Cup O' Dirt, LLC v. Badlands Airtime, LLC
| Decision Date | 29 January 2020 |
| Docket Number | 4:19-CV-04031-KES |
| Court | U.S. District Court — District of South Dakota |
| Parties | CUP O' DIRT, LLC, Plaintiff, v. BADLANDS AIRTIME, LLC, BUSINESS SIXTEEN, LLC, CHARLES C. BRENNAN, MARY BRENNAN, and REAL PRESENCE RADIO, INC., A NORTH DAKOTA NON-PROFIT CORPORATION, Defendants. |
ORDER GRANTING MOTION TO AMEND, GRANTING MARY BRENNAN'S MOTION TO DISMISS, DENYING BADLANDS AIRTIME, LLC, BUSINESS SIXTEEN, LLC, and CHARLES C. BRENNAN'S MOTION TO DISMISS, DENYING MOTION TO UNSEAL, AND DENYING REQUEST FOR ORAL ARGUMENT
Plaintiff, Cup O' Dirt, LLC, (COD) moves for leave to amend its complaint. Docket 37. Defendants Badlands Airtime, LLC, Business Sixteen, LLC, and Charles Brennan (Brennan defendants) oppose the motion and contend that the motion to amend should be denied because of futility. Docket 45. The Brennan defendants originally moved to dismiss COD's initial complaint. Docket 11. Defendant Real Presence Radio, Inc., joins in the Brennan defendants' opposition. Docket 47. Defendant Mary Brennan separately moves to dismiss the claims against her for lack of personal jurisdiction. Docket 8. COD also moves to unseal a variety of documents filed with this court. Docket 26. For the reasons stated below, the court grants COD's motion to amend, grants Mary Brennan's motion to dismiss, denies the Brennan defendants' motions to dismiss, denies COD's motion to unseal, and denies all parties' requests for oral argument.
BACKGROUND
The parties to this matter have a long and complex history of litigation. The facts as alleged in the proposed amended complaint1 are as follows:
COD is a limited liability company organized under the laws of South Dakota. Docket 37-1 ¶ 5. Charles Brennan, a resident of the state of Nevada, is the sole owner of Business Sixteen, LLC, a parent company to multiple limited liability companies including Badlands Airtime, LLC. Id. ¶¶ 6-7, 15. Business Sixteen is believed to be the sole member of Badlands Airtime. Id. ¶ 8. Thus, both Business Sixteen and Badlands Airtime are citizens of Nevada. Id. ¶¶ 6-8. Charles Brennan is also a controlling owner of DLC Empire, LLC. Id. ¶ 18.
In February of 2015, Badlands Airtime and COD entered into an Asset Purchase Agreement (APA) to acquire radio station assets from COD. Id. ¶¶ 1, 20. After Charles Brennan and Badlands Airtime defaulted on the purchase agreement, COD sued Badlands Airtime in South Dakota state court to enforce the APA. Id. ¶ 23. In May of 2018, a state court jury ruled in favor of COD. Id. ¶ 2. On July 9, 2018, a money judgment was entered in favor of COD, in the amount of $300,801.11, plus an award of attorneys' fees and expenses in theamount of $454,554.99. Id. ¶¶ 2, 24-25. COD alleges $528,519.94, plus post-judgment interests remains unpaid by Badlands Airtime. Id. ¶¶ 2, 26-27.
COD alleges both Badlands Airtime and Business Sixteen were insolvent from inception. Id. ¶¶ 30-31. While the entities were insolvent, COD alleges a number of transfers were made for no value or substantially less than reasonably equivalent value with the intent to delay, hinder, or defraud COD in its attempt to satisfy their state court judgment in violation of SDCL § 54-8A. Id. ¶¶ 53-54. First, COD alleges that during the state court litigation, in April of 2016, Wade Sears and the Sears Family Trust wire transferred $3 million dollars to Badlands Airtime. Id. ¶ 32. Four days later, the money was transferred out of Badlands Airtime's bank account and wired to DLC Empire—an entity also controlled by Charles Brennan. Id. ¶¶ 18, 33. No consideration was received by the Sears Family Trust for this transfer until two months after the transfer, when a promissory note granted a security interest in "substantially all" of Badlands Airtime's assets to the Sears Family Trust for repayment of the $3 million dollars. Id. ¶¶ 34-35. This security interest was then perfected. Id. COD alleges that the transfer to DLC Empire is not listed as a corresponding asset of Badlands Airtime because Badlands Airtime was merely a pass-through entity. Id. ¶¶ 36-37.
COD alleges this transfer was a fraudulent transfer under SDCL §§ 54-8 and 54-8A. Id. ¶ 55. Because Badlands Airtime did not receive value or consideration essential to the enforceability of the promissory note and security agreement, and because the transfer was fraudulently made to an insider whenBadlands Airtime was insolvent, COD alleges that the Sears Family Trust does not have a valid secured claim against the fraudulently transferred property. Id. ¶¶ 37-38. Thus, COD alleges it is entitled to recover from the Brennan defendants the amount of such fraudulent transfer to satisfy its state court judgment. Id. ¶ 57.
Second, during the pendency of the state court litigation, COD also alleges that Badlands Airtime—while insolvent—entered into a contract with Real Presence Radio. Id. ¶ 39. The contract concerned the purchase of radio assets. Id. The contract contemplated partial payment at closing in June of 2018 and a promissory note in favor of Badlands Airtime for the remainder, under which two cash installment payments were due on the first and second anniversary "of the date on which the transaction closed" in 2019 and 2020. Id. ¶¶ 41-44. COD alleges the amount paid by Real Presence Radio in consideration for these radio assets, including an FCC license that was valued at $1.5 million, was substantially less than the asset's reasonably equivalent value. Id. ¶¶ 40, 45.
After judgment was entered in the state court action, COD alleges that Charles Brennan immediately "contacted Real Presence Radio, disclosed the judgment, and sought to accelerate payment of the remaining funds owed to Badlands Airtime[.]" Id. ¶ 48. In exchange for an accelerated payment, Charles Brennan offered to accept less than what was owed under the terms of the parties' contract. Id. ¶ 49. Real Presence Radio agreed, and funds were then directly wired from Real Presence Radio to the Sears Family Trust. Id. ¶ 50.COD again alleges the Brennan defendants fraudulently transferred these funds to thwart and obstruct COD's attempt to enforce collection of the amount owed under its state court judgment. Id. ¶¶ 3, 53.
COD alleges that the original 2016 transfer from Badlands Airtime to DLC Empire, the note and security agreement executed by Badlands Airtime in favor of the Sears Family Trust, the Real Presence Radio transaction, and the accelerated payments to the Sears Family Trust from Real Presence Radio were all transfers made while Badlands Airtime was insolvent, were transfers made for no value or substantially less than reasonable equivalent value, and were transfers made either with the intent to eventually delay, hinder, or defraud COD in obtaining the state court judgment or because Badlands Airtime intended to incur debt beyond the entity's ability to pay as it became due. Id. ¶¶ 52-55. Thus, COD alleges the defendants engaged in fraudulent transfers in violation of state law. Id.
Similarly, COD also alleges Badlands Airtime was the instrument or alter ego of Charles Brennan, the sole member of its parent company, Business Sixteen, and that Brennan has abused the corporate form by engaging in the fraudulent transfers discussed above. Id. ¶¶ 62, 65. Because Charles Brennan has abused the corporate form by engaging in the outlined fraud and misconduct, COD seeks to pierce the corporate veil and enforce its state court money judgment against him personally. Id. ¶ 65. COD requests damages in the amount of the judgment in the state court action, together with post-judgment interest, and for attorneys' fees and expenses. Id. at 15-16.
DISCUSSION
First, COD moves to amend its complaint to make the following changes: (1) particularize its allegations into two counts: fraudulent transfers by the named defendants and entity abuses by Charles Brennan and (2) add Wade Sears and the Sears Family Trust as defendants. Docket 37 at 1. COD also appears to remove a count for declaratory relief. See Docket 37-1 at 11-12. The Brennan defendants oppose the motion and argue that the proposed amendments are futile because the amended complaint fails to state a claim upon which relief can be granted and is barred by res judicata. Docket 45. Real Presence Radio joins the Brennan defendants' opposition. Docket 47.
Rule 15 of the Federal Rules of Civil Procedure states that leave to amend a pleading should be given "freely" and "when justice so requires." Fed. R. Civ. P. 15(a)(2). The Supreme Court has held:
In the absence of any apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.—the leave sought should, as the rules require, be 'freely given.'
Foman v. Davis, 371 U.S. 178, 182 (1962); see also Roberson v. Hayti Police Dep't, 241 F.3d 992, 995 (8th Cir. 2001). "The Eighth Circuit Court of Appeals takes a 'liberal viewpoint towards leave to amend' and leave 'should normally be granted absent good reason for a denial.' " Libertarian Party of S.D. v. Krebs,312 F.R.D. 523, 525 (D.S.D. 2016) (quoting Popp Telcom v. Am. Sharecom, Inc., 210 F.3d 928, 943 (8th Cir. 2000)). "Likelihood of success on the new claim or defenses is not a consideration for denying leave to amend unless the claim is clearly frivolous." Becker v. Univ. of Neb., 191 F.3d 904, 908 (8th Cir. 1999). Because the "purpose of pleading is to facilitate a proper decision on the merits," the Supreme Court rejects an approach under the Federal Rules that "pleading is a game of skill in which one misstep by counsel may be decisive to the outcome[.]" Foman, 371 U.S. at 181-82 (internal quotations omitted).
" '[I]t is common practice for a party to seek leave to amend in response to a motion to dismiss.' " Dakota Provisions, LLC v....
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