Bilyeu v. Multiband Field Servs.

WOODY BILYEU, ET AL. PLAINTIFFS v. MULTIBAND FIELD SERVICES, ET AL. DEFENDANTS

CIVIL ACTION NO. 2:19-cv-0072 (WOB-CJS)

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY NORTHERN DIVISION AT COVINGTON

April 13, 2020

MEMORANDUM OPINION AND ORDER

Plaintiffs ask this Court to declare that they can sue Defendants to recoup expenses associated with settling a lawsuit brought by the Department of Labor. Plaintiffs make this request despite a provision in a consent judgment that bars them from suing the non-settling parties and a finding by the Louisiana courts that Defendants are the successors in interest of a non-settling party from the Department of Labor action. Plaintiffs also ask the Court to enjoin the Louisiana courts from interpreting the consent judgment because in Plaintiffs view, this Court retained exclusive jurisdiction to interpret that judgment.

Defendants have moved to dismiss the complaint. (Doc. 8). That motion is GRANTED because Plaintiffs' requests for injunctive relief are moot, and their requests for declaratory relief are barred by Louisiana preclusion law and the Rooker-Feldman doctrine.

I. Factual and Procedural Background

This case arises from Plaintiffs' attempt to seek reimbursement for payments they agreed to make to resolve a lawsuit the Department of Labor filed against them. That suit alleged that Plaintiffs breached the fiduciary duties they owed as directors to Directech and Directech Southwest. (Doc. 1 ¶¶ 5, 9; Doc. 8, at 2). The Department of Labor sued Plaintiffs after they allegedly sold stock to Directech and Directech Southwest at inflated prices, resulting in their own financial gain and a sizable financial loss to the employees investing in the Directech and Directech Southwest employee stock ownership program. (Doc. 8). The Department of Labor alleged a conflict of interest because Plaintiffs simultaneously functioned as directors of the companies selling stock and as trustees of the ownership plans purchasing that stock. (Doc. 1 ¶¶ 9, 12-13; Doc. 8, at 2).

Plaintiffs settled with the Department of Labor in exchange for a 5.1-million-dollar payment to the Directech and Directech Southwest employee stock ownership program and a $500,000 payment to the Department of Labor. (Doc. 16-1 ¶ 2). As part of the settlement, Plaintiffs, as settling defendants in the Department of Labor action, signed an agreement that forever barred them from commencing suit against the non-settling defendants forindemnification.¹ (Id. ¶ 13).

In their role as directors, Plaintiffs had signed indemnification agreements with Directech and Directech Southwest. (Doc. 1 ¶¶ 6-7). After those agreements were signed, Directech Holding Company was formed to act as the holding company of Directech and Directech Southwest. (Doc. 1 ¶ 8). Directech Holding assumed the indemnification agreements, and Directech Holding became one of the non-settling defendants that the consent judgment barred Plaintiffs from suing for indemnification. (Doc. 16, at 3).

Shortly after the Department of Labor filed suit, Directech Holding Company agreed to sell all of Directech and DirectechSouthwest to Multiband Corporation. (Doc. 1 ¶ 11). Though Directech Holding survived as a corporate entity for several years after the sale, Multiband, as part of that sale, assumed certain obligations from Directech Holding, including Plaintiffs' indemnification agreements. (Id.)

On December 7, 2015, Plaintiffs added Multiband as a defendant in Bilyeu Bucks, et al. v. Directech Southwest, et al. (Id. ¶ 17). That case was, at the time, in front of the Eighth Judicial District Court, Winn Parish, Louisiana. (Id. ¶ 5).

On December 19, 2016, Multiband Field Services and Multiband Corporation (which has since merged into Goodman Networks) sued in this Court requesting a declaration that the consent judgment barred Plaintiffs from asserting indemnity claims against Multiband Corporation and Multiband Field Services and to hold Plaintiffs in contempt due to their ongoing violation of the consent judgment.² Because Plaintiffs only wanted to litigate in one venue, Multiband Field Services and Multiband Corporation voluntarily dismissed the prior suit before this Court so the parties could litigate in the Louisiana state courts. (Doc. 29-3).

Plaintiffs' state-court action sought indemnification from Directech, Directech Southwest, and Multiband for the amounts theyhad to pay under the Department of Labor settlement. (Doc. 8, at 4). Because Multiband had assumed control of all the assets and obligations of Directech Holding, Defendants filed an Exception of Res Judicata in the state-court action asserting that Directech, Directech Southwest, and Multiband had assumed Directech Holding's status as a non-settling defendant under the Department of Labor consent judgment. (Doc. 1 ¶¶ 21-22).

Both the Louisiana trial court and the Louisiana Second Circuit Court of Appeals ruled in Defendants' favor and found that the Department of Labor consent judgment barred Plaintiffs' claims against Defendants. (Id. ¶¶ 19-22). Multiband, by assuming the obligations of Directech and Directech Southwest, stepped into the shoes of Directech Holding, and, as the Louisiana state courts found, could raise Directech Holding's defense as a non-settling defendant in the Department of Labor lawsuit. (Id.)

The complication in this case arises from the fact that Directech Southwest, Directech, and Multiband had ceased to exist before the Exception of Res Judicata was filed. (Id. ¶¶ 15-18). Those three corporations had been sold to or had merged into Multiband Field Services and Goodman Networks, meaning that Multiband Field Services and Goodman Networks had become the successors in interest to Directech Southwest, Directech, and Multiband. (Id.)

The Louisiana Second Circuit Court of Appeals addressedPlaintiffs' arguments about the merger of the three named state-court defendants into Multiband Field Services and Goodman Networks and found that while Defendants should have informed the court that the names and statuses of Directech, Directech Southwest, and Multiband had changed, the merger did not affect the state trial court's conclusion that the consent judgment barred Plaintiffs' suit. Bilyeu Bucks v. Directech Southwest, 266 So. 3d 467, 474-77 (La. App. 2019).

Further, the Louisiana appellate court affirmed the trial court's decision to deny Plaintiffs' motion to add Multiband field services as a defendant. Id. at 477. The appeals court concluded that adding Multiband Field Services would have been a vain and useless act because it was a successor in interest to the named entities and thus protected by the consent judgment. Id. at 477-78. The Louisiana appellate court also denied Plaintiffs' application for a rehearing, which notably argued that any interpretation of the Department of Labor's consent judgment was within the exclusive jurisdiction of this Court. (Doc. 1 ¶¶ 21-22).

After losing on appeal, Plaintiffs applied for a supervisory writ with the Louisiana Supreme Court in May 2019. (Id. ¶ 23). Plaintiffs then filed this suit on June 4, 2019, and moved to stay the writ proceedings with the Louisiana Supreme Court on June 21, 2019. (Doc. 8, at 5). Recently, on September 6, 2019, the LouisianaSupreme Court denied Plaintiffs' motion to stay and denied Plaintiffs' writ application. (Doc. 8-2, at 1-2). In response to the denial of the motion to stay and writ application, Plaintiffs filed a motion to reconsider with the Louisiana Supreme Court. (Docs. 16-2, 16-3). The Louisiana Supreme Court denied that motion on November 12, 2019. (Doc. 24-1).

II. ANALYSIS

While the procedural history and corporate transactions underlying this case are complex, the motion to dismiss raises simple questions. First, the complaint asks this Court to enjoin the proceedings in the Louisiana state courts. (Doc. 1, at 15). But Plaintiffs admit that their request to enjoin the state-court proceedings is moot because there are no on-going state-court proceedings to enjoin. (Doc. 33, at 12-13). The Louisiana Court of Appeals issued a ruling and the Supreme Court of Louisiana denied Plaintiffs' writ request as well as their motion for reconsideration and their motion to stay the writ proceedings.

The complaint also asks this court to declare that the consent judgment does not bar Plaintiffs from suing Directech, Directech Southwest, and Multiband; declare that the consent judgment does not bar a suit against Goodman Networks and Multiband Field Services; and declare that Plaintiffs violated the consent judgment by asking the Louisiana state courts to interpret it. (Id. at 14-15).

But Plaintiffs declaratory requests are barred by both principles of issue preclusion and the Rooker-Feldman doctrine. The Louisiana state courts found that this Court's prior consent judgment bars a claim for indemnity against Multiband, Directech, and Directech Southwest. Further, the Louisiana Court of Appeals determined that adding a successor in interest, i.e., Multiband Field Services, to the state-court proceedings would be a vain and useless effort because under Louisiana preclusion law, a successor in interest, like Multiband Field Services, is afforded the protections of the consent judgment. Plaintiffs now ask this court to revisit those conclusions and undo the results of the Louisiana litigation.

A. Plaintiffs' Requests for Declaratory Relief Are Barred by Res Judicata

The Louisiana appellate court's findings mean that Plaintiffs cannot reassert the same indemnification claims every time a merger or sale occurs. Plaintiffs sued Directech, Directech Southwest, and Multiband in Louisiana state court seeking indemnification for expenses related to defending the Department of Labor action. This state-court suit began after Directech Holding sold Directech and Directech Southwest to Multiband.

Though Plaintiffs brought suit to enforce indemnification agreements, the suit was bound to raise the issue of whether...