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Reynolds v. Behrman Capital IV L.P.

United States District Court, N.D. Alabama, Southern Division

February 11, 2019

THOMAS E. REYNOLDS, as Trustee, Plaintiff,
v.
BEHRMAN CAPITAL IV L.P, et al., Defendants.

          MEMORANDUM OPINION

          ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE

         Plaintiff Thomas Reynolds, as chapter 7 trustee for the estates of Atherotech Inc. (“Atherotech”) and Atherotech Holdings (“Holdings”) has sued thirty related defendants, seeking to recover purportedly fraudulent transfers of a dividend recapitalization performed by Atherotech before Atherotech and Holdings declared bankruptcy. The thirty defendants have filed four motions to dismiss for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(2) or, in the alternative, for failure to state a claim under Rule 12(b)(6). (Docs. 28, 33, 37, 39).

         Because the court finds that it lacks personal jurisdiction over each defendant, the court WILL GRANT the motions and WILL DISMISS each defendant WITHOUT PREJUDICE. The court will also permit Plaintiff Thomas Reynolds leave to file a proper motion to amend the complaint, attaching to it a proposed amended complaint that omits any facts, defendants, and claims that are related only to the previously severed cases.

         I. BACKGROUND

         In deciding a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the court must accept as true the factual allegations made in the complaint unless the defendant contradicts those allegations with evidence. Posner v. Essex Ins. Co., 178 F.3d 1209, 1215 (11th Cir. 1999).

         Before setting out the facts underlying this case, the court must discuss how the parties are related to each other. The plaintiff, Mr. Reynolds, is the chapter 7 trustee for the estates of Atherotech and Holdings. (Doc. 1-1 at 10). Atherotech was wholly owned by Holdings, which was in turn owned by three shareholders: Defendant Behrman Capital IV LP (“Fund IV”), Defendant Behrman Brothers IV, LLC (“Behrman Brothers”), and Defendant MidCap Financial Investment, LP (“MidCap”). (Doc. 1-1 at 15-16 ¶¶ 44-45). Fund IV was Holdings' majority shareholder, owning 94% of its stock and controlling three of its five seats. (Id. at 23 ¶ 98). Behrman Brothers-which was also Fund IV's general partner-and MidCap owned the remaining shares in Holdings. (Id. at 17 ¶ 46, 24 ¶ 99).

         The thirty defendants can be grouped as follows: (1) Fund IV; (2) Fund IV's fifteen limited partners (the “Limited Partners”); (3) Behrman Brothers and its twelve members (the “Behrman Brothers Defendants”); and (4) MidCap. (See Doc. 1-1 at 16-18 ¶¶ 46-48).

         According to the complaint, Atherotech operated a laboratory that conducted testing on blood cholesterol levels. (Doc. 1-1 at 20 ¶ 67). It paid physicians who ordered such testing a processing and handling fee, also known as a P&H fee. (Id. ¶¶ 69-70). Although Medicare rules and regulations prohibit the payment of P&H fees, Atherotech would nevertheless submit claims that included the payment of those fees to Medicare and other federal healthcare programs.[1] (Id. at 20-21 ¶¶ 71, 74).

         In 2012, the Department of Justice began to investigate Atherotech's payments of P&H fees for violation of the federal False Claims Act, 31 U.S.C. §§ 3729-3730, and the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. (Doc. 1-1 at 21 ¶¶ 78-79, 28 ¶ 122). Violations of the False Claims Act can result in a per-claim penalty of between $5, 500 and $11, 000, in addition to treble damages. See 31 U.S.C. § 3729(a).

         Despite knowing of the investigation, Atherotech continued to make P&H fee payments. (See Doc. 1-1 at 22 ¶¶ 81-82). From January 2011 through June 2013, Medicare reimbursed Atherotech about $35, 691, 000 for tests Atherotech had run that were associated with P&H fee payments. (Id. at 22 ¶ 82). Accordingly, Mr. Reynolds contends that by June 2013, Atherotech had $107, 073, 000 in contingent liabilities for violations of the False Claims Act. (Id. ¶¶ 82-85).

         In 2013, while the Department of Justice investigation was ongoing, Atherotech entered a credit agreement with certain lenders under which the lenders loaned Atherotech $40.5 million. (Doc. 1-1 at 22-23 ¶¶ 88-90, 23 ¶ 97). Atherotech then executed a dividend recapitalization under which it paid Holdings' shareholders-Fund IV, Behrman Brothers, and MidCap-$31, 559, 342.45. (Id. at 22-23 ¶¶ 86, 97-98).

         Fund IV received $31, 433, 596.05 from the dividend; Behrman Brothers received $87, 374; and MidCap received $351, 890.70. (Doc. 1-1 at 23-24 ¶¶ 98-99). Fund IV then distributed its portion of the dividend to its Limited Partners and its general partner Behrman Brothers, and Behrman Brothers distributed its portion of the Fund IV dividend to its twelve members. (Doc. 1-1 at 24-25 ¶¶ 102, 104).

         By July 2014, Atherotech could no longer pay P&H fees and its revenues decreased significantly. (Doc. 1-1 at 29 ¶¶ 134-35). From July through October 2015, Fund IV invested $6.9 million into Atherotech. (Id. at 30 ¶¶ 137-39).

         In March 2016, Atherotech and Holdings filed for bankruptcy. (Doc. 1-1 at 16-17 ¶ 40). The bankruptcy court appointed Mr. Reynolds as the Chapter 7 trustee for both companies (id. at 16 ¶ 41), and he eventually sold Atherotech's assets for $19.6 million. (Id. at 30 ¶ 141).

         In 2018, Mr. Reynolds, as trustee for the estates of Holdings and Atherotech, filed this lawsuit in state court, asserting the following claims:[2]

Count One: intentionally fraudulent transfer, under 11 U.S.C. § 544 and Ala. Code § 8-9A-4(a), against Fund IV and MidCap
Count Two: constructively fraudulent transfer, under 11 U.S.C. § 544 and Ala. Code § 8-9A-4(c), against Fund IV and MidCap
Count Three: constructively fraudulent transfer, under 11 U.S.C. § 544 and Ala. Code § 8-9A-5(a), against Fund IV and MidCap
Count Four: recovery of fraudulent transfer, under 11 U.S.C. ยง 550(a)(1), against Fund IV, Behrman ...

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