Court Opinion

ID: 4180571
Source: CourtListenerOpinion
Date Created: 2017-06-23 20:04:54.929692+00
Date Added: 2024-06-11T14:38:47.426955
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                           FILED
                            FOR THE NINTH CIRCUIT
                                                                           JUN 23 2017
                                                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS
In re: LLS AMERICA LLC,                          No.   15-35198

          Debtor,                                D.C. No. 2:12-cv-00423-RMP
______________________________

BRUCE P. KRIEGMAN, solely in his                 MEMORANDUM*
capacity as court appointed Chapter 11
Trustee for LLS America LLC,

              Plaintiff-Appellee,

 v.

1127477 ALBERTA LTD. and KEITH H.
ALEXANDER,

              Defendants-Appellants.

                   Appeal from the United States District Court
                     for the Eastern District of Washington
                Rosanna Malouf Peterson, District Judge, Presiding

                             Submitted May 16, 2017**
                                Seattle, Washington

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: GOULD and PAEZ, Circuit Judges, and LEMELLE,*** District Judge.

      Keith Alexander (“Alexander”) used his company 1127477 Alberta Ltd. (the

“Alberta Company”) to funnel other investors’ funds to LLS America LLC and its

related entities (collectively, “LLS America”), which operated a Ponzi scheme. In

2009, LLS America filed for bankruptcy, and Bruce Kriegman (“Kriegman”) was

subsequently appointed as the Chapter 11 Trustee to administer the estate.

Kriegman brought avoidance claims against Alexander and the Alberta Company

(collectively, “Defendants”) under the Bankruptcy Code, 11 U.S.C. §§ 544, 548,

and the Washington Uniform Fraudulent Transfer Act, Wash. Rev. Code §§ 19.40

et seq. Following a bench trial, the district court ruled in Kriegman’s favor and

issued a judgment against Defendants.

      Defendants appeal, challenging the district court’s (1) application of United

States law, (2) exercise of personal jurisdiction over Alexander, (3) application of

the relation-back doctrine, (4) disregard of the corporate form, and (5) conclusion

that Defendants lacked good faith. Defendants’ arguments are unavailing, and we

affirm.

      ***
             The Honorable Ivan L.R. Lemelle, United States Senior District Judge
for the Eastern District of Louisiana, sitting by designation.
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      1.     We review de novo questions of extraterritoriality. United States v.

Ubaldo, —F.3d—, 2017 WL 2485848, at *6 (9th Cir. June 9, 2017) (citing United

States v. Clark, 435 F.3d 1100, 1106 (9th Cir. 2006)). “It is a longstanding

principle of American law that legislation of Congress, unless a contrary intent

appears, is meant to apply only within the territorial jurisdiction of the United

States.” Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010) (internal

quotation marks omitted). Here, the district court properly applied United States

law to a domestic matter. Kriegman sought to avoid transfers made by LLS

America, a company that was headquartered in Spokane, Washington.

Defendants’ location in Canada does not indicate where the pertinent activity

occurred; rather, the focus of Kriegman’s avoidance claims is on LLS America’s

location, as the debtor, in the United States. See, e.g., 11 U.S.C. § 548 (“The

trustee may avoid any transfer . . . incurred by the debtor . . . .) (emphasis added).

      2.     We review de novo a district court’s exercise of personal jurisdiction

over a defendant. Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124,

1127 (9th Cir. 2010). “For a court to exercise personal jurisdiction over a

nonresident defendant, that defendant must have at least ‘minimum contacts’ with

the relevant forum such that the exercise of jurisdiction ‘does not offend traditional

notions of fair play and substantial justice.’” Schwarzenegger v. Fred Martin

                                           3
Motor Co., 374 F.3d 797, 801 (9th Cir. 2004) (quoting Int’l Shoe Co. v.

Washington, 326 U.S. 310, 316 (1945)). We apply the “purposeful availment”

standard in evaluating Alexander’s contacts with Washington, see id. at 802, and

conclude that several aspects of his conduct demonstrate the requisite “minimum

contacts.” For example, Alexander reached out to LLS America to propose their

collaboration, visited and made phone calls to the LLS America headquarters, and

involved himself in substantial business dealings in Washington. See Sher v.

Johnson, 911 F.2d 1357, 1363–64 (9th Cir. 1990) (“[L]ooking at the partnership’s

entire ‘course of dealing’ with the Shers related to this contract, including the calls

and letters, the trips and the deed, we conclude that the partnership ‘invok[ed] the

benefits and protections’ of the laws of [the forum state] for purposes of

jurisdiction.”) (quoting Burger King v. Rudzewicz, 471 U.S. 462, 475, 479 (1985)).

In turn, because Kriegman’s claims relate to Alexander’s activities in Washington,

and because Defendants failed to “‘present a compelling case’ that the exercise of

jurisdiction would not be reasonable,” Schwarzenegger, 374 F.3d at 802 (quoting

Burger King, 471 U.S. at 476–78), the district court’s exercise of personal

jurisdiction over Alexander was proper.

      3.     We review de novo application of the relation-back doctrine.

Williams v. Boeing Co., 517 F.3d 1120, 1132 (9th Cir. 2008). Rule 15(c)(1)(C) of

                                           4
the Federal Rules of Civil Procedure governs whether Kriegman’s amended

pleading to add Alexander as a defendant relates back to the initial pleading that

named only the Alberta Company as a defendant. Defendants argue that Kriegman

knew about Alexander at the time he filed the initial complaint, and therefore

cannot rely on application of the relation-back doctrine. Defendants’ focus on

Kriegman’s knowledge is misplaced. “[R]elation back under Rule 15(c)(1)(C)

depends on what the party to be added knew or should have known, not on the

amending party’s knowledge or its timeliness in seeking to amend the pleading.”

Krupski v. Costa Crociere S. p. A., 560 U.S. 538, 541 (2010). Here, Alexander

controlled the Alberta Company and reaped direct personal benefits in the course

of the Ponzi scheme, and he knew or should have known that he would have been

named as a defendant but for a mistake regarding his “status or role in the events

giving rise to the claim at issue.” Id. at 549. The district court thus correctly

applied the relation-back doctrine.

      4.     “A district court’s decision to disregard a corporate form and to

impose liability under the equitable ‘alter ego’ doctrine is reviewed for clear error.”

F.J. Hanshaw Enters., Inc. v. Emerald River Dev’t, Inc., 244 F.3d 1128, 1135 (9th

Cir. 2001). Defendants argue that Kriegman failed to “prove that the Alberta

Company was formed to avoid a duty to [him].” Kriegman, however, did not need

                                           5
to prove that the Alberta Company was formed to evade a duty owed to him.

Rather, under Washington law, he needed to prove “[f]irst, the corporate form

[was] intentionally used to violate or evade a duty; [and] second, disregard [is]

necessary and required to prevent unjustified loss to the injured party.” Meisel v.

M & N Modern Hydraulic Press Co., 645 P.2d 689, 692 (Wash. 1982) (en banc)

(emphasis added and internal quotation marks omitted). The district court did not

clearly err in finding that the evidence presented by Kriegman satisfied this

standard.

      5.     Finally, we review for clear error a district court’s determination that a

party lacked good faith. See Hedlund v. Educ. Res. Inst. Inc., 718 F.3d 848, 854

(9th Cir. 2013). In an avoidance action, “courts look to what the transferee

objectively ‘knew or should have known’ in [evaluating] questions of good faith,

rather than examining what the transferee actually knew from a subjective

standpoint.” In re Agric. Research & Tech. Grp., Inc., 916 F.2d 528, 535–36 (9th

Cir. 1990). Here, there is ample evidence supporting the district court’s

determination that Defendants knew or should have known that LLS America was

operating a Ponzi scheme, and the district court therefore did not clearly err in

concluding that Defendants did not act in good faith. See, e.g., Dist. Ct. Dkt. No.

98 at 11 (district court finding that “[i]n addition to red flags that are common

                                           6
among most of [LLS America’s] investors, such as missed payments, lack of

financial statements, and high rates of return on investments with [LLS America],

Defendants also should have been wary of the extremely lucrative compensation

that [LLS America] offered in exchange for Defendants’ efforts to bring new

investors into the enterprise”). Although there is also evidence that weighs against

such a finding, “[c]lear error review is deferential to the district court, requiring a

‘definite and firm conviction that a mistake has been made.’” Husain v. Olympic

Airways, 316 F.3d 829, 835 (9th Cir. 2002) (quoting Easley v. Cromartie, 532 U.S.
234, 242 (2001)).

      AFFIRMED.

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