YOU “ROLAND” LI, individually v. Jack Lewis, an individual

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
YOU “ROLAND” LI, individually and
derivatively on behalf of AKIRIX L.L.C., a
Utah limited liability company; LARRY
LEWIS, an individual; AKIRIX L.L.C., a
Utah limited liability company; OCP, a
Utah limited liability company; KURIOUS,
L.L.C., a Utah limited liability company;
LLC INVESTMENT HOLDINGS, L.L.C.,
a Utah limited liability company,
Plaintiffs - Appellees,
v.
JACK LEWIS, an individual,
Defendant - Appellant,
v.
MIDNIGHT MANAGEMENT SERVICES
GROUP, LLC, a Wyoming limited liability
company; ED CAMERON; NADA
LEWIS; MOUNTAIN AMERICA
FEDERAL CREDIT UNION,
Third-Party Defendants - Appellees,
and
INTERNAL REVENUE SERVICE, a
Bureau of the DEPARTMENT OF
TREASURY; UNITED STATES OF
AMERICA, a necessary party,
Interested Parties - Appellees.
No. 20-4089
(D.C. No. 1:20-CV-00012-TS-JCB)
(D. Utah)
_________________________________
FILED
United States Court of Appeals
Tenth Circuit
October 6, 2021
Christopher M. Wolpert
Clerk of Court
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ORDER AND JUDGMENT*
_________________________________
Before BACHARACH, BRISCOE, and MURPHY, Circuit Judges.
_________________________________
Defendant-Appellant Jack Lewis appeals five interlocutory orders from the
United States District Court for the District of Utah. We have pendent jurisdiction
under 28 U.S.C. § 1291(a)(1) over one Order and AFFIRM. We lack pendent
jurisdiction over the remaining four Orders and DISMISS these appeals.
I.
A. Factual Background
This case arises out of Defendant-Appellant Jack Lewis’s (“Jack”) scheme
with his brother, Plaintiff-Appellee Larry Lewis (“Larry”), to defraud the IRS.
Under the brothers’ “Nominee Agreement,” Larry transferred various assets to Jack,
including Larry’s ownership interest in Akirix, a company that assists international
companies in conducting secured transactions across the internet. In exchange, Jack
accepted ten percent of Larry’s earnings. By doing so, Larry hoped to hide his
ownership in Akirix from the IRS, allowing him to build Akirix without paying pre-
existing tax claims. Under Akirix’s “Operating Agreement” (the “OA”), eighty-six
percent of Akirix’s membership units were issued to Jack, fourteen percent of the
membership units were issued to Plaintiff-Appellee You “Roland” Li, and zero
* This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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percent to Larry. The OA also included an integration clause, stating that the OA
“supersedes the [sic] any prior agreements or understandings with respect to the
Company.” See Jack App. at 34.
Between 2004 and 2007, Larry accrued unpaid taxes, penalties, and interest of
over six million dollars. By late 2010, around the time of the Nominee Agreement,
Larry was aware that the IRS asserted debts against him in excess of one million
dollars.
Larry and Roland initially filed their complaint against Jack in Utah state
court, interpleading the IRS because of its tax lien on Akirix. Larry and Roland
brought several claims, including a request for declaratory judgment that Jack is a
“mere nominee for Larry Lewis and that Jack Lewis is not an actual member or
manager of Akirix.” At the time the case was pending in state court, the state court
entered a preliminary injunction prohibiting either party from “accessing any of
Akirix’s funds until ownership is established.” Id. at 117. The IRS later removed
this case to federal district court.
B. Procedural Background
The district court issued a number of orders, with six being relevant to this
appeal. Jack appeals only five of those Orders. All six Orders are outlined below.
1. The May 4 Summary Judgment Order
On May 4, 2020, the district court ruled on Jack and Larry’s cross-motions for
summary judgment (“May 4 Order”). Jack asserted that he was the named owner
under the OA. Larry asserted that the Nominee Agreement was void as a matter of
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law because it was used to defraud the IRS, and that the OA was similarly void as a
matter of law because it was the fruit of the illegal Nominee Agreement. The district
court noted that “Jack [did] not challenge the authenticity of [Larry’s] allegations
regarding the Nominee Agreement or that Akirix’s OA was executed, in part, to
defraud the IRS.” Id. at 38. Rather than dispute the veracity of those allegations,
Jack only disputed the materiality of his knowledge of fraud. The district court
granted in part Jack’s motion for summary judgment, holding that Larry’s claims
were unenforceable because both the Nominee Agreement and the OA were part of a
fraudulent scheme. Accordingly, the district court declined to enforce either
agreement, found that “both parties are before the court with unclean hands,” and left
both parties “where their fraudulent undertaking placed them.” Id. at 41.
Jack does not appeal the May 4 Order.
2. July 8 Order Denying Motion to Enforce the OA
On July 8, 2020, the district court re-affirmed its May 4 Order granting Jack
partial summary judgment against Larry’s claims (“July 8 Order”). Although
submitted as a single filing and decided in a single Order, Jack really brought two
separate motions. First, Jack filed a motion to enforce the OA; second, Jack filed a
motion to dissolve the injunction entered by the Utah state court.
In his motion to enforce the OA, Jack asserted that the May 4 Order indicated
that the OA was an enforceable contract, and that under the OA Jack had an eighty-
six percent ownership in Akirix. See id. at 852. In his reply in support of that first
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motion, Jack also asserted that the district court erred in treating summary judgment
facts as undisputed in its May 4 Order. See id. at 869.
The district court construed Jack’s motion to enforce the OA as a motion to
reconsider, although it noted it could also construe the motion as one for summary
judgment. It then found that Jack’s motion and reply brief “present[ed] no evidence
to support his claim that he did not plan, participate in, or benefit from the fraudulent
tax scheme.” Id. at 60. The district court denied Jack’s “motion to reconsider”
without prejudice, leaving him “free to contest these facts [found in the May 4 Order]
in further proceedings.” Id. at 59.
In his motion to dissolve, Jack asked the district court to dissolve the Utah
state court’s injunction. The district court concluded that “[w]ith respect to Jack’s
request to dissolve the Injunction and Orders, the Court will defer ruling on those
until Jack proves his hands are clean.” Id. at 60. The district court then went on to
say “[u]ntil Jack can persuade the Court that his hands are clean and that the May 4
Decision should be reconsidered, the Court declines to dissolve the Injunction and
Orders.” Id.
Jack appeals this Order.
3. July 17 Order Denying Leave to Amend
On July 17, 2020, the district court denied Jack’s motion to amend his answer
and add counterclaims (“July 17 Order”). Jack sought to add various counterclaim-
Defendants, including Akirix’s new CEO, Larry’s wife, and Mountain America
Federal Credit Union (“MAFCU”). The district court concluded that any amendment
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would be futile because Jack’s counterclaims were premised on the enforceability of
the OA, but the OA was unenforceable because Jack’s hands were unclean. See id. at
66. The district court reiterated that Jack “is not foreclosed” from producing
evidence that his hands were clean. Id.
Jack appeals this Order.
4. July 29 Summary Judgment Order
On July 29, 2020, the district court granted summary judgment in favor of the
IRS (“July 29 Order”). The IRS sought “a declaratory judgment that it has valid and
subsisting tax liens against Larry for unpaid federal income taxes, and these liens
attach to Larry’s property interest in Akirix.” Id. at 71. The district court noted that
“[n]o party has opposed the [IRS’s] Motion and the deadline for doing so passed on
July 6, 2020.” Id. The district court recognized that “it is improper for the court to
grant summary judgment simply because it is unopposed.” Id. at 72. The district
court found that it was undisputed that Jack and Larry entered into the Nominee
Agreement to defraud the IRS. Accordingly, Larry’s transfer of his ownership
interest in Akirix to Jack could not be used to shield that interest from the IRS.
Additionally, the district court found that because both brothers were engaged in a
fraudulent scheme, “[w]ere Jack permitted to retain title to Akrix’s [sic] ownership,
he would be unjustly enriched.” Id. at 76.
Jack appeals this Order.
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5. August 7, 2020 Order Denying Motion to Set Aside
On August 7, 2020, the district court denied Jack’s motion to set aside the
district court’s July 29 Order pursuant to Federal Rule of Civil Procedure 60(b)(1)
and (b)(6). Jack asserted that he failed to timely oppose the IRS’s motion for
summary judgment because he had requested an extension from the IRS, and the IRS
had indicated it would not oppose an extension. Jack did not request an extension
from the district court; nor did he inform the district court of the IRS’s consent to an
extension. The district court thus concluded “that Jack waived his right to file a
responsive motion by not complying with the Court’s filing times.” Id. at 83. The
district court also recognized that it could grant an extension if Jack demonstrated
“excusable neglect,” and that “danger of prejudice to the nonmoving party, the length
of delay, and good faith” all favored granting an extension. Id.
Notably, in asserting prejudice, Jack for the first time produced evidence that
he did not enter into the Nominee Agreement or OA to defraud the IRS. See id. at
1255 (Jack’s declaration asserting “I made clear to Larry that I would not participate
in any wrongdoing with Larry with any person or entity including the Internal
Revenue Service and his behavior had to be wholly lawful at all times”). The district
court denied the untimely extension, however, because “Jack’s reason for delay is
that Jack’s counsel and the United States mutually agreed to extend Jack’s filing
deadline but did not make this known to the Court.” Id. The district court found this
was an insufficient reason for delay.
Jack appeals this Order.
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6. August 21 Order Denying Extension of Time
On August 21, 2020, the district court, through a docket text order, denied
Jack’s motion for extension of time to oppose the IRS’s motion for summary
judgment. The district court did not provide any explanation for its Order in its
docketing statement.
Jack appeals this Order.
On August 25, 2020, Jack filed a notice of appeal, identifying five Orders at
issue: (1) the July 8 Order denying Jack’s motion to enforce the OA; (2) the July 17
Order denying Jack leave to amend; (3) the July 29 Order granting summary
judgment to the IRS; (4) the August 7 Order denying Jack’s motion to set aside the
July 29 Order; and (5) the August 21 Docket Text Order denying Jack’s motion for
extension of time. This court ordered the parties to submit briefs addressing this
court’s jurisdiction. The jurisdictional issues were then referred to the merits panel.
II.
All federal courts are courts of limited jurisdiction. Federal appellate courts are
further limited: “As a general rule, only final decisions of the district court are
appealable.” 28 U.S.C.§ 1291; Utah v. Norton, 396 F.3d 1281, 1286 (10th Cir. 2005).
But § 1291(a) creates an exception for “appeals from . . . [the] granting, continuing,
modifying, refusing or dissolving injunctions, or refusing to dissolve or modify
injunctions.” 28 U.S.C. § 1291(a)(1).
Moreover, our jurisdiction to review interlocutory orders is limited. In Swint v.
Chambers County Commission, 514 U.S. 35, 45–51 (1995), the Supreme Court held that
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federal courts of appeal have pendent appellate jurisdiction only to review those issues
which are related to issues properly within the court’s statutory grant of jurisdiction. This
court has interpreted Swint to mean that pendent jurisdiction may be granted only if an
unrelated issue is “inextricably intertwined with the appealable decision” or where its
review is “necessary to ensure meaningful review of the appealable [decision].”
Cummings v. Dean, 913 F.3d 1227, 1235 (10th Cir. 2019) (citations omitted).
An order is inextricably intertwined with an appealable decision when the
“appellate resolution of the collateral appeal necessarily resolves the pendent claim as
well.” Estate of Ceballos v. Husk, 919 F.3d 1204, 1221 (10th Cir. 2019) (citing Moore v.
City of Wynnewood, 57 F.3d 924, 930 (10th Cir. 1995) (emphasis in original)). A
pendent claim cannot have “legal or factual matters distinct from those raised by the
claims over which [the court] unquestionably has jurisdiction.” Malik v. Arapaho Cnty.
Dept. of Soc. Servs., 191 F.3d 1306, 1317 (10th Cir. 1999).
These exceptions, which permit the exercise of pendent jurisdiction, are disfavored
and narrowly construed. Carson v. Am. Brands, Inc., 450 U.S. 79, 84 (1981). This court
invokes pendent jurisdiction only “sparingly.” Cox v. Glanz, 800 F.3d 1231, 1255–56
(10th Cir. 2015). Indeed, pendent jurisdiction is limited to those circumstances where the
effective challenge to an interlocutory order would prevent “serious, perhaps irreparable,
consequences.” Hatten-Gonzales v. Hyde, 579 F.3d 1159, 1165 (10th Cir. 2009) (citing
Carson 450 U.S. at 84).
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A. We only have jurisdiction over the July 8 Order.
The parties dispute whether the July 8 Order falls under § 1291(a)(1). Jack argues
the district court, by its July 8 Order, refused to dissolve the state court injunction, which
would place the district court’s ruling well within § 1291(a)(1). Larry asserts the district
court merely deferred ruling on the motion until Jack could show clean hands. But
Larry’s argument does not reflect what the district court did. Denying an order without
prejudice could be construed as a deferral in that Jack could again file his motion when
he can show clean hands, but the district court did more—it dismissed Jack’s motion
without prejudice.
Reviewing the language of the July 8 Order, the district court clearly states it
declines to dissolve the state court injunction. This language both falls within the statute
and supports our jurisdiction to review the July 8 Order. But, under § 1291, our
jurisdiction is limited to only that part of the Order pertaining to the refusal to modify the
injunction. Any discussion of the merits is reached only through pendent jurisdiction.
See Merrell-National Labs., Inc. v. Zenith Labs., Inc., 579 F.2d 786, 791 (3d Cir. 1978)
(preventing an interlocutory appeal of an order denying modification of a preliminary
injunction “to circumvent the time bar to appeal from the underlying preliminary
injunction”).
In determining whether to reach the merits of the July 8 Order under our
discretionary pendent jurisdiction, we look to the steps set forth in Moore v. City of
Wynnewood, 57 F.3d 924, 929 (10th Cir. 1995). “In exercising [discretionary
pendent jurisdiction], we have considered whether (1) an adequate record has been
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developed for review; (2) the pendent appeal involves questions of fact and law that
are closely related to an appealable issue; and (3) exercising pendent jurisdiction
would promote judicial economy.” Moore, 57 F.3d at 929. “The doctrine is
discretionary, and the exercise of pendent appellate jurisdiction is generally
disfavored.” Cox, 800 F.3d at 1255 (internal quotations omitted).
Here, the record has not been well developed for review. Although fact
discovery has closed, Jack has not clearly presented evidence showing his hands are
clean, and the district court therefore has not had an opportunity to review any such
evidence. Additionally, before this court, Jack focuses solely on the pendent (merit)
issues, and so has waived any argument immediately available under § 1292(a)(1).
Thus, on the record presented, it would be imprudent to conclusively decide the
merits of the case.
Second, the pendent appeal involves questions of law and fact related to the
district court’s decision on May 4 when it discussed the issue of Jack’s unclean
hands. The district court did not go into a detailed analysis on the issue; thus, the
question is not especially related to the issue on appeal.
Finally, judicial economy does not favor pendent jurisdiction. Indeed, judicial
economy would be better served by dismissing the appeal and addressing the merits
following a final judgment, rather than taking interlocutory appeals in piecemeal
fashion.
We decline to address the merits of the July 8 Order under our discretionary
pendent jurisdiction.
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After reviewing the district court’s denial of Jack’s motion to revoke the state
court’s preliminary injunction in the July 8 Order, we conclude Jack cannot prevail. By
failing to raise any arguments under § 1291(a)(1), Jack has waived any arguments he may
have on the issue. Indeed, Jack concedes that he failed to “expressly” challenge the
district court’s refusal to dissolve the state court injunction. Jack’s Reply Br. at 6.
Further, even had Jack expressly challenged the July 8 Order denying his motion to
dissolve, his arguments focus solely on the clean-hands issue. As discussed above,
whether Jack’s hands are clean is a merits issue we can only reach by exercising pendent
jurisdiction. Jack never directly addresses whether the state court injunction remains
viable following the district court’s May 4 summary judgment Order.
B. We do not have pendent jurisdiction over the remaining four Orders.
Jack also appeals four other Orders. None of these Orders directly involve the
district court’s refusal to dissolve an injunction and therefore fall outside of the
limitations set by § 1291.
We decline to extend pendent jurisdiction to any of the four Orders. All four were
issued after the July 8 Order. They are not necessary to ensure meaningful review of the
July 8 Order that denies Jack’s request to modify the state court injunction. Nor are any
of them inextricably intertwined with the July 8 Order refusing to dissolve the state court
injunction.
The July 17 Order is not inextricably intertwined because we will not reach the
merits of whether Jack has clean hands. That was the crux of the district court’s denial.
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Because our answer here will not change the outcome of the July 17 Order, pendent
jurisdiction is lacking.
The final three Orders Jack appeals all relate to the IRS’s motion for summary
judgment. The July 29 Order grants summary judgment based on Larry’s fraudulent
intent. Thus, even if we would decide whether Jack has clean hands, the IRS may still be
entitled to summary judgment based on the district court’s analysis. Both the August 7
Order and the August 21 Order relate to the July 29 Order and neither rest on whether
Jack has clean hands. Indeed, the district court ruled on these Orders based on procedural
matters alone. Thus, we decline to exercise pendent jurisdiction.
III.
We AFFIRM the district court’s July 8 Order denying Jack’s motion to dissolve
the state court injunction, and we DISMISS Jack’s appeals from the remaining four
Orders.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
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