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Kunian v. Smollon

United States District Court, D. Massachusetts

May 13, 2019



          Denise J. Casper United States District Judge

          I. Introduction

         Plaintiffs Andrew Kunian, Lois Kunian, Keith Bainbridge, Kent Strong and Eza Gadson, as representative of the estate of James Boyd Gadson, (collectively, “Plaintiffs”), have filed this lawsuit against Defendants Francis Smollon, Colin Williams, Eos LNG Group LLC (“Eos LNG Group”), Eos Investment Group LLC (“Eos Investment”), Zubin Khambata, Tilden Energy LLC (“Tilden Energy”), SFXS Marketing Group LLC (“SFXS”) and Eagle Point Energy Holdings LLC (“Eagle Point”) (collectively, “Defendants”) alleging breach of contract (Count I), breach of fiduciary duty (Count II), aiding and abetting breach of contract and breach of fiduciary duty (Count III), civil conspiracy (Count IV) and fraudulent transfers (Count VI) D. 1-1. Count V requests a declaratory judgment and Count VII is an action to reach and apply the equity interests of Eos Investment and Eos LNG Group. Id. All Defendants except Zubin Khambata[1] have moved to dismiss for lack of personal jurisdiction and improper venue. D. 6. For the reasons stated below, the Court ALLOWS the motion to dismiss for lack of personal jurisdiction.

         II. Standard of Review

         In ruling on a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2) without holding an evidentiary hearing, a district court must apply the prima facie standard of review. United States v. Swiss Am. Bank, Ltd., 274 F.3d 610, 618 (1st Cir. 2001). Under the prima facie standard, Plaintiffs must “demonstrate the existence of every fact required to satisfy both the forum's long-arm statute and the Due Process Clause of the Constitution.” Id. (citing United Elec. Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp., 987 F.2d 39, 44 (1st Cir. 1993)). The Court considers the facts alleged in the pleadings as well as the parties' supplemental filings. Sawtelle v. Farrell, 70 F.3d 1381, 1385 (1st Cir. 1995); Ticketmaster-N.Y., Inc. v. Alioto, 26 F.3d 201, 203 (1st Cir. 1994). The Court will “take specific facts affirmatively alleged by the plaintiff as true (whether or not disputed) and construe them in the light most congenial to the plaintiff's jurisdictional claim.” Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 34 (1st Cir. 1998). In doing so, the Court will “not credit conclusory allegations or draw farfetched inferences.” Ticketmaster, 26 F.3d at 203. The Court bears in mind that Plaintiffs “must do more than simply surmise the existence of a favorable factual scenario; [they] must verify the facts alleged through materials of evidentiary quality.” Killion v.

         Commonwealth Yachts & Mainship Corp., 421 F.Supp.2d 246, 252 (D. Mass. 2006) (quoting Barrett v. Lombardi, 239 F.3d 23, 27 (1st Cir. 2001)). “Thus, allegations in a lawyer's brief or legal memorandum are insufficient, even under the relatively relaxed prima facie standard, to establish jurisdictional facts.” Id. (quoting Barrett, 239 F.3d at 27). The Court is also required to “add to the mix facts put forward by the defendants, to the extent that they are uncontradicted.” Mass. Sch. of Law, 142 F.3d at 34.

         III. Factual Background

         This dispute concerns the anticipated construction of import and export facilities for liquified natural gas (“LNG”) in Texas and Chile.

         A. Joint Venture Formation and Structure

         In 2012, Plaintiff Andrew Kunian (“Kunian”), who was later joined by other Plaintiffs and Defendants, began work to set up a business to export LNG from the United States to other countries. D. 1-1 ¶¶ 1, 30; D. 7 at 3. In 2013, Kunian secured a location for an export terminal in Brownsville, Texas and obtained a permit to export LNG from the Department of Energy. D. 1-1 ¶¶ 2, 32; D. 7 at 3. Between 2012 and 2014, Kunian created two limited liability companies: Eos LNG, LLC (“Eos LNG”) and Eos Infraestructure, LLC (“Eos Infraestructure”) (collectively, the “Kunian companies”). D. 1-1 ¶ 2. The Kunian companies are registered in Delaware and have principal places of business in Massachusetts, D. 1-1 ¶ 34; D. 12-1 at 5; D. 12-2 at 5, but are not parties to this lawsuit, see D. 7 n.2.

         In 2014, Kunian contacted Defendant Colin Williams (“Williams”) through LinkedIn. D. 6-3 ¶ 2; D. 6-3 at 6; D. 12 ¶ 15. Kunian offered Williams an interest in the Kunian companies, which he had already formed by that time. D. 6-3 ¶ 3. According to Kunian, it was Williams who suggested the two men meet to discuss the LNG venture. D. 12 ¶ 15; see D. 1-1 ¶ 36. Williams accepted Kunian's offer to join his business enterprises without traveling to Massachusetts. D. 6-3 ¶ 4. Williams ultimately finalized his interest in Eos Infraestructure, but not in Eos LNG. Id. In 2014, Defendant Francis Smollon (“Smollon”) also became involved with Kunian's efforts to export LNG from Texas to Chile. D. 6-2 ¶ 3. According to Kunian, a mutual contact introduced Kunian and Smollon in 2013, D. 12 ¶ 7, and Smollon expressed interest in joining Kunian's LNG ventures, D. 1-1 ¶ 36. Smollon accepted Kunian's offer to acquire an interest in the Kunian companies without traveling to Massachusetts. D. 6-2 ¶¶ 4-5. In February 2015, Kunian and Plaintiffs James Gadson and Kent Strong, who had also joined Kunian in his business ventures, transferred portions of their equity interests in Eos LNG to Smollon. D. 1-1 ¶ 38. Shortly thereafter, Williams assumed the title of president and managing partner of Eos LNG despite never formalizing his equity interest. D. 1-1 ¶ 39. Williams was designated President of Eos Infraestructure and Smollon became Secretary-Treasurer. D. 11 at 8.

         In 2015, two major business milestones occurred for the Kunian companies. First, Kunian and Smollon negotiated three agreements at issue in this case in Chile. D. 1-1 ¶ 5; D. 7 at 3. Those agreements were a Terminal Development Agreement, an exclusive LNG Supply Agreement and an LNG Terminal Use Agreement. D. 1-1 ¶ 44; D. 7 at 3. The Terminal Development Agreement was between Eos Infraestructure and Compania Regional de Infraestructuras S.A. (“CRI”) for the development of a terminal in Chile. D. 1-1 ¶¶ 45-46. Under the LNG Supply Agreement and LNG Terminal Use Agreement, Eos LNG acquired the rights to use the terminal and the exclusive right to supply LNG to the venture for twenty years. D. 1-1 ¶ 51. Second, Eos Infraestructure obtained capital contributions and various non-parties to this suit agreed to provide financing for the LNG project. D. 7 at 3; see generally D. 1-1 ¶¶ 53-68. Among others, Plaintiff Lois Kunian contributed $50, 000 for a two percent equity interest in the LNG venture. D. 1-1 ¶ 54. Plaintiff Keith Bainbridge (“Bainbridge”) also invested and performed work in furtherance of the venture, leading him to acquire a seven percent equity interest. D. 1-1 ¶ 55.

         B. Defendants Allegedly “Freeze Out” Plaintiffs

         On February 18, 2016, Smollon and Williams formed two new Delaware limited liability companies: Eos Investment and Eos LNG Group (collectively the “Smollon-Williams companies”). D. 1-1 ¶ 71. The equity in those companies is divided between Defendant Zubin Khambata and the three Defendant companies: Tilden Energy, SFXS and Eagle Point. D. 1-1 ¶ 72; see D. 6-4 ¶¶ 2, 7. The Defendant companies are all controlled by or linked to Smollon and Williams. D. 1-1 ¶ 73. Smollon and Williams did not allocate any equity in the Smollon-Williams companies to Plaintiffs or to CRI. D. 1-1 ¶ 77.

         Plaintiffs found out about the Smollon-Williams companies on the day they were formed in an email from Smollon.[2] D. 1-1 ¶ 116; see D. 12-13. Smollon wrote to Kunian and Williams that Juan Francisco, a CRI executive, was “pushing ahead to move forward, with us as greatly reduced shareholders, in a new vehicle, ‘Eos Investments' . . . . He is going to want to form this entity and have it become the counterparty in the terminal deal, with him and his guys, and [a private equity firm] taking the big pieces and them putting the funding in.” D. 12-13 at 1. Smollon added, “[w]e will get [what] the $500K get[s] us, plus some, so it won't be a home run, but it will leave Keith and Andrew's mom good, and give us each something that should pay a couple of million a year or more. So, that's not too bad. He want[s] to do the same with Eos LNG.” Id. Plaintiffs interpreted Smollon's email to mean Smollon, Williams and Kunian would share equally in any dilution of their membership interests in the Kunian companies. D. 1-1 ¶ 115. Plaintiffs allege that Smollon's claim that CRI, rather than Smollon and Williams, had initiated the formation of new entities was false. D. 1-1 ¶ 119.

         On February 26, 2016, Plaintiffs allege that Smollon and Williams supplanted the contract between the Kunian companies and CRI by executing a superseding contract between CRI and one of the Smollon-Williams companies, Eos Investment. D. 1-1 ¶¶ 82-83. The new contract with Eos Investment changed the developer, owner and operator of the Chilean terminal. D. 1-1 ¶ 84. The new developer would be jointly owned by CRI and Eos Investment, rather than by CRI and one of the Kunian companies, as provided under the prior contract. D. 1-1 ¶¶ 84-85. Plaintiffs further allege that Smollon and Williams “usurped” Eos LNG's interest in the twenty-year LNG Supply and Terminal Use Agreements by executing replacement agreements with the Smollon-Williams companies. D. 1-1 ¶¶ 89, 91. Plaintiffs allege that Smollon and Williams undertook these actions without their knowledge. D. 1-1 ¶¶ 88, 93.

         According to Plaintiffs, despite rendering the Kunian companies worthless by executing these new contracts with CRI, Defendants did not refund the investments of Bainbridge, Lois Kunian or other investors in the Kunian companies but rather appropriated the funds as their own.[3]D. 1-1 ¶ 97-98. Also according to Plaintiffs, in September 2016, Williams suggested he either refund Plaintiffs' investments or convert them into a one percent equity interest for Bainbridge and a half-percent equity interest for Lois Kunian. D. 1-1 ¶ 98.

         Between August 2015 and October 2017, Plaintiffs allege Eos Infraestructure transferred over three million dollars to CRI or its affiliates and Defendants applied those funds to meet the financial obligations of the Smollon-Williams companies under their contract with CRI. D. 1-1 ¶¶ 104-105. These funds included venture financing commitments that Plaintiffs allege Defendants diverted from the Kunian companies to the Smollon-Williams companies. D. 1-1 ¶ 95.

         C. Defendants Allegedly Mislead Plaintiffs About Their Equity in the Venture

         According to Plaintiffs, “[t]o delay the inevitable discovery of their illicit misdeeds, Smollon and Williams [] repeatedly conveyed false and misleading assurances” to Plaintiffs that Plaintiffs would soon be awarded equity in the Smollon-Williams companies. D. 1-1 ¶ 109. Plaintiffs claim the “majority” of Defendants' false claims regarding Plaintiffs' shares were ...

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