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Sugartown Worldwide LLC v. Shanks

United States District Court, E.D. Pennsylvania

March 24, 2015

SUGARTOWN WORLDWIDE LLC
v.
KENNETH LINN SHANKS and JAMES MICHAEL GLOVER

MEMORANDUM

MARK A. KEARNEY, District Judge.

Holding a $5, 970, 390.75 default judgment against non-party and judgment-proof Outlook International Limited ("Outlook") on an unpaid guaranty, judgment creditor Sugartown Worldwide LLC ("Sugartown") now seeks to hold Outlook's two individual principals liable for the default judgment. Sugartown seeks to pierce Outlook's corporate veil, collect damages and impose a receiver and a constructive trust arising from Defendants' alleged fraud, unjust enrichment, transfers violating the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA") and breach of fiduciary duty. Nobody disputes Outlook's guaranty liability. Facing a creative creditor's complaint after execution discovery, we now consider the extent this Court should allow Sugartown to set aside Outlook's corporate form or pursue Outlook's two owners through separate tort theories to collect on an unpaid judgment.

In his motion to dismiss, Outlook principal and defendant James Michael Glover ("Glover") argues that this Court lacks personal jurisdiction over him as he has been living in China on a resident visa at all material times and has never travelled to, or done business in, Pennsylvania. He also argues that Sugartown cannot use tort theories to transfer liability for Outlook's judgment to him as a matter of law.[1]

We find that this Court lacks personal jurisdiction over Glover on the fraud in the inducement/common law conspiracy claim (Count II) and unjust enrichment claim (Count III). On a motion to dismiss standard, Sugartown may proceed into discovery against both Defendants under theories of fraudulent transfer (Count IV) and breach of fiduciary duty (Count V). In the accompanying Order, we grant Glover's motion to dismiss the "piercing the corporate veil" claim (Count I) without prejudice as it is not a cause of action and has not been sufficiently plead and dismiss any claim for a constructive trust or a receiver for assets under Count IV now held by non-party Outlook Sge or other non-party alleged transferees of some of Outlook's assets.

I. FACTS PLAUSIBLY ALLEGED REGARDING THE JUDGMENT.

Sugartown owns Lilly Pulitzer trademarks, service marks and other intellectual property rights. (ECF Doc. No. 1, Compl., ¶ 7.) In January 2010, Sugartown and HFI Brand, Inc. ("HFI") entered into a license agreement (the "Agreement") allowing HFI to use the trademarks on certain furniture and related products. ( Id. ¶¶ 8, 10.) In exchange, HFI agreed to make royalty payments to Sugartown. ( Id. ¶ 10.) Sugartown asked HFI to secure a guaranty for the royalties. ( Id. ¶¶ 8, 10.) Outlook agreed to guaranty (the "Guaranty") the royalty payments. ( Id. ¶ 8.)

Defendant Shanks admitted that by early 2011, he knew that HFI would probably default and Outlook would be liable on the Guaranty. ( Id. ¶ 29). Thereafter, Shanks admits that Outlook paid approximately $5.5 million to its subsidiaries and other companies owned and controlled by Glover and him as "marketing" and "consultancy" fees. ( Id. ¶ 30) At some unknown point in 2011, Outlook paid $500, 000 to Shanks and Glover as "director's fees". ( Id. ¶ 34)

Glover and Shanks formed non-party Outlook Sge in March 2012 based in Singapore. ( Id. ¶ 35.) Shanks and Glover own Outlook Sge and are its only board members. ( Id. ) Outlook Sge delivers many of the same services as Outlook. ( Id. ¶ 36.) In July 2012, Outlook sold "most of its assets, including Outlook's various office assets and Outlook's subsidiary companies, to Outlook Sge." ( Id. ¶ 37.) Sugartown alleges Shanks and Glover sold these assets to Outlook Sge for inadequate consideration or no consideration at all to avoid an impending payment to Sugartown. ( Id. ¶ 39.)

By October 2012, HFI breached the Agreement by failing to pay over $5, 850, 000 in royalties. ( Id. ) On November 30, 2012, Sugartown sued HFI and Outlook in this Court. HFI and Outlook failed to answer. On March 19, 2013, the Honorable John R. Padova entered default judgment against Outlook for $5, 970, 390.75. ( Id. ¶ 25; Ex. B.). After discovery in aid of execution, Sugartown filed this action.

II. ANALYSIS

A. Does this Court have personal jurisdiction over Glover on each claim?

When a defendant raises the defense of personal jurisdiction, the plaintiff bears the burden of a prima facie showing of appropriate jurisdiction. See Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004) (citing Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002)). Plaintiff must establish "with reasonable particularity sufficient contacts between the defendant and the forum state." Mellon Bank (East) PSFS, National Association v. Farino, 960 F.2d 1217, 1221 (3d Cir.1992) (citation omitted). A "plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor." Miller Yacht Sales, 384 F.3d at 97 (citing Pinker, 292 F.3d at 368). Plaintiff, however, must support its allegations with affidavits or other competent evidence and may not simply rely on its pleadings. See Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1302 (3d Cir. 1996). The determination of whether a court may exercise specific personal jurisdiction over a defendant is claim-specific. Remick v. Manfredy, 238 F.3d 248, 255 (3d Cir.2001).

As an affiant showing lack of contacts with Pennsylvania, Glover swears:

• he has lived full-time in Asia since 1989 (ECF Doc. No. 11-1, Def.'s Aff., ¶ 2.);
• since 1998, he has lived in China with a resident visa ( Id. ¶ 3.);
• he has never traveled to Pennsylvania for business or personal reasons, does not own property within Pennsylvania and does not maintain any bank accounts in Pennsylvania ( Id. ¶¶ 6-8.);
• he is the Director of Asian Operations for Outlook International, a Hong Kong Company incorporated in 1998 ( Id. ¶¶ 9, 12.);
• as Director of Asian Operations, Glover manages the staffing and manufacturing aspects of the business ( Id. ¶ 12.);
• non-party Steve McKee ("McKee") is the President, CEO, and one third owner of HFI ( Id. ¶ 14.);
• McKee was solely responsible for negotiating the Agreement between HFI and Sugartown, which included the Guaranty ( Id. ¶ 14.);
• Glover was not personally involved with the negotiation or execution of the Agreement or Guaranty ( Id. ¶ 15.);
• he never signed any agreements, contracts, or licenses with Sugartown or authorized anyone to sign on his behalf ( Id. ¶ 16.);
• he has not communicated with anyone at Sugartown regarding the Agreement or Guaranty ( Id. ¶ 18.); and,
• Shanks is not his personal agent and does not have authority to take action on his behalf. ( Id. ¶ 19.)

Sugartown responded with citations to Outlook's corporate and financial records facially demonstrating Glover's involvement in the transactions forming the basis of the fraudulent transfer claims, but no specific contacts with Sugartown or Pennsylvania.

A federal court may exercise personal jurisdiction "according to the law of the state where it sits." O'Connor v. Sandy Lane Hotel, Ltd., 496 F.3d 312, 316 (3d Cir. 2007). "First, the court must apply the relevant long-arm statute to see if it permits the exercise of personal jurisdiction; then the court must apply the precepts of the Due Process Clause of the Constitution." IMO Indus., Inc v. Kiekart AG, 155 F.3d 254, 259 (3d Cir. 1998). Pennsylvania's long arm statute provides that it reaches to the "fullest extent allowed under the Constitution of the United States." 42 Pa. Cons. Stat. § 5322(b). "A district court's exercise of personal jurisdiction pursuant to Pennsylvania's long arm statute is therefore valid as long as it is constitutional." Pennzoil Prods Co. v. Colelli & Assocs., Inc., 149 F.3d 197 (3d Cir. 1998) (citing Farino, 960 F.2d at 1221).

Personal jurisdiction is shown through either specific or general jurisdiction.[2] See Helicopteros Nacionales de Columbia v. Hall, 466 U.S. 408, 414-16 (1984). Specific jurisdiction exists when "the basis of plaintiff's claim is related to or arises out of the defendant's contacts.'" Bragg v. Linden Research, Inc., 487 F.Supp.2d 593, 597 (E.D. Pa. 2007) (citing Pennzoil, 149 F.3d at 201). Under the traditional analysis, a court engages in a two-prong review to find specific jurisdiction. See Vetrotex Certainteed Corp. v. Consol. Fiber Glass Prods. Co., 75 F.3d 147, 150 (3d Cir. 1996). "First, the defendant must have made constitutionally sufficient minimum contacts' with the forum... Second, if minimum contacts are shown, jurisdiction may be exercised where the court determines, in its discretion, that to do so would comport with traditional notions of fair play and substantial justice." Id. (citations omitted). Minimum contacts exist where the defendant has "purposefully directed his activities toward residents of the forum" and the litigation results from "alleged injuries that arise out of or relate to those activities." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1984) (internal quotations omitted).

Sugartown does not argue the traditional specific jurisdiction analysis where the court evaluates whether a defendant has sufficient "minimum contacts" with the forum.[3] Sugartown instead claims that Glover is subject to specific jurisdiction under alternative theories. First, Sugartown urges the Court to impute Shanks' conduct to Glover under the co-conspirator theory of specific personal jurisdiction. See Massachusetts School of Law at Andover, Inc. v. American Bar Ass'n, 846 F.Supp. 374, 379 (E.D. Pa. 1994). Second, Sugartown alleges that Glover is ...


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