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Akesogenx Corp. v. Zavala

Court of Appeals of Kansas

November 9, 2017

AkesoGenX Corp., Appellee,
Robert Zavala, Appellant.


         1. Forum selection clauses are generally enforceable in Kansas.

         2. Enforceability of a forum selection clause hinges on the following: (1) the existence of a reasonable relationship between the selected forum and the complained about transaction; (2) the existence of language in the clause mandating that all suits be brought in a certain forum; and (3) the nonexistence of fraud or duress.

         3. Whether a forum selection clause is enforceable is a question entirely distinct from whether a court has jurisdiction. Parties' agreements about where to file suit do not divest a court of personal or subject matter jurisdiction. Instead, when an enforceable forum selection clause exists, a court must consider whether it should exercise its jurisdiction given the existence of the parties' agreement.

         4. Because venue involves the proper or possible places lawsuits may proceed, a party's complaint about a forum selection clause violation involves a venue challenge. Venue challenges must be timely raised in a responsive pleading or motion. See K.S.A. 2016 Supp. 60-212(b)(3).

         5. A forum selection clause that includes conditional provisions allowing a party to bring suit in an alternative forum is a permissive forum selection clause as opposed to a mandatory forum selection clause.

         6. Under the facts of this case, Zavala's argument that AkesoGenX Corp. violated its forum selection clause by filing suit in Kansas, which it raised for the first time in a motion to alter or amend under K.S.A. 2016 Supp. 60-259(f), was untimely.

         7. The party asserting error must designate a record establishing prejudicial error. Without such a record, a party's argument will fail. An appellant's failure to include the transcript from the hearing on the motion from which he or she appeals stifles this court's ability to review for error.

         Appeal from Johnson District Court; Kevin P. Moriarty, judge. Affirmed.

          Robert J. Bjerg, of Colantuono Bjerg Guinn, LLC, of Overland Park, for appellant.

          Christopher K. Snow and J. Michael Grier, of Warden Grier LLP, of Kansas City, Missouri, and Michael P. Whalen, of Wichita, for appellee.

          Before Arnold-Burger, C.J., Pierron and Green, JJ.

          Green, J.

         AkesoGenX Corp. (AKG) sued Robert Zavala, its former Chief Executive Officer (CEO), in the Johnson County District Court for breach of fiduciary duty and conversion. Eventually, the district court entered default judgment against Zavala in favor of AKG. It also ordered that Zavala pay AKG damages in the amount of $500, 400.35. Over a month later, Zavala moved to set aside the default judgment, arguing that AKG had failed to properly obtain residential service of process on him, that the district court had violated a procedural rule regarding default judgment, and alternatively, that his lack of prior involvement in the case had resulted from excusable neglect. The district court rejected these arguments, but Zavala moved the district court to reconsider. In his motion to reconsider, Zavala raised a new argument. He asserted that the district court lacked subject matter jurisdiction to enter the default judgment against him because AKG had an exclusive forum selection clause within its certificate of incorporation which required AKG to sue him in the state of Delaware. The district court rejected this argument as well. Zavala now appeals the district court rulings, arguing that each was in error.

         For reasons set forth below, we reject Zavala's arguments. Accordingly, we affirm.

         AKG was a Delaware corporation involved in cancer research, which "use[d] radio waves to heat up and kill cancer cells while preserving the normal tissue, . . . reducing the side effects associated with traditional chemical therapy regimens or invasive surgery." Although AKG was a Delaware corporation, its principal place of business was in Leawood, Kansas, a city within Johnson County, Kansas. During its first two years of business, AKG received nearly $2 million in capital investment for its cancer research.

         Shortly after it was incorporated in 2013, Mary Kunkle began acting as AKG's Secretary and Treasurer. Through her role as AKG's Treasurer, Kunkle had access to AKG's finances. Kunkle was in a romantic relationship with AKG's CEO, Zavala. Through his role as CEO, Zavala also had access to AKG's finances. The AKG Board of Directors (Board) terminated both Kunkle and Zavala during their special Board meeting on May 16, 2014.

         On March 2, 2015, AKG sued Kunkle in the Johnson County District Court alleging breach of fiduciary duty and conversion of corporate assets. AKG explained that for nearly a year, it had asked Kunkle to explain why money was missing from its accounts. AKG explained that Kunkle had failed to respond to its requests. AKG alleged that through its independent review of Kunkle's accounting from its "QuickBooks" and available banking records, Kunkle had converted $174, 905.59. AKG alleged that Kunkle had converted company money from AKG the entire time she worked for it.

         On August 19, 2015, AKG filed its first amended petition with the Johnson County District Court. In this amended petition, AKG reiterated its claims of breach of fiduciary duty and conversion of corporate assets. It, however, added Zavala as a party defendant. AKG asserted that in addition to the $174, 905.59 it believed Kunkle had converted, it believed Zavala had converted about $195, 341. AKG explained that its Board had asked Zavala to turn over certain financial documents-financial statements and tax related documents-in early 2014, but Zavala had refused the Board's requests. This resulted in the Board's termination of Zavala as AKG's CEO on May 16, 2014. AKG alleged that because Zavala had refused to turn over the financial documents it needed, it went to the Bryan Cave law firm-a firm it had previously retained-to see if the firm had the financial documents it needed. When AKG spoke with a representative of Bryan Cave, it learned that Zavala had visited the firm's office just two days before he was terminated, removing all documents pertaining to AKG from the firm. AKG explained that it calculated the missing $195, 341 sum from its "QuickBooks" and available banking records.

          In its first amended petition, AKG also stated that it intended to serve Zavala "at his current residence address, " which had yet to be determined. On November 23, 2015, AKG filed a notice of service with the Johnson County District Court that it had served process on Zavala in three ways, each occurring on November 10, 2015. First, AKG asserted that it had rendered personal service on Zavala in Alamo, Texas. AKG also asserted that it had rendered residential service at Zavala's residence in Alamo, Texas. Last, AKG asserted that it had rendered residential service at Zavala's residence in Walnut Creek, California.

         The sworn statement of Antonio Huizar, the process server from Alamo, Texas, was attached to AKG's filing. In Huizar's statement, Huizar explained that when he went to the house he believed to be Zavala's, a female, who identified herself as Zavala's mother, told him that Zavala was not currently at home but would return home later. He explained that a few minutes after he gave Zavala's mother his contact information, a man, who identified himself as Zavala, phoned him. Huizar asserted that he told Zavala that he had a package for him, but Zavala told him to leave it with his mother because he was not available; Zavala then hung up. Huizar explained he called Zavala back and offered to deliver the package to him personally, but Zavala told him to deliver the package to his mother because he was not available. According to Huizar, he then went back to the place he believed to be Zavala's house and confirmed with Zavala's mother that Zavala "did in fact currently live at the residence." Huizar stated that once he confirmed Zavala was residing in the house, the "service documentation was handed to [Zavala's mother]." Significantly, the process server from Contra Costa, California, maintained that he rendered residential service by leaving service documentation with a woman who claimed to be Zavala's mother as well.

         On December 21, 2015, the district court entered a default judgment against Zavala. The district court's judgment, in substantive part, was as follows:

"On December 3, 2015, the Court conducted a scheduling conference. Plaintiff appeared by and thru its counsel Christopher K. Snow. Defendant Mary Kunkle appeared pro se and participated telephonically. Defendant Robert Zavala did not appear despite due notice of the scheduling conference, and likewise did not timely file a responsive pleading to Plaintiff's First Amended Petition. Accordingly the Court hereby enters judgment by default against Defendant Zavala with respect to Plaintiff's claims, [and] further sets a hearing on damages with respect to Plaintiff's claims against Defendant Zavala for January 4, 2016 . . . ."

         On January 4, 2016, even though he had been served notice, Zavala did not appear at the damages hearing. The only evidence at the hearing came from Christopher Stevens, who served as interim CEO following Zavala's termination. Stevens testified that based upon his review of the QuickBooks and bank statements, he determined that Zavala had used a total of $500, 400.35 of AKG funds for noncorporate purposes while CEO. Thus, Stevens requested that AKG be reimbursed this money. Stevens also requested that Zavala lose his 1.6% stock interest in AKG. At the end of the hearing, the district court granted Stevens' request.

         Over a month later, on February 19, 2016, Zavala moved to set aside default judgment and to file a responsive pleading out of time. In this motion, Zavala argued that he had never been served with AKG's first amended petition. Zavala complained about how he was served process in Texas, making no mention of how he was served process in California. He asserted that assuming he was served on November 10, 2014, the default judgment against him was void because it was prematurely entered in violation of K.S.A. 2016 Supp. 60-308(a). Under K.S.A. 2016 Supp. 60-308(a), defendants who are served out of state have 30 days to respond to a petition. Zavala argued that because the district court's December 21, 2015, default judgment order stated that he failed to appear at the December 3, 2015, scheduling conference, the district court actually entered its default judgment against him on December 3, 2015, which was only 23 days after he had been served. He also asserted that the default judgment should be set aside based upon excusable neglect. Last, Zavala complained that AKG was not entitled to any stock he may own through the default judgment.

         In support of his arguments, Zavala attached a sworn affidavit. In his sworn affidavit, Zavala alleged that on November 10, 2015, AKG "served a summons and First Amended Petition on my mother at her residence at . . . Alamo, Texas . . . .This address is not my dwelling or usual place of abode." He further alleged that he "did not ignore the service of the summons and Petition" because he "immediately contacted an attorney." This attorney then e-mailed AKG's attorney, who responded that "any further communication from [him] needed to be in writing and directed to his [law] office." Zavala asserted that "he [had] repeatedly tried to engage the company in a dialogue concerning this dispute without resorting to the legal process, but without success." Finally, Zavala asserted that AKG's allegations against him for breach of fiduciary duty and conversion were unfounded. He stated he had a meritorious defense because AKG's "Petition [was] wholly unfounded" and "contain[ed] a number of false allegations about [him]." He then stated that AKG sued him because the Board knew he intended to sue the Board for wrongful action taken regarding certain AKG stock in March 2015 and the Board wanted to eliminate his presence in the company.

         AKG responded that the district court should reject Zavala's arguments for the following reasons: (1) Zavala had not credibly alleged that he had been served erroneously with process; (2) Zavala had mischaracterized the district court's default judgment by asserting that it was entered on December 3, 2015, given that it was not filed until December 21, 2015, which was well over the K.S.A. 2016 Supp. 60-308(a) 30-day time requirement; and (3) Zavala had admitted he consciously chose not to participate in the lawsuit, which did not constitute excusable neglect.

         On March 8, 2016, the district court held a hearing on Zavala's motion where both parties made arguments. Nevertheless, this hearing has not been included in the record on appeal. Indeed, the only information about the March 8, 2016, hearing comes from the district court much later in its October 28, 2016, journal entry of judgment. This journal entry summarized that hearing as follows:

"On March 8, 2016, the Court conducted the hearing and received argument on Defendant Zavala's Motion to Set Aside Default Judgment and to File Responsive Pleading Out of Time. Plaintiff appeared by its counsel . . . Defendant Zavala appeared by his counsel . . .; Defendant Kunkle appeared on her own behalf telephonically. For the reasons stated upon the record, the Court denied Defendant's Motion to Set Aside the Default Judgment. However, at the March 8, 2016 hearing, the Court further directed the parties to file supplemental briefs and provide certain other information for the Court's further consideration with respect to the equitable disgorgement remedy, specifically whether the Default Judgment should include the Plaintiff's request for relief that Defendant Zavala [] relinquish[] any and all stock ownership or any other equity interest in [AKG.] The Court further ordered the parties to appear on April 14, 2016, for further argument on the matter." (Emphasis added.)

         At the end of the April 14, 2016, hearing, the district court orally ruled that Zavala did not personally own any AKG stock; instead, the AKG stock was held by a company called AGX Holdings, LLC, which was owned solely by Zavala. Accordingly, the district court ruled that its damages award could not include an order that would require Zavala to relinquish his stock ownership of AKG stock. This meant that the district court would have to amend its damages award, which at that point required Zavala to relinquish his personal stock interest in AKG. Even so, the district court granted AKG's request for an equitable attachment to Zavala's ownership in AGX Holdings pending satisfaction of AKG's damages. It also prohibited Zavala from disposing of his ownership in AGX Holdings pending satisfaction of AKG's damages.

         On August 2, 2016, Zavala filed a motion entitled: "Motion to Reconsider and Vacate the Court's Journal Entry of Default Judgment on the Ground that the Court Lacked Jurisdiction over this Action based on the Exclusive Forum Selection Clause in Plaintiff's Certificate of Incorporation." Article X of AKG's certificate of incorporation stated:

"Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or to the Corporation's stockholders . . . ."

         Zavala asserted that the preceding language made Delaware "the mandatory exclusive" forum for any action brought by AKG, meaning the Johnson County District Court lacked jurisdiction to enter a default judgment.

         AKG responded that Delaware was not the mandatory exclusive forum for any action brought by AKG given that Article X expressly stated that AKG may "consent[] in writing to the selection of an alternative forum." AKG asserted that it satisfied the "consent[] in writing" requirement with each of its filings with the Johnson County District Court because the filings were "written submissions" which established that it "'consent[ed]' to" Kansas as the forum of the lawsuit. AKG also argued that the minutes from its February 27, 2015, Board meeting established that AKG consented in writing to Kansas being the forum of the lawsuit. The minutes from that meeting, which were attached to AKG's ...

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