GRAYSON v. ANDERSON, Nos. 14-1991 and 14-1997

Decided: March 7, 2016

The Fourth Circuit affirmed the judgments of the district court.

Beginning in 1997, plaintiffs were victims of a massive, South Carolina-centered Ponzi scheme as a result of fraudulent loans secured by the victim’s stock. Borrowers would offer stock as collateral in exchange for a loan equaling up to 90% of the stock’s value from a company called Derivium. Unbeknownst to the borrowers, Derivium was using the borrower’s stock in high-risk venture capital investments that eventually failed. Derivium was thus unable to pay the borrowers back their investment. Derivium went bankrupt in 2005 and victims of the fraud began commencing actions against it that eventually resulted in a favorable $150 million judgment.

There are two separate appeals in this case that were consolidated by the Fourth Circuit for this ruling. These appeals stem from Alan M. Grayson, AMG Trust & Grayson Consulting, Inc. (“Plaintiffs”), who brought suit against several others who they claim also participated in the scheme. The Plaintiffs first brought suit against Vision International People Group, P.L. (“Vision”), a cypress-based company, which the district court dismissed for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). The Plaintiffs brought a second set of claims against Randolph Anderson, Patrick Kelley and Total Eclipse International Ltd. (“Defendants”), which was dismissed on a motion for judgment as a matter of law at trial by the district court on the grounds that the cause of action was not recognized by South Carolina courts.

In regards to the first suit against Vision, the Plaintiffs argued that the district court erred in not conducting an evidentiary hearing to review the conflicting evidence. The Plaintiffs further argued that the district court erred by requiring them to meet a higher standard by imposing a preponderance of the evidence standard in demonstrating jurisdiction. They argued that the standard should be a prima facie showing of jurisdiction viewed in the light most favorable to the plaintiffs. The court determined that there was no deficiency in the process the district court undertook in evaluating the motion. The district court did hold a hearing, and no party ever claimed the record was inadequate, that relevant evidence was missing, or that it was unable to fairly present its position. Furthermore, the court determined that the Plaintiffs ultimately had to establish facts supporting jurisdiction over Vision by preponderance of the evidence. The court also affirmed the decision of the district court on the “merits” of the Fed. R. Civ. P. 12(b)(2) motion. The court held that Vision lacked the necessary contacts and activities to bring it within the realm of personal jurisdiction. Furthermore, the court held that the officers of Vision involved in the scheme were doing so out of the scope of their employment with no connection to Vision.

In regards to the second suit filed against Defendants, the Plaintiffs argued that the district court erred in holding as a matter of law that the causes of action that were brought did not exist under South Carolina law. Plaintiffs argue that the South Carolina Supreme Court established these common law claims in Connelly v. State Co. The court held that this reading of Connelly was incorrect. The court reasoned that the language that Plaintiffs rely on as establishing these common law claims was not in the Supreme Court’s opinion, but in trial court’s opinion and was not adopted in its holding. The court concluded that it was unable to find any South Carolina cases that held that aiding and abetting common law fraud would constitute a cause of action in South Carolina.

Accordingly, the court affirmed the judgment of the district court.

Full Opinion

Michael W. Rabb

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