Reynolds v. Behrman Capital IV L.P.

          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”) 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.

         Fund IV and Behrman Brothers have filed a joint motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).^[1] (Doc. 116). Mr. Reynolds has filed a motion to change venue as an alternative to dismissal. (Doc. 130).

         Because 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 venue.

         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). 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.

         1. Underlying Facts

         The 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.^[2] (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 ¶¶ 36-37).

         In June 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).

         By July 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).

         2. This Lawsuit

         After several rounds of motions practice, ^[3] 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).

         3. Facts Relating to Personal Jurisdiction

         Fund IV 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 ...