A lawsuit for business disparagement against Dallas hedge fund Hayman Capital and its manager, J. Kyle Bass, will continue after a Dallas county court at law judge Monday refused to dismiss the suit as a SLAPP action under the Texas Citizens Participation Act.
The one-page ruling was made without comment by Judge Sally Montgomery, but it nominally allows discovery to proceed in the lawsuit filed in November by United Development Funding, a limited partnership that creates and administers a family of real estate investment funds.
But, most likely, the next step is an appeal.
UDF has accused Hayman and Bass of leveling a campaign against UDF’s business practices on a website created explicitly for that purpose. Hayman has conceded that it held short hedge positions in UDF’s publicly traded funds, investments that yielded an estimated $60 million in profits from declining prices in UDF funds.
Hayman and Bass, for their part, argued that despite their profits, whatever information they disseminated was in the public interest, a defense under the TCPA that temporarily stays discovery. Judge Montgomery had allowed some limited discovery to afford UDF a chance to counter the anti-SLAPP defense. “SLAPP” is defined as a strategic lawsuit against public participation.
In 2015, Hayman created a web-based campaign against UDF, beginning with an anonymous blog post, and continuing as a website under the URL “UDFEXPOSED.COM.” Hayman argued that UDF was, in fact, a Ponzi-style investment scheme and included detailed analyses of UDF investments which purported to support the charges. In their lawsuit, UDF maintains that the Hayman campaign caused UDF to lose access to credit and capital markets, forcing the liquidation of assets at reduced prices to pay off loans.
In addition to the web disclosures, Hayman officers also met with officials of the U.S. Securities & Exchange Commission, as well as the FBI, to discuss their research into UDF. The FBI subsequently raided UDF headquarters in February 2016 and, according to press reports, a federal grand jury issued subpoenas to several UDF officers.
“We are very pleased with the court’s ruling and the court’s allowance of limited discovery prior to the ruling,” UDF co-founder Hollis Greenlaw said in a statement. “The limited discovery granted by the Court allowed us to see this coordinated plan documented in the emails and texts of Bass and Hayman. We intend to pursue the lawsuit to trial as expeditiously as possible, and we look forward to our day in court.”
Said Ellen Cirangle, the San Francisco-based counsel for UDF, “In all the cases I have done, I’ve never seen such extensive dissemination of negative information about a company, including through anonymous postings.” Cirangle is a partner at Lubin Olson & Niewiadomski. The suit was filed by Joseph Cox and Andrea Broyles of the Dallas offices of Bracewell.
Michael Hurst of Lynn Lynn Pinker Cox & Hurst, who represents Hayman and Bass, said both sides were expected to appeal, no matter which way the judge ruled. One of the provisions of the TCPA allows an expedited interlocutory appeal, which Hayman and Bass intend to file.
“I think we all saw this ruling as just a dress rehearsal for the Court of Appeals,” he said.