e.g.
'All unicorns are horned'
Therefore
'Some unicorns are horned'
Where 'Some unicorns are horned' is roughly equivalent to 'There exists at least one x, such that x is a unicorn and x is horned'. The problem is that 'All unicorns are horned' does not have any existential import. It simply states that, if there is an x such that x is a unicorn, then x is horned. But there is no commitment to the truth of the antecedent. So we do not have license to infer that there really are any unicorns.
Now, if I understand your explanation, you take P2 to be the negation of P1'. That is, you take 'All people are dinosaurs', when negated, to produce 'There exists an x, such that x is a person and x is not a dinosaur'. From this, you take it that C follows.
I see that C does indeed follow from P2, but I do not see P2 as being the negation of P1'. The reason being that P1' does not seem to me to have any existential import, where P2 assuredly does. The negation should surely be 'It is not the case that all people are dinosaurs'. But, since this does not have any existential import, C would not follow.
Thoughts?