Atlas Biologicals, Inc. v. Kutrubes
| Decision Date | 23 July 2020 |
| Docket Number | Civil Action No. 18-cv-00969-CMA-MEH |
| Parties | ATLAS BIOLOGICALS, INC., a Colorado corporation, Plaintiff/Counter-Defendant, v. Thomas James KUTRUBES, an individual, Defendant, Biowest, LLC, a Missouri limited liability company, Defendant/Counter-Plaintiff |
| Court | U.S. District Court — District of Colorado |
John David Root, Lind Ottenhoff & Root LLP, Windsor, CO, for Plaintiff/Counter-Defendant.
Kevin William Ward, Wick & Trautwein, LLC, Fort Collins, CO, for Defendant Thomas James Kutrubes.
Andrew Burch Reid, Reid. Law, LLC, Boulder, CO, for Defendant/Counter-Plaintiff Biowest, LLC.
CHRISTINE M. ARGUELLO, United States District Judge This matter is before the Court on Plaintiff Atlas Biologicals, Inc.’s Second Motion for Partial Summary Judgment ("the Motion") (Doc. # 80). The briefing is complete. (Doc ## 82, 87, 91.) The Court, having reviewed all filings, exhibits, and relevant case law, and being fully advised in the premises, grants Plaintiff's Second Motion for Partial Summary Judgment.
The Court incorporates herein its recounting of the facts from its March 14, 2019 Order. (Doc. # 65.) It details factual and procedural developments only to the extent necessary to address the instant Motion.
This action arises from a separate lawsuit that was tried before this Court, Atlas Biologicals, Inc. v. Kutrubes , Civil Action No. 15-cv-00355-CMA-KMT (the "Primary Suit"). Plaintiff Atlas Biologicals, Inc. ("Atlas") initiated both the Primary Suit and the action presently before the Court. Atlas specializes in the production of bovine serum-based products used for cell culture and research.
In the Primary Suit, Atlas filed suit against Thomas Kutrubes (a Defendant in this matter) and Kutrubes's companies, Peak Serum, Inc. and Peak Serum, LLC (non-parties to this matter).1 Plaintiff alleged in the Primary Suit that while Kutrubes was its employee and a shareholder he illegally used Plaintiff's trademarks, trade secrets, and other confidential and proprietary information, and solicited its customers for his nascent competing business, Peak Serum. Plaintiff asserted claims for trademark infringement under federal and Colorado law; unfair competition (false designation of origin) under federal law; misappropriation of trade secrets under the Colorado Uniform Trade Secrets Act, Colo. Rev. Stat. §§ 7-74-101, et seq . ; conversion; violations of the Colorado Consumer Protection Act, Colo. Rev. Stat. §§ 6-1-105, et seq . ; breach of fiduciary duty; and breach of contract.
The Court conducted a five-day bench trial on Plaintiff's claims from March 5, 2018, through March 9, 2018. Approximately a month and a half after the trial concluded, on April 17, 2018, Plaintiff filed an "Emergency Ex Parte " Motion for Pre-Judgment Attachment and for a Temporary Restraining Order and Injunction Against Further Conveyances of Assets by Defendants. Plaintiff stated that on April 4, 2018, "Kutrubes purported to transfer all of his stock in Atlas Biologicals to Biowest LLC ... whose president and CEO is Wendell Leinweber" ("the Purported Transfer") and argued that Kutrubes's attempted conveyance of this stock was "an effort to hinder, delay, or defraud creditors and warrants the imposition of a writ of pre-judgment attachment against his Atlas Biologicals stock." Plaintiff attached as exhibits (1) a letter from Kutrubes's counsel to Plaintiff's counsel, informing them that Kutrubes transferred his stock "to a third party, Biowest, LLC, effective April 4, 2018," and that Leinweber was the contact person for Biowest, LLC ("Biowest"); and (2) a Transfer and Conveyance of Common Stock, dated April 4, 2018, and signed by Kutrubes.
The Court heard testimony and argument on Plaintiff's Motion for Pre-Judgment Attachment on April 19, 2018. At the outset, the Court made clear that the hearing was limited specifically to whether it could issue a writ of attachment as to whatever interest Kutrubes had in the 7 percent of Atlas stock he owned. It was not concerned with whether Kutrubes's shares had actually transferred to Biowest because "that [was] a matter for a separate action." The Court explained that it did not have any jurisdiction over Biowest or Leinweber. After hearing testimony from Kutrubes and argument from counsel, the Court announced that it would "issue an order of pre-judgment attachment as to whatever interest remains in [Kutrubes] for the 7 percent of stock that he owns in Atlas." It clarified that it did not know what interest remained and "that would not be decided by [the Court] unless [the parties] file[d] a separate action in this Court for either declaratory judgment or for further undoing the fraudulent conveyance."
The Court issued the Writ of Attachment on April 24, 2018, pursuant to Colorado Rule of Civil Procedure 102. It ordered the Sheriff of Larimer County to "attach and safely keep any stock of [Plaintiff] owned by [Kutrubes] which may be found within the County of Larimer." Plaintiff subsequently informed the Court that it had served the Writ of Attachment on Kutrubes on May 3, 2018, and that it had "surrendered [Kutrubes's] stock certificates to the Larimer County Sheriff on May 9, 2018."
On September 23, 2019, the Court issued its Findings of Fact and Conclusions of Law in the Primary Suit. (Doc. # 158.) The Court entered judgment in favor of Plaintiff and against Kutrubes on Plaintiff's claims for federal trademark infringement, Colorado common law trademark and trade name infringement, misappropriation of trade secrets, and breach of fiduciary duty. (Id. at 55.) The Court awarded $2,048,180.50 in damages to Plaintiff (id. ), and final judgment was entered against Kutrubes (Doc. # 159).
Plaintiff initiated the action presently before the Court on April 25, 2018, one day after the Court issued the Writ of Attachment in the Primary Suit. Plaintiff seeks "declaratory relief pursuant Fed. R. Civ. P. 57 to void the purported transfer of stock [from Kutrubes to Biowest] under Article 8 of the Colorado Uniform Commercial Code or, in the alternative, to avoid and recover a fraudulent transfer pursuant to the Colorado Uniform Fraudulent Conveyances Act C.R.S. §§ 38-8-101 et seq. (CUFTA)." (Doc. # 70 at 1.) Plaintiff asserts three claims for relief: (1) "declaratory judgment that the purported transfer is void" under Article 8 of the Colorado Uniform Commercial Code ("UCC"), Colo. Rev. Stat. §§ 4-8-101, et seq . ; (2) avoidance of the purported transfer under the Colorado Uniform Fraudulent Transfer Act ("CUFTA"), Colo. Rev. Stat. § 38-8-105(1)(a), as "actual fraud;" and (3) avoidance of the purported transfer under CUFTA, Colo. Rev. Stat. §§ 38-8-105(1)(b) or - 106(1), as "constructive fraud." (Id. at 13–17.)
Plaintiff filed the instant Motion on April 19, 2019, wherein Plaintiff moves the Court to find that the Purported Transfer is void under the UCC and grant summary judgment on its first claim for declaratory relief. (Doc. # 80.) Defendant Kutrubes filed his response on May 10, 2019. (Doc. # 82.) Kutrubes urges the Court to find that the transfer was valid because Defendants substantially complied with the UCC and an equitable transfer of stock occurred. (Id. at 5–9.) Defendant Biowest filed its response on May 10, 2019. (Doc. # 83.) Biowest argues that Plaintiff's Motion should be denied because, inter alia , Article 8 of the UCC is irrelevant to the transfer of ownership of stock and an equitable transfer of stock occurred. See generally (id. ). Plaintiff subsequently filed its Amended Combined Reply (Doc. # 87) and a Supplement to Plaintiff's Second Motion for Partial Summary Judgment (Doc. # 91) with leave of Court.
The parties do not dispute the following material facts, which are pertinent to the Court's determination of the instant Motion.
Prior to the Primary Suit, Atlas issued approximately 7% of its stock to Defendant Kutrubes. (Doc. # 80 at 2); (Doc. # 82 at 2). As of April 3, 2018, Kutrubes owned approximately 44,681 shares of Atlas stock. (Doc. # 80-1 at 75.) On April 4, 2018, Defendant Kutrubes purportedly transferred all of his shares of common stock, representing 7% of the outstanding shares of Atlas to Biowest, LLC ("the Purported Transfer"). (Doc. # 80-1 at 22.) A cover letter dated April 5, 2018, drafted by Defendant Kutrubes's attorney in the Primary Action stated, in part, "Mr. Kutrubes has transferred [his] stock to a third party, Biowest, LLC, effective April 4, 2018." (Id. at 22–23.) Enclosed with the cover letter was a "Transfer and Conveyance of Common Stock" and an "Irrevocable Stock Transfer Power." (Id. at 22–25.) Biowest did not receive delivery of an indorsed certificate for Kutrubes's shares. (Doc. # 80 at 4); (Doc. # 83 at 8). Atlas had not created stock certificates for Kutrubes's shares at the time of the Purported Transfer. (Doc. # 80-1 at 75.) Atlas subsequently created stock certificates for Kutrubes's shares. (Id. )
Upon notice of the Purported Transfer, Atlas immediately sought a writ of attachment in the Primary Suit. (Doc. # 80 at 5); (Doc. # 82 at 3); (Doc. # 83 at 8). The Court issued a writ of attachment with respect to the shares, as described above.
On June 18, 2019, Kutrubes submitted a written shareholder's request to inspect Atlas's corporate records pursuant to Colo. Rev. Stat. §§ 7-116-101 and - 102. (Doc. # 91-1 at 1–6.) The shareholder's request is signed by Kutrubes and states that Kutrubes is a current shareholder of Atlas, owns 52,689 shares of Atlas stock, and has been a shareholder of Atlas for 9 years. Kutrubes represented therein that he sought, in part, to "review and ascertain the value of [his] shares." (Id. at 2.) Kutrubes attached thereto copies of Atlas stock certificates in his name. (Id. at 4–6.)
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Atlas Biologicals, Inc. v. Kutrubes
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