WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR; JUSTIN PANCHLEY v. I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt.; DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS MANAGEMENT S.A.; DIGI COMMUNICATIONS, N.V.; ZOLTAN TESZARI; LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.; PETERFIA KFT.; SAM BLACK
No. 18-1197, No. 18-1288
United States Court of Appeals for the Fourth Circuit
August 15, 2019
PUBLISHED. Argued: January 31, 2019
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 18-1197
WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR; JUSTIN PANCHLEY, Plaintiffs - Appellants, v. I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt., Defendant - Appellee, DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS MANAGEMENT S.A.; DIGI COMMUNICATIONS, N.V.; ZOLTAN TESZARI, Respondents - Appellees, and LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.; PETERFIA KFT.; SAM BLACK, Defendants.
No. 18-1288
WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR; JUSTIN PANCHLEY, Plaintiffs - Appellees, v. I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt., Defendant - Appellant, DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS MANAGEMENT S.A.; DIGI COMMUNICATIONS, N.V.; ZOLTAN TESZARI, Respondents - Appellants, and LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.; PETERFIA KFT.; SAM BLACK, Defendants.
Appeal from the United States District Court for the Eastern District of Virginia at Alexandria. Leonie M. Brinkema, District Judge. (1:05-cv-01256-LMB-JFA)
Argued: January 31, 2019 Decided: August 15, 2019
Before WYNN, DIAZ, and RICHARDSON, Circuit Judges.
Reversed and remanded by published opinion. Judge Richardson wrote the opinion, in which Judge Wynn and Judge Diaz concurred.
ARGUED: Robert B. Gilmore, STEIN, MITCHELL, CIPOLLONE, BEATO & MISSNER, LLP, Washington, D.C., for Appellants/Cross-Appellees. Christopher Landau, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellees/Cross-Appellants. ON BRIEF: Jonathan E. Missner, Brittany W. Biles, Kevin L. Attridge, STEIN, MITCHELL, CIPOLLONE, BEATO & MISSNER, LLP, Washington, D.C., for Appellants/Cross-Appellees. Charles Wm. McIntyre, Jr., Anand V. Ramana, Phillip C. Chang, MCGUIREWOODS, LLP, Washington, D.C., for Appellees/Cross-Appellants RCS & RDS S.A., DIGI Communications, N.V., and Zoltan Teszari. Tara M. Lee, Michael Madigan, Washington, D.C., Carl Hennies, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Houston, Texas, for Appellees/Cross-Appellants i-TV Digitalis Tavkozlesi zrt. and DIGI Tavkozlesi es Szolgaltato kft.
In this case, we are called upon to decide several jurisdictional issues arising from an international business dispute. Over a decade ago, in 2007, five American Plaintiffs obtained a default judgment against Hungarian businessman Laszlo Borsy and several companies he controlled, including one called i-TV Digitalis Tavkozlesi zrt. (“i-TV“).1 The judgment afforded the Plaintiffs not just money damages but also injunctive and declaratory relief requiring Borsy to give them a majority interest in i-TV and the other companies. In 2008, some of the Defendants tried to have the judgment set aside, but
The judgment lay mostly dormant until 2017, when the Plaintiffs moved to enforce it against Defendants Borsy and i-TV along with several foreign Respondents2 that had bought i-TV from Borsy. The Plaintiffs argued that the Respondents were the Defendants’ successors-in-interest and that, by buying i-TV from Borsy, Respondents aided and abetted him in violating the injunction. The Respondents, all located overseas, strenuously objected to the district court‘s personal jurisdiction over them; despite those objections, the district court permitted the Plaintiffs to take extensive discovery from the Respondents.
While discovery was ongoing, the Respondents and i-TV discovered a potential technical defect in subject matter jurisdiction during the initial litigation that led to the 2007 default judgment. On that basis, they moved the court to set aside the default judgment as void under
The Plaintiffs appeal from the district court‘s decision finding the 2007 default judgment void for lack of subject matter jurisdiction. They argue that the judgment was not void because there was an arguable (even if erroneous) basis for jurisdiction. We agree with the Plaintiffs and reverse the district court‘s ruling on the
Additionally, the Respondents have filed a cross-appeal challenging the district court‘s decision to permit extensive discovery from them notwithstanding a lack of personal jurisdiction. The Plaintiffs respond that it is enough to allege that the Respondents aided and abetted Borsy in violating the injunction; such aiding-and-abetting, they argue, is always enough to establish personal jurisdiction. We reject this theory as applied to foreign nonparties like these Respondents. Consider the facts here: the foreign Respondents allegedly helped a foreign national carry out a purely foreign business transaction whose only tie to our country was that it allegedly violated a federal-court injunction. That is not enough to supply the minimum contacts that due process requires. The Plaintiffs alternatively argue that the Respondents are Borsy‘s successors-in-interest, but the Plaintiffs have effectively waived that theory by changing their argument on appeal. Therefore, we hold that the district court lacked personal jurisdiction over the Respondents and order them dismissed. On remand, the district court will determine whether and how the matter should proceed against i-TV.
I.
A.
In the early 2000s, Borsy controlled three Hungarian business entities: MediaTechnik kft. (a software company), i-TV (the operator of a cable television network in Debrecen, Hungary), and Peterfia kft. (a real estate company that owned the buildings used by MediaTechnik and i-TV).
Not long afterward, Borsy proposed a “roll-up” transaction in which MediaTechnik, i-TV, and Peterfia would be placed under a single parent company, Mediaware Corporation. He solicited an additional $1 million from Hawkins and, in return, promised Hawkins a 49% stake in Mediaware. He also invited four other Americans to participate in the roll-up: Plaintiffs Eric Keller, Thomas Zato, Kristof Gabor, and Justin Panchley, each an executive or engineer in the computer-software industry. Borsy promised each of them an ownership stake of varying size (ranging from 0.98% to 8%) in Mediaware, plus a substantial salary, as compensation for working at his companies.
The Plaintiffs claim that they lived up to their end of the bargain but Borsy did not live up to his. Instead, they claim, he absconded with their money and the fruits of their labor. Borsy failed to deliver the salaries or shares he had promised to Keller, Zato, Gabor, and Panchley. And while Borsy apparently delivered the Mediaware shares to Hawkins, he never completed the roll-up of i-TV into Mediaware, meaning Hawkins never acquired the indirect ownership interest in i-TV that Borsy had promised. Borsy also allegedly forged a stockholders’ agreement authorizing him to vote Hawkins’ shares in Mediaware.
In October 2005, all five Plaintiffs filed a civil action against Borsy, Mediaware, MediaTechnik, Peterfia, and i-TV in the Eastern District of Virginia. Their claims included fraud, breach of contract, conversion, breach of fiduciary duty, and unjust enrichment. They requested, among other things, an order that Borsy and the companies give them the shares that they had been promised.
The Defendants failed to timely answer the complaint, and default was entered against them. In April 2006, the Defendants finally appeared through counsel and successfully moved to set aside the default. Peterfia and i-TV then moved to dismiss for lack of personal jurisdiction, while Borsy, Mediaware, and MediaTechnik answered the complaint. The district court denied i-TV and Peterfia‘s motion to dismiss without prejudice, and the case proceeded to discovery.
The Defendants’ participation in the litigation was short-lived. In May 2006, Defendants’ counsel withdrew. The Plaintiffs then moved for a second entry of default due to the Defendants’ failure to participate in discovery. The district court granted the motion. Next, the Plaintiffs requested default judgment. That request was referred to a magistrate judge, who recommended entering a default judgment that included over $1.5 million in compensatory relief and an injunction requiring the Defendants to deliver the promised ownership interests.
Soon after, in September 2006, the Plaintiffs filed an emergency motion requesting prompt entry of their requested judgment. They reported that Borsy now claimed to have sold his shares in i-TV, and they sought an immediate injunction to prevent “Borsy‘s ongoing efforts to dissipate assets rightfully belonging to Plaintiffs and to render any judgment in favor of Plaintiffs meaningless.” J.A. 339. The district court granted the request in part: on October 2, 2006, it enjoined the Defendants “from disposing or dissipating any assets, by sale, merger, or otherwise, or from undertaking any transactions out of the ordinary course of business, without the consent of the shareholders holding a majority of the stock in such companies.” J.A. 343-44.
In 2008, three of the Defendants—Mediaware, MediaTechnik, and Borsy—resurfaced and, through new counsel, moved to set aside the judgment as void for lack of subject matter jurisdiction under
The district court denied the motion from the bench. It noted that Borsy had, during the proceedings leading up to the default judgment, entered a declaration stating that Mediaware had no relevant contacts with Virginia. That was inconsistent with his new, post-judgment argument that Mediaware was in fact headquartered there. We affirmed, reasoning that the 2007 default judgment was not void unless there was “no arguable basis” for jurisdiction. Hawkins v. Borsey, 319 F. App‘x 195, 196 (4th Cir. 2008) (citing Wendt v. Leonard, 431 F.3d 410, 412-13 (4th Cir. 2005)). This standard was not satisfied, particularly given Borsy‘s earlier declaration.
B.
The Plaintiffs proved unable to enforce the 2007 default judgment, collecting just over $5,000 from a retainer held by Borsy‘s American attorney. Despite some contact with DIGI kft. and the other Respondents, the Plaintiffs never initiated enforcement proceedings in Hungary, ostensibly because the Hungarian courts would not afford them relief. However, the Plaintiffs later learned that one of i-TV‘s indirect parent companies had sought to access the U.S. capital markets in 2012 through a bond offering and, more recently, planned an initial public offering of stock in Romania. That apparently inspired them to try to collect from i-TV‘s owners in federal court.
Thus, in May 2017, the Plaintiffs returned to the Eastern District of Virginia. They moved to enforce the judgment against i-TV as well as several Respondents that were not parties to the original judgment. Four of the Respondents are companies, each representing a link in i-TV‘s chain of ownership: DIGI kft. (which owns i-TV, having acquired it from Borsy), RCS & RDS, S.A. (a Romanian company that wholly owns DIGI kft.), DIGI Communications N.V. (a Dutch company that controls RCS & RDS, S.A.), and RCS Management S.A. (a Romanian company that controls DIGI Communications N.V.). The Plaintiffs later added Zoltan Teszari (a Romanian citizen who owns a controlling stake in RCS Management S.A.) as a
Before the district court, the Plaintiffs presented two theories for imposing liability on the Respondents. The first is a successor-in-interest theory, according to which DIGI kft. succeeded to the Defendants’ obligations under the default judgment when it acquired i-TV. The second is a civil-contempt theory, which posits that DIGI kft. aided and abetted Borsy‘s violation of the district court‘s injunctions. Borsy himself allegedly violated the injunctions when he sold i-TV to DIGI kft. in a two-step transaction. First, in October 2006, just after the district court entered its first injunction, Borsy convened a meeting of i-TV‘s shareholders and issued new shares to DIGI kft., giving it a 51% interest in i-TV. Second, in October 2008, Borsy sold his remaining shares to DIGI kft. through an entity incorporated in the Marshall Islands, violating the final injunction entered in 2007. The Plaintiffs claim that DIGI kft. was “in active concert or participation” with Borsy,
The Respondents opposed the Plaintiffs’ motion to enforce. They argued, among other things, that the district court lacked personal jurisdiction over them as required to grant the requested relief. The district court denied the motion to enforce without prejudice from the bench. It concluded that the motion raised “real issues that have to be fleshed out,” requiring discovery. J.A. 754. The court barely addressed personal jurisdiction, noting that “when there‘s an allegation of contempt of court, which is floating around in here, that changes the jurisdiction issue.” J.A. 757.
The matter then went into discovery. The Respondents objected to the scope of discovery, arguing that the Plaintiffs’ requests went well beyond what could reasonably be had from foreign nonparties. The magistrate judge overseeing discovery disagreed, telling their counsel: “I consider your clients to be parties. I consider the obligations for your client to respond to discovery to be the same as if they were a party to this lawsuit.” J.A. 873. The district court affirmed the magistrate judge‘s ruling over the Respondents’ objections, without addressing the still-unresolved challenge to its personal jurisdiction over them. The Respondents later failed to meet certain discovery deadlines, explaining that legal, linguistic, and cultural differences made it difficult to obtain documents from the various Hungarian and Romanian entities in the case. The district court was unsympathetic and warned the Respondents that failing to meet their obligations would have consequences, explaining, “the ultimate is I own you. You do what I tell you to do.” J.A. 1063.
In November 2017, the Respondents alerted the district court that they had
Based on this alleged defect, Respondents and i-TV then moved to vacate the 2007 default judgment as void for lack of diversity jurisdiction. The parties filed dueling reports by experts in Hungarian law that addressed whether Peterfia was more like an American limited liability company or a corporation. The Respondents and i-TV also filed a separate motion to vacate the 2007 default judgment as void for lack of due process. This motion argued that DIGI kft., which by 2007 had acquired a majority interest in i-TV, was an indispensable party to the 2007 judgment, which purported to adjudicate ownership rights to i-TV. Not only was DIGI kft. absent from the 2007 proceedings, the motion argued, but it could not have been joined because the district court lacked personal jurisdiction over it. Therefore, the district court could not lawfully render a judgment affecting DIGI kft.‘s ownership rights in i-TV.
The district court granted the first motion, holding that Peterfia was analogous to a limited liability company and that the default judgment was therefore void for lack of diversity jurisdiction. While the court acknowledged a lack of binding Fourth Circuit precedent on “the appropriate test for determining whether a foreign business enterprise is a ‘corporation‘” for diversity purposes, the court concluded that Seventh Circuit case law resolved the issue. J.A. 2021. Under the Seventh Circuit‘s test, the district court reasoned, Peterfia should not be treated as a corporation because it lacks certain features (such as a board of directors and fully alienable shares) characteristic of American corporations. The district court also rejected the Plaintiffs request that it resolve any jurisdictional problem by dropping Peterfia from the case, declining in its discretion to do so. On that basis, the district court vacated the 2007 default judgment for lack of subject matter jurisdiction and entered a final judgment for the Defendants in that lawsuit. It declined to address the due process issue or the personal jurisdiction issue.
The Plaintiffs timely appeal the district court‘s decision to set aside the default judgment and enter judgment for the Defendants. We have appellate jurisdiction over the district court‘s final judgment.
II.
We start with the district court‘s order finding the 2007 default judgment void for lack of subject matter jurisdiction. While we usually review orders denying Rule 60(b) motions for abuse of discretion, whether a judgment is void under
A.
To begin with, the parties dispute what legal standard the district court should have applied to determine whether the 2007 default judgment was void for lack of subject matter jurisdiction. We conclude that i-TV must show that there was no arguable basis for subject matter jurisdiction. And while the Respondents argue that a different standard should apply to them, we need not resolve their request for
We begin with i-TV, the only Appellee who was a party to the underlying judgment. When a defendant named in a default judgment challenges it as void for lack of subject matter jurisdiction, the standard of review often turns on whether the defendant participated in the proceedings leading up to the judgment. Sometimes, the defendant never shows up at all. And that is his right: if the court lacks jurisdiction over the subject matter of the dispute, he need not appear. Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706 (1982). In that case, the defendant is usually free to challenge the existence of subject matter jurisdiction in a later proceeding, and so the district court must review the jurisdictional question afresh as if it faced a motion to dismiss for lack of subject matter jurisdiction under
A different standard applies, however, when the defendant appeared during the proceedings resulting in the default judgment but then declined to pursue a direct appeal. Even if the defendant did not litigate the specific issue of subject matter jurisdiction, he had a chance to do so, meaning that principles of res judicata apply. See Insurance Corp. of Ireland, 456 U.S. at 702 n.9.5 In that posture, we treat the default judgment like any other final judgment. And out of respect for the finality of judgments, we will find the judgment void for lack of subject matter jurisdiction only in the narrowest circumstances. It is not enough for the court issuing the judgment to have erred in asserting jurisdiction over the case: the error must be “egregious,” representing the “rare instance of a clear usurpation of
Here, i-TV appeared through counsel in the 2007 proceedings, only to disappear—leading to the default judgment. When it appeared, i-TV had a chance to challenge the court‘s subject matter jurisdiction but did not. So i-TV must show there was no arguable basis for the district court‘s subject matter jurisdiction.
The Respondents assert that the “no arguable basis” standard should not apply to them because they, unlike i-TV, were not parties to the underlying action. In their view, they should be treated like a party to the judgment who never appeared. We find it unnecessary to address this argument because, as we explain below, the proceedings to enforce the judgment against the Respondents must be dismissed for lack of personal jurisdiction. That appears to afford them all the relief they seek in this appeal: they characterize dismissal for lack of personal jurisdiction as an “alternative ground for affirmance” of the district court‘s
B.
Applying the “no arguable basis” standard, we hold that the default judgment is not void for lack of subject matter jurisdiction.
In the initial litigation, the Plaintiffs asserted subject matter jurisdiction based on diversity of citizenship under
One longstanding difficulty in applying this rule lies in determining the citizenship of business organizations. See generally Hertz Corp. v. Friend, 559 U.S. 77, 84-88 (2010) (discussing evolving treatment of corporations). Different rules apply for corporations and unincorporated associations. A corporation has dual citizenship: it is a citizen of its state of incorporation and
Diversity jurisdiction here turns on how we characterize a Hungarian “korlatolt felelossegu tarsasag” or “kft.” One of the Plaintiffs, Hawkins, owned one-third of Defendant Peterfia kft. when the complaint was filed. If Peterfia is a corporation, then it is a Hungarian citizen and diverse from all of the (American) Plaintiffs. But if Peterfia is an unincorporated association, then it shares Hawkins‘s citizenship, destroying complete diversity.7
Even for American entities, drawing a principled distinction between corporations and unincorporated associations is not always easy. The twentieth century saw the creation of new types of business entities that straddled the boundary separating traditional corporations from traditional partnerships: professional corporations, limited liability partnerships, limited liability companies, and so forth. Lower courts have tended to treat these newcomers as unincorporated associations given the Supreme Court‘s parsimonious approach to “corporation” status in Carden. For example, we and the other courts of appeals have uniformly treated limited liability companies—an innovation of the 1970s that offers some useful features of corporations (limited liability and separate legal personality) but remains sufficiently distinct to warrant tax treatment as partnerships—as unincorporated associations. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010) (collecting cases). Still, the results sometimes seem arbitrary. Courts have generally found that all entities denominated as “corporations,” even entities like professional corporations that differ in important ways from traditional corporations, should be considered corporations for diversity purposes. Hoagland ex rel. Midwest Transit, Inc. v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737, 739-43 (7th Cir. 2004).
The situation does not get any easier when we turn to foreign business entities, particularly those from civil-law jurisdictions whose legal traditions differ from our own. At one point, the Supreme Court seemed to suggest a more generous approach for recognizing foreign business entities as “corporations.” In Puerto Rico v. Russell & Co., 288 U.S. 476 (1933), the Court considered
juridical person” and therefore a citizen of Puerto Rico, even though none of its members was a Puerto Rican citizen. Id. at 481. This reasoning suggests that, for foreign business entities, legal personhood alone should be the feature distinguishing foreign corporations from foreign unincorporated associations. If adopted, that reasoning would sharply diverge from our approach to domestic business entities, for we have treated American limited liability companies as unincorporated associations even though they too have separate legal personhood. The Supreme Court has since suggested that Russell‘s holding may be limited to its facts; certainly, it extends no further than foreign entities from civil-law jurisdictions. Carden, 494 U.S. at 190. Since calling Russell into doubt, however, the Court has not clarified how to determine whether a business entity organized under the laws of a civil-law jurisdiction is a corporation.
Without guidance from the Supreme Court, the Seventh Circuit has adopted an approach that involves examining the foreign entity‘s substantive features and comparing them to the characteristic features of an American corporation. See, e.g., BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790, 791 (7th Cir. 2014); Lear Corp. v. Johnson Elec. Holdings Ltd., 353 F.3d 580, 582-83 (7th Cir. 2003). Those characteristic features include “perpetual existence, govern[ance] by a Board of Directors, ab[ility] to issue tradable shares . . . , and treat[ment] as independent of its equity investors—who are neither taxable on its profits nor liable for its debts.” Lear, 353 F.3d at 583.
The Respondents and i-TV urge us to adopt the Seventh Circuit‘s approach, which they argue makes clear that Hungarian kfts. more closely resemble limited liability companies than corporations. We find, however, that there are at least two “arguable bases” for treating Peterfia as a corporation.
First, our circuit has not yet adopted any approach to characterizing foreign civil-law business entities for diversity purposes. We have not espoused the Seventh Circuit‘s approach. Nor have we firmly rejected the Supreme Court‘s more generous approach in Russell,8 under which Peterfia surely would count as a “corporation” because it has separate legal personhood. Thus, it remains an open question in this Circuit whether to apply the Seventh Circuit‘s approach, the approach in Russell, or some other, entirely different approach. To be sure, we might well be inclined to adopt the Seventh Circuit‘s approach if we were reviewing the issue de novo. But the only issue before us is whether there is a colorable argument for a different approach under which Peterfia is a corporation. In this Circuit, there is.
Second, even under the Seventh Circuit‘s approach, the issue can be remarkably
The Seventh Circuit‘s decision in BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790, shows how hard this analysis can be. There, the court considered a type of Dutch entity known as a “besloten vennootschap met beperkte aansprakelijkheid,” or “BV.” The court noted that a BV “has the standard elements of ‘personhood’ (perpetual existence, the right to contract and do business in its own name, and the right to sue and be sued) and issues shares to investors who enjoy limited liability.” Id. at 791. The shares are alienable, subject to any restrictions imposed by the business. Id. These features, the Seventh Circuit concluded, caused a BV to resemble professional corporations and other closely held corporations that are treated as “corporations” for diversity purposes. Id.
The difficulty is that closely held corporations share most of these features with limited liability companies. The one exception is that a corporation issues “shares” while a limited liability company has “membership” interests. See, e.g., Fellowes, 759 F.3d at 788. In many respects, however, this distinction is purely semantic. Is the difference that shares, but not membership interests, are freely alienable? Apparently not, because membership interests in limited liability companies are often more freely alienable than are shares in professional corporations. Shares in professional corporations usually can be issued only to licensed professionals, see, e.g.,
The reasoning of BouMatic supports a colorable argument (but perhaps not a persuasive one) for an analogy between a kft. and a closely held corporation. The parties do not appear to dispute that a kft. has legal personality and limited liability for investors. The main feature distinguishing a kft. from the foreign entity in BouMatic is that a kft. has “quotas” rather than “shares.” Perhaps this is a difference in name only: the Plaintiffs’ expert explained that, even if quotas in a kft. are subject to a right of first refusal by default, this default rule can be changed. See J.A. 1571-72 (Plaintiffs’ expert report). Similar default restrictions sometimes apply to shares in professional corporations. See
In the end, the Respondents and i-TV may be right that a Hungarian kft. is an unincorporated association for diversity purposes. But this issue is arguable (and certainly was arguable in 2007, when the judgment was entered). Therefore, the district court erred in finding the judgment void for lack of subject matter jurisdiction. We need not address the Plaintiffs’ alternative argument that the district court erred in declining to drop Peterfia as a defendant to save the judgment.
C.
The Respondents and i-TV argue for affirmance on the alternative ground that the judgment was void for lack of due process. We may decline to consider an alternative ground for affirmance that was not addressed by the district court, see, e.g., United States ex rel. Carson v. Manor Care, Inc., 851 F.3d 293, 307 (4th Cir. 2017), and we do so here. We leave this argument for the district court on remand.
III.
We now turn to the cross-appeal, in which Respondents, all foreign persons, argue that they lacked adequate contacts with the forum to support personal jurisdiction over them. The district court‘s orders of June 30, 2017—which denied without prejudice the Plaintiffs’ motion to enforce and compelled the Respondents to submit to expansive discovery—had the same effect as a denial of a motion to dismiss a complaint for lack of personal jurisdiction under
When personal jurisdiction is addressed under
Here, it is unclear whether the district court evaluated whether the Plaintiffs made out a prima facie case of personal jurisdiction. The court did not provide a written opinion explaining its decision to permit discovery in the face of the Respondents’ personal-jurisdiction challenge. Ruling from the bench, the court made only a passing remark about personal jurisdiction, noting: “when there‘s an allegation of contempt of court, which is floating around in here, that changes the jurisdiction issue.” J.A. 757.
Reviewing the issue de novo, we conclude that the Plaintiffs did not make out a prima facie case of personal jurisdiction over the Respondents. In their motion papers, the Plaintiffs advanced two alternative theories of personal jurisdiction: (1) that Respondents were successors-in-interest to the Defendants, and as such could be substituted in as parties under
A.
We start with the Plaintiffs’ successor-in-interest theory. In principle, such a theory can establish personal jurisdiction: where one corporation has succeeded to another‘s liabilities, the predecessor corporation‘s forum contacts can be imputed to the successor corporation. See City of Richmond v. Madison Mgmt. Grp., Inc., 918 F.2d 438, 454-55 (4th Cir. 1990). But it does not work here.
This theory has been a moving target. In the proceedings below, the Plaintiffs argued that the Respondents were successors-in-interest to the “Original Defendants,” without clearly specifying which ones. J.A. 444. Yet the arguments they presented could only have applied to the defendant companies, such as i-TV. The Plaintiffs sought to apply Virginia‘s test for successor liability arising from asset transfers, which requires that either: “(1) the purchasing corporation expressly or impliedly agreed to assume [the predecessor corporation‘s] liabilities, (2) the circumstances surrounding the transaction warrant a finding that there was a consolidation or de facto merger of the two corporations, (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is fraudulent in fact.” J.A. 444-45 (emphasis omitted) (quoting Kaiser Found. Health Plan of Mid-Atl. States v. Clary & Moore, P.C., 123 F.3d 201, 204 (4th Cir. 1997)). This test applies when one company has bought the assets of another. See Kaiser, 123 F.3d at 204; Harris v. T.I., Inc., 413 S.E.2d 605, 608-609 (Va. 1992). The Plaintiffs never presented the district court with any argument grounded in Virginia law to support a theory that the Respondents’ predecessor-in-interest was a natural person, even though the Plaintiffs insist that Virginia law governs this issue.9
Thus, any such
Now, on appeal, the Plaintiffs have disclaimed any theory that the Respondents succeeded to the liabilities of i-TV or one of the other company defendants, asserting instead that they are successors-in-interest to Borsy. Response and Reply Brief of Appellants at 53. The Plaintiffs thus limit themselves to the very theory they did not properly preserve for appeal: that the Respondents succeeded to the liabilities of a natural person. By changing horses midstream, the Plaintiffs have sunk their successor-in-interest theory. Thus, this cannot support their assertion of personal jurisdiction.
B.
The Plaintiffs’ next theory is that the Respondents were “in active concert” with Borsy insofar as they aided and abetted his violation of the district court‘s injunction,
The Waffenschmidt court articulated two independent theories to support the exercise of jurisdiction over nonparty aiders-and-abettors. First, it held that federal district courts have the inherent authority to enforce their injunctions nationwide, and that this authority necessarily includes the power to enforce injunctions against nonparties who aid and abet violators. 763 F.2d at 716-17. It also held, in the alternative, that the very act of aiding-and-abetting represents a sufficient contact with the forum state. See id. at 717, 721-23. Under this alternative theory, the act of aiding-and-abetting is sometimes called a “super-contact” because it alone supplies the “minimum contacts” required for a court to exercise personal jurisdiction. See generally Julia K. Schwartz, Comment, “Super Contacts“: Invoking Aiding-and-Abetting Jurisdiction to Hold Foreign Nonparties in Contempt of Court, 80 U. CHI. L. REV. 1961 (2013).
We start our own analysis from fundamentals. To enter a judgment that adjudicates the rights of a party, a federal court must have personal jurisdiction over that party. Personal jurisdiction requires valid service of process that comports with due process. Omni Capital Int‘l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104 (1987). That is, unless the party consents to jurisdiction, there must be (1) service that complies with the requirements of an applicable rule or statute, as well as (2) “minimum contacts” with the forum so that the exercise of jurisdiction “does not offend traditional notions of fair play and substantial justice,” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). When the defendant is “at home” in the forum, then its contacts are so strong that it can be
Compliance with these basic personal-jurisdiction requirements is necessary to start contempt proceedings against a nonparty aider-and-abettor. When an aider-and-abettor was not a party to the underlying proceedings that led to the injunction, it must nonetheless be made a party to the contempt proceedings. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 112 (1969); Lake Shore Asset Mgmt. Ltd. v. CFTC, 511 F.3d 762, 767 (7th Cir. 2007). And that necessarily requires valid service of process comporting with the Constitution.10 Armed with these principles, we address each of Waffenschmidt‘s theories.
1.
According to Waffenschmidt‘s first theory, district courts have inherent, nationwide authority to institute civil contempt proceedings against nonparties who aid and abet violations of injunctions and thus are “in active concert or participation” with a party under
Even for foreign nonparties, the overall viability of Waffenschmidt‘s first theory may matter for the minimum-contacts analysis. If the theory is correct and courts may exercise jurisdiction over nonparty aiders-and-abettors nationwide, then we should arguably adopt a “national contacts” analysis, looking to foreign nonparties’
2.
To satisfy the “minimum contacts” test, the Plaintiffs rely on Waffenschmidt‘s second, alternative theory: that the mere act of aiding and abetting a violation of an injunction under
Waffenschmidt held that the in-forum “effects” of the nonparties’ conduct established personal jurisdiction over them. In that case, a district court in Mississippi had enjoined the defendant from dissipating the proceeds of a stock sale. He did so anyway, transferring the funds from Mississippi to nonparty Texas residents. Id. at 714, 720-21. The Fifth Circuit found that the nonparty aider-and-abettors’ conduct had two “effects” in Mississippi that constituted minimum contacts with the jurisdiction. First, the nonparty aiders-and-abettors “intended that their actions would have the effect of placing funds outside the reach of the Mississippi forum.” Id. at 723. Second, “intentionally violating a court‘s orders has a substantial effect on the administration of justice in general, as well as the proper completion of the [plaintiffs‘] litigation in particular.” Id.
Waffenschmidt‘s “effects” analysis cannot be generalized to every case of aiding and abetting. It is true that the in-forum effects of out-of-forum conduct can constitute minimum contacts with the forum sufficient to support personal jurisdiction. See Walden, 134 S. Ct. at 1123-24 (citing Calder v. Jones, 465 U.S. 783 (1984)). There are, however, important limitations on this principle. These effects must create a connection to the forum, not just to parties who happen to live there. See id. at 1122-23. The connection must be “substantial.” Id. at 1121. And a person cannot be haled into the forum simply because he knew that his conduct would have incidental effects there; he must have “expressly aimed” his conduct at the forum. Id. at 1124 n.7 (quoting Calder, 465 U.S. at 789); see Consulting Engineers Corp. v. Geometric Ltd., 561 F.3d 273, 280-81 (4th Cir. 2009); Carefirst, 334 F.3d at 398-99. Put differently, the forum must be the “focal point” of the conduct. E.g., Consulting Engineers, 561 F.3d at 280.
For two independent reasons, aiding-and-abetting under
True, there is always an in-forum effect in the sense that any knowing violation of an injunction represents an affront to the dignity of the district court. But this effect is plainly not substantial enough to support personal jurisdiction. Every time a person knowingly violates a lawful command—whether imposed by an injunction, by a regulation, by a statute, or otherwise—that represents an affront to the body that issued the command. Just as a violation of a district-court injunction is an affront to the court, so a violation of a state statute is an affront to the state legislature. Yet a violation of the forum‘s law, standing alone, is not enough to establish personal jurisdiction—if that were true, then personal jurisdiction would always follow the merits, which of course is not correct.
Second, and independently, aiding-and-abetting under
For these reasons, the act of aiding-and-abetting does not necessarily constitute the “minimum contacts” that due process requires. This conclusion finds support in the serious comity concerns that would arise if we permitted the exercise of personal jurisdiction over foreign nonparties based on purely foreign conduct. The Supreme Court has cautioned, in other contexts, that the careless extension of personal jurisdiction over foreigners could antagonize other nations and make them less likely to respect our judgments. See Daimler, 134 S. Ct. at 762-63. The same concern applies here: other nations would surely look askance at us if a mere allegation of aiding-and-abetting, occurring entirely overseas, sufficed to provide our courts with jurisdiction over their citizens. Alternatively, foreign courts might reciprocate, asserting jurisdiction over U.S. citizens based on our conduct at home—an
In this case, the Plaintiffs have identified no suit-related forum contacts apart from their allegation of aiding-and-abetting.14 They suggest that they should get jurisdictional discovery to identify other relevant contacts. Yet they have already obtained extensive discovery, and they do not suggest what other contacts they hope to uncover, meaning that further discovery would simply be a fishing expedition.
We therefore conclude that the district court lacks jurisdiction over the Respondents, who must be dismissed from these proceedings.
C.
The lack of personal jurisdiction over the Respondents may not necessarily end this litigation. The district court continues to have personal jurisdiction over i-TV, which was a party to the 2007 judgment. Yet it is unclear whether, as a practical matter, the Plaintiffs’ attempt to enforce their judgment against i-TV in federal court is more than a fool‘s errand: i-TV appears to have no U.S. presence. And there are other issues, like laches, that potentially stand in the way of the Plaintiffs’ attempt to enforce the 2007 injunction against i-TV. Still, we leave those issues for the district court to determine in the first instance.
IV.
For the reasons given, we reverse the district court‘s grant of
REVERSED AND REMANDED