United States District Court, N.D. Alabama, Southern Division
THOMAS E. REYNOLDS, as Trustee, Plaintiff,
BEHRMAN CAPITAL IV L.P, et al., Defendants.
ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE.
Thomas Reynolds, as chapter 7 trustee for the estates of
Atherotech Inc. (“Atherotech”) and Atherotech
Holdings (“Holdings”) filed suit against Behrman
Capital IV L.P. (“Fund IV”) and Behrman Brothers
IV LLC (“Behrman Brothers”), seeking to recover
purportedly fraudulent transfers made through a dividend
recapitalization before Atherotech and Holdings declared
bankruptcy. Mr. Reynolds alleges that Fund IV and Behrman
Brothers engineered the dividend recapitalization, eventually
bankrupting Atherotech and Holdings.
and Behrman Brothers have filed a joint motion to dismiss for
lack of personal jurisdiction under Federal Rule of Civil
Procedure 12(b)(2). (Doc. 116). Mr. Reynolds has filed a
motion to change venue as an alternative to dismissal. (Doc.
the court finds that it lacks personal jurisdiction over each
defendant, the court WILL GRANT the motion
to dismiss the amended complaint and WILL
DISMISS the case WITHOUT PREJUDICE.
And because the court finds that, under the doctrine of
derivative jurisdiction, transfer would be futile, the court
WILL DENY Mr. Reynolds' motion to change
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). Accordingly, the court's description of the
facts draws from both the uncontradicted allegations made in
the amended complaint and the evidence submitted by the
parties in connection with this motion.
plaintiff, Mr. Reynolds, is the chapter 7 trustee for the
estates of Atherotech and Holdings. (Doc. 115 at 1).
Atherotech is the wholly-owned subsidiary of Holdings.
(Id. at 2 ¶ 3). Atherotech operated a
laboratory that conducted testing on blood cholesterol
levels. (Id. at 9 ¶ 25). It paid physicians who
ordered such testing a processing and handling fee, also
known as a P&H fee. (Id. ¶¶ 27-28).
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. (Id. at 10 ¶¶
29, 32). The Department of Justice eventually 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, giving rise to $107, 073,
000 in contingent liabilities. (Doc. 115 at 11 ¶¶
2013, while the DOJ was conducting its investigation,
Atherotech issued a dividend recapitalization. (Doc. 115 at
13 ¶ 43). Mr. Reynolds alleges that investors in
Holdings (Atherotech's parent company) engineered the
dividend recapitalization, knowing that it would leave
Atherotech insolvent in light of the contingent liabilities
for violations of federal law relating to the P&H fee
payments. (Id. at 21 ¶ 73).
2014-over a year after the dividend
recapitalization-Atherotech could no longer pay P&H fees.
(Doc. 115 at 21 ¶ 70). Almost two years later, in March
2016, Atherotech and Holdings declared bankruptcy.
(Id. at 2-3 ¶ 7). The bankruptcy court
appointed Mr. Reynolds as the trustee for both estates
(id. at 3 ¶ 8), and he filed this lawsuit
against a number of defendants. (Doc. 1-1 at 9-40).
several rounds of motions practice,  the only remaining
defendants are Fund IV and Behrman Brothers. In the amended
complaint, Mr. Reynolds asserts against them claims for
intentionally fraudulent transfer, under 11 U.S.C. § 544
and Ala. Code § 8-9A-4(a); constructively fraudulent
transfer, under 11 U.S.C. § 544 and Ala. Code
§§ 8-9A-4(c), 8-9A-5(a); and recovery of fraudulent
transfer, under 11 U.S.C. § 550(a)(1). (Doc. 115 at
22-25). Mr. Reynolds alleges that Fund IV and Behrman
Brothers, both investors in Holdings, engineered the dividend
recapitalization with the goal of paying a dividend to
themselves before the DOJ could take action against
Atherotech for the payment of P&H fees. (Id. at
13 ¶ 43).
Facts Relating to Personal Jurisdiction
is a private equity fund (see docs. 120-1, 120-2),
which owned 94% of Holdings' stock. (Doc. 115 at 3 ¶
12). Behrman Brothers is Fund IV's general partner, and
it also owned some portion of the remaining 6% of
Holdings' stock. (Id. at 3 ¶ 13). According
to the uncontroverted evidence, Fund IV and its general
partner (and co-defendant) Behrman Brothers lack both
employees and operations. (Doc. 117 at 3 ¶ 8; Doc. 118
at 3 ¶ 10; doc. 120 at 3 ¶ 10). For this reason,
Fund IV entered a management agreement with a non-party to
this action, Behrman Brothers Management Company
(“BBMC”) (not to be confused with the
similarly-named Behrman Brothers, which is a defendant in