SEC v. Ross ( 2007 )


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  •                    FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    SECURITIES AND EXCHANGE                  
    COMMISSION,
    Plaintiff-Appellee,
    and
    THOMAS F. LENNON, as appointed                Nos. 05-35541
    receiver for Alpha Telcom, Inc.;                   05-35542
    an Oregon Corporation; American                    05-35544
    Telecommunication Company,                         05-35545
    Inc., a Nevada Corporation;                        05-35546
    Strategic Partnership Alliance,                    05-35547
    LLC.; a Nevada Limited Liability                   05-35552
    Company; SPA Marketing, LLC, a                     05-35554
    Nevada Limited Liability                          05-35555
    05-35559
    Company,
    Receiver-Appellee,               05-35577
    05-35578
    v.                               05-35580
    PRISCILLA ROSS; KEVIN M. RIMPLE;                   05-35663
    BRUCE F. RUARK; DENNIS L.                        D.C. No.
    BAUGHER; MICHAEL E. GIROUARD;                CV-01-01283-OMP
    LANCE LIPOUFSKI; SAMIR K. GHOSH;
    ROBERT TRIPODE; RICHARD WILSON;                  OPINION
    HAROLD C. NORRIS; THOMAS O.
    PARK; JOE BRANDENBURG; ERNEST
    BUSTOS; THELL G. PRUITT,
    Intervenors-Appellants.
    
    Appeal from the United States District Court
    for the District of Oregon
    Owen M. Panner, Senior Judge, Presiding
    Argued and Submitted
    February 6, 2007—Portland, Oregon
    13905
    13906                 SEC v. ROSS
    Filed October 15, 2007
    Before: Dorothy W. Nelson, Andrew J. Kleinfeld, and
    Jay S. Bybee, Circuit Judges.
    Opinion by Judge Bybee
    SEC v. ROSS                    13909
    COUNSEL
    Ernest Bustos, San Antonio, Texas, pro se, as the intervenor-
    appellant.
    David R. Zaro, Allen Matkins Leck Gamble & Mallory LLP,
    Los Angeles, California, for the receiver-appellee.
    Christopher Paik, Esq., Securities & Exchange Commission,
    Washington, DC, for the plaintiff-appellee.
    OPINION
    BYBEE, Circuit Judge:
    Ernest Bustos and sixteen other Intervenor-Defendants
    (collectively, “Bustos”) appeal the district court’s order
    requiring them to disgorge commissions they received
    13910                    SEC v. ROSS
    through the sale of interests in pay phones being offered by
    Alpha Telcom, Inc. and related companies (collectively,
    “Alpha Telcom”). This disgorgement order issued in a sum-
    mary proceeding ancillary to an enforcement action brought
    by the Securities and Exchange Commission (“SEC”) against
    Alpha Telcom and its owner, Paul S. Rubera, alleging various
    securities law violations arising from the sale of these inter-
    ests. See SEC v. Rubera, 
    350 F.3d 1084
    (9th Cir. 2003). Bus-
    tos challenges the disgorgement order on several grounds,
    including lack of personal jurisdiction, improper venue, insuf-
    ficiency of service of process, and due process violations aris-
    ing from the district court’s use of summary proceedings. He
    also appeals the district court’s calculation of the amount of
    disgorgement. We hold that the district court lacked in perso-
    nam jurisdiction over Bustos and, therefore, erred when it
    entered the order of disgorgement against him.
    Because the theories advanced in the disgorgement action
    are novel, and the proceedings are complicated, we will
    recount the facts and proceedings in some detail.
    I.   FACTS AND PROCEEDINGS
    Bustos worked as a sales agent for Alpha Telcom, selling
    investments styled as purchases of pay telephones and man-
    agement services from Alpha Telcom and its affiliates. In
    fact, as detailed in our Rubera opinion, while Alpha Telcom’s
    business plan was curiously anachronistic—selling service
    contracts on pay phones—its business model was timeless:
    the Ponzi scheme. See 
    Rubera, 350 F.3d at 1087-89
    . As in all
    Ponzi schemes, expenses far exceeded revenues, and “re-
    turns” to investors were funded by monies obtained from
    more recent investors. On August 24, 2001, Alpha Telcom
    filed voluntary petitions for bankruptcy.
    A.   The SEC Enforcement Action
    On August 27, 2001, the SEC commenced a civil enforce-
    ment action against Alpha Telcom for violations of the federal
    SEC v. ROSS                           13911
    securities laws. On the same day, the district court appointed
    a receiver (“Receiver”) to manage the corporation and pre-
    serve its assets for eventual distribution to the injured inves-
    tors. The Receiver’s appointment was confirmed on
    September 6, 2001.
    In the underlying enforcement action, the district court held
    that the “investment opportunity” offered by Alpha Telcom
    was actually a security for purposes of the Securities Act of
    19331 (“the Act”) and that Alpha Telcom had violated § 5 of
    the Act by failing to register the securities with the SEC prior
    to selling them in interstate commerce. SEC v. Alpha Telcom,
    Inc., 
    187 F. Supp. 2d 1250
    , 1258 (D. Or. 2002). The district
    court granted equitable relief against Rubera, the sole owner
    of Alpha Telcom, in the form of a permanent injunction
    against future violations of the securities laws and disgorge-
    ment in the amount of $3,750,707.66, representing “gross
    wages, shareholder compensation, shareholder loans, and
    other payments to Rubera and his family.” 
    Id. at 1262-63.
    However, the court declined to impose civil penalties under
    § 20 of the Act, concluding that they were “not warranted”
    given that this offense was Rubera’s first violation and “his
    conduct did not amount to fraud, deceit, manipulation, or the
    like.” 
    Id. at 1263.
    We affirmed the district court in all
    respects. See SEC v. Rubera, 
    350 F.3d 1084
    (9th Cir. 2003).
    B.    The Disgorgement Motion and Subsequent Proceedings
    On December 23, 2003, approximately two weeks after we
    decided Rubera, the Receiver filed a motion to disgorge $21
    million in commissions on the sales of these unregistered
    1
    The district court applied the three-part test set forth in SEC v. W.J.
    Howey Co., 
    328 U.S. 293
    (1946). In Howey, the Supreme Court held that
    for purposes of the Act, a security was defined as “(1) an investment of
    money; (2) in a common enterprise; (3) with the expectation of profits to
    be derived from the efforts of others.” Alpha 
    Telcom, 187 F. Supp. 2d at 1258
    (citing 
    Howey, 328 U.S. at 298-99
    ).
    13912                         SEC v. ROSS
    securities from Alpha Telcom’s sales agents.2 In its motion,
    which the SEC joined, the Receiver styled its requested relief
    as “[r]equiring all Agents to disgorge Commissions received
    for their unlawful sale of unregistered securities in violation
    of Sections 5(a) and 5(c) of the Securities Act of 1933 . . . .”
    Citing our decisions in SEC v. Wencke, 
    783 F.2d 829
    (9th Cir.
    1989), and SEC v. Hardy, 
    803 F.2d 1034
    (9th Cir. 1986), the
    Receiver further requested the court to allow it to proceed
    “through summary proceedings,” an approach he argued was
    permissible “in equity receivership cases such as this.” The
    Receiver asserted that the district court had broad powers to
    order disgorgement of “ill-gotten gains” and that the commis-
    sions, which were paid “to compensate and reward the Agents
    for their illegal sale of unregistered securities to investors,”
    were “in fact the ill-gotten gains received from these investors
    . . . .” According to the Receiver, “the Agents provided no
    benefit to Alpha other than to facilitate the process of luring
    in additional new investors.” The Receiver asserted that it was
    beyond dispute that “the money used to pay the Commissions
    to the Agents were ill-gotten gains from the sales of unregis-
    tered securities to unsuspecting investors.” Because “the
    Commissions were paid to [the Agents] specifically for their
    role in these illegal sales of the unregistered securities,” the
    agents had “no legitimate claim to the Commissions.”3
    2
    The Receiver identified approximately 650 sales agents and commis-
    sions totaling approximately $39 million. Some number of these sales
    agents could not be located or had died, and the Receiver determined that
    it would be inefficient to pursue agents who had earned less than $25,000
    in commissions. It appears that the total commissions earned by the
    remaining agents totaled approximately $21 million.
    3
    The Receiver also argued that the commissions represented fraudulent
    transfers because the agents provided no value in exchange for the monies
    received as commissions. Having accepted the Receiver’s unjust enrich-
    ment theory, the district court declined to address the fraudulent transfer
    theory, which it described as unpersuasive, given that the agents had actu-
    ally provided value in exchange for those commissions. The Receiver does
    not pursue this theory on appeal.
    SEC v. ROSS                            13913
    Joining the Receiver’s motion, the SEC argued that “it is
    well-established that District Courts may order disgorgement
    by nonparties in Commission enforcement actions.” Accord-
    ing to the SEC, Disgorgement was proper here because (1) the
    court had already held that the investments were unregistered
    securities and thus were sold in violation of § 5 of the Act,
    rendering any proceeds “ill-gotten gains”; (2) the Agents had
    “no legitimate claim to these funds, as there is no evidence
    that they provided services to [Alpha Telcom] in exchange for
    the commissions . . . .”; and (3) even if the Agents did “ex-
    pend[ ] effort,” they have no legitimate claim “because they
    offered and sold the securities in violation of the federal
    securities laws.”
    In support of its motion, the Receiver submitted detailed
    information about the financial condition of the Receivership
    Entities and of commissions paid out to each of the sales
    agents. On either December 24 or 31, 2003,4 it sent a Notice
    of Hearing on the motion for disgorgement to “the interested
    parties in this action” by first-class mail. The notice stated
    that the hearing would be held in Portland, Oregon on Febru-
    ary 18, 2004, and that any response to the motion had to be
    filed and served within eleven days of service of the notice.
    The district court entered an order permitting the agents to file
    responses to the motion by February 2, 2004.
    On February 2, several of the agents, including Bustos and
    10 other Appellants, preserving their jurisdictional objections,
    moved to intervene as of right as defendants in the action
    4
    The Notice itself was dated December 24, but the Certificate of Service
    attached to the Notice is dated December 31. The Receiver appears to
    have mailed additional documents on December 30, 2003: The “Proof of
    Service” filed by the Receiver states that five documents were sent to the
    agents: a notice of the hearing on the Receiver’s motion for disgorgement,
    the motion itself, two supporting declarations, and a request for judicial
    notice. In any event, as the district court noted, the Receiver did not even
    deign to send the documents by certified mail and could not conclusively
    establish whether all the agents had actually received the documents.
    13914                         SEC v. ROSS
    under FED. R. CIV. P. 24(a)(2), noting that, because the
    Receiver was attempting to have the district court “summarily
    adjudicate the Intervenors’ personal liability,” the agents had
    “a direct financial interest in this case” that could be ade-
    quately represented only by each named agent; they also
    requested an extension of time to respond. The Receiver
    objected to the agents’ motion, arguing that there was “no
    legal basis” for their request to intervene in the underlying
    enforcement action. Moreover, because the agents had alleg-
    edly known of the Receiver’s intent to disgorge commissions
    for over 18 months,5 the Receiver argued that the motion was
    “nothing more than a delay tactic designed to hinder the
    Receiver’s efforts to recover the ill-gotten gains received by
    these Agents.”
    On February 11, the district court granted the motion to
    intervene, stating that no formal answer was required and that
    the intervenors could “assert any defenses by motion or in
    their memoranda opposing the Receiver’s motion . . . .” How-
    ever, “[d]ue to the advanced stage of [the] case,” the district
    court conditioned intervention “on Intervenor’s agreement not
    to revisit issues already adjudicated.” These issues presum-
    ably included the district court’s prior findings that the invest-
    ments sold by the agents were unregistered securities.6
    Despite the district court’s statement that no answer was
    required, the now Intervenor-Defendants filed a brief answer
    on February 18, 2004 and asserted several defenses, including
    lack of personal jurisdiction, improper venue, “insufficient
    process,” statute of limitations, and laches.7 They concurrently
    5
    The Receiver asserted that it had sent demand letters to all of the
    agents requesting that they voluntarily disgorge their commissions in July
    and October 2002.
    6
    The court granted 26 additional individuals permission to intervene on
    March 11, 2004. The six remaining Appellants belonged to this group.
    7
    They also asserted four substantive defenses to the disgorgement that
    are not relevant to our disposition of this appeal.
    SEC v. ROSS                      13915
    filed Preliminary Objections to the Receiver’s disgorgement
    motion setting forth the legal bases for their defenses. In
    March, they filed a lengthy opposition to the disgorgement
    motion, reiterating the procedural defenses raised in their Pre-
    liminary Objections and further objecting to the district
    court’s use of summary proceedings; they also provided fur-
    ther arguments against the Receiver’s disgorgement request,
    including challenges to the method of calculation.
    C.     The Disgorgement Order
    The district court granted the Receiver’s disgorgement
    motion on August 18, 2004, and resolved the major issues that
    Bustos raises on appeal as follows. See In re Alpha Telcom,
    
    2004 WL 3142555
    (D. Or. Aug. 18, 2004).
    1.    Personal jurisdiction and venue
    The district court concluded that it “necessarily ha[d] juris-
    diction over matters pertaining to [the] Receivership, and the
    assets thereof.” Moreover, the agents had entered into agree-
    ments with Alpha Telcom, headquartered in Oregon, and
    those agreements specified that Oregon law would govern any
    disputes. Finally, the court noted that the securities laws per-
    mitted nationwide service of process, and the agents’ contacts
    with the United States alone were sufficient to support the
    exercise of personal jurisdiction over them (citing, inter alia,
    15 U.S.C. § 77v(a)). The court also concluded that venue was
    proper because the agents were scattered across the country,
    and it was more efficient to try the case in one location.
    2.    Summary procedures and lack of service of process
    The district court rejected the agents’ argument that they
    had not been properly served, holding that formal service was
    required only to institute an action. Because the Receiver’s
    disgorgement motion was not an independent action but sim-
    ply “part of the Receivership proceeding” that sought to “re-
    13916                    SEC v. ROSS
    cover funds the agents received from Alpha Telcom that they
    allegedly have no legitimate claim to possess,” the agents
    were “nominal defendants” who were entitled only to receive
    notice of the motion and a reasonable opportunity to be heard.
    The district court noted that the “more serious flaw” was
    the fact that the Receiver could not prove that any particular
    agent actually received notice of the motion because it had
    failed to send the notice by certified mail. This flaw, however,
    was remedied by the fact that the Receiver sent multiple mail-
    ings to the listed agents, that the court had required the
    Receiver to send “a follow-up mailing to the agents,” the “re-
    buttable presumption that mail, properly addressed, has been
    delivered,” and the fact that the agents appeared to be in regu-
    lar contact with each other. Moreover, the court found, the
    “vast majority” of the agents appeared to have received actual
    notice of the motion, and presumably any agent who had not
    received actual notice could collaterally attack the disgorge-
    ment order if he or she could prove lack of actual notice.
    3.    Unjust enrichment
    The Receiver’s theory of unjust enrichment depended on
    whether the agents had a “legitimate claim” to the commis-
    sions they received. The district court noted that the Receiver
    had not formally alleged any wrongdoing on the part of the
    agents and chided the Receiver for filling its papers with
    accusations of wrongdoing that were not “germane to the
    legal theories he advances.” The court declined to hold that
    the commissions were analogous to disbursements in the typi-
    cal gratuitous donee case, where a third party receives value
    for no consideration from a wrongdoer, and expressly rejected
    three theories put forth by the Receiver as to why the agents
    had no legitimate claim to the commissions: (1) that Alpha
    Telcom received no value for the agents’ services because the
    company lost money on each sale, (2) that agents were willing
    participants in a Ponzi scheme, and (3) that the agents’ ser-
    vices helped to perpetrate a fraud. Rather, the district court
    SEC v. ROSS                        13917
    found the agents had no legitimate claim on the commissions
    because “[t]he services provided by the agents were, in hind-
    sight, illegal.” They had sold unregistered securities, which is
    a strict liability offense. Because they “were paid for furnish-
    ing illegal services[, t]he law [would not] permit them to ben-
    efit from the sale of unregistered securities.”8
    4.    Computation of disgorgement amount
    Having decided that the agents would be liable for the
    funds, the district court detailed how it would handle claims
    by remaining agents who contested the amounts claimed by
    the Receiver and sought setoffs for expenses and taxes paid
    on the commissions. The court found that many of the agents
    had likely claimed personal expenses as business expenses on
    their tax returns, and therefore, citing its discretionary powers,
    established “a uniform setoff for expenses: 10 percent of the
    first $50,000 in commissions received by an agent, and 5 per-
    cent of all commissions over that amount.” The court deter-
    mined that it was not practicable—and was far too expensive
    —to require the Receiver to evaluate each agent’s claimed
    expenses and rejected objections, noting that “this is equity,
    not rocket science.” Finally, the district court refused to grant
    a setoff for income taxes paid on the commissions, noting that
    this was “a matter between the agents and the IRS (or state
    officials). The court will not interfere.”
    D.     Appellants’ Response and Appeal
    The district court gave the agents 20 days to file an objec-
    tion to the amount of disgorgement and then addressed each
    agent’s individual objections in a detailed order dated Febru-
    ary 1, 2005. The court subsequently entered a Judgment of
    Disgorgement on March 31, 2005, and issued a “Notice to
    Agents” on March 31, 2005, advising them of the proper
    8
    The district court assumed for the purposes of the motion that the
    agents had acted in good faith.
    13918                     SEC v. ROSS
    method for filing an appeal and waiving the normal fee for fil-
    ing a notice of appeal. The Appellants timely appealed.
    On appeal, Bustos reiterates most of the objections made to
    the district court, and these center on two sets of issues. The
    first of these involves due process violations arising from the
    district court’s lack of personal jurisdiction, the Receiver’s
    failure to properly serve him with a summons and complaint,
    and the use of summary proceedings to adjudicate the disgor-
    gement motion. The second involves various contentions that
    the district court abused its discretion in granting the motion
    for disgorgement and calculating the amount to be disgorged.
    Because we hold that Bustos’s due process rights were vio-
    lated by the proceedings below, we address only the first set
    of issues in this appeal. We begin with a brief review of the
    principles of personal jurisdiction and the relationship
    between jurisdiction and service of process.
    II.   JURISDICTION AND SERVICE OF PROCESS
    In personam jurisdiction, simply stated, is the power of a
    court to enter judgment against a person. In rem jurisdiction
    is the court’s power over property. Before a court may exer-
    cise the state’s coercive authority over a person or property,
    some statute must authorize the act. Sec. Investor Prot. Corp.
    v. Vigman, 
    764 F.2d 1309
    , 1313-14 (9th Cir. 1985). For state
    courts, generally a state long-arm statute supplies all the
    authority that state courts require. By contrast, there is no gen-
    eral federal long-arm statute, so federal courts must look
    either to the long-arm statutes of the state in which the court
    sits, FED. R. CIV. P. 4(k)(1)(A), or to specific federal statutes,
    FED. R. CIV. P. 4(k)(1)(B), (C), (D) to authorize the exercise
    of jurisdiction. Since Pennoyer v. Neff, 
    95 U.S. 714
    , 733-34
    (1877), the courts’ ability to exercise personal jurisdiction has
    been constrained by the Due Process Clauses of the Fifth and
    Fourteenth Amendments. The requirement that a court have
    personal jurisdiction “represents a restriction on judicial
    power not as a matter of sovereignty, but as a matter of indi-
    SEC v. ROSS                      13919
    vidual liberty.” Ins. Corp. of Ireland, Ltd v. Compagnie des
    Bauxites de Guinee, 
    456 U.S. 694
    , 702 (1982).
    We have stated that “a court may exercise personal juris-
    diction over a defendant consistent with due process only if
    he or she has ‘certain minimum contacts’ with the relevant
    forum ‘such that the maintenance of the suit does not offend
    “traditional notions of fair play and substantial justice.’ ”
    Yahoo! Inc. v. La Ligue Contre Le Racisme et
    L’Antisemitisme, 
    433 F.3d 1199
    , 1205 (9th Cir. 2006) (en
    banc) (quoting Int’l Shoe Co. v. Washington, 
    326 U.S. 310
    ,
    316 (1945) (quoting Milliken v. Meyer, 
    311 U.S. 457
    , 463
    (1940))). We have set forth a three-part test, derived from the
    Due Process Clause, that examines the defendant’s purposeful
    conduct towards the forum, the relation between his conduct
    and the cause of action asserted against him, and the reason-
    ableness of the exercise of jurisdiction. See 
    id. at 1205-06;
    Schwarzenegger v. Fred Martin Motor Co., 
    374 F.3d 797
    , 802
    (9th Cir. 2004); Bancroft & Masters, Inc. v. Augusta Nat’l
    Inc., 
    223 F.3d 1082
    , 1086 (9th Cir. 2000).
    The familiar “minimum contacts” test, coupled with statu-
    tory authorization, provides a basis for an exercise of jurisdic-
    tion, but “[s]ervice of process is the mechanism by which the
    court [actually] acquires” the power to enforce a judgment
    against the defendant’s person or property. United States v.
    2,164 Watches, More or Less Bearing a Registered Trade-
    mark of Guess?, Inc., 
    366 F.3d 767
    , 771 (9th Cir. 2004)
    (emphasis added). In other words, service of process is the
    means by which a court asserts its jurisdiction over the per-
    son. See Benny v. Pipes, 
    799 F.2d 489
    , 492 (9th Cir. 1986)
    (“A federal court is without personal jurisdiction over a
    defendant unless the defendant has been served in accordance
    with FED. R. CIV. P. 4.”); FED. R. CIV. P. 4(k) (stating that
    “[s]ervice of a summons or filing a waiver of service is effec-
    tive to establish jurisdiction over the person of a defendant”).
    Service of process has its own due process component, and
    must be “notice reasonably calculated . . . to apprise interested
    13920                        SEC v. ROSS
    parties of the pendency of the action and afford them an
    opportunity to present their objections.” Mullane v. Cent.
    Hanover Bank & Trust Co., 
    339 U.S. 306
    , 314 (1950).
    Without a proper basis for jurisdiction, or in the absence of
    proper service of process, the district court has no power to
    render any judgment against the defendant’s person or prop-
    erty unless the defendant has consented to jurisdiction or
    waived the lack of process. See Mason v. Genisco Tech.
    Corp., 
    960 F.2d 849
    , 851 (9th Cir. 1992); see also Omni Cap-
    ital Int’l v. Rudolf Wolff & Co., 
    484 U.S. 97
    , 104 (1987)
    (“[B]efore a court may exercise personal jurisdiction over a
    defendant, there must be more than notice to the defendant
    and a constitutionally sufficient relationship between the
    defendant and the forum. There also must be a basis for the
    defendant’s amenability to service of summons. Absent con-
    sent, this means there must be authorization for service of
    summons on the defendant.”). A judgment entered without
    jurisdiction over the defendant is void.
    With these principles in mind, we turn to the bases for
    jurisdiction asserted by the Receiver.
    III.   JURISDICTION IN SECURITIES RECEIVERSHIP
    ACTIONS
    Bustos argues that the district court violated his due process
    rights by exercising personal jurisdiction over him despite the
    failure of the Receiver to name him in the complaint.9 In
    response, the Receiver asserts that the district court’s exercise
    of jurisdiction was proper for three reasons: (1) the Securities
    Act provides for nationwide service of process, and Bustos
    9
    We note that the Receiver made no attempt to assert in rem jurisdiction
    over any property belonging to Bustos. Exercising in rem jurisdiction
    would have served to give notice to Bustos, but it would not have given
    the court in personam jurisdiction over him. See Shaffer v. Heitner, 
    433 U.S. 186
    (1977).
    SEC v. ROSS                             13921
    had the requisite minimum contacts with the United States;
    (2) summary proceedings—moving for disgorgement against
    Bustos without serving him with a summons and complaint—
    were proper in the context of a federal receivership proceed-
    ing; and (3) Bustos consented to the court’s jurisdiction when
    he intervened as of right under Rule 24(a)(2). We address
    each argument in turn.10
    A.     Jurisdiction in Claims Arising Under the Securities Act
    of 1933
    1.    Claims against Securities Act violators
    [1] The Receiver’s first argument is that the district court
    had jurisdiction pursuant to the Securities Act of 1933
    (“Securities Act”). Section 12 of the Securities Act, 15 U.S.C.
    § 77l, creates a private right of action for persons injured
    through the sale of unregistered securities. Section 22 of the
    Act provides that “process in such cases may be served in any
    other district of which the defendant is an inhabitant or wher-
    ever the defendant may be found.” 15 U.S.C. § 77v(a).
    [2] The Receiver argues that § 22 is a nationwide service-
    of-process provision that authorizes the district court to exer-
    cise jurisdiction nationwide over any person who has mini-
    mum contacts with the United States. We agree that § 22
    provides for nationwide service of process. The service of
    process language of § 22 tracks almost word-for-word that of
    the analogous provision in § 27 of the Securities and
    Exchange Act. Compare 15 U.S.C. § 77v(a) (§ 22 of the Act)
    with 15 U.S.C. § 78aa (§ 27 of the Act). In Sec. Investor Prot.
    10
    “The jurisdictional limits to the district court’s power in equity receiv-
    ership proceedings are issues of law, reviewed de novo.” SEC v. Am. Capi-
    tal Invs., 
    98 F.3d 1133
    , 1142 (9th Cir. 1996). We also review de novo due
    process challenges arising from claims that the district court lacked juris-
    diction to enter an order in a federal equity receivership proceeding. 
    Id. at 1146.
    13922                          SEC v. ROSS
    Corp. v. Vigman, 
    764 F.2d 1309
    (9th Cir. 1985), we held that
    § 27 gave the district court the power to exercise personal
    jurisdiction over any party with minimum contacts with the
    United States and that the exercise of such jurisdiction com-
    ported with the principles of due process. 
    Id. at 1315-16.
    Given the near identity in the language between these two
    provisions, we agree with the Receiver that, by empowering
    the district court to serve process nationwide, § 22 of the
    Securities Act permits district courts to obtain personal juris-
    diction over parties who are properly served.11
    [3] That the district court could have obtained jurisdiction
    over Bustos tells us nothing about whether it actually did so.
    The Receiver would apparently have us conclude that the
    ability to obtain jurisdiction coupled with actual notice of an
    intent to exercise jurisdiction gives birth to actual in perso-
    nam jurisdiction over any interested party, whether or not that
    party has been properly served. Nothing in our jurisprudence
    supports such a remarkable extension of judicial power. The
    power to exercise jurisdiction nationwide is not self-
    executing. Mere contacts with the jurisdiction, even when
    coupled with some kind of actual notice, are not sufficient to
    invest the district court with in personam jurisdiction over a
    party-in-interest. As we discussed in the previous section, in
    order for the court to assert personal jurisdiction over a party-
    in-interest, the party must be properly served. See FED. R. CIV.
    P. 4(k). Bustos was not so served, and the district court’s
    power over him remained nothing more than a potentiality.
    11
    As in Vigman, the question of whether the court can exercise personal
    jurisdiction over a party is distinct from the question of whether venue will
    properly lie in the court exercising jurisdiction. See 
    Vigman, 764 F.2d at 1317-18
    . Section 22 of the Act provides that venue for a securities action
    under § 12 lies “in the district wherein the defendant is found or is an
    inhabitant or transacts business, or in the district where the offer or sale
    took place, if the defendant participated therein.” 15 U.S.C. § 77v(a). Bus-
    tos has challenged venue in the District of Oregon. Because of our disposi-
    tion on jurisdictional grounds, we do not reach this question.
    SEC v. ROSS                      13923
    It is true that we have described the service requirements of
    Rule 4 as “a flexible rule that should be liberally construed so
    long as a party receives sufficient notice of the complaint,”
    Direct Mail Specialists, Inc. v. Eclat Computerized Techs.,
    Inc., 
    840 F.2d 685
    , 688 (9th Cir. 1988) (discussing require-
    ments for perfecting service against a corporation under FED.
    R. CIV. P. 4(d)(3)), but such liberal construction would be
    quite inappropriate in the circumstances of this case. First, we
    have generally held that “neither actual notice nor simply
    naming the defendant in the complaint will provide personal
    jurisdiction without substantial compliance with Rule 4.”
    
    Benny, 799 F.2d at 492
    ; Direct 
    Mail, 840 F.2d at 688
    (stating
    that only “substantial compliance with Rule 4” will provide
    personal jurisdiction over the defendant). Given the complete
    absence of any effort to serve Bustos with a summons or a
    complaint, the Receiver cannot claim substantial compliance
    with Rule 4. The Receiver’s failure even to attempt to comply
    with Rule 4 is no “minor defect,” United Food & Commercial
    Workers Union v. Alpha Beta Co., 
    736 F.2d 1371
    , 1382 (9th
    Cir. 1984), that can be remedied by actual notice.
    [4] More importantly, the difficulty here runs deeper than
    mere insufficient service of process. The Receiver never filed
    a complaint and never named Bustos as a party. In other
    words, the Receiver never commenced an action against Bus-
    tos, see FED. R. CIV. P. 3; it simply named Bustos in a motion
    for the disgorgement of allegedly ill-gotten gains earned
    through the sale of unregistered securities. See In re Alpha
    Telcom, 
    2004 WL 3142555
    , at *1 (holding that a formal sum-
    mons and complaint were unnecessary because “[t]he motion
    before the court is not an independent action”). Prior to Bus-
    tos’s intervention in the action, the Receiver apparently
    believed that he need not even obtain jurisdiction over Bustos.
    When Bustos sought leave to intervene in the disgorgement
    action, the Receiver took the position that Bustos’s involve-
    ment in the action was unnecessary because Bustos could
    raise whatever objections he had on appeal. In other words, at
    every stage of the proceedings, the Receiver fought to deprive
    13924                        SEC v. ROSS
    Bustos of any opportunity to participate as a party. We will
    not now permit the Receiver to claim that actual notice
    received by Bustos cured the jurisdictional defects that the
    Receiver himself created by failing to name Bustos in a com-
    plaint and effect service of that complaint and a summons
    upon him. In sum, although § 22 of the Securities Act autho-
    rized the district court to exercise in personam jurisdiction
    over Bustos, the Receiver failed to take steps consistent with
    the Due Process Clause or Rule 4 to perfect the court’s poten-
    tial jurisdiction. Section 22 does not supply the personal juris-
    diction needed to support the judgment.
    2.        Nominal defendants and summary proceedings
    The Receiver also argues (and the district court concluded)
    that Bustos was wrongly in possession of receivership assets
    and that Bustos was a nominal defendant or constructive
    trustee and was, therefore, subject to disgorgement in a sum-
    mary proceeding.12 We address each of these arguments in
    turn.
    a.     The nominal defendant designation
    [5] We have recognized a truncated form of process vis-à-
    vis “a non-party depository as a nominal defendant to effect
    full relief in the marshaling of assets that are the fruit of the
    underlying fraud.” SEC v. Colello, 
    139 F.3d 674
    , 677 (9th Cir.
    1998). A nominal defendant is not a real party in interest
    because he “has no legitimate claim to the disputed property.”
    
    Id. at 676;
    SEC v. Cherif, 
    933 F.2d 403
    , 414 (7th Cir. 1991)
    (stating that a nominal defendant “holds the subject matter of
    12
    On appeal, the Receiver does not expressly argue that Bustos is a
    nominal defendant, but he did make, and the district court accepted, this
    characterization of Bustos’s status below. Moreover, on appeal, the
    Receiver continues to argue that Bustos has no legitimate claim to the
    allegedly ill-gotten gains, precisely the theory central to his attempt to
    apply the nominal defendant designation to Bustos in the proceedings
    below.
    SEC v. ROSS                      13925
    the litigation in a subordinate or possessory capacity as to
    which there is no dispute” and is not a real party in interest
    because “he has no interest in the subject matter litigated”
    (internal quotation marks omitted)). Although the paradig-
    matic example of a nominal defendant is “a bank or trustee
    [that] has only a custodial claim to the property,” 
    Colello, 139 F.3d at 677
    , the term is broad enough to encompass persons
    who are in possession of funds to which they have no rightful
    claim, such as money that has been fraudulently transferred
    by the defendant in the underlying securities enforcement
    action. See 
    id. at 675;
    SEC v. Hickey, 
    322 F.3d 1123
    , 1130-32
    (9th Cir. 2003) (upholding the district court’s exercise of
    jurisdiction over a corporation nominally owned by the defen-
    dant’s mother and into which the defendant had channeled
    proceeds of his securities law violations); SEC v. Wencke, 
    783 F.2d 829
    , 838 (9th Cir. 1986) (holding that the district court
    had jurisdiction over the assets of a corporation into which the
    defendant in the underlying enforcement action had funneled
    proceeds of his securities law violations); see also 
    Cherif, 933 F.2d at 414
    .
    [6] Bustos, however, falls into none of these categories.
    The Receiver has not established that Bustos holds any funds
    in trust for the defendant in the underlying action, Rubera, or
    that he received fraudulent transfers from the receivership
    entity, Alpha Telcom; there is no evidence that he was a mere
    puppet holding an account into which Alpha Telcom funneled
    its fraudulent earnings. Indeed, as the district court correctly
    perceived, Bustos appears to be no different from any other
    employee or vendor: he received compensation in return for
    services rendered. As such, he has presumptive title to those
    commissions, and unless the Receiver can prove otherwise, it
    is likely that the Receiver can disgorge those commissions
    only by showing that Bustos has himself violated the securi-
    ties laws.
    The Receiver argues that Bustos is like the nominal defen-
    dants in Hickey, Colello, and Wencke, because the commis-
    13926                     SEC v. ROSS
    sions he earned are “ill-gotten gains” to which he has “no
    independent legitimate claim.” This argument borders on
    sophistry. It is one thing to argue that a custodian or trustee
    has no legitimate claim to receivership assets improperly or
    fraudulently conveyed to her; it is quite another to assert that
    Bustos has no legitimate claim to commissions earned for ser-
    vices rendered because Bustos himself has violated the securi-
    ties laws. The former requires only an adjudication of
    ownership; the latter, a determination that a non-party has vio-
    lated the law. That a court may afford relief by ordering dis-
    gorgement in both cases does not mean that the parties
    required to disgorge are entitled to the same amount of due
    process. A mere custodian is generally entitled simply to
    notice and an opportunity to be heard; a party alleged to have
    violated the Securities Act must be treated as any other defen-
    dant and afforded process of law.
    [7] The district court noted the inconsistency in the Receiv-
    er’s position and criticized the Receiver for referring to Bus-
    tos’s wrongdoing while simultaneously naming him a
    nominal defendant. The district court concluded, however,
    that those allegations were not germane to the Receiver’s
    claims. We respectfully disagree. The claim ultimately
    accepted by the district court—unjust enrichment—turns on
    Bustos’s own violations of the securities laws. As the district
    court concluded, Bustos’s commissions could be deemed ill-
    gotten gains only because the services he provided—the sale
    of the pay phone interests—were, “in hindsight, illegal.” The
    Receiver’s equivocation as to Bustos’s status is both telling
    and fatal to his claim. The Receiver sought to name Bustos as
    a nominal defendant “while at the same time implying
    strongly that [he] is a violator of the securities laws.” 
    Cherif, 933 F.2d at 415
    . But nothing in the underlying action estab-
    lishes that Bustos has violated the securities law. He was not
    a party to that action and, so far as we can tell, had no reason
    to know that his own activities in connection with Alpha Tel-
    com were in question. We do not believe that the Constitution
    permits the Receiver to use the nominal defendant designation
    SEC v. ROSS                           13927
    to deprive one whose only plausible basis for liability is a vio-
    lation of the securities laws of either his right to full and for-
    mal service of process or his right to fully litigate the question
    of his own liability under the securities laws.
    b.   Summary proceedings in securities actions
    The Receiver also relies on Wencke for the related proposi-
    tion that, where there has already been an underlying securi-
    ties action, a district court may permit the receiver to obtain
    relief through summary proceedings ancillary to the main
    action. See Wencke, 
    783 F.2d 829
    . In other words, the
    Receiver argues that where a securities proceeding has estab-
    lished liability, a receiver may simply file a motion for disgor-
    gement in the underlying action against non-parties who also
    may have violated the securities laws to effect relief.
    Although Wencke provides some support for the Receiver’s
    claim, ultimately we think it is distinguishable.
    Wencke arose out of summary proceedings ancillary to an
    SEC enforcement action. The receiver alleged that the defen-
    dant in the underlying action, one Walter Wencke, had fun-
    neled the proceeds from his securities violations involving
    certain corporations into the Ramapo Corporation, in which
    Wencke held a 60-percent stake. The receiver filed an appli-
    cation for disgorgement against the Ramapo shareholders,
    including deLusignan, a minority shareholder who held 25
    percent of the stock, and Ramapo, seeking to disgorge the
    shares from the former and the charter from the latter.13
    
    Wencke, 783 F.2d at 832
    . Eventually, the receiver gained pos-
    session of 75 percent of Ramapo’s shares but continued to
    13
    Meanwhile, the receiver also filed a complaint directly against deLu-
    signan, the Hansa Trust (the Wencke-family trust in which Wencke held
    his 60-percent stake), and Ramapo for disgorgement of the shares and the
    establishment of a constructive trust over their holdings. The receiver later
    removed Ramapo as a defendant from this action, and it appears that no
    final judgment was entered. See 
    Wencke, 783 F.2d at 832
    .
    13928                          SEC v. ROSS
    seek disgorgement of Ramapo’s assets and of deLusignan’s
    shares. 
    Id. at 832
    & n.2. Ultimately, the district court deemed
    Ramapo a constructive trustee for the benefit of the defrauded
    shareholders of the other corporations and ordered Ramapo,
    not deLusignan, to disgorge its assets. 
    Id. at 833.
    This order,
    although not directed at deLusignan, had the effect of destroy-
    ing the value of deLusignan’s interest in Ramapo. He
    appealed, contesting the use of summary proceedings and
    arguing that the court did not have jurisdiction over him.
    We rejected the shareholder’s appeal. First, we noted that
    we had previously approved the use of summary proceedings
    in “adjudicating in summary post-judgment proceedings the
    claims of nonparties to property claimed by securities receiv-
    ers.” 
    Id. at 836.
    Second, we noted that the district court’s dis-
    gorgement order was directed only at Ramapo, not at
    deLusignan, and that deLusignan could still bring an action
    asserting his rights as a minority shareholder. 
    Id. at 839
    n.10.
    Third, we emphasized that because deLusignan had received
    actual notice, participated in extensive discovery, had been
    deposed, and was permitted to file briefs with the court, the
    use of summary proceedings did not violate his due process
    rights. 
    Id. at 836-37.
    Finally, we noted that it was not neces-
    sary to the entry of the disgorgement order against the corpo-
    ration to decide any issues or claims deLusignan might have
    had based on fraud or breach of contract by Wencke. 
    Id. at 839
    n.10.
    Wencke differs from the instant case in several ways. First,
    and most importantly, because the disgorgement order was
    ultimately entered only against Ramapo Corporation, the dis-
    trict court did not need to obtain jurisdiction over deLusignan.14
    DeLusignan’s objections were simply irrelevant to the ques-
    14
    The receiver held 75 percent of Ramapo’s shares by the time of dis-
    gorgement, and it appears that Ramapo either waived any jurisdictional
    objection or consented to the district court’s exercise of personal jurisdic-
    tion over it.
    SEC v. ROSS                      13929
    tion whether Ramapo’s assets should be disgorged, and as we
    pointed out, his relief, if any, would come in the form of a
    minority shareholder suit because deLusignan’s injury was
    nothing more than the devaluation of his shares.
    Second, as in the nominal defendant cases noted earlier, the
    receiver in Wencke alleged no wrongdoing against either
    Ramapo or deLusignan; the only claim to the funds was that
    Wencke had funneled the proceeds of his wrongdoing into the
    corporation. 
    Id. at 832
    -33. Consistent with this allegation, the
    district court declared Ramapo a constructive trustee for the
    benefit of the defrauded investors. 
    Id. at 833.
    In other words,
    the district court in Wencke was simply exercising its author-
    ity “to decide the legitimacy of ownership claims made by
    non-parties to assets alleged to be proceeds from [the actual
    defendant’s] securities laws violations.” 
    Cherif, 933 F.2d at 414
    n.11 (discussing Wencke, 
    783 F.2d 829
    ). The use of sum-
    mary proceedings in such cases is unremarkable because the
    purpose is simply to “obtain equitable relief from a non-party
    against whom no wrongdoing is alleged” and can succeed
    only “if it is established that the non-party possesses illegally
    obtained profits but has no legitimate claim to them.” 
    Id. (emphasis added).
    Despite the Receiver’s attempts to characterize it as such,
    this case does not involve Bustos’s “claim[ ] . . . to [receiver-
    ship] property claimed by” the Receiver. 
    Wencke, 783 F.2d at 836
    . Rather, the case arises out of the Receiver’s claims
    against Bustos for his alleged sale of unregistered securities.
    As we stated above, because the Receiver’s disgorgement
    claim turns on Bustos’s own violation of the securities laws,
    the Receiver cannot treat Bustos as a nominal defendant, nor
    can the Receiver plausibly claim that Bustos is a constructive
    trustee on behalf of Alpha Telcom or the defrauded investors.
    In other words, this is not a case involving the mere determi-
    nation of who is entitled to possession of the funds where the
    minimal notice requirements of Mullane would suffice.
    Rather, the Receiver had to obtain the full in personam juris-
    13930                         SEC v. ROSS
    diction that would permit adjudication of Bustos’s substantive
    liability.
    Third, Bustos did not receive all of the benefits of being
    formally served with process and joined as a defendant in the
    underlying action. As a condition for intervention, the district
    court required him to waive any argument regarding whether
    the pay phone investments constituted securities and whether
    their sale violated § 12 of the Securities Act. Given the district
    court’s ultimate conclusion that Bustos had to disgorge his
    commissions because he had unlawfully sold unregistered
    securities, this use of summary proceedings improperly
    deprived him of the opportunity to fully litigate the question
    of his liability.
    [8] In sum, given that the Receiver alleged that Bustos him-
    self had violated the securities laws—and this is both the cen-
    tral allegation of the Receiver’s disgorgement motion and the
    basis of the district court’s order—the Receiver could not
    style Bustos as a nominal defendant or employ summary pro-
    ceedings against him. The Receiver—and the SEC, to the
    extent it is involved—had to decide whether Bustos merely
    had no right to the funds because he was an empty vessel into
    which the true wrongdoers funneled their proceeds or because
    he had violated the securities laws. He has chosen the latter
    (and given the district court’s skepticism of the fraudulent
    conveyance claim, the Receiver likely had no other option).
    Bustos is thus, as the Receiver admitted below, the real party-
    in-interest. The Receiver therefore had to proceed against
    Bustos as a plaintiff would proceed against any defendant
    potentially liable under § 12 of the Securities Act, “appris[ing
    him] of the nature of the allegations against him and [permit-
    ting him to] make use of the possible defenses available to
    him under the securities laws.”15 
    Cherif, 933 F.2d at 415
    .
    15
    For example, had the Receiver brought an action directly against Bus-
    tos, he might have challenged the Receiver’s standing to bring a § 12
    action, argued that the Receiver’s claim was barred by the statute of limi-
    tations or by laches, or, as he attempted to do here, challenged the Receiv-
    er’s action on jurisdiction and venue grounds.
    SEC v. ROSS                      13931
    Because the Receiver did not so proceed, he failed to obtain
    in personam jurisdiction over Bustos under the Securities Act.
    B.   Jurisdiction and Service of Process in Receivership
    Actions
    The Receiver also argues that, independent of the Securities
    Act, formal service of process was not required here because
    federal receivers have broad equitable powers and, pursuant
    to those powers, they can use summary proceedings to
    recover from third parties. See Hardy, 
    803 F.2d 1034
    ; United
    States v. Arizona Fuels Corp., 
    739 F.2d 455
    (9th Cir. 1984);
    SEC v. Universal Fin., 
    760 F.2d 1034
    (9th Cir. 1985) (per
    curiam). According to the Receiver, our cases—which rely on
    28 U.S.C. §§ 754 and 1692—hold that actual notice with the
    opportunity to “file responsive pleadings” satisfies the
    requirements of due process. The Receiver insists that these
    cases justify the use of summary proceedings here as well,
    because obtaining jurisdiction over each sales agent would
    unreasonably deplete the assets of the receivership and dimin-
    ish returns to the investors. See 
    Hardy, 803 F.2d at 1040
    (not-
    ing efficiency as one rationale supporting the use of summary
    proceedings).
    Congress has authorized federal receivers to exercise broad
    powers in administering, retrieving, and disposing of assets
    belonging to the receivership. In 28 U.S.C. § 754, Congress
    has granted receivers authority to protect receivership “prop-
    erty, real, personal or mixed, situated in different districts.”
    Once appointed, in order to preserve his claims, a receiver is
    to “file copies of the complaint and [the] order of appointment
    in the district court for each district in which the property is
    located.” By doing so, a receiver obtains “complete jurisdic-
    tion and control” over receivership property in any district. 
    Id. However, failure
    to file in any given district within ten days
    of the receiver’s appointment generally “divest[s] the receiver
    of jurisdiction and control over all such property in that dis-
    trict.” 
    Id. Section 1692
    compliments § 754. It provides that
    13932                     SEC v. ROSS
    when “a receiver is appointed for property, real, personal, or
    mixed, situated in different districts, process may issue and be
    executed in any such district as if the property lay wholly
    within one district.” 28 U.S.C. § 1692.
    [9] Some courts have held that the interplay between § 754
    and § 1692 operates analogously to statutes that confer the
    power to effect service of process nationwide: Just as those
    statutes permit the district court to exercise nationwide juris-
    diction, §§ 754 and 1692 permit the district court to obtain
    jurisdiction in a district where receivership property is located
    so long as the receiver has properly filed pursuant to § 754.
    See, e.g., SEC v. Bilzerian, 
    378 F.3d 1100
    (D.C. Cir. 2004);
    SEC v. Vision Comm’ns, Inc., 
    74 F.3d 287
    (D.C. Cir. 1996);
    Haile v. Henderson Nat’l Bank, 
    657 F.2d 816
    (6th Cir. 1981).
    We agree with the D.C. and Sixth Circuits that § 1692 extends
    “the territorial jurisdiction of the appointing court . . . to any
    district of the United States where property believed to be that
    of the receivership estate is found, provided that the proper
    documents have been filed in each such district as required by
    § 754.” 
    Bilzerian, 378 F.3d at 1103-05
    ; accord 
    Haile, 657 F.2d at 823
    . As with the nationwide service provision in the
    Securities Act, where a party has been properly served by the
    Receiver, the Due Process Clause is satisfied because the
    party has minimum contacts with the United States as a
    whole. See Omni Capital 
    Int’l, 484 U.S. at 104-06
    ; see also
    
    Haile, 657 F.2d at 824
    (noting that “[i]n an action where ser-
    vice of process is effected pursuant to a federal statute which
    provides for nationwide service of process, the strictures of
    International Shoe do not apply”).
    The cases upon which the Receiver relies presume that the
    district court has jurisdiction by virtue of the district court’s
    investment of ownership and/or control of the receivership
    entity in the receiver or by virtue of the receiver’s filing in
    compliance with § 754. For example, in SEC v. Hardy, 
    803 F.2d 1034
    , non-party investors challenged the receiver’s
    administration of receivership assets, claiming that the use of
    SEC v. ROSS                      13933
    summary proceedings was inappropriate vis-à-vis the inves-
    tors, because it deprived them of due process. 
    Id. at 1040.
    We
    rejected this argument, noting that the district court had the
    authority to employ summary proceedings “to determine
    appropriate relief in equity receiverships” where multiple
    creditors laid claim to receivership assets. Id.; see also SEC
    v. Universal Financial, 
    760 F.2d 1034
    , 1038-39 (9th Cir.
    1985) (per curiam) (in an earlier piece of litigation in the
    Hardy case, holding that the district court’s exercise of sum-
    mary jurisdiction over claims to receivership assets presented
    by non-party investors was proper).
    In SEC v. Am. Capital Invs., Inc., 
    98 F.3d 1133
    (9th Cir.
    1996), we rejected jurisdictional challenges by non-party part-
    ners to the forced sale of certain partnership assets, noting that
    the receiver had obtained jurisdiction over the assets pursuant
    to its § 754 filing, 
    id. at 1142-43,
    and that its disposition of
    the property was within the receiver’s powers to exercise the
    “complete control” vested in it by that section. 
    Id. at 1144.
    We held that the receiver’s disposition of the property pursu-
    ant to this jurisdiction did not violate any rights of the part-
    ners because they had both actual notice and an opportunity
    to be heard. Id.; see also In re San Vicente Med. Partners, 
    962 F.2d 1402
    (9th Cir. 1992).
    [10] It should be obvious that these cases provide no basis
    for the Receiver’s attempted use of summary proceedings
    against Bustos. Even assuming the Receiver could overcome
    the preliminary difficulty of establishing that Bustos’s earned
    commissions are receivership assets, he has not given any evi-
    dence that the proceeds of these commissions are located in
    the District of Oregon, or that he has attempted to establish
    control over out-of-district assets pursuant to § 754. Absent
    some evidence that he has obtained jurisdiction over these
    assets, these cases cannot justify his use of summary proceed-
    ings. Furthermore, given his apparent failure to comply with
    § 754, it follows, a fortiori, that he could not have served pro-
    cess pursuant to § 1692. See Vision Commc’ns, Inc., 
    74 F.3d 13934
                       SEC v. ROSS
    at 289, 291 (expressly rejecting the exercise of in personam
    jurisdiction over a party in a district outside the district of
    appointment because the receiver had failed to comply with
    the filing requirements of § 754). In sum, the Receiver failed
    to obtain in rem jurisdiction over any assets or in personam
    jurisdiction over Bustos himself, and without such jurisdic-
    tion, the use of summary proceedings was improper.
    We should note that although receivers usually obtain juris-
    diction in the manner described above, in one case we held
    that strict compliance with § 754 was not necessary even
    where the property was located outside the district of appoint-
    ment. However, we excused the failure to file under § 754
    because an independent basis for the district court’s jurisdic-
    tion over the objecting party already existed. In United States
    v. Arizona Fuels Corp., 
    739 F.2d 455
    (9th Cir. 1984), the
    receiver appointed to manage the assets of Arizona Fuels
    moved for an order to show cause regarding certain assets
    claimed by the receiver that were in the possession of Ten-
    neco, one of Arizona Fuels’ suppliers. After Arizona Fuels
    was placed into receivership, Tenneco had attempted to use
    advance payments received from Arizona Fuels to offset pre-
    receivership deficiencies. The receiver claimed that Tenneco
    held those funds on behalf of Arizona Fuels against future
    deliveries, and as such, upon appointment of the receiver, they
    became receivership property. 
    Id. at 458.
    The district court
    applied the rule barring the use of receivership assets to set
    off pre-receivership debts and, determining that the receiver
    was entitled to possession of the funds, ordered Tenneco to
    disgorge the funds. On appeal, Tenneco argued that the dis-
    trict court had erroneously ordered disgorgement after sum-
    mary proceedings because, as a non-party, Tenneco was
    entitled to full plenary proceedings “with all the procedural
    trimmings” (including formal service of process). 
    Id. Tenneco also
    argued that the receiver lacked jurisdiction over the funds
    because it did not comply with the filing requirements of 28
    U.S.C. § 754. 
    Id. at 458.
                              SEC v. ROSS                      13935
    We rejected these arguments. First, we reasoned that the
    use of summary proceedings against a non-party could be
    proper “where the third person is made a party to the suit or
    where the third person becomes sufficiently involved in the
    receivership action, for example by intervening.” 
    Id. at 459.
    Tenneco had participated in the receivership proceedings
    from their inception: it was specifically named in and served
    with the receiver’s order of appointment and counsel had
    appeared on its behalf at various hearings. 
    Id. Because Ten-
    neco had “ample opportunity” from the outset to participate
    in the proceedings and to contest the receiver’s claims, the use
    of summary procedures did not violate due process.
    More importantly, however, we held that through its active
    participation, Tenneco had submitted to the in personam juris-
    diction of the district court. Thus, even though Tenneco
    claimed that it held the disputed proceeds in Houston, Texas,
    the failure of the receiver, who was appointed by the District
    of Arizona, to file in that district pursuant to § 754 did not
    divest the district court of the jurisdiction it already exercised
    over Tenneco itself. In this context, compliance with § 754
    served no purpose other than to provide notice. Since Tenneco
    had received actual notice and had participated in the pro-
    ceedings, it had no due process claim.
    We think that Arizona Fuels does not govern this case.
    Nothing in the record suggests that the district court ever
    obtained in personam jurisdiction over Bustos. He was not
    named as a party to the underlying proceedings, and although
    he intervened, as we discuss in more detail below, that inter-
    vention did not constitute consent to the jurisdiction of the
    district court. Moreover, the receiver in Arizona Fuels was
    simply attempting to recover receivership assets—there was
    no allegation that the legitimacy of Tenneco’s claim to the
    assets depended on its liability for some illegal activity. The
    Receiver in our case is alleging that Bustos himself violated
    the Securities Act. Bustos thus does not fall within this excep-
    tion to the filing requirements of § 754.
    13936                     SEC v. ROSS
    C.   Intervention of Right as Consent to Jurisdiction
    The Receiver has one remaining jurisdictional argument
    that merits close attention. Bustos responded to notice of the
    Receiver’s disgorgement motion by filing a motion to inter-
    vene as of right under FED. R. CIV. P. 24(a)(2). In his interven-
    tion motion, Bustos made clear that he contested the court’s
    exercise of personal jurisdiction, the sufficiency of process he
    had received, and the propriety of venue in the District of
    Oregon. He filed similar objections in the first responsive
    pleading (his answer) filed after the court granted his motion
    to intervene. Nevertheless, the Receiver argues that by inter-
    vening Bustos consented to the jurisdiction of the district
    court. Although there is some support for the Receiver’s view,
    upon careful consideration of the framework governing inter-
    vention, we decline to adopt a per-se rule that an intervenor
    consents to the court’s personal jurisdiction. We hold that
    Bustos did not consent to the jurisdiction of the district court
    when he intervened.
    Few courts have directly addressed whether a non-party
    who intervenes in ongoing proceedings pursuant to Rule
    24(a)(2) can raise personal jurisdiction objections in conjunc-
    tion with a motion to intervene. However, those that have
    addressed this question have generally concluded that a party
    who intervenes, consents, as a matter of law, to the jurisdic-
    tion of the court permitting the intervention. See In re Ford
    Motor Co., 
    471 F.3d 1233
    (11th Cir. 2006); County Sec.
    Agency v. Ohio Dept. of Commerce, 
    296 F.3d 477
    (6th Cir.
    2002); Pharm. Research & Mfrs. v. Thompson, 
    259 F. Supp. 2d
    39 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F.
    Supp. 315, 317 (N.D. Cal. 1976). Wright and Miller concurs
    in this view: “[T]he intervenor submits himself to the personal
    jurisdiction of the court by seeking to intervene in the action
    and cannot move to dismiss on that ground.” 7C WRIGHT,
    MILLER & KANE, FEDERAL PRACTICE AND PROCEDURE, CIVIL 3D
    § 1920, at 612 (3d ed. 2007) (citing Kleppe, 
    428 F. Supp. 315
    ).
    SEC v. ROSS                      13937
    These courts, and even Wright and Miller, devote little
    space to analyzing this issue, but the conclusion derives from
    the principle that a party cannot simultaneously seek affirma-
    tive relief from a court and object to that court’s exercise of
    jurisdiction. In Ford Motor, the Eleventh Circuit held that a
    party that intervened to challenge the district court’s injunc-
    tion against a parallel state court proceeding had “acquiesced”
    to the district court’s jurisdiction over its 
    person. 471 F.3d at 1248
    . Similarly, in County Security Agency, the Sixth Circuit
    dismissed the intervenor’s jurisdictional objections because “a
    motion to intervene is fundamentally incompatible with an
    objection to personal 
    jurisdiction.” 296 F.3d at 483
    . The Elev-
    enth Circuit suggested that as an alternative to intervention, a
    third party can either file an amicus brief or ignore the pro-
    ceedings and collaterally challenge the jurisdiction of the ren-
    dering court in his home jurisdiction when the prevailing
    party attempts to enforce the judgment. Ford 
    Motor, 471 F.3d at 1248
    n.34.
    It seems apparent to us that in some cases an intervenor
    must necessarily acquiesce to the district court’s jurisdiction.
    Indeed, in many cases an intervenor will have no objection to
    the district court’s jurisdiction over her. On the other hand,
    consent to jurisdiction sometimes occurs unwillingly or even
    inadvertently. As the Court wrote in Insurance Corp. of Ire-
    land, “[a] variety of legal arrangements have been taken to
    represent express or implied consent to the personal jurisdic-
    tion of the 
    court.” 456 U.S. at 703
    . For example, the parties
    may consent to jurisdiction through a forum selection clause
    in a contract, Nat’l Equip. Rental, Ltd. v. Szukhent, 
    375 U.S. 311
    , 315-16 (1964); Dow Chem. Co. v. Calderon, 
    422 F.3d 827
    , 831 (9th Cir. 2005); by filing a proof of claim in a bank-
    ruptcy proceeding, Tucker Plastics, Inc. v. Pay ‘N Pak Stores,
    Inc., 
    99 F.3d 910
    , 911(9th Cir. 1996) (per curiam); or by fil-
    ing an original complaint, a counterclaim or a crossclaim,
    Adam v. Saenger, 
    303 U.S. 59
    , 67-68 (1938); Schnabel v. Lui,
    
    302 F.3d 1023
    , 1037-38 & n.5 (9th Cir. 2002); cf. Smith v.
    Salish Kootenai Coll., 
    434 F.3d 1127
    , 1138-40 (9th Cir. 2006)
    13938                     SEC v. ROSS
    (en banc) (holding that a non-member who files a civil claim
    in an Indian tribal court consents to tribal jurisdiction).
    [11] The rules governing consent are not as immutable as
    they may appear. We have held that a party who files a com-
    pulsory counterclaim under Rule 13(a) does not thereby waive
    any jurisdictional defenses he has previously or concurrently
    asserted, Dragor Shipping Corp. v. Union Tank Car Co., 
    378 F.2d 241
    , 244 (9th Cir. 1967), nor has a party who files a per-
    missive counterclaim under Rule 13(b) when objection to
    “personal jurisdiction . . . [is] asserted in the same pleading.”
    Gates Learjet Corp. v. Jensen, 
    743 F.2d 1325
    , 1330 n.1 (9th
    Cir. 1984); cf. Teyseer Cement Co. v. Halla Mar. Corp., 
    794 F.2d 472
    (9th Cir. 1986) (holding there was no consent to in
    personam jurisdiction where the defendant’s counterclaim fol-
    lowed a restricted appearance in a quasi in rem admiralty pro-
    ceeding). In general, we have held that a party has consented
    to personal jurisdiction when the party took some kind of
    affirmative act—accepting a forum selection clause, submit-
    ting a claim, filing an action—that fairly invited the court to
    resolve the dispute between the parties. By contrast, where a
    party has filed a timely and unambiguous objection to the
    court’s jurisdiction, we have concluded that the party has not
    consented to jurisdiction. This is true even if the party has
    preserved its own options by simultaneously asserting what-
    ever claims or defenses it has against the plaintiff. Our com-
    monsense approach avoids the pitfalls of a more formalistic
    era in which a defendant had to choose between contesting the
    forum’s jurisdiction through a special appearance and enter-
    ing a general appearance and defending himself on the merits.
    See Gates Learjet 
    Corp., 743 F.2d at 1330
    n.1; LARRY L.
    TEPLY & RALPH U. WHITTEN, CIVIL PROCEDURE 209-10 (3d ed.
    2004).
    [12] We do not think that Bustos consented to the court’s
    jurisdiction. To the contrary, Bustos “objected to in personam
    jurisdiction as effectively as [he] could have” at every turn.
    Teyseer Cement 
    Co., 794 F.2d at 478
    . Bustos sought to inter-
    SEC v. ROSS                      13939
    vene as of right because he correctly believed that “the dispo-
    sition of the action [might] as a practical matter impair or
    impede [his] ability to protect [his] interest” and that his inter-
    est was not “adequately represented by existing parties.” FED.
    R. CIV. P. 24(a)(2). One means of protecting his interest—
    perhaps his best—was to object to the court’s lack of jurisdic-
    tion over his person or to the propriety of venue, and he
    objected to personal jurisdiction, venue and insufficiency of
    service of process promptly and unambiguously when he filed
    his answer in accord with Rule 12. See FED. R. CIV. P.
    12(b)(2), (3), (5); see also 
    Wencke, 783 F.2d at 835
    (suggest-
    ing that appellant, who challenged the court’s personal juris-
    diction, should have formally intervened).
    [13] We do not think that anything in the Federal Rules
    suggests that a non-named party cannot intervene of right and
    then contest the federal court’s exercise of in personam juris-
    diction. First, in the standard alignment, where a plaintiff sues
    a defendant, the defendant is entitled to object to the court’s
    exercise of personal jurisdiction in its first responsive plead-
    ing. FED. R. CIV. P. 12(b)(2). Similarly, where the defendant
    seeks to join a necessary party under Rule 19, joinder is prem-
    ised on the district court’s ability to obtain jurisdiction over
    that party. FED. R. CIV. P. 19(a) (“A person who is subject to
    service of process and whose joinder will not deprive the
    court of jurisdiction over the subject matter of the action shall
    be joined as a party . . . .”). In the event that the court cannot
    obtain jurisdiction, it must dismiss the case if it cannot be
    tried without the third party. FED. R. CIV. P. 19(b) (“If a per-
    son as described in subdivision (a)(1)-(2) hereof cannot be
    made a party, the court shall determine whether in equity and
    good conscience the action should proceed among the parties
    before it, or should be dismissed . . . .”). In these cases—
    where either the plaintiff or a named defendant brings a party-
    in-interest to the action—the party may defend himself on
    both jurisdictional and substantive grounds.
    13940                        SEC v. ROSS
    Rule 24 permits a third party to enter the proceedings in
    order to protect his own interests. Rule 24(a) permits interven-
    tion of right where “the disposition of the action may as a
    practical matter impair or impede the applicant’s ability to
    protect that interest.” FED. R. CIV. P. 24(a). Rule 24(b) autho-
    rizes permissive intervention where there is some kind of
    common question of law or fact.16 If the third party is inter-
    vening of right, as Bustos was here, we see little reason to
    deprive him of any of his procedural defenses merely because
    the original plaintiff failed to name him as a defendant or
    because no other party sought to have him joined pursuant to
    Rule 19.
    [14] We do not see why an intervenor should be considered
    to have automatically consented to the jurisdiction of the
    court. The intervenor has consented to something, but it is not
    personal jurisdiction. Rather, the quid pro quo for his inter-
    vention is that he consents to have the district court determine
    all issues in the case, including issues of jurisdiction, venue
    and service of process. See Ins. Corp. of 
    Ireland, 456 U.S. at 706
    (“By submitting to the jurisdiction of the court for the
    limited purpose of challenging jurisdiction, the defendant
    agrees to abide by that court’s determination on the issue of
    jurisdiction.”). Intervention of right simply puts the intervenor
    into the position he would have been in had the plaintiff (or
    another party) properly named him to begin with.
    This case demonstrates the wisdom of the rule. If the
    Receiver had played the game straight-up, named Bustos as
    a defendant, and served him with a complaint and summons
    pursuant to Rule 4, Bustos could have objected to personal
    jurisdiction in the district court, including in any appeal to this
    court. He also could have made an informed decision between
    (1) litigating both the jurisdictional and substantive issues in
    the District of Oregon and the Ninth Circuit or (2) sitting out
    16
    Our opinion is limited to the case where a party seeks to intervene of
    right.
    SEC v. ROSS                           13941
    the Oregon proceedings and mounting a collateral challenge
    to jurisdiction when the Receiver appeared in Texas with a
    judgment in hand.17 The Receiver’s argument would leave
    Bustos with the second option only.18 The Federal Rules do
    not require, and the Due Process Clause ought not to counte-
    nance, such an unfair election of defenses.
    IV.
    Our decision does not necessarily foreclose other avenues
    of seeking disgorgement from Bustos, although we express no
    views on the merits of such proceedings. The SEC may opt
    to bring a civil enforcement action against Bustos. There may
    be additional proceedings the Receiver can pursue under 28
    U.S.C. §§ 754 and 1692. See Vision Commc’ns, 
    Inc., 74 F.3d at 291
    . Or, assuming he has standing to do so, the Receiver
    may choose to bring suit against Bustos directly under § 12 of
    the Securities Act. However the Receiver or the SEC chooses
    to proceed, we admonish both to avoid improper shortcuts.
    Unless they can articulate some theory of liability that does
    not turn on Bustos’s own violation of the securities laws, they
    must formally serve him with process, properly obtain in per-
    17
    The risk of misunderstanding one’s options seems particularly high in
    the context of receivership actions, where the line between in personam
    and in rem jurisdiction is vanishingly thin. Here, the Receiver’s motion
    contained two claims, one (disgorgement for violation of the securities
    laws) that had to be asserted in personam and one (disgorgement of a
    fraudulent conveyance) that could be asserted in rem. The Receiver also
    requested the district court to approve summary proceedings, which, as we
    have discussed, are generally used where the court has in rem jurisdiction
    or the action is directed against a nominal defendant. Until the district
    court rejected the fraudulent conveyance claim, Bustos could not have
    determined with any certainty precisely what jurisdictional basis the
    Receiver was using to assert his claim and thus could not determine
    whether he could afford to risk sitting out the proceedings and mounting
    a later, collateral attack on the court’s jurisdiction.
    18
    Although Bustos could also have sought to file an amicus brief, we
    regard that option, in these circumstances, as an inadequate substitute for
    party status.
    13942                    SEC v. ROSS
    sonam jurisdiction over him, permit him to litigate fully all
    issues relating to both the fact and scope of his liability, and
    do so, of course, subject to all available legal and equitable
    defenses. To date, he has not been given that opportunity.
    V.
    The district court lacked jurisdiction to enter the disgorge-
    ment order against Bustos. We therefore VACATE the district
    court’s order and REMAND for further proceedings consis-
    tent with this opinion.
    VACATED and REMANDED.
    

Document Info

Docket Number: 05-35541

Filed Date: 10/15/2007

Precedential Status: Precedential

Modified Date: 10/14/2015

Authorities (32)

Omni Capital International, Ltd. v. Rudolf Wolff & Co. , 108 S. Ct. 404 ( 1987 )

arnold-schwarzenegger-v-fred-martin-motor-company-an-ohio-corporation , 374 F.3d 797 ( 2004 )

Securities and Exchange Commission v. W. J. Howey Co. , 66 S. Ct. 1100 ( 1946 )

Bayshore Ford Trucks Sales, Inc. v. Ford Motor Co. , 471 F.3d 1233 ( 2006 )

united-states-of-america-able-time-inc-claimant-appellee-v-2164 , 366 F.3d 767 ( 2004 )

96-cal-daily-op-serv-7965-96-daily-journal-dar-13217-in-re-pnp , 99 F.3d 910 ( 1996 )

County Security Agency v. The Ohio Department of Commerce v.... , 296 F.3d 477 ( 2002 )

fed-sec-l-rep-p-90166-98-cal-daily-op-serv-1915-98-daily-journal , 139 F.3d 674 ( 1998 )

teyseer-cement-company-a-foreign-corporation-qatar-national-insurance-and , 794 F.2d 472 ( 1986 )

National Equipment Rental, Ltd. v. Szukhent , 84 S. Ct. 411 ( 1964 )

International Shoe Co. v. Washington , 66 S. Ct. 154 ( 1945 )

Steve Benny v. Danny Pipes and Charles Payne , 799 F.2d 489 ( 1986 )

fed-sec-l-rep-p-92986-securities-and-exchange-commission-universal , 803 F.2d 1034 ( 1986 )

CITY OF SANTA CLARA, CALIFORNIA v. Kleppe , 428 F. Supp. 315 ( 1976 )

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Adam v. Saenger , 58 S. Ct. 454 ( 1938 )

No. 82-4718 , 736 F.2d 1371 ( 1984 )

United States v. Arizona Fuels Corporation and Eugene ... , 739 F.2d 455 ( 1984 )

Dragor Shipping Corporation, a Corporation, Formerly Ward ... , 378 F.2d 241 ( 1967 )

gates-learjet-corporation-and-gates-learjet-export-corporation-v-james-b , 743 F.2d 1325 ( 1984 )

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