Court of Appeals of Texas, Fifth District, Dallas
J. KYLE BASS, ET AL., Appellants
UNITED DEVELOPMENT FUNDING, L.P., ET AL., Appellees
Appeal from the County Court at Law No. 3 Dallas County,
Texas Trial Court Cause No. CC-17-06253-C
Justices Whitehill, Molberg, and Reichek
interlocutory appeal arises out of a lawsuit filed by
appellees United Development Funding, L.P., et al.
(collectively, UDF) against J. Kyle Bass and Hayman Capital
Management, L.P., et al. (collectively, Hayman), asserting
claims for business disparagement, tortious interference with
contract, tortious interference with business relationships,
and civil conspiracy to commit these torts, based on
statements Hayman wrote and published on the internet about
UDF's business. Hayman filed a motion to dismiss
UDF's claims pursuant to the Texas Citizens Participation
Act, Tex. Civ. Prac. & Rem. Code Ann. §§
27.001-.011 (TCPA). The trial court denied Hayman's
motion to dismiss.
raises six issues on appeal. In its first five issues, Hayman
argues UDF failed to establish by clear and specific evidence
a prima facie case for certain of the essential elements of
its claims. In its sixth issue, Hayman contends the trial
court erred by striking evidence attached to Hayman's
post-hearing brief. For the reasons that follow, we conclude
UDF carried its burden under the TCPA to establish a prima
facie case for the challenged essential elements of its
claims preserved for our review. We further conclude the
trial court did not err by striking evidence attached to
Hayman's post-hearing brief. Accordingly, we affirm the
trial court's order.
filed suit against Hayman on November 28, 2017, asserting
claims for business disparagement, tortious interference with
contract, tortious interference with business relationships,
civil conspiracy to disparage UDF's business, civil
conspiracy to tortiously interfere with UDF's contracts,
and civil conspiracy to tortiously interfere with UDF's
prospective contracts and business relationships. UDF
requested actual and exemplary damages, as well as an award
of its attorney's fees.
January 26, 2018, Hayman filed a motion to dismiss UDF's
lawsuit under the TCPA. As relevant to the issues before us,
Hayman argued that UDF did not meet its burden under section
27.005(c) of the TCPA to establish by clear and specific
evidence a prima facie case for the actual malice element of
its claims. See Tex. Civ. Prac. & Rem. Code Ann.
§ 27.005(c). In its reply brief on its motion to
dismiss, Hayman additionally argued that UDF did not
establish a prima facie case that Hayman's statements
were false or that Hayman's statements caused UDF's
brief in opposition to Hayman's motion to dismiss, UDF
asserted that its petition as well as numerous
affidavits-from its business counterparts, employees,
investors, and a forensic accounting expert specializing in
"areas that are the subject of [Hayman's] false
statements"- provided detailed allegations and evidence
far exceeding the minimum quantum of evidence necessary to
state a prima facie case under the TCPA.
a May 21, 2018 hearing on Hayman's motion, Hayman filed
an amended post-hearing brief on May 30, 2018, attaching
additional evidence, including a supplemental affidavit of
Bass. UDF moved to strike Hayman's amended post-hearing
brief and Bass' supplemental affidavit on the grounds (1)
they were filed outside of the deadlines and briefing
schedule provided in the parties' Rule 11 agreement; (2)
they were not served and filed at least three days prior to
the scheduled hearing as required by Dallas Local Rule 2.09;
(3) Bass' supplemental affidavit constituted new evidence
filed after the hearing on Hayman's motion to dismiss;
and (4) Hayman's submission of new evidence and arguments
after the hearing was prejudicial to UDF.
11, 2018, the trial court signed an order denying
Hayman's motion to dismiss. In its order, the trial court
concluded Hayman's amended post-hearing brief and the
"evidence in the [brief]" were improperly submitted
by Hayman "without authorization after the
hearing." Accordingly, the trial court granted UDF's
motion to strike the evidence in Hayman's amended
post-hearing brief, but the trial court did not strike the
amended post-hearing brief itself from the record.
Prima Facie Evidence
not a case in which the plaintiff merely provided the
"minimum quantum of evidence" necessary to satisfy
its burden to state a prima facie case for its claims.
See In re Lipsky, 460 S.W.3d 579, 590 (Tex. 2015).
Rather, the prodigious quantity of details and specific fact
allegations in UDF's pleadings and affidavits that
support a rational inference establishing the challenged
elements is much like a restaurant menu with too many
offerings-the difficulty lies in choosing which examples, and
what level of detail, to include in our opinion. In
concluding UDF satisfied its burden under the TCPA, we
reviewed over 2, 000 pages of pleadings, affidavits, and
evidence, such as copies of Hayman's internet posts and
statements, news and social media articles, correspondence,
contracts and agreements, contract modification agreements,
and SEC filings. As we must, we considered these pleadings,
affidavits, and evidence in a light most favorable to UDF,
the nonmovant. Dyer v. Medoc Health Servs., LLC, 573
S.W.3d 418, 424 (Tex. App.-Dallas 2019, pet. denied).
sixty-one page petition, and affidavits attached to its
response to Hayman's motion to dismiss, quote extensively
from Hayman's internet posts and they provide numerous
detailed descriptions of Hayman's alleged false
statements, including dates, titles, and headlines of the
posts, and the manner in which Hayman circulated its
statements on the internet and among various specifically
identified news and social media outlets, further publicly
proliferating Hayman's indictments of UDF's business.
UDF's pleadings and affidavits explain how and why
Hayman's statements were false; illustrate and describe
how and why Hayman made the false statements knowingly or
recklessly; and chronicle the economic and business damages
and losses UDF sustained as a direct result of Hayman's
false statements. Evidentiary documentation supporting
UDF's fact allegations and affidavit testimony was
attached to UDF's response to Hayman's motion to
dismiss, and included, among other things, copies of:
Hayman's posts and statements subject of this lawsuit;
social media posts by other organizations, as well as news
articles reporting on Hayman's statements; UDF's SEC
filings; invoices; billing statements; contracts and
agreements between UDF and various of its business partners
and associates, customers, and lenders; modifications to and
terminations of such contracts and agreements resulting from
Hayman's allegedly false and misleading statements; and
correspondence reflecting the same. In this opinion, we
describe only some of those supernumerary fact allegations
Allegations Underlying UDF's Claims
the following facts from the pleadings and from evidence
adduced in connection with Hayman's motion to dismiss and
UDF's response thereto. See Deuell v. Tex. Right to
Life Comm., Inc., 508 S.W.3d 679, 685 (Tex. App.-Houston
[1st Dist.] 2016, pet. denied). For purposes of this appeal,
we accept UDF's pleading allegations and evidence as
lawsuit derives from a series of internet posts written and
published by Hayman, a hedge fund registered with the United
States Securities and Exchange Commission (SEC), about the
viability and legitimacy of the business of UDF, a
residential real estate lender. Hayman purchases and sells
securities and other financial instruments for institutional
investors and high net worth individuals. Bass is
Hayman's founder and chief investment officer. Bass and
Hayman utilize short selling as an investment
strategy. The gravamen of UDF's claims is that
Hayman published and disseminated defamatory, false, and
misleading statements about UDF's business in order to
drive down UDF's stock price and profit from several
large short positions it had taken in UDF stock.
a family of funds that lends money to residential real estate
developers and homebuilders in Texas and other states.
Several UDF entities are or were registered with the SEC or
were listed on the NASDAQ stock exchange. According to
The UDF family was founded in 2003 to provide investors an
opportunity to diversify their portfolios with unique and
sound investments in affordable residential real estate. The
UDF Family enjoyed steady growth and provided consistent
returns to investors for over a decade while financing
hundreds of millions of dollars in successful housing,
construction and development projects for leading developers
in the State of Texas and elsewhere.
alleges, "Bass made a name for himself as an investor in
2008 when the large short positions he had taken against the
housing market proved to be hugely profitable for his
investors." In subsequent years, however, Bass'
investments incurred losses. According to UDF, "[b]y
2015, a steady stream of investors were withdrawing money
from Bass' funds due to poor returns." To stem the
exodus of Hayman investors, UDF claims Hayman took
"voluminous" short positions in UDF stock, and then
engaged in a campaign to spread false and damaging
information about UDF to the public marketplace, to UDF's
business associates, and to governmental authorities with the
objective of driving down the price of UDF stock:
[Hayman and Bass] chose to engage in what is known as a
"short-and-distort" scheme. In this illegal scheme,
the short seller spreads false and damaging information about
the target company it is betting against in order to harm the
business and its stock price. [Hayman and Bass] chose UDF as
their target for their scheme.
[In] 2015, [Hayman and Bass] opened an enormous short
position in UDF. [Hayman and Bass] then attacked UDF in a
series of false internet posts that were made anonymously . .
. . The heart of [their] attack was that UDF was not a
legitimate real estate lending and development business, but
rather a billion-dollar house of cards that had been built up
through a massive Ponzi scheme. [They] purported to have done
extensive research to back their false claims that UDF had no
genuine financial ability to carry on its business and that
it was just a matter of time before creditors and investors
were stuck with the fallout of UDF's insolvency.
alleges that Hayman and Bass posted this false information on
the internet, disseminated the false information to the
media, and provided the false information "directly to
UDF's business partners-lenders, borrowers, accountants,
title companies, etc-that [they] knew were necessary to
UDF's continued success." UDF contends that as a
result of Hayman's false statements:
• UDF sustained hundreds of millions of dollars in
• UDF suffered a sudden and severe loss of access to
credit and capital markets necessary for operation of its
• UDF was forced to pay off loans and liquidate assets;
• UDF lost builder and developer customers and future
• agreements and plans for real estate development
projects between UDF and its customers and business
associates fell through.
UDF's stock price dropped as a result of Hayman's
false statements,  Hayman and Bass sold their short positions
in UDF stock at a profit of $60 million or more.
Short Positions in UDF
contends that Parker Lewis, a Hayman analyst, began
conducting research into real estate investment trusts
(REITs) in 2014, to identify potential investment
opportunities. Lewis' research led him to probe the
business and financial circumstances of various UDF entities.
According to Hayman, Lewis uncovered "a number of what
appeared to be financial irregularities" and
"certain facts or patterns that raised reasonable
questions regarding general solvency concerns (and
specifically concerning the ability to timely pay debts)
regarding certain significant groups of related borrowers of
certain UDF Entities [or] certain UDF Entities
2015, Hayman opened an "enormous" short position
against UDF. Outstanding short positions against UDF IV-an
entity in the UDF family of funds-generally averaged around
80, 000 shares. Prior to launching its public campaign
attacking UDF's business on December 10, 2015, however,
Hayman took an astonishing short position in excess of 4,
000, 000 shares against UDF IV.
Anonymous Internet Posts
December 9, 2015, Hayman-using the pseudonym "Ernest
Poole"-created an anonymous blogger profile,
"Investors for Truth" (IFT), on the investment
website www. hvst.com. On IFT's web page the following
day (after assuming a large short position against UDF IV),
Hayman anonymously published the first of a number of posts
falsely declaring or creating a false impression that UDF was
an illegitimate, "Ponzi-like real estate scheme" on
the verge of collapse, and that "investors [would be]
left holding the bag." Titled, "A Texas-Sized
Scheme Exposing the Darkest Corner of the REIT Business,
United Development Funding (UDF)," Hayman's post
began, "Only when the tide goes out do you discover
who's been swimming naked." According to UDF, the
article falsely asserted, among other things, that:
• UDF had characteristics emblematic of a "Ponzi
• New investor capital was being used to provide returns
to old UDF investors.
• UDF's so-called "developments loans"
were collateralized by real estate with no actual development
"as much as" ten years after the loans were issued.
• There were "sinister" explanations for
UDF's business practices: "Where did all the money
go if not to developments?"
• UDF was generating non-legitimate, fictitious,
purported returns to "maintain the scheme."
• The "cracks in UDF's façade [were]
starting to appear."
• UDF was "underwater" because there was no
development for numerous UDF loans.
• UDF's investors, including "retail investors
and retirees," were "gullible"
"victims" of "one of the most egregious
cases" of a business model in which "poor
investments are masked by additional capital raises."
December 10 post included an anonymous letter it sent to
Whitley Penn, UDFs former auditor, on December 4, 2015 (the
Penn letter). The Penn letter "essentially falsely
accuse[d] Whitley Penn of being a conspirator with UDF and
disseminating false information to investors and the
public." The letter included a laundry list of
"Red Flags" that implied Whitley
Penn either was intentionally deceived by UDF and failed to
catch the accounting irregularities, or Whitley Penn was
actively conspiring with UDF to deceive
anonymous internet posts published by Hayman on December 11
and December 15, 2015 were titled:
• "United Development Funding (UDF) One
Example of Many: How The Scheme Works, from One UDF Fund to
the Next," and
• "Reaching Across the Aisle of Your
Private Jet Does Not Equal an Arms' Length Transaction
United Development Funding (UDF) ."
that "UDF's management began deceiving its fund
investors essentially from the beginning," Hayman's
December 11 and 15 posts echoed the narrative that UDF was
running a Ponzi scheme, UDF loan proceeds were being
misappropriated, and UDF was issuing loans for real estate
development projects that never occurred.
considerable portion of Hayman's posts targeted
Centurion-Hayman's largest group of borrower
entities-charging that Centurion was not creditworthy,
Centurion and UDF had an illicit relationship, and Centurion
was not engaged in bona fide real estate development.
According to UDF, Hayman prevaricated that Centurion was part
of UDF's scheme to misappropriate money from shareholders
by issuing loans for sham real estate development projects
that never materialized. Declaring that these loans were
"collateralized by land that has never been developed
(for years, not quarters)," Hayman predicated that
Centurion did not have the ability to pay its UDF loans,
stating, "100% of UDF IV loans are classified as fully
collectable, which is likely a material misrepresentation if
the largest borrower is insolvent."
example, Hayman claimed, "Centurion has owned [Shahan
Prairie] for over 10 years and there is no sign of
development activity." Posting two photographs of
undeveloped land designated as "Shahan Prairie
Estates," Hayman dissembled, "This is the land that
has served as collateral for multiple UDF loans issued by
various UDF entities; these pictures of the land acquired by
Centurion in 2004 were taken in November 2015."
Underneath the photographs, Hayman posed the rhetorical
question, "If you were a developer borrowing at interest
rates of 13%, wouldn't you be developing real estate as
fast as possible?"
fourteen-page post, "Reaching Across the Aisle
of Your Private Jet Does Not Equal an
Arm's Length Transaction United Development Funding
(UDF)," Hayman claimed:
Loans to Centurion regularly (i) do not generate any cash
(principal or interest), (ii) are extended without any
extension fees (try that one with a bank), and (iii) accrue
larger and larger balances (year after year). . . . Are
investors (and the authorities) really going to believe that
loans that behave in this manner are arm's length?
"further questions about management credibility,"
Hayman described UDF's Form 8-K, filed with the SEC on
December 14, 2015, as:
[M]anagement's rambling response attempting to further
lull investors with the old saw, "they just don't
understand our business." Management has been misleading
investors for years, and its response continues further down
the path of deception. Not only were management's
responses deceptive; in some cases, the responses were
January 2016 article titled, "ANATOMY OF A BILLION
DOLLAR HOUSE OF CARDS THE CASE AGAINST UDF IV," Hayman
continued its drumbeat of accusations that UDF was running a
Ponzi scheme; UDF was issuing loans that did not generate any
cash income; UDF was funneling new capital to repay existing
investors; UDF's loans were "dangerously
concentrated" with two borrowers which were "in
financial distress"; UDF had an "undisclosed
business relationship" with the principal executive of
Centurion in which "the economics [do] not add up";
and UDF was funding so-called real estate developments when
no developing activities actually were occurring. Large
bolded headlines within the article included:
• "THE UDF STRUCTURE IS A BILLION DOLLAR
• "Shareholders in UDF IV and UDF's
other real estate investment trusts (REITs) are being
victimized by UDF management's Ponzi-like real estate
• PARTICIPANTS IN UDF'S PONZI-LIKE REAL
• "HOW CAPITAL IS FUNNELED TO REPAY
• "DANGEROUSLY CONCENTRATED LOAN
• "RELATIONSHIPS (sic) GOES FAR BEYOND THAT
OF LENDER (UDF) AND BORROWER (MOAYEDI)
• "DEVELOPMENT ACTIVITIES ARE NOT TAKING
PLACE AT MANY UDF-FUNDED SITES"
• "CRACKS IN UDF'S FAÇADE ARE
STARTING TO SHOW"
• "UDF'S SCHEME HAS NEGATIVE
IMPLICATIONS FOR ITS SHAREHOLDERS
Launches www. UDFEXPOSED.com
February 4, 2016, Hayman launched a newly created website,
UDFEXPOSED.com. Unlike its previous anonymous posts,
Hayman's UDFEXPOSED.com posts were openly published by
Hayman Capital Management, L.P. The website included a
"Letter from Kyle Bass," addressed to "Dear
Reader." Bass' letter stated:
• "Our research showed that UDF exhibited
characteristics consistent with a Ponzi scheme, the
size and scope of which exceeded a billion dollars."
• "UDF is using new investor money to pay
existing investors" and "perpetuating a
Ponzi-like real estate scheme across multiple funds."
• "UDF management is misleading
• "UDF management is preying on 'Mom
and Pop' retail investors" and "is
using new investors' money to make payments to existing
investors, and thereby perpetuating the scheme."
• "After years of mismanagement, the UDF structure
has begun to implode."
• "Today, as a consequence of mismanagement and
concealed losses, UDF faces significant bankruptcy
risk, which would leave its shares virtually
• "The research on this website exposes how a Texas
real estate developer built a billion dollar house of cards
and why it is now on the verge of collapse."
UDF with additional accusations concerning its business and
business partners, Hayman's UDFEXPOSED.com posts recycled
the same themes:
• UDF's shareholders were "victim[s]" of
its "Ponzi-like real estate scheme."
• UDF had been "misleading investors for
• UDF business model, including "[u]sing cash from
new investors to repay existing investors," was
• Transactions with Centurion, UDF's largest
borrower, were not at arms' length and were an integral
component of UDF's fraudulent business scheme.
• Loans to Centurion were "almost always not
• Loans to Centurion "typically d[id] not generate
any actual cash income."
• Hayman's conclusions were "[b]ased on a
thorough examination of SEC filings, county records and
various court documents."
Petition and Affidavits Point to Clear and Specific Facts
Showing Hayman's Statements and Implications Were
to specific fact allegations in its petition and in
affidavits and evidence attached to its response to
Hayman's motion to dismiss, UDF asserts the statements
and the implications in Hayman's internet posts were
false. Contrary to Hayman's prevarications,
UDF maintains that "[n]one of UDF's returns were
fictitious, UDF was not involved in any unlawful fraudulent
scheme to generate fictitious returns, and investor money was
not misappropriated but rather used in furtherance of
legitimate business opportunities typically secured by bona
fide real estate."
ninety-two page affidavit accompanying UDF's response to
Hayman's motion to dismiss, Hollis M. Greenlaw, Chief
Executive Officer (CEO) of UDF IV and a director of various
UDF entities, averred that UDF's SEC filings and other
public records unequivocally demonstrated UDF loans generated
actual cash over the life of the loan. Greenlaw attested:
. . . UDF's public filings show cash receipts which were
applied to principal and interest repayments. For example,
UDF IV's SEC filings showed that it was
generating significant amounts of cash, and, in fact, its
generation of cash had been steadily increasing.
[UDF's] 2014 10-K contain[s] a table listing each
outstanding loan and the cash receipts that were applied to
principal (which includes compounded interest). UDF IV
disclosed that its 2012 cash receipts for its outstanding
loan portfolio were approximately $26 million, which
increased to approximately $100 million in 2013 and then to
approximately $152 million in 2014. However, this table only
shows a subset of UDF IV's total cash receipts since it
does not include cash receipts on loans that were repaid in
full during 2012, 2013 and 2014. Total cash receipts
applied to principal of approximately $45 million in 2012,
$135 million in 2013 and $173 million in 2014 are shown in
the Consolidated Statement of Cash Flows on page F-7 of UDF
IV's 2014 10-K. . . . Public records
(which Bass swears he researched) also show recorded UDF lien
releases from pod, lot and home sales that
generally resulted in cash payments to UDF.
[Hayman] also ignored the parts of UDF's
business, finished lot loans and homebuilding loans,
that generate current cash. [Hayman]
only focused on the part of UDF's business that naturally
consumes cash - acquisition and development
twenty-four page affidavit attached to UDF's response to
Hayman's motion to dismiss, Dale Kitchens, a ...