Hyperdynamics Corp. v. Southridge Capital Mgmt. LLC

• Decision Date: 16 July 2010
• Docket Number: No. A10A0362.,A10A0362.
• Parties: HYPERDYNAMICS CORPORATIONv.SOUTHRIDGE CAPITAL MANAGEMENT, LLC, et al.
• Court: Georgia Court of Appeals

305 Ga.App. 283

699 S.E.2d 456

HYPERDYNAMICS CORPORATIONv.SOUTHRIDGE CAPITAL MANAGEMENT, LLC, et al.

No. A10A0362.

Court of Appeals of Georgia.

July 16, 2010.

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Edmond & Lindsay, Michael E. Perez, Charles M. Cork III, Mark F. Dehler, Decatur, for appellant.

Mark E. Grantham, Anthony D. Lehman, Atlanta, for appellees.

Schklar, Ney & Heim, Edwin J. Schklar, William B. Ney, Atlanta, amici curiae.

BERNES, Judge.

This case explores the breadth of Georgia's Long Arm Statute. Appellant Hyperdynamics Corporation filed the instant lawsuit against various resident and nonresident corporate defendants, alleging that they had fraudulently induced Hyperdynamics to engage in a predatory financing scheme causing it injury. The trial court dismissed the action as to the nonresident defendants after concluding that they fell outside of the reach of the trial court's personal jurisdiction. Hyperdynamics appeals, arguing that the trial court misconstrued Georgia's Long Arm Statute. Because we conclude that jurisdiction in Georgia is proper over the nonresidents under the theory of conspiracy jurisdiction, we reverse.

I. Burden of Proof and Standard of Review

A defendant moving to dismiss for lack of personal jurisdiction bears the burden of proving the absence of

jurisdiction. To meet that burden, the defendant may raise matters not contained in the pleadings. However, when the outcome of the motion depends on unstipulated facts, it must be accompanied by supporting affidavits or citations to evidentiary material in the record. Further, to the extent that defendant's evidence controverts the allegations of the complaint, plaintiff may not rely on mere allegations, but must also submit supporting affidavits or documentary evidence.

(Citation omitted.) Yukon Partners v. Lodge Keeper Group, 258 Ga.App. 1, 2, 572 S.E.2d 647 (2002). When examining and deciding jurisdictional issues on a motion to dismiss, a trial court “has discretion to hear oral testimony or to decide the motion on the basis of affidavits and documentary evidence alone pursuant to OCGA § 9-11-43(b).” (Citation and punctuation omitted.) Scovill Fasteners v. Sure-Snap Corp., 207 Ga.App. 539, 539-540, 428 S.E.2d 435 (1993). See Alcatraz Media v. Yahoo! Inc., 290 Ga.App. 882, 884(1), 660 S.E.2d 797 (2008). If the trial court conducts an evidentiary hearing, it may resolve disputed factual issues, and we will show deference to those findings. See Alcatraz Media, 290 Ga.App. at 886(2), 660 S.E.2d 797; McLendon v. Albany Warehouse Co., 203 Ga.App. 865, 866(1), 418 S.E.2d 130 (1992). On the other hand, where, as here, a motion is resolved based solely upon written submissions,¹ “the reviewing court is in an equal position with the trial court to determine the facts and therefore examines the facts under a non-deferential standard,” Scovill Fasteners, 207 Ga.App. at 540, 428 S.E.2d 435, and we resolve all disputed issues of fact in favor of the party asserting the existence of personal jurisdiction. Alcatraz Media, 290 Ga.App. at 884(1), 660 S.E.2d 797.

II. The Parties

This case arises out of a private placement venture capital financing transaction. The plaintiff in the underlying action, appellant Hyperdynamics, is a Delaware corporation with its principal place of business in Texas. The defendants in the underlying action consist of four groups of both residents and nonresidents that, for the purposes of this opinion, will be referred to collectively as the “Canouse Defendants,” the “Hicks Defendants,” the “Sims Defendants,” and the “Valentine Defendants.”

(A) The Canouse Defendants. The Canouse Defendants consist of four brothers, Joseph C. Canouse, John C. Canouse, James P. Canouse, and Jeffrey Canouse, all of whom are Georgia residents, as well as several companies which they are alleged to own and/or control: J.P. Carey Securities, Inc.; J.P. Carey Asset Management LLC; Cache Capital (USA), L.P.; and Carpe Diem Ltd. All of the conduct attributed to the Canouse Defendants in this opinion occurred in Georgia, unless otherwise stated. The Canouse Defendants have not challenged personal jurisdiction and are not parties to the instant appeal.

(B) The Hicks Defendants. The “Hicks Defendants” consist of Stephen Hicks, a Canadian citizen residing in Connecticut; Southridge Capital Management LLC (“Southridge”), a Delaware limited liability company with its principal place of business in Ridgefield, Connecticut, of which Hicks is managing director; Sovereign Partners, L.P. (“Sovereign”), a fund organized as a Delaware limited partnership; and various entities within a complex multi-tiered offshore business structure that were created at the direction of Hicks: Livingstone Asset Management Ltd. (“Livingstone”), an international business company; Terrapin Trading LLC (“Terrapin”), an offshore entity organized as a Cayman Islands limited liability company; Dominion Capital Fund, Ltd. (“Dominion”), an offshore fund organized as a Nassau, Bahamas international business company; and Minglewood Capital, LLC (“Minglewood”), a Cayman Islands limited liability company. None of the Hicks Defendants is registered to conduct business in Georgia.

The record shows that Hicks directed and controlled the Hicks Defendants as to the transaction at issue in this case, through a series of advisor agreements, subadvisor agreements, and powers of attorney.² The Hicks Defendants successfully challenged personal jurisdiction over them in the trial court and are parties to the instant appeal.

(C) The Sims Defendants. The Sims Defendants consist of David Sims, a South African citizen residing in Tortola, British Virgin Islands, as well as entities owned and/or controlled by Sims: Beacon Capital Management, Ltd. (“Beacon”), an offshore holding company and investment advisor organized as a British Virgin Islands limited partnership; Falcon Secretaries, Ltd. (“Falcon”), a British Virgin Islands international business company; and Navigator Management, Ltd. (“Navigator”), a British Virgin Islands international business company.³

The Sims Defendants acted as the sole officer or director to most, if not all, of the Hicks Defendants within the multi-tiered offshore structure.⁴ The Sims Defendants successfully challenged personal jurisdiction over them in the trial court and are also parties to the instant appeal.

(D) The Valentine Defendants. The Valentine Defendants consist of Mark Valentine,⁵ a Canadian citizen residing in Florida, and certain entities which he controlled and/or was affiliated: Thomson Kernaghan & Co., Ltd., a brokerage firm with Valentine as chairman; Canadian Advantage L.P.; and VMH Ltd. Hyperdynamics alleges that the Valentine Defendants directed and/or participated in the Hyperdynamics transaction by executing trades and by the movement of funds and proceeds between and among the Defendants' accounts at Thomson Kernaghan. Hyperdynamics also alleges that Canadian Advantage L.P. provided some of the funding to Wellington in the Hyperdynamics financing transaction at issue in this case. The Valentine Defendants are in default and are not parties to the instant appeal.

III. The Allegations

(A) The Conspiracy. Hyperdynamics alleges that the resident and nonresident defendants have a longstanding business relationship and have, using the complex multi-tiered offshore financial structure created at the direction of Hicks, conspired to engage in fraud and market manipulation involving toxic convertible financing transactions ⁶ with companies seeking private placement investors. According to Hyperdynamics, the collective Defendants have used this offshore financial structure to conceal both the true identity of, and the relationship between, the Defendants when preying upon unsuspecting businesses seeking financing. The Defendants are alleged to enter into toxic convertible financing agreements with the then-present intent to surreptitiously use short sales ⁷ and naked short sales ⁸ to manipulate the value of the company's stock by driving the price downward, and to then acquire a majority position in the company upon the conversion of the investor's preferred securities to common stock. In support of this allegation, Hyperdynamics points to the undisputed testimony that the transaction involved in this case did, in fact, involve toxic convertible financing. In addition, Valentine admitted that he had been involved in several toxic convertible financing transactions involving the Canouse Defendants. Hyperdynamics also identified at least 35 other companies in which Hyperdynamics claims one or more of the Canouse Defendants, one or more of the Hicks Defendants, one or more of the Sims Defendants, and one or more of the Valentine Defendants invested, and claims that they each involved toxic convertible financing. Finally, Hyperdynamics filed sworn affidavits from three separate corporate executive officers who alleged that they had also been subject to a common scheme involving various combinations of these Defendants engaging in unlawful toxic convertible financing transactions. Specifically, the corporate executives stated that their respective companies had entered into financial transactions with the Defendants, and that their respective companies each fell victim to fraud and market manipulation in a fashion similar to that which has been alleged in this case.

(B) The Offshore Structure. The complaint alleges that in or about early 1999, Stephen Hicks concocted a scheme to manipulate the market in thinly capitalized companies. In furtherance of this alleged scheme, Hicks directed the creation of the multi-tiered offshore structure, consisting of numerous layers of Cayman Island and Bahamian entities, designed both to conceal the identities of the parties involved and to undermine the enforcement of United States securities laws.⁹ In support of this allegation, Hyperdynamics has presented documentary evidence produced during...