Professional Documents
Culture Documents
)
Akanthos Capital Management, LLC; )
Aria Opportunity Fund Ltd.; AQR )
Absolute Return Master Account, L.P.; )
CC Arbitrage, Ltd; CNH CA Master )
Account, L.P.; Galileo Partners Fund I, )
L.P.; GLG Investments plc: sub-fund )
GLG Global Convertible UCITS Fund; ) Civil No. 0:09-cv-03664
GLG Investments IV plc: sub-fund GLG )
Global Convertible UCITS (Distributing) )
Fund; GLG Global Convertible Fund plc; )
GLG Market Neutral Fund; Highbridge )
International LLC; Kamunting Street ) PLAINTIFFS’MEMORANDUM IN
Master Fund, Ltd.; KBC Financial ) SUPPORT OF MOTION TO
Products (Cayman Islands) Ltd.; ) PROCEED WITH LIMITED
Kingstown Partners, L.P.; Pandora Select ) DISCOVERY
Advisors, LLC; Parsoon Opportunity )
Fund Ltd.; Tenor Opportunity Master )
Fund, Ltd.; Whitebox Advisors, LLC; )
Whitebox Combined Advisors, LLC; )
Whitebox Convertible Arbitrage )
Advisors, LLC; and Whitebox Hedged )
High Yield Advisors, LLC; )
)
Plaintiffs, )
)
vs. )
)
CompuCredit Holdings Corporation, )
)
Defendant. )
the Rule 26(f) conference and to schedule reasonable depositions shortly after the
documents have been produced within the time allowed by the Federal Rules of Civil
good cause, and will not create any undue burden on Defendant CompuCredit Holdings
Corporation (“CompuCredit”).
BACKGROUND
The facts in this case have been presented more fully in the briefing on Plaintiffs’
summarized below,1 recent developments highlight the need for this case to move
consumer credit market. It has posted losses for six straight quarters that total $595
million and its earnings have dropped by $10 per share. CompuCredit faces a severe
liquidity crisis. Its reported equity has fallen to barely $254 million, and on a pro forma
basis, the company is already insolvent. CompuCredit must also make a $231 million
payment to a group of noteholders in 2012. Despite these financial straits and its
$25 million dividend to shareholders— something it had never done and that went against
its stated policy— the majority of which would be paid to two corporate insiders who
1
Judge Rosenbaum’s ruling on Plaintiffs’recent Motion for Preliminary Injunction and
Expedited Discovery only addressed the preliminary injunction request. (Tr. at 58-66.)
Stating that the motion was before the court on “an application for temporary restraining
order and preliminary injunction,” Judge Rosenbaum concluded that “this was an
application insufficient to support a preliminary injunction.” (Tr. at 58.) The Court’s
ruling was silent on the issue of expedited discovery. In any event, the present motion
simply seeks leave under Rule 26(d)(1) of the Federal Rules of Civil Procedure to
2
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 3 of 8
CompuCredit has been unabashed about the strategy behind its actions: by
stripping assets out of the company now, it plans to force the bondholders to redeem their
debt at fire sale prices. Plaintiffs (the “Noteholders”) collectively own the majority of
two groups of notes— the 3.625% convertible senior notes and 5.875% convertible senior
notes— at issue. Plaintiffs brought this action for preliminary and permanent injunctive
relief under the Uniform Fraudulent Transfer Act and Georgia Corporate Code to prevent
preliminary injunction on December 29, 2009, CompuCredit has taken additional steps in
its asset-stripping strategy that require prompt development of the merits of this case.
million distribution to its stockholders, it announced that it would spin off its only
profitable subsidiary, Purpose Financial Holdings, Inc. (“PFH”). (Ex. 1.)2 PFH
approximately 45%— as of September 30, 2009. (Exs. 2-3.) During the most recent
$98 million of the Company’s $124 million in total revenues. (Exs. 2-3.)
As with the $25 million dividend, PFH will effectively be given to shareholders,
the majority of whom are insiders, but this proposed divestment will be more than four
commence discovery now, but gives CompuCredit the full time allowed for responses
under the Rules.
2
“Ex. __” refers herein to the Exhibits to the Declaration of Jeff Ross, filed with
Plaintiffs’Opposition To Defendant’s Motion to Transfer Venue.
3
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 4 of 8
times greater. If both transactions are completed, over 53% of CompuCredit’s value will
have been transferred to the shareholders. By transferring more than half the value of the
Company to shareholders and spinning off the only profitable entity, insider shareholders
have all but ensured that the Company will be unable to meet its obligations to Plaintiffs.
redeem their debt at a deep discount has been blatant. Indeed, the Company coupled its
divestment announcement with calls to institutional bondholders to buy back their bonds
at current fire sale prices. (Ross Decl. ¶ 2.)3 CompuCredit is essentially predicting that it
will be defunct before 2012 when holders of the 3.625% bonds are entitled to redeem
their notes and is using that to leverage a repurchase of their notes now for pennies on the
dollar.
illegal and will lead to irreparable harm, the Noteholders respectfully seek leave to serve
discovery in advance of the Rule 26(f) conference, which will be limited to financial data,
business plans, and depositions of relevant officers and directors who can speak to
CompuCredit’s actions and will allow Plaintiffs to expeditiously develop the record as to
whether the pending spin off and $25 million dividend are fraudulent transfers.
3
“Ross Decl. ___”refers herein to the Declaration of Jeff Ross, filed together with Plaintiffs’
Opposition To Defendant’s Motion to Transfer Venue.
4
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 5 of 8
ARGUMENT
The Federal Rules of Civil Procedure authorize the Court to allow discovery in
advance of the Rule 26(f) discovery conference. See Fed. R. Civ. P. 26(d)(1). The Court
is “free to use and control pretrial procedure in furtherance of the orderly administration
of justice.” Cook v. Kartridg Pak Co., 840 F.2d 602, 604 (8th Cir. 1988). The decision
to relax strict application of the discovery rules is within the Court’s broad discretion to
alter the timing, sequence, and volume of discovery. See Cook, 840 F.2d at 604 (“A
district court is afforded wide discretion in its handling of discovery matters....”). Courts
generally relax strict application of the discovery rules when the moving party shows
“good cause.” Semitool, Inc. v. Tokyo Electron Am., 208 F.R.D. 273, 276 (N.D. Cal.
2002). Good cause”is present where the need for discovery “in consideration of the
administration of justice, outweighs the prejudice to the responding party.” Semitool, 208
F.R.D. at 276 (finding good cause to expedite discovery from defendant where requested
information was relevant to dispute, requests were narrowly tailored, defendant would
aggressively pursuing its asset-stripping scheme. Until now, its pattern of behavior and
clear intent has been to transfer assets to corporate insiders, in full disregard of its current
financial distress and its future obligations. CompuCredit is already insolvent on a pro-
forma basis, which reflects the company’s true financial condition. Yet not only has
CompuCredit paid a $25 million dividend to transfer assets, it has also announced a tax-
5
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 6 of 8
free spin-off of PFH, its only profitable subsidy, effectively crippling its future finances
and ensuring that it will not be able to meet its obligation to Plaintiffs.
CompuCredit’s haste demands that the record in this case be promptly developed
so that all parties can reach a timely and fair resolution of this dispute relative to
and operating results for the fourth quarter of 2009, as well as the proposed terms and
CompuCredit’s solvency and financial condition. It will also shed light on the impact of
the validity of their contention that the $25 million dividend and pending spin-off are
fraudulent transfers, and will aid the Court and parties in moving this action forward as
efficiently as possible.
information and limited depositions, which will be targeted at individuals who can speak
claims. Indeed, the scope of Plaintiffs’requested discovery goes to the very heart of this
action: the fraudulent transfer claims cannot be evaluated without information about
CompuCredit’s solvency and financial condition. Most importantly, Defendant will have
the full time (30 days) allowed under the Federal Rules of Civil Procedure to produce
6
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 7 of 8
would need to be produced in the normal course of discovery, and CompuCredit cannot
complain about any hardship from being served with discovery now when its actions
As Plaintiffs have shown good cause for expedited discovery, this motion should
be granted.
7
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 8 of 8
CONCLUSION
good cause, and will not create any undue burden on Defendant, the Court should grant
the motion.