[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
____________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
December 29, 2008
No. 05-14380
THOMAS K. KAHN
_____________ CLERK
D.C. Docket No. 04-10129-CV-JLK
HEMISPHERX BIOPHARMA, INC.,
a Delaware corporation,
Plaintiff-Appellant,
versus
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.
______________
Appeal from the United States District Court
for the Southern District of Florida
_____________
(December 29, 2008)
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
1
We shall refer in this opinion to the following sections of the Exchange Act by their
historical nomenclature. They are codified as follows:
Securities and Exchange Act of 1934 15 U.S.C. § 78
Section 3 § 78(c)
Section 10(b) § 78j(b)
Section 13(d) § 78m(d)
Section 14(a) § 78n(a)
Section 14(d) § 78n(d)
Section 14(e) § 78n(e)
Section 16(b) § 78p(b)
2
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
2
Upon review of the district court’s order granting the defendants’ motion to dismiss, we
accept the facts alleged in the complaint as true and present them in the light most favorable to
the plaintiff. See e.g., Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232, 81 L.
Ed. 2d 59 (1984).
3
RNA is the abbreviation for ribonucleic acid. According to Hemispherx, RNA “is a
form of nucleic acid which orchestrates a cell’s behavior and which regulates the action of
groups of cells, including the activation of an otherwise dormant cellular defense against viruses
and tumors.”
3
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.”
4
Appellants filed a motion for suggestion of the death of Kebble on October 4, 2005.
On November 2, 2005, we stayed the appeal for sixty days. A little over one month later, on
December 13, 2005, the stay was lifted and we permitted the executors of Kebble’s estate, Simon
D. McKenzie and Jeffrey Closenberg, to be substituted in as appellees for Kebble’s estate. In our
order dated May 3, 2007, we ordered the substitution of Anna Francina Venter and Rainotes
Bantubonke Nduna, (the Provisional Trustees of the estate of R. B. Kebble), as
Defendant-Appellee in place of the co-executors of the estate, Simon D. McKenzie and Jeffrey
Closenberg.
4
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-
5
“Licensed know-how,” as defined in the licensing agreement, included:
[A]ny and all data, information, technology or special ability on the part of
the licensor in the field of double-stranded ribose nucleic acids and their
uses including, but not limited to, processes, techniques, specifications,
methods, products, materials and compositions, manufacture, testing in
animals and man and the results thereof, registration dossiers, market data
or use of any licensed products and their manufacture and formulations,
owned by the licensor during the term of this Agreement or obtained
through agreement with third parties and which is directly related to the
5
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
licensed patents and licensed products and their use and which is useful or
required in seeking approval from regulatory authorities to market licensed
products and which includes all toxicological and safety data . . . .
6
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
7
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
6
The letter stated:
The shareholders approve a doubling of the authorised share capital to
100m ordinary shares and 39.8m of these be issued to Bioclones
shareholders in return for 100% of the share capital of Bioclones,
including all assets, rights and intellectual property. Thus Bioclones
shareholders would own 50% on a fully diluted basis of the combined
entity.
8
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 amended complaint asserts that the South African defendants made these false
representations with the intent to deceive, manipulate or defraud Hemispherx, and
that Hemispherx reasonably relied on these representations to its detriment. While
7
The amended complaint states that the “[d]efendants” made these representations or
allowed them to be made. In the context of the amended complaint, however, it appears that
Hemispherx was referring only to the South African defendants and not Goemaere.
9
Hemispherx does not provide the specifics of exactly how or when these
representations were made, the amended complaint does cite Donninger and “other
sources” as providing information about Bioclones’ financial situation.
In addition to learning about the allegedly false representations made by the
South African defendants, Hemispherx claims that the November 14, 2002 letter
was actually the commencement of a hostile takeover attempt. The amended
complaint asserts that the South African defendants worked in concert with
Goemaere to force the removal of Hemispherx management and take control of the
company. Hemispherx alleges that Goemaere either obtained a copy of the
November 14, 2002 letter or learned of its material terms. Throughout 2003 and
2004, Hemispherx contends that Goemaere communicated, both orally and in
writing, with Hemispherx shareholders, endorsing not only the proposed merger
but also a hostile takeover and the removal of Hemispherx management. Goemaere
allegedly made strides toward this end by raising money and seeking control of
millions of Hemispherx shares throughout 2003 and 2004.8
8
The amended complaint alleges that Goemaere participated in an effort to raise money
for the hostile takeover through a private placement memorandum. Hemispherx also contends
that Goemaere sought control of Hemispherx shares from a broker-dealer in Connecticut,
Chinese investors, a resident of Belgium, a former Hemispherx officer, and an investor who
resides in Florida. It does not allege, however, whether Goemaere ultimately acquired any of
these shares. The amended complaint simply provides that, “Goemaere stated that he controlled
11 million shares [of Hemispherx] in 2003 and 16 million shares in 2004.” (emphasis added).
10
Hemispherx claims that Goemaere acted in concert with the South African
defendants pursuant to an express agreement or understanding to achieve a hostile
takeover of Hemispherx. Hemispherx cites a number of facts to support this
contention. First, Hemispherx claims that a JCI director reported that Hemispherx
was “in play” in late 2002, which Hemispherx interpreted as a “veiled threat.”
Second, Goemaere went to South Africa in early 2003 and met with directors of
Bioclones and JCI “in furtherance of a coordinated and concerted effort to effect
the hostile takeover of Hemispherx.” In mid-2003, Goemaere’s business partner,
who was also a Hemispherx shareholder, traveled to South Africa and met with
Donninger, and Hemispherx “believes” the business partner was traveling in
furtherance of the hostile takeover with the knowledge and support of the South
African defendants. Hemispherx also claims that Goemaere, his business partner,
and Donninger engaged in regular telephone conferences throughout 2003 and into
early 2004, in furtherance of the hostile takeover bid. As recounted above,
Goemaere attempted to persuade Hemispherx shareholders to support the hostile
takeover of Hemispherx and merger with Bioclones. In late 2004, Kebble and
Buitendag called the Chief Executive Officer (“CEO”) of Hemispherx , once jointly
and once by Kebble alone, proposing a Hemispherx merger with Bioclones and the
removal of Hemispherx management. Goemaere also called a Hemispherx director
11
in December 2004, stating that he controlled 30 percent of Hemispherx outstanding
stock and threatened a hostile takeover. Additionally, Donninger reported to
Hemispherx in December 2004 that he had resigned from Bioclones and that
Bioclones and JCI were experiencing serious financial problems.
Hemispherx alleges that both Goemaere and the South African defendants
tried to manipulate and drive down the price of Hemispherx stock in an attempt to
acquire additional shares. The following facts were cited by Hemispherx in
support of this assertion: 1) Bioclones filed patents that infringed on Hemispherx’s
patent estate in an attempt to drive down the value of Hemispherx’s patent estate,
and therefore the price of Hemispherx stock; 2) Bioclones and Donninger publicly
questioned whether Bioclones’ manufacturing facility complied with international
standards for the production of Ampligen raw materials for Hemispherx; and 3)
Goemaere published in BeursTIPS allegedly false and misleading information
about Hemispherx’s management.
In the end, no takeover occurred. The merger proposed in Bioclones’
November 14, 2002, letter to Hemispherx never transpired. Hemispherx does not
allege that any negotiation over the proposed merger ever occurred. Nor does
Hemispherx allege that the South African defendants ever purchased any shares of
Hemispherx. Hemispherx contends, nevertheless, that Goemaere and the South
12
African defendants agreed to act as a group to acquire, hold, vote and dispose of
Hemispherx shares. Hemispherx claims that by virtue of this agreement between
Goemaere and the South African defendants, the defendants collectively
“controlled” the voting of Goemaere’s shares of Hemispherx and were thus
“beneficial owners” of those shares under section 13(d) of the Exchange Act.
Hemispherx claimed it was injured from the allegedly illegal effort to take over
Hemispherx and filed suit.
B.
Hemispherx sued Bioclones, JCI, Donninger, Kebble, Buitendag, Goemaere,
and several unnamed defendants on December 21, 2004. Hemispherx’s initial
verified complaint recited the facts as outlined above and contained two counts.
Count 1 alleged violations of sections 13(d),9 14(d),10 and 14(e)11 of the Exchange
9
Section 13(d)(1) provides:
Any person who, after acquiring directly or indirectly the beneficial ownership of
any equity security of a class which is registered pursuant to section 78l of this
title, . . . is directly or indirectly the beneficial owner of more than 5 per centum of
such class shall, within ten days after such acquisition, send to the issuer of the
security at its principal executive office, by registered or certified mail, send to
each exchange where the security is traded, and file with the Commission, a
statement containing such of the following information, and such additional
information, as the Commission may by rules and regulations, prescribe as
necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78m(d)(1).
10
Section 14(d) provides, in pertinent part, “It shall be unlawful for any person, directly
or indirectly, by use of the mails or by any means or instrumentality of interstate commerce or
13
Act against all of the defendants, and Count 2 charged the South African
defendants with common law fraud. The South African defendants moved to
dismiss the complaint on February 14, 2005, and Hemispherx filed an amended
verified complaint on March 7, 2005. The counts in the amended verified
complaint are the same as those in the original complaint, except that Hemispherx
dropped the allegation that the defendants had violated section 14(d) of the
Exchange Act. Hemispherx sought declaratory and injunctive relief under Count 1
and damages under Count 2.
On March 24, 2005, the South African defendants filed a motion to dismiss
the action or stay a portion of the action pending arbitration in South Africa
pursuant to the arbitration clause in the licensing agreement. Goemaere did not
any facility of a national securities exchange or otherwise, to make a tender offer for, or a request
or invitation for tenders of, any class of any equity security...if, after consummation thereof, such
person would, directly or indirectly, be the beneficial owner of more than 5 per centum of such
class . . . .” 15 U.S.C. § 78n(d).
11
Section 14(e) provides:
It shall be unlawful for any person to make any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements made,
in the light of the circumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or practices, in
connection with any tender offer or request or invitation for tenders, or any
solicitation of security holders in opposition to or in favor of any such offer,
request, or invitation. The Commission shall, for the purposes of this subsection,
by rules and regulations define, and prescribe means reasonably designed to
prevent, such acts and practices as are fraudulent, deceptive, or manipulative.
15 U.S.C. § 78n(e).
14
join in the motion to dismiss. Instead, he responded to the amended complaint in a
letter dated April 10, 2005. The district court held a hearing on April 18, 2005,
regarding the South African defendants’ motion to dismiss. On July 8, 2005, the
district court entered a final order dismissing the action as to defendant Goemaere
for lack of personal jurisdiction. As for the South African defendants, the district
court dismissed Count 1 with prejudice and dismissed Count 2 without prejudice.
Hemispherx now appeals, presenting three reasons for reversal. First,
Hemispherx claims that the district court erred in dismissing the claims against
Goemaere for lack of sufficient service of process. Second, Hemispherx argues
that the court erred in dismissing Count 1 when it determined that the complaint
did not adequately allege beneficial ownership by the defendants under section
13(d) of the Exchange Act. Finally, Hemispherx contends that the district court
erred in dismissing the fraud count because the dispute is not subject to the
arbitration clause in the licensing agreement. We address these arguments in turn.
II.
Hemispherx appeals the district court’s dismissal of the claim against
Goemaere for insufficient service of process.12 The record indicates that Goemaere
12
Of the two counts in the amended complaint, Goemaere was only implicated in the
first count. As discussed supra, Hemispherx alleged in Count 1 of the amended complaint that
Goemaere and the South African defendants violated sections 13(d) and 14(e) of the Exchange
15
responded to the amended complaint in a letter dated April 10, 2005. The letter
was addressed to counsel for Hemispherx and the Clerk of the Court for the
Southern District of Florida. In his thirteen page letter, excluding attachments,
Goemaere addressed each of the allegations made in the amended complaint. It
does not appear that the letter was prepared by an attorney, as it was written by
Goemaere in the first-person narrative voice and was styled as a letter rather than a
motion or answer. The epistolary form notwithstanding, Goemaere filed the
functional equivalent of an answer to Hemispherx’s amended complaint.
In his answer, Goemaere discussed his relationship with Hemispherx and
responded to each of the allegations made in the amended complaint. Goemaere
also wrote, “I am strongly wondering if, just because I have visited Florida once
(the visit was an organized event of the plaintiff itself), the Court has personal
jurisdiction over me.” Goemaere also wrote, in closing the letter, that “the plaintiff
fail[ed] to prove it ha[d] personal jurisdiction over [him],” and moved the court to
dismiss the count against him.
While these statements were effectively objections to the court’s exercise of
jurisdiction over Goemaere, Goemaere did not raise any issue with respect to
service of process. In the first sentence of his answer, Goemaere wrote, “I am
Act.
16
responding to the amended complaint that has been forwarded to me and that I have
received recently by postal mail.” This is the only reference to service of process
made in Goemaere’s letter.
Goemaere did not appear before the court at the hearing held on April 18,
2005 to discuss the South African defendants’ motion to dismiss. At the hearing,
counsel for the South African defendants acknowledged that Goemaere had sent
“something” to the court, but clarified that they did not represent him. Upon
confirming that counsel for the South African defendants did not represent
Goemaere, the court proceeded with the parties before it. Goemaere, to this day,
has not appeared before the district court.
On July 8, 2005, the district court entered its final order of dismissal, and
dismissed Hemispherx’s claim against Goemaere for insufficient service of
process. In a footnote in the court’s final order of dismissal, the court held, “It
appears from the record that Plaintiff failed to properly serve Defendant Goemaere.
As such this Court find[s] that it lacks jurisdiction over Defendant Goemaere.” The
district court’s disposition of the claim against Goemaere comprised only these two
sentences; it did not reach the merits of Goemaere’s defense that the court lacked
personal jurisdiction due to insufficient contacts with the forum. Prior to its final
17
order, the district court gave no indication that it was considering dismissing the
claim against Goemaere.
Hemispherx now appeals the dismissal, claiming that Goemaere waived any
right to challenge insufficient service of process by answering the amended
complaint without objecting to service of process. Goemaere did not file a brief
with this court on appeal. We review the district court’s construction of the Federal
Rules of Civil Procedure de novo, and its factual findings for clear error. Beck v.
Prupis, 162 F.3d 1090, 1100–01 (11th Cir. 1998) (citations omitted).
“Service of process is a jurisdictional requirement: a court lacks jurisdiction
over the person of a defendant when that defendant has not been served.” Pardazi
v. Cullman Med. Ctr., 896 F.2d 1313, 1317 (11th Cir. 1990). Challenges to service
of process will be waived, however, if not raised under Federal Rule of Civil
Procedure 12. See id. Under Rule 12, a defendant must raise any challenge to the
sufficiency of service of process in the first response to the plaintiff’s complaint;
i.e., the defendant must include the defense in either its pre-answer motion to
dismiss, or if no pre-answer motion is filed, then the defense must be included in
the defendant’s answer. See Fed. R. Civ. P. 12(b), (g), (h); 1 Moore’s Manual:
Federal Practice and Procedure § 11.23 (2007); Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1391 (3d ed. 2004). Once a defendant has
18
waived any objection to insufficient service of process, “the court may not, either
upon the defendant’s motion or its own initiative,” dismiss on that ground.
Pardazi, 896 F.2d at 1317.
Here, Goemaere failed to raise any objection to service of process under Rule
12. Goemaere did not file a pre-answer motion to dismiss, nor did he specifically
raise insufficiency of service of process in his answer to the amended complaint.
Goemaere did, however, challenge the court’s exercise of personal jurisdiction over
him in his answer. The question then becomes, did Goemaere’s objection to
personal jurisdiction properly raise a challenge to the sufficiency of service of
process? While we expressly declined to answer the question in Pardazi, 896 F.2d
at 1318 n.4, we now hold that objecting to personal jurisdiction is not sufficient to
raise an objection to service of process under Rule 12. See Fed. R. Civ. P. 12.
In applying Rule 12, we are mindful of the “cardinal principle of statutory
construction that a statute ought, upon the whole, to be so construed that, if it can
be prevented, no clause, sentence, or word shall be superfluous, void, or
insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S. Ct. 441, 449, 151 L.
Ed. 2d 339 (2001) (internal quotation marks and citations omitted). Rule 12(b)
enumerates seven defenses which may be asserted in a pre-answer motion or
19
responsive pleading.13 Lack of personal jurisdiction, Rule 12(b)(2), and
insufficiency of service of process, Rule 12(b)(5), are listed as separate defenses
under Rule 12. Fed. R. Civ. P. 12(b). Rule 12(b)(5) would be redundant if we
recognized an objection to personal jurisdiction as an acceptable means of
challenging the sufficiency of service of process. Simply put, a litigant must cite
each separate Rule 12(b) defense in the pre-answer motion or if no pre-answer
motion is filed, then in the responsive pleading. Citing one Rule 12(b) defense in
the hope that it will sufficiently raise another defense is not permissible. This
construction of Rule 12(b) has been adopted by the majority of our sister circuits.
See e.g., American Ass’n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104,
1108 (9th Cir. 2000) (holding that defendant waived objection to personal
jurisdiction when he only raised improper service of process in his first filing to the
court); Roque v. United States, 857 F.2d 20, 21–22 (1st Cir. 1988) (noting that
“Rule 12(b) distinguishes between the defenses of lack of personal [jurisdiction]
and insufficient service of process” and that “[i]f the true objection is insufficient
13
The seven defenses include: “(1) lack of jurisdiction over the subject matter; (2) lack
of jurisdiction over the person; (3) improper venue; (4) insufficiency of process; (5) insufficiency
of service of process; (6) failure to state a claim upon which relief can be granted; and (7) failure
to join a party under Rule 19.” Fed. R. Civ. P. 12(b).
20
service of process, we do not think it is too much to require a litigant to plainly say
so” rather than invoking an objection to personal jurisdiction).
In this case, Goemaere did not cite insufficiency of service of process as a
reason for the court to dismiss the charge against him. In his answer, Goemaere
objected to personal jurisdiction due to his lack of contact with the forum. By
failing to cite insufficiency of service of process in his answer, Goemaere waived
that defense. Citing personal jurisdiction was not enough to invoke a challenge to
service of process. Accordingly, we hold under Pardazi that the district court erred
in dismissing the claim against Goemaere for insufficient service of process when
Goemaere had already waived that defense.
III.
We next address whether Count I of the complaint failed to state a claim
under section 13(d) because not every member of the alleged “group” was a
beneficial owner of Hemispherx shares.14 Whether individuals or entities without a
14
Though not raised by the district court nor the parties, there may be an open question as
to whether a private cause of action lies in issuers to enforce section 13(d). Both the text and
legislative history of section 13(d) are silent on this point. When a statute does not expressly
provide for a private cause of action, as section 13(d) does not, we conduct a four-part analysis to
discern congressional intent to imply a private cause of action: (1) “is [the plaintiff] one of the
class for whose especial benefit the statute was enacted”; (2) “is there any indication of
legislative intent, explicit or implicit, either to create such a remedy or to deny one”; (3) “is it
consistent with the underlying purposes of the legislative scheme to imply a remedy for the
21
beneficial ownership interest in a company's securities can nonetheless become
members of a “group” within the meaning of section 13(d)(3) of the Exchange Act
is an issue of first impression in this circuit. If the answer is yes, then the
defendants should have made the disclosures required under section 13(d)(1) of the
Act. If the answer is no, they were not required to file the disclosures and the
district court's dismissal of Hemispherx’s section 13(d) claim should be affirmed.
As in any case involving statutory construction, we begin with the plain
language of the statute. Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc.,
447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). “We do not
look at one word or term in isolation, but instead we look to the entire statutory
plaintiff”; and (4) “is the cause of action one traditionally relegated to state law, in an area
basically the concern of the States, so that it would be inappropriate to infer a cause of action
based solely on federal law.” Cort v. Ash, 422 U.S. 66, 78, 95 S. Ct. 2080, 2088, 45 L. Ed. 2d 26
(1975) (internal quotations marks and citations omitted); see also Touche Ross & Co. v.
Redington, 442 U.S. 560, 568, 99 S. Ct. 2479, 2485, 61 L. Ed. 2d 82 (1979).
This Court has considered this issue twice. In Liberty Nat’l Ins. Holding Co. v. Charter
Co., 734 F.2d 545, 561 (11th Cir. 1984), the panel held, after applying the Cort test, that
Congress did not intend for § 13(d) to implicitly create a private cause of action for the issuer and
that § 13(d) does not provide for private injunctions to divest. A little over a year after Liberty
National was decided, another panel of this court held in Florida Commercial Banks v.
Culverhouse, 772 F.2d 1513, 1519 (11th Cir. 1985), that issuers have an implied cause of action
under § 13(d) for injunctive relief to compel a qualifying shareholder to file a corrective
Schedule 13D. The Culverhouse panel reasoned that “[s]ince the remedy that the plaintiffs
sought in Liberty National was significantly different from the remedy sought in the instant
case,” it was free to “independently determine whether” an implied cause of action existed.
Culverhouse, 772 F.2d at 1516. Because this issue was not raised by the parties or addressed by
the district court, we do not decide which interpretation is appropriate here. Tanner Adver.
Group, L.L.C. v. Fayette County, Ga., 451 F.3d 777, 785 (11th Cir. 2006) (“[T]he law is by now
well settled in this Circuit that a legal claim or argument that has not been briefed before the
court is deemed abandoned and its merits will not be addressed.”) (internal citations omitted).
22
context.” United States v. DBB, Inc., 180 F.3d 1277, 1281 (11th Cir. 1999).
However, where the statutory language is ambiguous “we may look beyond the
plain language of a statute at extrinsic materials.” CBS Inc. v. PrimeTime 24 Joint
Venture, 245 F.3d 1217, 1226 (11th Cir. 2001) (citation omitted). If “the language
of the statute does not clearly answer our question . . . we must look beyond the
text and determine the legislative intent.” DBB, Inc., 180 F.3d at 1282.
Section 13(d)(1) of the Exchange Act is a reporting provision that requires
any person who accumulates more than five percent of the stock of a publicly held
company to disclose certain information to the issuer of the stock, the exchanges on
which the stock is traded, and the SEC. See 15 U.S.C. § 78m(d)(1).
If a filing is required under section 13(d)(1), the information that the filer
must disclose is extensive. It includes: (1) the background and identity of the
person who acquired the shares “and all other persons by whom or on whose behalf
the purchases have been or are to be effected;” (2) “the source and amount of the
funds . . . used or to be used in making the purchases;” (3) “if the purpose of the
purchases . . . is to acquire control of the business . . . any plans or proposals . . . to
liquidate such issuer, to sell its assets to or merge it with any other persons, or to
make any other major change in its business or corporate structure;” (4) the number
of shares owned and the number of shares the person has “a right to acquire,
23
directly or indirectly,” including those “by each associate of such person, giving
the background, identity, residence, and citizenship of each such associate;” and (5)
“information as to any contracts, arrangements, or understandings with any person”
regarding the securities, “naming the persons with whom such contracts,
arrangements, or understandings have been entered into, and giving the details
thereof.” 15 U.S.C. § 78m(d)(1)(A)–(E). Under SEC regulations, all of that
information must be included on a Schedule 13D form. See 17 C.F.R. §
240.13d-101.
SEC Rule 13d-3 defines a “beneficial owner” for purposes of § 13(d) as “any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares” “[v]oting power which
includes the power to vote, or to direct the voting of, such security” and/or
“[i]nvestment power which includes the power to dispose, or to direct the
disposition of, such security.” 17 C.F.R. § 240.13d-3(a).
Section 13(d)(3) is the critical provision in this case. It addresses group
membership for purposes of section 13(d) and provides that “[w]hen two or more
persons act as a partnership, limited partnership, syndicate, or other group for the
purpose of acquiring, holding, or disposing of securities of an issuer, such
syndicate or group shall be deemed a ‘person' for the purposes of this subsection.”
24
15 U.S.C. § 78m(d)(3)). The SEC regulation under section 13(d)(3) further
provides that “[w]hen two or more persons agree to act together for the purpose of
acquiring, holding, voting or disposing of equity securities of an issuer, the group
formed thereby shall be deemed to have acquired beneficial ownership . . . of all
equity securities of that issuer beneficially owned by any such persons.” 17 C.F.R.
§ 240.13d-5(b)(1).
The text of sections 13(d)(1) and 13(d)(3) leaves open the question of
whether beneficial ownership of stock is required for group membership within the
meaning of paragraph (d)(3). Section 13(d)(3) does not expressly require or rule
out a beneficial ownership requirement, or even mention the term “beneficial
owner.” Nor does the applicable SEC regulation address the question. Rule 13d-5
instructs that when a section 13(d)(3) group is formed, each member of the group
“shall be deemed to have acquired beneficial ownership . . . of all equity securities .
. . beneficially owned by any such persons.” 17 C.F.R. § 240.13d-5(b)(1). Put
another way, the regulation provides that when two or more persons act as a section
13(d)(3) group, each individual member is deemed to beneficially own the
securities owned by all of them. It does not rule out a non-beneficial owner
becoming a member of a section 13(d)(3) group and thereby being treated as a
beneficial owner of all of the securities owned by any group member. Nor does it
25
compel that result. The regulation simply does not say one way or the other. But
see Rosenberg v. XM Ventures, 274 F.3d 137, 145 (3d Cir. 2001) (finding
“support” in Rule 13d-5 for its conclusion that no person who is not already a
beneficial owner can be a member of a section 13(d)(3) group). The question, then,
is whether the context of section 13(d)(3) and the congressional purpose behind it
show that beneficial ownership of securities is required for group membership.
Hemispherx argues that reading a beneficial ownership requirement into
section 13(d)(3) is contrary to the statute's plain language, ignores the general
definition of the term “person” found in the Exchange Act, misconstrues the
relevant SEC regulations, and ignores the principles of partnership law. The
defendants counter that: (1) section 13(d)(3), read in the context of the rest of
section 13(d), indicates that beneficial ownership is required; (2) in view of the
information that they are designed to elicit, section 13(d) filings make no sense if
applied to individuals without actual beneficial ownership in any shares; (3)
Hemispherx's reading of section 13(d)(3) would impose liability on various
professionals who should not be liable under the Act; (4) interpreting the Act as
Hemispherx suggests would allow the management of publicly held companies to
wield the section 13(d) filing requirements as a weapon to intimidate dissident
26
shareholders; and (5) Hemispherx's claim is premised on a “secondary liability”
theory that has been rejected in other contexts under the securities laws.
The more persuasive arguments support the conclusion that a beneficial
ownership interest is necessary to become a member of a group within the meaning
of section 13(d)(3) of the Exchange Act. That is what the Third Circuit concluded
in Rosenberg, 274 F.3d at 147–48. In Rosenberg, the court addressed a claim that
the defendants had violated section 16(b) of the Exchange Act. Id. at 142.
Because the SEC defined beneficial ownership for purposes of section 16(b) by
reference to section 13(d), see 17 C.F.R. § 240.16a-1(a)(1), the court was required
“to determine whether beneficial ownership of a subject issuer's equity securities is
a necessary element of group membership within the meaning of section 13(d)(3).”
Rosenberg, 274 F.3d at 140. It concluded that each individual member of a section
13(d)(3) group must be a beneficial owner of securities. Id. at 147–48 (“[W]e have
concluded that. . . each member of a section 13(d) group must hold beneficial
ownership of the equity securities of the issuing entity prior to its entry into such a
group.” (emphasis omitted)).
Section 13(d) is intended to ensure that an issuer receives notice that a
significant amount of its shares is being accumulated. See Rondeau v. Mosinee
Paper Corp., 422 U.S. 49, 58, 95 S. Ct. 2069, 2075–76, 45 L. Ed. 2d 12 (1975)
27
(“The purpose of the Williams Act is to insure that public shareholders who are
confronted by a cash tender offer for their stock will not be required to respond
without adequate information regarding the qualifications and intentions of the
offering party.”). And the purpose of section 13(d)(3) is to prevent a group of
persons from colluding to structure their interests in a company in a pool that
would enable each individual to avoid the reporting requirement and evade the
purpose of the statute. See H.R. Rep. No. 90-1711 at 7 (1968), as reprinted in 1968
U.S.C.C.A.N. 2811, 2818 (noting that the purpose of section 13(d)(3) is to “prevent
a group of persons who seek to pool their voting or other interests in the securities
of an issuer from evading the provisions of the statute because no one individual
owns more than [five] percent of the securities”).15 As the court noted in
Rosenberg, “[t]he implication is, of course, that each member of the [section
13(d)(3)] group must have something to ‘pool.’” 274 F.3d at 146. That
‘something’ is the “voting or other interests in the securities of an issuer,” which
refers to various forms of beneficial ownership such as the power to dispose of or
direct the disposition of a security. See id.; 17 C.F.R. § 240.13d-3(a). Therefore,
the goal of section 13(d)(3) is to prevent persons who already have attained
15
As originally enacted, section 13(d)(3) prevented persons from combining to control
over ten percent of the securities.
28
beneficial ownership of some amount of an issuer’s securities from combining to
control over five percent of a class of securities, yet ducking the reporting
requirement in section 13(d)(1). That is what section 13(d)(3) is about. That is its
purpose. See Rosenberg, 274 F.3d at 146 (holding that “the legislative history
accompanying section 13(d) manifests Congress’ intent that an individual must be
a beneficial owner of an issuer’s securities prior to becoming a member of a section
13(d) ‘group.’”).
Further, nothing about that purpose is eroded if section 13(d)(3) groups
include only beneficial owners of securities. So long as each beneficial owner who
participates in a “partnership, limited partnership, syndicate, or other group for the
purpose of acquiring, holding, or disposing of securities of an issuer,” 15 U.S.C. §
78m(d)(3), is part of the group and must be included in the filing under section
13(d)(1), no person or entity will be able to thwart section 13(d)'s purpose.
Although a person who is not a beneficial owner might have an interest in
the securities of the company, that person and his interest will not go undetected
because only beneficial owners are included in the group for section 13(d)(1) filing
purposes. If the total beneficial ownership of all members exceeds the threshold
amount of five percent, a Schedule 13D form must be filed disclosing, among other
details, “information as to any contracts, arrangements, or understandings with any
29
person with respect to any securities of the issuer . . . naming the persons with
whom such contracts, arrangements, or understandings have been entered into, and
giving the details thereof.” § 13(d)(1)(E) (codified at 15 U.S.C. § 78m(d)(1)(E)).
In that manner, a person required to make section 13(d)(1) disclosures must
disclose the identity of everyone, including those who are not beneficial owners,
who possesses some form of present or future interest in the securities, along with
the details of the arrangements or understandings with those non-beneficial owners.
Contrary to Hemispherx’s contention, therefore, reading a beneficial
ownership requirement into section 13(d)(3) is not inconsistent with traditional
notions of partnership law, which recognizes that parties to an agreement may pool
different skills or resources. Section 13(d) adequately accounts for the
identification of all such persons, including those non-beneficial owners who are
not themselves required to file under section 13(d)(1). In this case, for example,
Goemaere controlled thirty percent of Hemispherx's stock and was required to file
under section 13(d)(1). Although the other defendants were not required to make a
similar filing, Goemaere was obligated to disclose their identities and the details of
any arrangement that he had with them regarding the Hemispherx stock.
It might be argued that a limitation of the section 13(d)(3) “groups” to those
including only beneficial owners would also have to be applied to section
30
13(d)(1)(E), with the result that an entity that is not a “person” under section
13(d)(3) is also not a “person” under section 13(d)(1)(E). If so, that would mean
that contracts or arrangements with non-beneficial owners need not be disclosed.
We would not be persuaded by that argument. “[U]nless the context otherwise
requires,” the Exchange Act defines a “person” as “a natural person, company,
government, or political subdivision, agency, or instrumentality of a government.”
15 U.S.C. § 78c(a), (a)(9). Section 13(d)(1) does not redefine the term “person” to
exclude non-beneficial owners; in fact, it does not define “person” at all, but
instead is triggered when any Exchange Act “person” acquires beneficial
ownership of more than five percent of a class of equity securities. Through
section 13(d)(3), a group of beneficial owners, along with partnerships, limited
partnerships, and syndicates, are also considered “persons.”
Human beings, companies, and government entities therefore remain
“persons” for all purposes within section 13(d). If they do not acquire a beneficial
interest in a class of equity securities that exceeds five percent, they do not fall
within the ambit of section 13(d)(1) and need not file a Schedule 13D form. See 17
C.F.R. § 240.13d-1. But that does not mean that those entities do not qualify as
“persons” under section 13(d)(1)(E). In other words, section 13(d)(3) operates to
31
add particular types of entities to those considered a “person” under section 13(d);
it broadens instead of narrows the scope of section 13(d) “persons.”
Finally, we are unwilling to interpret section 13(d)(3) so broadly as to
include non-beneficial owners because if we concluded that a person need not be a
beneficial owner of securities in order to be a member of a group under section
13(d)(3), section 13(d) groups would be expanded beyond reason. As the
defendants point out, acquiring more than five percent of a large corporation’s
stock is no small accomplishment and may require the assistance of legions of
attorneys, bankers, financial advisors, and accountants. Those persons could
arguably be considered part of a “group [acting] for the purpose of acquiring,
holding, or disposing of securities” within the meaning of section 13(d)(3), if there
is no requirement of beneficial ownership. This cannot be what Congress intended.
It goes far beyond what is necessary or useful to attain Congress’ goal of
“prevent[ing] a group of persons who seek to pool their voting or other interests in
the securities of an issuer from evading the provisions of the statute because no one
individual owns more than [five] percent of the securities,” H.R. Rep. No.
90-1711, at 7 (1968), reprinted in 1968 U.S.C.C.A.N. at 2818, and it borders on the
absurd.
32
For all of these reasons, a beneficial ownership interest in securities is
necessary to become a member of a group within the meaning of section 13(d)(3)
of the Exchange Act. Because Hemispherx does not allege that any of the
defendants (other than Goemaere) was a beneficial owner of Hemispherx stock, the
other defendants were not part of a section 13(d)(3) group required to file a
Schedule 13D form. Accordingly, the district court’s dismissal of Count I is
affirmed.
IV.
Hemispherx finds error in the district court’s dismissal without prejudice of
its Count 2 fraud claim and accompanying suggestion that the parties initiate
arbitration proceedings in South Africa. Hemispherx argues that the fraud claim is
not within the scope of the arbitration clause because the conduct of the South
African defendants giving rise to the claim was not “reasonably foreseeable” in
1994 when the licensing agreement and arbitration provision were executed, and
thus the dispute did not “arise” out of the agreement. We agree and accordingly
reverse.
Although the district court’s dismissal of the fraud claim was without
prejudice, it falls within the definition of a “final order” appealable under the
Federal Arbitration Act (“FAA”). 9 U.S.C. § 16(a)(3); see also Hill v. Rent-A-
33
Center, Inc., 398 F.3d 1286, 1288 (11th Cir. 2005). We review the district court’s
interpretation of the arbitration clause de novo. Luckie v. Smith Barney, Harris
Upham & Co., Inc., 999 F.2d 509, 512 (11th Cir. 1993).
The FAA embodies a “liberal federal policy favoring arbitration
agreements,” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983); see also Klay v. All Defendants,
389 F.3d 1191, 1200 (11th Cir. 2004). The role of the courts is to “rigorously
enforce agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.
213, 221, 105 S. Ct. 1238, 1242, 84 L. Ed. 2d 158 (1985). At the same time,
“[a]rbitration under the [FAA] is a matter of consent, not coercion, and parties are
generally free to structure their arbitration agreements as they see fit.” Volt Info.
Scis., Inc. v. Bd. of Trs. of the Leland Stanford Junior Univ., 489 U.S. 468, 479,
109 S. Ct. 1248, 1256, 103 L. Ed. 2d 488 (1989). With these principles in mind,
we turn to whether the facts alleged in the amended complaint fall within the
arbitration clause in the licensing agreement. See Gregory v. Electro-Mechanical
Corp., 83 F.3d 382, 384 (11th Cir. 1996) (“Whether a claim falls within the scope
of an arbitration agreement turns on the factual allegations in the complaint rather
than the legal causes of action asserted.”).
34
As we have previously noted, “[t]he case law yields no clear answer” to the
question of how broadly to construe an arbitration clause. Telecom Italia, SpA v.
Wholesale Telecom Corp., 248 F.3d 1109, 1114 (11th Cir. 2001). Courts have
employed various verbal formulae to describe the relationship between disputes
and arbitration clauses,16 such as “whether the tort or breach in question was an
immediate, foreseeable result of the performance of contractual duties,” id. at 1116;
see also Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d
39, 46 (3d Cir. 1978); whether “an action could be maintained without reference to
the contract or relationship at issue,” Fazio v. Lehman Bros., Inc., 340 F.3d 386,
395 (6th Cir. 2003); whether the disputes have “their origin or genesis in the
contract,” Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int’l, Ltd., 1 F.3d 639,
642 (7th Cir. 1993); or whether “the allegations underlying the claims ‘touch
matters’ covered by the [contract],” Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d
840, 846 (2d Cir. 1987).
16
This discussion takes place in the context of a class of arbitration agreements that use
similar language, such as “arising from,” “arising under,” “pursuant to,” and “arising during” the
contract in question. The clause at issue in this case uses “arising out of or pursuant to.” We do
not believe there is a significant difference between these slightly different formulations, but do
recognize that substantially broader language in the arbitration clause would alter the result of the
analysis. See, e.g., Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1221 (11th Cir. 2000)
(discussing arbitration clause covering “any dispute between them or claim by either [party to the
contract] against the other”).
35
Hemispherx argues that the appropriate test is whether the dispute was
reasonably foreseeable to the parties when they entered into the licensing
agreement. We have previously focused on foreseeability as proper standard for
resolving the scope of an arbitration clause that covers disputes “arising out of or
pursuant to” the contract between the parties. See Telecom Italia, 248 F.3d at
1116. In Telecom Italia, we held that if the defendant “could have been” engaged
in the allegedly tortious actions even if it “had no contractual relationship with” the
plaintiff, then the dispute is not “an immediate, foreseeable result of the
performance of the contractual duties” and thus not within the scope of an
arbitration clause within that contract. Id. We stated that “[d]isputes that are not
related–with at least some directness–to performance of duties specified by the
contract do not count as disputes ‘arising out of’ the contract.” Id.
Applied to this case, the question becomes whether the present dispute was a
foreseeable result of the performance of the licensing agreement. The amended
complaint alleges that in 2002 the South African defendants fraudulently induced
Hemispherx to divulge proprietary financial and scientific information in reliance
on false representations about the defendants’ financial and technological
capabilities, which were made in the course of discussions of a possible equity
investment in Hemispherx. Hemispherx argues the South African defendants’ acts
36
in soliciting these disclosures are unrelated to the licensing agreement in two
respects. First, the fraud claim focuses on what the South African defendants
represented in 2002 as their then-present capabilities, not what they represented to
Hemispherx in the licensing agreement. Second, the fraud claim alleges that as a
result of the misrepresentations, Hemispherx revealed information that it was not
obligated to reveal under the licensing agreement. Thus, the information
exchanged by both sides in the 2002 discussions was not the foreseeable result of
fulfilling the duties under the licensing agreement.
The South African defendants contend that the fraud claim is within the
licensing agreement for three reasons. First, they argue that the allegedly disclosed
information in 2002 was already covered by the licensing agreement, and hence
Hemispherx was under an existing obligation to disclose it. Such an interpretation
extends beyond Hemispherx’s disclosure obligations under the licensing
agreement, which was limited to “any and all data and information . . . in the field
of double-stranded ribose nucleic acids . . . which is directly related to the licensed
patents and licensed products.” Hemispherx was not obligated to disclose any
financial information about itself, and was not obligated to continuously give the
South African defendants scientific information on any of its other projects. The
present dispute does not fall within the scope of the licensing agreement’s
37
arbitration clause because that agreement is “a contract of limited application” that
“does not profess to cover all present and future aspects of the relationship”
between Hemispherx and Bioclones. Seaboard Coast Line R.R. Co. v. Trailer
Train Co., 690 F.2d 1343, 1349 (11th Cir. 1982).
Second, the South African defendants argue that the gravamen of
Hemispherx’s fraud claim is that Bioclones breached portions of the licensing
agreement, such as by failing to have an FDA-compliant factory in place.
Schematically, this is the mirror image of their first argument, because it claims
that the complained-of conduct was Bioclones’ failure to fulfill its duties under the
licensing agreement. For similar reasons, this argument fails. Importantly, the
duties that Bioclones undertook to perform in the licensing agreement are different
from the representations it made in 2002. Pursuant to the licensing agreement,
Bioclones was to create a new company for the purposes of manufacturing the
products licensed from Hemispherx. The allegedly false representations that the
South African defendants made in 2002 concerned their then-present ability to
make a substantial investment in Hemispherx and fund the construction of a
manufacturing facility for a new line of products. It is entirely possible that
Bioclones had been in breach of its obligations under the licensing agreements and
that the representations made by the South African defendants in 2002 were false,
38
but it does not follow that they are one and the same. Contrary to the South
African defendants’ suggestion, “[l]ying about [one’s] ability to perform a
contractual obligation” to induce the signing of a contract in the past cannot sweep
all future lies and misrepresentations into the ambit of that original contract.
Third and finally, the South African defendants interpret Hemispherx’s fraud
claim as being a claim for breach of the confidentiality provision in the licensing
agreement. In making this argument, they contend that the contract between the
parties “contemplat[es] a long-term, ongoing relationship involving scientific
research . . . and possible new ventures,” and that any information exchanged
between the parties fall within the confidentiality provision of that contract. Under
this interpretation of the breadth of the arbitration clause, practically every dispute
arising from this relationship would be subject to arbitration. Such an
interpretation stretches too far the language of the original arbitration clause, which
by its own terms covers only disputes arising out of or pursuant to the licensing
agreement, and not “the working relationship between the parties.” Seaboard, 690
F.2d at 1351. To be sure, it is not always easy to tell in ongoing business
relationships whether any given transaction arises from a preexisting contract or
instead developed organically from the relationship itself. In this case, it was not
foreseeable at the time of the licensing agreement that the South African
39
defendants would, some eight years later, make misrepresentations to Hemispherx
in the course of discussing an equity investment in the latter because the
investment was not contemplated by that agreement.17 The parties could have
“performed the arbitrable contract perfectly, fulfilling all expectations under that
contract,” and still be embroiled in this dispute. Gregory v. Electro-Mechanical
Corp., 83 F.3d 382, 385 (11th Cir. 1996). Therefore, even in light of the general
federal policy in favor of private commercial dispute resolution, the parties’
licensing agreement arbitration clause properly construed does not cover this
dispute.
V.
For the foregoing reasons, we AFFIRM the district court’s judgment with
respect to Count 1 and REVERSE and REMAND with respect to Count 2 and the
dismissal of Goemaere.
So ordered.
17
Even if we accept the South African defendants’ invitation to speculate on what else the
parties might have intended for the future of their business relationship, the licensing agreement
contains in no uncertain terms a complete integration clause that supercedes all preexisting
agreements and understandings, thus foreclosing the argument that the arbitration clause
somehow was tacitly understood to extend beyond the obligations in the licensing agreement.
40