ANTHONY J. TRENGA, District Judge.
In this False Claims Act case, a $24 million judgment has been entered against Defendants Gosselins Group, Gosselin Worldwide Moving, N.V. ("Gosselin"), and Marc Smet ("Smet") (collectively, the "Gosselin Defendants"). Realtor Kurt Bunk ("Bunk") now seeks to impose liability for that judgment on Defendant Government Logistics, N.V. ("GovLog") under a theory of successor liability.
The Fourth Circuit has remanded this case for trial following its reversal of the Court's granting summary judgment in GovLog's favor with respect to Bunk's successor liability claim. Upon consideration of the parties' memoranda and the argument of counsel at the hearing and status conference held on February 10, 2017, the Court concludes that the particular grounds for the successor liability claim asserted in this case — that a transaction between Gosselin and GovLog was fraudulent — is by its nature an equitable claim for which a jury trial was not recognized at the time the Seventh Amendment was adopted. It is therefore a claim that is to be tried without a jury at the trial scheduled to begin on Wednesday, May 17, 2017.
The factual background is more thoroughly laid out in the previous opinions of the Fourth Circuit and the Court. Briefly summarized, these consolidated actions were originally filed in 2002 by Relators Bunk and Ray Ammons but remained under seal until May 19, 2008, following the conclusion of criminal proceedings against the Gosselin Defendants and another company involved in the "ITGBL program," described below. In May and Sept 2006, the United States advised Gosselin that two lawsuits with False Claims Act ("FCA") claims had been filed against it under seal. Those claims were based on Gosselin's involvement in the movement of household goods for American military personnel in Europe, primarily Germany, under two separate government programs. The first FCA claim was based on Gosselin's participation in the International Through Government Bill of Lading program, in which Gosselin, located in Europe, was a subcontractor to American "freight forwarders," also known as Transportation Service Providers ("TSPs"), located in the United States, that had received prime contracts from the Department of Defense to move household goods of military personnel to Germany (the "ITGBL claim"). The second FCA claim was based on Gosselin's participation in the Direct Procurement Method program, in which Gosselin was the prime contractor directly with the Department of Defense for the transportation of household goods of military personnel in Europe back to the United States (the "DPM claim"). The United States intervened in the ITGBL claim, but not the DPM claim. The ITGBL claim against Gosselin was eventually resolved without any outstanding judgment in favor of the United States.
The DPM claim against Gosselin ultimately resulted in the $24 million judgment,
On December 23, 2014, the Court entered summary judgment on Bunk's successor liability claim against GovLog. On November 15, 2016, the Fourth Circuit reversed that order, finding that there were genuine issues of material fact to be decided by a factfinder. See Bunk, 842 F.3d at 279.
Federal Rule of Civil Procedure 39(a) provides that "[w]hen a jury trial has been demanded under Rule 38, the action must be designated on the docket as a jury action." The parties agree that a proper jury demand was made under Rule 38 with respect to Bunk's successor liability claim. Accordingly, the trial on that claim "must be by jury unless . . . (2) the court, on motion or on its own, finds that on some or all of those issues there is no federal right to a jury trial." Fed. R. Civ. P. 39(a). The federal right to a jury is determined by the scope of the Seventh Amendment.
The Seventh Amendment provides in relevant part: "In Suits at common law . . . the right of trial by jury shall be preserved. . . ." U.S. Const. amend. VII. The Amendment guarantees that a party in a civil case has a right to a jury trial if its cause of action is one that was cognizable in the courts of law in 1791 or is a modern-day analog to such a cause of action. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 40-41 (1989). To make this determination, the Court must (1) compare the cause of action "to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity," but more importantly, (2) examine the remedy sought to "determine whether it is legal or equitable in nature." Id. at 42 (internal quotation marks omitted).
In claiming a right to a jury, Bunk first contends that his successor liability claim is a statutory claim "embedded" in the FCA because the FCA imposes liability on any "person," which, under the Dictionary Act, is defined to include a corporation and its successors. Based on this theory, Bunk contends that if GovLog is found to have liability as a successor under the fraudulent transaction theory, it is jointly and severally liable with Gosselin for the "$24 million in civil penalties as a matter of statutory construction, not pursuant to a stand-alone equitable remedy." The Court rejects this position.
As Bunk notes, the FCA "imposes liability on `any person' that violates its provisions." Relator's Response to Government Logistics N.V.'s Brief Pursuant to the Court's Order of February 10, 2017 [Doc. No. 1432], at 5. But Bunk does not allege that GovLog, as the successor to Gosselin, violated the FCA. Rather, Bunk's claim against GovLog is based on events and facts that have nothing to do with the conduct that resulted in the $24 million judgment against Gosselin or any other alleged FCA violation. As the Fourth Circuit explained, a successor's liability in this context is imposed by the federal common law, not the FCA. Bunk, 842 F.3d at 272-74 & n.15 ("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 in order to abrogate a common-law principle, the statute must speak directly to the question addressed by the common law. 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.") (internal quotation marks, citation, and alterations omitted). For these reasons, Bunk has no statutory claim for successor liability against GovLog under the FCA. The Court must therefore determine whether Bunk's successor liability claim based on a fraudulent transaction theory under federal common law is one that was cognizable in the courts of law in 1791 or is a modern day analog of such a cause of action.
Neither party has pointed to an 18th-century analog of this particular successor liability claim. Rather, the parties have attempted to define the nature of this successor liability claim in a way that aligns with claims found to be within or outside the scope of the Seventh Amendment. In that regard, Bunk argues that successor liability is akin to those fraudulent conveyances or preferential transfers by bankrupts that the Supreme Court in Granfinanciera, 492 U.S. at 43, concluded were often pursued historically through common law actions of trover and money had and received. GovLog, for its part, argues that a successor liability claim based on a fraudulent transaction is most analogous to corporate veil piercing, which the majority of courts have found to be equitable claims. As the parties correctly concede, however, Bunk's successor liability claim has aspects analogous to both fraudulent conveyances and corporate veil piercing but is the equivalent of neither; and the Court has found no 18th-century action or claim at law analogous to Bunk's successor liability claim.
In Granfinanciera, the United States Supreme Court observed that a claim based on an allegedly fraudulent transfer of an intangible property, such as a business unit, as opposed to tangible property such as a chattel or cash, would have been within the purview of the English courts of equity:
Granfinanciera, 492 U.S. at 44 (quoting 1 G. Glenn, Fraudulent Conveyances and Preferences § 98, at 183-84 (rev. ed. 1940)) (emphasis added); The Court went on to explain why:
Id. at 47 n.6 (alterations and omissions in original). As reflected in the discussion in Granfinanciera, historically, in determining the respective jurisdictions of the equity and law courts, there was a critical distinction between fraudulent transactions based on the transfer of intangible assets and those based on the transfer of only money or tangible personal property. While the "modern law of fraudulent transfers had its origin in the Statute of 13 Elizabeth," BFP v. Resolution Trust Corp., 511 U.S. 531, 540 (1994), that statute did not change a party's remedies; and thus only the courts of equity were available to remedy a fraudulent transaction involving "a voluntary settlement of stock, or of choses in action, or of copyholds, or of any other property, not liable to execution." 2 J. Story, Commentaries on Equity Jurisprudence, §§ 367-68 (10th ed. 1870). Here, Bunk's successor liability claim is based on the allegedly fraudulent transfer of mostly intangible property.
The nature of the remedy that would be available to Bunk, were liability established on his successor liability claim, also places his claim within what would have been the jurisdiction of the 18th-century equity courts. As explained by the Fourth Circuit, a corporation that acquires the assets of another corporation does not also acquire its liabilities, subject to four recognized exceptions: (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." Bunk, 842 F.3d at 273. Here, Bunk's only remaining grounds for successor liability is the fraudulent transaction exception, which, at its core, is based on fraudulent conveyances, the generally recognized remedy for which is either an unwinding of the transaction or holding the successor entity liable to the extent of the value of the assets fraudulently transferred. No doubt for this reason, courts have concluded that creditors' rights in cases where the fraudulent transaction exception applies are limited to the assets of the predecessor acquired by the successor corporation. See, e.g., Stanley v. Miss. State Pilots of Gulfport, Inc., 951 So.2d 535, 539 (Miss. 2007). In fact, Bunk has acknowledged and relied on authority in the Fourth Circuit for the proposition that the remedy for successor liability based on a fraudulent transaction is limited to the value of the fraudulently transferred assets. See Memorandum in Support of Relators' Motion for Summary Judgment as to Successor Liability of Defendant Government Logistics N.V. [Doc. No. 1337-1], at 15 ("Moreover, the Fourth Circuit has recognized and relied on W. Fletcher, Cyclopedia of the Law of Corporations (`Fletcher'), in defining the successor liability exceptions. See Carolina Transformer, 978 F.2d at 838. That authoritative source provides that, `if the transfer constitutes, either in fact or as a matter of law, a fraud upon the creditors of the other corporation, the creditors defrauded by the transfer may, in equity, follow the property into the hands of the new corporation and subject it to the satisfaction of their claims, or hold the new corporation liable to the extent of its value.' Fletcher § 7125.") (emphasis added).
Wherefore, it is hereby
ORDERED that Bunk's jury demand with respect to his claim for successor liability against GovLog be, and the same hereby is, STRICKEN, and the case will be tried without a jury.