Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01269/USCOURTS-azd-2_10-cv-01269-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 9:9 Motion to Confirm Arbitration Loan

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

UV2, LLC, a Michigan limited liability

company, as successor interest to UV2, 

Plaintiff/Judgment Creditor, 

vs.

EMC TELECOM CORPORATION, an

Arizona corporation, now known as

EMCT ACQUISITIONS, INC., 

Defendant/Judgment Debtor.

DIGITAL VENTURES, LLC, an Arizona

limited liability company,

Garnishee/Judgment Debtor. _________________________________

DOUBLE D HOLDINGS, LLC, a

California limited liability company,

Garnishee.

PINK BIRD MEDIA, INC., a North

Carolina corporation,

Garnishee.

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No. CV 10-01269-PHX-ROS

REPORT AND RECOMMENDATION

TO THE HONORABLE ROSLYN O. SILVER, CHIEF JUDGE, UNITED STATES

DISTRICT COURT:

BACKGROUND

Case 2:10-cv-01269-ROS Document 92 Filed 05/20/13 Page 1 of 11
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Presiding Chief Judge Roslyn Silver referred all post-judgment proceedings to this

court, including requests for hearing on garnishment. (Doc. 68.)

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This matter1

 arises on Plaintiff/Judgment-Creditor UV2, LLC’s (“Plaintiff”)

Applications for Writ of Garnishment against Garnishees Double D Holdings, LLC and Pink

Bird Media, Inc. (“Garnishees”), filed on December 19 and 20, 2012, respectively (Docs.

51, 52). Garnishee/Judgment Debtor Digital Ventures, LLC (“Digital Ventures”) was

previously ordered to pay restitution to Plaintiff in the amount of $602,735.00, as principal,

with interest accruing at the rate of 0.18% per annum from December 12, 2012. (Doc. 49.)

Plaintiff seeks the Writs because of its belief that Garnishees are in possession of property

in which Digital Ventures has a nonexempt interest. Both Garnishees filed Answers denying

that they hold any property of Digital Ventures. (Docs. 61, 62.) On January 17, 2013,

Plaintiff filed an Objection and Request for Hearing in both matters. (Docs. 65, 66.)

Plaintiff objects to Garnishees’ Answers, asserting that there exists good cause to believe that

Garnishees do in fact have money belonging to Digital Ventures:

[Plaintiff] and [Digital Ventures] are currently involved in litigation in the

Maricopa County Superior Court (CV2009-054788), wherein the issue of

[Plaintiff’s], [Garnishees’] business relationships and obligations has been the

subject of substantial discovery. Based upon the information elicited in the

course of that litigation, including written discovery and document production,

[Plaintiff] believes there is substantial evidence showing that [Garnishees]

have significant financial obligations to Digital Ventures.

(Docs. 65, at 2: 66, at 2.)

This Court, pursuant to A.R.S. §12-1580, scheduled a telephonic conference between

Plaintiff and Garnishees on February 7, 2013. (Docs. 77, 78.) During the telephonic

conference, Plaintiff waived its right to a hearing on its Objection. Plaintiff was directed to

file a Memorandum in support of its Objection by February 20, 2013, and Garnishees were

directed that any responsive pleading must be filed by March 6, 2013. On February 20,

2013, Plaintiff filed a Memorandum in Support of Plaintiff’s/Judgment-Creditor’s Objection

to Garnishees Double D Holdings’ and Pink Bird’s Answers. (Doc. 83.) Garnishees filed

a joint Response on March 8, 2013 (Doc. 87), and on March 15, 2013, Plaintiff filed a Reply

(Doc. 88). The parties then appeared for a status hearing before this Court on April 23, 2013,

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Derived from attached exhibits to Plaintiff’s Memorandum.

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and agreed at that time that an evidentiary hearing was not necessary and that the Court may

render its decision on the pleadings. (Docs. 89, 91.) 

Plaintiff argues that Garnishees have money or property belonging to Digital Ventures

that are subject to garnishment, and that the evidence furthermore demonstrates that

Garnishees “actively and jointly participated in efforts to fraudulently transfer and conceal

assets from Digital Venture’s creditors.” (Doc. 83, at 2.) Plaintiff notes that Plaintiff and

Digital Ventures are currently involved in litigation in the State of Arizona, Maricopa County

Superior Court (Case No. CV2009-054788), in which the issue of Plaintiff’s, Digital

Venture’s, and Garnishees’ “business relationships and obligations have been the subject of

substantial discovery over the past 3 years.” (Id.) 

Garnishees respond that, as identical issues are before the state court they should be

reserved to the state court, that Plaintiff can not establish a fraudulent transfer, and that the

court, in any event, lacks the authority to make a finding of a fraudulent transfer in a

garnishment proceeding. (Doc. 87.) 

FACTS2

The original two members of Digital Ventures were Scott DeLong and Justin

Huffhines, each of whom held a 50% membership interest prior to Plaintiff’s involvement.

(Doc. 83, at 14, ¶3.) In January, 2009, Plaintiff and Digital Ventures entered into a

Management Services Agreement (“MSA”) under which Plaintiff became a member of

Digital Ventures. (Id., ¶4.) Digital Ventures appointed Plaintiff, as the sole shareholder, the

manager of Digital Ventures, and granted him all of the power, authority, and discretion

allowed to a manager of a limited liability company. (Id., ¶5.) Plaintiff and Digital Ventures

also entered into a Negotiable Promissory Note and Line of Credit Agreement (“LOC”) in

the amount of $60,000.00, which was personally guaranteed by DeLong and Huffhines. (Id.,

¶8.) A balance accrued on the account, and Plaintiff negotiated with Digital Ventures to have

Digital Ventures make $300.00/day payments to pay down the balance, but that before that

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occurred, on May 14, 2009, Digital Ventures sent Plaintiff a letter expelling Plaintiff from

Digital Ventures without payment. (Doc. 83, at 15, ¶¶11-16.) 

On December 18, 2008, before Plaintiff’s business engagement with Digital Ventures,

Plaintiff had entered into an Asset Purchase Agreement with EMC Telecom, Inc (“EMC”),

under which EMC contracted to purchase Plaintiff’s preexisting web hosting business, valued

at approximately $675,000.00. (Doc. 83, at 15, ¶17.) In the Asset Purchase Agreement,

EMC agreed to pay the total sum of $673,815.00, as well as Plaintiff’s outstanding accounts

receivables in the amount of $22,174.47. (Id., ¶18.) EMC later rescinded the Asset Purchase

Agreement because Digital Ventures had falsely represented to EMC that Plaintiff had

ownership interest in Digital Ventures prior to the sale. (Id., ¶¶19, 20.) EMC had paid

$193,816.71 to Plaintiff prior to the breach. (Id., ¶18.) On August 20, 2010, Plaintiff

obtained a judgment against EMC in the amount of $502,173,00, as principal, with interest

accruing at the rate of 6% per annum. (Doc. 12.) On December 12, 2012, Plaintiff obtained

a judgment against Digital Ventures, in a garnishee action against EMC assets, in the

principal amount of $602,753.55, with interest accruing at the rate of 0.18% per annum.

(Doc. 49.)

After Plaintiff had received the letter from Digital Ventures notifying him of his

expulsion, on November 9, 2009, Plaintiff filed a lawsuit in the State of Arizona, Maricopa

County Superior Court, case number CV2009-054788, to enforce its interest in Digital

Ventures. On November 29, 2009, Plaintiff’s attorney sent Digital Ventures a letter

announcing that, as a member of Digital Ventures, Plaintiff requested notice of any proposed

asset sales, and of Plaintiff’s right to vote on any transfers before they occurred, and warned

that improper transfers of assets could create fraudulent transfer liability, and requested that

Digital Ventures put buyers on notice of Plaintiff’s claim. (Doc. 83, at 18-20.) Digital

Ventures, nonetheless, on December 9, 2009, put one of its assets, a website up for sale, and

DeLong sent an email to an individual stating that Digital Ventures had interested buyers

with (informal) bids coming in between 1.5 and 2 million. (Id., at 21-24.) 

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During this time, Digital Ventures entered into negotiations with Dennis Ashe a/k/a,

the proprietor of Garnishee Pink Bird, for the purchase of the Digital Venture’s website.

(Doc. 83k, at 26-27.) At one point in the negotiations, according to an undated, unsigned

letter on Digital Ventures’ letterhead, Pink Bird had made an offer of one million dollars.

(Doc. 83, at 29.) On March 22, 2010, DeLong, representing Digital Ventures, and Dennis

Ashe of Pink Bird entered into a business agreement for the formation of Double D Holdings,

LLC. (Doc. 83, at 31-36.) The parties agreed therein that the new entity, Double D, was

formed for the main purpose of owning, managing and creating the content and production

of amateurstraightguys.com website, and that any and all movies, videos, photographs,

images, pictorials, DVDs, and any and all content that was produced by Digital Ventures for

the amateurstraightguys.com website could be used for the new venture. (Id., at 31.) The

parties agreed that Pink Bird would have 49.5% ownership in Double D, and Digital

Ventures would have 49.5% ownership. (Id., at 32.) Double D Holdings would then buy out

any interest in Digital Venture’s co-owner Huffhines in the amount of $362,500.00. (Id., ¶4.)

Pink Bird, for the relinquishment of Huffhines’ interest in Digital Ventures, agreed to pay

Delong and Huffhines both the amount of $37,500.00. (Id., ¶5.) 

Subsequently, Digital Ventures announced to its affiliates that Double D Holdings had

acquired all of the assets associated with the website as well of the publishing rights to all

material produced as well as all of the revenue producing venues and outlets formerly used

by the site, and that Double D Holdings intended to re-open the site. (Id., at 38-41.)

Furthermore, On April 18, 2010, Delong informed Digital Ventures affiliates that “effective

March 22, 2010, Digital Ventures LLC sold its interests in website Amateur Straight Guys

[] which [Digital Ventures] founded and ran from 2000 until 2010,” and that “the new owner

of Amateur Straight Guys is Double D Holdings.” (Id., at 40.) DeLong also advised that “all

debt incurred by Digital Ventures LLC remains an obligation of Digital Ventures,”and

advised that Plaintiff’s claim against Digital Ventures had been resolved in state court in

Michigan. (Id.) 

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Plaintiff asserts that an email sent by DeLong on February 18, 2010, demonstrates that

the creation of Holdings was intended to facilitate a fraudulent transfer of Digital Venture’s

assets. In the email DeLong writes the following:

[Pink Bird] wants to understand what the risks are in terms of any claims

against our assets. I assured him that really the only inability we might

encounter would be [Plaintiff] on the off chance that he would win a court case

against us. ... I realize there are major creditors who will come after us if we

don’t pay them (EMC, MCS etc.) however as far as reaching to our assets is

concerned once our major asset (ASG) is sold and since no claim on our assets

has been made thus far I am certain that any assets we sold would be beyond

the reach of the courts.

(Doc. 83, at 5–51.)

Garnishees do not dispute the facts asserted by Plaintiff, nor do they proffer their own,

other than to provide a copy of Double D Holding’s Response to Plaintiff’s Motion for

Summary Judgment, and Objection to Plaintiff’s Statement of Facts and Controverting

Statement of Facts filed in the Arizona state court action (CV2009-054788). (Doc. 87-3, 87-

3.) In the pleading, Double D Holdings asserts that Plaintiff had entered into an agreement

with Digital Ventures to manage Digital Ventures’ financials in exchange for a 5%

ownership interest in the company, and that Plaintiff’s mismanagement caused the members

of Digital Ventures to vote to eject Plaintiff from the company. (Id., at 3, ¶¶6-9.) Double

D Holdings also asserts that at the time Pink Bird had made an offer to Digital Ventures, no

other offers had been received by Digital Ventures. (Id., ¶17-18.) The business agreement

that Pink Bird and Digital Ventures ultimately entered into provided only for the acquisition

of the amateurstraightguys.com website and the assets developed for that site, and not for the

transfer of Digital Ventures’ other assets, which retained substantial value. (Id., ¶22.)

Finally, Double D Holdings asserts that the acquisition of amateurstraightguys.com was an

arm’s length business transaction under which all parties benefitted: 

“Pink Bird] acquired an ownership stake in Double D, the owner of a website

that he believed had the potential to generate income; Mr. DeLong received a

modest cash payment to get him back on his feet and retained an ownership

stake in the website; and Mr. Huffhines received a much more significant cash

payment that would effectively operate as a monthly salary and permit him to

get out the industry. There was no fraudulent intent. 

(Id., ¶23.)

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Garnishees state that the issue of whether or not the sale of Digital Ventures assets to

Pink Bird and the creation of Double D Holdings constituted a fraudulent transfer was before

the Arizona state court on a motion for summary judgment filed by Plaintiff, and that the

court denied summary judgment. In support of this claim, Garnishee Double D Holdings

attaches its Response to Plaintiff’s Motion for Partial Summary Judgment, and the trial

court’s written decision. (Docs. 87-1, 87-2.) Plaintiff concedes that the state court

considered the fraudulent transfer claim and decided that questions of fact precluded entry

of summary judgment. (Doc. 88, at 2.) 

ARGUMENT

Issue One. Is Plaintiff’s request barred by the state court’s denial of summary

judgment and the district Court policy against forum shopping?

Garnishees argue that a decision by this court on the issue of fraudulent transfer is

barred by the state court’s denial of summary judgment on the issue. Plaintiff respond that,

in Arizona, it is “well-settled that a denial of a motion for summary judgment is not

considered to be a final judgment ...”. Sorensen v. Farmers Ins. Co. of Arizona, 191 Ariz.

464, 465-66; 957 P.2d 1007, 1008-09 (App. 1997). Garnishees concede that the doctrine of

res judicata does not apply as there has not been a final judgment on the merits. The Court

finds that a decision by this court is not barred by the state court ruling on summary

judgment.

Garnishees also argue that this Court should exercise its discretion and abstain from

determining this action, in deference to the state court, and refuse Plaintiff’s efforts to

“forum-shop.” Garnishee cites Moses H. Cone Mem’l Hospital v. Mercury Const. Corp., 460

U.S. 1 (1983) and Colorado River Water Conservation District v. United States, 424 U.S. 800

(1976) in support of their argument. Garnishees also note that if this Court were to grant the

writs of garnishment sought by Plaintiff, the state court matter would be rendered moot. The

doctrine of abstention promoted by Garnishees was articulated by the United States Supreme

Court in Colorado River, a case in which the Court was confronted with the problem posed

by the contemporaneous exercise of concurrent jurisdiction by state and federal courts. 424

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U.S. at 800-802. The Court held that the abstention from the exercise of federal jurisdiction

is “an extraordinary and narrow exception to the duty of a District Court to adjudicate a

controversy properly before it.” Id. at 813. 

The Ninth Circuit has recognized that “Colorado River abstention should only be used

in exceptional circumstances.” American International Underwriters v. The Continental

Insurance Company, 843 F.2d1253, 1257 (9th Cir. 1988) (internal quotation and citation

omitted). The factors a court “must consider in deciding whether exceptional circumstances

exist are: (1) which court first assumed jurisdiction over the property in dispute; (2) the

inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; and

(4) the order in which jurisdiction was obtained.” Id. (citing Colorado River, 424 U.S. at

818). The Supreme Court added two additional factors for the court to consider in Moses H.

Cone Memorial Hosp, supra. They are, “‘whether federal law provides the rule of decision

on the merits’ and whether the state court proceedings are inadequate to protect the litigant’s

rights.” The Travelers Indemnity Company v. Madonna, 914 F.2d 1364, 1367 (9th Cir.

1990) (citing Moses H. Cone Memorial Hosp., 460 U.S. at 23, 26). Also, “the [Ninth]

Circuit has held that, because the prevention of forum shopping would promote wise judicial

administration, forum shopping is another appropriate factor to consider.” Id., at 1367-68

(citing American Int’l Underwriters, 843 F.2d at 1259).

The court should apply these factors “in a pragmatic and flexible way, as part of a

balancing process rather than as a mechanical checklist.” American Int’l Underwriters, 843

F.2d at 1257 (internal quote and citation omitted). For instance, in considering the first

factor, above, “it is important not only to determine whether the state or the federal complaint

was filed first, but also to assess how much progress has been made in the two actions.” Id.

(citation omitted). 

Applying the factors to the case at hand, the first factor, considering which court first

assumed jurisdiction over the property in dispute, is wholly inapplicable, as money is not the

sort of tangible physical property referred to in Colorado River. See, Traveler’s Indemnity,

914 F.2d at 1368; American Int’l Underwriters, 843 F.2d at 1258. Applying the second

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The Court notes that Plaintiff sought its Writ of Garnishment against Digital Ventures

on March 8, 2012, and obtained its judgment against Digital Ventures, a condition precedent

to the application for writs against garnishees, on December 12, 2012. (Doc. 49.)

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factor, the inconvenience of the federal forum, the Court finds that the federal forum in not

any more inconvenient to the parties as the state court litigation, since the courts are in the

same city, and sit within blocks of one another; therefore, this factor does not weigh in favor

of abstention.

The third factor, the desirability of avoiding piecemeal litigation, weighs heavily in

favor of abstention. “Piecemeal litigation occurs when different tribunals consider the same

issue, thereby duplicating efforts and possibly reaching different results.” American Int’l

Underwriters, 843 F.2d at 1258. Here, the parties agree that the state and federal courts are

considering the same issue, that of whether or not a fraudulent transfer, under Arizona law,

occurred. The parties have also represented to the Court that extensive discovery has taken

place in the state case, and that the documents presented in support of Plaintiff’s Writ are

documents obtained during the state discovery process. Also, Plaintiff moved for summary

judgment in the state court matter, which the trial court denied, and the matter is presumably

headed toward trial, at which time a jury will decide the facts and render judgment. 

The forth factor, the order in which jurisdiction was obtained, weighs solidly in favor

of abstention. Plaintiff filed its complaint in state court on November 9, 2009. The Writs

of Garnishment were issued December 20, 2012, over 3-years later.3

 With regard to the

addition factor identified by the Supreme Court, whether federal law provides the rule of

decision on the merits and whether the state court proceedings are inadequate to protect the

litigant’s rights, the court finds that this factor also weighs in favor of abstention, as state law

provides the rule of decision on the alleged fraudulent transfer, and, thus would be an

adequate forum to protect the litigant’s rights.

Plaintiff asserts that it is not forum shopping, but “simply trying to collect on a valid

judgment that remains unpaid years after being entered.” (Doc. 88, at 3.) Plaintiff cites cases

that stand for the proposition that this Court is empowered to resolve these precise issues in

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garnishment proceedings: Able Distributing Co., Inc. v. Lampe, 160 Ariz. 399, 773 P.2d 504

(App. 1989) (holding that garnishment proceedings afforded garnishee due process in

determination of validity of underlying debt); State ex rel. Indus. Com’n of Arizona v.

Wright, 202 Ariz. 255, 43 P.3d 203 (App. 2002) (upholding commissioner’s ruling in

garnishment proceeding that fraudulent conveyance allowed wage garnishment

notwithstanding judgment debtor’s objection). 

The Court agrees that this Court is empowered to resolve these precise issues in

garnishment proceedings, but this truism only renders Garnishees’ argument more

persuasive, for the reason that the abstention doctrine is only relevant if the court IS

empowered to decide the issue before it in the first place. The Court finds that after

consideration of the following Colorado River factors: the fact that the state court litigation

was instituted long before the federal garnishment action, that substantial discovery has taken

place in the state action, that the state court denied summary judgment on the fraudulent

transfer issue, that the issue of fraudulent transfer is primarily one of state law, and that a jury

will decide the facts in the state case as opposed to trial by submission in the federal

garnishment action, abstention from exercising federal jurisdiction is proper and the matter

should be stayed pending the resolution of the state case.

Having found that this matter should be stayed pending state proceedings, the Court

need not address the remaining issues relating to these garnishment actions.

In accordance with the foregoing,

IT IS HEREBY RECOMMENDED that Plaintiff’s Applications for a Writ of

Garnishment (Docs. 51, 52) be stayed until the conclusion of the state court proceedings

(Superior Court of Arizona, Maricopa County, UV2, LLC v. Digital Ventures LLC, et al.,

CV 2009-054788).

IT IS FURTHER RECOMMENDED that the parties be directed to file a joint status

report, 30-days from the date of the Court’s final Order, and then every 30-days thereafter,

to report on the status of the state case.

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This recommendation is not an order that is immediately appealable to the Ninth

Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of

Appellate Procedure, should not be filed until entry of the District Court’s judgment. The

parties shall have fourteen (14) days from the date of service of a copy of this

recommendation within which to file specific written objections with the Court. See 28

U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(b) and 72. Thereafter, the parties have fourteen (14)

days within which to file a response to the objections. Failure to timely file objections to the

Magistrate Judge’s Report and Recommendation may result in the acceptance of the Report

and Recommendation by the district court without further review. See United States v.

Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to timely file objections to any

factual determinations of the Magistrate Judge will be considered a waiver of a party’s right

to appellate review of the findings of fact in an order of judgment entered pursuant to the

Magistrate Judge’s recommendation. See Fed.R.Civ.P. 72.

DATED this 20th day of May, 2013.

Case 2:10-cv-01269-ROS Document 92 Filed 05/20/13 Page 11 of 11