816 F.3d 262 (4th Cir. 2016), 14-1991, Grayson v. Anderson
|Docket Nº:||14-1991, 14-1997|
|Citation:||816 F.3d 262|
|Opinion Judge:||NIEMEYER, Circuit Judge:|
|Party Name:||ALAN M. GRAYSON; AMG TRUST, Plaintiffs - Appellants, v. RANDOLPH ANDERSON; PATRICK KELLEY; VISION INTERNATIONAL PEOPLE GROUP PL.; TOTAL ECLIPSE INTERNATIONAL LTD., Defendants - Appellees, and CHARLES CATHCART; EVELYN CATHCART; YURIJ DEBEVC; CHARLES HSIN; DERIVIUM CAPITAL USA INC; VERIDIA SOLUTIONS LLC; SHENANDOAH HOLDINGS LTD; PTS INTERTECH INC...|
|Attorney:||Tucker Harrison Byrd, TUCKER H. BYRD & ASSOCIATES, P.A., Winter Park, Florida, for Appellants. Brian Cantwell Duffy, DUFFY & YOUNG, LLC, Charleston, South Carolina; Mark H. Wall, WALL TEMPLETON & HALDRUP, P.A., Charleston, South Carolina, for Appellees. Katherine A. Stanton, WALL TEMPLETON & HALD...|
|Judge Panel:||Before WILKINSON, NIEMEYER, and DIAZ, Circuit Judges. Judge Niemeyer wrote the opinion, in which Judge Wilkinson and Judge Diaz joined.|
|Case Date:||March 07, 2016|
|Court:||United States Courts of Appeals, Court of Appeals for the Fourth Circuit|
Argued December 8, 2015.
[Copyrighted Material Omitted]
Appeals from the United States District Court for the District of South Carolina, at Charleston. (2:07-cv-00593-DCN; 2:07-cv-02992-DCN; 2:08-cv-03129-DCN). David C. Norton, District Judge.
Victims of a massive, South Carolina-centered Ponzi scheme -- characterized by fraudulent loans secured by the borrowers' publicly traded stock -- obtained a judgment of over $150 million against Derivium Capital (USA), Inc., its principals, and numerous other participants in the scheme. Alan M. Grayson, AMG Trust, and Grayson Consulting, Inc., three of the plaintiffs, are now pursuing others whom they claim also participated in the scheme.
With respect to the three plaintiffs' claims against Vision International People Group, P.L., a Cypriot company, the district court granted Vision International's motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). And with respect to Grayson's and AMG Trust's claims against Randolph Anderson, Patrick Kelley, and Total Eclipse International Ltd. for aiding and abetting common law fraud, the district court granted those defendants' motion for judgment as a matter of law at trial, concluding that the cause of action was not recognized by South Carolina courts.
The plaintiffs filed separate appeals on the two rulings. In the first, the three plaintiffs contend that, because the district court did not conduct an " evidentiary hearing" in which it took live testimony, it should have assessed the Rule 12(b)(2) motion under the more relaxed standard of whether the plaintiffs had made a prima facie showing of personal jurisdiction over Vision International rather than under the more demanding standard that the district court applied, which required them to prove facts demonstrating personal jurisdiction by a preponderance of the evidence. And in the second, Grayson and AMG Trust contend that the district court erred in dismissing their claims for aiding and abetting fraud, maintaining that South Carolina recognized the cause of action in Connelly v. State Co., 152 S.C. 1, 149 S.E. 266 (S.C. 1929).
We consolidated the two appeals by order dated August 26, 2015, and now affirm on both. We conclude that, because the parties engaged in full discovery on the jurisdictional issue and fully presented the relevant evidence to the district court, the court properly addressed Vision International's Rule 12(b)(2) motion by weighing the evidence, finding facts by a preponderance of the evidence, and determining as a matter of law whether the plaintiffs carried their burden of demonstrating personal jurisdiction over Vision International. We also agree with the district court's conclusion that South Carolina has not recognized a cause of action for aiding and abetting common law fraud and that it is not our role as a federal court to so expand state law.
Under the fraud scheme referred to as the 90% Stock Loan Program, which began in 1997, borrowers delivered their publicly traded stock to Derivium as collateral
for loans in amounts up to 90% of the stock's market value. Because the loans were non-recourse loans, the borrowers could, at the loan's maturity date of usually three years, surrender the stock with no further obligation to pay the loan -- an attractive option if, at that time, the stock's value had depreciated. Alternatively, they could pay the loan and demand return of the stock -- an attractive option if, at that time, the stock's value had appreciated. It was, for the borrowers, thought to be a no-lose proposition.
But the full, undisclosed details of the program, which was designed and implemented largely by Charles Cathcart and Yuri Debevc, two of Derivium's principals, involved Derivium's misuse of the stock. Indeed, the principals sold the stock to fund their personal investments in high-risk venture capital opportunities, and, in the process, they realized substantial personal income from commissions on the stock sales. Although they hoped for yet larger returns on their investments, all but one of the personal investments failed, and Derivium was unable to return the borrowers' stock at the loan maturity dates because it had maintained no capital reserves and had entered into no derivative transactions to hedge against losses. Consequently, to cover the losses, the principals continued to solicit stock from new borrowers and enter into new 90% loans for years after the principals knew that the entire scheme would eventually collapse.
Derivium went into bankruptcy in 2005, and victims of the fraud began commencing actions in 2007 against Derivium, its principals, and other employees and related companies implicated in the scheme. There were more than 50 defendants in these actions. With respect to some of the defendants, the district court consolidated the actions for discovery and trial, and, following trial, a jury returned a verdict in favor of the plaintiffs in the amount of $150,478,525.29. The judgment entered on that verdict was affirmed on appeal.
The plaintiffs in the present appeals then began pursuing claims that had been stayed by the district court pending the outcome of the principal trial. One of the defendants in these resumed cases, Vision International, a Cyprus-based company engaged in distributing health and beauty products outside of the United States, filed a motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction over it. To support its motion, Vision International included deposition excerpts, affidavits, and other documents developed during full discovery, as well as a memorandum of law, to demonstrate that the court lacked jurisdiction. To support their response, the plaintiffs included more than 120 exhibits, likewise consisting of deposition transcripts, affidavits, interrogatory answers, and documentary evidence, as well as a memorandum of law, to demonstrate that Vision International had sufficient contacts with South Carolina and the United States generally. See S.C. Code Ann. § 36-2-803 (South Carolina's long-arm statute); Fed.R.Civ.P. 4(k)(2) (a so-called...
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