Filed: Nov. 15, 2016
Latest Update: Mar. 03, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1088 UNITED STATES EX REL. KURT BUNK AND RAY AMMONS, Plaintiffs – Appellants, and UNITED STATES EX REL. DANIEL HEUSER, Plaintiff, v. GOVERNMENT LOGISTICS N.V., Defendant – Appellee, and BIRKART GLOBISTICS GMBH & CO. LOGISTIK UND SERVICE KG; THE PASHA GROUP; ANDREAS CHRIST SPEDITION & MOBELTRANSPORT GMBH; JOHN DOE, 1-100; AMERICAN MOPAC INTERNATIONAL, INCORPORATED; DOE DEFENDANTS; GATEWAYS INTERNATIONAL; ALLIED FREIGHT FORWARD
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1088 UNITED STATES EX REL. KURT BUNK AND RAY AMMONS, Plaintiffs – Appellants, and UNITED STATES EX REL. DANIEL HEUSER, Plaintiff, v. GOVERNMENT LOGISTICS N.V., Defendant – Appellee, and BIRKART GLOBISTICS GMBH & CO. LOGISTIK UND SERVICE KG; THE PASHA GROUP; ANDREAS CHRIST SPEDITION & MOBELTRANSPORT GMBH; JOHN DOE, 1-100; AMERICAN MOPAC INTERNATIONAL, INCORPORATED; DOE DEFENDANTS; GATEWAYS INTERNATIONAL; ALLIED FREIGHT FORWARDE..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1088
UNITED STATES EX REL. KURT BUNK AND RAY AMMONS,
Plaintiffs – Appellants,
and
UNITED STATES EX REL. DANIEL HEUSER,
Plaintiff,
v.
GOVERNMENT LOGISTICS N.V.,
Defendant – Appellee,
and
BIRKART GLOBISTICS GMBH & CO. LOGISTIK UND SERVICE KG; THE
PASHA GROUP; ANDREAS CHRIST SPEDITION & MOBELTRANSPORT
GMBH; JOHN DOE, 1-100; AMERICAN MOPAC INTERNATIONAL,
INCORPORATED; DOE DEFENDANTS; GATEWAYS INTERNATIONAL;
ALLIED FREIGHT FORWARDERS; NORTH AMERICAN VAN LINES, INC.;
GLOBAL WORLDWIDE INCORPORATED; AIR LAND FORWARDERS SUDDATH;
COVAN INTERNATIONAL; JET FORWARDING INCORPORATED; ARPIN
INTERNATIONAL; BIRKART GLOBISTICS AG; THIEL LOGISTIK AG;
VIKTORIA SCHAFER INTERNATIONALE SPEDITION GMBH; VIKTORIA-
SKS KURT SCHAFER INTERNATIONALE GMBH & CO., KG; GILLEN &
GARCON GMBH & CO. INTERNATIONALE SPEDITION KG; GILLEN &
GARCON GMBH & CO. KG; M.T.S. HOLDING & VERWALTUNGS GMBH,
d/b/a M.T.S. Gruppe; ANDREAS CHRIST GMBH; MICHAEL
VILLINGER; ERWIN WEYAND; NICODEMUS GOSSELIN; DIETER
SCHMEKEL; JURGEN GRAF; HORST BAUR; KURT SCHAFER; MARTINA
SCHAFER; BIRKART VERMOGENSVERWALTUNG GMBH; LOGWIN AIR +
OCEAN DEUTSCHLAND GMBH; LOGWIN HOLDING DEUTSCHLAND GMBH;
MISSY DONNELLY; GEORGE PASHA; AMERICAN SHIPPING
INCORPORATED; CARTWRIGHT INTERNATIONAL VAN LINES
INCORPORATED; JIM HAHN; INTERNATIONAL SHIPPERS ASSOCIATION
INCORPORATED; GOSSELIN WORLDWIDE MOVING, N.V.; GOSSELIN
GROUP N.V.; MARC SMET; GOSSELIN WORLD WIDE MOVING, N.V.;
VIKTORIA INTERNATIONAL SPEDITION; JEFFREY CARLL COFFMAN;
ITO MOBEL TRANSPORT GMBH,
Defendants.
------------------------------
UNITED STATES ATTORNEY GENERAL,
Amicus Curiae.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony John Trenga,
District Judge. (1:02-cv-01168-AJT-TRJ; 1:07-cv-01198-AJT-TRJ)
Argued: September 21, 2016 Decided: November 15, 2016
Before KING, SHEDD, and THACKER, Circuit Judges.
Vacated and remanded by published opinion. Judge King wrote the
opinion, in which Judge Shedd and Judge Thacker joined.
ARGUED: John Edgar Petite, GREENSFELDER, HEMKER & GALE, PC, St.
Louis, Missouri, for Appellant. William Francis Coffield, IV,
Laina Catherine Wilk Lopez, BERLINER CORCORAN & ROWE LLP,
Washington, D.C., for Appellee. Michael Shih, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus United
States of America. ON BRIEF: Ann Lugbill, Mark Hanna, Lauren
Hoff-Downing, MURPHY ANDERSON PLLC, Washington, D.C.; Richard E.
Greenberg, GREENSFELDER, HEMKER & GALE, PC, St. Louis, Missouri,
for Appellant. Benjamin C. Mizer, Principal Deputy Assistant
Attorney General, Michael S. Raab, Civil Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C.; Dana J. Boente, United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Alexandria, Virginia, for Amicus United States of America.
2
KING, Circuit Judge:
We are for the third time entertaining this complex matter,
which began more than fifteen years ago as a bid-rigging scheme
conjured up by shipping businesses to defraud the United States.
In 2004, Gosselin Group N.V. (then known as Gosselin World Wide
Moving, N.V.) and another business entity entered conditional
guilty pleas in the Eastern District of Virginia to a pair of
criminal conspiracy offenses. The district court thereafter
dismissed one of those charges, and cross-appeals ensued. We
determined in those appeals that the defendants were criminally
liable for both conspiracies and remanded for resentencing. See
United States v. Gosselin World Wide Moving, N.V., 411 F.3d 502
(4th Cir. 2005).
More recently, in the qui tam proceedings at issue herein,
a jury returned a verdict in 2011 against three defendants that
we collectively refer to as the “Gosselin defendants”: Gosselin
Group; Gosselin Worldwide Moving, N.V.; and Marc Smet, Gosselin
Group’s Chief Executive Officer and former Managing Director.
Appeals were pursued by the United States and by relators Kurt
Bunk and Ray Ammons (together, the “Relators”), who contested
the district court’s refusal to award civil penalties. We
granted relief, directing the court to enter judgment on a claim
pursued by Bunk in the sum of $24,000,000 — to be levied against
the Gosselin defendants — and remanding for further proceedings.
3
See United States ex rel. Bunk v. Gosselin World Wide Moving,
N.V., 741 F.3d 390 (4th Cir. 2013).
On remand, the district court was called upon to resolve
the issue of whether Bunk was entitled to recover his judgment
from another defendant, Government Logistics N.V. (“GovLog”),
which was alleged to be a successor corporation to Gosselin
Group. In disposing of the successor corporation liability
issue, the court ruled against Bunk on two bases. See United
States ex rel. Bunk v. Birkart Globistics GmbH & Co., No. 1:02-
cv-01168 (E.D. Va. Dec. 23, 2014), ECF No. 1362 (the
“Decision”). First, the court decided that the successor
corporation liability claims against GovLog should be dismissed
because they had been inadequately pleaded. In the alternative,
the Decision rejected those claims on the merits and awarded
summary judgment, ruling that there was insufficient evidence to
justify a trial. The Relators have appealed from the judgment,
and as explained below, we are satisfied that the court erred.
We therefore vacate and remand.
I.
Two government programs that facilitate the shipment of
household goods belonging to military and domestic personnel to
4
and from Europe have been at the center of this litigation. 1 The
first, known as the International Through Government Bill of
Lading (“ITGBL”) program, involves the solicitation of bids by
the Department of Defense (the “DOD”) from domestic freight
forwarders who then subcontract their foreign operations to
overseas businesses. The second, known as the Direct
Procurement Method (“DPM”) program, involves the solicitation of
bids by the DOD directly from foreign businesses. Both programs
were, as relevant to the bid-rigging conspiracy, administered by
the Army’s Military Transport Management Command (the “MTMC”). 2
Beginning in about 2001, the Gosselin defendants and at
least one other entity, The Pasha Group, agreed to and
implemented the bid-rigging scheme. Their scheme substantially
increased the prices that the DOD paid to the culprits for
shipping household goods belonging to military and diplomatic
personnel to and from Europe under the ITGBL and DPM programs.
As a result of what we characterized in the 2005 criminal
appeals as “naked bid rigging,” the DOD paid millions of dollars
more to the conspirators than it should have paid. See
1
Because we are assessing the award of summary judgment, we
recite the facts in the light most favorable to the Relators.
See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003).
2
The MTMC is now the Army’s Surface Deployment and
Distribution Command.
5
Gosselin, 411 F.3d at 508. The bid-rigging scheme did not go
undetected, as it resulted in these qui tam proceedings and the
successful criminal prosecutions.
A.
In 2002, the Relators instituted these qui tam proceedings
under the False Claims Act (the “FCA”). 3 The Relators operated
businesses that provided to the DOD services much like those
performed by Gosselin Group and Pasha. Bunk filed his qui tam
action in the Eastern District of Virginia on August 2, 2002,
alleging an FCA claim related to the DPM program (the “DPM
claim”). 4 Ammons filed his qui tam action in the Eastern
District of Missouri on September 17, 2002, alleging FCA claims
related to the ITGBL program (the “ITGBL claim”) and to Gosselin
Group’s exertion of pressure on Covan International (the “Covan
claim”) and Cartwright International Van Lines (the “Cartwright
claim”) to submit higher ITGBL bids. Both qui tam actions were
3 The FCA, codified at 31 U.S.C. §§ 3729-3733, imposes
liability on individuals and entities who defraud government
programs. A claim under the FCA can be instituted by the United
States or by a private individual (i.e., a relator) via a qui
tam action. See 31 U.S.C. § 3730(a)-(b). The government may
intervene in a qui tam action. Id. § 3730(b)(2). If a qui tam
action is successful, the relators are entitled to share with
the government in the award.
Id. § 3730(d).
4 Bunk initially filed his qui tam action with another
relator, Daniel Heuser, who has since withdrawn from the
litigation.
6
commenced under seal, pursuant to 31 U.S.C. § 3730, and remained
sealed and pending in the district courts during the criminal
proceedings.
B.
On November 13, 2003, a grand jury in the Eastern District
of Virginia returned a two-count indictment against Gosselin
Group and Smet, charging them with conspiracy to restrain trade,
in violation of 15 U.S.C. § 1, and conspiracy to defraud the
United States, in contravention of 18 U.S.C. § 371. Describing
the manner and means of the conspiracy to restrain trade, the
two-count indictment specified that Gosselin Group, Smet, and
their co-conspirators “participat[ed] in meetings and
conversations to discuss and agree upon a strategy to eliminate
the prime rates” in specific transportation routes, or channels,
“from Germany to the United States for the transportation of
military household goods.” See Indictment, United States v.
Gosselin World Wide Moving, N.V., No. 1:03-cr-00551, at ¶ 16
(E.D. Va. Nov. 13, 2003), ECF No. 19. The indictment further
alleged that Gosselin Group and Smet engaged in “written
exchanges and other communications” to ensure other freight
forwarders would not match the rates set by “a certain co-
conspirator U.S. freight forwarder” and would cancel any rates
lower than the second highest rate in channels from Germany to
the United States. Id. The indictment charged the same with
7
respect to the conspiracy to defraud the United States. Id.
¶ 25 (alleging that Gosselin Group and Smet “discussed and
agreed upon a strategy to eliminate the prime rates”); see also
id. ¶¶ 26-27.
In February 2004, Gosselin Group and Pasha agreed to be
charged and prosecuted by criminal information in the Eastern
District of Virginia for those same conspiracy offenses. By
plea agreements with the United States Attorney, Gosselin Group
and Pasha also agreed to plead guilty to the two charges alleged
in the information. Smet, who signed Gosselin Group’s plea
agreement individually and on behalf of Gosselin Group, thereby
escaped further criminal prosecution. That is, as a result of
Gosselin Group’s plea agreement being consummated, the
prosecutors dismissed the indictment theretofore lodged against
Gosselin Group and Smet.
Pursuant to its plea agreement, Gosselin Group admitted
that, at Smet’s urging, Gosselin Group and Pasha had conspired
to undermine the ITGBL program’s competitive bidding process by
preventing “me-too bids,” or matching bids, from converging to
the prime through rate (i.e., the low bid for a particular
route). 5 To accomplish that objective in particular channels,
5
A through rate “is a payment encompassing all the costs
involved in a door-to-door move of DOD personnel’s household
effects.” See Gosselin, 411 F.3d at 505.
8
“[i]n early January 2002, [Smet] agreed in writing to pay twelve
of the largest German moving agents a specified fee,” and “[t]he
German agents . . . agreed not to handle business from freight
forwarders in those channels unless the forwarders submitted me-
too bids at the second lowest level . . . or above.” See
Gosselin, 411 F.3d at 507. Even more, as Smet acknowledged in a
writing filed with the district court, Gosselin Group, Pasha,
and their co-conspirators had “provided misleading information
to DOD personnel in Germany.” See Statement of Facts, United
States v. Gosselin World Wide Moving, N.V., No. 1:03-cr-00551,
at ¶ 31 (E.D. Va. Feb. 19, 2004), ECF No. 93 (the “Statement of
Facts”). 6 In the end, the scheme to defraud the DOD was
successful and “Gosselin was awarded a contract, effective May
1, 2001, after colluding with its fellow bidders to artificially
inflate the packing and loading component of the submitted
bids.” See
Bunk, 741 F.3d at 396. In turn, “Gosselin
subcontracted much of the work, in predetermined allocations, to
its supposed competitors.”
Id. As a result of the bid-rigging
scheme, “DOD’s costs to transport military household goods were
6 Pursuant to Gosselin Group’s plea agreement, Smet and
Gosselin Group “admit[ted] the facts set forth in the [Statement
of Facts] and agree[d] that those facts establish[ed] guilt for
the [two conspiracy] offenses charged beyond a reasonable
doubt.” See Plea Agreement, United States v. Gosselin World
Wide Moving, N.V., No. 1:03-cr-00551, at 4 (E.D. Va. Feb. 18,
2004), ECF No. 92.
9
greater than they would have been had the shipments moved at the
prime through rates.” See Statement of Facts ¶ 32.
The guilty pleas of Gosselin Group and Pasha were tendered
to and accepted by the district court in Alexandria on February
18, 2004. Pursuant to a separate agreement between Smet and the
Army, Smet was barred from doing business with the United States
for three years, from March 2004 to March 2007. Soon after that
agreement was executed, a so-called United States Management
Team was created within Gosselin Group to handle its business —
in Smet’s absence — with the DOD. That team consisted of four
Gosselin Group employees: Chief Operating Officer Stephan
Geurts Sr., his son Stephan Geurts Jr., plus Timotheus Noppen
and Ludi Bokken.
Meanwhile, Gosselin Group and Pasha exercised a reservation
under their plea agreements to pursue an immunity claim in the
district court, seeking dismissal of both the charges lodged in
the information. In that regard, they asserted that their bid-
rigging scheme was entirely immune from federal prosecution. In
August 2004, the district court determined that certain
provisions of the Shipping Act immunized Gosselin Group and
Pasha from federal prosecution on the antitrust conspiracy
10
offense alleged in the information. 7 The court also ruled,
however, that those defendants possessed no immunity from
prosecution on the other charge, the conspiracy to defraud the
United States. Gosselin Group and Pasha were therefore
sentenced on the conspiracy to defraud offense only.
In 2005, the government successfully appealed to this Court
the district court’s immunity ruling on the antitrust conspiracy
offense. Our decision rejected the proposition that Gosselin
Group and Pasha were somehow immune from prosecution on that
offense. See Gosselin, 411 F.3d at 505. Concomitantly, we
rejected Gosselin Group’s and Pasha’s cross-appeals seeking
immunity from prosecution on the conspiracy to defraud offense.
Id. As Judge Wilkinson succinctly explained, “the Shipping
Act’s immunity provisions afford [the conspirators] no relief
from liability for the antitrust violation and conspiracy to
defraud they have admitted.”
Id. Concluding that Gosselin
Group and Pasha were not entitled to immunity on either offense,
we remanded to the district court for resentencing. Those
proceedings were conducted in 2006.
7
The immunity provisions of the Shipping Act invoked by
Gosselin Group and Pasha were, at the time, 46 U.S.C. app.
§ 1706(a)(2), 46 U.S.C. app. § 1706(a)(4), and 46 U.S.C. app.
§ 1706(c)(1). Currently, those provisions of the Shipping Act
are codified at 46 U.S.C. § 40307.
11
In the resentencing proceedings, the district court imposed
a $6,000,000 fine on Gosselin Group for its offenses. It
imposed two separate $4,600,000 fines on Pasha — one for each
count — for an aggregate fine of $9,200,000. The court also
ordered both Gosselin Group and Pasha to make restitution to the
DOD for losses suffered by the MTMC, in the sum of $865,000.
C.
In September 2006, with the criminal proceedings concluded,
the Department of Justice (the “DOJ”) gave the Gosselin
defendants notice of the two pending qui tam actions. The DOJ
lawyers detailed the false claims and bid-rigging evidence
underlying the qui tam actions to the lawyers for the Gosselin
defendants and advised them that the United States might
intervene. Shortly thereafter, in January 2007, the DOJ
communicated a settlement demand to the Gosselin defendants.
After completion of the criminal proceedings and with the
civil qui tam proceedings just beginning, Smet was completely
“fed up” with the DOJ and the DOD — a sentiment he expressed to
Geurts Jr. See J.A. 637. 8 As Smet further explained to Noppen,
his frustration arose from the “whole criminal case and
everything around it.” Id. at 675; see also, e.g.,
id. at 427
8Citations herein to “J.A. ___” refer to the contents of
the Joint Appendix filed by the parties in this appeal.
12
(“[Smet] was really fed up with all those chasings towards his
person . . . .”). Smet thus approached Jan Lefebure, who worked
as Managing Director of International Freight Forwarding Service
(which handled Gosselin Group’s commercial exports), with a
proposal to move Gosselin Group’s business with the United
States into the hands of another business entity.
Lefebure owned a corporation called Brabiver, which was
described by Geurts Jr. as a “company doing nothing.” See J.A.
640. Notably, however, and helpful to Smet, Brabiver owned “a
license for transportation or freight forwarding.” Id. Smet
proposed to Lefebure a scheme “to reopen [Brabiver], and to put
his [i.e., Gosselin Group’s] . . . government contracts into
it.”
Id. at 426.
Joining Lefebure as principals in the Brabiver venture, as
orchestrated by Smet, were Noppen, Geurts Jr., and Rene Beckers
— all of whom were employed by Gosselin Group or one of its
subsidiaries. On June 27, 2007, in order to carry out Smet’s
scheme and to capitalize Brabiver, Smet made several interest-
free loans to the four principals, totalling approximately
€100,000. 9 Noppen, Geurts Jr., and Beckers each received loans
from Smet of more than €24,000. Lefebure received an initial
9
As of June 27, 2007, €100,000 was equal to approximately
$134,000. See Foreign Exchange, N.Y. Times, June 27, 2007, at
C12.
13
loan of more than €16,000, which was later increased to more
than €27,000. Notably, those interest-free loans were not
secured in any way. Each loan was repayable on Smet’s demand,
but no demands were ever made.
On June 28, 2007, at their first and only shareholder
meeting, Smet’s hand-picked principals used the foregoing loans
to purchase shares in and to formalize Brabiver’s resurgence as
GovLog — a new name selected by Smet himself. The next day,
June 29, 2007, GovLog and Gosselin Group entered into a series
of agreements, memorialized by contracts prepared by Smet’s
attorneys and presented by Smet to the GovLog principals. Two
of the agreements transferred Gosselin Group’s business with the
DOD to GovLog, and three other agreements committed GovLog to
exclusively use the services of Gosselin Group and its related
entities to perform the DOD contracts.
In exchange for Gosselin Group’s business with the DOD,
GovLog paid nothing at the time. Instead, GovLog promised
Gosselin Group a percentage of its future net revenues. The
agreements transferring Gosselin Group’s business with the DOD
to GovLog defined those net revenues as “all of those revenues
received by GovLog . . . minus the amount of the [services]
invoiced by [Gosselin Group] to GovLog in connection with” the
services provided to GovLog by Gosselin Group and its
subsidiaries. See J.A. 832 (emphasis omitted) (regarding
14
facility services); see also id. at 839 (regarding support
services). The terms of the various agreements were not even
negotiated; rather, they were all dictated by Smet. After
Smet’s lawyers prepared the agreements, Smet simply handed them
to Lefebure, who signed each on behalf of GovLog.
At no point during the implementation of the GovLog scheme
did Gosselin Group consider selling or seek to sell its business
interests to any entity other than GovLog. Manned with only
about twenty employees — all but one of whom joined GovLog from
Gosselin Group — GovLog began its DOD shipping operations on
behalf of Gosselin Group on July 1, 2007.
Thereafter, the sole business of GovLog was signing
contracts with the DOD and arranging shipping services for the
DOD. It did not, as Lefebure said, actually do any shipping.
As Lefebure testified:
Q. . . . . Other than making the arrangements for
these movements of household goods, does [GovLog]
provide any other services?
A. For the time being, no.
See J.A. 751. Although GovLog contracted with the DOD and
GovLog’s carriers to perform shipping services, Gosselin Group
continued to perform nearly all those services. GovLog did not
have its own warehousing facilities; it leased warehousing
facilities from Gosselin Group. GovLog owned nothing except a
couple of automobiles, a chair, and a table.
15
GovLog earned no net revenues, as defined by its agreements
with Gosselin Group, during the 2007 or 2008 fiscal years. As a
result, GovLog was not obligated to pay any funds to Gosselin
Group in exchange for Gosselin Group’s business with the DOD.
GovLog, however, paid Gosselin Group for the leased warehouse
facilities and other Gosselin Group services. In other words,
as a representative of GovLog succinctly explained, “the money
that’s going to GovLog is actually ending up being paid to
Gosselin.” See J.A. 1322.
D.
Meanwhile, on November 7, 2007, Ammons’s qui tam action was
transferred from the Eastern District of Missouri to the Eastern
District of Virginia, where Bunk’s qui tam action remained
pending. The two qui tam suits were thereafter consolidated.
In 2008, after GovLog was formed, the district court ordered the
Relators’ complaints unsealed. On July 18, 2008, Ammons’s qui
tam complaint was superseded by the government’s Complaint in
Intervention. See 31 U.S.C. § 3730(b)(2) (“The Government may
elect to intervene and proceed with the action . . . .”). The
government did not, however, intervene in Bunk’s qui tam suit. 10
10 Although Relator Ammons became a subordinated party upon
the government’s intervention in his qui tam action, he
nevertheless maintained his status as a plaintiff. See 31
U.S.C. § 3730(c)(1) (“[The person bringing the action] shall
have the right to continue as a party to the action . . . .”).
(Continued)
16
In its Complaint in Intervention, the government named
GovLog as a defendant, alleging that GovLog was “a
successor/transferee in interest of Gosselin [Group].” See
Compl. Int. ¶ 15. On October 2, 2008, Bunk filed his Second
Amended Complaint, which also included GovLog as a named
defendant and alleged a successor corporation liability claim
against GovLog. In December 2009, Bunk amended his complaint
again, filing his operative Third Amended Complaint (the “Bunk
Complaint”).
The Bunk Complaint “pleaded various FCA theories of
liability against [the Gosselin defendants] and others. Suing
in his individual capacity, Bunk joined several additional
claims, including a 42 U.S.C. § 1985 claim . . . and state law
claims.” See Bunk, 741 F.3d at 398-99 (citations omitted). As
we observed in Bunk, however, only his DPM claim was not
superseded by the government’s Complaint in Intervention:
Although the government did not intervene in the Bunk
proceeding, the district court determined that all of
Bunk’s claims had nonetheless been effectively
superseded by the [government’s Complaint in
Intervention], except for Count II of the Bunk
Bunk’s status did not change as a result of the government’s
intervention in Ammons’s action. See id. § 3730(c)(3) (“If the
Government elects not to proceed with the action, the person who
initiated the action shall have the right to conduct the
action.”).
17
Complaint, which sought recovery under the FCA for
Gosselin’s actions in connection with the DPM scheme.
Id. at 399 n.8; see also Bunk Compl. ¶ 148 (alleging that the
Gosselin defendants “knowingly made, used, or caused to be used
a false record or statement to get a false claim paid or
approved by the United States Government”). By incorporating
and realleging a substantial portion of the Bunk Complaint, see
Bunk Compl. ¶ 147, Count II of the Bunk Complaint alleged the
successor corporation liability contention in the following
terms:
The transaction between [GovLog] and [Gosselin Group]
is, knowingly, a sham transaction for inadequate
consideration through which Gosselin Group . . .
and/or its operating subsidiaries still profit through
their business interests in shipping related to U.S.
Government markets and that transaction is designed to
hinder, delay and/or defraud Relators as a potential
judgment creditor.
Id. ¶ 30.
On May 11, 2011, after the government and the Relators had
moved for summary judgment on the issue of whether GovLog was
liable as a successor corporation of Gosselin Group, the
district court severed the claims against GovLog from those
against the Gosselin defendants. The court then proceeded to
conduct a trial, seeking to first resolve the claims against the
Gosselin defendants.
18
The jury trial on the DPM, ITGBL, and Covan claims against
the Gosselin defendants began in Alexandria on July 18, 2011. 11
At the close of the government’s case, on July 28, 2011, the
district court awarded judgment as a matter of law to the
Gosselin defendants on the ITGBL claim. The DPM and Covan
claims were submitted to the jury, and on August 4, 2011, the
jury returned a verdict against the Gosselin defendants on the
DPM claim and in favor of the Gosselin defendants on the Covan
claim.
With respect to the DPM scheme, the trial evidence
established that the Gosselin defendants had submitted 9,136
false invoices to the DOD. Each of those false claims
authorized the imposition of a minimum civil penalty of $5,500.
As we explained in our Bunk decision, the “imposition of no more
than the statutory minimum . . . would have resulted in a
cumulative penalty just in excess of $50 million.” See 741 F.3d
at 401. Nevertheless, the district court did not impose any
civil penalties, ruling that such an award would be
unconstitutionally punitive in violation of the Excessive Fines
Clause of the Eighth Amendment.
Id.
11
Before the 2011 jury trial began, the district court
granted partial summary judgment to the government on the
Cartwright claim against the Gosselin defendants. See
Bunk, 741
F.3d at 399-400.
19
Both the government and the Relators appealed, and the
Gosselin defendants cross-appealed. Bunk challenged the
district court’s denial of civil penalties in relation to the
DMP claim; the government challenged the court’s award of
judgment to the Gosselin defendants on the ITGBL claim; and the
Gosselin defendants argued that Bunk lacked standing to sue.
After rejecting the Gosselin defendants’ standing argument, we
directed the court to amend its civil penalties judgment and to
award $24,000,000 in civil penalties to Bunk on the DPM claim.
See Bunk, 741 F.3d at 404-05, 411. We explained that such an
award was not unconstitutionally excessive under the Eighth
Amendment, and specified that the award “appropriately reflects
the gravity of Gosselin’s offenses and provides the necessary
and appropriate deterrent effect going forward.”
Id. at 409.
Finally, we vacated the court’s entry of judgment in favor of
the Gosselin defendants on the ITGBL claim.
Id. at 411. We
thus remanded the matter for further proceedings. 12
E.
In additional Bunk remand proceedings, with the claims
against the Gosselin defendants having been resolved, the
12On August 1, 2014, during the remand proceedings in the
district court, a jury in Alexandria returned a verdict in favor
of the government on the ITGBL claim. On December 24, 2014,
however, the district court granted the Gosselin defendants’
renewed motion for judgment on that claim.
20
district court turned to the successor corporation liability
claims that were pending against GovLog. In that regard, the
court initially focused on identifying the applicable legal test
for a successor corporation liability claim. The Relators
requested that the court apply the substantial continuity test
enunciated by this Court in United States v. Carolina
Transformer Co., 978 F.2d 832 (4th Cir. 1992), as an expansion
of traditional common law principles. GovLog contended,
however, that use of the substantial continuity test was
foreclosed by the Supreme Court’s 1998 decision in United States
v. Bestfoods,
524 U.S. 51 (1998). On September 12, 2014, the
district court agreed with GovLog and ruled that application of
Carolina Transformer’s substantial continuity test in the
context of the FCA would be inconsistent with Bestfoods. As a
result, the court decided that only traditional common law
principles would govern the issue of GovLog’s liability as a
successor corporation. The court then invited the parties to
renew and litigate their motions for summary judgment.
Relying on a fraudulent transaction theory of successor
corporation liability under the common law, the Relators and the
government, on November 3, 2014, sought summary judgment with
respect to the successor corporation liability claims. GovLog
then cross-moved for summary judgment, also asking for judgment
on the pleadings. In support of its request for judgment on the
21
pleadings, GovLog maintained that the government’s Complaint in
Intervention and Count II of the Bunk Complaint failed to
properly allege that GovLog was liable as a successor
corporation to Gosselin Group. In its summary judgment request,
GovLog cast the fraudulent transaction theory posited by the
government and the Relators as entirely speculative, arguing
that the evidence was insufficient to create any material issues
of fact, thereby entitling GovLog to summary judgment.
On December 23, 2014, the district court granted judgment
to GovLog, utilizing two theories. See Decision 2-3. The
Decision first concluded that neither complaint had properly
alleged that GovLog was liable as a successor corporation to
Gosselin Group under any recognized legal theory.
Alternatively, the court concluded that GovLog was entitled to
summary judgment for want of a genuine dispute of material fact.
Indeed, the court ruled that the various transactions between
Gosselin Group and GovLog were not shown to have been pursued
with a fraudulent intention. In the court’s view, there was
simply “no evidence sufficient to establish any of the
recognized ‘badges of fraud’” with respect to the creation and
operation of GovLog. Id. at 9.
The district court observed that Gosselin Group “had an
absolute right to end its direct contractual relationship with
the American carriers and there was nothing that could be deemed
22
fraudulent based on that decision alone,” and that Gosselin
Group “was not under any obligation to stay in any particular
line of business in order to generate revenue to pay the
judgment.” See Decision 10. The Decision swept aside the
government’s and the Relators’ contentions that the transfer
lacked consideration, explaining, inter alia, that Gosselin
Group “did not transfer or assign any ITGBL contracts to
GovLog,” and “[t]here is likewise no evidence, expert or
otherwise, that the [various agreements between Gosselin Group
and GovLog failed to] provide commercially reasonable terms or
adequate consideration.” Id. at 11-12. Accordingly, on
December 29, 2014, the court entered judgment in favor of
GovLog.
The Relators timely noted this appeal from the judgment.
We possess jurisdiction pursuant to 28 U.S.C. § 1291. 13
II.
At the outset, we must address GovLog’s contention that the
district court lacked subject matter jurisdiction over Bunk’s
13
The government initially appealed from the judgment in
favor of GovLog, but dismissed its appeal. We thereafter
requested the Attorney General to make an amicus curiae
submission in the Relators’ appeal. The United States has
submitted a brief in support of the Relators, and government
counsel participated in the oral argument of this appeal.
23
successor corporation liability claim against GovLog and that
the claim thus must be dismissed. The question is whether the
court possessed supplemental jurisdiction over Bunk’s claim.
If a district court possesses original jurisdiction in a
civil proceeding, it “shall have supplemental jurisdiction over
all other claims that are so related to claims in the action
within such original jurisdiction that they form part of the
same case or controversy.” See 28 U.S.C. § 1367(a).
Supplemental jurisdiction “is not limited to restatements of the
same basic ground for recovery.” White v. Cty. of Newberry,
S.C., 985 F.2d 168, 172 (4th Cir. 1993). Indeed, the related
claims “need only revolve around a central fact pattern.”
Id.
We review de novo an issue of whether subject matter
jurisdiction was possessed by a district court. See Taylor v.
Kellogg Brown & Root Servs., Inc.,
658 F.3d 402, 408 (4th Cir.
2011).
Original jurisdiction is supplied in these qui tam
proceedings by Bunk’s FCA claim (i.e., the DPM claim). See 28
U.S.C. § 1331. Supplemental jurisdiction thus turns on whether
the inquiry into the successor corporation liability claim
against GovLog involves the same facts as the FCA claim. Here,
GovLog’s liability as a successor corporate entity is wholly
dependent on the Gosselin defendants’ liability under the FCA;
that is, the facts upon which the $24,000,000 judgment against
24
the Gosselin defendants was predicated also serve as the
foundation for GovLog’s liability as a successor corporate
entity. Simply put, those two issues “revolve around a central
fact pattern.” See White, 985 F.2d at 172; see also, e.g., Bd.
of Trs., Sheet Metal Workers’ Nat’l Pension Fund v. Elite
Erectors, Inc.,
212 F.3d 1031, 1037 (7th Cir. 2000) (observing
that “federal courts may entertain vicarious-liability theories
in a single suit” by way of supplemental jurisdiction).
Nevertheless, GovLog maintains that the district court
lacked supplemental jurisdiction with respect to Bunk’s
successor corporation liability claim under the Supreme Court’s
decision in Peacock v. Thomas, 516 U.S. 349 (1996). The Peacock
Court was concerned with a district court’s exercise of
ancillary jurisdiction over subsequent proceedings, concluding
that “ancillary jurisdiction is not justified over a new lawsuit
to impose liability for a judgment on a third party.”
Id. at
359 (emphasis added). 14 This matter is readily distinguishable
from Peacock. Bunk’s successor corporation liability claim
against GovLog, as alleged in Count II of the Bunk Complaint, is
not part of a new lawsuit; indeed, the successor corporation
14
In Peacock, the Supreme Court recognized that “Congress
codified much of the common-law doctrine of ancillary
jurisdiction as part of ‘supplemental jurisdiction’ in 28 U.S.C.
§ 1367.” See 516 U.S. at 354 n.5.
25
liability question is part and parcel of Bunk’s original qui tam
action. Accordingly, the Peacock principle is inapplicable
here, and the district court’s exercise of supplemental
jurisdiction over the successor corporation liability claim
against GovLog was entirely appropriate.
III.
Turning to the heart of this appeal, we must assess and
decide whether the district court erred by entering judgment in
favor of GovLog on the successor corporation liability issue.
In the district court, Bunk pressed two theories of successor
corporation liability against GovLog: (1) the substantial
continuity theory, and (2) the fraudulent transaction theory.
After an opening round of briefing, the court rejected the
substantial continuity test, deeming it inconsistent with
Supreme Court precedent. Additional briefing ensued, and the
court’s Decision ruled that Bunk had not adequately pleaded the
fraudulent transaction theory. In the alternative, the Decision
determined that the fraudulent transaction theory of successor
corporation liability was without evidentiary support, leaving
no genuine issue of material fact and entitling GovLog to
summary judgment. On appeal, Bunk challenges each of those
rulings.
26
A.
As a general rule, a corporation that acquires the assets
of another corporation does not also acquire its liabilities.
See United States v. Carolina Transformer Co., 978 F.2d 832, 838
(4th Cir. 1992). The traditional rule against successor
corporation liability, however, is subject to four exceptions
under the federal common law. That is, a successor corporation
takes on the liabilities of its predecessor if
(1) the successor expressly or impliedly agrees to
assume the liabilities of the predecessor; (2) the
transaction may be considered a de facto merger;
(3) the successor may be considered a “mere
continuation” of the predecessor; or (4) the
transaction is fraudulent.
Id. 15
15
That federal common law principles apply in this matter
is not undisputed. GovLog argued in its brief for the
application of Belgian law, premised on choice-of-law provisions
in contractual agreements it had with Gosselin Group. See,
e.g., J.A. 314 (providing that any disputes arising under
agreement between GovLog and Gosselin Group shall be determined
by Belgian law);
id. at 321 (same). We are satisfied that
Belgian law does not apply because GovLog cannot foist upon Bunk
a choice-of-law provision contained in an agreement between
GovLog and Gosselin Group. See Berg Chilling Sys., Inc. v. Hull
Corp.,
435 F.3d 455, 466 (3d Cir. 2006) (“In general, while it
makes sense to allow the parties to a contract to control which
law applies to their agreement, it does not follow that the
contract provisions should control an inquiry that, by its
nature, looks beyond the contract.”). Although there yet may be
some question of whether principles of federal common law or
Virginia law apply here, the parties have not argued that point.
In any event, Virginia law does not meaningfully diverge from
federal common law concerning successor corporation liability.
Notably, federal common law and Virginia law both recognize the
(Continued)
27
The mere continuation theory authorizes the imposition of
liability if, “after the transfer of assets, only one
corporation remains, and there is an identity of stock,
stockholders, and directors between the two corporations.”
Carolina Transformer, 978 F.2d at 838. Bunk is unable to rely
on the mere continuation theory because the two corporations —
GovLog and Gosselin Group — were both viable after the transfer.
Bunk therefore relies on the more lax substantial
continuity theory conceived in Carolina Transformer.
Substantial continuity expands on the mere continuation theory,
allowing a court to look at an ensemble of at least eight
factors to determine whether successor corporation liability
should be imposed. See Carolina Transformer, 987 F.2d at 838
(identifying relevant factors as “(1) retention of the same
employees; (2) retention of the same supervisory personnel;
(3) retention of the same production facilities in the same
location; (4) production of the same product; (5) retention of
the same name; (6) continuity of assets; (7) continuity of
traditional exceptions to the rule against successor corporation
liability. Compare, e.g., Carolina
Transformer, 978 F.2d at
838, with Harris v. T.I., Inc.,
413 S.E.2d 605, 609 (Va. 1992).
Both bodies of law also look to and apply what are called
“badges of fraud” to determine whether a conveyance was
fraudulent. Compare BFP v. Resolution Tr. Corp.,
511 U.S. 531,
540-41 (1994), with Fox Rest Assocs., L.P. v. Little,
717 S.E.2d
126, 131-32 (Va. 2011). In the circumstances, we are satisfied
to apply federal common law.
28
general business operations; and (8) whether the successor holds
itself out as the continuation of the previous enterprise”).
As the Supreme Court instructed in United States v.
Bestfoods, however, “the failure of [a] statute to speak to a
matter as fundamental as the liability implications of corporate
ownership demands application of the rule that ‘[i]n order to
abrogate a common-law principle, the statute must speak directly
to the question addressed by the common law.’” See 524 U.S. 51,
63 (1998) (second alteration in original) (quoting United States
v. Texas,
507 U.S. 529, 534 (1993)). Put simply, the FCA does
not speak to successor corporation liability and thus has no
impact on the traditional common law principles governing
successor corporation liability. It follows that Carolina
Transformer’s substantial continuity theory — a theory that
alters the common law mere continuation rule — is not a viable
theory for Bunk to pursue. Accordingly, we are satisfied that
the district court properly declined to apply the substantial
continuity test here.
B.
Without the substantial continuity theory, Bunk must rely
on the fourth exception identified in our Carolina Transformer
decision — the fraudulent transaction theory of successor
corporation liability. The district court, however, rejected
Bunk’s allegations as insufficient with respect to that theory.
29
See Decision 2 n.3 (“The Court concludes that the plaintiffs had
not, prior to the current round of summary judgment proceedings,
adequately placed GovLog on notice of . . . their fraudulent
transaction theory.”). We must therefore initially assess de
novo whether the relevant pleading was legally sufficient. See
Teachers’ Retirement Sys. of La. v. Hunter, 477 F.3d 162, 170
(4th Cir. 2007).
In general, to survive dismissal, a complaint must “state a
claim to relief that is plausible on its face” by alleging
factual matter to support the claims asserted. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly,
550 U.S. 544, 570 (2007)). More may be required,
however, when a successor corporation liability claim is being
pursued under the fraudulent transaction theory. In that
circumstance, the complaint may need to satisfy the heightened
pleading requirements of Rule 9(b) of the Federal Rules of Civil
Procedure. Compare, e.g., Ricciardello v. J.W. Gant & Co.,
717
F. Supp. 56, 59 (D. Conn. 1989) (“If plaintiff purports to rely
on fraud to impose successor liability . . . , he must plead
with particularity facts from which fraud may be inferred.”
(citing Fed. R. Civ. P. 9(b))), with Old Republic Ins. Co. v.
Hansa World Cargo Serv., Inc.,
170 F.R.D. 361, 376 (S.D.N.Y.
1997) (“[P]leadings of successor liability are subject to the
lenient pleading requirements of Rule 8(a), not the more
30
rigorous standards of Rule 9(b).”). In this proceeding,
however, we need not either assess or decide whether Rule 9(b)’s
pleading requirements apply to a fraud-based successor liability
claim. That is because, assuming those standards are
applicable, they are readily satisfied here.
Pursuant to Rule 9(b), the plaintiff must “state with
particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person’s
mind may be alleged generally.” See Fed. R. Civ. P. 9(b).
Although we must view the facts alleged in the operative
complaint in the light most favorable to the plaintiff, “we will
not accept ‘legal conclusions couched as facts or unwarranted
inferences, unreasonable conclusions, or arguments.’” See
Nathan, 707 F.3d at 455 (quoting Wag More Dogs, LLC v. Cozart,
680 F.3d 359, 365 (4th Cir. 2012)). In simple terms, a
plaintiff complies with Rule 9(b) by, “at a minimum,
describ[ing] the time, place, and contents of the false
representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.” See Smith
v. Clark/Smoot/Russell,
796 F.3d 424, 432 (4th Cir. 2015)
(quoting United States v. Triple Canopy, Inc.,
775 F.3d 628, 634
(4th Cir. 2015)). As a general rule, as we have recognized, a
court “should hesitate to dismiss a complaint under Rule 9(b) if
the court is satisfied (1) that the defendant has been made
31
aware of the particular circumstances for which she will have to
prepare a defense at trial, and (2) that plaintiff has
substantial prediscovery evidence of those facts.” Id. (quoting
Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776, 784
(4th Cir. 1999)).
By incorporating and realleging a substantial portion of
the Bunk Complaint, see Bunk Compl. ¶ 147, Count II of the Bunk
Complaint alleges that, “in or about June 2007, two former
employees of [Gosselin Group] formed [GovLog], hired over twenty
(20) employees of [Gosselin Group] and . . . entered into
agreements with [Gosselin Group] to purchase all of [its]
business interests in shipping related to U.S. Government
markets.” Id. ¶ 30. Gosselin Group and GovLog, as Count II
further alleges, then entered into various service agreements
“to enable [GovLog] to be able to provide services related to
the U.S. Government markets.”
Id. Count II also alleges that
GovLog “hold[s] itself out as a continuation of [Gosselin
Group]” and that Gosselin Group continues to reap profits from
its former contracts, all the while avoiding any liabilities for
its past misdeeds.
Id.
It is thus apparent that the allegations of Count II
sufficiently outline the dealings between GovLog and Gosselin
Group that form a solid foundation for the fraudulent
transaction theory. As a result, those allegations satisfy the
32
mandate of Rule 9(b). In dismissing Bunk’s successor
corporation liability claim as insufficiently pleaded, the
district court erred.
C.
Finally, as an alternative to its ruling that the successor
corporation liability claim was insufficiently pleaded, the
district court awarded summary judgment to GovLog on the merits.
In the court’s view, “there [was] an absence of evidence
sufficient” to support Bunk’s fraudulent transaction theory.
See Decision 3. Bunk challenges that ruling and requests that
we remand for trial and further proceedings, or for entry of
summary judgment in Bunk’s favor. We review de novo whether a
district court’s summary judgment award was warranted. See
Bauer v. Lynch, 812 F.3d 340, 347 (4th Cir. 2016).
1.
The fraudulent transaction theory turns on the intention
underlying the transfer of assets to GovLog, i.e., whether it
was made with an actual intention to hinder, delay, or defraud
creditors. See, e.g., BFP, 511 U.S. at 540; see also, e.g., 15A
William Meade Fletcher et al., Fletcher Cyclopedia of the Law of
Corporations § 7403, Westlaw (database updated Sept. 2016)
(“Many jurisdictions provide that a transfer is fraudulent if
made with actual intent to hinder, delay or defraud
creditors.”). Because direct evidence of such an intention is a
33
rarity, courts generally look to indirect and circumstantial
evidence for “badges of fraud”:
Since . . . fraudulent intent is found by facts
and circumstances, it is subject to indirect proof,
with the following recognized as “badges of
fraud”: (1) a conveyance to a spouse or near
relative; (2) inadequacy of consideration . . . ;
(3) transactions that are different from the usual
method of transacting business; (4) transfers in
anticipation of suit or execution; (5) retention of
possession by the debtor; (6) the transfer of all or
nearly all of the debtor’s property; (7) insolvency
caused by the transfer; or (8) failure to produce
rebutting evidence when circumstances surrounding the
transfer are suspicious.
Fletcher et al., supra, § 7403 (footnotes omitted); see also,
e.g., Aiken v. United States, 108 F.2d 182, 183 (4th Cir. 1939)
(“Fraudulent intent, as a mental element of crime . . . is too
often difficult to prove by direct and convincing evidence. In
many cases it must be inferred from a series of seemingly
isolated acts and instances which have been rather aptly
designated as badges of fraud.”); Fox Rest
Assocs., 717 S.E.2d
at 131-32 (enumerating badges of fraud). Also among the badges
of fraud are “transactions whereby the debtor retains benefits.”
See 37 Am. Jur. 2d Fraudulent Conveyances & Transfers § 14,
Westlaw (database updated Sept. 2016).
Of importance, the issue of fraudulent intention is
generally not amenable to resolution on summary judgment. See
Morrison v. Nissan Motor Co., 601 F.2d 139, 141 (4th Cir. 1979)
(“[W]hen the disposition of a case turns on a determination of
34
intent, courts must be especially cautious in granting summary
judgment, since the resolution of that issue depends so much on
the credibility of the witnesses, which can best be determined
by the trier of facts after observation of the demeanor of the
witnesses during direct and cross-examination.”). Moreover,
when evidence of intention is ambiguous, summary judgment simply
cannot be awarded. See Gen. Analytics Corp. v. CNA Ins. Cos.,
86 F.3d 51, 55 (4th Cir. 1996).
2.
In this situation, the evidence not only fails to dispel
the requisite fraudulent intention, but could easily be found to
establish it. Indeed, Smet’s own words provide substantial
insight into — and direct evidence of — his fraudulent and
iniquitous intention. Before hatching his scheme to move
Gosselin Group’s business with the United States into the hands
of GovLog, Smet had been indicted by the federal grand jury for
his involvement in the bid-rigging scheme. Although that
indictment was later dismissed, Smet admitted to strikingly
incriminating facts and was prohibited from doing business with
the United States for three years.
After the criminal proceedings against Gosselin Group were
concluded, the DOJ informed Smet of these qui tam proceedings,
in which the government subsequently intervened. At the cusp of
the qui tam proceedings, as others testified, Smet loudly voiced
35
his frustration with the “whole criminal case [against Gosselin]
and everything around it” and that he was “really fed up with
all those chasings towards his person.” See J.A. 675, 703. Any
reasonable juror could readily conclude that those sentiments —
expressed on the eve of GovLog’s creation — demonstrate Smet’s
fraudulent intention to escape liability for any potential
judgment and to dodge “those chasings” being pursued by the
United States.
The transaction between Gosselin Group and GovLog is also
adorned with several of the badges of fraud. Those badges
readily support Bunk’s position concerning the fraudulent
intention underlying the GovLog transaction. At least four of
the badges of fraud are readily apparent on the evidence as
forecast:
• Inadequacy of consideration. See 15A Fletcher et
al. supra, § 7403; see also, e.g., In re
Woodfield, 978 F.2d 516, 518 (9th Cir. 1992),
cited by In re Sandoval, 153 F.3d 722 (4th Cir.
1998) (unpublished table decision); Fox Rest
Assocs., 717 S.E.2d at 132.
• Transactions that are different from the usual
method of transacting business. See 15A Fletcher
et al., supra, § 7403; see also, e.g., Aiken, 108
F.2d at 183.
• Transactions in anticipation of suit or
execution. See 15A Fletcher et al., supra, §
7403; see also, e.g., In re Woodfield, 978 F.2d
at 518, cited by In re Sandoval,
153 F.3d 722;
Fox Rest Assocs., 717 S.E.2d at 132.
36
• Transactions through which the debtor retains
benefits. See 37 Am. Jur. 2d Fraudulent
Conveyances & Transfers § 14, Westlaw (database
updated Sept. 2016); see also, e.g., In re
Kaiser, 722 F.2d 1574, 1582 (2d Cir. 1983).
First, the consideration that GovLog paid to acquire
Gosselin Group’s business interests could be found to be grossly
inadequate. GovLog did not pay for Gosselin Group’s business
with the United States upon transfer. Instead, GovLog agreed to
pay Gosselin Group a percentage of GovLog’s future net revenues,
which their agreements defined as “all of those revenues
received by GovLog . . . minus the amount of the [services]
invoiced by [Gosselin Group] to GovLog in connection with” the
services provided to GovLog by Gosselin Group and its
subsidiaries. See J.A. 832 (emphasis omitted) (regarding
facility services); see also id. at 839 (regarding support
services). GovLog did not, however, net any revenues. In
effect, therefore, GovLog paid nothing for the business
interests it received pursuant to the GovLog transaction.
Next, the GovLog transaction could be found to have been
conducted in a manner different from the usual method of
transacting business. After approaching Lefebure with his
scheme to resurrect the then-defunct Brabiver as a business
entity flush with Gosselin Group’s government contracts, the
plan unfolded quickly and suspiciously. At the outset, Smet
made interest-free loans, totalling approximately €100,000, to
37
four hand-picked GovLog principals — each of whom worked for
Gosselin Group or one of its subsidiaries. The very next day,
Smet’s cronies used those loans to purchase Brabiver and to
formalize its recasting as GovLog, a name selected by Smet. The
following day, without conducting any financial analysis of the
transaction, GovLog consummated the transaction by entering into
a series of agreements with Gosselin Group. Those agreements
were prepared by Smet’s attorneys and presented to GovLog’s
principals for execution without any negotiations. The GovLog
transaction was thus made in haste and with little input from
GovLog or its purported owners, with Smet in control of every
facet.
Even more suspicious is the timing of the Gosselin Group-
GovLog transaction, which could be found to have been made in
anticipation of suit or execution. In 2003, Smet and Gosselin
Group were indicted for their bid-rigging scheme. In 2004,
Gosselin Group pleaded guilty and was convicted. In exchange,
the government agreed to dismiss Smet’s indictment. Although he
escaped criminal liability, Smet was prohibited from doing
business with the United States for three years. At the
conclusion of the criminal proceedings against Gosselin Group
and Pasha, Gosselin Group was fined $6,000,000 and ordered to
make nearly $1,000,000 in restitution to the DOD.
38
After the successful criminal prosecution of Gosselin
Group, the Gosselin defendants first learned in September 2006
of these qui tam proceedings seeking to impose civil liability
for the bid-rigging conspiracy. By December 2006, the Gosselin
defendants knew that the government might well intervene in the
qui tam proceedings; by January 2007, the Gosselin defendants
had received a settlement demand from the DOJ. Facing civil
liability for the bid-rigging conspiracy — and just a month
after receiving the government’s settlement demand — Smet
approached Lefebure with his GovLog scheme to move Gosselin
Group’s business with the United States into the new business
entity. By July 1, 2007, Smet had orchestrated the creation and
funding of GovLog and its acquisition of Gosselin Group’s
business with the United States. In sum, the temporal proximity
of the Gosselin defendants’ being advised of the qui tam actions
and the GovLog transaction being consummated suggests that the
transaction was made to defraud Bunk and the United States out
of civil penalties.
Finally, a reasonable juror could find that Gosselin Group,
despite having moved its business with the United States into
the hands of GovLog, continued to reap the benefits of that
business. GovLog did not provide shipping services; instead, it
signed contracts with the DOD and arranged for shipping
services. Gosselin Group actually performed those shipping
39
services, and it also leased warehousing facilities to GovLog.
At bottom, all the monies paid to GovLog for its “shipping
services” ended up in Gosselin Group’s coffers. As a result,
Gosselin Group retained all the benefits of the business
interest it purported to have sold to GovLog. See J.A. 1322
(“[T]he money that’s going to GovLog is actually ending up being
paid to Gosselin.”).
Seeking to dispel the impact of all this compelling
evidence, GovLog offers an alternative basis for the GovLog
transaction. According to GovLog, Smet was merely selling
Gosselin Group’s business with the United States for practical
business reasons. As Smet testified during his deposition,
I thought it was beneficial to the company to be able
to give this business to another company and still to
some degree allow the Gosselin companies to continue
to provide some logistical support service to the new
company that took over these contracts and continue to
handle that business so we could still make some money
off this business and not get stuck with high
severance pays on all the employees.
J.A. 927. Although Smet’s explanation for the GovLog
transaction could counter the evidence of fraud forecast by
Bunk, this explanation could well be rejected by a reasonable
juror. In sum, the various factual disputes presented here are
simply incapable of resolution except by a factfinder.
Importantly, there is a great deal of evidence — when viewed in
40
the proper light — to prove fraudulent intention and that
evidence is both direct and circumstantial.
Accordingly, the district court erred in making the summary
judgment award to GovLog. We are therefore satisfied to remand
this matter for further proceedings.
IV.
Pursuant to the foregoing, we vacate the judgment and
remand for such other and further proceedings as may be
appropriate.
VACATED AND REMANDED
41
