Anthony Fidrych v. Marriott International, Inc. ( 2020 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-2030
ANTHONY M. FIDRYCH; PATRICIA ANNE FIDRYCH,
Plaintiffs - Appellants,
v.
MARRIOTT INTERNATIONAL, INC.,
Defendant - Appellee.
Appeal from the United States District Court for the District of South Carolina, at
Charleston. Bruce H. Hendricks, District Judge. (2:17-cv-02195-BHH)
Argued: December 11, 2019 Decided: March 2, 2020
Before AGEE and QUATTLEBAUM, Circuit Judges, and TRAXLER, Senior Circuit
Judge.
Affirmed in part, vacated in part, and remanded by published opinion. Senior Judge
Traxler wrote the opinion, in which Judge Agee and Judge Quattlebaum joined.
ARGUED: Nathan Maxwell Crystal, CRYSTAL & GIANNONI-CRYSTAL, LLC,
Charleston, South Carolina, for Appellants. Paul K. Leary, Jr., COZEN O’CONNOR,
Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Mark C. Tanenbaum, MARK C.
TANENBAUM, PA, Mount Pleasant, South Carolina, for Appellants. Matthew Bleich,
COZEN O’CONNOR, Philadelphia, Pennsylvania, for Appellee.
TRAXLER, Senior Circuit Judge:
Bud Fidrych and his wife, both South Carolina residents, sued Marriott International
in South Carolina district court after Fidrych was injured at the Boscolo Milano, a Marriott-
affiliated hotel in Milan, Italy. After Marriott failed to file a timely answer to the
complaint, the district court clerk, at the Plaintiffs’ request, made an entry of default. The
district court subsequently entered what it described as a default judgment and set a date
for the damages hearing. That same day, the district court sent Marriott notice of the default
and of the damages hearing date. Five days after receiving notice, Marriott filed a motion
to set aside the default, in which it argued that the court lacked personal jurisdiction over
Marriott. The district court set aside the default and subsequently granted Marriott’s
motion to dismiss for lack of personal jurisdiction. The Fidryches appeal, challenging the
court’s decisions to set aside the default and to dismiss for lack of jurisdiction. They also
contend that the district court erred by refusing to award them attorney’s fees as a sanction
for Marriott’s failure to timely answer the complaint. As we will explain, we affirm the
district court’s dismissal for lack of personal jurisdiction, but we vacate the district court’s
denial of sanctions and remand that issue for reconsideration.
I.
Marriott is incorporated in Delaware, with its principal place of business in
Maryland. Of the 6,200 hotels in the Marriott system, ninety (1.45%) are in South Carolina.
Marriott does not own any of those ninety hotels – sixty-three are franchisees, and the
remaining twenty-seven are licensed or managed by Marriott. Marriott has a Certificate of
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Authority issued by the South Carolina Secretary of State, as is required of all foreign
corporations transacting business in the state. See S.C. Code § 33-15-101(a).
Marriott’s website permits online booking and is accessible in South Carolina.
When reserving a room online, the website requires the guests to provide their address and
other personal information, and it allows guests to use a drop-down menu to select the
place of their residence. The drop-down menu lists South Carolina, along with every other
state in the country and every other country in the world.
The Fidryches are South Carolina residents. They are members of Marriott’s
rewards program and have frequently stayed in Marriott and Marriott-affiliated hotels
around the world. Bud Fidrych was traveling to Milan as part of his job as a demonstration
pilot for Gulfstream Aerospace Corporation. According to the complaint, the Gulfstream
team of which Fidrych was a member typically stayed at Marriott hotels when travelling
for work, in part because the employees were members of Marriott’s rewards program and
because they received a discount by virtue of a relationship between Marriott and General
Dynamics, Gulfstream’s parent company.
Fidrych alleges that he specifically requested a Marriott hotel in Milan because he
always felt safe and comfortable at Marriott hotels, but he was not otherwise involved in
booking. Instead, the complaint alleges that in accordance with the usual Gulfstream
procedures, the reservations for the trip were handled by a member of Fidrych’s work team,
who used a travel agency to book the rooms at the Boscolo. The Boscolo is not owned or
managed by Marriott, but it is part of Marriott’s “Autograph Collection” of hotels. The
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operation of the Boscolo is governed by a franchise agreement to which Marriott is not a
party.
Fidrych’s affidavit alleges that at some point before the trip, he reviewed the
Boscolo on Marriott’s website. The Marriott logo “was prominently displayed on the
website,” which gave him confidence in the Boscolo, particularly since there were no
disclaimers stating that Marriott would not be responsible for the Boscolo’s conditions or
services. J.A. 231. Fidrych does not allege that he was in South Carolina when he looked
up the Boscolo, nor does he specify whether he researched the hotel before or after the
reservations were made.
During his stay at the Boscolo, Fidrych was injured when the glass shower door
shattered in his hand, severing a tendon in his thumb. Fidrych underwent two surgeries to
repair the damage to his hand. The Fidryches subsequently filed suit against Marriott in
federal district court in South Carolina.
After Marriott was served, it tendered defense of the action to the management of
the Boscolo, in light of the Boscolo’s contractual indemnification obligations. Boscolo
management failed to take appropriate action, and no answer was filed. At the Plaintiffs’
request, the district court clerk made an entry of default. The district court subsequently
granted Fidrych’s motion for default judgment and set a date for a damages hearing.
Although notice to Marriott was not required, the district court sent Marriott notice of the
default and the hearing. Within a few days, Marriott filed a motion to set aside the default
in which it asserted good cause to be relieved of the default and argued that the district
court lacked personal jurisdiction over it.
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The district court granted the motion to set aside the default under the standards set
out in Rule 55 of the Federal Rules of Civil Procedure. In that order, the court invited the
Plaintiffs to file a motion for sanctions against Marriott, noting that attorneys fees could be
an appropriate sanction. After the default was set aside, Marriott filed a motion to dismiss
for lack of personal jurisdiction and the Plaintiffs filed a motion seeking sanctions of more
than $86,000 in attorneys’ fees and expenses. The case was subsequently transferred to a
different district judge, who granted Marriott’s motion to dismiss for lack of personal
jurisdiction. As to the Plaintiffs’ motion for sanctions, the judge denied it, explaining that
the requested amount was “excessive, and that Plaintiffs have not shown an adequate causal
link between the default judgment and the total requested fees.” J.A. 252. This appeal
followed.
II.
The Plaintiffs first challenge the standard applied by the district court when
considering Marriott’s motion to set aside the default. Rule 55 provides that the district
court “may set aside an entry of default for good cause, and it may set aside a final default
judgment under Rule 60(b).” Fed. R. Civ. P. 55(c). Rule 60(b) provides that a “final
judgment” may be set aside, inter alia, if the judgment is the product of “mistake,
inadvertence, surprise, or excusable neglect.” Fed. R. Civ. P. 60(b)(1). When granting the
motion to set aside the default, the district court applied the good-cause standard of Rule
55 rather than Rule 60’s excusable-neglect standard.
On appeal, the Plaintiffs contend that that an entry of default is a ministerial act
performed by the district court clerk, see Fed. R. Civ. P. 55(a), and that Rule 55 applies
5
only to efforts to set aside these ministerial entries of default. In this case, however, after
the clerk’s entry of default, the district court granted Plaintiffs’ motion for a default
judgment and set a date for the damages hearing. The Plaintiffs therefore argue that
because this case proceeded beyond the ministerial entry of default, the court should have
analyzed the issue under Rule 60’s excusable-neglect standard. We disagree.
Rule 55 contemplates a two-step procedure. The first step is the entry of default,
which must be made by the clerk “[w]hen a party against whom a judgment for affirmative
relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit
or otherwise.” Fed. R. Civ. P. 55(a). The second step is the subsequent entry of a default
judgment, which may be done by the clerk “[i]f the plaintiff’s claim is for a sum certain or
a sum that can be made certain by computation,” Fed. R. Civ. P. 55(b)(1), but otherwise
must be done by the district court, see Fed. R. Civ. P. 55(b)(2) (“In all other cases, the party
must apply to the court for a default judgment. . . .”). As the Rule itself makes clear,
however, the standard for setting aside a default does not turn on whether the clerk or the
district court entered the order, but on whether the default judgment is final. See Fed. R.
Civ. P. 55(c) (“The court may set aside an entry of default for good cause, and it may set
aside a final default judgment under Rule 60(b). . . .”) (emphasis added).
In this case, the district court issued an order directing that “judgment by default be
entered against” Marriott. J.A. 2. That same order, however, recognized that the Plaintiffs
were not seeking a sum certain and stated that “a hearing shall be scheduled to determine
the amount of damages.” J.A. 2-3. Because no damages were awarded, the district court’s
order was not a final judgment of default. See Calderon v. Geico Gen. Ins., 754 F.3d 201,
6
207 (4th Cir. 2014) (explaining that “a judgment for the plaintiff that determines liability
for, but does not fix the amount of, damages” is not a final judgment) (internal quotation
marks omitted); Ins. Servs. of Beaufort, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d 847, 853
(4th Cir. 1992) (“[A] default judgment may not be entered without a full hearing unless the
damages are liquidated or otherwise uncontested.”). Thus, despite the fact that the district
court captioned its order as a “default judgment,” the order operated as nothing more than
an entry of default, albeit one made by the court rather than the clerk. See Chudasama v.
Mazda Motor Corp., 123 F.3d 1353, 1364 n.27 (11th Cir. 1997) (“When the amount of
damages is in dispute, . . . only the court may enter judgment, and then only after
determining the amount of damages. There can be no ‘judgment’ without a determination
of relief. Thus, the document entitled ‘default judgment’ in this case is more properly
termed simply a ‘default.’”) (citation omitted). Because no final judgment of default had
been entered in this case, Rule 60 was inapplicable, and the district court properly applied
Rule 55’s good-cause standard when considering Marriott’s motion to set aside the default.
The Plaintiffs argue that Marriott cannot show excusable neglect as required by Rule
60(b), but they do not contend that the district court erred in finding that Rule 55’s good-
cause standard was satisfied or that the court otherwise erred in applying the standards
governing setting aside a default under Rule 55. 1 As we have explained, the district court
1
See Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 204–05 (4th Cir.
2006) (“When deciding whether to set aside an entry of default, a district court should
consider whether the moving party has a meritorious defense, whether it acts with
reasonable promptness, the personal responsibility of the defaulting party, the prejudice to
(Continued)
7
correctly proceeded under Rule 55 rather than Rule 60, and we therefore affirm the district
court’s decision to set aside Marriott’s default.
III.
We turn now to the question of personal jurisdiction. Broadly speaking, “[t]he
validity of an order of a federal court depends upon that court’s having jurisdiction over
both the subject matter and the parties.” Ins. Corp. of Ireland v. Compagnie des Bauxites
de Guinee, 456 U.S. 694, 701 (1982). Subject-matter jurisdiction -- an Article III
requirement -- “functions as a restriction on federal power” and cannot be conferred on the
court by the actions of the parties. Id. at 702. The requirement that the court have personal
jurisdiction, however, springs not from Article III of the Constitution, but from the Due
Process Clause. See id. Because the personal jurisdiction requirement “recognizes and
protects an individual liberty interest,” id., the requirement may be waived by a defendant’s
“express or implied consent to the personal jurisdiction of the court,” id. at 703.
Absent consent, the exercise of personal jurisdiction must comport with the
requirements of the Due Process Clause: valid service of process, “as well as . . . ‘minimum
contacts’ with the forum so that the exercise of jurisdiction ‘does not offend traditional
notions of fair play and substantial justice.’” Hawkins v. i-TV Digitalis Tavkozlesi zrt., 935
F.3d 211, 228 (4th Cir. 2019) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)). The nature and quantity of forum-state contacts required depends on whether the
the party, whether there is a history of dilatory action, and the availability of sanctions less
drastic.”).
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case involves the exercise of “specific” or “general” jurisdiction. General jurisdiction
permits the court to hear any and all claims against the defendant, regardless of where the
claims arose or the plaintiff’s citizenship. General jurisdiction may be exercised when the
defendant has contacts with the forum jurisdiction that are “so constant and pervasive as to
render it essentially at home in the forum State.” Daimler AG v. Bauman, 571 U.S. 117,
122 (2014) (internal quotation marks and alteration omitted). If the defendant does not
have sufficient contacts to be at home in the forum, the court may exercise specific
jurisdiction if the defendant has continuous and systematic contacts with the forum state
and the claims at issue arise from those contacts with the forum state. See id. at 126-27.
The plaintiffs contend that both specific and general jurisdiction are present in this case.
A.
We first consider the Plaintiffs’ claim that Marriott has sufficient contacts with
South Carolina to subject it to general jurisdiction in the state. Our analysis is guided by
two relatively recent decisions from the Supreme Court – Daimler (cited above) and
Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011).
In Goodyear, the plaintiffs were North Carolina residents whose sons died in a bus
accident in France. Believing that the accident was caused by a defect in the bus tires, the
plaintiffs filed suit in North Carolina state court against Goodyear USA and three of its
subsidiaries. Goodyear USA was an Ohio corporation, and the subsidiary-defendants were
foreign entities organized under the laws of and operating in Luxembourg, Turkey, and
France. None of the subsidiary defendants had any contacts with the state of North
Carolina. They did not design, manufacture, or advertise their products in the State; they
9
had no employees in the State; and they were not registered to do business in North
Carolina. The subsidiary defendants did not sell or ship tires to North Carolina customers,
but other Goodyear USA affiliates had distributed a small number of Goodyear tires in the
state. The North Carolina Court of Appeals rejected the subsidiary-defendants’ challenge
to the assertion of general jurisdiction over them, concluding that the subsidiary-
defendants’ act of placing their products into the stream of commerce was sufficient to
support jurisdiction.
The Supreme Court disagreed. While the “[f]low of a manufacturer’s products into
the forum . . . may bolster an affiliation germane to specific jurisdiction,” 564 U.S. at 927,
“the sales of [the subsidiary-defendants’] tires sporadically made in North Carolina through
intermediaries” was not enough to support the exercise of general jurisdiction, id. at 929.
“Under the sprawling view of general jurisdiction urged by respondents and embraced by
the North Carolina Court of Appeals, any substantial manufacturer or seller of goods would
be amenable to suit, on any claim for relief, wherever its products are distributed.” Id.Instead, “general jurisdiction over foreign (sister-state or foreign-country) corporations” is
limited to cases where “their affiliations with the State are so continuous and systematic as
to render them essentially at home in the forum State.” Id. at 919 (emphasis added, internal
quotation marks omitted). “For an individual, the paradigm forum for the exercise of
general jurisdiction is the individual’s domicile; for a corporation, it is an equivalent place,
one in which the corporation is fairly regarded as at home.” Id. at 924. As the Court
recognized, the paradigm forums where corporations are fairly regarded as at home are the
forums where it is incorporated and where it has its principal place of business. See id.10
In Daimler, residents of Argentina filed an action in California district court against
Daimler AG, a German corporation that manufactures Mercedes-Benz automobiles. The
plaintiffs alleged that “during Argentina’s 1976–1983 ‘Dirty War,’ Daimler’s Argentinian
subsidiary . . . . collaborated with state security forces to kidnap, detain, torture, and kill”
employees of the subsidiary, and they sought damages for human-rights violations. 571
U.S. at 121. The plaintiffs contended that California could exercise personal jurisdiction
over Daimler by virtue of the California contacts of a different Daimler subsidiary,
Mercedes–Benz USA, LLC (MBUSA), which had extensive contacts with California. See
id. The Court assumed for the purposes of its decision that MBUSA’s contacts with
California were sufficient to render MBUSA at home in California and thus subject to
general jurisdiction, and it also assumed that MBUSA’s California contacts could be
attributed to Daimler. See id. at 134, 136. But even with those assumptions, the Court
found the contacts insufficient to make Daimler at home in California.
The Court emphasized that “only a limited set of affiliations with a forum will render
a defendant amenable to all-purpose jurisdiction there. ‘For an individual, the paradigm
forum for the exercise of general jurisdiction is the individual’s domicile; for a corporation,
it is an equivalent place, one in which the corporation is fairly regarded as at home.’” Id.
at 137 (quoting Goodyear, 564 U.S. at 924). Echoing Goodyear, the Court held that a
corporation may be fairly regarded as at home in the forum where it is incorporated and
the forum where it has its principal place of business. See id. at 137. As the Court
explained, “[t]hose affiliations have the virtue of being unique -- that is, each ordinarily
indicates only one place -- as well as easily ascertainable. These bases afford plaintiffs
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recourse to at least one clear and certain forum in which a corporate defendant may be sued
on any and all claims.” Id. (citation omitted). Moreover, Daimler made it clear that only
in the “exceptional case” could the contacts with another forum be “so substantial and of
such a nature as to render the corporation at home in that State.” Id. at 139 n.19. “It is one
thing to hold a corporation answerable for operations in the forum State, quite another to
expose it to suit on claims having no connection whatever to the forum State.” Id. (citation
omitted).
The Daimler Court rejected the plaintiffs’ assertion that general jurisdiction could
be exercised “in every State in which a corporation engages in a substantial, continuous,
and systematic course of business,” describing the assertion as “unacceptably grasping.”
Id. at 138 (internal quotation marks omitted). The Court explained that the existence of
continuous and systematic contacts with the forum, though required for the exercise of
specific jurisdiction, was not sufficient to support the exercise of general jurisdiction.
“[T]he inquiry under Goodyear is not whether a foreign corporation’s in-forum contacts
can be said to be in some sense continuous and systematic, it is whether that corporation’s
affiliations with the State are so continuous and systematic as to render it essentially at
home in the forum State.” Id. at 138-39 (internal quotation marks and alteration omitted).
The Court found the connections to California to be insufficient to support the exercise of
general jurisdiction:
Here, neither Daimler nor MBUSA is incorporated in California, nor does
either entity have its principal place of business there. If Daimler’s
California activities sufficed to allow adjudication of this Argentina-rooted
case in California, the same global reach would presumably be available in
every other State in which MBUSA’s sales are sizable. Such exorbitant
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exercises of all-purpose jurisdiction would scarcely permit out-of-state
defendants to structure their primary conduct with some minimum assurance
as to where that conduct will and will not render them liable to suit.
Id. at 139 (internal quotation marks omitted).
Given the principles set out in Goodyear and Daimler, we have no difficulty
concluding that Marriott’s contacts with South Carolina are insufficient to make it “at
home” in South Carolina, as is required for the exercise of general jurisdiction.
As previously discussed, Marriott’s contacts with South Carolina are limited.
Marriott has a Certificate of Authority to conduct business in the state. Of the 6,200 hotels
in the Marriott system, only ninety (1.45%) are in South Carolina. Marriott, however, does
not own any of those hotels; sixty-three are franchisees and the remaining twenty-seven
are licensed or managed by Marriott. Marriott’s interactive website is accessible in South
Carolina, and it includes South Carolina in the drop-down menu used by customers when
selecting their place of residence.
While these contacts certainly qualify as systematic and continuous, they are not
substantial enough to “render [Marriott] essentially at home in the forum State.” Daimler,
571 U.S. at 139. Marriott’s South Carolina operations are very limited in scope and
represent a small fraction of the company’s overall operations. See id. at 139 n.20 (“[T]he
general jurisdiction inquiry does not focus solely on the magnitude of the defendant’s in-
state contacts. . . . General jurisdiction instead calls for an appraisal of a corporation’s
activities in their entirety, nationwide and worldwide.”). Because there is nothing that
would distinguish Marriott’s relationship with South Carolina from its relationship with
any of the other states where it does business but where it is not incorporated or
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headquartered, this is not the exceptional case for general jurisdiction contemplated by the
Daimler Court. Indeed, accepting the Plaintiffs’ jurisdictional arguments in this case
would mean that Marriott would be subject to general jurisdiction in every state where its
hotels are located. The Plaintiffs’ argument is thus precisely the “unacceptably grasping”
argument rejected by the Daimler Court. Id. at 138. As the Court explained, “[a]
corporation that operates in many places can scarcely be deemed at home in all of them.”
Id. at 139 n.20.
Accordingly, because Marriott’s contacts with South Carolina are not sufficient to
render it “at home” in South Carolina, the requirements for the exercise of contact-based
general jurisdiction are not satisfied in this case.
B.
Even if Marriott’s contacts with South Carolina are insufficient to support the
exercise of general jurisdiction, the Plaintiffs contend that Marriott consented to general
jurisdiction in South Carolina when it obtained a Certificate of Authority to conduct
business in the state. See Ins. Corp. of Ireland, 456 U.S. at 703 (explaining that the
requirement of personal jurisdiction may be waived by a defendant’s “express or implied
consent to the personal jurisdiction of the court”).
South Carolina requires all foreign corporations to obtain a certificate of authority
before conducting business in the state. See S.C. Code § 33-15-101(a) (“A foreign
corporation may not transact business in this State until it obtains a certificate of authority
from the Secretary of State.”). Marriott complied with that requirement and operates under
a properly issued certificate of authority. Under South Carolina law, “[a] foreign
14
corporation with a valid certificate of authority has the same but no greater rights and has
the same but no greater privileges as, and . . . is subject to the same duties, restrictions,
penalties, and liabilities now or later imposed on, a domestic corporation of like character.”
S.C. Code § 33-15-105(b). Because a South Carolina corporation is subject to general
jurisdiction in South Carolina, see Daimler, 571 U.S. at 137, the Plaintiffs contend that
under § 105(b), foreign corporations who chose to obtain a certificate of authority in South
Carolina have consented to general jurisdiction in South Carolina. We disagree.
The Plaintiffs’ argument is based on Pennsylvania Fire Insurance Co. of
Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917), and Robert Mitchell
Furniture Co. v. Selden Breck Construction Co., 257 U.S. 213 (1921), both decided well
before the development of the minimum-contacts-focused approach expressed by the Court
in International Shoe Co. v. Washington, 326 U.S. 310 (1945).
In Pennsylvania Fire, the Supreme Court held that a foreign-corporation defendant
consented to general jurisdiction in Missouri by complying with a state law requiring it to
obtain a business license and execute a power of attorney agreeing that service on its
representative was the equivalent of personal service. The Court explained that because
the Supreme Court of Missouri had held that the statute created consent to general
jurisdiction, the defendant accepted that condition by complying with the statute. See 243
U.S. at 95-96.
However, the Court in Robert Mitchell Furniture held that a foreign corporation did
not consent to general jurisdiction by complying with a state statute requiring appointment
of an agent for service of process. The Court explained that “[u]nless the state law either
15
expressly or by local construction gives to the appointment a larger scope, we should not
construe it to extend to suits in respect of business transacted by the foreign corporation
elsewhere, at least if begun, as this was, when the long previous appointment of the agent
is the only ground for imputing to the defendant an even technical presence.” 257 U.S. at
216.
Following Pennsylvania Fire and Robert Mitchell Furniture, some circuits have
concluded that a foreign corporation obtaining a business license or appointing an agent
for service of process in a state has consented to general jurisdiction in the state if state law
so provides. See, e.g., Waite v. AII Acquisition Corp., 901 F.3d 1307, 1319 (11th Cir. 2018)
(explaining that under Pennsylvania Fire and Robert Mitchell Furniture, “whether
appointing an agent for service of process subjects a foreign defendant to general personal
jurisdiction in the forum depends upon the state statutory language and state court decisions
interpreting it”); King v. Am. Family Mut. Ins. Co., 632 F.3d 570, 576 (9th Cir. 2011)
(Pennsylvania Fire and Robert Mitchell Furniture “stand for the proposition that federal
courts must, subject to federal constitutional restraints, look to state statutes and case law
in order to determine whether a foreign corporation is subject to personal jurisdiction in a
given case because the corporation has appointed an agent for service of process”).
In Ratliff v. Cooper Labs., Inc., 444 F.2d 745 (4th Cir. 1971), however, this court
rejected a claim that a foreign corporation’s compliance with an earlier version of South
Carolina’s domestication statute subjected it to general jurisdiction in South Carolina:
We think the application to do business and the appointment of an agent for
service to fulfill a state law requirement is of no special weight in the present
context. Applying for the privilege of doing business is one thing, but the
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actual exercise of that privilege is quite another. See International Shoe Co.
v. Washington, supra, 326 U.S. at 319, 66 S. Ct. 154. The principles of due
process require a firmer foundation than mere compliance with state
domestication statutes.
Id. at 748.
Ratliff did not cite Pennsylvania Fire or otherwise acknowledge the line of cases
holding that obtaining a business license or appointing an agent for service of process
amounts to consent to general jurisdiction. Nonetheless, given the court’s treatment of the
business license as simply one of the defendant’s contacts with the state and its reliance on
International Shoe when concluding that due process required more than mere compliance
with a state’s domestication statute, Ratliff seems to have implicitly concluded that the
Pennsylvania Fire line of cases had been superseded by International Shoe’s minimum-
contacts approach to personal jurisdiction. See Siemer v. Learjet Acquisition Corp., 966
F.2d 179, 181-82 (5th Cir. 1992) (relying on Ratliff to reject claim that foreign
corporation’s certification to do business in forum state automatically conferred general
jurisdiction); id. at 183 (“To assert, as plaintiffs do, that mere service on a corporate agent
automatically confers general jurisdiction displays a fundamental misconception of
corporate jurisdictional principles. This concept is directly contrary to the historical
rationale of International Shoe and subsequent Supreme Court decisions.”).
Moreover, we find it difficult to reconcile the Pennsylvania Fire approach with the
modern view of general jurisdiction expressed in the Supreme Court’s recent cases. See
BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1557 (2017) (questioning the persuasiveness of
cases “decided before this Court’s transformative decision on personal jurisdiction in
17
International Shoe”); Daimler, 571 U.S. at 138 n.18 (suggesting that certain personal-
jurisdiction cases “decided in the era dominated by [the] territorial thinking [of Pennoyer
v. Neff, 95 U.S. 714 (1877)] should not attract heavy reliance today”); see also Brown v.
Lockheed Martin Corp., 814 F.3d 619, 638 (2d Cir. 2016) (“Pennsylvania Fire is now
simply too much at odds with the approach to general jurisdiction adopted in Daimler to
govern as categorically as [the plaintiff] suggests . . . .”). Given the number of states that
subject foreign corporations to domestication requirements, foreign corporations would
likely be subject to general jurisdiction in every state where they operate -- a result directly
at odds with the views expressed by the Court in Daimler. See Daimler, 571 U.S. at 138
(rejecting as “unacceptably grasping” the claim that general jurisdiction exists “in every
State in which a corporation engages in a substantial, continuous, and systematic course of
business”) (internal quotation marks omitted); id. at 139 n.20 (“A corporation that operates
in many places can scarcely be deemed at home in all of them. Otherwise, ‘at home’ would
be synonymous with ‘doing business’ tests framed before specific jurisdiction evolved in
the United States.”).
However, even if we assume that International Shoe and Daimler had no effect on
the consent-to-general-jurisdiction rule set out in Pennsylvania Fire and Robert Mitchell
Furniture, we conclude that under the rules set out in those cases, Marriott did not consent
to general jurisdiction by complying with South Carolina’s domestication statute.
Under the rules set out in Pennsylvania Fire and Robert Mitchell Furniture,
obtaining the necessary certification to conduct business in a given state amounts to consent
to general jurisdiction in that state only if that condition is explicit in the statute or the state
18
courts have interpreted the statute as imposing that condition. S.C. Code § 33-15-105 states
that a foreign corporation doing business in South Carolina under a certificate of authority
“is subject to the same duties, restrictions, penalties, and liabilities” as a domestic
corporation. Because domestic corporations are subject to general jurisdiction in South
Carolina, the Plaintiffs contend that under § 33-15-105, foreign corporations operating
under a certificate of authority are likewise subject to general jurisdiction in South
Carolina. We do not agree with the Plaintiffs’ reading of South Carolina law.
S.C. Code § 33-15-101 establishes the requirement that foreign corporations
transacting business in the state obtain a certificate of authority, see id. § 33-15-101(a), and
provides a list of activities that do not amount to transacting business, see id. § 33-15-
101(b). The South Carolina Reporters’ comments accompanying that statute instruct that
“[a] corporation can be qualified to do business in South Carolina and have appointed an
agent for service of process but still not be conducting sufficient activities to be subject to
suit here.” S.C. Code § 33-15-101, S.C. Reporters’ Comments § 2 (emphasis added). The
position taken in the statutory commentary thus is directly contrary to the Plaintiffs’
assertion that under South Carolina law, a foreign corporation consents to general
jurisdiction by obtaining a certificate of authority to transact business.
The Plaintiffs’ position has also been rejected by the Court of Appeals of South
Carolina. In Builder Mart of America, Inc. v. First Union Corp., 563 S.E.2d 352 (S.C. Ct.
App. 2002), overruled in part on other grounds by Farmer v. Monsanto Corp., 579 S.E.2d
325 (S.C. 2003), the court held that a North Carolina bank that did not conduct business in
South Carolina was not subject to personal jurisdiction in South Carolina simply because
19
it had registered with the South Carolina Board of Financial Institutions and appointed an
agent for service of process. See id. at 355. In reaching that conclusion, the court relied
on the statutory commentary to § 33-15-101 quoted above and on this court’s decision in
Ratliff. See id.
Although neither Builder Mart nor the statutory commentary speak in terms of
consent to general jurisdiction, they nonetheless make clear that a certificate of authority
does not automatically subject a foreign corporation to jurisdiction in South Carolina courts
and that jurisdiction instead depends on sufficient South Carolina contacts by the foreign
corporation. That is sufficient to close the door to the Plaintiffs’ consent argument. 2 Even
under the rules set out in Pennsylvania Fire, obtaining a certificate of authority operates as
consent to general jurisdiction only if state law so provides. As indicated by Builder Mart
and the statutory commentary, South Carolina law does not make consent to general
jurisdiction a consequence of obtaining a certificate of authority to transact business. The
district court therefore properly concluded that Marriott did not consent to the exercise of
general jurisdiction by obtaining the certificate of authority. 3
2
But to the extent there is any doubt, § 33-15-105(d) also provides that “[b]y
obtaining a certificate of authority, the foreign corporation agrees to be subject to the
jurisdiction of the Department of Revenue and the courts of this State to determine its South
Carolina tax liability.” S.C. Code § 33-15-105(d). This explicit statutory requirement that
foreign corporations consent to jurisdiction in relation to certain tax issues would seem to
exclude consent to general jurisdiction. To read otherwise would render § 33-15-105(d)
superfluous.
3
In support of their consent argument, the Plaintiffs point to the official
commentary to § 33-15-107, which states that a “foreign corporation that obtains a
certificate of authority in a state thereby agrees that it is amenable to suit in the state.” S.C.
(Continued)
20
C.
We turn now to the Plaintiffs’ claim that South Carolina may properly exercise
specific jurisdiction in this case. The Due Process clause permits the exercise of specific
personal jurisdiction over a defendant if “the defendant [has] purposefully established
minimum contacts in the forum State such that it should reasonably anticipate being haled
into court there.” Perdue Foods LLC v. BRF S.A., 814 F.3d 185, 189 (4th Cir. 2016)
(internal quotation marks and alteration omitted). These requirements are met, and specific
jurisdiction may be exercised, if “the defendant has purposefully directed his activities at
residents of the forum, and the litigation results from alleged injuries that arise out of or
relate to those activities.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)
(citation and internal quotation marks omitted); see Perdue Foods, 814 F.3d at 189 (When
determining whether specific jurisdiction exists, “we consider (1) the extent to which the
defendant purposefully availed itself of the privilege of conducting activities in the State;
(2) whether the plaintiffs’ claims arise out of those activities directed at the State; and (3)
Code. Ann. § 33-15-107, Official Comment. In the Plaintiffs’ view, a foreign corporation
that agrees it is “amenable to suit in South Carolina” has also agreed to submit to general
jurisdiction in the state. We disagree. In light of the statutory commentary to § 33-15-101
quoted above, which makes it clear that a certificate of authority does not automatically
confer jurisdiction, the Plaintiffs’ conflation of “amenable to suit” to “general jurisdiction”
is clearly incorrect. We believe the phrase “amenable to suit in the state” in this context is
best understood as amenable to service of process in the state. That understanding of the
phrase maintains consistency with the § 101 commentary, and it makes the most sense
contextually, given that § 33-15-107, on which the Plaintiffs rely, involves a foreign
corporation’s obligation to maintain a registered agent in South Carolina. See S.C. Code §
33-15-107. The commentary to § 107 thus does not affect our conclusion that under South
Carolina law, a foreign corporation does not consent to general jurisdiction by obtaining a
certificate of authority to transact business in the state.
21
whether the exercise of personal jurisdiction would be constitutionally reasonable.”)
(internal quotation marks omitted).
1.
Taking things in reverse order, we begin with the requirement that the litigation
must arise out of Marriott’s contacts with South Carolina.
“In order for a state court to exercise specific jurisdiction, the suit must arise out of
or relate to the defendant’s contacts with the forum.” Bristol-Myers Squibb Co. v. Superior
Court of California, 137 S. Ct. 1773, 1780 (2017) (internal quotation marks and alterations
omitted).
In other words, there must be an affiliation between the forum and the
underlying controversy, principally, an activity or an occurrence that takes
place in the forum State and is therefore subject to the State’s regulation. For
this reason, specific jurisdiction is confined to adjudication of issues deriving
from, or connected with, the very controversy that establishes jurisdiction.
Id. (citation, internal quotation marks and alteration omitted). “When there is no such
connection, specific jurisdiction is lacking regardless of the extent of a defendant’s
unconnected activities in the State.” Id. at 1781.
Marriott’s business activity in South Carolina is not insignificant, as it franchises,
licenses, or manages ninety hotels in the state. Those activities, however, have nothing to
do with the claims asserted by the Plaintiffs in this action. That is, the claims asserted after
Bud Fidrych’s injury in a Marriott-affiliated hotel in Milan do not in any sense “arise out
of or relate to” Marriott’s connections to the hotels located in South Carolina. Because
the Plaintiffs’ claims do not arise from them, Marriott’s hotel-related connections to South
Carolina are not relevant to our specific-jurisdiction inquiry. See id. at 1781.
22
The only other action by Marriott that is arguably relevant is its operation of its
website. As previously mentioned, Marriott operates a website that is accessible in South
Carolina and includes South Carolina on a drop-down menu used to select a customer’s
place of residence. Fidrych asserts in his affidavit that he used the website to review the
Boscolo and that what he saw made him comfortable with the Boscolo, particularly given
the absence of any disclaimers of responsibility by Marriott for issues involving the
Boscolo. Although Fidrych did not make his own reservation, his complaint alleges that
the travel agent used by the Gulfstream team did use Marriott’s website to make the team’s
reservations at the Boscolo.
Whether the use of the website to make the reservations means that Fidrych’s
personal injury claims arise from or relate to Marriott’s operation of the website is a
difficult question. 4 Under similar factual circumstances, the Eleventh Circuit has rejected
that argument. See Oldfield v. Pueblo De Bahia Lora, S.A., 558 F.3d 1210 (11th Cir. 2009).
The plaintiff in Oldfield was a Florida resident who learned about a resort in Costa Rica
through the resort’s website and used the website to make a reservation. While staying at
the resort, the plaintiff chartered an independently owned boat for a fishing trip and was
4
We note that the Supreme Court recently granted certiorari to address
whether the arising-out-of requirement is satisfied in cases where the defendant’s forum
contacts did not cause the plaintiff’s claims. See Ford Motor Co. v. Montana Eighth
District Court, S. Ct. Docket No. 19-368, Question Presented (“Whether the ‘arise out of
or relate to’ requirement is met when none of the defendant's forum contacts caused the
plaintiff’s claims, such that the plaintiff’s claims would be the same even if the defendant
had no forum contacts.”), consolidated with Ford Motor Co. v. Bandemer, S. Ct. Docket
No. 19-369.
23
injured through the negligence of the boat captain. The plaintiff filed suit against the resort
in federal district court in Florida, alleging that the resort was legally responsible for the
captain’s negligence. The Eleventh Circuit concluded that the district court lacked personal
jurisdiction over the resort because the plaintiff’s injuries did not arise out of his use of the
website. See id. at 1223-24 (“A finding that such a tenuous relationship between [the
resort’s] relevant contacts and the negligence of the captain who was not employed or
controlled by [the resort] somehow satisfied the relatedness requirement would not only
contravene the fairness principles that permeate the jurisdictional due process analysis, but
would also interpret the requirement so broadly as to render it virtually meaningless.”).
We need not definitively resolve the issue in this case, however. As we explain
below, even if we assume that Fidrych’s claims arose from or were sufficiently related to
the use of Marriott’s website, Marriott’s operation of a website accessible in South Carolina
is insufficient to satisfy the minimum-contacts requirement of the personal-jurisdiction
inquiry.
2.
For the exercise of specific jurisdiction to be permissible, “the defendant [must
have] purposefully directed his activities at residents of the forum.” Burger King, 471 U.S.
at 472 (internal quotation marks omitted). “This purposeful availment requirement ensures
that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous,
or attenuated contacts, or of the unilateral activity of another party or a third person.” Id.
at 475 (citations and internal quotation marks omitted).
24
[W]here the defendant deliberately has engaged in significant activities
within a State, or has created continuing obligations between himself and
residents of the forum, he manifestly has availed himself of the privilege of
conducting business there, and because his activities are shielded by the
benefits and protections of the forum’s laws it is presumptively not
unreasonable to require him to submit to the burdens of litigation in that
forum as well.
Id. at 475-76 (citations and internal quotation marks omitted); see ESAB Grp., Inc. v.
Centricut, Inc., 126 F.3d 617, 625 (4th Cir. 1997) (“With respect to specific jurisdiction,
the touchstone remains that an out-of-state person have engaged in some activity
purposefully directed toward the forum state. The contacts related to the cause of action
must create a substantial connection with the forum state . . . .”) (internal quotation marks
and alteration omitted).
In this case, none of the wrongs Marriott is alleged to have committed took place in
South Carolina. The Plaintiffs contend the website booking created a contract between
Marriott and Bud Fidrych and that Marriott breached an implied warranty of safety and
fitness for intended purpose by providing a defective shower door. They allege that
Marriott was negligent by failing to regularly inspect its properties and discover the
defective shower door. They also assert three claims based on Italian law: that Marriott
breached a contractual duty to maintain a safe hotel; that Marriott is liable because the
defective shower door was in the exclusive control of the Boscolo, which operated as
Marriott’s agent; and that Marriott is responsible for the general negligence of its agent.
Thus, none of Marriott’s actions or omissions that form the basis of the Plaintiffs’ claims
took place in South Carolina or were otherwise directed at South Carolina residents.
Accordingly, one of the most frequent bases for the exercise of specific jurisdiction -- an
25
activity by the defendant in the forum state -- is absent in this case. See Bristol-Myers
Squibb, 137 S. Ct. at 1781.
Moreover, as discussed above, Marriott’s qualification to do business in South
Carolina and its involvement in ninety hotels in the state have nothing to do with the claims
asserted in this case and thus are not relevant to our inquiry. See Walden v. Fiore, 571 U.S.
277, 284 (2014) (“For a State to exercise jurisdiction consistent with due process, the
defendant’s suit-related conduct must create a substantial connection with the forum
State.”) (emphasis added). Accordingly, we are again left with Marriott’s operation of its
website as the only arguable jurisdictional hook connecting this case to South Carolina.
The question, then, is whether Marriott’s operation of the website amounts to activity
purposefully directed at South Carolina residents.
While Marriott obviously uses its website to engage in commercial transactions, the
website does not target South Carolina residents for commercial transactions any more than
it targets any other state. Instead of targeting any particular state, the website makes itself
available to any one who seeks it out, regardless of where they live. In our view, the mere
fact that the website is accessible in a given state does not mean that Marriott is targeting
its activities at that state. See ESAB, 126 F.3d at 625 (rejecting claim of specific jurisdiction
where defendant did not direct its activities at South Carolina but instead “focused its
activities more generally on customers located throughout the United States and Canada
without focusing on and targeting South Carolina”).
As the Plaintiffs point out, however, the website is interactive, not passive. The
interactivity of a website is a jurisdictionally relevant fact. See ALS Scan, Inc. v. Digital
26
Serv. Consultants, Inc., 293 F.3d 707, 713-14 (4th Cir. 2002). In ALS Scan, we considered
the jurisdictional implications of internet-based communications and activity. Formulating
principles for determining “when it can be deemed that an out-of-state citizen, through
electronic contacts, has conceptually ‘entered’ the State via the Internet for jurisdictional
purposes,” id. at 713, we adopted the approach set out in Zippo Manufacturing Co. v. Zippo
Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997). In Zippo, the court concluded that
the likelihood that personal jurisdiction can be constitutionally exercised is
directly proportionate to the nature and quality of commercial activity that
an entity conducts over the Internet. This sliding scale is consistent with well
developed personal jurisdiction principles. At one end of the spectrum are
situations where a defendant clearly does business over the Internet. If the
defendant enters into contracts with residents of a foreign jurisdiction that
involve the knowing and repeated transmission of computer files over the
Internet, personal jurisdiction is proper. At the opposite end are situations
where a defendant has simply posted information on an Internet Web site
which is accessible to users in foreign jurisdictions. A passive Web site that
does little more than make information available to those who are interested
in it is not grounds for the exercise [of] personal jurisdiction. The middle
ground is occupied by interactive Web sites where a user can exchange
information with the host computer. In these cases, the exercise of
jurisdiction is determined by examining the level of interactivity and
commercial nature of the exchange of information that occurs on the Web
site.
Id. at 1124 (citations omitted). 5
5
The internet we know today is very different from the internet of 1997, when
Zippo was decided. According to Zippo, in 1997 the internet was used “by over 30 million
individuals, corporations, organizations, and educational institutions worldwide.” Zippo
Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123 (W.D. Pa. 1997). In 2000, the
numbers of internet users worldwide had jumped to 361 million. And by 2011, the internet
had almost 2 billion users. See Zoe Niesel, #personaljurisdiction: A New Age of Internet
Contacts, 94 Ind. L.J. 103, 127 n.197 (Winter 2019). When Zippo was decided, desktop
computers provided the primary manner of accessing the internet; now, with the advent of
smart phones, people carry the internet with them everywhere. See id. at 127 (noting that
(Continued)
27
Although Marriott clearly does business over the internet, it is not using its website
to enter into long-term contracts “that involve the knowing and repeated transmission of
computer files over the Internet.” Id. We therefore conclude that Marriott’s interactive
website best fits in Zippo’s “middle ground,” where additional analysis is required to
answer the jurisdictional question.
In our view, the level of interactivity of a website like Marriott’s is not enough, on
its own, to make the website a sufficient basis to support the exercise of specific
jurisdiction. The interactivity of the website is relatively limited -- it permits customers to
input their travel dates to view available hotels and to book rooms online, which requires
them to provide personal and financial information. The website is not used to create a
continuing, back-and-forth relationship between Marriott and the website user; it is used to
facilitate the making of a one-off hotel reservation. The website is thus in many ways the
digital equivalent of a toll-free telephone number, providing a simple, cost-free way for
customers to contact the company.
more people now access the internet through a mobile device than through desktop
computers). Moreover, on today’s internet, “[i]t is an extraordinarily rare website” that is
not interactive at some level. Kindig It Design, Inc. v. Creative Controls, Inc., 157 F. Supp.
3d 1167, 1174 (D. Utah 2016). Given the pace of technological advancement since Zippo
and the changes in the way the internet is used, a re-evaluation of the utility of the Zippo
approach may be prudent. Until then, the Zippo approach remains binding. See United
States v. Bush, 944 F.3d 189, 195 (4th Cir. 2019) (“[T]he panels of this Court are
generally bound by our precedent, and this panel is not entitled to reject or alter an
earlier panel’s ruling, in the absence of a controlling en banc ruling or Supreme
Court decision.”).
28
Moreover, if we attach too much significance on the mere fact of interactivity, we
risk losing sight of the key issue in a specific jurisdiction case -- whether “the defendant
has purposefully directed [its] activities at residents of the forum.” Burger King, 471 U.S.
at 472 (emphasis added; internal quotation marks omitted). The ALS Scan court, of course,
recognized purposeful availment as the touchstone of the minimum-contacts analysis and
made it the first prong of its re-formulated Zippo analysis:
[A]dopting and adapting the Zippo model, we conclude that a State may,
consistent with due process, exercise judicial power over a person outside of
the State when that person (1) directs electronic activity into the State, (2)
with the manifested intent of engaging in business or other interactions
within the State, and (3) that activity creates, in a person within the State, a
potential cause of action cognizable in the State’s courts.
ALS Scan, 293 F.3d at 714 (emphasis added). Marriott obviously intends to engage in
commercial transactions through the website. Nonetheless, the website is not directed at
the residents of any particular forum. See id. at 715 (finding no jurisdiction in Maryland
in part because the defendant “did not direct its electronic activity specifically at any target
in Maryland”).
The Plaintiffs focus much of their attention on the fact that the website includes
South Carolina as an option in the drop-down menu used by customers to select their state
of residence when making reservations. South Carolina’s inclusion in a list of every other
state in the country (and every other country in the world) shows that Marriott was willing
to accept reservations from South Carolina residents, but it does not show that Marriott was
targeting South Carolina residents through its website. To the contrary, the list of options
confirms that the website was accessible to all but targeted at no one in particular. See
29
NexLearn, LLC v. Allen Interactions, Inc., 859 F.3d 1371, 1378 (Fed. Cir. 2017) (“Allen’s
inclusion of Kansas in its dropdown of all states on its website is not enough to subject
Allen to jurisdiction in Kansas. Allen’s address selector may indicate its amenability to
selling ZebraZapps to Kansas residents, but it does not establish minimum contacts arising
out of or related to the infringement claim.”). The fact that Marriott’s website uses drop-
down menus that include South Carolina simply does nothing to strengthen the
jurisdictionally relevant connections between Marriott and South Carolina.
Accordingly, even though Marriott’s website is interactive, Marriott does not use it
to target South Carolina residents in particular. See Carefirst of Maryland, Inc. v. Carefirst
Pregnancy Centers, Inc., 334 F.3d 390, 401 (4th Cir. 2003) (“[W]hen CPC set up its
generally accessible, semi-interactive Internet website, it did not thereby direct electronic
activity into Maryland with the manifest intent of engaging in business or other interactions
within that state in particular.”); see also Advanced Tactical Ordnance Sys., LLC v. Real
Action Paintball, Inc., 751 F.3d 796, 802–03 (7th Cir. 2014) (“[T]he operation of an
interactive website does not show that the defendant has formed a contact with the forum
state.”). The general availability of the website to South Carolina residents thus does not
create the substantial connection to South Carolina necessary to support the exercise of
jurisdiction. See Walden, 571 U.S. at 284 (“For a State to exercise jurisdiction consistent
with due process, the defendant’s suit-related conduct must create a substantial connection
with the forum State.”) (emphasis added).
We recognize, of course, that there are other South Carolina connections in this case.
For example, the Fidryches are South Carolina residents, and the effects of Bud’s injury
30
are felt in South Carolina. As the Supreme Court has made clear, however, the connection
between the defendant and the forum “must arise out of contacts that the defendant himself
creates with the forum State.” Id. (internal quotation marks omitted). “Put simply,
however significant the plaintiff’s contacts with the forum may be, those contacts cannot
be decisive in determining whether the defendant’s due process rights are violated.” Id. at
285 (emphasis added; internal quotation marks omitted); see ESAB, 126 F.3d at 626(“Although the place that the plaintiff feels the alleged injury is plainly relevant to the
inquiry, it must ultimately be accompanied by the defendant’s own contacts with the state
if jurisdiction over the defendant is to be upheld.”).
We therefore conclude that Marriott’s case-related contacts with South Carolina are
too tenuous and too insubstantial to constitutionally permit the exercise of specific
jurisdiction over Marriott. 6 See Walden, 571 U.S. at 284. Because neither general nor
specific jurisdiction may be exercised in this case, the district court properly granted
Marriott’s motion to dismiss for lack of personal jurisdiction.
IV.
Finally, we turn to the Plaintiffs’ claim that the district court erred by denying their
motion for sanctions.
A.
6
If we were to conclude otherwise, then every hotel operator would be subject
to personal jurisdiction in the state of residence of every guest who used the hotel’s website
to make the reservation. A private guide offering walking tours of Paris would likewise be
subject to personal jurisdiction in every state where his customers live if they used his
website to book the tour.
31
“Federal courts possess certain inherent powers, not conferred by rule or statute, to
manage their own affairs so as to achieve the orderly and expeditious disposition of cases.
That authority includes the ability to fashion an appropriate sanction for conduct which
abuses the judicial process.” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178,
1186 (2017) (citation and internal quotation marks omitted); see Life Techs. Corp. v.
Govindaraj, 931 F.3d 259, 267 (4th Cir. 2019) (explaining that district courts “have
the inherent power to order sanctions to preserve the integrity of the judicial process and
to punish bad-faith conduct intended to delay or disrupt the course of litigation or to impede
enforcement of a court order”) (internal quotation marks omitted). One of the sanctions
available to a district court is an award of attorney’s fees “instructing a party that has acted
in bad faith to reimburse legal fees and costs incurred by the other side.” Goodyear, 137
S. Ct. at 1186.
In its order setting aside Marriott’s default, the district judge originally assigned to
the case (Judge Duffy) noted the possibility of awarding sanctions to compensate the
plaintiffs for the costs they incurred as a result of Marriott’s failure to answer. See J.A. 55
(“[T]he Fourth Circuit has looked approvingly on an award of attorney’s fees and costs to
the party opposing the motion to set aside the entry of default. . . . The Fidryches are
invited to suggest appropriate alternative sanctions to default judgment, and the Court’s
example of attorney’s fees is illustrative only.”). The plaintiffs subsequently filed a motion
seeking more than $86,000 in attorney’s fees and costs.
After the motion was filed, the case was transferred to a different district judge
(Judge Hendricks), who denied the Plaintiffs’ motion for sanctions in the same order that
32
granted Marriott’s motion to dismiss for lack of personal jurisdiction. When denying
sanctions, Judge Hendricks concluded that the requested amount was “excessive, and that
Plaintiffs have not shown an adequate causal link between the default judgment and the
total requested fees, whether incurred or paid.” J.A. 252.
B.
Before considering the Plaintiffs’ challenges to the district court’s decision, we
pause to address one of Marriott’s arguments. Marriott contends that regardless of the
district court’s analysis, the denial of the Plaintiffs’ motion must be affirmed because any
sanctions award would be void for lack of personal jurisdiction. See Ins. Corp. of Ireland,
456 U.S. at 701 (“The validity of an order of a federal court depends upon that court’s
having jurisdiction over both the subject matter and the parties.”); Wells Fargo Bank, N.A.
v. AMH Roman Two NC, LLC, 859 F.3d 295, 299 (4th Cir. 2017) (“An order is void only
if the court lacked personal or subject matter jurisdiction or acted contrary to due process
of law.”) (internal quotation marks omitted). We disagree. Even if a judgment on the
merits of the Plaintiffs’ claims against Marriott would be void for lack of personal
jurisdiction, that does not mean that the district court lacks jurisdiction to impose sanctions
on Marriott. See Willy v. Coastal Corp., 503 U.S. 131 (1992); Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384 (1990).
In Cooter & Gell, the district court imposed Rule 11 sanctions on a plaintiff after
the plaintiff voluntarily dismissed the complaint. Before the Supreme Court, the plaintiff
argued that the voluntary dismissal deprived the district court of jurisdiction over the action
and thus rendered the court powerless to impose sanctions. The Supreme Court disagreed,
33
explaining that “a federal court may consider collateral issues after an action is no longer
pending.” 496 U.S. at 395. The Court’s previous cases had already established that
proceedings seeking attorney’s fees and costs or seeking sanctions for criminal contempt
were independent of the original proceeding, and that fees could be awarded and contempt
sanctions imposed “even years after the entry of a judgment on the merits.” Id. (internal
quotation marks omitted). The Court held that the same analysis applied to proceedings
seeking sanctions under Rule 11:
Like the imposition of costs, attorney’s fees, and contempt sanctions, the
imposition of a Rule 11 sanction is not a judgment on the merits of an action.
Rather, it requires the determination of a collateral issue: whether the
attorney has abused the judicial process, and, if so, what sanction would be
appropriate. Such a determination may be made after the principal suit has
been terminated.
Id. at 396.
Building on its decision in Cooter & Gell, the Supreme Court in Willy upheld Rule
11 sanctions imposed by the district court even though it was later determined that the court
lacked subject-matter jurisdiction over the case. See 503 U.S.at 138. The Court explained
that the lower court’s “interest in having rules of procedure obeyed . . . does not disappear”
even if it is later determined that the court lacked jurisdiction. Id. at 139. “[T]here is no
constitutional infirmity under Article III in requiring those practicing before the courts to
conduct themselves in compliance with the applicable procedural rules [or allowing] the
courts to impose Rule 11 sanctions in the event of their failure to do so.” Id.; see Barlow
v. Colgate Palmolive Co., 772 F.3d 1001, 1009 (4th Cir. 2014) (en banc) (applying Cooter
& Gell to conclude that “district courts have jurisdiction to decide Rule 11 sanctions
34
motions on the merits, even when they are filed after the underlying action is remanded to
state court”).
As these cases establish, a court’s power to resolve collateral issues extends beyond
its power to resolve the underlying case. Because sanction proceedings are collateral to
the merits of the underlying case, an otherwise proper sanction award may be imposed even
if the court lacks jurisdiction to enter a judgment on the merits against the sanctioned party.
Accordingly, we reject Marriott’s suggestion that we must affirm the district court’s denial
of sanctions on the alternative ground that the absence of personal jurisdiction over
Marriott precludes an award of sanctions.
C.
We turn now to the Plaintiffs’ challenges to the district court’s denial of sanctions.
We review the district court’s decision on a request for sanctions for abuse of discretion.
See Cooter & Gell, 496 U.S. at 405; Barlow, 772 F.3d at 1007.
The Plaintiffs contend the district court abused its discretion by denying sanctions.
They argue that case law from this Court recognizes an award of attorney’s fees as a less
drastic alternative to default judgment, see Colleton Prep. Acad., Inc. v. Hoover Univ., Inc.,
616 F.3d 413, 418 (4th Cir. 2010); Augusta Fiberglass Coatings, Inc. v. Fodor Contracting
Corp., 843 F.2d 808, 811 (4th Cir. 1988), and that the district court failed to properly
consider those cases or Judge Duffy’s invitation to the Plaintiffs’ to file a motion seeking
a fee award. They also argue that by finding the amount requested to be excessive, the
district court implicitly concluded that some portion of their requested fees was reasonable,
35
and that she abused her discretion by not awarding fees in an amount that she found
reasonable.
As indicated above, the district court’s analysis of the sanctions question was quite
abbreviated, and the court disposed of the substance of the issue in a single sentence. See
J.A. 252. We need more explanation to conduct meaningful appellate review of the court’s
disposition of the motion.
Although the district court found the Plaintiffs’ request excessive, it did not explain
what it found to be excessive. We therefore do not know whether the court believed it was
the hourly rates that were excessive or the total number of hours billed. Moreover, as the
Plaintiffs argue, the district court’s conclusion that the requested fees were excessive seems
to reflect an implicit conclusion that some lesser award would not be excessive. The district
court, however, did not explain why it declined to award fees in a lesser, non-excessive
amount, or why it did not at least require the Plaintiffs to submit an amended motion that
better supported the requested award.
There may be many cases where a short explanation of the district court’s view of
the issue will be sufficient. See, e.g., Miltier v. Beorn, 896 F.2d 848, 855 (4th Cir. 1990)
(“When the motion for sanctions is foolish, or when the reasons for denying a colorable
motion are apparent from the record, the judge need not belabor the obvious.”) (internal
quotation marks omitted), overruled in part on other grounds by Farmer v. Brennan, 511
U.S. 825 (1994). In this case, however, there are too many issues raised by the Plaintiffs’
request for sanctions for this court to assume it understands the basis for the district court’s
ruling.
36
For example, because the district court denied the requested sanctions as excessive
rather than unwarranted, it would appear that the district court implicitly concluded that
Marriott engaged in conduct that was sanctionable. 7 Sanctions may be awarded only in the
face of misconduct of some sort. See, e.g., Goodyear, 137 S. Ct. at 1186 (Courts have
inherent authority “to fashion an appropriate sanction for conduct which abuses the judicial
process”) (emphasis added; internal quotation marks omitted). While this Court has noted
the general propriety of a fee award when a default judgment is set aside, the Supreme
Court has explained that a defendant who believes personal jurisdiction is lacking is “free
to ignore the judicial proceedings, risk a default judgment, and then challenge that
judgment on jurisdictional grounds in a collateral proceeding.” Ins. Corp. of Ireland, 456
U.S. at 706. Under the circumstances of this case, then, it is not entirely clear to us that
Marriott committed any sanctionable misconduct simply by failing to timely answer the
complaint. See Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (2019) (“[W]e have said that
civil contempt should not be resorted to where there is a fair ground of doubt as to the
wrongfulness of the defendant’s conduct.”) (internal quotation marks and alteration
omitted). 8
7
Although Judge Duffy invited the Plaintiffs’ to seek an award of attorney’s
fees, he did not explicitly address the question of misconduct.
8
This opinion should not be understood as implicitly determining that
misconduct has or has not occurred; we leave that question, and any other related questions
that may arise, for resolution by the district court on remand.
37
Because we cannot determine the district court’s basis for denying the Plaintiffs’
motion for sanctions, we vacate that part of the district court’s order and remand for
reconsideration of the sanctions request. While the district court need not explain its
analysis in great detail, it must provide an explanation sufficient to reveal the basis for its
rulings so that we, in turn, have a sufficient basis for our review of the court’s ultimate
decision. See Miltier, 896 F.2d at 855 (“[I]n cases where the circumstances and the record
do not clearly reflect the reasons for the district court’s disposition of a Rule 11 motion,
we have remanded with instructions that the district court make findings of fact concerning
the frivolousness of the non-movant’s action.”); cf. United States v. Engle, 592 F.3d 495,
504 (4th Cir. 2010) (“Because the district court’s explanation of its decision to vary
significantly from the Guidelines’ sentencing recommendation is insufficient to permit
meaningful appellate review, we must vacate the sentence and remand for . . . further
proceedings.”).
V.
To summarize, we conclude that Marriott is not subject to general jurisdiction in
South Carolina because its contacts with the state are not sufficient to render it “at home”
in South Carolina, and that Marriott did not consent to general jurisdiction by obtaining a
certificate of authority to transact business in South Carolina. We also conclude that
Marriott is not subject to specific jurisdiction in South Carolina because Marriott’s case-
related contacts with South Carolina are not substantial enough to satisfy the requirements
of due process. We therefore affirm the district court’s dismissal of the action for lack of
personal jurisdiction. As to the denial of the Plaintiffs’ motion for sanctions, we find the
38
district court’s explanation of its discretionary ruling insufficient to permit meaningful
appellate review. We therefore vacate the district court’s denial of sanctions and remand
that issue for reconsideration by the district court and to give the district court an
opportunity to better explain the reasoning behind its decision.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED
39