Atlas Biologicals, Inc. v. Kutrubes

50 F.4th 1307

ATLAS BIOLOGICALS, INC., a Colorado corporation, Plaintiff Counter Defendant - Appellee,

v. Thomas James KUTRUBES, an individual, Defendant,andBiowest, LLC, a Missouri limited liability company, Defendant Counter Plaintiff - Appellant.

No. 20-1401

United States Court of Appeals, Tenth Circuit.

FILED October 11, 2022

Andrew B. Reid, Reid Law, LLC, Boulder, Colorado, for Defendant Counter Plaintiff - Appellant.

John D. Root, Lind Ottenhoff & Root, LLP, Windsor, Colorado, for Plaintiff Counter Defendant - Appellee.

Before HOLMES, Chief Judge, BALDOCK, and MATHESON, Circuit Judges.

HOLMES, Chief Judge.

At face value, this case is about whether a stock transfer is valid under Colorado law. But to answer this question, we must first answer certain Article III jurisdictional questions. This dispute arises from a closely related but independent proceeding. There, Plaintiff-Appellee Atlas Biologicals, Inc. ("Atlas") sued its former employee Thomas Kutrubes for various federal intellectual-property claims. Mr. Kutrubes, seemingly as an attempt to thwart Atlas's ability to collect a likely judgment against him, transferred his 7% interest in Atlas to Atlas's rival Defendant-Appellant Biowest, LLC ("Biowest"). Once Atlas found out about this alleged transfer, it sought a writ of attachment in the district court against Mr. Kutrubes's interest in Atlas, which the district court granted. But in granting the writ, the district court explained that it did not know what interest Mr. Kutrubes still had in Atlas and raised the idea of Atlas filing a separate declaratory judgment action.

Atlas did so, and that is the lawsuit before us. And we now must decide whether the district court properly found in favor of Atlas in this action in light of the fact that it did not have an independent source of federal jurisdiction to decide the question of state law that the action presented—a question that implicated a third party not involved in the initial suit, Biowest. Reviewing these matters de novo, we conclude that the district court acted properly and within the scope of its jurisdiction, and we further agree with the district court's resolution of the merits. Accordingly, exercising jurisdiction under 28 U.S.C. § 1291, we affirm .

I

To understand the contours of this case, one must understand the proceedings in a related case. Atlas "specializes in the production of bovine serum-based products that are used for cell culture and research in the medical, veterinary, and biological sciences." Atlas Biologicals, Inc. v. Kutrubes (Atlas I ), No. 15-CV-00355, 2019 WL 4594274, at *1 (D. Colo. Sept. 23, 2019) (unpublished) (footnote omitted). Mr. Kutrubes "began working for Atlas as an intern in 2005 and was hired as an employee in 2006, initially serving as a regional sales manager." Id. at *2. Several years later, Mr. Kutrubes became a shareholder and ultimately came to own a 7% stake in Atlas. He also was eventually promoted to National Sales Manager and was subsequently elected to Atlas's Board of Directors.

Nevertheless, Mr. Kutrubes began "developing a business plan to compete with Atlas while he was still in Atlas's employ." Id. In late 2014, Mr. Kutrubes began taking steps to formalize his venture, and he ultimately incorporated a business in Colorado—Peak Serum, Inc. ("Peak Serum"). Around this time and while still employed at Atlas, Mr. Kutrubes began emailing himself "certain information, documentation, and data," such as "Atlas's customer contact lists, a supplier agreement; its quality manual; its organizational chart; a contract manufacturing statement; proofs of labels; a marketing brochure; and email exchanges about Atlas's products, among others." Id.

However, as a part of his job description, Mr. Kutrubes had signed a document stating that he "[u]nderst[ood] and [would] adher[e] to company policies and procedures," which included "a policy entitled ‘Control of Confidentiality/Proprietary Information’ that prohibited all employees from disclosing without the company's prior written authorization any ‘Confidential and/or Proprietary Information.’ " Id. (first alteration in original). He also sent emails to Atlas's customers and suppliers in an attempt to secure business for Peak Serum. Mr. Kutrubes later admitted that he breached his duty of loyalty to Atlas during this time.

On December 16, 2014, Mr. Kutrubes tendered his resignation letter, with an intended effective date of December 19. He also requested the company to buy out his 7% stake for $224,000.00 based on "the recent appraisal of the company at $3,200,000.00." Id. A few days after Mr. Kutrubes gave notice of his resignation, Atlas discovered that Mr. Kutrubes had been sending company documents to his personal email account and had been attempting to solicit Atlas's clients and suppliers. As a result, "Atlas ‘decline[d] [Mr. Kutrubes's] resignation’ and ‘instead terminate[d] his directorship and employment for cause’ on December 27, 2014." Id. at *3 (first and third alterations in original). In a letter detailing its findings, Atlas demanded Mr. Kutrubes cease using all materials obtained from Atlas, return those materials to the company, abandon all plans to start a similar business as Atlas, and surrender all shares to Atlas.

On February 20, 2015, Atlas sued Mr. Kutrubes and Peak Serum in the District of Colorado. After more than a year of discovery, Atlas filed an amended complaint in which it asserted various intellectual-property claims, such as claims for federal trademark infringement and misappropriation of trade secrets. The district court conducted a five-day bench trial between March 5, 2018, and March 9, 2018.

On April 4, 2018, Mr. Kutrubes purportedly sold his 7% interest in Atlas to Biowest. See Aplt.’s App., Vol. II, at 46–50 (Stock Sale and Purchase Agreement, executed Apr. 4, 2018). The next day, Mr. Kutrubes, through counsel, notified Atlas that he had sold his shares to Biowest. "Biowest did not receive delivery of an indorsed certificate for [Mr.] Kutrubes's shares," because "Atlas had not created stock certificates for [Mr.] Kutrubes's shares at the time of the Purported Transfer," and only did so after Mr. Kutrubes had transferred the shares. Atlas Biologicals, Inc. v. Kutrubes (Atlas II ), 474 F. Supp. 3d 1188, 1192 (D. Colo. 2020).

In response, Atlas filed "an Emergency Ex Parte Motion for Pre-Judgment Attachment and Injunctive Relief Against Further Conveyances of Assets by [Mr.] Kutrubes," in which it argued the "transfer was unsuccessful (i.e., not completed) because ‘no endorsed share certificate ha[d] been tendered nor a request for a transfer on the books and records of Atlas ... ha[d] been made.’ " Atlas I , 2019 WL 4594274, at *5 (second and third alterations and omission in original) (quoting Atlas's emergency motion). And Atlas requested, as relief, "prejudgment attachment of [Mr.] Kutrubes's shares of its stocks pursuant to Colorado Rule of Civil Procedure 102(c)." Id. In response, Mr. Kutrubes argued he had successfully transferred his stock to Biowest and requested an "injunction preventing Atlas and its shareholders [and] officers ... from holding any shareholder meetings, amending corporate bylaws, or otherwise taking actions that would impact any minority shareholder until such time as the dispute with respect to ownership of shares is resolved." Id. (alteration and omission in original). The district court "issued a Writ of Attachment on April 24, 2018, that ordered the Sheriff of Larimer County, Colorado, to ‘attach and safely keep any stock of [Atlas] owned by [Mr. Kutrubes].’ " Id. (first alteration in original) (quoting writ of attachment).

The district court nevertheless noted at the hearing concerning the issuance of the writ of attachment, that it did not know whether the transfer of stock was valid—whether it had been "consummated in full." Aplt.’s App., Vol. IV, at 144. Because of this uncertainty as to the validity of the transfer, the district court told the parties the following:

So I am going to issue an order of prejudgment attachment as to whatever interest remains in Mr. Kutrubes for the 7 percent of stock that he owns in Atlas. I don't know what that is, and that is not going to be decided by me unless you all file a separate action in this Court for either declaratory judgment or for further undoing the fraudulent conveyance .

Id. (emphasis added). Atlas "informed the Court that it had served the Writ of Attachment on [Mr.] Kutrubes on May 3, 2018, and that it had ‘surrendered [Mr. Kutrubes's] stock certificates to the Larimer County Sheriff on May 9, 2018.’ " Atlas II , 474 F. Supp. 3d at 1191.

The next day, Atlas sued Biowest and Mr. Kutrubes. Atlas sought "declaratory relief pursuant [to] Fed. R. Civ. P. 57 to void the purported transfer of stock [from Mr. Kutrubes to Biowest] under Article 8 of the Colorado Uniform Commercial Code [i.e., CUCC] or, in the alternative, to avoid and recover a fraudulent transfer pursuant to the Colorado Uniform Fraudulent Conveyances Act C.R.S. §§ 38-8-101 [,] et seq. (CUFTA)." Id.

On June 25, 2018, Biowest filed a motion to dismiss Atlas's claims pursuant to Fed. R. Civ. P. 12(b)(1) on the grounds that the district court lacked subject-matter jurisdiction over the case and that Atlas lacked standing to sue Biowest. See Atlas II , No. 18-CV-00969, 2019 WL 1200809, at *2, *4 (D. Colo. Mar. 14, 2019) (unpublished). Biowest also argued that, if the district court indeed had subject-matter jurisdiction, the suit should be dismissed for failure to state a claim.

The district court rejected Biowest's argument "that the Court does not have ancillary jurisdiction over the action because it is ‘separated’ from the Primary Suit [i.e., Atlas I ], relies on state claims, and lacks ‘an independent federal jurisdiction basis.’ " Id. at *5. The district court explained that "this case ‘involves the second, less common purpose—ancillary jurisdiction over collateral proceedings,’ ";...