AES-Apex Employer Servs. v. Dino Rotondo, 924 F.3d 857

Background

Dino Rotondo owned Apex Administrative Services (Apex), which in turn wholly owned four limited liability "Directional Entities." Rotondo sold the Directional Entities’ customer lists to AES in exchange for periodic payments labeled "Consulting Fees."
Rotondo owed substantial debts: a judgment to Akouri Investments (from a loan secured by Apex assets) and $3.4 million in federal tax liabilities, for which the IRS filed tax liens.
AES faced competing claims to the Consulting Fees from the IRS (tax liens) and Akouri (secured judgment) and filed an interpleader; the case was removed to federal court.
AES argued it could deduct litigation costs and attorneys’ fees from the Consulting Fees under (1) the Consulting Agreement’s "direct expenses" deduction and (2) provisions (indemnification and offset) in the Asset Purchase Agreement.
The district court held AES must pay the full Consulting Fees; it granted summary judgment to the United States (IRS) on priority. Akouri appealed multiple rulings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether AES may deduct litigation costs from Consulting Fees under the Consulting Agreement	AES: "direct expenses attributable to the employees leased under [a client’s] account" includes litigation costs and thus reduces gross profits used to compute fees	IRS/Akouri: "direct expenses" are attributable to clients' employees; litigation here is not produced by those employees, so not deductible	Court: No — phrase construed in context; litigation costs are not "attributable" to clients’ employees, so AES may not deduct them
Whether AES may deduct costs under the Asset Purchase Agreement (Indemnification/Offset)	AES: Indemnification and the Offset Provision let AES offset litigation costs and attorneys' fees against sums owed to Rotondo	IRS/Akouri: Indemnification requires an AES demand before Rotondo is obligated; Offset applies only to indemnified obligations and so is not triggered absent demand	Court: No — indemnification requires a demand; Offset refers to those indemnified obligations and is not operative without a demand
Which has priority: IRS tax liens or Akouri’s security interest/judgment	Akouri: Its security interest in Apex (or in Apex via treating Directional Entities as alter egos) gives it priority over the IRS	IRS: Federal tax liens filed earlier have priority under "first in time" rule; Akouri’s judgment and any alter-ego judicial determination came later	Court: IRS prevails — its notices of lien predate Akouri’s judgment; Akouri’s alter-ego theory would require later judicial piercing and thus is inchoate and cannot defeat the earlier tax lien
Whether the district court abused discretion by denying supplemental briefing and by declining supplemental jurisdiction over Akouri’s state-law fraudulent-transfer claim	Akouri: New deposition evidence from state-court discovery should be considered; court should retain supplemental jurisdiction over the state-law claim	United States/AES: Akouri had opportunity to obtain discovery during federal proceedings; its state claim is in early procedural stage and dismissal is appropriate once federal claims are resolved	Court: No abuse — denial of late supplemental briefing was reasonable (forfeiture/ docket control); declining supplemental jurisdiction over the undeveloped state-law claim was proper

Key Cases Cited

Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 525 F.3d 409 (6th Cir. 2008) (de novo review of contract interpretation)
Rory v. Continental Ins. Co., 703 N.W.2d 23 (Mich. 2005) (plain and ordinary meaning governs contract interpretation under Michigan law)
Stryker Corp. v. National Union Fire Ins. Co. of Pittsburgh, 842 F.3d 422 (6th Cir. 2016) (applying Michigan contract interpretation principles)
United States v. McDermott, 507 U.S. 447 (1993) (priority governed by "first in time" rule)
United States v. Equitable Life Assurance Soc'y of the U.S., 384 U.S. 323 (1966) (measuring state security interest timing by when it becomes choate)
Blachy v. Butcher, 221 F.3d 896 (6th Cir. 2000) (discussing choateness and timing of state liens)
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard — nonmoving party must show genuine dispute)
Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (metaphysical doubt insufficient to defeat summary judgment)
Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343 (1988) (district courts should usually decline supplemental jurisdiction when federal claims are eliminated)