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Garnett v. Welenken CPAs

United States District Court, D. Minnesota

March 13, 2019

KEVIN GARNETT, Plaintiff,
v.
WELENKEN CPAS and MICHAEL A. WERTHEIM, Defendants.

          Mark F. Gaughan, ERICKSON, BELL, BECKMAN & QUINN, P.A., and Richard C. Ebeling, LANZA REICH & DANIEL, LLP, for plaintiff.

          M. Gregory Simpson, Robert W.Vaccaro, and Timothy R. Schupp, MEAGHER & GEER, PLLP, for defendants.

          ORDER

          JOHN R. TUNHEIM CHIEF JUDGE

         Plaintiff Kevin Garnett brings this action against Welenken CPAs and Michael A. Wertheim (“Defendants”) alleging professional malpractice, breach of fiduciary duty, and aiding and abetting. Each of the allegations is related to Defendants' role in the oversight of a business relationship between Garnett and a man named Charles A. Banks, IV (“Banks”). Defendants now bring a Motion to Dismiss for lack of personal jurisdiction. Because Garnett has established that Defendants had sufficient minimum contacts with Minnesota and exercising personal jurisdiction over them would not be unreasonable, the Court will deny the motion.

         BACKGROUND

         Throughout Garnett's career as a professional basketball player, Banks was a “long-term trusted wealth manager, confidant, and personal friend” to Garnett. (Notice of Removal ¶ 1, Ex. A (“Compl.”) ¶ 6, Sept. 5, 2018, Docket No. 1-1.) In 2010, Banks hired Michael Wertheim-a CPA and partner of Welenken CPAs-on behalf of Garnett. (Id. ¶¶ 3, 10.) Originally, Wertheim was hired to file income tax returns, but he ended up taking a much larger role in Garnett's financial life and in the businesses in which Garnett had an interest. (Id. ¶¶ 11-12.) For instance, Wertheim prepared financial statements, became the registered agent for businesses in which Garnett had an interest, and created budgets and spending limits for Garnett. (Id. ¶ 12.) Ultimately, instead of simply preparing income tax returns, Defendants “provided accounting services to Banks, Garnett, and virtually all of the businesses Garnett shared with Banks.” (Id. ¶ 6.) Although Wertheim represented Garnett, he took direction from Banks and had little to no direct contact with Garnett. (Id. ¶ 10.)

         In June 2017, Banks “was sentenced to federal prison for admittedly defrauding” a different professional basketball player. (Id. ¶ 6.) Seeking to investigate Banks for himself, Garnett and his counsel obtained records from Defendants and discovered evidence that Banks had also been defrauding Garnett. (Id. ¶¶ 6-7.) For instance, Banks had siphoned money from a joint investment venture between Banks and Garnett called Hammer Holdings, LLC, (“Hammer”) a California company. (Id. ¶¶ 8-9.) Banks was Hammer's managing member, but Garnett had been led to believe that he and Banks each owned half of Hammer, and that all the contributions made by Garnett were being matched by Banks. (Id.) In reality, Banks used Hammer as an individual bank account. At one point he transferred over $14 million from Garnett's personal bank accounts into Hammer and then borrowed almost $8 million for himself. (Id. ¶ 15.) Banks also used Hammer's funds to pay his own credit cards, pay his mortgages, hire private jets, and make personal investments unrelated to Hammer. (Id. ¶ 25.) Banks further invested Hammer's funds into valueless entities in which he had a personal financial interest. (Id. ¶¶ 22-23.)

         Garnett alleges that Wertheim was fully aware of Banks's actions. For example, Garnett alleges that Wertheim was aware of Banks's $8 million loan, and that Banks was misappropriating Hammer's funds. (Id. ¶¶ 15, 27). Nevertheless, Wertheim never alerted Garnett to any of Banks's actions. (Id. ¶¶ 13, 16, 19, 21, 27.) To the contrary, Garnett alleges that Wertheim actively worked with Banks to conceal Banks's actions from Garnett. (Id. ¶¶ 28-29.)

         Garnett's sister, Sonya Garnett, “serve[s] as [Garnett's] primary point of contact for entities and persons involved in [his] business endeavors.” (Decl. of Sonya Garnett (“Garnett Decl.”) ¶ 1, Oct. 31, 2018, Docket No. 35.) Accordingly, while Wertheim had little contact with Garnett, he interacted hundreds of times with Sonya. (See Id. ¶ 3.) They contacted one another primarily through email, but they also met once in person on January 6, 2016, at Ms. Garnett's home in Minnesota. (Id. ¶¶ 3, 8.) At that meeting, Wertheim and Ms. Garnett discussed a budget that Wertheim and Banks had prepared for Garnett. (Id. ¶ 8.) Wertheim notified her that Garnett was overspending and told her that Garnett needed to follow the proposed budget. (Id.) After the meeting, Ms. Garnett and Wertheim attended a Minnesota Timberwolves game to see Garnett play, and Wertheim spent the night in a hotel in Minneapolis. (Id. ¶ 9.) Notably, although Garnett alleges that Wertheim was aware of Banks's fraud at the time of the meeting, Wertheim did not discuss Banks's actions with Ms. Garnett. (See Id. ¶ 10.)

         During the time that Defendants served as accountants for Hammer and Garnett, Defendants mailed at least one invoice to Garnett in Minnesota and addressed that invoice to Ms. Garnett's attention. (Id. ¶ 11, Ex. A, Nov. 1, 2018, Docket No. 36.) The invoice described the work Welenken did for Garnett as “tax return planning, consultation, government correspondence, personal financial statement, bookkeeping and general business consultation, meeting.” (Id.)

         After discovering Banks's fraud, Garnett brought an action against Defendants in Hennepin County District Court. (Compl.) Defendants removed the case to this Court on September 5, 2018. (Notice of Removal, Sept. 5, 2018, Docket No. 1.) Garnett contends that Defendants breached their fiduciary duty to him, committed professional malpractice, and aided and abetted Banks in breaching his fiduciary duties to Garnett. (Compl. ¶¶ 31-49.) Defendants have now filed Motion to Dismiss for lack of personal jurisdiction. (Mot. to Dismiss, Sept. 26, 2018, Docket No. 10.)

         DISCUSSION

         I. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(2) provides that a party may move to dismiss claims for lack of personal jurisdiction. “To defeat a motion to dismiss for lack of personal jurisdiction, the nonmoving party need only make a prima facie showing of jurisdiction.” Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 647 (8th Cir. 2003) (citing Falkirk Min. Co. v. Japan Steel Works, Ltd., 906 F.2d 369, 373 (8th Cir. 1990); Watlow Elec. Mfg. v. Patch Rubber Co., 838 F.2d 999, 1000 (8th Cir. 1988)). As long as there is “some evidence upon which a prima facie showing of jurisdiction may be found to exist, ” the Rule 12(b)(2) motion will be denied. Pope v. Elabo GmbH, 588 F.Supp.2d 1008, 1014 (D. Minn. 2008) (quoting Aaron Ferer & Sons Co. v. Diversified Metals Corp., 564 F.2d 1211, 1215 (8thCir. 1977)). The party seeking to establish personal jurisdiction bears the burden of proof, and the burden does not shift to the party ...


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