Hemispherx Biopharma v. Johannesburg Consol.

• Decision Date: 29 December 2008
• Docket Number: No. 05-14380.,05-14380.
• Citation: 553 F.3d 1351
• Parties: HEMISPHERX BIOPHARMA, INC., a Delaware corporation, Plaintiff-Appellant, v. JOHANNESBURG CONSOLIDATED INVESTMENTS, a South African corporation, Anna Francina Venter and Rainotes Bantubonke Nduna, Provisional Trustees of the estate of R.B. Kebble, H.C. Buitendag, Bart Goemaere, John Doe, Defendants-Appellees. Bioclones (Proprietary) Limited, a South African corporation, Cyril Donninger, Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

553 F.3d 1351

HEMISPHERX BIOPHARMA, INC., a Delaware corporation, Plaintiff-Appellant, v. JOHANNESBURG CONSOLIDATED INVESTMENTS, a South African corporation, Anna Francina Venter and Rainotes Bantubonke Nduna, Provisional Trustees of the estate of R.B. Kebble, H.C. Buitendag, Bart Goemaere, John Doe, Defendants-Appellees Bioclones (Proprietary) Limited, a South African corporation, Cyril Donninger, Defendants.

No. 05-14380.

United States Court of Appeals, Eleventh Circuit.

December 29, 2008.

Thomas K. Equels, Equels Law Firm, Miami, FL, for Plaintiff-Appellant.

Darin A. DiBello, Carlos B. Castillo, Seidman, Prewitt, DiBello & Lopez, P.A., Coral Gables, FL, Stuart M. Riback, Siller Wilk, LLP, New York City, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, CARNES and HILL, Circuit Judges.

TJOFLAT, Circuit Judge:

This lawsuit arose out of an alleged hostile takeover attempt of a publicly traded company. Plaintiff-appellant, a Delaware corporation, filed suit against two South African corporations along with several named and unnamed individual defendants under sections 13(d) and 14(e) of the Securities and Exchange Act of 1934 ("Exchange Act") and for common law fraud.¹ Some of the defendants-appellees moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), or alternatively, to stay a portion of the action pending arbitration in South Africa. The district court dismissed the case with prejudice as to sections 13(d) and 14(e) of the Exchange Act, and dismissed the fraud count without prejudice. We reverse and remand in part, and affirm in part.

I.

A.

Plaintiff Hemispherx Biopharma, Inc. ("Hemispherx"), was a pharmaceutical research and development company that specialized in nucleic acid technologies.² In particular, Hemispherx pursued the commercialization of RNA drugs.³ Hemispherx's lead pharmaceutical compound was a RNA drug with the trade name Ampligen, which was authorized by the United States Food and Drug Administration for various diseases. In addition to Ampligen, Hemispherx also produced a drug called Oragens.

Hemispherx was headquartered in Philadelphia, Pennsylvania, and was registered to do business in Florida. Hemispherx frequently conducted meetings in a facility in southern Florida. The company's common stock was listed and traded on the American Stock Exchange under the symbol HEB. Hemispherx had 40,000,000 shares of outstanding stock at all times relevant to this appeal.

The defendants in this case spanned the globe. Bioclones (Proprietary) Limited ("Bioclones") was a South African biotechnology company headquartered in Sandton, South Africa. Cyril Donninger ("Donninger") served as the Chief Executive Officer of Bioclones until December 2004, when he resigned from that position. Donninger was also a major Bioclones shareholder, controlling forty percent of the equity in the company. Johannesburg Consolidated Investments ("JCI") was a publicly traded South African company, with its principal place of business in Johannesburg, South Africa. JCI held 60 percent of the equity in Bioclones. R.B. Kebble ("Kebble") was the Chief Executive Officer of JCI and a citizen of South Africa. Kebble was murdered during the pendency of this appeal.⁴ H.C. Buitendag ("Buitendag") was the Chief Financial Officer of JCI and a citizen of South Africa. We refer collectively to Bioclones, Donninger, JCI, Kebble, and Buitendag as the "South African defendants."

Moving from Africa to Europe, Bart Goemaere ("Goemaere") was a Biotech consultant for BeursTIPS, a European investment publication. According to the amended complaint, Goemaere controlled approximately 30 percent of Hemispherx shares at the time of the attempted takeover. While Hemispherx asserted in its amended complaint that Goemaere was a citizen of the Principality of Monaco and was domiciled there, Goemaere responded in his answer that he no longer lived in Monaco and had moved to Belgium. In a hearing held before the district court on April 18, 2005, counsel for Hemispherx effectively amended its complaint when it stated that Goemaere was a resident of Belgium.

On October 13, 1994, Hemispherx granted Bioclones a license for the development, manufacture, use, and sale of certain products, including Ampligen, in non-U.S. territories. Under the licensing agreement, Hemispherx was required to provide all of its documents, records, computerized records and other data constituting "licensed know-how"⁵ to Bioclones. The licensed products and know-how were based on patents owned by Hemispherx, namely Ampligen and Oragens. Bioclones was, in turn, required to create a separate corporation for the manufacture and supply of certain licensed products; Hemispherx and Bioclones would share ownership in this new corporation. The agreement also gave Bioclones the right of first refusal to license Hemispherx's product Oragens.

The licensing agreement contained an arbitration clause providing for the resolution of disputes in South Africa; it provided in pertinent part: "Any dispute at any time between the parties hereto arising out of or pursuant to this Agreement or its interpretation, rectification, breach or termination shall be submitted to and be decided by arbitration in terms of the Arbitration Act, 1965, of the Republic of South Africa." The licensing agreement lasted for the life of the licensed patents and until three years after the expiration of the last of the licensed patents. The licensing agreement was amended several times, but this basic structure was not altered.

In mid-2002, almost eight years after the initial licensing agreement, Donninger reduced his shares in Bioclones from 100 percent to 50 percent of the company, and JCI purchased a 50 percent interest in Bioclones. Later, Donninger reduced his equity in Bioclones to 40 percent. JCI, as Bioclones' new shareholder, urged Bioclones to make additional investments in Hemispherx; JCI was particularly interested in Hemispherx's product called Oragens. From mid to late 2002, Bioclones expressed this interest to Hemispherx. In furtherance of Bioclones' interest, Donninger allegedly made the following oral and/or written representations to Hemispherx:

(i) Bioclones was interested in providing substantial additional capital to Hemispherx for the purpose of funding Hemispherx's ongoing operations, including the completion of clinical trials, pending regulatory processes and product development; (ii) Bioclones represented that it had sufficient cash reserves, liquid assets and/or value to fund those operations; (iii) Bioclones claimed to be a thriving South African pharmaceutical company with a value of $400,000,000 and having such cash reserves in the tens of millions of dollars; (iv) Bioclones was interested in a Hemispherx product called Oragens, which Donninger believed could surpass Ampligen; and (v) Donninger and Bioclones represented that a substantial investment would be made in order to fund construction of a manufacturing facility which would comply fully with regulatory requirements, including FDA requirements.

The amended complaint asserts that representatives of JCI made and/or ratified the representations outlined above. Specifically, Hemispherx claimed that Kebble and Buitendag, as JCI executive officers, knew and approved of these representations. The representations were made at meetings held in Philadelphia, Pennsylvania and Tavernier, Florida in September 2002 and in London, England in October 2002. The September meetings were held, per Donninger's request, to conduct financial and scientific due diligence of Hemispherx in relation to Bioclones' investment in Hemispherx. Relying on the foregoing, representatives for Hemispherx met with Donninger and provided full disclosures in accordance with the requested due diligence review. Hemispherx shared with Bioclones highly sensitive proprietary, financial, and technical information, along with information related to Oragens, in reliance on the potential investment. Hemispherx alleged that it was under no pre-existing obligation to make such disclosures.

On November 14, 2002, Bioclones sent a letter to the directors and executive officers of Hemispherx, proposing a merger of the two companies. Under the proposed terms of the deal, Bioclones shareholders would ultimately own 50 percent of the shares of the combined entity by exchanging Hemispherx shares for 100 percent of Bioclones shares.⁶ The letter explicitly stated that the proposal was "purely for initial discussion purposes and is in no way to be construed as a legally binding offer capable of acceptance." Bioclones also wrote that the letter was confidential to the Hemispherx board of officers and directors and that any public reference to the letter would result in an immediate termination of Bioclones' interest. Upon receipt and review of the letter, Hemispherx decided to conduct its own due diligence of Bioclones, and informed Bioclones to that effect.

Hemispherx claims that its due diligence of Bioclones uncovered multiple material false representations made by the South African defendants.⁷ Namely, Hemispherx contends that the South African defendants made or allowed to be made the following false representations:

(i) The alleged funding and construction of manufacturing facilities for RNA polymers which would fully comply with FDA requirements for production of Ampligen raw materials was not happening and did not occur; (ii) Bioclones did not have and never had sufficient assets and reserves to make a substantial capital investment in Hemispherx sufficient to fund ongoing Hemispherx operations; (iii) Bioclones did not have millions of dollars in cash reserves nor a value of approximately $400,000,000; and (iv) Bioclones had not obtained significant expertise in the FDA process and was not obtaining FDA regulatory approval for its manufacturing facilities.

The...