10th Circuit Court of Appeals Opinion from Oct. 11

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Atlas Biologicals v. Biowest, et al.

Atlas Biologicals, Inc. specializes in the production of bovine serum-based products that are used for cell culture and research in science. Thomas Kutrubes started working at Atlas in 2005. Several years later, Kutrubes became a shareholder and ultimately came to own a 7% stake in Atlas and was eventually promoted to national sales manager and Atlas’ Board of Directors. 

Kutrubes began developing a business plan to compete with Atlas while still working at the company. In late 2014, Kutrubes began steps to formalize the venture, eventually incorporating Peak Serum — a business in Colorado. Around this time, Kutrubes began emailing himself certain information about Atlas, which was prohibited in a job description he signed. He also sent emails to Atlas’ connections to secure business. 

In 2014, Kutrubes tendered his resignation letter and requested the company buy out his 7% stake for $224,000. A few days after this, Atlas discovered Kutrubes’ use of its information. As a result, Atlas declined his resignation, terminated his directorship and employment and in a letter, demanded Kutrubes to cease using all materials obtained from Atlas, return the materials, abandon all plans to start a similar business and surrender all shares to Atlas. 

On Feb. 20, 2015, Atlas sued Kutrubes and Peak Serum in the District of Colorado. After more than a year of discovery, Atlas filed an amended complaint which asserted various federal intellectual-property claims. The district court conducted a five-day bench trial in 2018. 

Following the trial, Kutrubes allegedly sold his 7% interest in Atlas to Biowest, LLC. Once Atlas found out about the alleged transfer, it sought a writ of attachment in the district court against Kutrubes’ interest in Atlas. Atlas argued the transfer was unsuccessful 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.”

The district court granted the writ, ordering the sheriff of Larimer County, Colorado, to attach and keep any Atlas stock owned by Kutrubes. In granting the writ, the district court explained it didn’t know what interest Kutrubes still had in Atlas or if the transfer of stock was valid. The court raised the idea of Atlas filing a separate declaratory judgment action. 

The next day, Atlas sued Biowest and Kutrubes. The district court granted summary judgment in favor of Atlas because 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. 

The 10th circuit wrote that the appeal presents three issues: if the district court properly extended supplemental ancillary jurisdiction to the proceedings initiated by Atlas, whether Atlas had the standing to sue Biowest even though it wasn’t a party in the original litigation and whether the stock transfer between Kutrubes and Biowest was consonant with Colorado law. 

The court concluded the district court had ancillary subject matter jurisdiction and Atlas had standing to Biowest, although it wasn’t a member in the original litigation. The 10th Circuit Court of Appeals also concluded the ”stock” transfer was legally invalid and affirmed the district court’s grant of summary judgment on Atlas’ declaratory judgment claim.

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