Court Opinion

ID: 856898
Source: CourtListenerOpinion
Date Created: 2013-04-01 21:02:44.835635+00
Date Added: 2024-06-11T09:11:04.119034
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 12-2044

                      ANGIODYNAMICS, INC.,

                      Plaintiff, Appellee,

                               v.

        BIOLITEC AG; WOLFGANG NEUBERGER; BIOLITEC, INC.;
                BIOMED TECHNOLOGY HOLDINGS, LTD.,

                     Defendants, Appellants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Michael A. Ponsor, U.S. District Judge]

                             Before

                       Lynch, Chief Judge,
               Lipez and Thompson, Circuit Judges.

     Edward Griffith, with whom Michael K. Callan and Doherty,
Wallace, Pillsbury and Murphy, P.C. were on brief, for appellants.
     William E. Reynolds, with whom Bond, Schoeneck, & King, PLLC
was on brief, for appellee.

                          April 1, 2013
            Per Curiam.       This is an expedited appeal from the grant

of a preliminary injunction barring defendants Biolitec AG ("BAG"),

Biolitec,    Inc.    ("BI"),    Biomed     Technology      Holdings,    Ltd.,   and

Wolfgang Neuberger from completing a merger between the German-

based BAG and its Austrian subsidiary, and from the denial of

defendants' motion for reconsideration.             BI, which is a U.S.-based

BAG subsidiary, sold medical equipment to plaintiff AngioDynamics,

Inc.   ("ADI"),      and    agreed    to    indemnify      ADI   for   any   patent

infringement claims.         Such claims were brought against ADI by the

patent-holders and ADI settled the claims.                 In a separate lawsuit

in   New   York,    ADI    obtained   a    $23   million    judgment    (including

interest) against BI under the indemnification clause.                  Attempting

to secure payment on that judgment, ADI sued defendants in this

case in Massachusetts on claims including corporate veil-piercing

and violation of the Massachusetts Uniform Fraudulent Transfers Act

("MUFTA"), Mass. Gen. Laws ch. 109A, § 5.                  ADI alleged that BAG

looted BI of more than $18 million to render BI judgment-proof and

to move BI's assets beyond reach.

            On August 29, 2012, the district court granted ADI a

temporary restraining order which, among other things, barred

defendants from "carry[ing] out the proposed 'downstream merger' of

Biolitec AG with its Austrian subsidiary" and from "transfer[ring]

any ownership interest [they] hold[] in any other defendant."                   ADI

alleged that the merger would place the company's assets out of its

                                          -2-
reach,   as    American    judgments   are   unenforceable   in   Austria.

Following the merger, the Austrian company would hold all assets

and liabilities previously held by BAG. On September 13, 2012, the

court issued a preliminary injunction with the same terms as the

temporary restraining order.       The court denied defendants' motion

for reconsideration on December 14, 2012,1 see AngioDynamics, Inc.

v. Biolitec AG, No. 09-cv-30181-MAP, 2012 WL 6569272 (D. Mass. Dec.

14, 2012), and defendants2 have appealed.

              Our review of the grant of injunctive relief is for abuse

of discretion, and we review legal questions de novo.         See KG Urban

Enters., LLC v. Patrick, 693 F.3d 1, 14 (1st Cir. 2012).

                                       I.

              Defendants argue that (1) as a matter of law, preliminary

injunctive relief is barred, and (2) the court erred in finding

that ADI had demonstrated likelihood of success on the merits and

irreparable harm.         Defendants argue that, in the absence of an

underlying court judgment, a preliminary injunction may not freeze

     1
      The district court noted that defendants' dissembling during
the preliminary injunction hearing "raised troubling questions
about Defendants' good faith."    AngioDynamics, Inc. v. Biolitec
AG, No. 09-cv-30181-MAP, 2012 WL 6569272, at *2 (D. Mass. Dec. 14,
2012). These questions have become more disquieting in light of
defendants' decision to complete BAG's merger on March 15, 2013,
notwithstanding the court's preliminary injunction.
     2
       On January 22, 2013, BI commenced bankruptcy proceedings in
New Jersey, thus staying claims in this action against BI and BI's
property. The stay has been lifted as to claims against the non-
debtor defendants in this case. This appeal concerns only these
defendants and not BI.

                                       -3-
assets as to which a plaintiff does not have a lien or equitable

interest, invoking Grupo Mexicano de Desarrollo, S.A. v. Alliance

Bond Fund, Inc., 527 U.S. 308 (1999).             Here there is an underlying

judgment against BI, if not BAG.               Moreover, the Court expressly

noted that state statutes "conferring on a nonjudgment creditor the

right to bring a fraudulent conveyance claim. . . . may have

altered the common-law rule that a general contract creditor has no

interest in his debtor's property."              Id. at 324 n.7.     In Iantosca

v. Step Plan Services, Inc., 604 F.3d 24, 33 (1st Cir. 2010), we

held that where a creditor has a judgment against a debtor and can

make   a   colorable   claim      that     the    debtor's   funds    have   been

fraudulently conveyed to other entities, "the creditors do have a

claimed    lien   interest   to   support        [a]   preliminary   injunction"

freezing assets transferred to the other entities.               Massachusetts

law creates an action for fraudulent conveyance, Mass. Gen. Laws

ch. 109A, § 5, and ADI has asserted a claim under this statute.

ADI has a final judgment against BI and presented substantial

evidence that under Massachusetts law, BI fraudulently conveyed $18

million of its assets to BAG, an amount less than ADI's judgment

against BI.   ADI also presented evidence that BAG had intermingled

these transferred assets with its other funds, and that in the

absence of injunctive relief there was a strong likelihood ADI

would not be able to collect on its judgment.                        The court's

injunction was narrowly tailored to protect ADI's interest in BI's

                                         -4-
transferred assets and explicitly allowed defendants to "tak[e]

such actions as are reasonable and necessary to the ongoing and

continued    operation       of     the[ir]     business."      Under     these

circumstances, Grupo Mexicano did not bar preliminary injunctive

relief.

            As   for   the    court's        findings   regarding   the    four

preliminary injunction factors, there was no abuse of discretion.

See Swarovski AG v. Building No. 19, Inc., 704 F.3d 44, 48 (1st

Cir. 2013) (per curiam).          The court supportably found that ADI had

demonstrated a likelihood of success on its veil-piercing claim.

See AngioDynamics, 2012 WL 6569272, at *9-10.

            The court also supportably found that ADI had shown

likelihood of success on its MUFTA claim.               Defendants argue that

the district court erred in failing to explicitly address six of

the eleven factors enumerated in Mass. Gen. Laws ch. 109A, § 5,

that are relevant for determining whether a debtor acted with

"actual intent" to defraud a creditor. However, MUFTA never states

that a court must explicitly consider each of the eleven factors or

that a court can only set aside a transfer as fraudulent if a

majority of the eleven factors are present.                  See id. § 5(b)

("consideration may be given" to eleven factors "among other[s]"

(emphasis added)); Soza v. Hill, 542 F.3d 1060, 1067 (5th Cir.

2008) ("[n]ot all, or even a majority, of the [eleven factors] must

exist to find actual fraud" under Uniform Fraudulent Transfer Act).

                                       -5-
            ADI presented sufficient evidence to warrant a finding

that five of these factors demonstrated a fraudulent transfer had

taken place, and the district court did not err in concluding that

based on the totality of the evidence, ADI had demonstrated a

likelihood of succeeding on its MUFTA claims.              Cf. Brandon v.

Anesthesia & Pain Mgmt. Assocs., 419 F.3d 594, 599-600 (7th Cir.

2005)    (Posner,   J.)   (eleven   factors   are   "not   additive,"   and

defendant may be held liable under the Uniform Fraudulent Transfer

Act if five of the eleven are present); McBirney v. Paine Furniture

Co., No. 960031, 2003 WL 21094555, at         *13 (Mass. Super. Ct. Mar.

31, 2003) (finding "actual intent" to defraud where five of eleven

factors are present).       ADI also presented direct evidence as to

this claim, in the form of a declaration from a former BAG board

member stating that Neuberger, BAG's majority shareholder and CEO,

diverted assets from BI to BAG to frustrate collection of ADI's

judgment against BI.3       AngioDynamics, 2012 WL 6569272, at *5.

Though defendants argue that some of this evidence could have been

interpreted differently, the district court's view of the evidence

was permissible and it did not clearly err.

     3
        This case is easily distinguishable from Weiler v.
Portfolioscope, Inc., 982 N.E.2d 555 (Mass. App. Ct. 2013), which
defendants cite in support of their appeal. In Weiler, the court
reversed a judgment finding a violation of MUFTA because the
transfers in question were made "in legitimate payment of [the
debtor's] indebtedness," not "to shield assets from its creditors,"
id. at 568, as the evidence demonstrated had occurred here.

                                    -6-
          Nor   did   the       court    err     in    finding   that    ADI   had

demonstrated irreparable harm.            Id. at *10.      Due to defendants'

actions, ADI has been put through hoops and may not be able to

collect on its judgment against BI.            We see no error in the court's

conclusion   that   ADI   may    have    some    prospect of     enforcing its

judgment under German law, but none under Austrian law.

          Mischaracterizing what the district court actually found,

the defendants argue that the court was required to accept the view

of its experts on German law.4          That view was that ADI would not be

able to enforce its judgment against BI either in Germany or in

Austria, but instead would have to relitigate the matter, so that

BAG's proposed merger would make no difference.                      ADI provided

contrary argument and expert testimony.

          The   district        court      did    not     make   a      conclusive

determination regarding German law at this stage of this case, nor

did it need to do so.       Instead, the court reserved on the issue,

noting that based on the conflicting testimony of experts presented

by ADI and the defendants, the court could not foreclose that ADI

would have a greater ability to enforce its judgment against BI in

Germany if the merger was enjoined.              Id.    This was particularly

     4
       Defendants argue that ADI would face the same difficulties
enforcing its judgment against BI in Germany as in Austria, and
make several representations as to German law. Defendants concede,
however, that they have already misrepresented principles of
European law once in this litigation, regarding the legal effect of
a shareholder vote.

                                        -7-
true given defendants' assertion that ADI's ability to enforce the

judgment in Germany would turn on whether BI's stock certificates

were located       in   the   United   States.        Defendants   presented    no

evidence as to the location of these certificates.                   Defendants

conceded that if the merger was consummated and BAG's assets

transferred to Austria, ADI would not be able to enforce its

judgment against BI in Austria.

           We review "mixed" questions of law and fact, such as this

one, "along a degree-of-deference continuum, ranging from plenary

review   for   law-dominated       questions     to   clear-error   review     for

fact-dominated questions."          Inmates of Suffolk Cty. Jail v. Rouse,

129 F.3d 649, 661 (1st Cir. 1997). Given the preliminary nature of

the district court's finding, and its basis in disputed questions

of fact, we believe that clear error review is appropriate here.

The district court did not commit clear error in concluding that --

given the conflicting testimony of experts as to German law and the

lack of evidence as to the location of BI's stock certificates --

there was a possibility that ADI could enforce its judgment against

BI in Germany, but no possibility of enforcement in Austria should

the merger be completed and BAG's assets transferred to Austria.

The court thus did not err in finding that ADI had demonstrated

BAG's merger would cause it irreparable harm. Similarly, the court

did not err in concluding that ADI had demonstrated that in the

absence of     a   freeze     on   defendants' assets,      ADI    would   suffer

                                       -8-
irreparable harm, since the court could not otherwise assure that

assets would remain available to satisfy ADI's judgment against BI.

            The court also did not err in finding that the balance of

harms and the public interest favored issuance of the injunction,

AngioDynamics, 2012 WL 6569272, at *11, given that delaying the

merger would cause only minimal harm to defendants.

                                 II.

            We have expedited this appeal and find it to be without

merit.   The preliminary injunction issued by the district court is

affirmed.

                                 -9-