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Citimortgage, Inc. v. 1St Advantage Mortgage

United States District Court, E.D. Missouri, Eastern Division

April 27, 2015

1st ADVANTAGE MORTGAGE, et al., Defendants.



This matter is before the Court on the Illinois Defendants' Motion to Dismiss Plaintiff's Third Amended Complaint for Lack of Personal Jurisdiction. [Doc. No. 175]. Plaintiff has filed a Response in opposition to the Motion. [Doc. No. 179]. The Illinois Defendants have filed a Reply [Doc. No. 181], and Plaintiff has filed a Sur-Reply [Doc. No. 185]. For the reasons set forth below, the Illinois Defendants' Motion is denied.

Facts and Background[1]

At the time of the relevant events, Plaintiff CitiMortgage, Inc. ("CMI"), a New York Corporation with its principal place of business in Missouri, was in the business of purchasing, reselling, and servicing residential mortgage loans on the secondary market. Defendant 1st Advantage Mortgage, LLC ("1st Advantage"), a dissolved Illinois limited liability company, was engaged in the business of originating, sourcing, and/or reselling residential mortgage loans. Defendants Paul Lueken, Steven Gross, Courtney Gross, Mark Grego, Keith Hoffman, Gil Antokal, and Bruce Bufe (the "Illinois Defendants"), all residents of Illinois, were members of 1st Advantage who owned various percentages of the company.[2] 1st Advantage began selling loans to CMI in 2004. CMI alleges that many of the loans failed to comply with various requirements of the parties' governing contracts.

On February 4, 2008, 1st Advantage entered into an Asset Purchase Agreement ("APA") with former Defendant Draper and Kramer Mortgage Corporation ("DKMC").[3] By the terms of the APA, 1st Advantage sold DKMC the ongoing business operations of 1st Advantage, including nearly all of its assets and liabilities, and DKMC continued operating the company under the "dba" of 1st Advantage Mortgage. Defendant Lueken became the President and a director of DKMC, Defendant Greco became the Chief Operating Officer, all of the members of 1st Advantage became employees DKMC, [4] nearly all of the 1st Advantage employees became DKMC employees, and nearly 70% of those who were DKMC employees prior to the transaction were terminated. The 1st Advantage office became DKMC headquarters.

Beginning in October 2008, and continuing through late 2012, CMI demanded the cure and/or repurchase of thirty loans it had purchased from 1st Advantage. Former 1st Advantage employees who were working at DKMC communicated with CMI regarding its repurchase claims, at first arguing the merits of those claims, and eventually refusing to pay the claims on the basis that 1st Advantage ceased to exist as of April 1, 2008-the first day of the month after the closing of the asset sale.

On August 30, 2010, Defendant Lueken filed articles of dissolution for 1st Advantage, stating that "all debts, liabilities, and obligations of the limited liability company have been paid and discharged or that adequate provision has been made therefore." That statement was false, given that CMI had submitted 23 of the 30 repurchase claims referenced in its Third Amended Complaint before August 30, 2010. The Illinois Defendants made no provision for the repurchase of the claims that CMI had asserted, and they left 1st Advantage without any assets to pay those claims. Further, 1st Advantage failed to provide legally required written notice of the dissolution to its creditors, including CMI.

The APA established two methods through which payment to the Illinois Defendants for DKMC's acquisition of 1st Advantage business would be made over time: (i) payment to 1st Advantage of the net asset value of the 1st Advantage business that was purchased, later determined to be $2, 155, 917; and (ii) payment of annual profit-sharing "bonuses" directly to the Illinois Defendants as employees of DKMC which were proportionate to their ownership interests in 1st Advantage.

After the combination of the two companies, the Illinois Defendants began to receive payments of the purchase price. During 2008 through 2010, 1st Advantage received $1, 145, 330 of payments of the net asset value from DKMC and distributed these payments to the Illinois Defendants, including approximately half to Defendant Lueken.

After the dissolution of 1st Advantage and through October 5, 2012, DKMC paid $813, 899 directly to the Illinois Defendants. These payments brought the total paid to the Illinois Defendants as of that date to $1, 959, 229 of the $2, 155, 917 net asset value owed. The Illinois Defendants subsequently received additional payments of the net asset value directly from DKMC, bring the total paid to at least $2, 055, 917. During the period between the sale of 1st Advantage and its dissolution, 1st Advantage also paid the Illinois Defendants $1, 524, 697 as distributions of assets that were not transferred to DKMC. These assets had approximately doubled in value since the closing of the sale.

Procedural History

CMI initiated this action on September 22, 2010, naming only DKMC, doing business as 1st Advantage, as a Defendant and alleging breach of contract. CMI added 1st Advantage as a separate Defendant in its First Amended Complaint, filed on November 9, 2011. CMI filed a Second Amended Complaint on March 12, 2013, adding allegations and claims regarding additional loans and DKMC and 1st Advantage's relationship. On July 3, 2013, CMI filed a Complaint in a separate, but related, action against DKMC and 1st Advantage in Case Number: 4:13CV1268 HEA. By Order entered on August 13, 2013, the Court consolidated the two actions. [Doc. No. 99]. By Stipulation filed on May 5, 2014, CMI's claims against Defendant DKMC were dismissed. [Doc. No. 136].

CMI filed its Third Amended Complaint-the operative pleading-on September 12, 2014, which added the Illinois Defendants. CMI added the Illinois Defendants "to allow CMI to collect any judgment the Court may award against 1st Advantage from the [Illinois] Defendants." [Doc. No. 146].

In Count I of the Third Amended Complaint, CMI alleges that Defendant 1st Advantage breached the terms of their contracts by selling CMI defective loans that did not conform to the terms of the contracts, and further breached by failing to repurchase or cure the nonconforming loans pursuant to CMI's demands. In Counts II and III, CMI alleges that the Illinois Defendants are personally under the Illinois Limited Liability Company Act and the Missouri Uniform Fraudulent Transfers Act for any judgment for breach of contract in Count I against 1st Advantage based on the manner in which 1st Advantage was dissolved and its assets were distributed.

The Illinois Defendants now move to dismiss, asserting that this Court lacks personal jurisdiction over them.

Legal Standard

A defendant may move to dismiss a case under Rule 12(b)(2) of the Federal Rules for "lack of personal jurisdiction." Fed.R.Civ.P. 12(b)(2).

A plaintiff alleging personal jurisdiction "must state sufficient facts in the complaint to support a reasonable inference that the defendant[] can be subjected to jurisdiction within the state.'" Dairy Farmers of Am., Inc. v. Bassett & Walker Int'l, Inc., 702 F.3d 472, 474 (8th Cir. 2012) (alteration in original) (quoting Wells Dairy, Inc. v. Food Movers Int'l, Inc., 607 F.3d 515, 518 (8th Cir. 2010)). "If the defendant controverts or denies jurisdiction, the plaintiff bears the burden of proving facts supporting personal jurisdiction." Wells Dairy, 607 F.3d at 518. Personal jurisdiction "must be tested, not by the pleadings alone, but by the affidavits and exhibits presented with the motions and in opposition thereto." Id. (internal quotation marks omitted).

Although the Court may consider affidavits and other matters outside of the pleadings on a Rule 12(b)(2) motion, the pleader's burden, in the absence of an evidentiary hearing, is only to make a "minimal" prima facie showing of personal jurisdiction, and the Court "must view the evidence in the light most favorable to the [pleader] and resolve all factual conflicts in its favor in deciding whether the [pleader] has made the requisite showing." K-V Pharm. Co. v. Uriach & CIA, S.A., 648 F.3d 588, 591-92 (8th Cir. 2011). Notwithstanding that facts are viewed in the light most favorable to the pleader, "[t]he party seeking to establish the court's in personam jurisdiction carries the burden of proof, and the burden does not shift to the party challenging jurisdiction." Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG, 646 F.3d 589, 592 (8th Cir. 2011) (quoting Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 647 (8th Cir. 2003)).

The Eighth Circuit instructs courts to "approach [the] analysis of personal jurisdiction on two levels, first examining whether the exercise of jurisdiction is proper under the forum state's long-arm statute[, ] [and] [i]f the activities of the non-resident defendant satisfy the statute's requirements, [to] then address whether the exercise of jurisdiction comports with due process." Dakota Indus. v. Dakota Sportswear, 946 F.2d 1384, 1391 (8th Cir. 1991).

"Due process requires that a defendant have certain minimum contacts' with the forum state for personal jurisdiction to be exercised." Myers v. Casino Queen, Inc., 689 F.3d 904, 911 (8th Cir. 2012) (citing Int'l Shoe Co. v. Washington., 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). More specifically,

Contacts with the forum state must be sufficient that requiring a party to defend an action would not "offend traditional notions of fair play and substantial justice." [ Int'l Shoe Co., 326 U.S.] at 316, 66 S.Ct. 154, 90 L.Ed. 95 (internal quotation marks and citation omitted). "The substantial connection' between the defendant and the forum State necessary for a finding of minimum contacts must come about by an action of the defendant purposefully directed toward the forum State." Asahi ...

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