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Whit:
I think I should read that book. I'd like to hear the rest of the context for the argument.
Based on my admittedly brief reading of your redaction, it seems to fall under the equivocation of terms fallacy. It assumes that the criteria for "existing" are identical in every case. While the meaning is the same, the establishment of the case is different. Any universal, such as "redness" or "law of gravity" exists in a different sense than "that chair" or "my arm" exists.
An Operable Universal, one that operates on concrete instances of other entities, still "exists" even when it lacks the concrete material to operate upon.
In a similar vein, you might ask, "Does the law of gravity exist in a vacuum?" Surely it does, it simply lacks the material upon which to operate and demonstrate its existence.
-sm
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