Azarax, Inc. v. William Syverson ( 2021 )

United States Court of Appeals
For the Eighth Circuit
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No. 19-2927
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Azarax, Inc.,
lllllllllllllllllllllPlaintiff - Appellant,
v.
William Syverson; Stinson Leonard Street, LLP
lllllllllllllllllllllDefendants - Appellees.
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Appeal from United States District Court
for the District of Minnesota
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Submitted: October 21, 2020
Filed: March 8, 2021
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Before COLLOTON, GRASZ, and STRAS, Circuit Judges.
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COLLOTON, Circuit Judge.
Azarax, Inc., brought an action against attorney William Syverson and his law
firm, Stinson Leonard Street, LLP, alleging legal malpractice and breach of fiduciary
duty. Azarax alleges that the defendants were negligent in their representation of an
entity known as Convey Mexico, a Mexican telecommunications company. Azarax
asserts that it has claims against the defendants as a successor by merger to Convey
Mexico. On a motion for summary judgment, the district court1 ruled that Azarax was
not a valid successor in interest to Convey Mexico and therefore lacked standing to
sue Syverson and the law firm. We agree with that conclusion and affirm the
judgment.
Azarax is a Delaware corporation that is the product of a merger with Azarax
Holding Limited, a company of Cyprus. Azarax purports to have acquired the
interests of Convey Mexico through a succession of mergers: first, a merger between
Convey Mexico and Azarax Holding, and then the merger of Azarax Holding into
Azarax.
Azarax alleges that Syverson and his law firm represented Convey Mexico and
committed malpractice by stealing a business opportunity—namely, a contract to
provide telecommunication services between the United States and Mexico. On that
basis, Azarax seeks to recover damages from Syverson and the law firm. The claim
is premised entirely on injuries to Convey Mexico before the alleged mergers.
Azarax does not assert that it maintained an attorney-client relationship with
Syverson or that Syverson did anything that directly injured Azarax.
1
The Honorable John R. Tunheim, Chief Judge, United States District Court for
the District of Minnesota.
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To establish Article III standing, Azarax must show (1) an injury in fact, (2) a
causal relationship between the injury and the challenged conduct, and (3) that the
injury likely will be redressed by a favorable decision. Lujan v. Defs. of Wildlife, 504
U.S. 555, 560-61 (1992). As the party invoking federal jurisdiction, Azarax bears the
burden to establish these elements, and it must support each element “in the same way
as any other matter on which the plaintiff bears the burden of proof.” Id. at 561.
Azarax contends that the defendants caused injury to Convey Mexico, and that
Azarax enjoys standing as a successor by merger to Convey Mexico. Whether there
was a valid merger between Azarax Holding and Convey Mexico, such that Azarax
eventually assumed the legal interests of Convey Mexico, is a principal dispute in this
appeal.
Convey Mexico initially was operated by two shareholders, Nicolas Barrera
and Arturo Barbosa Nataren. In September 2011, another entity, Wireless
Communications Ventures, LLC, agreed to invest one million dollars in Convey
Mexico in exchange for a twenty-percent shareholder stake. In connection with that
transaction, an entity called MexAm Connect, LLC, received a 4.5% shareholder
stake in Convey Mexico.
Syverson prepared a draft shareholder agreement for the restructured entity
with signature blocks for the four shareholders. In June 2012, Barrera sent Syverson
signed copies of the shareholder agreement, dated December 13, 2011, with a cover
e-mail that said, “Attached are the two SHA’s signed by Arturo.” The agreement also
bears signatures for Barrera and representatives of Wireless Communications and
MexAm Connect.
Article V of the shareholder agreement provides that Convey Mexico must not
“approve or enter into any merger, liquidation, or dissolution of the Corporation”
without “prior unanimous written consent of all the Shareholders.” In August 2014,
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Barbosa and Barrera, as shareholders and officers of Convey Mexico, signed an
agreement purporting to merge Convey Mexico with Azarax Holding.
The district court concluded that Azarax lacked standing to assert the interests
of Convey Mexico because the purported merger between Convey Mexico and
Azarax Holding was not valid. The Convey Mexico shareholder agreement required
“unanimous written consent” of all shareholders for a merger, but shareholders
Wireless Communications and MexAm Connect did not give written consent. Citing
lack of consent by Wireless Communications, the district court concluded that the
merger was invalid, and that Azarax is not a valid successor in interest to Convey
Mexico.
On appeal, Azarax advances two arguments against the district court’s
conclusion. First, Azarax contends that the Convey Mexico shareholder agreement
is invalid because majority shareholder Barbosa did not sign the agreement. Azarax
maintains that without a valid shareholder agreement requiring all shareholders to
give written consent for a merger, the merger between Convey Mexico and Azarax
Holding took effect without the consent of shareholders Wireless Communications
and MexAm Connect.
We conclude that there is no genuine dispute of material fact as to the validity
of the Convey Mexico shareholder agreement. Long before the commencement of
this litigation, Convey Mexico—through an e-mail from corporate officer
Barrera—affirmatively represented to Syverson and Wireless Communications that
Barbosa signed the shareholder agreement. Barrera sent an e-mail stating he had
attached shareholder agreements “signed by Arturo.” Arturo Barbosa Nataren
admitted in this litigation that no other person named “Arturo” worked with Barrera
on Convey Mexico. One signature on the agreement—above a line bearing the
typewritten name of Arturo Nataren—reads “A___ Barbosa.”
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Barrera’s statement about the signed shareholder agreement was an authorized
statement of Convey Mexico sent in furtherance of the company’s objective to secure
business with Wireless Communications. It is therefore properly imputed to the
corporation as an evidentiary admission. See Fed. R. Evid. 801(d)(2); EEOC v. HBE
Corp., 135 F.3d 543, 552 (8th Cir. 1998); Shanklin v. Norfolk S. Ry. Co., 369 F.3d
978, 990 (6th Cir. 2004). Barrera made the statement on behalf of Convey Mexico;
Azarax claims to be Convey Mexico’s successor, so it necessarily adopts Barrera’s
admission.
Azarax maintains that Barbosa’s testimony in this litigation creates a genuine
dispute of material fact about whether he signed the shareholder agreement. In a
deposition, Barbosa denied that he signed the agreement and said that the signature
on the document was not his. Under the unusual circumstances of this case, however,
we conclude that Barbosa’s testimony is insufficient to undermine Barrera’s
admission and create a genuine dispute of material fact.
A party may “explain away” an evidentiary admission like Barrera’s, but if the
party “makes no attempt at explanation, he is stuck with those statements.” See
Seshadri v. Kasraian, 130 F.3d 798, 804 (7th Cir. 1997). It is not enough simply to
assert that a previous admission was incorrect. The party must provide an
explanation for the retraction or revision that is sufficient to satisfy a rational trier of
fact. Id. In Nyari v. Napolitano, 562 F.3d 916 (8th Cir. 2009), for example, there was
a genuine dispute of material fact where daughters of an alien set forth in multiple
recantations a “plausible justification” for why they falsely accused their father of
abuse when they were young children. Id. at 921-22.
Azarax has not offered a plausible justification here. Barrera was the witness
who could have addressed his admission that “Arturo” signed the shareholder
agreement. But Barrera failed to answer interrogatories and declined to appear at
three depositions. As a result, the district court imposed sanctions and barred Barrera
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from giving testimony in the case. Azarax must bear the consequences of that
sanction. Azarax cannot create a genuine dispute of material fact about Barrera’s
admission by presenting testimony of a different corporate officer (Barbosa) while
failing to produce the first corporate officer (Barrera) to address his own prior
statement. On this record, Azarax has offered no plausible explanation why Barrera
would send an e-mail representing that Barbosa signed the shareholder agreement if
he did not do so. Given its failure to produce Barrera for examination, Azarax is
“stuck with” Barrera’s admission that the shareholder agreement was properly
executed.
Second, Azarax argues that Mexican law prohibits shareholder agreements that
require unanimous consent of the shareholders, so the unanimity provision in the
Convey Mexico shareholder agreement was void. Azarax contends that it could have
established the invalidity of the unanimity requirement, but complains that the district
court improperly excluded evidence of Mexican law governing corporations.
Syverson and the law firm respond that the district court did not abuse its discretion
by excluding the proffered evidence as untimely.
Federal Rule of Civil Procedure 44.1 provides that “[a] party who intends to
raise an issue about a foreign country’s law must give notice by a pleading or other
writing.” The rule is designed to avoid unfair surprise, and it implicates the
discretionary powers of the district court to supervise litigation. See Rationis Enters.
Inc. of Panama v. Hyundai Mipo Dockyard Co., 426 F.3d 580, 585 (2d Cir. 2005).
A court evaluating the reasonableness of notice under this rule may consider “[t]he
stage which the case had reached at the time of the notice, the reason proffered by the
party for his failure to give earlier notice, and the importance to the case as a whole
of the issue of foreign law sought to be raised.” Fed. R. Civ. P. 44.1 advisory
committee’s note to 1966 adoption. The rule does not set a definite limit on a party’s
time for giving notice. In some cases, the issue may not become apparent until the
trial; in others, notice should be given at an earlier stage of the proceedings. See id.-6-
We agree with the Ninth Circuit that “[i]t is only fair to provide notice of potential
application of foreign law as early as is practicable and, in any event, at a time that
is reasonable in light of the interests of all parties and the court.” DP Aviation v.
Smiths Indus. Aerospace & Def. Sys. Ltd., 268 F.3d 829, 847 (9th Cir. 2001).
In excluding Azarax’s evidence of Mexican law, the district court explained
that the litigation had been pending for over three years when Azarax raised foreign
law for the first time in response to the defendants’ motion for summary judgment.
The court found that Azarax provided no reason for the late notice, and that the delay
was not reasonable.
Azarax contends that delayed notice was justified because it did not learn that
the validity of the shareholder agreement was at issue until the defendants moved for
summary judgment in December 2018. There was ample basis, however, for the
district court’s conclusion that Azarax should have given earlier notice. In January
2017, the defendants answered the complaint by asserting that Azarax lacked
standing, that the interests of Convey Mexico were not validly assigned to Azarax,
and that Azarax was not the real party in interest. R. Doc. 34, at 33-34. At that point,
Azarax should have known that the analytical steps required to show that Azarax
validly succeeded Convey Mexico would require it to establish a valid merger
between Convey Mexico and Azarax Holding.
The issue was raised even more starkly in a deposition taken on February 20,
2018. Defense counsel questioned Guy Rosbrook, the president of Azarax, about
whether there was a unanimous vote in favor of the merger, and whether Rosbrook
had performed due diligence to ensure that the merger of Convey Mexico and Azarax
Holding was valid. R. Doc. 219-1, at 53. Shortly thereafter, on May 21, 2018,
Syverson and the law firm moved for sanctions based on Barrera’s failure to appear.
The defendants recited that the Convey Mexico shareholder agreement required that
any merger be approved by a unanimous vote of all shareholders, and sought a
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judicial admission that Convey Mexico did not hold a shareholder vote to approve the
merger with Azarax Holding. R. Doc. 136, at 15-16.
Taken all together, these pointed references to the need for unanimity of the
shareholders and the validity of the merger, along with the defendants’ answer to the
complaint, should have alerted Azarax that the shareholder agreement was central to
the defense. Yet rather than give timely notice of an intent to raise an issue about
Mexican law, Azarax waited until discovery closed and the defendants moved for
summary judgment in December 2018. The district court properly determined that
Azarax failed to provide an adequate justification for its delayed notice.
The district court also reasonably relied on the fact that late disclosure deprived
the defendants and the court of timely notice. Timely notice “would have aided the
district court’s planning for trial and its decision on applicability and substance of
foreign law.” DP Aviation, 268 F.3d at 849. Azarax eventually proffered an affidavit
from a law professor opining on the significance of Mexican law for the validity of
the merger. At that point, the defendants were left to address the new issue of foreign
law in a reply brief with no opportunity for discovery of Azarax’s expert and minimal
time to gather information about foreign law or to identify an expert of their own.
The court would have been required either to decide an issue of foreign law without
the benefit of thorough briefing or to extend litigation that was already three years old
to permit additional briefing and discovery. The district court is entitled to
considerable deference in managing litigation, and the court did not abuse its
discretion in excluding the evidence of Mexican law under the circumstances.
For these reasons, the summary-judgment record established that the
shareholders of Convey Mexico did not unanimously provide written consent for the
merger with Azarax Holding, so the merger was not valid. As such, Azarax is not a
successor in interest to Convey Mexico, and lacks standing to pursue any claim that
Convey Mexico may have against the defendants. We therefore affirm the district
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court’s dismissal of the complaint, but modify the judgment to dismiss the complaint
without prejudice. See Davis v. Morris-Walker, LTD, 922 F.3d 868, 872 (8th Cir.
2019).
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