Receiver For Rex Venture Group v. Banca Comerciala Victoriabank ( 2021 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-2129
RECEIVER FOR REX VENTURE GROUP, LLC,
Defendant - Appellant,
v.
BANCA COMERCIALA VICTORIABANK SA,
Appellee,
and
SECURITIES & EXCHANGE COMMISSION
Plaintiff,
v.
REX VENTURE GROUP, LLC, d/b/a Zeekrewards.com; PAUL R. BURKS; TRUDY
GILMOND; KELLIE KING; BBVA COMPASS
Defendants,
and
NXSYSTEMS, INC.,
Respondent,
and
DAWN WRIGHT-OLIVARES; DANIEL OLIVARES; ALEXANDRE DE BRANTES
Intervenors.
Appeal from the United States District Court for the Western District of North Carolina, at
Charlotte. Graham C. Mullen, Senior District Judge. (3:12-cv-00519-GCM)
Argued: October 16, 2020 Decided: January 29, 2021
Before GREGORY, Chief Judge, and KEENAN and FLOYD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Mark W. Kinghorn, MCGUIREWOODS, LLP, Charlotte, North Carolina, for
Appellant. Kiran H. Mehta, TROUTMAN SANDERS LLP, Charlotte, North Carolina, for
Appellee. ON BRIEF: Joshua D. Davey, Matthew E. Orso, Jacob R. Franchek,
MCGUIREWOODS, LLP, Charlotte, North Carolina, for Appellant. Lindsey B. Mann,
Kathleen Campbell, TROUTMAN SANDERS LLP, Atlanta, Georgia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
This contempt proceeding comes to us on appeal for the second time. Matthew E.
Orso, the appointed receiver (the “Receiver”) for Rex Venture Group, LLC (RVG) d/b/a
ZeekRewards.com, appeals the district court’s determination that it lacked personal
jurisdiction over Banca Comerciala Victoriabank SA (Victoriabank). Victoriabank is a
commercial bank with its headquarters and principal place of business in the Republic of
Moldova. For the following reasons, we affirm.
I.
A.
This case arises out of the Receiver’s efforts to return funds to the victims of
ZeekRewards, a combined Ponzi and pyramid scheme. RVG operated ZeekRewards,
ultimately obtaining over $800 million from more than 800,000 individuals. ZeekRewards
accomplished this scheme by advertising for a “penny auction” website wherein victims
transferred money through various digital wallet companies.
Relevant here, Payza was one such digital wallet company. To service the digital
money transfers, Payza used a long chain of payment-processing entities (each named
variations of “PaymentWorld”) and their sponsoring banks. Within this chain,
Victoriabank acted as Payza’s acquiring bank. As the acquiring bank and a member of a
credit-card association, Victoriabank enabled Payza to accept credit-card payments. Thus
a payment to ZeekRewards involved the following: victims submitted their payment
information to Payza; California-based PaymentWorld, LLC (PW-USA) transmitted the
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payment information to Victoriabank; Victoriabank acquired the funds from the credit-card
company and deposited them into an account owned by Moldova-based ICS Payment
World SRL (PW-Moldova); Hong Kong–based PaymentWorld Limited (PW-HK)
transferred those funds from the PW-Moldova account at Victoriabank to Tusar Bank;
Tusar Bank ensured that the correct amount of money was exchanged between
Victoriabank and the issuing bank (i.e., the bank that issued the credit card to the
consumer); PW-HK transferred the funds from Tusar Bank to Payza; and then Payza
transferred those funds to RVG. The PW-Moldova account at Victoriabank retained a
percentage of each Payza transaction in reserve to cover chargebacks, reversals, or other
potential risks.
On August 17, 2012, the U.S. Securities and Exchange Commission (SEC)
instituted a civil enforcement action against RVG and its principal, Paul Burks, in the
Western District of North Carolina. That same day, the district court appointed a Receiver
to assist with returning funds to the scheme’s victims and issued an order freezing RVG’s
assets (the “2012 Freeze Order”). The 2012 Freeze Order obligated all persons and
financial institutions in possession of RVG assets to freeze the funds or otherwise make
them available to the Receiver. At that time, the PW-Moldova account at Victoriabank
allegedly held $13,174,015.48 in receivership assets.
Roman Balanko, the owner and CEO of PW-USA, called and emailed Victoriabank
to inform it of the 2012 Freeze Order shortly after it was entered. The Receiver also sent
a written letter—dated September 11, 2012, and received September 17, 2012—to
Victoriabank at its headquarters in Moldova. The letter included a copy of the 2012 Freeze
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Order, informed Victoriabank that the PW-Moldova account contained receivership assets
subject to the 2012 Freeze Order, and requested assistance in seizing those assets. Both
the letter and the 2012 Freeze Order were written in English, not Moldova’s official
language of Romanian. The Receiver never properly served Victoriabank with the 2012
Freeze Order pursuant to either Moldovan law or the Convention on Service Abroad of
Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965, 20
U.S.T. 361, T.I.A.S. No. 6638, commonly known as the Hague Service Convention.
Victoriabank informed the Receiver that it would not comply with the 2012 Freeze
Order because doing so would violate Moldovan law. Moldovan law distinguishes
between foreign “precautionary measures” and final, binding foreign judgments. J.A.
1057. Foreign precautionary measures must be domesticated in Moldova—i.e., given
effect through Moldovan courts—before they are enforceable within the country. Certain
final foreign judgments need not be domesticated to be enforceable. The Receiver never
domesticated the 2012 Freeze Order.
On September 25, 2012, PW-Moldova transferred $15.5 million from its account at
Victoriabank to a PW-HK account at Tusar Bank in Russia. Victoriabank facilitated this
transfer by routing the funds through its correspondent account at Bank of New York
Mellon (BNYM), located in New York City. “A correspondent bank account is a domestic
bank account held by a foreign bank, similar to a personal checking account used for
deposits, payments and transfers of funds.” SEC v. Receiver for Rex Ventures Grp., LLC,
730 F. App’x 133, 135 (4th Cir. 2018) (per curiam) (quoting Licci v. Lebanese Canadian
Bank, 732 F.3d 161, 165 n.3 (2d Cir. 2013)); see also 31 U.S.C. § 5318A(e)(1)(B) (“The
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term ‘correspondent account’ means an account established to receive deposits from [and]
make payments on behalf of a foreign financial institution, or handle other financial
transactions related to such institution.”). Three days after this transfer to Tusar Bank, PW-
HK routed the funds to an account for PaymentWorld Limited Russian Federation at
Master Bank in Russia. Master Bank closed soon thereafter, and those funds appear to be
beyond recovery. The Receiver made several attempts to obtain the funds voluntarily from
Victoriabank and PW-Moldova, to no avail.
B.
Based on Victoriabank’s facilitation of the transfer, the Receiver moved to hold
Victoriabank in contempt of the 2012 Freeze Order. On February 12, 2016, pending
resolution of the merits of the contempt motion, the district court issued a second freeze
order (the “2016 Freeze Order”) on $13,174,015 of unrelated assets in Victoriabank’s
BNYM correspondent account as a substitute for the assets transferred from PW-
Moldova’s Victoriabank account.
Victoriabank moved to dismiss the Receiver’s contempt motion and dissolve the
2016 Freeze Order for lack of personal jurisdiction. The Receiver asserted that the district
court had personal jurisdiction over Victoriabank based on two independent theories:
(1) Victoriabank’s violation of the 2012 Freeze Order (the “freeze-order theory”) and
(2) Victoriabank’s use of its BNYM correspondent account in New York to transfer
receivership assets (the “correspondent-account theory”). The district court denied full
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jurisdictional discovery but allowed the Receiver to depose Balanko and issue third-party
subpoenas to BNYM to obtain certain documents.
Following a hearing, the district court granted Victoriabank’s motion to dismiss.
The district court explained that because the Receiver had conducted some (albeit not full)
jurisdictional discovery, the Receiver had to prove personal jurisdiction by a
preponderance of the evidence. The district court concluded that the Receiver failed to
establish personal jurisdiction under either of the Receiver’s theories. First, Victoriabank
had not violated the 2012 Freeze Order because the Receiver never domesticated that order
in Moldova. Second, Victoriabank’s use of its BNYM correspondent bank account in New
York was not sufficient contact with North Carolina to give rise to personal jurisdiction.
The Receiver appealed. We reversed and remanded, holding that the district court
had applied an incorrect standard of proof given the limited jurisdictional discovery it
allowed. We ordered the district court to either (1) “review the parties’ initial filings and
apply the lower [prima facie] standard of proof” or (2) “permit additional discovery to
create a fuller evidentiary record before requiring the Receiver to prove jurisdiction by a
preponderance of the evidence.” Receiver for Rex Ventures Grp., 730 F. App’x at 137.
We further ordered that “[s]hould the court employ the lower standard, it ‘must construe
all relevant pleading allegations in the light most favorable to the plaintiff, assume
credibility, and draw the most favorable inferences for the existence of jurisdiction.’” Id.
(quoting Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989)).
On remand, the district court granted Victoriabank’s renewed motion to dismiss.
The district court determined that it had no power under the Federal Rules of Civil
7
Procedure to order jurisdictional discovery as to Victoriabank, because Victoriabank was
a nonparty over which there was no preliminary finding of jurisdiction. The district court
also noted that even if it did have the authority to order additional jurisdictional discovery
as to Victoriabank, it could not hold Victoriabank in contempt for noncompliance with a
U.S. court order that had never been domesticated in Moldova. As such, the district court
chose to review the initial filings rather than allow additional discovery. The district court
ultimately concluded that the Receiver could not demonstrate personal jurisdiction even
under the lower prima facie standard of proof and granted the motion to dismiss. The
district court allowed the 2016 Freeze Order to remain in effect pending appeal.
The Receiver timely appealed. On appeal, the Receiver argues that the district court
erred both in finding that he did not make a prima facie showing of personal jurisdiction
and in denying additional discovery as to Victoriabank. We requested supplemental
briefing on whether the district court has personal jurisdiction over Victoriabank under
Federal Rule of Civil Procedure 4(k)(2). Specifically, we asked (1) whether Victoriabank
is subject to personal jurisdiction in any state and (2) whether Victoriabank’s contacts with
the United States as a whole are sufficient to establish jurisdiction consistent with the Due
Process Clause.
II.
We review the district court’s determination that it lacks personal jurisdiction over
Victoriabank de novo. See Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334
F.3d 390, 396 (4th Cir. 2003). The Receiver’s appeal presents two questions: (1) whether
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the Receiver made a prima facie showing of personal jurisdiction over Victoriabank based
on the parties’ initial filings and (2) whether the district court erred in denying additional
jurisdictional discovery. We consider each in turn.
A.
We first determine whether the Receiver has made a prima facie showing of
personal jurisdiction over Victoriabank based on the parties’ initial filings. “A federal
district court may exercise personal jurisdiction over a foreign corporation only if: (1) such
jurisdiction is authorized by the long-arm statute of the state in which the district court sits;
and (2) application of the relevant long-arm statute is consistent with the Due Process
Clause of the Fourteenth Amendment.” Universal Leather, LLC v. Koro AR, S.A., 773 F.3d
553, 558 (4th Cir. 2014) (citing ESAB Grp., Inc. v. Zurich Ins. PLC, 685 F.3d 376, 391 (4th
Cir. 2012)).
“Under the Fourteenth Amendment’s Due Process Clause, there are two paths
permitting a court to assert personal jurisdiction over a nonresident defendant.” Id. at 559.
The first path, specific jurisdiction, “may be established if the defendant’s qualifying
contacts with the forum state also constitute the basis for the suit.” Id. (citing Tire Eng’g
v. Shandong Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012)). The second path,
general jurisdiction, “requires a ‘more demanding showing of continuous and systematic
activities in the forum state.’” Id. (quoting Tire Eng’g, 682 F.3d at 301). Here, the
Receiver presents two theories of specific jurisdiction: the correspondent-account theory
and the freeze-order theory. We also consider whether specific jurisdiction exists pursuant
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to Rule 4(k)(2).
1.
The Receiver argues that the district court has personal jurisdictional over
Victoriabank because Victoriabank used its BNYM correspondent account in New York
to place the proceeds of the scheme out of the Receiver’s reach. The Receiver cites cases
applying New York’s long-arm statute, which allows a court to “exercise personal
jurisdiction over any non-domiciliary . . . who in person or through an agent . . . transacts
any business within the state or contracts anywhere to supply goods or services in the state.”
N.Y. C.P.L.R. § 302(a)(1) (McKinney 2008).
Even assuming that Victoriabank is subject to jurisdiction under New York’s long-
arm statute, the Receiver makes no effort to establish how that jurisdiction extends to North
Carolina. This failure is fatal to the Receiver’s argument. The Western District of North
Carolina cannot exercise jurisdiction pursuant to New York’s long-arm statute. See
Universal Leather, 773 F.3d at 558 (noting that personal jurisdiction must be statutorily
“authorized by the long-arm statute of the state in which the district court sits”). Based on
the parties’ initial filings, the Receiver has failed to show how Victoriabank’s use of its
BNYM correspondent account gives rise to jurisdiction in North Carolina. 1
1
In theory, Victoriabank’s use of its correspondent account to transfer receivership
assets gave rise to an alternative basis for jurisdiction pursuant to Federal Rule of Civil
Procedure 4(k)(1). Under Rule 4(k)(1), the service of a summons may establish personal
jurisdiction “when authorized by a statute of the United States.” Fed. R. Civ. P. 4(k)(1)(C).
Several courts of appeals have held that the statutory authorization can be found in 28
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2.
The Receiver alternatively argues that the district court has personal jurisdiction
over Victoriabank based on its alleged knowing violation of the 2012 Freeze Order. The
Receiver relies on a line of cases, beginning with Waffenschmidt v. MacKay, holding that
district courts have inherent, nationwide authority to institute civil contempt proceedings
against nonparties who knowingly aid and abet violations of injunctions. See 763 F.2d
711, 714, 718 (5th Cir. 1985); see also ClearOne Commc’ns, Inc. v. Bowers, 651 F.3d
1200, 1214–15 (10th Cir. 2011) (allowing district court to exercise specific jurisdiction
over domestic nonparties for contempt proceedings); SEC v. Homa, 514 F.3d 661, 673–75
(7th Cir. 2008) (allowing district court to exercise specific jurisdiction over American
nonparties who resided abroad for contempt proceedings).
The district court declined to extend the reasoning of Waffenschmidt to the instant
facts, citing Reebok International Ltd. v. McLaughlin, 49 F.3d 1387 (9th Cir. 1995). In
Reebok, the Ninth Circuit held that a district court lacked jurisdiction over a foreign
nonparty bank’s violation of a U.S. freeze order in Luxembourg when the freeze order had
never been domesticated in Luxembourg and Luxembourg law separately required the bank
U.S.C. §§ 754 and 1692, which together allow a district court to exercise jurisdiction over
a nonresident holder of receivership assets regardless of whether the holder had any
contacts with the forum state. See, e.g., Klein v. Cornelius, 786 F.3d 1310, 1318 (10th Cir.
2015); SEC v. Ross, 504 F.3d 1130, 1145 (9th Cir. 2007); SEC v. Bilzerian, 378 F.3d 1100,
1103 (D.C. Cir. 2004); Am. Freedom Train Found. v. Spurney, 747 F.2d 1069, 1073 (1st
Cir. 1984). The Receiver, however, does not meet the requirements of Rule 4(k)(1) or
§§ 754 and 1692. At the outset, the Receiver admits that he “has not served a summons on
Victoriabank, nor has Victoriabank waived service,” as required under Rule 4(k)(1).
Receiver’s Supp. Br. at 1. Nor does the Receiver contest that he failed to meet the filing
requirements of §§ 754 and 1692.
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to act contrary to that order. See id. at 1392–94 (“[W]hen a national of a foreign country
follows the law of that country in that country it can[not] be dragged halfway around the
world to answer contempt charges arising out of a foreign court’s ineffective order.”).
Similarly, the district court concluded that Moldovan law required the Receiver to
domesticate the 2012 Freeze Order in Moldova before it was enforceable within that
country. Because the Receiver never did so, the district court determined that it was never
enforceable against Victoriabank. 2
Intervening case law has simplified this inquiry. Recently, in Hawkins v. i-TV
Digitalis Tavkozlesi zrt., we held that Waffenschmidt does not necessarily extend to foreign
nonparties. See 935 F.3d 211, 229 (4th Cir. 2019); cf. Gucci Am., Inc. v. Weixing Li, 768
F.3d 122, 137 (2d Cir. 2014) (noting that no court of appeals has extended the
Waffenschmidt theory to foreign nonparties). Rather, “[a]lleged foreign nonparty
contemnors must . . . have minimum contacts with the forum” before a district court can
exercise personal jurisdiction over them. Hawkins, 935 F.3d at 229. 3
2
The Ninth Circuit’s conclusion in Reebok relied in part on Luxembourg banking
law that required the bank to act contrary to the U.S. freeze order. See 49 F.3d at 1392–
94. Notably, experts in the instant case provided competing testimony on Victoriabank’s
separate obligations under Moldovan banking and money laundering law. The district
court, however, found no jurisdiction existed over Victoriabank based solely on the
domestication issue. Regardless, we need not wade into that morass.
3
We acknowledged in Hawkins that “[i]f the [Waffenschmidt] 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’ contacts with the entire United States, not just the forum state.” 935 at 229–30
(citing ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 626–27 (4th Cir. 1997)). But as
in Hawkins, we need not decide this issue today.
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Yet any minimum contacts analysis of Victoriabank is dead in the water. “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.” Id. (citing Zenith Radio
Corp. v. Hazeltine Rsch., 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.” Id. The Receiver concedes that he never
properly served Victoriabank in the instant contempt proceeding. Accordingly, the
Receiver’s freeze-order theory of jurisdiction fails.
3.
We requested supplemental briefing on whether jurisdiction exists pursuant to
Federal Rule of Civil Procedure 4(k)(2). Rule 4(k)(2) provides a mechanism for exercising
jurisdiction over a foreign defendant that lacks sufficient contacts with any individual state
but has sufficient contacts with the United States as a whole to satisfy due process. See
Grayson v. Anderson, 816 F.3d 262, 271 (4th Cir. 2016). Jurisdiction under Rule 4(k)(2)
has three prerequisites: (1) the defendant must be served or file a waiver of service, (2) the
defendant must not be subject to jurisdiction in any state, and (3) exercising jurisdiction
must be consistent with due process. Fed. R. Civ. P. 4(k)(2).
The Receiver concedes that “Rule 4(k)(2) . . . does not apply” because “[t]he
Receiver has not served a summons on Victoriabank, nor has Victoriabank waived
service.” Supp. Br. of Appellant at 1. We agree. Accordingly, jurisdiction does not exist
under Rule 4(k)(2).
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B.
We next consider whether the district court erred in choosing to review the initial
filings under a prima facie standard instead of permitting additional jurisdictional
discovery. We tasked the district court with choosing between the two options, and the
district court exercised its discretion in so choosing. See Carefirst of Md., Inc., 334 F.3d
at 402–03 (noting that “district courts ‘have broad discretion in [their] resolution of
discovery problems that arise in cases pending before [them]’” (alterations in original)
(quoting Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 59–60 (4th Cir. 1993))). We agree
with the district court that further jurisdictional discovery would be fruitless given its
inability to hold Victoriabank in contempt. A nonparty aider-and-abettor must be made
party to the suit through proper service of process in order to be held in contempt for
violating an injunction. See Hawkins, 935 F.3d at 229. As discussed, the Receiver never
properly served Victoriabank. Accordingly, the district court was within its discretion to
deny additional jurisdictional discovery.
III.
We appreciate that today’s ruling hamstrings the Receiver’s efforts to recompensate
the ZeekRewards victims. But we cannot flout due process in the name of recompense.
For the foregoing reasons, the district court’s judgment is
AFFIRMED.
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