United States District Court, D. Minnesota
E. Calamari, Isaac Nesser, David Elsberg, Quinn Emanuel
Urquhart & Sullivan, LLP, Anthony P. Alden, Johanna Ong,
Matthew Scheck, Quinn Emanuel Urquhart & Sullivan, LLP,
Jeffrey A. Lipps, Jennifer A.L. Battle, Carpenter Lipps &
Leland LLP, Donald G. Heeman, and Jessica J. Nelson,
Felhaber, Larson, Fenlon & Vogt P.A., for Plaintiffs.
G. Schroeder, Jason R. Asmus, Daniel J. Supalla, Michael M.
Sawers, Briggs & Morgan, P.A., Steven M. Pincus, Brooke
D. Anthony, and Steven C. Kerbaugh, Anthony Ostlund Baer
& Louwagie, P.A., for Defendants.
MEMORANDUM OPINION AND ORDER
RICHARD NELSON, United States District Judge
matter comes before the Court on Defendants' separate
motions to dismiss the Complaint. Defendant InterLinc
Mortgage Services, LLC (“InterLinc”), a Texas
company, moves to dismiss for lack of personal jurisdiction,
improper venue, and failure to state a claim upon which
relief can be granted. (See generally InterLinc Mot.
to Dismiss [Doc. No. 1853].) See Fed. R. Civ. P.
12(b)(2), (3), and (6). Defendants Douglas Rohm and Edward
Danielczyk (the “Individual Defendants”), both of
Birmingham, Alabama, move to dismiss for lack of personal
jurisdiction and failure to state a claim upon which relief
can be granted. In the alternative, they urge the Court to
transfer this action to the Northern District of Alabama,
pursuant to 28 U.S.C. §§ 1404 or 1406. (See
generally Individual Defs.' Mot. to Dismiss [Doc.
reasons set forth below, the Court finds that it has
jurisdiction over all defendants, that venue is proper in
this district, and that transfer is unwarranted. Accordingly,
Defendants' motions are denied as to those issues.
However, the Court agrees that as the Complaint is currently
pleaded, Plaintiffs Residential Funding Company, LLC and
ResCap Liquidating Trust (collectively, “RFC”)
have failed to properly state claims for breach of contract
and indemnification against InterLinc, and constructive
fraudulent transfer against all defendants. In keeping with
that determination, Defendants' Rule 12(b)(6) motions are
granted in part, and denied in part, although RFC will be
given the opportunity to replead if it so chooses.
general facts pertaining to this consolidated matter are set
forth in previous rulings from this court, and are
incorporated herein by reference. See, e.g.,
Residential Funding Co. v. Impac Funding Corp., No.
13-cv-3506 (SRN/HB), 2016 WL 6953484, at *1-2 (D. Minn. Apr.
27, 2016); Residential Funding Co. v. Academy Mortg.
Corp., 59 F.Supp.3d 935, 938-41 (D. Minn. 2014);
Residential Funding Co. v. Terrace Mortg. Co., 850
F.Supp.2d 961, 962-64 (D. Minn. 2012). Stated briefly, prior
to its bankruptcy in May 2012, RFC was in the business of
acquiring and securitizing residential mortgage loans.
(See Compl. ¶ 15 [Case No. 13-cv-3024, Doc. No.
1].) Its business model was built on acquiring loans from
“correspondent lenders, ” and distributing those
loans by either pooling them together with other similar
mortgage loans to sell into residential mortgage-backed
securitization (“RMBS”) trusts, or selling them
to whole loan purchasers. (Id. ¶ 16.) To ensure
loan-quality, RFC required its correspondent lenders to abide
by certain representation and warranties regarding the loans.
(Id. ¶ 18.) Among other things, RFC contends
that lenders were responsible for collecting information from
the borrowers, verifying the accuracy of that information,
and properly underwriting the loans. (Id. ¶
the correspondent lenders with whom RFC did business was
Hometown Mortgage Services, Inc. (“Hometown”), an
Alabama corporation. (Id. ¶¶ 9, 18.) At
all times relevant to this suit, Individual Defendants were
Hometown's sole shareholders, officers, and directors.
(Id. ¶¶ 1, 88.) According to RFC, Hometown
sold over 2, 000 mortgages to it over the course of the
parties' relationship, many of which it now alleges were
defective and violated Hometown's representations and
warranties. (Id. ¶ 5.) RFC alleges that these
defects-compounded with those of other lenders-contributed
materially to its Chapter 11 bankruptcy in May 2012.
(Id. ¶ 20.) Due to Hometown's allegedly
faulty origination, underwriting, and quality control
practices, RFC commenced suit against it in this Court in
December 2013, asserting claims for indemnification and
breach of contract. See Residential Funding Co. v.
Hometown Mortg. Servs., Inc., No. 13-cv-3509 (SRN/HB)
(D. Minn. 2013) (the “Hometown Action”). All
told, RFC claims to have suffered $44 million in damages as a
result of Hometown's malfeasance.
months after RFC filed its complaint in the Hometown Action,
Hometown entered into an Asset Purchase Agreement (the
“APA”) with InterLinc. (Id. ¶¶
90-92.) Ostensibly, InterLinc agreed to purchase only
Hometown's office furniture and other equipment, paying
the “Net Book Value” of those assets, which was
$124, 806.70. (See Compl., Ex. G.) It also agreed to
the assignment of certain leases applicable to Hometown's
offices. (See id.) These were the only liabilities
InterLinc expressly assumed, and the APA expressly disclaimed
all other liabilities. (See Id. at §§
1.01, 1.04.) Of note, however, the APA was subject to a
condition precedent mandating that certain key employees of
Hometown, including Individual Defendants, “must have
accepted an offer of employment with [InterLinc] prior to the
Closing of the employee's branch Transaction.”
(Id. at §5.04.)
alleges that the purpose of the InterLinc-Hometown
transaction was clear- after the APA was executed on March 3,
2014, InterLinc continued to operate Hometown's business
from the former Hometown office, with former Hometown
employees, just under the InterLinc name. (See
Pls.' Omnibus Mem. in Opp'n to Defs.' Mots. to
Dismiss [Doc. No. 1961] (“Pls.' Mem.”) at
7-8.) To support its assertion that InterLinc essentially
subsumed Hometown, RFC alleges that the new InterLinc Alabama
division holds itself out to the public as
“formerly” or “previously known” as
Hometown. (See Compl. ¶ 91.) RFC also
highlights various press releases issued by InterLinc and
Hometown trumpeting the seeming merger of the two companies.
(See Scheck Decl. [Doc. No. 1962], Exs. B, E.) In
RFC's view, InterLinc essentially acquired a
fully-functioning mortgage company-including its equipment,
office, employees, good will and ongoing business-for only
$124, 806.70. (See Compl. ¶¶ 89-95.) In
turn, RFC contends that the Individual Defendants secured
employment with InterLinc and continued to manage the new
Alabama office, essentially as if nothing had happened.
(See Id. ¶¶ 89, 91.)
September 1, 2015-approximately eighteen months after the APA
was executed-Hometown filed for Chapter 7 bankruptcy.
(See Scheck Decl., Ex. A.) The bankruptcy petition
showed Hometown to be insolvent, with total listed assets of
$140, 930.93, and total liabilities of $285, 999.39. (See
Id. at 5.) Hometown's only assets were a checking
account containing $135, two defaulted residential mortgage
loans, various files held in storage, and one computer server
valued at $200. (See Id. at 8-10.) In an attempt to
hide from Hometown's creditor the fact that
“hometown's business was continuing under the
InterLinc name, ” RFC alleges that the Individual
Defendants “caused Hometown's bankruptcy petition
to disclose only that InterLinc had paid $124, 806.70 for
Hometown's ‘office furniture and equipment.'
Hometown did not disclose that InterLinc . . . was continuing
Hometown's business under a new name.” (Compl.
filed a proof of claim in Hometown's Chapter 7 case on
December 23, 2015, based on the Hometown Action and asserted
damages arising out of Hometown's sale to RFC of
defective mortgages. (Id. ¶ 99.) In lieu of the
de minimis distribution to which it would otherwise
have been entitled, RFC negotiated an agreement with the
trustee allowing RFC's full claim against Hometown in the
amount of $44 million, and assigning any causes of action
available to the bankruptcy estate to RFC. (Id.
¶ 100.) The bankruptcy court approved the
agreement between RFC and the trustee, and the Hometown
estate was closed on October 18, 2016-a little more than a
month after the present Complaint was filed. (Id.
¶ 101; Pls.' Mem. at 10.)
Complaint in this suit raises four causes of action-two
against InterLinc solely, and two against all defendants
generally. In Count I, RFC alleges that InterLinc is liable
for Hometown's breach of contract regarding the defective
mortgages because InterLinc is a “mere continuation of,
or de facto merged with, ” Hometown. Accordingly RFC
contends that InterLinc is subject to successor liability
under applicable statutory or common law. Count II states a
claim for indemnification against InterLinc, again on a
theory of successor liability. Finally, Counts III and IV
state claims for constructive fraudulent transfer and actual
fraudulent transfer against InterLinc and the Individual
Defendants, pursuant to both state and federal law.
have now moved to dismiss on several grounds. First, both the
Individual Defendants and InterLinc contend that they have no
contacts with Minnesota, and thus that this Court cannot
assert personal jurisdiction over them. Second, InterLinc
asserts a motion to dismiss for improper venue. Third,
InterLinc argues that Counts I and II of the Complaint should
be dismissed for failure to state a claim because it argues
that it is not subject to successor liability. Fourth, all
defendants argue that the fraudulent transfer claims should
be dismissed for failure to state a claim. Finally, the
Individual Defendants argue that, in the alternative, this
matter should be transferred to the Northern District of
Alabama, pursuant to 28 U.S.C. §§ 1404 or 1406.
addressing these issues, the Court will attempt to proceed in
order. For reasons that will become clear, however, the
personal jurisdiction analysis necessarily encompasses
elements of the successor liability and fraudulent transfer
analyses, as well.
Standard of Review
survive a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(2), the plaintiff must make a prima facie
showing that the court's exercise of jurisdiction is
proper. Fastpath, Inc. v. Arbela Techs. Corp., 760
F.3d 816, 820 (8th Cir. 2014). The plaintiff may meet this
burden by pleading facts sufficient to “support a
reasonable inference that the defendant can be subjected to
jurisdiction within the [forum] state.” Dever v.
Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir.
2004). This inference is subject to testing not solely on the
pleadings alone, however, but “by the affidavits and
exhibits presented with the motions and in opposition
thereto.” Dairy Farmers of Am., Inc. v. Bassett
& Walker Int'l, Inc., 702 F.3d 472, 475 (8th
Cir. 2012) (citation omitted). Where-as is the case here-the
Court has not conducted an evidentiary hearing, it must view
the facts in the light most favorable to the nonmoving party,
and resolve all factual conflicts in that party's favor.
Pangaea, Inc. v. Flying Burrito LLC, 647 F.3d 741,
745 (8th Cir. 2011). However, “the party seeking to
establish the court's personal jurisdiction carries the
burden of proof and that burden does not shift to the party
challenging jurisdiction.” Fastpath, 760 F.3f
order to make a determination that an exercise of personal
jurisdiction over a defendant is proper, a federal court
sitting in diversity must first determine that certain state
and constitutional prerequisites have been met. Wessels,
Arnold & Henderson v. Nat'l Med. Waste, Inc., 65
F.3d 1427, 1431 (8th Cir. 1995). First, the court must
consider whether the requirements of Minnesota's long-arm
statute have been satisfied. Second, the court must ask
whether exercising jurisdiction over the defendant would
comport with the Due Process Clause of the Fourteenth
Amendment. In Minnesota, however, these two inquiries combine
into a single due process examination, because the state
long-arm statute has been held to be co-extensive with the
constitutional bounds of jurisdiction. See Soo Line R.R.
Co. v. Hawker Siddeley Canada, Inc., 950 F.2d 526, 528
(8th Cir. 1991) (citing Rostad v. On-Deck, Inc., 372
N.W.2d 717, 719 (Minn. 1985)).
Process Clause permits a court to exercise personal
jurisdiction over a non-resident defendant when that
defendant has ‘certain minimum contacts with [the forum
state] such that the maintenance of the suit does not offend
‘traditional notions of fair play and substantial
justice.'” Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (citation omitted).
Underlying this standard is the conviction that “those
who live or operate primarily outside a State have a . . .
right not to be subjected to judgment in its courts as a
general matter.” J. McIntyre Mach., Ltd. v.
Nicastro, 564 U.S. 873, 881 (2011). Thus, the Supreme
Court has made clear that there must be some showing that the
defendant's “conduct and connection with the forum
State are such that he should reasonably anticipate being
haled into court there.” World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297 (1980). The
defendant himself must create these connections-unilateral
activity by the plaintiff within the forum, even if directly
related to the defendant, is not sufficient to satisfy this
requirement. See Walden v. Fiore, 134 S.Ct. 1115,
1122 (2014); Hanson v. Denckla, 357 U.S. 235, 253
for purposes of this case, however, the Supreme Court has
also stated that a plaintiff may establish that personal
jurisdiction is appropriate even over defendants who have
never set foot in the forum state so long as their
intentional, out-of-state acts were “expressly
aimed” at the forum. Calder v. Jones, 465 U.S.
783 (1984). Thus, if the non-resident defendant's acts
were performed “for the very purpose of having their
consequences felt in the forum state, ” there may be
personal jurisdiction over that defendant. Dakota Indus.,
Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1390-91
(8th Cir. 1991).
initial matter, it is plain that if this Court has personal
jurisdiction over InterLinc, it must be in the form of
specific, rather than general, jurisdiction. As the Eighth
Circuit has explained “general jurisdiction refers to
the power of a state to adjudicate any cause of action
involving a particular defendant regardless of where the
cause of action arose, while specific jurisdiction requires
that the cause of action arise from or relate to a
defendant's actions within the forum state.”
Wells Dairy, Inc. v. Food Movers Int'l, Inc.,
607 F.3d 515, 518 (8th Cir. 2010) (internal quotation and
citation omitted). In order to assert general jurisdiction
over a foreign corporation, a court must first determine that
the corporation's affiliations with the forum are so
“continuous and systematic” as to “render
[it] essentially at home in the forum State.”
Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. 915, 919 (2011). Here, the Complaint
raises no facts suggestive of any direct contacts between
InterLinc and Minnesota-let alone “continuous and
contrast to InterLinc's relative dearth of contacts with
Minnesota, the Complaint makes clear that Hometown is and
would be subject to personal jurisdiction in this state. Most
notably, for purposes of this litigation, Hometown is subject
to a forum selection clause contained in the Client Contract
between it and RFC that provides as follows:
Each of the parties irrevocably submits to the
jurisdiction of any state or federal court located in
Hennepin County, Minnesota, over any action, suit or
proceeding to enforce or defend any right under this Contract
or otherwise arising from any loan sale or servicing
relationship existing in connection with this Contract . . .
. Each of the parties irrevocably waives the defense of an
inconvenient forum to the maintenance of any such action or
proceeding and any other substantive or procedural rights or
remedies it may have with respect to the maintenance of any
such action or proceeding in any such forum . . . . Each of
the parties further agrees not to institute any legal action
or proceedings against the other party or any director,