Akh Co. v. Universal Underwriters Ins. Co.

• Decision Date: 29 August 2018
• Docket Number: Case No. 13-2003-JAR-KGG
• Parties: AKH COMPANY, INC., Plaintiff, v. UNIVERSAL UNDERWRITERS INSURANCE CO., Defendant.
• Court: U.S. District Court — District of Kansas

AKH COMPANY, INC., Plaintiff, v. UNIVERSAL UNDERWRITERS INSURANCE CO., Defendant.

Case No. 13-2003-JAR-KGG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

August 29, 2018

MEMORANDUM AND ORDER

This is an insurance coverage dispute filed by AKH Company, Inc. ("AKH") against its insurance carrier, Universal Underwriters Insurance Company ("UUIC"), arising out of a trademark infringement action between AKH and a third party that UUIC defended and settled under a reservation of rights ("RT litigation"). UUIC counterclaimed, and both parties amended to assert various tort and contract theories. This Court recently allowed UUIC leave to amend to add several additional parties to its Counterclaim, and to add two additional counterclaims against AKH and these additional parties for alter ego liability and fraudulent transfer.¹ The new claims were based on allegations that after this lawsuit was filed, AKH diverted its assets to these related parties in order to avoid any potential judgment in this case.

In response to the motion for leave to amend, AKH argued in part that the proposed amendment was futile because there was no personal jurisdiction over the proposed new parties. The Court declined to take up this argument in the context of a motion for leave to amend, and preliminarily found UUIC had alleged a prima facie case of personal jurisdiction in its proposed pleading. But the Court expressly deferred ruling on the issue until it could be properly briefed.² Now before the Court is a Motion to Dismiss (Doc. 532) under Fed. R. Civ. P. 12(b)(1) and 12(b)(2), filed by Counter-Defendants AKH; Andonian Enterprises, Inc.; 55, Inc.; Tirenetwork Group, Inc.; Andy Andonian; and Hratch Andonian. The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court denies the motion to dismiss.

I. Subject Matter Jurisdiction

The counter-defendants argue first that the Court lacks subject matter jurisdiction over Counts XIV and XV (fraudulent transfer and alter ego) because they are not "sufficiently related to the pending claims," under 28 U.S.C. § 1367(a).³ Under the statute, once the Court has original jurisdiction over some claims, supplemental jurisdiction extends to "other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder . . . of additional parties."⁴ A claim or counterclaim "is part of the same case or controversy if it 'derive[s] from a common nucleus of operative fact.'"⁵

This Court has already disposed of this argument in ruling on the motion to review Judge Gale's Order denying leave to amend. In so ruling, the Court found that the new claims were part of the same transaction and occurrence as the original claims in this case. The counter-defendants suggest that the "same transaction or occurrence" standard under the Federal Rules is more liberal than the case or controversy standard under § 1367. But they have it backwards. "[T]he 'common nucleus' test is broader than the 'transaction or occurrence' test used in the Civil Rules. . . . In practice, § 1367(a) requires only that the jurisdiction-invoking claim and the supplemental claim have some loose factual connection."⁶ Therefore, claims that meet the "same transaction or occurrence test" under the Federal Rules will satisfy § 1367.⁷ For the same reasons the Court found that the new claims are part of the same transaction or occurrence as the original claims in its April 30, 2018 Memorandum and Order,⁸ the Court finds that the new claims are part of the same case or controversy under § 1367(a).

II. Personal Jurisdiction

A. Standard

Andonian Enterprises, Inc. ("AEI"); 55, Inc.; Tirenetwork Group, Inc. ("TNG"); Andy Andonian; and Hratch Andonian (collectively, "the new counter-defendants") challenge this Court's personal jurisdiction. Both sides of the dispute misstate the applicable standard. UUIC has the burden of establishing personal jurisdiction over the new counter-defendants.⁹ In the absence of an evidentiary hearing, as in this case, the party asserting jurisdiction must make only a prima facie showing to defeat a motion to dismiss.¹⁰ This showing is "light."¹¹ "The plaintiff may make this prima facie showing by demonstrating, via affidavit or other written materials, facts that if true would support jurisdiction over the defendant."¹² Allegations in the counterclaim are accepted as true if they are plausible, non-conclusory, and non-speculative, to the extent that they are not controverted by submitted affidavits.¹³ When a defendant has produced evidence to support a challenge to personal jurisdiction, a plaintiff has a duty to come forward with competent proof in support of the jurisdictional allegations of the complaint.¹⁴ The court resolves all factual disputes in favor of UUIC.¹⁵ "In order to defeat a plaintiff's prima facie showing of jurisdiction, a defendant must present a compelling case demonstrating 'that the presence of some other considerations would render jurisdiction unreasonable.'"¹⁶

Thus, the new counter-defendants' assertion that Plaintiff must establish more than a prima facie showing of personal jurisdiction is incorrect. Absent an evidentiary hearing, a prima facie showing is all that is required. But UUIC is also incorrect to suggest that (1) the Court's April ruling somehow precludes the new counter-defendants' renewed challenge to personal jurisdiction in this motion; and (2) it need not submit proof in support of its jurisdictional allegations in the amended counterclaim, to the extent its allegations are challenged by competent proof submitted by the new counter-defendants.¹⁷ The Court must not accept as true UUIC's factual allegations in the counterclaim that are controverted by the new counter-defendants' evidence. With the correct standards in mind, the Court proceeds to consider the factual record and UUIC's assertion of personal jurisdiction on that record.

B. Background

1. Procedural History

AKH filed this case on January 2, 2013, seeking, inter alia, declaratory relief that UUIC had a duty to defend and settle the RT litigation. UUIC answered and brought counterclaims for declaratory relief and breach of contract arising out of its defense and settlement of the RT litigation. UUIC also immediately sought transfer of this case to the Central District of California. After considering the requisite factors, the Court sided with AKH and denied transfer, finding no countervailing factors that outweighed AKH's choice of Kansas forum. In November 2014, both parties added tort claims based on the other's alleged conduct before, during, and after settlement of the RT litigation.

Numerous discovery disputes ensued, interfering with the Court's ability to guide this case to trial in a timely manner. Most recently, discovery by UUIC into AKH's finances, in furtherance of UUIC's claim for punitive damages, revealed that AKH allegedly transferred its assets to other entities owned by its co-owners, brothers Hratch and Andy Andonian, to avoid any judgment that may be awarded to UUIC in this case. The fraudulent conveyance claim asserts that AKH is "essentially a shell at this point, serving no purpose other than to litigate this action. AKH is systematically devaluing itself which could result in AKH's potential inability to pay any judgment against it for its tortious and other misconduct."¹⁸ The alter ego claim asks the Court to disregard the legal fiction of corporate separateness and treat AKH and the new counter- defendants as alter egos of one another. The claim alleges various ways in which the new counter-defendants have transferred assets and diluted AKH, and argues that treating them all separately "would serve as a cover for fraud and illegality and promote an injustice."¹⁹

2. Jurisdictional Facts

Drawing all reasonable inferences in favor of UUIC, the following relevant facts are taken from the Fifth Amended Counterclaim, and the exhibits attached to the new counter-defendants' brief in support of the motion to dismiss.²⁰

AKH has operated wholesale and retail tire and wheel distribution and automotive service centers in California under the name "Discount Tire Centers" since 1976. For all periods relevant to this litigation, AKH was owned by brothers Andy and Hratch Andonian. Andy holds a 55% interest and Hratch holds a 45% interest in this California corporation. In 2011-12, AKH had approximately 200 employees. Darrel Whitehead, CPA, was hired by AKH as its accountant in 2012, and met with the Andonians for the first time in October 2012. At that meeting, the Andonians advised they wanted to "go their separate ways," and asked him to help them.²¹ Whitehead's first task was to perform a valuation of AKH, and he determined it was worth $13 million.²²

In June 2012, Andy established TNG, a California corporation wholly owned by him. Andy is also the Chairman. In December 2012, AKH sold its wholesale and e-commerce business to TNG in exchange for $2,165,879, to become effective on January 1, 2013, the day before AKH filed this action. The agreement included AKH's tire inventory and fixed assets. Hratch signed this Asset Purchase Agreement on behalf of AKH, and Andy signed on behalf of TNG. The sale was for less than fair market value. Although TNG paid for the value of inventory transferred, it did not pay additional consideration for receipt of the wholesale division or e-commerce business. The purchase price was wired by AKH to TNG over a series of several transfers that AKH cannot explain. TNG now operates a wholesale business for the sale of tires and wheels. In 2013, TNG's sales increased from $0 to eight figures.

At some point after this transaction, Whitehead helped transfer at book value all of the Discount Tire Centers stores owned by AKH to AKH Company, LLC ("the...