National Union Fire Insurance v. Kozeny

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS SEP 28 2001
TENTH CIRCUIT
PATRICK FISHER
Clerk
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA,
MARLWOOD COMMERCIAL, INC.,
OMEGA GROUP HOLDINGS, LTD.,
PINE STREET INVESTMENT LTD.,
PINFORD PORTFOLIO INC.,
HELENDALE TRADING CORP.,
TELOS FINANCE LTD.,
Nos. 00-1226, 00-1233, 00-1257
Plaintiffs-Appellees, (D.C. No. 00-B-383)
v. (Colorado)
VIKTOR KOZENY, LANDLOCKED
SHIPPING COMPANY, PEAK HOUSE
CORPORATION, TURNSTAR
LIMITED,
Defendants-Appellants.
ORDER AND JUDGMENT*
Before KELLY, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and
REAVLEY,**
Senior Circuit Judge.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
Honorable Thomas M. Reavley, Senior Circuit Judge, United States Court of
**
Appeals, Fifth Circuit, sitting by designation.
On February 18, 2000, plaintiffs-appellees filed the present action in the United
States District Court for the District of Colorado. A first amended complaint was filed on
May 4, 2000, and a second amended complaint was filed on September 25, 2000.
Plaintiffs-appellees are National Union Fire Insurance Company of Pittsburgh, PA;
Marlwood Commercial, Inc.; Omega Group Holdings Ltd.; Pine Street Investment Ltd.;
Pinford Portfolio Inc.; Helendale Trading Corp.; and Telos Finance Ltd., hereinafter
referred to collectively as the “plaintiffs,” or by name. The named defendants are Viktor
Kozeny, described in the Second Amended Complaint, hereinafter referred to as the
“complaint,” as a “Czech-born private financier who travels under Irish and Grenadian
passports and has residences at: Lyfold Cay, New Providence, Bahamas; London,
England; and Aspen, Colorado.” Also named as defendants in the complaint were
Landlocked Shipping Company (“Landlocked”); Peak House Corporation (“Peak
House”); and Turnstar Limited (“Turnstar”), all of which were alleged to be under the
“management and control” of Kozeny. It is alleged, inter alia, in the complaint that
“Kozeny’s assets include a $27 million dollar house in Aspen, Colorado, known as ‘Peak
House’ (2137 Red Mountain Road, Aspen, Colorado 81611), the title of which is held by
defendant Landlocked Shipping Company, but which is beneficially owned by Kozeny
(the ‘Aspen home’ or ‘Aspen property’).” Kozeny’s assets were also said to include
millions of dollars of personalty (‘the Aspen personalty’) located in the Aspen home
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which were beneficially owned by Kozeny but believed to be held in the name of Turnstar
(which also holds title to one of Kozeny’s Bahamas homes). Peak House was alleged to
be the manager and operator of the Aspen property.1
In 1995, the Republic of Azerbaijan announced a program for the privatization of
most of its state owned enterprises and in connection therewith issued “options” and
“vouchers” that could be redeemed for an interest in such enterprises. From the
complaint we learn that Kozeny allegedly began to purchase these options at 40c per
option. The Azeri government increased the option price to $25 and limited the number
of options any foreign landowner could hold. Kozeny then began selling his previously
acquired options to others, including the Plaintiffs, at $25 per option. The complaint is
64 pages in length and sets forth the background of this controversy in great detail. The
gist of the complaint is that the plaintiffs gave approximately $140 million dollars to
Kozeny with which to purchase those options, that Kozeny transferred much of this
1
The initial complaint filed on February 18, 2000 named as Defendants Kozeny,
Landlocked and Peak House and asserted seventeen claims for relief. The first four
claims were diversity claims under Colorado Organized Crime Control Act (“COCCA”),
C.R.S. §§ 18-17 104(1)-(4). Two claims were based on the Securities Exchange Act, 15
U.S.C. § 78j(b). Eleven claims were state claims with jurisdiction apparently based on 28
U.S.C. §1367. The first amended complaint filed on May 4, 2000 named as defendants
Kozeny, Landlocked, Peak House and Turnstar and set forth twenty-one claims for relief.
The first five claims were diversity claims based on COCCA. Two claims were based on
the Securities Exchange Act. The remaining fourteen claims were state claims with
jurisdiction apparently based on 28 U.S.C. §1367. The second amended complaint filed
on September 25, 2000 was the same as the first amended complaint but added an
additional, or twenty-second, claim against all four defendants based on Racketeer
Influenced and Corrupt Organizations, (“RICO”), 18 U.S.C. § 1961, et seq.
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money to his “shell” corporations, and that in connection therewith Kozeny committed a
fraud upon the plaintiffs.
As indicated, the complaint sets forth twenty-two claims for relief. Five claims
were diversity claims based on the Colorado Organized Crime Control Act (“COCCA”)
C.R.S. §§ 18-17 104(1)-(4); one was based on Racketeer Influenced and Corrupt
Organizations, (“RICO”), 18 U.S.C. § 1961, et seq.; two were based on violations of
Section 10(b) of the Securities Exchange Act; and fourteen claims were based on state
law for civil conspiracy, breach of fiduciary duty, breach of fiduciary duty based on a
confidential relationship, tortious interference with a contract, fraud based upon false
representation, fraud based on non-disclosure or concealment, aiding and abetting fraud,
fraudulent transfer, negligent misrepresentation, inducement of a breach of fiduciary duty,
aiding and abetting a breach of fiduciary duty, unjust enrichment, constructive trust, and
accounting.
In their prayer for relief, the plaintiffs asked for a money judgment against the
defendants in an amount to be determined before a jury, and, in connection with their
twenty-first claim for relief wherein the plaintiffs ask for a constructive trust, the
plaintiffs sought the following:
On the Twenty-First Claim for Relief, enter judgment
against Viktor Kozeny, Landlocked Shipping Company, Peak
House Corp. and Turnstar Limited imposing a constructive
trust over all the funds from the proceeds of any sale of the
Aspen property, the Aspen personalty and any other property
or funds held by or under the control of Peak House Corp.,
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Landlocked and/or Turnstar Limited, pending the final
hearing in this action, issuing an order of attachment,
temporary restraining order and preliminary injunction and
temporary restraining order freezing all such funds and assets,
in order to preserve the res over which Plaintiffs seek to
impose the constructive trust, together with interest, attorneys’
fees in the trial and appellate courts, and costs of investigation
and litigation reasonably incurred.
As stated, the initial complaint was filed on February 18, 2000, and on that same
date the plaintiffs applied for an ex parte temporary restraining order which was
immediately issued against Kozeny, Landlocked and Peak House concerning the Aspen
real property. On May 12, 2000, the district court held an evidentiary hearing on
plaintiffs’ further request for a preliminary injunction. On May 16, 2000, the district
court granted plaintiffs’ motion for a preliminary injunction and enjoined Kozeny,
Landlocked and Peak House from selling, transferring, conveying, encumbering, leasing
or otherwise disposing of the Aspen real property, except by agreement with the plaintiffs
or by further order of the court. The order of May 16, 2000, was followed by formal and
detailed “Findings of Fact, Conclusions of Law and Order” filed on June 12, 2000. The
latter now appears as National Union Fire Insurance Company of Pittsburgh, Pa., et al, v.
Kozeny, et al, 115 F.Supp. 2d 1210 (D. Colo. 2000) (hereinafter Kozeny I).
Turnstar was not a named defendant in the initial complaint filed on February 18,
2000. In the first amended complaint filed on May 4, 2000, Turnstar was added as a party
defendant and at an evidentiary hearing held on June 22, 2000, the district court granted
plaintiffs’ motion for a preliminary injunction and enjoined Turnstar from disposing of
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the personalty located in the Aspen real property. On June 23, 2000, the district court
filed separate “Findings of Fact, Conclusions of Law and Order” relating to its
preliminary injunction against Turnstar, which now appears as National Union Fire
Insurance Company of Pittsburgh, Pa., et al, v. Kozeny, et al, 115 F.Supp.2d 1231 (D.
Colo. 2000) (hereinafter Kozeny II).
Landlocked and Peak House jointly filed a timely notice of appeal to Kozeny I (our
appeal No. 00-1226). Kozeny filed a separate notice of appeal to Kozeny I (our appeal
No. 00-1233). Turnstar filed a notice of appeal to Kozeny II (our appeal No. 00-1257).
All four defendants challenge in this Court the district court’s preliminary injunctions.2
Kozeny, Landlocked and Peak House filed a joint opening brief in this court on
2
On September 25, 2000, the district court, after hearing, granted plaintiffs’ motion
to stay further proceedings in the action brought in the United States District Court
pending the outcome of certain proceedings previously filed and then pending in the
English High Court of Justice. In connection with the latter, it appears that on December
17, 1999, Marlwood Commercial Group filed an action in London courts against Kozeny,
Charles Towers-Clark, Minaret Group, Ltd, and Oily Rock Group, Ltd. (Landlocked,
Peak House and Turnstar were not parties to the London proceeding.). In that
proceeding, the London court on December 17, 1999, granted an order freezing Kozeny’s
assets in England and Wales, which order was later extended to a world-wide freeze of
Kozeny’s assets, and which identified by name the Aspen property. See National Union
Fire Insurance Company of Pittsburgh, Pa. v. Kozeny, 115 F.Supp. 2d 1243 (D. Colo.
2000)(Kozeny III). The defendants filed notice of appeal from the district court’s stay
order. In connection therewith, defendants also brought a mandamus proceeding in this
court, asking us to vacate the district court’s stay order and direct the district court to hear
the case forthwith. In that mandamus proceeding we held, as a preliminary matter, that
the district court’s stay order was not, under the circumstances, appealable but then held
that mandamus was not warranted. In re Kozeny, 236 F.3d 615 (10th Cir. 2000). It
would appear that the defendants later dismissed their direct appeal of the district court’s
stay order.
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October 17, 2000. In that brief, counsel framed the “Issues Presented For Review” as
follows:
I. Did the district court err in holding it had authority under
the Colorado Organized Crime Control Act (“COCCA”) to
issue an asset-freezing injunction for the purpose of
securing satisfaction of a potential judgment in a
foreign case in which COCCA claims cannot be
asserted?
II. Did the district court err in implicitly holding that one
individual and three entities can form an “association-in-
fact” enterprise under COCCA even though “enterprise” as
defined by the statute includes associations of individuals
only?
III. Did the district court err in holding it had federal subject
matter jurisdiction when Plaintiffs’ intent was to use this
action solely to freeze assets for the purpose of securing
satisfaction of a potential foreign judgment?
Thereafter, Turnstar filed its own opening brief on October 25, 2000, in which it
“adopted” the issues raised by its co-appellants, Kozeny, Landlocked and Peak House,
and in addition thereto framed two other issues, as follows:
A. Did the district court err in holding that plaintiffs must
only make a prima facie showing of personal jurisdiction
over Turnstar Limited when seeking a preliminary injunction
against Turnstar Limited?
B. Did the district court err in exercising personal jurisdiction
over Turnstar Limited?
I
As indicated, the district court on May 16, 2000 granted plaintiffs’ motion for a
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preliminary injunction and entered an order enjoining Kozeny, Landlocked, and Peak
House from selling, transferring, conveying, encumbering, leasing or otherwise disposing
of the Peak House real property until further order of Court. Plaintiffs were at the same
time ordered to post security in the amount of $10,000,000.00. The order of May 16 was
followed by a 30-page Findings of Fact, Conclusions of Law and Order filed by the
district court on June 12, 2000 (Kozeny I). The injunction was based on COCCA.
On appeal, defendants’ first, and they say their basic, argument is that the district
court erred in granting the preliminary injunction because it was entered only for the
purpose of seeking a local satisfaction of a potential judgment that might in the future be
entered in the London proceeding, a forum where a COCCA claim could not be asserted.
In response thereto, the plaintiffs assert that the purpose of their Colorado action was not
to secure Colorado assets which could be used to satisfy a possible judgment entered in
the London proceeding, but to freeze Colorado assets which could be used to satisfy a
possible judgment entered in the Colorado proceedings. They point out that only one of
the four defendants in the Colorado action (Kozeny) is a party to the London proceedings.
Plaintiffs also note that the first five claims in their Colorado complaint are based on
COCCA, and are directed against Landlocked, Peak House and Turnstar, as well as
Kozeny. Plaintiffs then state that after the London proceeding is completed, and the stay
order in the Colorado proceeding is lifted, they intend to pursue their COCCA claims
through to judgment against all four defendants.
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In support of their argument that the only purpose of the Colorado freeze order was
to secure local assets to satisfy a foreign judgment, counsel relies, in part, on statements
made by the district court on May 12, 2000, when it granted a preliminary injunction. It
is true that on that occasion the district court said: “Consequently, the real thrust or
objective of the Plaintiffs here, at least at this juncture as I understand it, is maintenance
of the status quo so that in the event the Plaintiffs prevail in the case before the British
Court in London there will be assets to which the Plaintiffs may look [sic] secured in the
State of Colorado.” At a hearing on June 22, 2000, the district court also stated that the
London judge “understands that what we’re doing here is to, quote ‘hold the ring,’
unquote. Quite true.”
Be all that as it may, we are here concerned with an appeal from the written
judgment entered by the district court on June 12, 2000 (Kozeny I). We think a fair
reading of that order clearly indicates that the district court entered its freeze order under
the authority of COCCA to secure assets to satisfy any judgment entered in the Colorado
proceeding against Kozeny, Landlocked, or Peak House. For example, the district court
found that the plaintiffs have shown that there is a substantial likelihood that they will
prevail on the merits of all five of their COCCA claims against Kozeny, Landlocked, and
Peak House. Kozeny II, 115 F.Supp. 2d at 1230.
In short, we reject defendants’ assertion that the only reason, or the real reason, for
the freeze order in the Colorado proceeding was to secure assets to satisfy a potential
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judgment in the London proceedings. A reading of Kozeny I forecloses that argument.
II
In their joint brief, Kozeny, Landlocked, and Peak House urge the following as
their second ground for reversal of the preliminary injunction order: the district court
erred in finding that the plaintiffs “proved a substantial likelihood of establishing the
required COCCA enterprise.” In connection therewith they first argue that C.R.S. §18-
17-104 requires that before COCCA can be invoked there must be proof of a pattern of
racketeering which requires an enterprise as defined by § 18-17-103(2). An enterprise
can be an “association-in-fact enterprise” which defendants argue must consist of
individuals only, and may not consist of “individuals and entities.” Defendants then point
out that the “association-in-fact” alleged in the complaint is between Kozeny and three
entities, namely Landlocked, Peak House and Turnstar. C.R.S. §18-17-103(2) reads as
follows:
‘enterprise’ means any individual, sole proprietorship,
partnership, corporation, trust, or other legal entity or any
chartered union, association, or group of individuals,
associated in fact although not a legal entity, and shall
include illicit as well as licit enterprises and governmental as
well as other entities.
C.R.S. §18-17-103(4) defines a “person” as “any individual or entity holding or
capable of holding a legal or beneficial interest in property” and based thereon the district
court held that Kozeny, Landlocked, and Peak House are “persons” under that definition.
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Kozeny I, 115 F.Supp. 2d at 1226. We are not inclined to disturb the district court’s
understanding of C.R.S. §§ 18-17-103(2) and (4). Nor are we impressed with defendants’
related argument that since Kozeny allegedly has some degree of control over
Landlocked, Peak House and Turnstar there was only one person involved in the
association-in-fact enterprise, namely Kozeny.
III
Defendants’ third ground for reversal is that the district court lacked federal
subject matter jurisdiction, that it should have dismissed the action for lack of jurisdiction
and that, such being the case, a preliminary injunction should not have been entered and
should now be dissolved. On August 1, 2000, several weeks subsequent to Kozeny I and
Kozeny II, to which timely notices of appeal had been filed, Kozeny filed a motion to
dismiss all claims for lack of federal subject matter jurisdiction and to dismiss the
securities claims for failure to state a claim on which relief can be granted.
As indicated, it appears that federal jurisdiction over Plaintiffs’ five COCCA
claims was predicated on diversity. 28 U.S.C. § 1332. National Union was a
Pennsylvania corporation. The other plaintiffs were all incorporated in the British Virgin
Islands. Kozeny was described in the complaint as a Czech-born financier with Irish and
Grendian passports. Landlocked and Turnstar were foreign corporations, and Peak House
was said to be a Colorado corporation with its principle place of business in Palm Beach,
Florida. In the motion to dismiss, defendants alleged that National Union was a
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“nominal” party and was only named as a plaintiff to invoke the jurisdiction of the court
in violation of 28 U.S.C. § 1359. As to plaintiffs’ securities claim, Kozeny, and the three
others, in their motion to dismiss, asserted that it was plainly time-barred by the
applicable statute of limitations. On September 25, 2000, the district court entered an
order which, inter alia, denied “without prejudice” Kozeny’s motion to dismiss under
Fed. R. Civ. P. 12(b)(1). As far as we can tell from the record before us, the district court
denied the motion without comment.
On appeal, the defendants argue that the district court did not have diversity
jurisdiction over plaintiffs’ COCCA claims because there was no true diversity in that
National Union was only a nominal party, and had been named as a plaintiff for the sole
purpose of trying to show true diversity. See 28 U.S.C. §§1332(a)(2),(3).
In our view, defendants have not made a sufficient showing that National Union
was only a nominal party to the action. On the contrary, from the record before us, it
would seem that National Union was quite clearly a “real party in interest.” Be that as it
may, we are not inclined to reverse the preliminary injunction on that ground. Moreover,
plaintiffs have alleged a RICO claim and two securities claims which plaintiffs assert is
an independent basis for federal jurisdiction.
IV
As indicated, the district court entered a preliminary injunction against Turnstar on
June 23, 2000 (Kozeny II), and Turnstar filed a timely notice of appeal therefrom.
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Turnstar filed a separate opening brief in connection with its separate appeal, adopting the
arguments made by Kozeny, Landlocked and Peak House in their joint opening brief and
also asserting that the district court erred in granting a preliminary injunction against it for
two additional reasons: (1) the district court erred in concluding that the plaintiffs need
only make a “prima facie” showing of personal jurisdiction over it before granting a
preliminary injunction and (2) that in any event the district court erred in exercising
personal jurisdiction over it. We disagree.
It is correct that the district court in Kozeny II, 115 F.Supp.2d at 1236, said that
“when the issue of jurisdiction is raised before trial and decided on the basis of affidavits
and other written materials, a plaintiff need only make a prima facie showing . . . . In this
context, the burden is ‘light’ and all disputed facts and reasonable inferences must be
drawn in Plaintiff’s favor.” Counsel argues that such may be correct when personal
jurisdiction is challenged on a defendant’s motion to dismiss, but it is not correct where a
plaintiff seeks a preliminary injunction. In the latter case, says counsel, the personal
jurisdiction must be established by a “preponderance of the evidence” before a
preliminary injunction may issue.
In Home-Stake Production v. Talon Petroleum, C.A., 907 F.2d 1012, 1018 (10th
Cir. 1990) we spoke as follows: “the burden of the Trustee at the preliminary injunction
stage of this litigation was to establish a reasonable probability of ultimate success on the
issue of jurisdiction when the action is tried on its merits.” In Home-Stake, we held that
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the burden of showing “reasonable probability” was met as to the one defendant Tudela,
and, similarly, we now hold that plaintiffs in the present case have shown a “reasonable
probability” that they will prevail on the issue of personal jurisdiction when its action is
tried on the merits. We note that the district court in Kozeny II found personal
jurisdiction over Turnstar on four separate grounds (1) tortious acts and/or injury in
Colorado; (2) transaction of business in Colorado; (3) conspiracy jurisdiction; and (4)
quasi-in-rem jurisdiction. The fact that the district court characterized plaintiffs’ burden
as “light,” and said that plaintiffs need only make a “prima facie” showing, is not fatal.
“Reasonable probability” is, to us, something less than “preponderance of the evidence.”
See Home-Stake, 907 F.2d at 1019. Turnstar’s connections with Colorado are fully set
forth in Kozeny II, 115 F. Supp. 2d at 1236-38, and need not be repeated here. In short,
the record supports the district court’s conclusion that it had personal jurisdiction over
Turnstar, justifying a preliminary injunction.
Judgment affirmed.
Entered for the Court
Robert H. McWilliams
Senior Circuit Judge
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