ERIK A. AHLGREN, in his capacity as assignee in the assignment for the benefit of creditors of Ashby Farmers Co-Operative Elevator Company, Plaintiff, v. DIEDERIK MULLER a/k/a DIEKIE MULLER and DM SAFARIS, a/k/a DIEKIE MULLER HUNTING SAFARIS, Defendants.
Civ. No. 19-303 (JRT/LIB)
UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA
February 10, 2020
JOHN R. TUNHEIM, United States District Judge
Erik A. Ahlgren, AHLGREN LAW OFFICE, PLLC, 220 West Washington Avenue, Suite 105, Fergus Falls, MN 56537, for plaintiff.
Mark G. Schroeder, Adam G. Chandler, and Jason R. Asmus, TAFT STETTINIUS & HOLLISTER LLP, 80 South Eighth Street, Suite 2200, Minneapolis, MN, 55402, for defendants.
This case arises out of Jerry Hennessey‘s unauthorized use of funds from his prior employer, the Ashby Farmers Co-Operative Elevator Company (the “Co-Op“). From 2003–2018, Hennessey paid over $5 million of the Co-Op‘s funds to himself or directly to third parties for his personal benefit. Among others, Hennessey paid Defendant DM Safaris, owned by Defendant Diederik Muller (“Muller“), with checks from the Co-Op to fund exotic hunting trips for himself and his wife. Upon discovery of the fraud in 2018, the Co-Op ceased operations and appointed an Assignee, Plaintiff Erik Ahlgren, to pursue
Presently before the Court is Defendants’ Motion to Dismiss for lack of personal jurisdiction under
BACKGROUND
I. FACTUAL BACKGROUND
The Co-Op is a grain farmers’ cooperative based in Ashby, Minnesota. (First. Am. Compl. (“FAC“) ¶ 1, July 11, 2019, Docket No. 47.) The Co-Op purchases grain from local farmers, who are also owners of the Co-Op, and sells it to grain markets. (Id. ¶ 14.)
In 1989, the Co-Op hired Jerry Hennessey, a resident of Minnesota, as its general manager. (Id. ¶ 14.) Between June 2003 and September 2018, Hennessey received over $5.4 million in unauthorized funds from the Co-Op by writing checks from the Co-Op to himself and directly to third parties, including Defendants. (Id. ¶¶ 15–17.) Hennessey used the checks for personal bills, home improvement projects, property purchases, and domestic and international hunting trips unrelated to the business of the Co-Op. (Id. ¶ 16.) Hennessey disguised his fraud from the Co-Op by coding the checks as feed
Muller is a resident of South Africa and maintains an address in California. (Id. ¶ 2; Decl. of Diederik J. Muller (“1st Muller Decl.“) ¶ 2, Feb. 28, 2019, Docket No. 13.) He owns and operates DM Safaris, which provides guided hunting services and accommodations in South Africa. (1st Muller Decl. ¶ 3.) DM Safaris is incorporated and headquartered in South Africa but maintains an office and bank account in California. (Id.; Decl. of Erik A. Ahlgren (“Ahlgren Decl.“) ¶ 16, Ex. N at 152, Aug. 26, 2019, Docket No. 55.)1 DM Safaris is not licensed to do business in Minnesota, does not have property or agents in Minnesota, and does not maintain a bank account in Minnesota. (1st Muller Decl. ¶ 5.) DM Safaris operates a website and Facebook page that generally advertises its services to an international and United States audience. (2nd Decl. of Diederik J. Muller (“2nd Muller Decl.“) ¶ 2, Sept. 9, 2019, Docket No. 59.)
Muller met Hennessey for the first time in February 2012 at a Safari Club International (“SCI“) hunting convention held in Nevada. (FAC ¶ 21; First Muller Decl. ¶¶ 6–7.) Hennessey wrote Muller an unauthorized check for $45,000 at the Nevada convention as down payment for a South African hunting trip later that year. (FAC ¶ 21; Affidavit of Erik. A. Ahlgren (“Ahlgren Aff.“) ¶ 4, Ex. 1 (“Hennessey Aff.“) ¶ 13, May 30,
In 2013, Hennessey and Muller again met at the SCI convention in Nevada and, again, Hennessey wrote Muller and DM Safaris an unauthorized check—this time for $100,000—to pay for another South African hunting trip with DM Safaris. (Id. ¶ 18.) Following the 2013 convention, Hennessey and Muller again corresponded by email and phone while Hennessey was in Minnesota to finalize details for the trip. (Id. ¶¶ 19–20.) Like the first trip, Hennessey paid for the animals he took and completed paperwork for the animals to be shipped to Minnesota. (Id. ¶ 20.) A problem developed, however, when the skins of the animals taken never arrived in Minnesota. (Id. ¶ 21.)
In 2014, Hennessey met with Muller at the SCI convention in Nevada to discuss the problem with the 2013 trip. (Id. ¶ 22.) Following the SCI convention, Muller returned to Minnesota with Hennessey and the pair spent three to four days ice fishing, snowmobiling, and discussing problems with the 2013 trip. (Id.; Ahlgren Decl. ¶ 19, Ex. Q
In January 2015, prior to SCI Convention in Nevada, Muller called Hennessey from South Africa and requested a $100,000 loan from Hennessey to purchase black impalas for his business.2 (Id. ¶ 24; 2nd Muller Decl. ¶ 3.) Muller promised to repay the loan within one year. (Hennessey Aff. ¶ 24; 2nd Muller Decl. ¶ 3.) Hennessey obliged and sent Muller an unauthorized check for $100,000. (Hennessey Aff. ¶ 24; 2nd Muller Decl. ¶ 3.) Later that month, at the 2015 SCI convention in Nevada, Muller gave Hennessey a check for $20,000 as an additional refund for the problems associated with the 2013 trip. (Hennessey Aff. ¶ 24.) The $100,000 loan has yet to be repaid. (Id. ¶ 25.)
Hennessey‘s fraud was discovered in September 2018. (Id. ¶ 35.) By this time, Hennessey had obtained a credit line of over $7 million for the Co-Op in his ongoing efforts to conceal his fraud and cover the Co-Op‘s expenses. (Ahlgren Decl. ¶ 4, Ex. C at 24–25.) On February 14, 2019, Hennessey pleaded guilty to mail fraud and income tax evasion. (Id. at 23.)
As a result of Hennessey‘s fraud, the Co-Op was forced to close and has been unable to pay its debts. (Ahlgren Decl. ¶ 3, Ex. B at 13.) In December 2018, the Co-Op executed an assignment (the “Assignment“) with Erik Ahlgren for the benefit of the Co-
II. PROCEDURAL BACKGROUND
Ahlgren originally brought this action in Grant County District Court on January 8, 2019, alleging three Counts: (I) actual fraud pursuant to the Minnesota Uniform Voidable Transactions Act (“MUVTA“),
On February 28, 2019, Defendants moved to dismiss the complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) and for failure to state a claim pursuant to Rule 12(b)(6). (Mot. to Dismiss, Feb. 28, 2019, Docket No. 10.) The Court allowed written discovery limited to personal jurisdiction before ruling on the motion to dismiss. (Order on Stipulation, Mar. 22, 2019, Docket No. 19.) On May 30, 2019, Ahlgren moved to amend the pleadings. (Mot. to Alter Pleadings, May 30, 2019, Docket No. 30.) The Court granted Ahlgren‘s motion and denied Defendants’ motion to dismiss without prejudice. (Order, June 21, 2019, Docket No. 44.)
On July 11, 2019, Ahlgren filed an amended complaint, which alleges four Counts: (I) actual fraud pursuant to the MUVTA,
DISCUSSION
I. PERSONAL JURISDICTION
A. 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). “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 (8th Cir. 1977)). The party seeking to establish personal jurisdiction bears the burden of proof, and “the burden does not shift to the party challenging jurisdiction.” Epps, 327 F.3d at 647. For purposes of a prima facie showing, the Court
B. Due Process and Specific Personal Jurisdiction
The Court may exercise personal jurisdiction over a defendant only if doing so (1) is consistent with the Minnesota‘s long-arm statute,
“The Due Process Clause of the Fourteenth Amendment constrains a State‘s authority to bind a nonresident defendant to a judgment of its courts.” Walden v. Fiore, 571 U.S. 277, 283 (2014). “The touchstone of the due-process analysis remains whether the defendant has sufficient ‘minimum contacts with [the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.‘” Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG, 646 F.3d 589, 594 (8th Cir. 2011) (alteration in original) (quoting Int‘l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). “The central question is whether a defendant has purposefully availed itself of the privilege of conducting activities in the forum state and should, therefore, reasonably anticipate being haled into court there.” Pecoraro v. Sky Ranch for Boys, Inc., 340 F.3d 558, 562 (8th Cir. 2003) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).
Although personal jurisdiction can be general or specific, this case deals only with whether Defendants have sufficient minimum contacts to support specific jurisdiction.3 “The inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant focuses on the relationship among the defendant, the forum, and the litigation.” Walden, 571 U.S. at 283–84 (internal quotations omitted). In addition to establishing minimum contacts with the forum, for specific personal jurisdiction to be proper, the complained-of conduct must also arise out of the contacts that defendant creates with the forum state. Id. at 284. “[T]he plaintiff cannot be the only link between the defendant and the forum. Rather, it is the defendant‘s conduct that must form the necessary connection with the forum State” for jurisdiction to be proper. Id. at 285.
The Eighth Circuit considers five factors in making a personal jurisdiction determination:
- the nature and quality of the contacts with the forum state;
- the quantity of the contacts with the forum state;
- the relation of the cause of action to the contacts;
- the interest of the forum state in providing a forum for its residents; and
- the convenience of the parties.
Bell Paper Box, Inc. v. Trans W. Polymers, Inc., 53 F.3d 920, 922 (8th Cir. 1995) (citation
C. Analysis
Ahlgren argues that Defendants’ contacts, when viewed in totality, show that Muller and DM Safaris purposefully availed themselves of the privilege of conducting business in Minnesota and that the cause of action arises out of those contacts. The Court agrees with Ahlgren.
The quantity and quality of Defendants’ contacts establish purposeful availment. Pecoraro, 340 F.3d at 562. Muller visited Minnesota in 2014 with the purpose, at least in part, of promoting DM Safaris. Muller acknowledges that business was discussed with Hennessey on the trip and that Muller issued a refund to Hennessey shortly thereafter. Subsequently, Muller solicited a $100,000 loan from Hennessey while Hennessey was in
Having found that sufficient minimum contacts and a nexus exist, “it is presumptively not unreasonable to require [a defendant] to submit to the burdens of litigation in the forum.” Burger King, 471 U.S. at 476. DM Safaris and Muller have not presented any facts or law sufficient to rebut this presumption. Minnesota has a high interest in providing a forum in this matter as Ahlgren is a Minnesota resident and most of the creditors are located here. The inconvenience to Defendants would also not be so burdensome as to violate traditional notions of fair play and substantial justice.
Accordingly, the Court finds that Muller and DM Safaris are subject to specific personal jurisdiction in this case. The Court will deny Defendants’ Motion to Dismiss under
II. FAILURE TO STATE A CLAIM
A. Standard of Review
In reviewing a motion to dismiss under
“When considering a Rule 12(b)(6) motion, ‘the court generally must ignore materials outside the pleadings, but it may consider some materials that are part of the public record or do not contradict the complaint, as well as materials that are necessarily
Defendants seek dismissal of Count II for constructive fraud, Count III for breach-of-contract, and Count IV for unjust enrichment. Each is considered in turn below.
B. Count II: Constructive Fraud
“To cover the variety of situations in which debtors may attempt to place assets beyond the reach of creditors, [MUVTA] allows creditors to recover assets that a debtor transfers with fraudulent intent . . . as well as those transfers that the law treats as constructively fraudulent.” Finn v. Alliance Bank, 860 N.W.2d 638, 644 (Minn. 2015) (citing
Defendants first argue that Ahlgren has not sufficiently pleaded facts showing that the Co-Op failed to receive reasonably equivalent value in exchange for the payments made to Defendants. The Court disagrees. Like the allegations in the related case Ahlgren v. Link, Ahlgren‘s allegations “paint a detailed picture of the circumstances surrounding Hennessey‘s transfers” to Muller and DM Safaris. No. 19-305 (JRT/LIB), 2019 WL 3574598,
Defendants next argue that Ahlgren has not sufficiently pleaded facts showing that the Co-Op was insolvent at the time of the transfers or became insolvent as a result of the transfers. The Court again disagrees. It is true that Ahlgren must, at some point prior to trial, show that the Co-Op was either insolvent at the time of each transfer or became insolvent due to each transfer to Defendants. Finn, 860 N.W.2d at 647–49 (discussing the “transfer-by-transfer” nature of the MUVTA and noting that “a debtor could have assets or legitimate business operations aside from the Ponzi scheme . . . that it uses to stave off insolvency, at least for a while“).
However, insolvency is a factual question that “do[es] not need to be supported by the sort of detailed facts expected to be uncovered at discovery.” In re: RFC & ResCap Liquidating Tr. Litig., No. 13-CV-3451 (SRN/HB), 2017 WL 1483374, at *7 (D. Minn. Apr. 25, 2017). At this stage of the proceeding, Ahlgren has met his burden. As noted above, Ahlgren‘s complaint paints a detailed picture of the extensive, multimillion-dollar fraud that took place. While Hennessey gave the last unauthorized check to Muller roughly three years prior to discovery of the fraud, the sheer magnitude of the fraud, coupled with the fact that Hennessey obtained a $7 million line of credit to keep the Co-Op‘s
Accordingly, the Court finds Ahlgren has adequately pleaded a claim for constructive fraud and will deny Defendants’ Motion to Dismiss Count II.
C. Count III: Breach-of-Contract
Muller and DM Safaris argue that Ahlgren does not have standing to assert a claim for breach-of-contract related to the $100,000 loan because the Co-Op was not a party to the contract between Hennessy and Muller. Muller and DM Safaris argue that “under Minnesota law, strangers to a contract acquire no rights under the contract.” Wurm v. John Deere Leasing Co., 405 N.W.2d 484, 486 (Minn. Ct. App. 1987).
Ahlgren, however, is not a stranger. Hennessey assigned all rights and interest he had in the loan to Ahlgren, the Assignee. Under Minnesota law, “[a] contract to pay money may be assigned by the person to whom the money is payable, unless there is something in the terms of the contract manifesting the intention of the parties that it shall not be assigned.” Wilkie v. Becker, 128 N.W.2d 704, 707 (1964) (quoting 6 Am. Jur. (2d) Assignments, s 16). Here, Muller and DM Safaris do not dispute a contract was formed, nor do they argue that the contract included an anti-assignment clause. Therefore Ahlgren, standing in the shoes of Hennessey per Hennessey‘s assignment of
Accordingly, the Court will deny Defendants’ Motion to Dismiss Count III for breach-of-contract.
D. Count IV: Unjust Enrichment
Defendants seek dismissal of Count IV for unjust enrichment. “[I]t is well settled in Minnesota that one may not seek a remedy in equity when there is an adequate remedy at law.” Bartholomew v. Avalon Capital Group, Inc., 828 F. Supp. 2d 1019, 1030 (D. Minn. 2009) (quoting Southtown Plumbing, Inc. v. Har-Ned Lumber Co., 493 N.W.2d 137, 140 (Minn. Ct. App. 1992)). Accordingly, a plaintiff “may not simultaneously maintain his claims for avoidance of transfers as fraudulent under statute, and his claims for monetary recovery under the equitable theory of unjust enrichment, as to the same transfers and on the same pleaded facts.” In re Petters Co., Inc., 499 B.R. 342, 375 (Bankr. D. Minn. 2013).
Ahlgren pleads, on the same facts, both statutory claims under MUVTA and equitable claims for unjust enrichment. The Court therefore finds that Ahlgren‘s claim in equity for unjust enrichment is precluded by his claim at law under MUVTA. Bartholomew, 828 F. Supp. 2d at 1030; see also Ahlgren v. Link, Civil No. 19-305, 2019 WL 3574598, at *6 (D. Minn. Aug. 6, 2019) (discussing and dismissing similar claims).
Accordingly, the Court will grant Defendants’ Motion to Dismiss Count IV with prejudice.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss [Docket No. 50] is GRANTED in part and DENIED in part as follows:
- The Motion is DENIED as to
Fed. R. Civ. P. 12(b)(2) as the Court has specific personal jurisdiction over Defendants; - The Motion is DENIED as to
Fed. R. Civ. P. 12(b)(6) for Count II for constructive fraud and Count III for breach-of-contract; and . - The Motion is GRANTED with prejudice as to
Fed. R. Civ. P. 12(b)(6) for Count IV for unjust enrichment.
DATED: February 10, 2020 at Minneapolis, Minnesota.
JOHN R. TUNHEIM
United States District Judge