Atlas Biologicals v. Biowest

Appellate Case: 20-1401 Document: 010110751168 Date Filed: 10/11/2022 Page: 1
FILED
United States Court of Appeals
Tenth Circuit
PUBLISH
October 11, 2022
UNITED STATES COURT OF APPEALS
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
ATLAS BIOLOGICALS, INC., a Colorado
corporation,
Plaintiff Counter Defendant -
Appellee,
v. No. 20-1401
THOMAS JAMES KUTRUBES, an
individual,
Defendant,
and
BIOWEST, LLC, a Missouri limited
liability company,
Defendant Counter Plaintiff -
Appellant.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:18-CV-00969-CMA-MEH)
_________________________________
Andrew B. Reid, Reid Law, LLC, Boulder, Colorado, for Defendant Counter Plaintiff -
Appellant.
John D. Root, Lind Ottenhoff & Root, LLP, Windsor, Colorado, for Plaintiff Counter
Defendant - Appellee.
_________________________________
Before HOLMES, Chief Judge, BALDOCK, and MATHESON, Circuit Judges.
_________________________________
Appellate Case: 20-1401 Document: 010110751168 Date Filed: 10/11/2022 Page: 2
HOLMES, Chief Judge.
_________________________________
At face value, this case is about whether a stock transfer is valid under
Colorado law. But to answer this question, we must first answer certain Article III
jurisdictional questions. This dispute arises from a closely related but independent
proceeding. There, Plaintiff-Appellee Atlas Biologicals, Inc. (“Atlas”) sued its
former employee Thomas Kutrubes for various federal intellectual-property claims.
Mr. Kutrubes, seemingly as an attempt to thwart Atlas’s ability to collect a likely
judgment against him, transferred his 7% interest in Atlas to Atlas’s rival Defendant-
Appellant Biowest, LLC (“Biowest”). Once Atlas found out about this alleged
transfer, it sought a writ of attachment in the district court against Mr. Kutrubes’s
interest in Atlas, which the district court granted. But in granting the writ, the district
court explained that it did not know what interest Mr. Kutrubes still had in Atlas and
raised the idea of Atlas filing a separate declaratory judgment action.
Atlas did so, and that is the lawsuit before us. And we now must decide
whether the district court properly found in favor of Atlas in this action in light of the
fact that it did not have an independent source of federal jurisdiction to decide the
question of state law that the action presented—a question that implicated a third
party not involved in the initial suit, Biowest. Reviewing these matters de novo, we
conclude that the district court acted properly and within the scope of its jurisdiction,
and we further agree with the district court’s resolution of the merits. Accordingly,
exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
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I
To understand the contours of this case, one must understand the proceedings
in a related case. Atlas “specializes in the production of bovine serum-based
products that are used for cell culture and research in the medical, veterinary,
and biological sciences.” Atlas Biologicals, Inc. v. Kutrubes (Atlas I), No. 15-CV-
00355, 2019 WL 4594274, at *1 (D. Colo. Sept. 23, 2019) (unpublished) (footnote
omitted). Mr. Kutrubes “began working for Atlas as an intern in 2005 and was hired as
an employee in 2006, initially serving as a regional sales manager.” Id. at *2. Several
years later, Mr. Kutrubes became a shareholder and ultimately came to own a 7% stake in
Atlas. He also was eventually promoted to National Sales Manager and was
subsequently elected to Atlas’s Board of Directors.
Nevertheless, Mr. Kutrubes began “developing a business plan to compete
with Atlas while he was still in Atlas’s employ.” Id. In late 2014, Mr. Kutrubes
began taking steps to formalize his venture, and he ultimately incorporated a business
in Colorado—Peak Serum, Inc. (“Peak Serum”). Around this time and while still
employed at Atlas, Mr. Kutrubes began emailing himself “certain information,
documentation, and data,” such as “Atlas’s customer contact lists, a supplier
agreement; its quality manual; its organizational chart; a contract manufacturing
statement; proofs of labels; a marketing brochure; and email exchanges
about Atlas’s products, among others.” Id.However, as a part of his job description, Mr. Kutrubes had signed a document
stating that he “[u]nderst[ood] and [would] adher[e] to company policies and
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procedures,” which included “a policy entitled ‘Control of
Confidentiality/Proprietary Information’ that prohibited all employees from
disclosing without the company’s prior written authorization any ‘Confidential and/or
Proprietary Information.’” Id. (first alteration in original). He also sent emails to
Atlas’s customers and suppliers in an attempt to secure business for Peak Serum. Mr.
Kutrubes later admitted that he breached his duty of loyalty to Atlas during this time.
On December 16, 2014, Mr. Kutrubes tendered his resignation letter, with an
intended effective date of December 19. He also requested the company to buy out
his 7% stake for $224,000.00 based on “the recent appraisal of the company at
$3,200,000.00.” Id. A few days after Mr. Kutrubes gave notice of his resignation,
Atlas discovered that Mr. Kutrubes had been sending company documents to his
personal email account and had been attempting to solicit Atlas’s clients and
suppliers. As a result, “Atlas ‘decline[d] [Mr. Kutrubes’s] resignation’ and ‘instead
terminate[d] his directorship and employment for cause’ on December 27, 2014.” Id.
at *3 (first and third alterations in original). In a letter detailing its findings, Atlas
demanded Mr. Kutrubes cease using all materials obtained from Atlas, return those
materials to the company, abandon all plans to start a similar business as Atlas, and
surrender all shares to Atlas.
On February 20, 2015, Atlas sued Mr. Kutrubes and Peak Serum in the District
of Colorado. After more than a year of discovery, Atlas filed an amended complaint
in which it asserted various intellectual-property claims, such as claims for federal
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trademark infringement and misappropriation of trade secrets. The district court
conducted a five-day bench trial between March 5, 2018, and March 9, 2018.
On April 4, 2018, Mr. Kutrubes purportedly sold his 7% interest in Atlas to
Biowest. See Aplt.’s App., Vol. II, at 46–50 (Stock Sale and Purchase Agreement,
executed Apr. 4, 2018). The next day, Mr. Kutrubes, through counsel, notified Atlas that
he had sold his shares to Biowest. “Biowest did not receive delivery of an indorsed
certificate for [Mr.] Kutrubes’s shares,” because “Atlas had not created stock certificates
for [Mr.] Kutrubes’s shares at the time of the Purported Transfer,” and only did so after
Mr. Kutrubes had transferred the shares. Atlas Biologicals, Inc. v. Kutrubes (Atlas II),
474 F. Supp. 3d 1188, 1192 (D. Colo. 2020).
In response, Atlas filed “an Emergency Ex Parte Motion for Pre-Judgment
Attachment and Injunctive Relief Against Further Conveyances of Assets by [Mr.]
Kutrubes,” in which it argued the “transfer was unsuccessful (i.e., not completed) because
‘no endorsed share certificate ha[d] been tendered nor a request for a transfer on the
books and records of Atlas . . . ha[d] been made.’” Atlas I, 2019 WL 4594274, at *5
(second and third alterations and omission in original) (quoting Atlas’s emergency
motion). And Atlas requested, as relief, “prejudgment attachment of [Mr.] Kutrubes’s
shares of its stocks pursuant to Colorado Rule of Civil Procedure 102(c).” Id. In
response, Mr. Kutrubes argued he had successfully transferred his stock to Biowest and
requested an “injunction preventing Atlas and its shareholders [and] officers . . . from
holding any shareholder meetings, amending corporate bylaws, or otherwise taking
actions that would impact any minority shareholder until such time as the dispute with
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respect to ownership of shares is resolved.” Id. (alteration and omission in original). The
district court “issued a Writ of Attachment on April 24, 2018, that ordered the Sheriff of
Larimer County, Colorado, to ‘attach and safely keep any stock of [Atlas] owned by [Mr.
Kutrubes].’” Id. (first alteration in original) (quoting writ of attachment).
The district court nevertheless noted at the hearing concerning the issuance of
the writ of attachment, that it did not know whether the transfer of stock was valid—
whether it had been “consummated in full.” Aplt.’s App., Vol. IV, at 144. Because
of this uncertainty as to the validity of the transfer, the district court told the parties
the following:
So I am going to issue an order of pre-
judgment attachment as to whatever
interest remains in Mr. Kutrubes for the
7 percent of stock that he owns in Atlas.
I don’t know what that is, and that is not
going to be decided by me unless you all
file a separate action in this Court for
either declaratory judgment or for
further undoing the fraudulent
conveyance.
Id. (emphasis added). Atlas “informed the Court that it had served the Writ of
Attachment on [Mr.] Kutrubes on May 3, 2018, and that it had ‘surrendered
[Mr. Kutrubes’s] stock certificates to the Larimer County Sheriff on May 9,
2018.’” Atlas II, 474 F. Supp. 3d at 1191.
The next day, Atlas sued Biowest and Mr. Kutrubes. Atlas sought “declaratory
relief pursuant [to] Fed. R. Civ. P. 57 to void the purported transfer of stock [from
Mr. Kutrubes to Biowest] under Article 8 of the Colorado Uniform Commercial Code
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[i.e., CUCC] or, in the alternative, to avoid and recover a fraudulent transfer pursuant
to the Colorado Uniform Fraudulent Conveyances Act C.R.S. §§ 38-8-101[,] et
seq. (CUFTA).” Id.
On June 25, 2018, Biowest filed a motion to dismiss Atlas’s claims pursuant to
Fed. R. Civ. P. 12(b)(1) on the grounds that the district court lacked subject-matter
jurisdiction over the case and that Atlas lacked standing to sue Biowest. See Atlas II,
No. 18-CV-00969, 2019 WL 1200809, at *2, *4 (D. Colo. Mar. 14, 2019) (unpublished).
Biowest also argued that, if the district court indeed had subject-matter jurisdiction, the
suit should be dismissed for failure to state a claim.
The district court rejected Biowest’s argument “that the Court does not have
ancillary jurisdiction over the action because it is ‘separated’ from the Primary Suit
[i.e., Atlas I], relies on state claims, and lacks ‘an independent federal jurisdiction
basis.’” Id. at *5. The district court explained that “this case ‘involves the second,
less common purpose—ancillary jurisdiction over collateral proceedings,’”; that is,
jurisdiction “to enable a court to function successfully, that is, to manage its
proceedings, vindicate its authority, and effectuate its decrees.” Id. at *5–6 (quoting
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380 (1994)). Therefore,
the court reasoned that it was “satisfied that it has ancillary jurisdiction over” Atlas’s
claims because Atlas “seeks to avoid an allegedly fraudulent transfer of stock to
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Defendant Biowest, LLC from Defendant Kutrubes, against whom [Atlas] seeks a
judgment in the Primary Suit [i.e., Atlas I].” 1 Id. at *6.
Next, the district court concluded that Atlas indeed had standing to sue
Biowest for a declaratory judgment to void the transfer. Because the declaratory
judgment was ostensibly brought under Colorado’s Uniform Declaratory Judgments
Law, Colo. Rev. Stat. §§ 13-51-101, et seq., the district court looked to Colorado’s
law of standing, which states that “a plaintiff must assert a legal basis on which a
claim for relief can be grounded. The plaintiff must allege an injury in fact to a
legally protected or cognizable interest.” Atlas II, 2019 WL 1200809, at *7 (quoting
Farmers Ins. Exch. v. Dist. Ct. for the Fourth Jud. Dist., 862 P.2d 944, 947 (Colo.
1993)). And the district court explained that under Colorado law a declaratory
judgment was appropriate “when the rights asserted by the plaintiff are present and
cognizable ones . . . [and] a declaratory judgment would effect a change in the
plaintiff’s present rights or status.” Id. (emphasis omitted) (quoting Farmers Ins.
Exch., 862 P.2d at 947).
With this in mind, the district court concluded that Atlas had standing to sue
“because the declaratory judgment that it seeks—that purported transfer of stock
1
The district court did find that it did not have jurisdiction over Atlas’s
claim for “civil conspiracy,” because it is an “entirely new and original” theory of
liability, and the Supreme Court has “cautioned against the exercise of jurisdiction
over proceedings that are ‘entirely new and original’ . . . or where ‘the relief sought
is of a different kind or on a different principle’ than that of the prior decree.” Atlas
II, 2019 WL 1200809, at *6 (omission in original) (quoting Peacock v. Thomas, 516
U.S. 349, 358 (1996)).
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from Defendant [Kutrubes] to Defendant Biowest, LLC ‘is void and of no effect,’ . . .
would effect a change in its present rights or status.” Id. at *8. Specifically, the
district court explained that Atlas’s status as issuer of the stock is affected by whether
the transfer was valid because if it was valid, Atlas would be required to register the
transfer. And also, the writ of attachment was predicated on an understanding that
the transfer was invalid and Atlas had already surrendered the shares to the Larimer
County police department. Id. 2
On April 19, 2019, Atlas moved for summary judgment on its claim for
declaratory relief to void the stock transfer. In response, Mr. Kutrubes argued that
2
The district court also denied Biowest’s motion to dismiss as to Atlas’s
first three claims. First, it concluded that Atlas had stated a claim for a declaratory
judgment against Biowest and Mr. Kutrubes because it “alleges that the transfer of
stock from Defendant Kutrubes to Defendant Biowest, LLC was ineffectual under the
[C]UCC because Defendant Biowest, LLC does not possess a stock certificate and
Plaintiff has not registered any certificate in Defendant Biowest, LLC’s name.” Atlas
II, 2019 WL 1200809, at *9. Second, the district court concluded that Atlas had
stated a claim for actual fraud, because Mr. Kutrubes transferred “his shares ‘with the
actual intent to hinder, delay, or defraud [Plaintiff].’” Id. (alteration in original).
The district court also explained that Atlas could bring this claim against Biowest
because “CUFTA allows for a judgment ‘against a person other than the debtor’ if
that person ‘also acts with wrongful intent’” and “Defendant Biowest, LLC acted
with actual intent to defraud Plaintiff” when it accepted the transfer with knowledge
of the ongoing trial and the likelihood of a judgment against Mr. Kutrubes. Id. at
*10. Lastly, the district court concluded that Atlas had stated a constructive fraud
claim against Mr. Kutrubes and Biowest. Although noting that “the citations to
CUFTA’s remedy provisions in Plaintiff’s Complaint are significantly flawed,” it
explained that Plaintiff has adequately alleged that Defendant Biowest, LLC may be
liable for a judgment for the value of the stocks transferred pursuant to Section 38-8-
109(2). Id. at *10–11. Section 38-8-109(2) states that an aggrieved creditor “may
recover judgment for the value of the asset transferred . . . or the amount necessary to
satisfy the creditor’s claim, whichever is less,” and that this judgment may be entered
against “[t]he first transferee of the asset.” Id. at *11 (alteration and omission in
original) (quoting Colo. Rev. Stat. § 38-8-109(2), -109(2)(a)).
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“the transfer was valid because Defendants substantially complied with the [C]UCC
and an equitable transfer of stock occurred.” Atlas II, 474 F. Supp. 3d at 1191–92.
And Biowest, for its part, “argue[d] that Plaintiff’s Motion should be denied
because, inter alia, Article 8 of the [C]UCC is irrelevant to the transfer of ownership
of stock and an equitable transfer of stock occurred.” Id. at 1192. However, the
district court granted summary judgment in favor of Atlas. At the outset, it did reject
Atlas’s arguments that the shares were certificated securities because its bylaws
required its stock certificate to be “certificated”; instead, the district court found that
the shares were uncertificated securities at the time of the transfer because Atlas only
created the stock certificates for the shares after the alleged transfer. Id. at 1193.
Yet, concluding that “Article 8 of the [C]UCC governs the Purported Transfer
and its delivery requirements must be satisfied for legal ownership of stock to
transfer,” the district court found that the transfer did not meet the requirements for
delivery of uncertificated securities under Article 8. Id. at 1194. The [C]UCC
provides that delivery of an uncertificated security to a purchaser occurs when either
of the following conditions is satisfied: (1) “The issuer registers the purchaser as the
registered owner, upon original issue or registration of transfer; or (2) Another
person, other than a securities intermediary, either becomes the registered owner of
the uncertificated security on behalf of the purchaser or, having previously become
the registered owner, acknowledges that it holds for the purchaser.” Id. (quoting
Colo. Rev. Stat. § 4-8-301 (2019)).
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The district court concluded that neither of the foregoing two conditions was
met. The district court determined that the first condition was not satisfied because
Atlas did not register Biowest as the registered owner of the security and rejected
Biowest’s argument that Atlas’s purported obligation to register satisfied this
condition. Next, the district court explained that the second condition—which, as
applied here, would mean that Mr. Kutrubes held the stock for Biowest—was not
satisfied, because Atlas never received any statement that Mr. Kutrubes held the
stock for the benefit of Biowest. And Mr. Kutrubes indicated he was the owner of
the stock and did not mention that he owned it for the benefit of Biowest when he
made a shareholder request to Atlas on June 18, 2019. 3 Because Biowest did not
satisfy either condition for delivery of uncertificated securities, the district court
concluded that “ownership of [Mr.] Kutrubes’s stock did not transfer to Biowest.”
Id. at 1195.
The district court also rejected the contention that the stock had been equitably
transferred to Biowest. Even though, reasoned the court, “Colorado recognizes
equitable transfer of corporate stock and that the adoption of the [C]UCC does not
abrogate the principle allowing such equitable transfer, ‘equitable title claims are
recognized in Colorado only where the rights of third parties would not be affected,’”
3
Specifically, on that date in June 2019, Mr. Kutrubes provided a signed
and dated form to Atlas stating that he was a current shareholder of Atlas, and had
been so for nine years, and that he owned 52,689 shares. He sought to examine
certain financial records of the company to “review and ascertain the value of [his]
shares and the financial status of the company.” Aplt.’s App., Vol. II, at 265.
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and the court concluded that the doctrine did not apply here because the claim would
affect Atlas’s rights as a third party. Id. (quoting Mortg. Invs. Corp. v. Battle
Mountain Corp. (Mortg. Invs. II), 93 P.3d 557, 560 (Colo. Ct. App. 2003)).
Therefore, the district court granted summary judgment on Atlas’s declaratory
judgment claim that the stock transfer was void.
On September 18, 2020, upon a stipulated motion by the parties, the district
court certified its order as final pursuant to Fed. R. Civ. P. 54(b) and entered a final
judgment pursuant to Fed. R. Civ. P. 54(b) on the declaratory judgment claim. See
Aplt.’s App., Vol. III, at 153–55 (order on certification of finality); id. at 156 (Final
Judgment). And, following the grant of an extension on the Fed. R. Civ. P. Rule 4
appeal deadline, Biowest filed its Notice of Appeal. See id. at 157–64 (motion for
extension); see also id. at 169–71 (Corrected Notice of Appeal).
Notably, a few days after the court certified its order in the instant case as
final, the district court in Atlas I entered judgment “in favor of Atlas [] on its claims
for federal trademark infringement; Colorado common law trademark and trade name
infringement; misappropriation of trade secrets; and breach of fiduciary duty.” Atlas
I, 2019 WL 4594274, at *23. Specifically, the district court ordered “that a final
judgment shall be entered against Defendants Thomas James Kutrubes, Peak Serum,
Inc., and Peak Serum, LLC in the amount of $2,048,180.50.” 4 Id. And Mr. Kutrubes
4
At oral argument, we questioned the parties about how the outcome of
Mr. Kutrubes’s appeal would affect the supplemental enforcement jurisdiction of the
district court at issue in this appeal. Both parties seemed to agree that if the panel in
Atlas I reversed the district court’s judgment in its entirety, such that there would be
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and his companies appealed. See Atlas I, No. 19-1404, 2022 WL 2840484 (10th Cir.
July 21, 2022) (unpublished). In a recently issued unpublished decision, a panel of
our court affirmed the district court’s judgment. Id. at *1, *9.
II
This appeal presents three issues. First, we must decide whether the district
court properly extended supplemental ancillary jurisdiction to the proceedings
initiated by Atlas. Second, we must determine whether Atlas had standing to sue
Biowest even though Biowest was not a party in the original litigation. Because we
answer both of these inquires in the affirmative, we last turn to the underlying merits
of this suit—whether the stock transfer between Mr. Kutrubes and Biowest was
consonant with Colorado law. We conclude it was not; it is therefore void.
Therefore, we affirm the district court’s grant of summary judgment in favor of
Atlas.
A
We first turn to whether the district court had subject-matter jurisdiction to
hear this case. We begin by outlining what is required for federal courts to have
jurisdiction and sketch the contours of when courts may possess supplemental
no judgment against Mr. Kutrubes, this case would be moot and there would be no
ancillary enforcement jurisdiction. But, as noted, that did not happen. The panel
who heard Mr. Kutrubes’s appeal affirmed the district court’s judgment. See Atlas I,
No. 19-1404, 2022 WL 2840484, at *1,*9 (10th Cir. July 21, 2022) (unpublished).
Therefore, because there remains an outstanding judgment against Mr. Kutrubes, this
case is not moot and, as will be discussed below, the district court properly exercised
ancillary enforcement jurisdiction over Atlas’s claim in this case.
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jurisdiction over claims that traditionally fall outside the ambit of federal jurisdiction.
This will be followed by further discussion of the species of supplemental
jurisdiction that we have before us: ancillary enforcement jurisdiction. Next, we will
conclude that this case was indeed within the district court’s ancillary enforcement
jurisdiction. And finally, we will consider Biowest’s arguments to the contrary.
1
“Federal courts are courts of limited jurisdiction. They possess only that
power authorized by Constitution and statute . . . which is not to be expanded by
judicial decree.” Kokkonen, 511 U.S. at 377 (citations omitted); see Owen Equip. &
Erection Co. v. Kroger, 437 U.S. 365, 374 (1978) (“It is a fundamental precept that
federal courts are courts of limited jurisdiction. The limits upon federal jurisdiction,
whether imposed by the Constitution or by Congress, must be neither disregarded nor
evaded.”). Accordingly, “[i]t is to be presumed that a cause lies outside this limited
jurisdiction . . . and the burden of establishing the contrary rests upon the party
asserting jurisdiction.” Kokkonen, 511 U.S. at 377 (citation omitted); see also
McNutt v. Gen. Motors Acceptance Corp. of Indiana, 298 U.S. 178, 182 (1936) (“It is
incumbent upon the plaintiff properly to allege the jurisdictional facts, according to
the nature of the case.”); id. at 189 (“[The plaintiff] must allege in his pleading the
facts essential to show jurisdiction.”).
“But sometimes the federal courts are permitted to entertain a claim or
an incidental proceeding that does not satisfy requirements of an independent basis
of subject matter jurisdiction.” 13 Charles Alan Wright & Arthur R. Miller,
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FEDERAL PRACTICE AND PROCEDURE § 3523.2 (3d ed.), Westlaw (database updated
May 2022). This “supplemental jurisdiction” is most commonly used in the context
of extending jurisdiction over non-federal question or non-diverse claims asserted in
federal court. For example, “in any civil action of which the district courts have
original jurisdiction,” § 1367 of Title 28 permits federal courts to exercise
supplemental jurisdiction over certain claims that do not independently satisfy the
requirements for subject-matter jurisdiction, stating the following: “the district courts
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 under Article III of the United States Constitution.” 28 U.S.C. §
1367(a).
But there is another species of supplemental jurisdiction—ancillary or
ancillary enforcement jurisdiction—that allows federal courts to extend jurisdiction
over “related proceedings that are technically separate from the initial case that
invoked federal subject matter jurisdiction.” 13 Wright & Miller, supra, § 3523.2.
The Supreme Court explained “that a federal court may exercise ancillary jurisdiction
‘(1) to permit disposition by a single court of claims that are, in varying respects and
degrees, factually interdependent; and (2) to enable a court to function successfully,
that is, to manage its proceedings, vindicate its authority, and effectuate its
decrees.’” Peacock v. Thomas, 516 U.S. 349, 354 (1996) (quoting Kokkonen, 511
U.S. at 379–380).
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2
We focus on this second form of supplemental jurisdiction—ancillary
enforcement jurisdiction. Because we have previously described ancillary
enforcement jurisdiction as an “ill-defined concept,” we pause here to provide some
clarity to an otherwise nebulous aspect of our federal courts’ jurisdiction. Sandlin v.
Corp. Interiors Inc., 972 F.2d 1212, 1215 (10th Cir. 1992) (quoting 6 Charles Alan
Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 1444 (2d ed.
1990)). Not governed by 28 U.S.C. § 1367, ancillary enforcement jurisdiction is a
creature of the common law and thus is governed by caselaw. See Boim v. Am.
Muslims for Palestine, 9 F.4th 545, 551 (7th Cir. 2021) (“Congress codified much of
the first category in the supplemental jurisdiction statute, 28 U.S.C. § 1367, while the
latter category—at times called ‘ancillary enforcement jurisdiction’—remains
grounded in federal common law.”); Butt v. United Brotherhood of Carpenters &
Joiners of Am., 999 F.3d 882, 886–87 (3d Cir. 2021) (“Unlike the sources of
jurisdiction conferred by 28 U.S.C. § 1367, ancillary enforcement jurisdiction
focuses on ‘the power [of federal courts] to enforce their judgments and ensur[es]
that they are not dependent on state courts to enforce their decrees.’” (alterations in
original) (footnote omitted) (quoting Nat’l City Mortg. Co. v. Stephen, 647 F.3d 78,
85 (3d Cir. 2011))); Nat’l City Mortg. Co., 647 F.3d at 85 (“‘Ancillary enforcement
jurisdiction is . . . a creature of necessity,’ . . . giving federal courts the power to
enforce their judgments and ensuring that they are not dependent on state courts to
enforce their decrees. Ancillary jurisdiction is a common law doctrine that survived
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the codification of supplemental jurisdiction in 28 U.S.C. § 1367.” (first omission in
original) (citations omitted) (quoting Peacock, 516 U.S. at 359)).
We have explained that “[a]ncillary jurisdiction rests on the premise that a
federal court acquires jurisdiction of a case or controversy in its entirety.” Jenkins v.
Weinshienk, 670 F.2d 915, 918 (10th Cir. 1982). In line with this proposition, we
have explained that “a court may decide collateral matters necessary to render
complete justice,” id., and “[w]ithin a federal court’s ancillary jurisdiction is the
power to conduct proceedings necessary to protect and give effect to its judgments,”
Sandlin, 972 F.2d at 1216. See Peacock, 516 U.S. at 354 (explaining ancillary
jurisdiction “enable[s] a court to function successfully, that is, to manage its
proceedings, vindicate its authority, and effectuate its decrees” (quoting
Kokkonen, 511 U.S. at 379–80)); see also Loc. Loan Co. v. Hunt, 292 U.S. 234, 239
(1934) (“That a federal court of equity has jurisdiction of a bill ancillary to an
original case or proceeding in the same court, whether at law or in equity, to secure
or preserve the fruits and advantages of a judgment or decree rendered therein, is
well settled.”); 13 Wright & Miller, supra, § 3523.2 (explaining that a district court
“may hear collateral proceedings when necessary to allow it to vindicate its role as a
tribunal”). Therefore, “if a federal court had jurisdiction of the principal action, it
may hear an ancillary proceeding, regardless of the citizenship of the parties, the
amount in controversy, or any other factor that normally would determine subject
matter jurisdiction.” 13 Wright & Miller, supra, § 3523.2.
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But the matter of which ancillary proceedings fall within this form of
supplemental jurisdiction is less clear. The Supreme Court has “approved the
exercise of ancillary jurisdiction over a broad range of supplementary proceedings
involving third parties to assist in the protection and enforcement of federal
judgments—including attachment, mandamus, garnishment, and the prejudgment
avoidance of fraudulent conveyances.” Peacock, 516 U.S. at 356. Thus, while it is
“[w]ithout doubt [that] a federal court has jurisdiction to enjoin actions that threaten
to interfere with an order it has entered,” 13 Wright & Miller, supra, § 3523.2, the
Supreme Court nevertheless has outlined certain types of enforcement proceedings
that do not fall within the ambit of supplemental ancillary jurisdiction. For example,
in Kokkonen, the Supreme Court explained that ancillary jurisdiction does not extend
to a breach of a settlement agreement that arose from a stipulation of dismissal under
Federal Rule of Civil Procedure 41(a)(1)(ii), which did not reserve jurisdiction to the
district court to enforce the agreement or even refer to the settlement agreement. 511
U.S. at 376–78. The Court explained that “the power asked for here is quite remote
from what courts require in order to perform their functions,” because “the terms of
the settlement agreement had [not] been made part of the order of dismissal” and
therefore, “the only order here was that the suit be dismissed, a disposition that is in
no way flouted or imperiled by the alleged breach of the settlement agreement.” Id.at 380–81.
The Court recognized another boundary by holding that ancillary supplemental
jurisdiction did not extend to enforcing a judgment for breach of fiduciary duties
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against a third party who was found by the district court not to be a fiduciary.
Peacock, 516 U.S. at 357–60. The Court explained that it has never recognized
extending supplemental jurisdiction “beyond attempts to execute, or to guarantee
eventual executability of, a federal judgment,” and it has “never authorized the
exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to
pay an existing federal judgment on a person not already liable for that judgment.”
Id. at 357 (emphasis added); see H.C. Cook Co. v. Beecher, 217 U.S. 497, 498–99
(1910) (concluding that a plaintiff could not collect on the judgment by suing the
individual directors of the defendant corporation, alleging that they had authorized
and knowingly permitted the corporation to become insolvent, because the suit was
not ancillary to the judgment in the former suit). Further, the Court “cautioned
against the exercise of jurisdiction over proceedings that are “‘entirely new and
original,’” or where ‘the relief [sought is] of a different kind or on a different
principle’ than that of the prior decree.” Peacock, 516 U.S. at 358 (alteration in
original) (first quoting Krippendorf v. Hyde, 110 U.S. 276, 285 (1884); and then
quoting Dugas v. Am. Sur. Co. of New York, 300 U.S. 414, 428 (1937)).
Notably, in Ellis v. All Steel Construction, Inc., however, we made clear that
the third-party boundary of “Peacock . . . is not implicated in actions to reach and
collect assets of the judgment debtor held by a third party; it is only when the
plaintiff seeks to hold the third party personally liable on the judgment that an
independent jurisdictional basis is required.” 389 F.3d 1031, 1034 (10th Cir. 2004)
(emphasis added). This distinction is evident from the fact that Peacock itself
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explicitly recognized “the exercise of ancillary jurisdiction over a broad range of
supplementary proceedings involving third parties to assist in the protection and
enforcement of federal judgments—includ[ed] attachment, . . . and the prejudgment
avoidance of fraudulent conveyances.” 516 U.S. at 356 (emphasis added).
Our sister circuits likewise have interpreted Peacock as not affecting the
ability of federal courts to hear ancillary proceedings to enforce judgments against
third parties. See Nat’l Mar. Servs., Inc. v. Straub, 776 F.3d 783, 787 (11th Cir.
2015) (“In contrast with Peacock, the district court had ancillary jurisdiction over
this supplementary proceeding because [plaintiff] sought to disgorge [defendant] of a
fraudulently transferred asset, not to impose liability for a judgment on a third party.
Unlike the defendant in Peacock, [defendant] is not personally liable for the
judgment against [a separate defendant in the primary action] . . . [defendant in the
supplemental action’s] liability is limited instead to the proceeds that [defendant in
the primary action] fraudulently transferred to him.”); Epperson v. Ent. Express, Inc.,
242 F.3d 100, 106–07 (2d Cir. 2001) (concluding that the district court had ancillary
enforcement jurisdiction where one party only attempted to void the allegedly
fraudulent conveyances of defendant to and among other defendant parties, in order
to ensure the plaintiff’s collectability of the default judgment); Thomas, Head &
Greisen Emps. Tr. v. Buster, 95 F.3d 1449, 1454–55 (9th Cir. 1996) (distinguishing
plaintiffs’ fraudulent conveyance claims from the veil-piercing claim at issue in
Peacock, and holding that a district court has enforcement jurisdiction over a
judgment creditor’s fraudulent conveyance claims against transferees who were not
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parties to the underlying action); see also Gambone v. Lite Rock Drywall, 288 F.
App’x 9, 12 (3d Cir. 2008) (unpublished) (“[A]ncillary jurisdiction lets prevailing
litigants go to the District Court that entered their judgment for help in resolving
matters related to its enforcement. Accordingly, so long as the plaintiffs’ demand for
injunctive relief qualifies as a post-judgment enforcement proceeding, which is a
proceeding that functions as a means for executing a judgement, the District Court
has subject matter jurisdiction”).
3
We conclude that the district court had ancillary subject matter jurisdiction
over Atlas’s declaratory judgment claim to void the stock transfer to Biowest. In
Atlas I, the district court issued a writ of attachment, and concluded that “whatever
Atlas [] stock that Defendant Thomas James Kutrubes owns is subject to attachment .
. . ,” and commanded the Sheriff of Larimer County to “attach and safely keep any
stock of Atlas [] owned by Defendant Thomas James Kutrubes.” Aplt.’s App., Vol.
IV, at 92 (Writ of Attachment, filed Apr. 24, 2018). Atlas filed this suit, seeking
declaratory relief, to “void the purported transfer of stock under Article 8 of the
[CUCC] or, in the alternative, to avoid and recover a fraudulent transfer pursuant to
the Colorado Uniform Fraudulent Conveyances Act . . . .” Aplt.’s App., Vol. II, at 4
(Amended Complaint, filed Mar. 18, 2019). The district court concluded that it
indeed had jurisdiction over “these three claims [because] Plaintiff seeks to avoid an
allegedly fraudulent transfer of stock to Defendant Biowest, LLC from Defendant
Kutrubes, against whom Plaintiff seeks a judgment in the Primary Suit [i.e., Atlas I].”
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Atlas II, 2019 WL 1200809, at *6. Specifically, it explained these claims are “within
the scope of the ancillary enforcement jurisdiction of this Court.” Id.The district court is correct. To be sure, the nature of this case is unique. But
it nevertheless falls within the core of those situations under which ancillary
enforcement jurisdiction appropriately extends to third parties. As mentioned above,
we have concluded that “[w]ithin a federal court’s ancillary jurisdiction is the power
to conduct proceedings necessary to protect and give effect to its judgments.”
Sandlin, 972 F.2d at 1216. And we have made clear that ancillary enforcement
jurisdiction is appropriate in actions “to reach and collect assets of the judgment
debtor held by a third party.” Ellis, 389 F.3d at 1034; cf. Peacock, 516 U.S. at 357(noting the Court has never recognized extending supplemental jurisdiction “beyond
attempts to execute, or to guarantee eventual executability of, a federal judgment”).
Most relevant here, the Supreme Court has approved of the exercise of
supplemental jurisdiction over a claim to avoid a fraudulent transfer of assets to a
third party. See Dewey v. W. Fairmont Gas Coal Co., 123 U.S. 329, 332–33 (1887)
(concluding that the district court had ancillary jurisdiction over a suit brought under
West Virginia law allowing “a creditor, before obtaining a judgment or decree for his
claim, [to] institute any suit to avoid a gift, conveyance, assignment, or transfer . . .
.”); cf. Riggs v. Johnson Cnty., 73 U.S. (6 Wall.) 166, 187 (1867) (“Process
subsequent to judgment is as essential to jurisdiction as process antecedent to
judgment, else the judicial power would be incomplete and entirely inadequate to the
purposes for which it was conferred by the Constitution.”).
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Although this case concerns the predicate issue of whether any sort of transfer
actually occurred, deciding this question through a declaratory judgment is essential
to the district court deciding the entire case before it. That is, whether the transfer to
Biowest was effective under Colorado law determines whether the district court’s
writ of attachment attached to anything at all. This is true even though Biowest is not
mentioned in the writ of attachment ordered by the district court, because the relief
sought by Atlas in this case against Biowest is necessarily tied to vindicating the
relief already ordered in the principal action (i.e., Atlas I) against Mr. Kutrubes.
Unlike in Peacock, the district court had ancillary jurisdiction over this
proceeding because Atlas asked the district court to answer the question about the
validity of the transfer and thus the writ of attachment—not to impose liability on a
third party. See Epperson, 242 F.3d at 107 (“In the present proceeding, Appellants
seek only to void the allegedly fraudulent conveyances of [judgment debtor] to and
among [third parties] in order to ensure the collect[a]bility of the default judgment
against [judgment debtor]. Their fraudulent conveyance claims do not seek to hold
[third parties] liable for the existing judgment . . . . Accordingly . . . Appellants’
claims for fraudulent conveyance were within the scope of the enforcement
jurisdiction of the district court.” (footnotes omitted)). Thus, in order to fully
effectuate the district court’s order attaching “whatever Atlas [] stock that Defendant
Thomas James Kutrubes owns,” the district court must determine the validity of any
transfer to Biowest of the attached property under Colorado law and, relatedly,
whether Atlas was obligated to register the shares purportedly transferred to Biowest.
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Therefore, this is the very sort of proceeding that would allow the district court to
decide the entire case and assure that its judgments are followed—viz., the type of
case that fits nicely and properly within the compass of ancillary enforcement
jurisdiction.
4
Biowest’s arguments to the contrary are unavailing. First, Biowest argues that
Atlas only invoked 28 U.S.C. § 1367’s supplemental jurisdiction and did not allege
common law ancillary jurisdiction. See Aplt.’s Opening Br. at 17–20. And, because
it “was Atlas’s duty to assert the proper jurisdictional basis for its claims and it failed
to assert common law ancillary jurisdiction,” the “District Court should not have
considered that as a basis for its jurisdiction.” Id. at 22. Biowest correctly observes
that “[t]he burden of establishing subject matter jurisdiction is on the party asserting
jurisdiction.” Aplt.’s Reply Br. at 1 (quoting Port City Props. v. Union Pac. R.R.
Co., 518 F.3d 1186, 1189 (10th Cir. 2008)). Consequently, when a party
championing subject-matter jurisdiction “fails to lead” in identifying the proper
jurisdictional theory, “we have no duty to follow.” Raley v. Hyundai Motor Co., Ltd.,
642 F.3d 1271, 1275 (10th Cir. 2011) (emphasis added). In other words, in such
circumstances, a federal court is not obliged “to conjure up possible theories” to
support subject-matter jurisdiction. Id.; see, e.g., Patrick G. by & through Stephanie
G. v. Harrison Sch. Dist. No. 2, 40 F.4th 1186, 1214–15 (10th Cir. 2022) (“[The
plaintiffs] make no meaningful argument—supported by authority or even logic—for
why this claim is viable (i.e., not moot) . . . . At the end of the day, the [the
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plaintiffs] must convince us that jurisdiction is present, and we will not make
arguments in this respect for them.”).
That does not mean, however, that—when a party stumbles and falls in
advancing the jurisdictional ball—federal courts lack the discretion to identify a valid
theory to support their jurisdiction. More specifically, just as federal courts have the
“discretion to decline to consider . . . arguments that might have supported”
jurisdiction, where a jurisdictional proponent fails to properly advance them, it
logically follows that they have the discretion to consider such jurisdiction-
supportive arguments in a like situation. U.S. ex rel. Ramseyer v. Century
Healthcare Corp., 90 F.3d 1514, 1518 n.2 (10th Cir. 1996), superseded by statute on
other grounds, False Claims Act, Pub. L. No. 111-203, 124 Stat. 1376, as recognized
in U.S. ex rel. Reed v. KeyPoint Gov’t Sols., 923 F.3d 729, 764–65 (10th Cir. 2019)
(emphasis added); see Daigle v. Shell Oil Co., 972 F.2d 1527, 1539 (10th Cir. 1992)
(“[W]e may depart from the general waiver rule [to consider arguments supportive of
subject-matter jurisdiction] in our discretion, particularly when we are presented with
a strictly legal question the proper resolution of which is beyond doubt or when
manifest injustice would otherwise result.” (emphasis added)); cf. 13D Charles Alan
Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 3567.3 (3d ed.),
Westlaw (database updated April 2022) (“[R]efusing to exercise [supplemental]
jurisdiction under [28 U.S.C.] § 1367(c) is a discretionary—and not a
jurisdictional—decision.” (emphasis added)). Stated otherwise, where a federal
court’s subject-matter jurisdiction is challenged, as here—while independently
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assessing whether there is a proper basis for jurisdiction—a federal court is not
limited to the jurisdictional theories that the jurisdictional proponent advances. To
the contrary, it has the discretion to identify a proper ground for subject-matter
jurisdiction that the proponent did not identify. That is precisely the discretion that
the district court exercised here, and we have no reason to think that the court abused
its discretion.
Furthermore, the authority identified by Biowest underscores that the burden
shouldered by the party asserting jurisdiction is to properly plead—and, at the
appropriate procedural juncture, actually produce evidence of—facts supporting
federal jurisdiction. See, e.g., Port City Props., 518 F.3d at 1189. Here, although it
appears to be uncontested that Atlas mistakenly pointed to 28 U.S.C. § 1367 for the
source of supplemental jurisdiction, Atlas nevertheless alleged sufficient facts to
support ancillary common law jurisdiction—thereby, shouldering (at least in material
respects) its jurisdictional burden. See Aplt.’s App., Vol. I, at 17–35 (Complaint,
filed Apr. 25, 2018). Most relevant, Atlas pleaded that Mr. Kutrubes admitted that he
knew that a judgment would be entered against him in the other case (i.e., Atlas I);
Mr. Kutrubes purportedly then transferred his shares to Biowest; Atlas sought a writ
of attachment against Mr. Kutrubes’s stock; and Atlas had not received valid
instructions to register the shares. See Aplt.’s App., Vol. II, at 7–11, 13. In support
of its allegations, Atlas filed multiple exhibits comprised of documents from the
original case detailing the back and forth between the parties regarding the purported
stock transfer to Biowest and filings regarding the writ of attachment. See id. at 21–
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61; cf. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009) (“In evaluating a
Rule 12(b)(6) motion to dismiss, courts may consider not only the complaint itself,
but also attached exhibits . . . and documents incorporated into the complaint by
reference . . . .” (citations omitted)). Although Atlas inexplicably did not mention in
its amended complaint that the writ of attachment was indeed granted, it provided
sufficient facts to show that the district court had supplemental ancillary jurisdiction
to hear its case.
Next, Biowest argues that, although it “does not contest a federal district
court’s equitable jurisdiction to enforce its orders and judgments,” Biowest “does
contest the District Court’s assumption of ancillary subject matter jurisdiction over
claims at law in a separate action.” Aplt.’s Opening Br. at 23; see Aplt.’s Reply Br.
at 7 (arguing “equitable ancillary enforcement claims (including a properly plead
CUFTA claim) cannot provide a jurisdictional basis for the declaratory judgment
claim on the contract, also a claim at law rather than equity, even if considered
together”). But Biowest points to no authority that shows that this distinction
matters. Cf. Hunt, 292 U.S. at 239 (“That a federal court of equity has jurisdiction of
a bill ancillary to an original case or proceeding in the same court, whether at law or
in equity, to secure or preserve the fruits and advantages of a judgment or decree
rendered therein, is well settled.” (emphasis added)). And when considering
ancillary enforcement jurisdiction’s purpose to enable courts to effectuate their
orders, the law and equity distinction is seemingly inapposite; it is not consonant
with comprehensively achieving the purpose of ancillary jurisdiction.
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In line with this, Biowest’s arguments that Atlas’s declaratory judgment is
necessarily “new and original,” because it arises as a claim at law, fails. Aplt.’s
Opening Br. at 25–26 (quoting Peacock, 516 U.S. at 358). Specifically, in an attempt
to argue that the declaratory judgment concerns a “new and original” claim, Biowest
contends that “the Agreement and Assignment was executed and the Shares
transferred prior to the entry of the Atlas One Writ which ran against only Atlas
stock, if any, held by [Mr.] Kutrubes at the time of entry, and therefore did not cover
the previously transferred Shares.” Id. at 24. But this attempt to show that the
dispute is “new and original” actually frames how this dispute relates to the original
case, and it simply papers over the question that the district court used its
supplemental ancillary jurisdiction to decide: that is, whether there actually was a
legally effective transfer of shares by Mr. Kutrubes in the first place and, by
extension, whether any such transfer actually did occur prior to the issuance of the
writ of attachment. The fact that the answer to this question—which relates to the
utility of the writ of attachment issued in Atlas I to enforce the district court’s
judgment in that case—requires looking to Colorado law does not make this a “new
or original” suit, disconnected from Atlas I. Instead, this lawsuit is compatible with
the general aim of ancillary jurisdiction to allow courts to decide an entire case
without requiring litigants to start over in state court. Thus, Biowest cannot show
that the nature of this case puts it outside of the proper bounds of a federal court’s
supplemental jurisdiction. The district court correctly exercised subject-matter
jurisdiction over Atlas’s declaratory judgment claim.
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B
Having determined that the district court properly extended supplemental
ancillary enforcement jurisdiction to Atlas’s declaratory judgment claim, we next
turn to whether Atlas had standing to sue Biowest. This question is necessarily
interwoven with the supplemental ancillary enforcement jurisdictional inquiry. But
to answer this question, we must untangle the state and federal threads that supply the
basis of the district court’s federal jurisdiction and pinpoint the exact basis on which
Atlas’s claim rests. To do this, we start by summarizing the relevant law of standing.
Next, we will explain how federal standing law interacts with state standing law.
Then, we will examine how standing works in the declaratory judgment context.
Next, we will conclude that Atlas indeed had standing to sue Biowest. And finally,
we will consider and dispose of Biowest’s sole argument in response to Atlas’s
standing.
1
“Article III of the Constitution limits the jurisdiction of federal courts to
‘Cases’ and ‘Controversies.’” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 157
(2014) (quoting U.S. Const. art. III, § 2). The doctrine of standing works by
“identify[ing] those disputes which are appropriately resolved through the judicial
process,” and in doing so, assures that federal courts only hear cases consistent with
the jurisdictional limits articulated in the Constitution. Id. (alteration in original)
(quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). Accordingly, the
Supreme Court has described standing as “the irreducible constitutional minimum,”
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and “the core component of standing is an essential and unchanging part of the case-
or-controversy requirement of Article III.” Lujan, 504 U.S. at 560.
“To establish Article III standing, a plaintiff must show (1) an ‘injury in fact,’
(2) a sufficient ‘causal connection between the injury and the conduct complained
of,’ and (3) a ‘likel[ihood]’ that the injury ‘will be redressed by a favorable
decision.’” Susan B. Anthony List, 573 U.S. at 157–58 (alteration in original)
(quoting Lujan, 504 U.S. at 560–61). As to the injury-in-fact requirement, we have
explained, “[t]o satisfy the first of these three elements, a plaintiff must offer
something more than the hypothetical possibility of injury. The alleged injury must
be concrete, particularized, and actual or imminent.” Colorado Outfitters Ass’n v.
Hickenlooper, 823 F.3d 537, 544 (10th Cir. 2016). And for the second element,
“there must be a causal connection between the injury and the conduct complained
of—the injury has to be ‘fairly . . . trace[able] to the challenged action of the
defendant, and not . . . th[e] result [of] the independent action of some third party not
before the court.’” Lujan, 504 U.S. at 560 (alterations and omissions in original)
(quoting Simon v. E. Ky. Welfare Rts. Org., 426 U.S. 26, 41–42 (1976)). Finally, as
to the redressability prong, “it must be ‘likely,’ as opposed to merely ‘speculative,’
that the injury will be ‘redressed by a favorable decision.’” Id. at 561 (quoting
Simon, 426 U.S. at 38, 43).
“The party invoking federal jurisdiction bears the burden of establishing these
elements.” Id. And because “they are not mere pleading requirements but rather an
indispensable part of the plaintiff’s case, each element must be supported in the same
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way as any other matter on which the plaintiff bears the burden of proof, i.e., with the
manner and degree of evidence required at the successive stages of the litigation.”
Id.2
With this broad sketch of what is required to have Article III standing in mind,
we now turn to the wrinkle presented by this suit: the relationship between Article III
standing and the state law of standing. As a leading treatise suggests “for the most
part, there is no question. Standing in federal courts is a matter of federal law.” 13B
Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE §
3531.14 (3d ed.), Westlaw (database updated June 2022). But this axiom is not
absolute and does not comprehensively answer the question regarding the source of
law concerning standing in at least two circumstances where federal courts typically
apply state substantive law: that is, under diversity jurisdiction, 28 U.S.C. § 1332;
and, as most relevant here, under supplemental jurisdiction.
In particular, we and other courts have understood that the relevant state’s law
of standing should be applied—in addition to federal standing law—in considering
claims in such settings that are derived from state law. See City of Moore v.
Atchison, Topeka, & Santa Fe Ry. Co., 699 F.2d 507, 511 (10th Cir. 1983) (“State
law determines who has standing to challenge the constitutionality of a state statute
on the ground that it violates a state constitution.”); St. Francis Reg’l Med. Ctr. v.
Blue Cross & Blue Shield of Kansas, Inc., 49 F.3d 1460, 1465–66 (10th Cir. 1995)
(concluding that a state claim before the court through supplemental jurisdiction
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requires examining “the threshold issue of standing” under state law); see also
Westborough Mall, Inc. v. City of Cape Girardeau, Mo., 693 F.2d 733, 747–48 (8th
Cir. 1982) (looking to “Missouri law . . . in order to [determine] standing” to bring a
state law claim heard through supplemental jurisdiction); cf. Swanson v. Bixler, 750
F.2d 810, 813 (10th Cir. 1984) (“Whether a complainant is the real party in interest
under state law is generally resolved by inquiring whether he or she
has standing under state law.”); cf. also Williams v. Mayor & City Council of
Baltimore, 289 U.S. 36, 47–48 (1933) (“We have assumed, without deciding, that the
respondents, though without standing to invoke the protection of the Federal
Constitution, will be heard to complain of a violation of the Constitution of the state.
Their standing for that purpose, at least in the state courts, is a question of state
practice.”); Time Warner Ent. Co., L.P. v. Everest Midwest Licensee, L.L.C., 381
F.3d 1039, 1044 (10th Cir. 2004) (“State law claims before a federal court on
supplemental jurisdiction are governed by state law.” (footnote omitted)). “Federal
concepts of standing developed to regulate enforcement of federal rights do not
represent any independent interest of the federal courts that justifies disregarding
state law in this context.” 13B Wright & Miller, supra, § 3531.14.
However, although state standing rules must be met when courts consider state
causes of action, “state rules that recognize standing need not be honored if Article
III requirements are not met.” Id. (emphasis added); see Hutchinson v. Pfeil, 211
F.3d 515, 523 (10th Cir. 2000) (“‘Standing [under Article III] is, of course, a
threshold issue in every case before a federal court,’ and diversity claims are no
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exception. Thus, the jurisdictional deficiency discussed above in connection with the
[federal claim] would be equally fatal to the proposed [state claim], which rests on
the same speculative injury.” (first alteration in original) (citations omitted) (quoting
Wolfe v. Gilmour Mfg. Co., 143 F.3d 1122, 1126 (8th Cir. 1998))). Therefore,
because the relief sought by Atlas necessarily turns on a question of state law, we
must be satisfied that Atlas had standing to bring its claim under both the standing
doctrine of Colorado and Article III.
Although “Colorado standing jurisprudence does not duplicate all the features
of federal standing doctrine,” similar considerations underlie both Colorado and
federal standing law. City of Greenwood Vill. v. Petitioners for Proposed City of
Centennial, 3 P.3d 427, 436 n.7 (Colo. 2000); see also Maurer v. Young Life, 779
P.2d 1317, 1324 n.10 (Colo. 1989) (“Although the federal-court doctrine of standing
has a different constitutional basis and is not co-extensive with [Colorado’s] standing
inquiry . . . , we have previously relied on the standing decisions of the United States
Supreme Court for guidance in construing standing principles generally applicable
under both the federal and Colorado law of standing.” (citation omitted)). The
Colorado Supreme Court has noted that “[i]n Colorado, parties to lawsuits benefit
from a relatively broad definition of standing.” Ainscough v. Owens, 90 P.3d 851,
855 (Colo. 2004).
Standing in Colorado requires satisfying two requirements. First, similar to
federal standing, a plaintiff “must demonstrate that he or she will suffer an ‘injury in
fact’ from the challenged action,” and “[i]njuries need not be economic in character;
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harm to intangible values can satisfy the injury-in-fact requirement.” City of
Greenwood, 3 P.3d at 437. But unlike federal standing requirements, the Colorado
Supreme Court has explained that “[o]ur standing doctrine does not require” “an
injury that is both ‘concrete and particularized,’ on the one hand and ‘actual or
imminent, not conjectural or hypothetical’ on the other.” Id. at 437 n.8. Second, a
plaintiff must “demonstrate that the injury he or she has suffered is to a legally
protected right.” Id. at 437. “This is a question of whether the plaintiff has a claim
for relief under the constitution, the common law, a statute, or a rule or regulation.”
Ainscough, 90 P.3d at 856. “A legally protected interest may be tangible or economic
such as ‘one of property, one arising out of contract, one protected against tortious
invasions, or one founded on a statute which confers a privilege.’” Id.
(quoting Wimberly v. Ettenberg, 570 P.2d 535, 537 (Colo. 1977)). And it
“encompass[es] all rights arising from constitutions, statutes, and case law.” Id.“These two considerations provide the framework for determining whether the
asserted legal basis for a claim—whether constitutional, statutory, or otherwise—can
properly be understood as granting [the plaintiff] a right to judicial relief” under
Colorado law. Bd. of Cnty. Comm’rs, La Plata Cnty. v. Bowen/Edwards Assocs.,
Inc., 830 P.2d 1045, 1052–53 (Colo. 1992) (alteration in original) (quoting O’Bryant
v. Pub. Utilities Comm’n, 778 P.2d 648, 652 (Colo.1989)). Nevertheless, it is
important to be aware of the Colorado Supreme Court’s admonition that “[a]lthough
necessary, the test in Colorado has traditionally been relatively easy to satisfy.”
Ainscough, 90 P.3d at 856.
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3
Under federal and Colorado law, standing must be assessed in the context of
the claim the plaintiff seeks to bring. The sole claim before us is Atlas’s declaratory
judgment claim. The federal declaratory judgment statute alone does not provide
jurisdiction, and, therefore in assessing whether Atlas has standing, we must look to
the nature of the dispute and to the “character of the threatened action.” Medtronic,
Inc. v. Mirowski Fam. Ventures, LLC, 571 U.S. 191, 197 (2014) (quoting Pub. Serv.
Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 248 (1952)). Similarly, the Colorado
Declaratory Judgment Act creates no rights and is solely remedial. See Romer v.
Fountain Sanitation Dist., 898 P.2d 37, 41 (Colo. 1995) (“C.R.C.P. 57 establishes
the procedural mechanism for implementation of the Declaratory Judgment Act.
C.R.C.P. 57(k) expressly provides that the rule is remedial. The rule neither
expressly nor by implication expands the interests of parties, governmental or
private, who seek the benefits of the remedy established thereby.”). Consequently,
like the federal inquiry, in assessing standing under state law in the declaratory
judgment context, we look to the nature of the underlying dispute. 5
5
The record reflects some confusion concerning whether the federal
declaratory judgment statute, see 28 U.S.C. § 2201(a)—as opposed to Colorado’s
declaratory judgment statute, see Colo. Rev. Stat. § 13-51-105—supplies the proper
statutory framework for the consideration of Atlas’s claim for relief. Atlas’s
complaint states that “[t]his lawsuit is an action for declaratory relief pursuant [to]
Fed. R. Civ. P. 57 . . . .” Aplt.’s App., Vol. II, at 4. Rule 57 says that its “rules
govern the procedure for obtaining a declaratory judgment” under the federal statute,
28 U.S.C. § 2201. Fed. R. Civ. P. 57. However, notably, the district court explained
that “[t]his claim is apparently brought under Colorado’s Uniform Declaratory
Judgments Law, Colo. Rev. Stat. §§ 13-51-101, et seq., and Colorado Rule of Civil
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Procedure 57.” Atlas II, 2019 WL 1200809, at *7. And the district court further
noted that “[a]s the Biowest Defendants concede, Plaintiff’s First Claim is
necessarily a state claim ‘since federal ancillary jurisdiction is cited in the Complaint
by the Plaintiff as the only basis for this Court’s jurisdiction over Plaintiff’s claims.’”
Id. at *7 n.7. Biowest nevertheless states that the federal declaratory judgment
standard should govern. Aplt.’s Opening Br. at 28–29; see Aplt.’s Reply. Br. at 10–
12. Atlas, on the other hand, argues that the Colorado declaratory judgment standard
should apply. See Aplee.’s Resp. Br. at 33. Ultimately, dispelling this apparent
confusion is not material to our resolution of this appeal. In particular, this minor
imbroglio has no impact on the federal jurisdictional questions before us.
As we have discussed, supra, the district court acted in this case with federal
subject matter jurisdiction—admittedly, jurisdiction of a somewhat unique type, that
is, ancillary enforcement jurisdiction, which does not depend on the presence of an
independent basis for federal jurisdiction in the instant lawsuit and, in fact, may
involve, as here, entirely state substantive law. Furthermore, as for the standing
question, the federal and Colorado declaratory judgment statutes, as suggested supra,
are both strictly procedural—that is, without inherent substantive dimensions. See,
e.g., Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240 (1937)
(noting that “the operation of the Declaratory Judgment Act is procedural only”);
Medtronic, Inc., 571 U.S. at 199 (“We have long considered ‘the operation of the
Declaratory Judgment Act’ to be only ‘procedural.’” (quoting Aetna Life, 300 U.S. at
240)); Romer, 898 P.2d at 41. Therefore, irrespective of whether the federal or
Colorado declaratory judgment statute was the operative one, our focus in the
standing inquiry would be the same: that is, the substantive dispute underlying the
declaratory judgment action. In other words, in all events, our focus would remain
on determining whether Atlas had standing to litigate its substantive state law claims
under the standing requirements of Colorado and federal law.
All that said, we observe that because the declaratory judgment statutes are
strictly procedural, a reasonable argument could be made that Atlas was right to
reference (albeit indirectly) the federal declaratory judgment statute as the applicable
one. That is because in an analogous context, where federal courts apply state law,
the Supreme Court explained that “[u]nder the Erie doctrine, federal courts sitting in
diversity apply state substantive law and federal procedural law.” Gasperini v. Ctr.
for Humans., Inc., 518 U.S. 415, 427 (1996); see Utica Lloyd’s of Texas v. Mitchell,
138 F.3d 208 (5th Cir. 1998) (concluding that a party could not rely on Texas’s
declaratory judgment act to authorize attorney’s fees in a diversity case because the
statute is not substantive law). However, because the resolution of this question
regarding the operative declaratory judgment statute is not ultimately material to our
resolution of this appeal, we need not (and thus do not) definitively opine on the
matter.
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a
In the declaratory judgment context, the Colorado Supreme Court has
explained that “[w]hat is required for purposes of satisfying the standing requirement
is that the plaintiff demonstrate that there is an existing legal controversy that can be
effectively resolved by a declaratory judgment, and not a mere possibility of a future
legal dispute over some issue.” Bd. of Cnty. Comm’rs, 830 P.2d at 1053. At least in
the context of challenging a regulatory scheme, the court has explained that “[t]he
injury-in-fact element of standing is established when the allegations of the
complaint, along with any other evidence submitted on the issue of standing,
establishes that the regulatory scheme threatens to cause injury to the plaintiff’s
present or imminent activities.” Id. (emphasis added). And, for the legally protected
interest, the court explained that “[a]n affirmative answer to this question,” “whether
the plaintiff’s interest emanates from a constitutional, statutory, or judicially created
rule of law that entitles the plaintiff to some form of judicial relief,” in the
declaratory judgment context, means “simply that the party seeking judicial relief has
stated a claim by demonstrating the existence of a legal right or interest which has
been arguably violated by the conduct of the other party.” Id. (quoting
O’Bryant, 778 P.2d at 653).
Under these principles, we conclude that Atlas has standing under Colorado
law. First, if the stock transfer between Mr. Kutrubes and Biowest is valid, this
would threaten to cause injury to Atlas. As will be discussed further below, the
legally effective transfer of the shares to Biowest would hinder Atlas’s ability as a
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judgment creditor to collect on its Atlas I judgment, and also the transfer could
possibly open Atlas, as the stock issuer, to liability for not properly registering the
transfer. As to the second prong, Atlas has a legally protected interest in determining
whether the transfer was valid because, at the very least, Atlas has a statutory interest
under Colorado law in determining whether it has a duty to register the share transfer.
Therefore, Atlas has standing to sue under Colorado law.
b
The federal declaratory judgment statute provides that as to “a case of actual
controversy within its jurisdiction, . . . , any court of the United States, upon the
filing of an appropriate pleading, may declare the rights and other legal relations of
any interested party seeking such declaration, whether or not further relief is or could
be sought.” 28 U.S.C. § 2201(a). Put another way, “federal courts can issue
declaratory judgments if there is an actual dispute between adverse litigants and if
there is a substantial likelihood that the favorable federal court decision will bring
about some change.” Erwin Chemerinsky, CONSTITUTIONAL LAW: PRINCIPLES AND
POLICIES (2011); id. (“[D]eclaratory judgments exist so that people can know their
rights in advance.”). 6
The Supreme Court has made clear that “an appropriate action for declaratory
relief can be a case or controversy under Article III.” MedImmune, Inc. v.
6
“The Declaratory Judgment Act provides that a court ‘may declare the
rights and other legal relations of any interested party,’ 28 U.S.C. § 2201(a)
(emphasis added), not that it must do so.” MedImmune, Inc. v. Genentech, Inc., 549
U.S. 118, 136 (2007) (second emphasis added). “This text has long been understood
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Genentech, Inc., 549 U.S. 118, 126 (2007) (citing Nashville, C. & St. L. Ry. v.
Wallace, 288 U.S. 249 (1933)). Although predating the modern standing
formulation, the Supreme Court in Aetna Life Insurance Co. of Hartford, Connecticut
v. Haworth, 300 U.S. 227 (1937), generally explained what type of cases are
appropriately within a federal court’s declaratory judgment power. Specifically, the
Court made clear that “[w]here there is such a concrete case admitting of an
immediate and definitive determination of the legal rights of the parties in an
adversary proceeding upon the facts alleged, the judicial function may be
appropriately exercised[,] although the adjudication of the rights of the litigants may
not require the award of process or the payment of damages.” Id. at 241.
More recently, although recognizing that “Aetna and the cases following it do
not draw the brightest of lines between those declaratory-judgment actions that
satisfy the case-or-controversy requirement and those that do not,” the Court
explained, “[o]ur decisions have required that the dispute be ‘definite and concrete,
touching the legal relations of parties having adverse legal interests’; and that it be
‘real and substantial’ and ‘admi[t] of specific relief through a decree of a conclusive
‘to confer on federal courts unique and substantial discretion in deciding whether to
declare the rights of litigants.’” Id. (quoting Wilton v. Seven Falls Co., 515 U.S. 277,
286 (1995)); accord Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 95 n.17
(1993); Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494–496 (1942). The
Supreme Court has explained that it is “‘consistent with the statute,’ . . . ‘to vest
district courts with discretion in the first instance, because facts bearing on the
usefulness of the declaratory judgment remedy, and the fitness of the case for
resolution, are peculiarly within their grasp.’” MedImmune, 549 U.S. at 136 (quoting
Wilton, 515 U.S. at 289).
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character, as distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.’” MedImmune, 549 U.S. at 127 (second alteration in
original) (quoting Aetna Life, 300 U.S. at 240–41); see id. (“Basically, the question in
each case is whether the facts alleged, under all the circumstances, show that there is
a substantial controversy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment.” (quoting
Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941))).
Applying the declaratory judgment “case and controversy” requirements to the
Supreme Court’s teachings on standing, we turn to whether Atlas has sufficiently
alleged it has suffered a sufficient injury-in-fact. Biowest argues there was no
standing because “Atlas was not a party to the Stock Sales Agreement and
Assignment between [Mr.] Kutrubes and Biowest . . . and therefore does not have an
interest in the contract nor standing to bring the claim.” Aplt.’s Opening Br. at 28–
29 (citation omitted).
Although Atlas makes clear in its first amended complaint that it seeks
declaratory judgment to answer the question of whether the transfer of Mr.
Kutrubes’s shares in Atlas to Biowest is void and of no effect, Aplt.’s App., Vol. II,
at 16–17, its pleadings are admittedly less clear on what would be the exact injury
suffered by Atlas if the transfer was not voided. It alludes to the fact it “has not
received valid instructions to register the purported transfer of [Mr.] Kutrubes’[s]
Atlas stock to Biowest,” id. at 13, and the transfer, therefore, is “void because it was
never completed as provided under Article 8 of the [CUCC],” id. at 16. Touching on
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the question of injury in a somewhat clearer fashion in the same pleading, Atlas does
aver that the “[t]ransfer, if completed and not avoided, would render [Mr.] Kutrubes
insolvent,” and because Mr. Kutrubes “admitted and acknowledged that he would
become liable in damages to Atlas in [Atlas I],” presumably Atlas would have greater
difficulty collecting on that judgment than it otherwise would have because Mr.
Kutrubes would be impoverished following the effective transfer of shares to
Biowest. Id. at 18. However, to the extent that Atlas’s amended complaint is
somewhat vague about its purported injury, it is not fatally so. We have explained
that “[a]t the pleading stage, general factual allegations of injury resulting from the
defendant’s conduct may suffice.” Kansas Nat. Res. Coal. v. United States Dep’t of
Interior, 971 F.3d 1222, 1231 (10th Cir. 2020) (quoting Lujan, 504 U.S. at 561).
And Atlas’s briefing clarifies the exact nature of its injury.
Specifically, substantially tracking the injuries that the district court identified,
see Atlas II, 2019 WL 1200809, at *8, Atlas first explains that “[r]esolving whether
the writ attached [to] the stock or not is related to Atlas’s interests under the writ of
attachment” and this would require determining “if the stock was transferred, and to
do that, the court had to decide the declaratory judgment issue.” Aplee.’s Resp. Br.
at 34, 36. Atlas also points out that “[e]ven a contingent liability qualifies as an
actual, imminent, and concrete injury sufficient to trigger standing to bring a
declaratory judgment action.” Id. at 37. Next, Atlas argues that it has an interest as
the issuer of the stock under Article 8 of the CUCC, and it has a duty to register a
transfer “only if certain pre-conditions are met.” Id. at 38. So not only would a
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declaratory judgment determine whether such conditions have been met, it would
also relieve Atlas of “conflicting demands placed upon it: compliance with court
orders and enforcement of the writ of attachment on the one hand, and threats from
Biowest to litigate on the other.” Id.We conclude that Atlas has made a sufficient showing of a cognizable injury.
Especially with the result of the trial in Atlas I, Atlas has an interest to know whether
the transfer was legally effective and, as a result, whether the shares could be used to
satisfy the Atlas I judgment if they remain possessed by Mr. Kutrubes. That is, if Mr.
Kutrubes validly transferred his shares to Biowest, then Atlas’s ability to collect on
its judgment in Atlas I against Mr. Kutrubes is significantly impaired. And similarly,
Atlas has a particularized and specific interest in knowing whether it was required to
follow the district court’s writ of attachment to turn over the shares to Laramie
County Sheriff, or if on the other hand, it was required to record the transfer to
Biowest who, thus, would have control of the shares in question.
In a roughly analogous context, we have concluded that an insurer could
pursue a declaratory judgment claim against another insurer to determine their
relative liability for an insurance claim, because the insurer was “not seeking to
enforce rights as an insured under the [other insurer’s] policy; it is suing . . . insurer-
to-insurer. [The insurer] seeks a judicial determination of how its policy interacts
with the [the other insurer’s] policy.” Philadelphia Indem. Ins. Co. v. Lexington Ins.
Co., 845 F.3d 1330, 1335 (10th Cir. 2017). And we explained that there was
standing because “this action is not one to enforce a contract but rather seeks a
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declaration of the relative rights and duties of [the insurers].” Id. at 1336 (alteration
in original) (quoting United Servs. Auto. Ass’n v. Royal-Globe Ins. Co., 511 F.2d
1094, 1096 (10th Cir. 1975)). As we explain further below, the standing
determination of Philadelphia Indemnity belies the notion that Biowest advances—
that is, the idea that just because Atlas has no direct interest in the contractual
arrangement between Mr. Kutrubes and Biowest for the share transfer, that it lacks
standing to seek a declaration regarding its relative rights regarding this arrangement.
It is true that Atlas’s interest in determining whether the share transfer was
valid has not yet resulted in an injury. However, we do not deem this to be a material
impediment to a plaintiff possessing Article III standing. We “have recognized that
contingent liability may present an injury in fact.” Protocols, LLC v. Leavitt, 549
F.3d 1294, 1299 (10th Cir. 2008); see id. at 1300 (noting that the Supreme Court
found New York had standing to challenge the line-item veto because the President’s
veto “reviv[ed] . . . a substantial contingent liability [which] immediately and directly
affects the borrowing power, financial strength, and fiscal planning of the [plaintiff]”
(quoting Clinton v. City of New York, 524 U.S. 417, 431 (1998))).
Most relevant here was our discussion in Protocols of the Supreme Court’s
decision in Aetna Life. We highlighted that the Supreme Court has acknowledged
that a contingent liability can be a basis for Article III standing in the declaratory
judgment context. See id. at 1300. We observed that the Court had found that the
complaint “presented a controversy because the parties ‘had taken adverse positions
with respect to their existing obligations,’” and a declaratory judgment could
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“‘definitely and finally adjudicate[ ]’ the rights of the parties.” Id. (alteration in
original) (quoting Aetna Life, 300 U.S. at 242–43). Accordingly, we reasoned that
“[b]y holding that Aetna’s contingent liability presented a ‘controversy’ under Article
III, the Court necessarily held that standing can be predicated on such liability.” Id.Similar reasoning leads us to conclude that a declaratory judgment to avoid
contingent liability would provide the basis here for Article III standing. The
contingent liability that Atlas seeks to avoid by having the stock transfer declared
void through a declaratory judgment action “has created an actual and imminent
injury.” Id. at 1301. Therefore, Atlas satisfies the injury-in-fact element of standing.
4
Significantly, Biowest only contests that element—i.e., injury-in-fact. That is
likely wise. We independently discern with little difficulty no obstacle to standing
stemming from the other elements. 7 So, we center our remaining discussion on
explaining why Biowest’s injury-in-fact challenge is without merit.
7
Of course, even absent a specific challenge from Biowest, we must
independently ensure that the other elements of standing as to Atlas are satisfied.
And they are. The second element requires that “there must be a causal connection
between the injury and the conduct complained of—the injury has to be ‘fairly . . .
trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the
independent action of some third party not before the court.’” Lujan, 504 U.S. at 560(alterations and omissions in original) (quoting Simon, 426 U.S. at 41–42). We
previously determined in Philadelphia that where two insurers disputed “their
relative responsibilities to pay for [a] loss” from a fire that there was a sufficient
causal relation in the sought-after declaratory relief because their “interests are
adverse . . . . One insurer or the other will bear the loss or they will share it in some
manner.” 845 F.3d at 1332, 1335. This is similar to this case because Atlas and
Biowest’s interest are adverse to one another—that is, determining the validity of the
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Biowest argues here, as it did in the district court, that Atlas does not have
standing because it was not a party to the contract and, therefore, has no legally
enforceable right. See Aplt.’s Opening Br. at 28–29; Aplt.’s Reply Br. at 9 (“Under
Colorado law, a non-party or beneficiary to a contract lacks sufficient privity of
contract and interest to assert a claim on the contract.”); id. at 11 (“Atlas was not a
party to the Stock Sales Agreement and Assignment between [Mr.] Kutrubes and
Biowest . . . and therefore does not have an interest in the contract nor standing to
bring the claim.” (citation omitted)). But these statements reflect a fundamental
misunderstanding of what this case is about. Atlas does not claim to be a party or
beneficiary to the contract. Instead, Atlas seeks to determine whether the transfer at
the core of the contract was valid. The answer to this question determines who
transfer will necessarily result in one of them being injured. Therefore, Atlas has
satisfied the traceability prong.
Furthermore, as to the redressability prong, “it must be ‘likely,’ as opposed to
merely ‘speculative,’ that the injury will be ‘redressed by a favorable decision.’”
Lujan, 504 U.S at 561 (quoting Simon, 426 U.S. at 38, 43). Again, Philadelphia
provides guidance. There, we concluded that “[b]ecause Philadelphia’s injury is
causally connected to how its policy interacts with [the other insurer’s] policy, a
judicial determination of the insurers’ respective responsibilities under the policies
will redress and resolve this dispute.” Philadelphia, 845 F.3d at 1335. Here, this
prong is satisfied because if the transfer is found to be valid, then Atlas must
certificate the shares and register the transfer; whereas, if the transfer is void, Atlas
has no duty to register the transfer and instead may satisfy its Atlas I judgment
against Mr. Kutrubes (at least in part) through reclaiming the shares.
Therefore, because Atlas meets the three requirements, Atlas has standing to
bring this declaratory judgment claim to have the district court determine the
respective legal rights of both parties in relation to the share transfer.
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exactly owns Mr. Kutrubes’s shares and thus whether the writ of attachment actually
attached to anything. And it also will decide whether the transfer, if valid, required
Atlas to register the transfer of the shares. Therefore, Atlas does not seek the direct
benefit of the contract; rather, it seeks to determine whether the contract is valid and
affects its rights.
We have concluded, in the declaratory judgment context, that a plaintiff that is
neither a party to, nor third-party beneficiary of, a defendant’s contract nevertheless
has standing to seek a declaratory judgment regarding the contract. In this regard,
recall that, in Philadelphia, we determined that one insurance company had standing
to sue even though it was not a party to or third-party beneficiary of the disputed
contract because “[i]ts alleged injury is financial, definite, and concrete” and its
“interests [were] adverse” to the opposing party where “[o]ne insurer or the other
[would] bear the loss or they [would] share it in some manner.” 845 F.3d at 1335.
As discussed above, the validity of the contract directly affects Atlas’s rights, and,
therefore, Biowest’s argument that Atlas may not challenge the validity of a contract
that it was not party to is unavailing.
***
Therefore, we conclude that Atlas has standing to bring this declaratory
judgment claim to have the district court determine the respective legal rights of both
parties in relation to the share transfer.
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C
We next turn to the merits of this case and thus whether the transfer between
Mr. Kutrubes and Biowest was valid under Colorado law. We begin by first detailing
what Colorado law requires for a stock transfer to be valid. We next turn to the
merits of the district court’s decision. And finally, we consider three of Biowest’s
arguments that the district court erred in concluding that the transfer was invalid.
1
The Colorado Supreme Court has made clear that “[t]itle to corporate stock in
Colorado can only be transferred as provided by statute.” Quandary Land Dev. Co.
v. Porter, 408 P.2d 978, 981 (Colo. 1965). It further explained that “[t]he statutory
methods are exclusive and any attempt or desire to convey stock by other means
merely results in a naked promise to transfer ownership in the future.” Id.; see
Mortg. Invs. II, 93 P.3d at 560 (affirming trial court’s conclusion that individual who
purportedly purchased shares of the defendant corporation but failed to obtain stock
certificates “did not acquire ownership” of the property because he “did not comply
with Article 8”).
Article 8 of the CUCC governs the transfer of shares in a corporation. See
Colo. Rev. Stat. §§ 4-8-101, et seq.; see also Mortg. Invs. Corp. v. Battle Mountain
Corp. (Mortg. Invs. I), 70 P.3d 1176, 1187 (Colo. 2003) (concluding that Article 8
“governs acquisition of legal ownership of certificated shares of a corporation and
generally requires that a purchaser receive the security certificate or certified stock of
the corporation”). Most relevant here, “[a] person acquires a security or an interest
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therein, under this article, if . . . [t]he person is a purchaser to whom a security is
delivered pursuant to section 4-8-301.” 8 § 4-8-104(a)(1) (emphasis added). The
Comment to § 4-8-301 explains that “[d]elivery is used in Article 8 to describe the
formal steps necessary for a purchaser to acquire a direct interest in a security.” § 4-
8-301 cmt. (emphasis added).
Because Mr. Kutrubes’s shares were uncertificated, 9 Article 8 contemplates
two ways that delivery could occur. First, “[d]elivery of an uncertificated security to
a purchaser occurs when . . . [t]he issuer registers the purchaser as the registered
owner, upon original issue or registration of transfer.” § 4-8-301(b)(1). Or when
“[a]nother person, other than a securities intermediary, either becomes the registered
8
Section 4-8-104 also contemplates acquiring a security by acquiring a
security entitlement. § 4-8-104(a)(2). But because this case is about whether Mr.
Kutrubes validly transferred the security itself, acquiring a security entitlement is not
implicated here.
9
Atlas also argues in the alternative that the stock certificates could be
deemed certificated because “Atlas’s bylaws specified the shares were to be
certificated.” Aplee.’s Resp. Br. at 47. The district court, however, rejected this
argument. See Atlas II, 474 F. Supp. 3d at 1193. In doing so, the court offered the
following reasoning: “Atlas admits that it created stock certificates for [Mr.]
Kutrubes’s shares only after the Purported Transfer took place. Therefore, [Mr.]
Kutrubes’s shares were not represented by a certificate at the time of the Purported
Transfer. Accordingly, they were uncertificated securities under the [C]UCC.” Id.
Atlas fails to show why the district court erred in concluding that the shares were in
fact uncertificated. “‘Certificated security’ means a security that is represented by a
certificate.” § 4-8-102(a)(4). Atlas does not point to any authority supporting the
proposition that the mere statement in a company’s bylaws that shares should be
certificated means that the shares “were represented by a certificate,” even if, as here,
no share certificates were printed at the time of the alleged transfer. Therefore,
absent authority to support it, Atlas’s alternative ground for supporting the district
court’s judgment is not sufficiently firm for us to rely on it, and we do not do so.
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owner of the uncertificated security on behalf of the purchaser or, having previously
become the registered owner, acknowledges that it holds for the purchaser.” § 4-8-
301(b)(2).
2
Mr. Kutrubes’s attempted transfer of his shares to Biowest did not constitute a
delivery of uncertificated securities under § 4-8-301. First, in the instant action,
neither party disputes that Atlas is the issuer of Mr. Kutrubes’s stock, and that it did
not register Biowest as the registered owner. See Aplt.’s App., Vol. III, at 149.
Thus, the district court correctly concluded the first condition was not met. See id. at
150. And regarding the second condition, again, Atlas never registered Mr. Kutrubes
as the owner of the uncertificated securities on behalf of Biowest. Furthermore, Mr.
Kutrubes did not claim to hold his shares on behalf of Biowest. 10 Accordingly, there
is no basis for application of the second condition for delivery either. Therefore, Mr.
Kutrubes’s attempted transfer of his shares to Biowest did not constitute a delivery of
uncertificated securities under § 4-8-301.
3
Biowest’s arguments to the contrary are unavailing. We explain why in the
following order. First, we will consider Biowest’s argument that common law
10
Mr. Kutrubes own actions further negate such an idea, and further
undermine the assertion that the assignment to Biowest was final and irrevocable.
Recall that more than one year after the purported transfer, on June 18, 2019, Mr.
Kutrubes held himself out as the owner of the shares in his “Request for Inspection and
Copying of Corporate Records.” Aplt.’s App., Vol. II, at 252–53.
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doctrines of property supersede Article 8. Next, we will examine whether Atlas
violated its duty to register the transfer. Finally, we consider whether the doctrine of
equitable transfer applies.
a
First, Biowest’s argument that it owns the shares regardless of whether the
alleged transfer complied with Article 8 fails. Biowest argues that “the District Court
confuses the distinction between ownership of stock in a corporation and the
subsequent registration of stock on the corporate records of the issuer.” Aplt.’s
Opening Br. at 31; see id. (“By analogy, the Article 8 process of registration and
delivery of stock occurs after a sale of shares and is akin to recording a real estate
deed after a property has been purchased.”). In line with this argument, Biowest
contends that the district court incorrectly applied the law of “basic ownership of
property” when it looked to Article 8 because “a present and irrevocable assignment
of [Mr. Kutrubes’s] interest in the Shares to Biowest, prior to those Shares being
certificated (after the fact) by Atlas, governs their ownership.” Id. at 33–34; see
Aplt.’s Reply Br. at 13 (“The assignment constituted a final transfer of [Mr.]
Kutrubes’s 7% ownership interest in Atlas to Biowest.”); id. (“By its plain language,
execution of an irrevocable assignment of interest is sufficient when there are no
actual stock certificates.”).
Yet in making this argument, Biowest does little to engage with the reality
that Article 8 governs the transfer of ownership; instead Biowest only musters
arguments about evidence of ownership of shares. In this regard, Biowest quotes
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several more-than-a-hundred-year-old Colorado and non-Colorado cases about stock
certificates not being dispositive of ownership. See Aplt.’s Opening Br. at 33 (“[A]
‘certificate [of stock] was not necessary to complete ownership. . . . The fact of
ownership may be inferred from other facts, in the absence of a certificate.’” (second
alteration in original) (quoting Mountain Waterworks Const. Co. v. Holme, 113 P.
501, 506–07 (Colo. 1911) (internal citations omitted))); id. (“The certificate is not the
subject of ownership, but is simply an evidence of ownership.” (quoting Marshall v.
Marshall, 53 P. 617, 619 (Colo. Ct. App. 1898))). Not only do the Colorado cases
pre-date Colorado’s acceptance of the current CUCC by almost a hundred years, see
id. at 35, they also illustrate Biowest’s attempt to sidestep the dispositive issue in the
assessment of who owns the shares: that is, whether the transfer of ownership from
Mr. Kutrubes complied with the CUCC’s transfer requirements. Although Biowest
does argue that the “[r]evised Article 8 deals with the settlement of securities trades,
not the trades or contracts for purchases of securities themselves,” id. at 36, it points
to no authority that anything other than Article 8 governs the transfer of ownership in
this case.
As mentioned above, Colorado caselaw and the CUCC itself make clear that
the requirements of transfer are not some mere formality but instead are necessary
requirements for an interest in stock to transfer. Specifically, the Colorado Supreme
Court has made clear that “[t]itle to corporate stock in Colorado can only be
transferred as provided by statute,” and “[t]he statutory methods are exclusive and
any attempt or desire to convey stock by other means merely results in a naked
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promise to transfer ownership in the future.” Quandary Land Dev., 408 P.2d at 981.
And the CUCC states that “[a] person acquires a security or an interest therein, under
this article, if . . . [t]he person is a purchaser to whom a security is delivered pursuant
to section 4-8-301.” § 4-8-104(a)(1). The Comment to § 4-8-301 explains that
“[d]elivery is used in Article 8 to describe the formal steps necessary for a purchaser
to acquire a direct interest in a security.” § 4-8-301 cmt. (emphasis added).
Biowest’s attempt to distinguish authority that the district court relied on also
fails. Biowest argues that the district court erred in relying on Mortgage Investments
I, 70 P.3d 1176, and Mortgage Investments II, 93 P.3d 557, because in those
decisions “the party seeking to establish ownership of the stock in question never
received books and records necessary to prove he was the owner of uncertificated
shares” and “evidence was presented there at trial that the corporation’s shares were
indeed certificated, therefore requiring the application of [C]UCC Article 8 standards
with respect to transfer and delivery of certificated shares.” Aplt.’s Opening Br. at
31–32. But the fact that Mortgage Investments Corporation’s purported owner never
received the documentation to show he was the owner of the uncertificated shares,
which turned out to be certificated and subject to Article 8’s provisions for that class
of shares, does not mean the district court erred in concluding that Article 8 governs
the transfer here of uncertificated shares.
In sum, Biowest’s reliance on common law principles of property and its
attempt to distinguish the authority that the district court relied on both fail to
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demonstrate that the Article 8 ownership-transfer principles do not govern this stock
transfer.
b
Putting aside its contention that “the District Court’s order erroneously
conflated the concept of ownership of stock with registration of shares,” Biowest also
argues that the district court erred in concluding the “[s]hares were not registered to
Biowest as a basis for its ruling that [C]UCC Article 8 was not complied with.” Id. at
38. This was error by the court, argues Biowest, because, pursuant to Colo. Rev.
Stat. § 4-8-401, Atlas had a duty to register the shares to Biowest after “[Mr.]
Kutrubes’s attorney notified Atlas of the sale, and provided Atlas with a copy of the
Assignment executed by his client.” Aplt.’s Opening Br. at 39. Further, Biowest
argues the district court incorrectly concluded that neither of these communications
was sufficient because they did not come from an “appropriate person under Colo.
Rev. Stat. § 4-8-107(a), which is the ‘the registered owner of an uncertificated
security.’” Id. at 41. Specifically, it explains that this conclusion ignores “another
basic premise of law – that an attorney is the agent of his client.” Id.However, as Atlas points out, see Aplee.’s Resp. Br. at 51, a duty to register a
transfer occurs only “if certain preconditions exist. If any of the preconditions do not
exist, there is no duty to register transfer.” Colo. Rev. Stat. Ann. § 4-8-401 cmt.
Among these conditions is that “[t]he . . . instruction is made by the appropriate
person or by an agent who has actual authority to act on behalf of the appropriate
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person,” § 4-8-401(a)(2)—which is defined as “the registered owner of an
uncertificated security,” § 4-8-107(a)(2).
The communications made by Mr. Kutrubes’s attorney and Biowest’s attorney
did not make the correct request and did not come from the correct person
respectively. First, the communication from Mr. Kutrubes’s attorney simply states
that Mr. Kutrubes “transferred [his] stock to a third party, Biowest, LLC” and
attached a copy of the “Transfer and Conveyance of Common Stock.” Aplt.’s App.,
Vol. II, at 131–33 (Letter Re: Atlas Biologicals, Inc.—Stock Transfer, dated Apr. 5,
2018). Nowhere does this letter state that Mr. Kutrubes requests that Atlas register
the transfer.
And an attached form titled “Irrevocable Stock Transfer Power” leaves blank a
line for “[t]he undersigned does hereby irrevocably constitute and appoint . . . an
attorney to transfer the said stock on the books of the within named Company . . . .”
Id. at 134. And, therefore, the form did not designate—and, consequently, did not
allow—Mr. Kutrubes’s attorney to act as his agent who could instruct that the
transfer be registered, even if the attorney had made the proper instruction. The fact
that the transfer form was transmitted by Mr. Kutrubes’s attorney does not mean that
the attorney necessarily had the authority to act as an agent within the contemplation
of the CUCC. This is because, § 4-8-401(a)(2) requires actual authority from an
appropriate person. Mr. Kutrubes’s attorney did not demonstrate to Atlas that he had
the actual authority to order registration of the transfer. If anything, the omission of
the attorney’s name from the stock transfer form creates the opposite inference. So
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even if Mr. Kutrubes’s attorney had uttered the correct instruction for Atlas to
register the transfer to Biowest, the instruction would not have been supported by
evidence that the attorney had the actual authority to act as Mr. Kutrubes’s agent in
issuing it.
Similarly, although Biowest’s attorney explicitly instructed Atlas “to transfer
those shares to Biowest on Atlas’s stock ledger,” Aplt.’s App., Vol. II, at 150 (Email
Re: Atlas Biologicals, Inc., dated Apr. 22, 2018), Biowest was not the registered
owner of the shares, and no document was attached that made clear that Biowest’s
attorney could act as Mr. Kutrubes’s agent. Therefore, because neither Mr.
Kutrubes’s attorney, nor Biowest’s attorney was an appropriate person, Atlas had no
obligation to register the transfer. 11
11
Atlas also argues that another prerequisite required to trigger its duty to
register was not satisfied because Biowest was not a protected purchaser. See
Aplee.’s Resp. Br. at 51. A protected purchaser is “a purchaser of a certificated or
uncertificated security, or of an interest therein, who: (1) Gives value; (2) Does not
have notice of any adverse claim to the security; and (3) Obtains control of the
certificated or uncertificated security.” § 4-8-303(a). Although Atlas raises
reasonable arguments for the first two elements, Aplee.’s Resp. Br. at 52–54, we
need not speak definitively to them, because there is no question that Biowest has not
satisfied the third prong. Section 4-8-106 defines “control” of uncertificated
securities as “(1) The uncertificated security is delivered to the purchaser; or (2) The
issuer has agreed that it will comply with instructions originated by the purchaser
without further consent by the registered owner.” § 4-8-106(c). As discussed above,
“delivery” of the uncertificated stock did not, and has not, occurred. And Atlas did
not agree to comply with Biowest’s instructions. Although Biowest contests the first
two elements—as to which we forgo opining upon—it does not raise any arguments
that it had control of the shares. See Aplt.’s Reply Br. at 24–26. Therefore, focusing
on this third element alone, it is clear that Biowest is not a protected purchaser, and,
thus, Atlas had no duty to register the transfer on the ground that Biowest was a
protected purchaser.
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c
Finally, Biowest argues that the district court erred in concluding that the
doctrine of equitable transfer did not apply to Mr. Kutrubes’s attempt to transfer his
shares to Biowest. Aplt.’s Opening Br. at 42–44. “Equitable assignment of corporate
stock, where there is a transfer of stock even though there is some technical defect in
the mode of transfer, is recognized in Colorado.” Mortg. Invs. II, 93 P.3d at 560.
However, “equitable title claims are recognized in Colorado only where the rights of
third parties would not be affected.” Id.; cf. id. (“Mortgage Investments was the
holder of a deed of trust granted by BMC [i.e., Battle Mountain Corporation]. Its
rights would be affected by the sale of the corpus of BMC to Tucker, who then
changed the name of the corporation and conveyed and encumbered the property
subject to the deed of trust.”); cf. also Sky Harbor, Inc. v. Jenner, 435 P.2d 894, 897
(Colo. 1968) (ruling that a judgment lien creditor has priority over a person who
holds only an equitable interest in the property).
At the outset, we conclude that the equitable transfer doctrine is not applicable
here because this case is between a transferee (i.e., Biowest) and a third party (i.e.,
Atlas). The Colorado Supreme Court has explained “a party may not assert equitable
title in a dispute between a transferee and a third party.” Mortg. Invs. I, 70 P.3d at
1187; see Arfsten v. Higby, 372 P.2d 166, 168 (Colo. 1962) (recognizing “equitable
titles where rights of third parties are not present”). As Atlas has underscored, the
cases where Colorado courts have applied the equitable title doctrine have concerned
claims between the transferor and transferee, see Aplee.’s Resp. Br. at 55, and those
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cases make clear that third parties were not involved, see Arfsten, 372 P.2d at 168
(“Majority stockholders and corporate officers are not third parties within the
protective coverage of the Uniform Stock Transfer Act.”). Therefore, application of
the equitable transfer doctrine is not appropriate in disputes, like this one, that are not
between the transferor and transferee.
Furthermore, in light of the preceding discussion, there should be no doubt that
Atlas’s rights would be detrimentally affected both as a judgment creditor and as the
issuer of the shares. Biowest’s only argument to the contrary is that “the transfer of
ownership of the Shares from [Mr.] Kutrubes to Biowest occurred upon [Mr.]
Kutrubes’s execution of the Assignment, which was prior to Atlas seeking a pre-
judgment attachment (which it obtained without notifying Biowest of the proceedings
thereby precluding Biowest any opportunity to challenge the attachment).” Aplt.’s
Opening Br. at 44. However, Biowest’s argument assumes a valid transfer of the
shares that, as we discussed, finds no foundation in the controlling statute, Article 8.
Moreover, Biowest points to no authority that supports its suggestion that it
matters—for purposes of applying the equitable transfer doctrine—whether Atlas, as
a holder of third-party interests, secured the writ of attachment shortly before or after
the ostensible transfer of the shares to Biowest. Accordingly, based on the foregoing,
we conclude that this is not a suitable case for application of the equitable transfer
doctrine and accordingly, Biowest’s reliance on it is unavailing.
***
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In sum, Mr. Kutrubes’s stock transfer was legally invalid. Therefore, Atlas’s
writ of attachment was effective in attaching his shares.
IV
For these reasons, we AFFIRM the district court’s grant of summary judgment
on Atlas’s declaratory judgment claim.
58