Invesco High Yield Fund v. Jecklin, 19-15931

INVESCO HIGH YIELD FUND; et al., Plaintiffs-Appellees, v. HANS JECKLIN; et al., Defendants-Appellants, and GEORGE HAEBERLING; et al., Defendants.

No. 19-15931

United States Court of Appeals, Ninth Circuit

July 12, 2021

NOT FOR PUBLICATION

Argued and Submitted June 11, 2021 Seattle, Washington

Appeal from the United States District Court for the District of Nevada D.C. No. 2:05-cv-01364-RFB-PAL Richard F. Boulware II District Judge, Presiding.

Before: GOULD, CLIFTON, and MILLER, Circuit Judges.

MEMORANDUM^[*]

Hans Jecklin, Swiss Leisure Group AG (SLG), and JPC Holding AG (JPC) (collectively, Defendants) appeal from the district court's judgment in favor of Invesco High Yield Fund Invesco V.I. High Yield Fund, and Morgan Stanley Variable Insurance Fund, Inc. Core Plus Fixed Income Portfolio (collectively, Morgan Stanley) on Morgan Stanley's alter ego and fraudulent transfer claims. Because the parties are familiar with the facts and procedural history, we recite only those facts necessary to decide this appeal. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse in part.

We review the district court's exercise of personal jurisdiction de novo. Freestream Aircraft (Bermuda) Ltd. v. Aero Law Grp., 905 F.3d 597, 602 (9th Cir. 2018). "In reviewing a judgment following a bench trial, [we] review[] the district court's findings of fact for clear error and its legal conclusions de novo." Lee v. W. Coast Life Ins. Co., 688 F.3d 1004, 1009 (9th Cir. 2012) (citation omitted). We review the district court's decision to permit substitution of parties under Federal Rule of Civil Procedure 25(c) for abuse of discretion. LN Mgmt., LLC v. JP Morgan Chase Bank N.A., 957 F.3d 943, 949 (9th Cir. 2020). And we review the district court's interpretation of settlement agreements de novo. Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). Finally, though we review an award of attorney's fees under state law for abuse of discretion, we review de novo "whether the district court properly interpreted and applied the relevant state statute." Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000).

First, the district court correctly exercised specific personal jurisdiction over Defendants. Defendants falsified board minutes and failed to observe corporate formalities in Nevada. They also used SCGC's funds to buy a personal home for Jecklin in Las Vegas. These contacts with Nevada "relate[] to" Morgan Stanley's alter ego claims. Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir. 2008). Exercising jurisdiction over Defendants also "comport[s] with fair play and substantial justice." Id.

The district court also correctly found Defendants liable on Morgan Stanley's alter ego claims.^[1] The parties dispute whether Nevada or Delaware's alter ego law applies, but we need not decide this choice-of-law question because the result is the same under either state's law: Defendants are the alter egos of SCGC.

To pierce the corporate veil, Nevada requires that (1) the subsidiary is "influenced and governed by the person asserted to be its alter ego"; (2) there is "such unity of interest and ownership that one is inseparable from the other"; and (3) "[t]he facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice." Ecklund v. Nev. Wholesale Lumber Co., 562 P.2d 479, 479-80 (Nev. 1977); Nev. Rev. Stat. § 78.747(2). In Delaware, by comparison, the parent corporation must exercise "complete domination and control" over the subsidiary. Wallace ex rel. Cencom Cable Income Partners II, L.P. v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999). The subsidiary must be "a sham entity designed to defraud investors and creditors." Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003) (citing Wallace, 752 A.2d at 1183-85).

Based on the district court's factual findings, we conclude that Defendants are liable as SCGC's alter egos under either state's law governing alter ego liability. The district court found, for example, that Jecklin exercised significant control and decision-making power on SCGC's behalf through the relevant period. It observed that "[t]he various entities owned in whole or in majority part by Hans Jecklin operated as if they were a single entity-an entity controlled by Jecklin." And the district court found that Defendants left SCGC undercapitalized so that it was "incapable of paying its debts."

The district court did not abuse its discretion in substituting the Morgan Stanley plaintiffs under Federal Rule of Civil Procedure 25(c). ^[2] Morgan Stanley submitted declarations showing (1) that Morgan Stanley High Yield Securities Inc., Morgan Stanley Dean Witter High Income Advantage Trust, Morgan Stanley Dean Witter High Income Advantage Trust II, and Morgan Stanley Dean Witter High Income Advantage Trust III transferred their interests to Invesco High Yield Fund; (2) that Morgan Stanley Variable Investment Series transferred its interest to Invesco V.I. High Yield Fund; and (3) that Morgan Stanley Select Dimensions Investment Series transferred its interest to Morgan Stanley Variable Insurance Fund, Inc. Core Plus Fixed Income Portfolio.^[3]

Nor did the district court err in finding that the 2004 settlement agreement did not release Morgan Stanley's claims against Jecklin. Even if non-parties Morgan Stanley Senior Funding, Inc. and Morgan Stanley Investment Advisors, Inc. (MSIA) were "affiliates" under the settlement agreement by virtue of their common ownership, Defendants' contention that MSIA was an "affiliate" of Morgan Stanley under a "control" theory still falls short. In its capacity as an investment advisor, MSIA merely "look[ed] for investments," "monitor[ed] and manage[d] th[e] portfolio," and "invest[ed] the money on behalf of the individual or collective investors of each [Morgan Stanley] fund." The district court correctly observed that Defendants' theory conflates "control" with serving as an investment advisor. We likewise reject Defendants' interpretation of "affiliate" as unreasonably broad.

The district court did not abuse its discretion when it amended the judgment to include post-judgment interest. Indeed, such awards are mandatory under 28 U.S.C. § 1961(a). Air Separation,...