Hemispherx Biopharma, Inc. v. Mid–S. Capital, Inc.

• Citation: 690 F.3d 1216,23 Fla. L. Weekly Fed. C 1406
• Decision Date: 14 August 2012
• Docket Number: 11–11650.,Nos. 11–11618,s. 11–11618
• Parties: HEMISPHERX BIOPHARMA, INC., a Delaware corporation, Plaintiff–Counter–Defendant–Appellee–Cross–Appellant, v. MID–SOUTH CAPITAL, INC., a South Carolina Corporation, Defendant–Counter Claimant–Appellant–Cross–Appellee, Adam Cabibi, Robert Rosenstein, Individually, Defendants–Cross–Appellees, The Sage Group, Inc., Counter Defendant–Cross–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

690 F.3d 1216

23 Fla. L. Weekly Fed. C 1406

HEMISPHERX BIOPHARMA, INC., a Delaware corporation, Plaintiff–Counter–Defendant–Appellee–Cross–Appellant,

v. MID–SOUTH CAPITAL, INC., a South Carolina Corporation, Defendant–Counter Claimant–Appellant–Cross–Appellee,Adam Cabibi, Robert Rosenstein, Individually, Defendants–Cross–Appellees,The Sage Group, Inc., Counter Defendant–Cross–Appellee.

Nos. 11–11618, 11–11650.

United States Court of Appeals, Eleventh Circuit.

Aug. 14, 2012.

Gregory J. Digel, Laurie Webb Daniel, Allen Andre Hendrick, Holland & Knight, LLP, Atlanta, GA, Thomas K. Equels, Equels Law Firm, Miami, FL, Paul C. Huck, Jr., Roberto Martinez, Colson Hicks Eidson, Coral Gables, FL, Judson H. Orrick, Equels Law Firm, Tallahassee, FL, for Plaintiff–Appellant.

Craig Thomas Jones, Kelly Lynn Kesner, John Steven Parker, Page Perry, LLC, Atlanta, GA, for Defendants–Appellees.

Appeals from the United States District Court for the Northern District of Georgia.

Before MARTIN, HILL and EBEL,^* Circuit Judges.

EBEL, Circuit Judge:

During an eight-month period, Plaintiff and Counterclaim–Defendant Hemispherx Biopharma, Inc. (“Hemispherx”) hired three different investment brokers to raise capital for it. Hemispherx hired the first two brokers at a time when it was difficult to sell Hemispherx's stock. Months later, when market forces made Hemispherx's stock much more attractive, Hemispherx hired a third broker, a heavy hitter in the industry, which was able very quickly to raise $31 million in capital for Hemispherx through stock sales.

All three brokers focused their capital-raising efforts on several of the same prospective investors and, when several of those investors eventually purchased Hemispherx stock, a dispute predictably arose as to which of the three brokers was entitled to a commission on the stock sales. In this diversity action, governed by Georgia law, the first investment broker Hemispherx hired, Defendant and Counterclaimant Mid–South Capital, Inc. (“Mid–South”), seeks to recover a commission for its efforts in identifying those investors and introducing them to Hemispherx. Hemispherx contends, instead, that Mid–South and its employees, Defendants Robert Rosenstein and Adam Cabibi, tortiously interfered with Hemispherx's business relationship with its investors and with the third investment broker who ultimately closed the stock deals at issue here. The district court denied each party relief, granting judgment on the pleadings to Hemispherx on Mid–South's breach-of-contract claim, and summary judgment to Hemispherx on Mid–South's remaining claims and to Mid–South on Hemispherx's intentional interference with business relationships claim. Having jurisdiction under 28 U.S.C. § 1291, we AFFIRM the district court's decision in part, REVERSE in part, and REMAND this case to the district court for further proceedings.

I. BACKGROUND

A. The business relationship between Mid–South and Hemispherx

Hemispherx is a publicly-traded company researching and developing treatments for viral diseases and cancers. In August 2008, Hemispherx needed to raise between $4 and $6 million in capital. To that end, Hemispherx's chief executive officer (“CEO”), William Carter, M.D., met with Robert Rosenstein, who had previously succeeded in raising capital for Hemispherx. Rosenstein worked for Mid–South.

During their discussions, Carter and Rosenstein strategized that, because Hemispherx's stock was not trading well at that time, Hemispherx would probably have to raise capital through a loan arrangement, secured by all of Hemispherx's assets except its intellectual property and repayable in either cash or Hemispherx stock, at the lender's option—a secured convertible debenture. In order to pitch such an investment opportunity to prospective investors, Rosenstein asked Carter to send him information about Hemispherx and particularly about its assets. Before sending Mid–South this information, however, Hemispherx asked for a copy of Mid–South's Engagement Letter. Rosenstein sent Hemispherx Mid–South's standard Engagement Letter in September 2008.

As the parties had previously discussed, the Engagement Letter discounted Mid–South's usual brokerage fee because Hemispherx was a previous customer of Rosenstein. Therefore, the Engagement Letter stated that Hemispherx would pay Mid–South cash in an amount equal to 5% of the capital raised from investors that Mid–South identified or introduced to Hemispherx. Further, Hemispherx would give Mid–South stock warrants—the right to buy Hemispherx stock at a set price exercisable, in this case, within five years of issuance—in an amount equal to 5% of the stock issued as part of the capital-raising transaction. The Engagement Letter additionally provided that Mid–South would act as Hemispherx's broker on a non-exclusive basis and that either party could terminate the agreement with thirty days' written notice to the other party. But even after the agreement terminated, Hemispherx would be obligated to pay Mid–South a commission for at least another two years on any transactions involving investors Mid–South had identified or introduced to Hemispherx during the term of the agreement. These terms were similar to engagement agreements used by other investment brokers.

Although Hemispherx had requested the Engagement Letter, no one ever signed the Letter on Hemispherx's behalf. Once Hemispherx received the Mid–South Engagement Letter, however, in September 2008, Dr. Carter authorized Rosenstein to begin seeking investors for Hemispherx. To facilitate Rosenstein's efforts, Hemispherx sent him a list of its assets, as well as other information Rosenstein needed to pitch the opportunity to invest in Hemispherx to potential investors. Rosenstein, aided by another Mid–South employee, Adam Cabibi, then contacted a number of potential investors and began putting together several proposed deals to present to Hemispherx.

The primary dispute in this litigation, discussed at length below, is the legal status of the business relationship between Hemispherx and Mid–South. Briefly summarized here, the parties' positions regarding that relationship are these: Mid–South contends that, even though no one at Hemispherx ever signed the Engagement Letter, Hemispherx, by its conduct, assented to the terms of that agreement, or at least led Mid–South to believe Hemispherx had agreed to the terms of the Engagement Letter. Hemispherx claims, instead, that it rejected the terms of the Engagement Letter by not signing the agreement, although Hemispherx apparently never voiced any disagreement to Mid–South. Hemispherx contends that the parties had an “ad hoc arrangement” by which Hemispherx agreed to pay Mid–South an unspecified commission, but only if Mid–South itself closed an investment deal.

B. Mid–South pursues an investment deal involving Gemini Strategies LLC

To complicate matters further, on November 19, 2008, Dr. Carter sent Mid–South a letter indicating that Hemispherx would pay Mid–South “a fee from a financing which ... is completed within the next 3 months” involving “any” of five investors listed in the letter. (Doc. 127–11 at 4.) One of the listed investors was Gemini Strategies LLC (“Gemini”). On November 25, 2008, Mid–South submitted to Hemispherx an investment proposal from Gemini indicating that it was willing to contribute $1 million dollars toward a $6.5 million loan-type arrangement with Hemispherx. Mid–South then proceeded to negotiate with another potential investor, Hudson Bay, to “fill out” Gemini's proposed transaction. (Docs. 119 ¶ 5; 125–12 ¶ 5; 127–12 ¶ 14.) Mid–South, however, was ultimately not able to close this, or any other, deal with any of the investors Dr. Carter specified in his November 2008 letter.

C. Hemispherx hires a second investment broker, Cato Capital

Unbeknownst to Mid–South, on the same day that Dr. Carter sent his letter to Mid–South promising to pay Mid–South a fee for any “financing ... completed within the next 3 months” involving any of five specified investors (Doc. 127–11 at 4), Hemispherx also engaged a second investment broker, Cato Capital (“Cato”), to seek capital on Hemispherx's behalf. Over the next few months, Cato and Mid–South sought capital on Hemispherx's behalf from some of the same potential investors. In December 2008 and January 2009, Hemispherx, through its investment advisor, Counterclaim–Defendant The Sage Group (“Sage”), and Sage's executive director Wayne Pambianchi, told Mid–South that Hemispherx was “considering” retaining a second investment broker, and suggested ways to calculate the commission, should one of the potential investors that had been contacted by both brokers invest in Hemispherx. (Docs. 127–13 ¶ 16; 134–1 ¶ 16.) Neither Cato nor Mid–South agreed to Pambianchi's proposals, and the issue was dropped. Each broker continued its own efforts to raise capital for Hemispherx.

D. Mid–South pursues an investment deal with Hudson Bay

Although prospective investor Hudson Bay had initially proposed completing Gemini's proposed deal, in the spring of 2009 Hudson Bay suggested instead that it finance its own deal with Hemispherx. Before negotiations began on this proposal, Hemispherx's attorney drafted a confidentiality agreement which representatives of Hemispherx, Hudson Bay and Mid–South signed. Hemispherx also paid for Hudson Bay to obtain an appraisal of Hemispherx's assets. Then, over the next few months, Hemispherx and Hudson Bay, facilitated by Mid–South, continued negotiations for a loan-type transaction. These negotiations resulted in Hemispherx sending Hudson Bay a proposal on April 7, 2009. Hudson Bay countered with its own proposal on April 14, 2009, which Hemispherx found unacceptable.

E. Hemispherx's fortune turns

During the last week of April 2009, Hemispherx's fortunes turned for the better. An influenza outbreak caused heavy trading in Hemispherx's stock because Hemispherx had a potentially useful vaccine,...