Alan Grayson v. Randolph Anderson

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1991
ALAN M. GRAYSON; AMG TRUST,
Plaintiffs - Appellants,
v.
RANDOLPH ANDERSON; PATRICK KELLEY; VISION INTERNATIONAL
PEOPLE GROUP PL.; TOTAL ECLIPSE INTERNATIONAL LTD.,
Defendants - Appellees,
and
CHARLES CATHCART; EVELYN CATHCART; YURIJ DEBEVC; CHARLES
HSIN; DERIVIUM CAPITAL USA INC; VERIDIA SOLUTIONS LLC;
SHENANDOAH HOLDINGS LTD; PTS INTERTECH INC; AQUILIUS INC;
OPTECH LIMITED; PAUL ANTHONY JARVIS; COLIN BOWEN; BANCROFT
VENTURES LTD; BANCROFT VENTURES UK LTD; SPENCER PARTNERS
LTD; ISLE OF MAN ASSURANCE LTD; DMITRY BOURIAK; BRYAN
JEEVES; ALEXANDER JEEVES; KRISTINA PHELAN; JEEVES GROUP,
THE; JEEVES HOLDINGS LTD; JAVELIN LTD; LEXADMIN TRUST REG;
ST VINCENT TRUST COMPANY LTD; ST VINCENT TRUST SERVICE LTD;
WINDWARD ISLES TRUST COMPANY LTD; SELBOURNE TRUST COMPANY
LTD; PELICAN TRUST COMPANY LTD; JEEVES GROUP ASIA LTD;
WACHOVIA SECURITIES, INC; JOHN DOE 1; JOHN DOE 2; JOHN DOE
3; JOHN DOE 4; JOHN DOE 5; JOHN DOE 6; JOHN DOE 7; JOHN DOE
8; JOHN DOE 9; JOHN DOE 10; JEEVES COMPANY LTD; ORANGEBURG
METAL TREATMENT CO LLC; ROBERT BRADENBURG; NIGEL THOMAS
TEBAY; JOANNA OVERFIELD BODELL; ISLE OF MAN FINANCIAL TRUST
LIMITED; NIGEL HARLEY WOOD; VISION INTERNATIONAL PEOPLE
GROUP PL; METARIZON LLC, f/k/a Metarizon Solutions LLC;
JONATHAN SANDIFER,
Defendants.
14-1997
GRAYSON CONSULTING, INC.,
Plaintiff - Appellant,
and
KEVIN CAMPBELL, Chapter 7 Trustee,
Plaintiff,
v.
VISION INTERNATIONAL PEOPLE GROUP PL.; TOTAL ECLIPSE
INTERNATIONAL LTD.,
Defendants - Appellees,
and
EVELYN CATHCART; CHARLES D. CATHCART CRUSADER TRUST;
CATHCART INVESTMENT TRUST; CATHLIT INVESTMENT TRUST;
DIVERSIFIED DESIGN ASSOCIATED LTD; DAVID KEKICH; RED TREE
INTERNATIONAL; CHARLES HSIN, a/k/a CH Hsin, Chi Hsiu Hsin;
FIRST SECURITY CAPITAL OF CANADA INC; MARCO TOY INC;
BANCROFT VENTURES LTD; BANCROFT VENTURES UK LTD; WITCO
SERVICES UK LTD; JEEVES GROUP, THE; JEEVES COMPANY LTD;
JEEVES HOLDINGS LTD; BRYAN JEEVES; ALEXANDER JEEVES;
KRISTINA PHELAN; PAUL ANTHONY JARVIS; NIGEL THOMAS TEBAY;
COLIN CYPH BOWEN; MORIA THOMPSON MCHARRIE; DAVID ANTHONY
KARRAN; NIGEL HAMPTON MCGOWAN; FRANCIS GERRARD QUINN; PETER
KEVIN PERRY; BRIAN BODELL; ANDREW THOMAS; EDWARD J. BUDDEN;
JOANNA OVERFIELD BODELL; CONISTON MANAGEMENT LTD; JAVELIN
LTD; ST VINCENT TRUST SERVICE LTD; ST VINCENT TRUST COMPANY
LTD; LEXADMIN TRUST REG; ISLE OF MAN ASSURANCE LTD; ISLE OF
MAN FINANCIAL TRUST LTD; SPENCER PARTNERS LTD; SPENCER
VENTURE PARTNERS LLC; LINDSEY AG; OPTECH LTD; JACK W.
FLADER, JR.; JAMES C. SUTHERLAND; ZETLAND FINANCIAL GROUP
LTD; FRANKLIN W. THOMASON; DMITRY BOURIAK; NOBLESTREET LTD;
FINANCIAL RESOURCES GROUP LLC; STRUCTURED SYSTEMS AND
SOFTWARE INC; EAST BAY CAPITAL VENTURES LLC; CLIFFORD LLOYD;
NIGEL HARLEY WOOD; TSUEI CONSULTANTS INCORPORATED,
Defendants.
2
Appeals from the United States District Court for the District
of South Carolina, at Charleston. David C. Norton, District
Judge. (2:07-cv-00593-DCN; 2:07-cv-02992-DCN; 2:08-cv-03129-
DCN)
Argued: December 8, 2015 Decided: March 7, 2016
Before WILKINSON, NIEMEYER, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the
opinion, in which Judge Wilkinson and Judge Diaz joined.
ARGUED: Tucker Harrison Byrd, TUCKER H. BYRD & ASSOCIATES, P.A.,
Winter Park, Florida, for Appellants. Brian Cantwell Duffy,
DUFFY & YOUNG, LLC, Charleston, South Carolina; Mark H. Wall,
WALL TEMPLETON & HALDRUP, P.A., Charleston, South Carolina, for
Appellees. ON BRIEF: Katherine A. Stanton, WALL TEMPLETON &
HALDRUP, P.A., Charleston, South Carolina, for Appellee Patrick
Kelley. Seth W. Whitaker, DUFFY & YOUNG, LLC, Charleston, South
Carolina, for Appellee Total Eclipse International Ltd. W.
Randolph Anderson, Jr., New York, New York, Appellee Pro Se.
3
NIEMEYER, Circuit Judge:
Victims of a massive, South Carolina-centered Ponzi scheme
-- characterized by fraudulent loans secured by the borrowers’
publicly traded stock -- obtained a judgment of over $150
million against Derivium Capital (USA), Inc., its principals,
and numerous other participants in the scheme. Alan M. Grayson,
AMG Trust, and Grayson Consulting, Inc., three of the
plaintiffs, are now pursuing others whom they claim also
participated in the scheme.
With respect to the three plaintiffs’ claims against Vision
International People Group, P.L., a Cypriot company, the
district court granted Vision International’s motion to dismiss
for lack of personal jurisdiction under Federal Rule of Civil
Procedure 12(b)(2). And with respect to Grayson’s and AMG
Trust’s claims against Randolph Anderson, Patrick Kelley, and
Total Eclipse International Ltd. for aiding and abetting common
law fraud, the district court granted those defendants’ motion
for judgment as a matter of law at trial, concluding that the
cause of action was not recognized by South Carolina courts.
The plaintiffs filed separate appeals on the two rulings.
In the first, the three plaintiffs contend that, because the
district court did not conduct an “evidentiary hearing” in which
it took live testimony, it should have assessed the Rule
12(b)(2) motion under the more relaxed standard of whether the
4
plaintiffs had made a prima facie showing of personal
jurisdiction over Vision International rather than under the
more demanding standard that the district court applied, which
required them to prove facts demonstrating personal jurisdiction
by a preponderance of the evidence. And in the second, Grayson
and AMG Trust contend that the district court erred in
dismissing their claims for aiding and abetting fraud,
maintaining that South Carolina recognized the cause of action
in Connelly v. State Co., 149 S.E. 266 (S.C. 1929).
We consolidated the two appeals by order dated August 26,
2015, and now affirm on both. We conclude that, because the
parties engaged in full discovery on the jurisdictional issue
and fully presented the relevant evidence to the district court,
the court properly addressed Vision International’s Rule
12(b)(2) motion by weighing the evidence, finding facts by a
preponderance of the evidence, and determining as a matter of
law whether the plaintiffs carried their burden of demonstrating
personal jurisdiction over Vision International. We also agree
with the district court’s conclusion that South Carolina has not
recognized a cause of action for aiding and abetting common law
fraud and that it is not our role as a federal court to so
expand state law.
5
I
Under the fraud scheme referred to as the 90% Stock Loan
Program, which began in 1997, borrowers delivered their publicly
traded stock to Derivium as collateral for loans in amounts up
to 90% of the stock’s market value. Because the loans were non-
recourse loans, the borrowers could, at the loan’s maturity date
of usually three years, surrender the stock with no further
obligation to pay the loan -- an attractive option if, at that
time, the stock’s value had depreciated. Alternatively, they
could pay the loan and demand return of the stock -- an
attractive option if, at that time, the stock’s value had
appreciated. It was, for the borrowers, thought to be a no-lose
proposition.
But the full, undisclosed details of the program, which was
designed and implemented largely by Charles Cathcart and Yuri
Debevc, two of Derivium’s principals, involved Derivium’s misuse
of the stock. Indeed, the principals sold the stock to fund
their personal investments in high-risk venture capital
opportunities, and, in the process, they realized substantial
personal income from commissions on the stock sales. Although
they hoped for yet larger returns on their investments, all but
one of the personal investments failed, and Derivium was unable
to return the borrowers’ stock at the loan maturity dates
because it had maintained no capital reserves and had entered
6
into no derivative transactions to hedge against losses.
Consequently, to cover the losses, the principals continued to
solicit stock from new borrowers and enter into new 90% loans
for years after the principals knew that the entire scheme would
eventually collapse.
Derivium went into bankruptcy in 2005, and victims of the
fraud began commencing actions in 2007 against Derivium, its
principals, and other employees and related companies implicated
in the scheme. There were more than 50 defendants in these
actions. With respect to some of the defendants, the district
court consolidated the actions for discovery and trial, and,
following trial, a jury returned a verdict in favor of the
plaintiffs in the amount of $150,478,525.29. The judgment
entered on that verdict was affirmed on appeal.
The plaintiffs in the present appeals then began pursuing
claims that had been stayed by the district court pending the
outcome of the principal trial. One of the defendants in these
resumed cases, Vision International, a Cyprus-based company
engaged in distributing health and beauty products outside of
the United States, filed a motion to dismiss under Rule 12(b)(2)
for lack of personal jurisdiction over it. To support its
motion, Vision International included deposition excerpts,
affidavits, and other documents developed during full discovery,
as well as a memorandum of law, to demonstrate that the court
7
lacked jurisdiction. To support their response, the plaintiffs
included more than 120 exhibits, likewise consisting of
deposition transcripts, affidavits, interrogatory answers, and
documentary evidence, as well as a memorandum of law, to
demonstrate that Vision International had sufficient contacts
with South Carolina and the United States generally. See S.C.
Code Ann. § 36-2-803 (South Carolina’s long-arm statute); Fed.
R. Civ. P. 4(k)(2) (a so-called federal long-arm “statute”).
The plaintiffs argued in their memorandum of law that both
Vision International’s CEO and its Legal Advisor had
participated in the Ponzi scheme in South Carolina and
California. The district court conducted a hearing on the
motion on July 1, 2013, and neither side asked to present any
further evidence, including any live testimony. Following the
hearing, the district court granted Vision International’s
motion to dismiss, concluding that the plaintiffs had failed to
meet their burden of proving, by a preponderance of the
evidence, facts demonstrating personal jurisdiction over Vision
International.
During the subsequent trial against Anderson, Kelley, and
Total Eclipse, the district court granted the defendants’ motion
for judgment as a matter of law with respect to Grayson’s and
AMG Trust’s claims for aiding and abetting fraud, reasoning that
no such cause of action existed under South Carolina law. After
8
the district court dismissed the aiding and abetting claims, the
jury found in favor of those defendants on the remaining claims.
On appeal, the plaintiffs challenge (1) the district
court’s procedure for dismissing their claims against Vision
International for lack of personal jurisdiction, and (2) the
district court’s ruling dismissing the claims against Anderson,
Kelley, and Total Eclipse for aiding and abetting common law
fraud.
II
On the personal jurisdiction issue, the plaintiffs contend
that the district court erred in granting Vision International’s
motion to dismiss because the court “did not conduct an
evidentiary hearing to resolve the conflicting evidence.” As a
consequence, they argue, the district court erred in failing to
recognize that, in that circumstance, they “only needed to make
a prima facie showing to establish jurisdiction” and thus that
their evidence had to be taken in the light most favorable to
them. Rather than applying the prima facie standard, they
argue, the district court “weighed and considered the evidence”
and applied a more difficult standard, from the plaintiffs’
point of view, by imposing on them the burden of proving facts
demonstrating jurisdiction by a preponderance of the evidence.
The plaintiffs maintain that only by applying the more rigorous
9
preponderance of the evidence standard was the district court
able to grant Vision International’s Rule 12(b)(2) motion to
dismiss.
Vision International contends that the district court
correctly held the plaintiffs to the preponderance of the
evidence standard and, in applying that standard, correctly
found that: (1) no evidence existed to show that Vision
International availed itself of the privilege of conducting
business in South Carolina; (2) no evidence existed to show that
Vision International had any contacts with South Carolina or
with the United States generally; and, more specifically, (3) no
evidence existed to show that actions taken by two of Vision
International’s employees in furtherance of the loan scheme fell
within the scope of their employment or were otherwise imputable
to Vision International.
A
Addressing the plaintiffs’ procedural arguments first, we
note that the Federal Rules of Civil Procedure do not provide
specific procedures for a district court’s disposition of
pretrial motions filed under Rule 12(b)(2). Nonetheless, the
general principles governing an appropriate procedure are well-
established.
10
Under Rule 12(b)(2), a defendant must affirmatively raise a
personal jurisdiction challenge, but the plaintiff bears the
burden of demonstrating personal jurisdiction at every stage
following such a challenge. See Combs v. Bakker, 886 F.2d 673,
676 (4th Cir. 1989). And a Rule 12(b)(2) challenge raises an
issue for the court to resolve, generally as a preliminary
matter. Id. (“[T]he jurisdictional question thus raised [under
Rule 12(b)(2)] is one for the judge”). Indeed, only when a
material jurisdictional fact is disputed and that fact overlaps
with a fact that needs to be resolved on the merits by a jury
might a court defer its legal ruling on personal jurisdiction to
let the jury find the overlapping fact. Cf. Adams v. Bain, 697
F.2d 1213, 1219 (4th Cir. 1982) (noting that, “where the
jurisdictional facts are intertwined with the facts central to
the merits of the dispute,” deferring resolution of that factual
dispute to a proceeding on the merits “is the better view”).
The plaintiff’s burden in establishing jurisdiction varies
according to the posture of a case and the evidence that has
been presented to the court. For example, when the court
addresses the personal jurisdiction question by reviewing only
the parties’ motion papers, affidavits attached to the motion,
supporting legal memoranda, and the allegations in the
complaint, a plaintiff need only make a prima facie showing of
personal jurisdiction to survive the jurisdictional challenge.
11
Combs, 886 F.2d at 676; see also Mylan Labs., Inc. v. Akzo,
N.V., 2 F.3d 56, 62 (4th Cir. 1993) (explaining how courts may
consider affidavits from any party when applying the prima facie
standard). When determining whether a plaintiff has made the
requisite prima facie showing, the court must take the
allegations and available evidence relating to personal
jurisdiction in the light most favorable to the plaintiff. See
Combs, 886 F.2d at 676; Mylan Labs., 2 F.3d at 60. Ultimately,
however, a plaintiff must establish facts supporting
jurisdiction over the defendant by a preponderance of the
evidence. Combs, 886 F.2d at 676 (noting that “the burden [is]
on the plaintiff ultimately to prove the existence of a ground
for jurisdiction by a preponderance of the evidence”). And
because defendants file Rule 12(b)(2) motions precisely because
they believe that they lack any meaningful contacts with the
forum State where the plaintiff has filed suit, the better
course is for the district court to follow a procedure that
allows it to dispose of the motion as a preliminary matter.
To be sure, we have previously stated that, if a court
requires the plaintiff to establish facts supporting personal
jurisdiction by a preponderance of the evidence prior to trial,
it must conduct an “evidentiary hearing.” See, e.g., New
Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d
290, 294 n.5 (4th Cir. 2005) (“[P]laintiff[s] must eventually
12
prove the existence of personal jurisdiction by a preponderance
of the evidence, either at trial or at a pretrial evidentiary
hearing” (quoting Prod. Grp. Int'l v. Goldman, 337 F. Supp. 2d
788, 793 n.2 (E.D. Va. 2004) (internal quotation marks
omitted))). But contrary to the plaintiffs’ position, an
“evidentiary hearing” does not automatically involve or require
live testimony. See, e.g., Boit v. Gar-Tec Prods., Inc., 967
F.2d 671, 676 (1st Cir. 1992) (noting how, in the personal
jurisdiction context, “[n]ot all ‘evidentiary hearings,’ . . .
involve evidence ‘taken orally in open court’” (quoting Fed. R.
Civ. P. 43(a))); id. at 676-77 (noting that, to apply the
preponderance of the evidence standard before trial, “a court
may take most of the evidence . . . by affidavits, authenticated
documents, answers to interrogatories or requests for
admissions, and depositions”); see also Fed. R. Civ. P. 43(c)
(providing that courts may “hear” motions “on affidavits or
. . . wholly or partly on oral testimony or on depositions”).
Rather, an “evidentiary hearing” requires only that the district
court afford the parties a fair opportunity to present both the
relevant jurisdictional evidence and their legal arguments.
Once the court has provided that opportunity, it must hold the
plaintiff to its burden of proving facts, by a preponderance of
the evidence, that demonstrate the court’s personal jurisdiction
over the defendant.
13
As with many pretrial motions, a court has broad discretion
to determine the procedure that it will follow in resolving a
Rule 12(b)(2) motion. If the court deems it necessary or
appropriate, or if the parties so request, it may conduct a
hearing and receive, or not, live testimony. It may also
consider jurisdictional evidence in the form of depositions,
interrogatory answers, admissions, or other appropriate forms.
But we see no reason to impose on a district court the hard and
fast rule that it must automatically assemble attorneys and
witnesses when doing so would ultimately serve no meaningful
purpose. Creating such needless inefficiency would undermine a
principal purpose of the Federal Rules of Civil Procedure “to
secure the just, speedy, and inexpensive determination of every
action and proceeding.” Fed. R. Civ. P. 1.
At bottom, a district court properly carries out its role
of disposing of a pretrial motion under Rule 12(b)(2) by
applying procedures that provide the parties with a fair
opportunity to present to the court the relevant facts and their
legal arguments before it rules on the motion.
In this case, Vision International filed a Rule 12(b)(2)
motion to dismiss for lack of personal jurisdiction following
the completion of a full discovery process. In support of its
motion, it included numerous excerpts from depositions,
exhibits, affidavits, and similar evidence for consideration by
14
the court. Supporting their opposition to the motion, the
plaintiffs filed over 120 exhibits, including deposition
transcripts, affidavits, interrogatory answers, and documentary
evidence. Both sides also filed extensive memoranda of law.
After the parties completed their submissions, the district
court conducted a hearing on the motion on July 1, 2013, and,
after receiving argument, took the motion under advisement. At
the hearing, no party proffered, nor did the court request, more
evidence, and no party requested to present live testimony.
Presumably, the parties and the court were satisfied that the
court had before it all the relevant evidence from which to make
its decision. And, in this case, the evidence was substantial.
Following this procedure, the district court found facts by a
preponderance of the evidence and, based on those facts,
concluded as a matter of law that it lacked personal
jurisdiction over Vision International.
We find no deficiency in the process that was followed by
the district court and conclude that the district court
correctly applied the preponderance of the evidence standard,
rather than the prima facie standard, in finding facts. Because
full discovery had been conducted and the relevant evidence on
jurisdiction had been presented to the court, the court
appropriately considered the evidence and found the facts by a
preponderance of the evidence. And even though a hearing was
15
not mandatory, the court also conducted one. No party ever
claimed that the record was inadequately developed, that
relevant evidence was missing, or that it was unable to fairly
present its position. Accordingly, we find no error in the
procedure that the district court followed or the standard that
it applied for deciding Vision International’s Rule 12(b)(2)
motion.
B
On the merits of Vision International’s Rule 12(b)(2)
motion, the district court found that “there is no evidence that
indicates that [Vision International’s CEO Paul] Jarvis and
[Vision International’s Legal Advisor Ismini] Papacosta acted on
Vision’s behalf or in Vision’s interest when they participated
in the 90% Stock Loan Program.” Moreover, it found that Vision
International did not direct any of its activities to South
Carolina, did not maintain any office or agent in South
Carolina, did not own any property in South Carolina, and did
not conduct any business with or communicate with anyone in
South Carolina. At bottom, the court found that there was no
evidence demonstrating that Vision International “purposefully
availed itself of the privilege of conducting business in South
Carolina” or that it had “any meaningful connection with the
state.” Accordingly, the court held that the plaintiffs failed
16
to carry their “burden of proving, by a preponderance of the
evidence, [the grounds to demonstrate] that personal
jurisdiction [was] proper over Vision” under South Carolina’s
long-arm statute, South Carolina Code § 36-2-803. It also held
that the plaintiffs failed to carry their burden under Federal
Rule of Civil Procedure 4(k)(2) of proving, by a preponderance
of the evidence, that Vision International had sufficient
contacts with the United States generally.
While the plaintiffs argue that the district court erred
because the court did not construe the facts in favor of their
position, harking back to the failure to apply the prima facie
standard, they otherwise do not argue that the district court’s
factual findings were clearly erroneous or that its legal ruling
on personal jurisdiction was erroneous. See Carefirst of Md.,
Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th
Cir. 2003) (“We review de novo a dismissal for lack of personal
jurisdiction, though we review any underlying factual findings
for clear error” (citations omitted)).
We have already rejected the plaintiffs’ procedural
argument that the district court applied the wrong standard for
finding facts and now we affirm the court’s legal conclusion on
the merits that it lacked personal jurisdiction over Vision
International.
17
Establishing personal jurisdiction over Vision
International under South Carolina’s long-arm statute required,
as a first step, that the plaintiffs prove that the defendant
had “purposefully availed itself of the privilege of conducting
activities in [South Carolina].” See Consulting Eng’rs Corp. v.
Geometric Ltd., 561 F.3d 273, 278 (4th Cir. 2009) (quoting ALS
Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 712
(4th Cir. 2002)); see also ESAB Grp., Inc. v. Zurich Ins. PLC,
685 F.3d 376, 391 (4th Cir. 2012) (“Because the scope of South
Carolina’s long-arm statute is coextensive with the Due Process
Clause, we proceed directly to the constitutional analysis”
(citations omitted)). The record in this case, however,
includes no evidence to support a claim that the plaintiffs did
so.
To be sure, two of Vision International’s employees, CEO
Jarvis and Legal Advisor Papacosta, conducted some business in
relation to the loan scheme while employed by Vision
International, including contacting businesses and individuals
in South Carolina using Vision International’s fax machines and
email accounts. But none of the extensive discovery in this
case yielded any evidence that the two were acting on Vision
International’s behalf or in Vision International’s interest
when doing so. Their actions, in other words, did not fall
within the scope of their employment with Vision International,
18
which, as a company, was engaged in the business of distributing
health and beauty products outside of the United States. See
Young v. F.D.I.C., 103 F.3d 1180, 1190 (4th Cir. 1997) (applying
South Carolina agency law in concluding that, “[i]f the employee
acted for some independent purpose of his own,” rather than
“with the purpose of benefiting the employer,” “the conduct
falls outside the scope of his employment” and, thus, that a
corporation cannot face vicarious liability for that employee’s
conduct). And insofar as no facts suggested that Jarvis and
Papacosta acted within the scope of their employment, it follows
that no dispute of fact could exist on that issue and that the
district court correctly resolved this question of agency law in
Vision International’s favor. Because the plaintiffs relied
entirely on the actions of these two employees to demonstrate
jurisdiction, the court also concluded correctly that Vision
International had not purposefully availed itself of the
privilege of conducting business in South Carolina and that
Vision International otherwise lacked any meaningful contacts
with the State.
We also conclude that the district court did not err in
rejecting the plaintiffs’ reliance on their federal law claims
to demonstrate personal jurisdiction over Vision International
under Rule 4(k)(2). That Rule provides that, “[f]or a claim
that arises under federal law, serving a summons or filing a
19
waiver of service establishes personal jurisdiction over a
defendant if: (A) the defendant is not subject to jurisdiction
in any state’s courts of general jurisdiction; and (B)
exercising jurisdiction is consistent with the United States
Constitution and laws.” Fed. R. Civ. P. 4(k)(2) (emphasis
added). Thus, if a plaintiff’s claims arise under federal law,
the plaintiff can invoke Rule 4(k)(2) if it demonstrates that no
State can exercise personal jurisdiction over the defendant but
that the defendant’s contacts with the United States as a whole
support the exercise of jurisdiction consistent with the
Constitution and laws of the United States. See Base Metal
Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”, 283 F.3d
208, 215 (4th Cir. 2002). Of course, if a plaintiff properly
invokes Rule 4(k)(2), it can rely on pendent jurisdiction for
its state law claims, so long as those claims arose under the
same nucleus of operative facts. See ESAB Grp., Inc. v.
Centricut, Inc., 126 F.3d 617, 628 (4th Cir. 1997).
In this case, the plaintiffs never argued, as they were
required to do, that no State could exercise personal
jurisdiction over Vision International. See Fed. R. Civ. P.
4(k)(2)(A). In fact, the plaintiffs discuss only whether South
Carolina could exercise jurisdiction over Vision International,
without mentioning Vision International’s status in other
States. See Base Metal Trading, 283 F.3d at 215 (“Base Metal
20
has never attempted to argue that NKAZ is not subject to
personal jurisdiction in any state. In fact, Base Metal
continues to assert that personal jurisdiction over NKAZ is
proper in Maryland as well as in other states”). In any event,
the record shows that Jarvis’ and Papacosta’s personal contacts
with businesses and individuals throughout the United States
failed to establish jurisdiction under Rule 4(k)(2) over Vision
International for the same reasons that those contacts proved
insufficient to satisfy jurisdiction under South Carolina’s
long-arm statute. Their contacts involved conduct that exceeded
the scope of their employment with Vision International and thus
could not be imputed to Vision International.
Accordingly, we affirm the district court’s ruling
dismissing the claims against Vision International for lack of
personal jurisdiction.
III
Plaintiffs Grayson and AMG Trust also contend that the
district court erred in granting judgment as a matter of law to
Anderson, Kelley, and Total Eclipse on state common law claims
that those defendants had aided and abetted common law fraud.
The plaintiffs argue that the district court erred in concluding
that no such cause of action exists under South Carolina law
because the South Carolina Supreme Court long ago recognized
21
this cause of action in Connelly v. State Co., 149 S.E. 266, 268
(S.C. 1929). We do not, however, read Connelly as the
plaintiffs read it, and we have found no other case in which
South Carolina has held that aiding and abetting common law
fraud exists as a cause of action in the State.
In Connelly, the South Carolina Supreme Court held that,
when a complaint charged two defendants jointly with the
composition and publication of an allegedly libelous editorial,
the defamation suit could be brought in the county of either
defendant and therefore that the trial court did not err in
refusing to transfer the case from the county of one defendant
to the county of the other. 149 S.E. at 271. In affirming the
trial court’s refusal to transfer the action, the South Carolina
Supreme Court said that it was “express[ing] no opinion as to
the merit or demerit of the case, and no finding of the facts
alleged.” Id.
In claiming that Connelly recognizes a claim for aiding and
abetting fraud, the plaintiffs point to language set forth in
the trial court’s opinion, which Connelly reprinted separately.
That language quotes at length from a note in volume 1914C of
the American Annotated Cases, which, in summarizing numerous
cases from other States, stated, “[A]ll who aid, advise,
countenance, or assist the commission of the tort are
wrongdoers.” Connelly, 149 S.E. at 268. But the trial court
22
did not adopt the language to formulate its holding, concluding
only that, when two persons participate in the writing and
publication of a libelous article, both are jointly liable and
that a suit, therefore, could be brought in the county of either
defendant. Id. at 270. Moreover, the language that the
plaintiffs rely on was neither in the South Carolina Supreme
Court’s opinion nor was it approved by that court. Indeed, in
affirming the trial court’s refusal to transfer the case, the
South Carolina Supreme Court stated, “We simply hold that, under
the showing made, considered in the light of the law of this
state governing such matters, it was the duty of [the trial
judge] to refuse the motion to transfer . . . .” Id. at 271
(emphasis added).
The plaintiffs’ assertion that Connelly constitutes “ample
authority” to support a cause of action in South Carolina for
aiding and abetting common law fraud borders on the frivolous.
To be sure, South Carolina courts have discussed aiding and
abetting other specified conduct. See, e.g., Future Grp., II v.
Nationsbank, 478 S.E.2d 45, 50 (S.C. 1996) (discussing “aiding
and abetting a breach of fiduciary duty”); Broadmoor Apartments
of Charleston v. Horwitz, 413 S.E.2d 9, 11 (S.C. 1991)
(discussing aiding and abetting an “abuse of process”). But we
have been unable to find any case that has held that aiding and
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abetting common law fraud, or even torts generally, would
constitute a cause of action in South Carolina.
As we have previously explained, “federal courts sitting in
diversity rule upon state law as it exists and do not surmise or
suggest its expansion.” Burris Chem., Inc. v. USX Corp., 10
F.3d 243, 247 (4th Cir. 1993) (emphasis added); Guy v. Travenol
Labs., Inc., 812 F.2d 911, 917 (4th Cir. 1987) (“In applying
state law, federal courts have always found the road straighter
and the going smoother when, instead of blazing new paths, they
restrict their travels to the pavement”). In accordance with
this well-established principle, we also decline any suggestion
by the plaintiffs that we expand South Carolina law by
recognizing a cause of action for aiding and abetting common law
fraud.
We therefore affirm the district court’s ruling to grant
judgment as a matter of law to Anderson, Kelley, and Total
Eclipse on the plaintiffs’ claim that they aided and abetted
common law fraud.
* * *
The judgments of the district court are
AFFIRMED.
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