William Hawkins v. i-TV Digitalis Tavkozlesi Zrt.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1197
WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR;
JUSTIN PANCHLEY,
Plaintiffs – Appellants,
v.
I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt.,
Defendant – Appellee,
DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS
MANAGEMENT S.A.; DIGI COMMUNICATIONS, N.V.; ZOLTAN TESZARI,
Respondents – Appellees,
and
LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.;
PETERFIA KFT.; SAM BLACK,
Defendants.
No. 18-1288
WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR;
JUSTIN PANCHLEY,
Plaintiffs – Appellees,
v.
I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt.,
Defendant – Appellant,
DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS
MANAGEMENT S.A.; DIGI COMMUNICATIONS, N.V.; ZOLTAN TESZARI,
Respondents – Appellants,
and
LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.;
PETERFIA KFT.; SAM BLACK,
Defendants.
Appeal from the United States District Court for the Eastern District of Virginia at
Alexandria. Leonie M. Brinkema, District Judge. (1:05-cv-01256-LMB-JFA)
Argued: January 31, 2019 Decided: August 15, 2019
Before WYNN, DIAZ, and RICHARDSON, Circuit Judges.
Reversed and remanded by published opinion. Judge Richardson wrote the opinion, in
which Judge Wynn and Judge Diaz concurred.
ARGUED: Robert B. Gilmore, STEIN, MITCHELL, CIPOLLONE, BEATO &
MISSNER, LLP, Washington, D.C., for Appellants/Cross-Appellees. Christopher
Landau, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for
Appellees/Cross-Appellants. ON BRIEF: Jonathan E. Missner, Brittany W. Biles,
Kevin L. Attridge, STEIN, MITCHELL, CIPOLLONE, BEATO & MISSNER, LLP,
Washington, D.C., for Appellants/Cross-Appellees. Charles Wm. McIntyre, Jr., Anand
V. Ramana, Phillip C. Chang, MCGUIREWOODS, LLP, Washington, D.C., for
Appellees/Cross-Appellants RCS & RDS S.A., DIGI Communications, N.V., and Zoltán
Teszári. Tara M. Lee, Michael Madigan, Washington, D.C., Carl Hennies, QUINN
2
EMANUEL URQUHART & SULLIVAN, LLP, Houston, Texas, for Appellees/Cross-
Appellants i-TV Digitális Távközlési zrt. and DIGI Távközlési és Szolgáltató kft.
3
RICHARDSON, Circuit Judge:
In this case, we are called upon to decide several jurisdictional issues arising from
an international business dispute. Over a decade ago, in 2007, five American Plaintiffs
obtained a default judgment against Hungarian businessman László Borsy and several
companies he controlled, including one called i-TV Digitális Távközlési zrt. (“i-TV”). 1
The judgment afforded the Plaintiffs not just money damages but also injunctive and
declaratory relief requiring Borsy to give them a majority interest in i-TV and the other
companies. In 2008, some of the Defendants tried to have the judgment set aside, but the
district court rejected their efforts in a decision we upheld on appeal. The Plaintiffs,
though, found it hard to enforce their judgment against Borsy and the defendant
companies, apparently because almost all of their assets were located overseas.
The judgment lay mostly dormant until 2017, when the Plaintiffs moved to
enforce it against Defendants Borsy and i-TV along with several foreign Respondents 2
that had bought i-TV from Borsy. The Plaintiffs argued that the Respondents were the
Defendants’ successors-in-interest and that, by buying i-TV from Borsy, Respondents
1
Like some of the other business entities here, i-TV has changed its name over the
course of these protracted proceedings. To avoid further complicating a case that is
complex enough, we will ignore all name changes and use only today’s names.
2
While Defendant i-TV was a party to the 2007 judgment, these Respondents
were added only in the 2017 attempt to enforce the 2007 judgment. We will use the term
“Respondents” to include only those persons who are parties to the motion to enforce but
were not parties to the 2007 judgment. Thus, we will not refer to Borsy and i-TV as
“Respondents” even though they too were targets of the motion to enforce—instead, we
will call them “Defendants.”
4
aided and abetted him in violating the injunction. The Respondents, all located overseas,
strenuously objected to the district court’s personal jurisdiction over them; despite those
objections, the district court permitted the Plaintiffs to take extensive discovery from the
Respondents.
While discovery was ongoing, the Respondents and i-TV discovered a potential
technical defect in subject matter jurisdiction during the initial litigation that led to the
2007 default judgment. On that basis, they moved the court to set aside the default
judgment as void under Federal Rule of Civil Procedure 60(b)(4). The district court
granted the motion.
The Plaintiffs appeal from the district court’s decision finding the 2007 default
judgment void for lack of subject matter jurisdiction. They argue that the judgment was
not void because there was an arguable (even if erroneous) basis for jurisdiction. We
agree with the Plaintiffs and reverse the district court’s ruling on the Rule 60(b)(4)
motion.
Additionally, the Respondents have filed a cross-appeal challenging the district
court’s decision to permit extensive discovery from them notwithstanding a lack of
personal jurisdiction. The Plaintiffs respond that it is enough to allege that the
Respondents aided and abetted Borsy in violating the injunction; such aiding-and-
abetting, they argue, is always enough to establish personal jurisdiction. We reject this
theory as applied to foreign nonparties like these Respondents. Consider the facts here:
the foreign Respondents allegedly helped a foreign national carry out a purely foreign
business transaction whose only tie to our country was that it allegedly violated a federal-
5
court injunction. That is not enough to supply the minimum contacts that due process
requires. The Plaintiffs alternatively argue that the Respondents are Borsy’s successors-
in-interest, but the Plaintiffs have effectively waived that theory by changing their
argument on appeal. Therefore, we hold that the district court lacked personal
jurisdiction over the Respondents and order them dismissed. On remand, the district
court will determine whether and how the matter should proceed against i-TV.
I.
A.
In the early 2000s, Borsy controlled three Hungarian business entities:
MediaTechnik kft. (a software company), i-TV (the operator of a cable television
network in Debrecen, Hungary), and Peterfia kft. (a real estate company that owned the
buildings used by MediaTechnik and i-TV). In 2002 and 2003, Borsy sold roughly one-
third of MediaTechnik and Peterfia to an American, Plaintiff William Hawkins, in
exchange for an investment of $330,000.
Not long afterward, Borsy proposed a “roll-up” transaction in which
MediaTechnik, i-TV, and Peterfia would be placed under a single parent company,
Mediaware Corporation. He solicited an additional $1 million from Hawkins and, in
return, promised Hawkins a 49% stake in Mediaware. He also invited four other
Americans to participate in the roll-up: Plaintiffs Eric Keller, Thomas Zato, Kristof
Gabor, and Justin Panchley, each an executive or engineer in the computer-software
industry. Borsy promised each of them an ownership stake of varying size (ranging from
6
0.98% to 8%) in Mediaware, plus a substantial salary, as compensation for working at his
companies.
The Plaintiffs claim that they lived up to their end of the bargain but Borsy did not
live up to his. Instead, they claim, he absconded with their money and the fruits of their
labor. Borsy failed to deliver the salaries or shares he had promised to Keller, Zato,
Gabor, and Panchley. And while Borsy apparently delivered the Mediaware shares to
Hawkins, he never completed the roll-up of i-TV into Mediaware, meaning Hawkins
never acquired the indirect ownership interest in i-TV that Borsy had promised. Borsy
also allegedly forged a stockholders’ agreement authorizing him to vote Hawkins’ shares
in Mediaware.
In October 2005, all five Plaintiffs filed a civil action against Borsy, Mediaware,
MediaTechnik, Peterfia, and i-TV in the Eastern District of Virginia. Their claims
included fraud, breach of contract, conversion, breach of fiduciary duty, and unjust
enrichment. They requested, among other things, an order that Borsy and the companies
give them the shares that they had been promised.
The Defendants failed to timely answer the complaint, and default was entered
against them. In April 2006, the Defendants finally appeared through counsel and
successfully moved to set aside the default. Peterfia and i-TV then moved to dismiss for
lack of personal jurisdiction, while Borsy, Mediaware, and MediaTechnik answered the
complaint. The district court denied i-TV and Peterfia’s motion to dismiss without
prejudice, and the case proceeded to discovery.
7
The Defendants’ participation in the litigation was short-lived. In May 2006,
Defendants’ counsel withdrew. The Plaintiffs then moved for a second entry of default
due to the Defendants’ failure to participate in discovery. The district court granted the
motion. Next, the Plaintiffs requested default judgment. That request was referred to a
magistrate judge, who recommended entering a default judgment that included over $1.5
million in compensatory relief and an injunction requiring the Defendants to deliver the
promised ownership interests.
Soon after, in September 2006, the Plaintiffs filed an emergency motion
requesting prompt entry of their requested judgment. They reported that Borsy now
claimed to have sold his shares in i-TV, and they sought an immediate injunction to
prevent “Borsy’s ongoing efforts to dissipate assets rightfully belonging to Plaintiffs and
to render any judgment in favor of Plaintiffs meaningless.” J.A. 339. The district court
granted the request in part: on October 2, 2006, it enjoined the Defendants “from
disposing or dissipating any assets, by sale, merger, or otherwise, or from undertaking
any transactions out of the ordinary course of business, without the consent of the
shareholders holding a majority of the stock in such companies.” J.A. 343–44.
In January 2007, the Plaintiffs again requested the prompt entry of default
judgment in full. They reported that Borsy had disobeyed the court’s injunction by
convening an i-TV shareholder meeting and issuing i-TV shares to Respondent DIGI
Távközlési és Szolgáltató kft (“DIGI kft.”), which thereby became the majority owner of
i-TV. In February 2007, the district court entered default judgment, adopting the
magistrate judge’s recommendation. The judgment, among other things, ordered specific
8
performance of the promised share transfers, awarding the Plaintiffs collectively majority
interests in Mediaware, MediaTechnik, i-TV, and Peterfia. It also enjoined the
Defendants “from disposing of or dissipating any assets of the defendant entities and the
defendant entities may not engage in any transactions without the consent of plaintiffs
William Hawkins, Eric Keller, Kristof Gabor, Justin Panchley, and Thomas Zato.” J.A.
376. None of the Defendants appealed from the default judgment.
In 2008, three of the Defendants—Mediaware, MediaTechnik, and Borsy—
resurfaced and, through new counsel, moved to set aside the judgment as void for lack of
subject matter jurisdiction under Rule 60(b)(4). They argued that Mediaware’s principal
place of business was Virginia when the Plaintiffs filed suit, meaning that Mediaware
was a Virginia citizen for diversity purposes. If true, that would have destroyed complete
diversity, because three of the Plaintiffs were also Virginia citizens.
The district court denied the motion from the bench. It noted that Borsy had,
during the proceedings leading up to the default judgment, entered a declaration stating
that Mediaware had no relevant contacts with Virginia. That was inconsistent with his
new, post-judgment argument that Mediaware was in fact headquartered there. We
affirmed, reasoning that the 2007 default judgment was not void unless there was “no
arguable basis” for jurisdiction. Hawkins v. Borsey, 319 F. App’x 195, 196 (4th Cir.
2008) (citing Wendt v. Leonard, 431 F.3d 410, 412–13 (4th Cir. 2005)). This standard
was not satisfied, particularly given Borsy’s earlier declaration.
9
B.
The Plaintiffs proved unable to enforce the 2007 default judgment, collecting just
over $5,000 from a retainer held by Borsy’s American attorney. Despite some contact
with DIGI kft. and the other Respondents, the Plaintiffs never initiated enforcement
proceedings in Hungary, ostensibly because the Hungarian courts would not afford them
relief. However, the Plaintiffs later learned that one of i-TV’s indirect parent companies
had sought to access the U.S. capital markets in 2012 through a bond offering and, more
recently, planned an initial public offering of stock in Romania. That apparently inspired
them to try to collect from i-TV’s owners in federal court.
Thus, in May 2017, the Plaintiffs returned to the Eastern District of Virginia.
They moved to enforce the judgment against i-TV as well as several Respondents that
were not parties to the original judgment. Four of the Respondents are companies, each
representing a link in i-TV’s chain of ownership: DIGI kft. (which owns i-TV, having
acquired it from Borsy), RCS & RDS, S.A. (a Romanian company that wholly owns
DIGI kft.), DIGI Communications N.V. (a Dutch company that controls RCS & RDS,
S.A.), and RCS Management S.A. (a Romanian company that controls DIGI
Communications N.V.). The Plaintiffs later added Zoltán Teszári (a Romanian citizen
who owns a controlling stake in RCS Management S.A.) as a Respondent. 3 The
3
The Plaintiffs also named Borsy in their motion to enforce. Borsy, however,
appears to be in the wind; he never appeared in the proceedings on the motion.
10
Respondents were served overseas pursuant to the Hague Convention on the Service
Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.
Before the district court, the Plaintiffs presented two theories for imposing liability
on the Respondents. The first is a successor-in-interest theory, according to which DIGI
kft. succeeded to the Defendants’ obligations under the default judgment when it
acquired i-TV. The second is a civil-contempt theory, which posits that DIGI kft. aided
and abetted Borsy’s violation of the district court’s injunctions. Borsy himself allegedly
violated the injunctions when he sold i-TV to DIGI kft. in a two-step transaction. First,
in October 2006, just after the district court entered its first injunction, Borsy convened a
meeting of i-TV’s shareholders and issued new shares to DIGI kft., giving it a 51%
interest in i-TV. Second, in October 2008, Borsy sold his remaining shares to DIGI kft.
through an entity incorporated in the Marshall Islands, violating the final injunction
entered in 2007. The Plaintiffs claim that DIGI kft. was “in active concert or
participation” with Borsy, Fed. R. Civ. P. 65(d)(2)(C), because it bought i-TV despite
knowing that the injunctions forbade the sale. 4
The Respondents opposed the Plaintiffs’ motion to enforce. They argued, among
other things, that the district court lacked personal jurisdiction over them as required to
4
Less clear is exactly why the Plaintiffs believe that DIGI kft.’s direct and indirect
owners should be held liable. The Plaintiffs’ motion papers below insinuated that it was
appropriate to pierce the corporate veil, arguing that “DIGI Kft. is part of a sham
ownership conglomerate designed to improperly shield its owners from liabilities.” J.A.
439. However, the Plaintiffs have never clearly articulated a veil-piercing theory, and
now appear to argue instead that DIGI kft.’s owners knew of the injunction and directed
DIGI kft. to help violate it. Response and Reply Brief of Appellants at 9.
11
grant the requested relief. The district court denied the motion to enforce without
prejudice from the bench. It concluded that the motion raised “real issues that have to be
fleshed out,” requiring discovery. J.A. 754. The court barely addressed personal
jurisdiction, noting that “when there’s an allegation of contempt of court, which is
floating around in here, that changes the jurisdiction issue.” J.A. 757.
The matter then went into discovery. The Respondents objected to the scope of
discovery, arguing that the Plaintiffs’ requests went well beyond what could reasonably
be had from foreign nonparties. The magistrate judge overseeing discovery disagreed,
telling their counsel: “I consider your clients to be parties. I consider the obligations for
your client to respond to discovery to be the same as if they were a party to this lawsuit.”
J.A. 873. The district court affirmed the magistrate judge’s ruling over the Respondents’
objections, without addressing the still-unresolved challenge to its personal jurisdiction
over them. The Respondents later failed to meet certain discovery deadlines, explaining
that legal, linguistic, and cultural differences made it difficult to obtain documents from
the various Hungarian and Romanian entities in the case. The district court was
unsympathetic and warned the Respondents that failing to meet their obligations would
have consequences, explaining, “the ultimate is I own you. You do what I tell you to
do.” J.A. 1063.
In November 2017, the Respondents alerted the district court that they had
discovered a potential jurisdictional defect in the underlying proceedings leading to the
2007 default judgment. The court’s subject matter over those proceedings was grounded
in diversity jurisdiction under 28 U.S.C. § 1332, which normally requires complete
12
diversity between the parties. When the complaint was filed in 2005, Hawkins held a
one-third ownership interest in Peterfia, having purchased it from Borsy before the “roll-
up” transaction was proposed. Peterfia is a type of Hungarian business entity known as a
“korlátolt felelősségű társaság” or “kft.” Such entities, the Respondents discovered,
might be analogous to American limited liability companies. If so, then Defendant
Peterfia had the citizenship of all of its members (including Plaintiff Hawkins) for
diversity purposes, which would destroy complete diversity. By contrast, if Peterfia were
treated as a corporation, then it would be a citizen of its place of incorporation and
principal place of business, both of which were in Hungary. In that case, diversity
jurisdiction would be proper. In November, the court stayed all discovery unrelated to
this subject matter jurisdiction issue.
Based on this alleged defect, Respondents and i-TV then moved to vacate the 2007
default judgment as void for lack of diversity jurisdiction. The parties filed dueling
reports by experts in Hungarian law that addressed whether Peterfia was more like an
American limited liability company or a corporation. The Respondents and i-TV also
filed a separate motion to vacate the 2007 default judgment as void for lack of due
process. This motion argued that DIGI kft., which by 2007 had acquired a majority
interest in i-TV, was an indispensable party to the 2007 judgment, which purported to
adjudicate ownership rights to i-TV. Not only was DIGI kft. absent from the 2007
proceedings, the motion argued, but it could not have been joined because the district
court lacked personal jurisdiction over it. Therefore, the district court could not lawfully
render a judgment affecting DIGI kft.’s ownership rights in i-TV.
13
The district court granted the first motion, holding that Peterfia was analogous to a
limited liability company and that the default judgment was therefore void for lack of
diversity jurisdiction. While the court acknowledged a lack of binding Fourth Circuit
precedent on “the appropriate test for determining whether a foreign business enterprise
is a ‘corporation’” for diversity purposes, the court concluded that Seventh Circuit case
law resolved the issue. J.A. 2021. Under the Seventh Circuit’s test, the district court
reasoned, Peterfia should not be treated as a corporation because it lacks certain features
(such as a board of directors and fully alienable shares) characteristic of American
corporations. The district court also rejected the Plaintiff’s request that it resolve any
jurisdictional problem by dropping Peterfia from the case, declining in its discretion to do
so. On that basis, the district court vacated the 2007 default judgment for lack of subject
matter jurisdiction and entered a final judgment for the Defendants in that lawsuit. It
declined to address the due process issue or the personal jurisdiction issue.
The Plaintiffs timely appeal the district court’s decision to set aside the default
judgment and enter judgment for the Defendants. We have appellate jurisdiction over the
district court’s final judgment. 28 U.S.C. § 1291. In addition, the Respondents and i-TV
timely filed a cross-appeal challenging the district court’s decision to permit discovery
from the Respondents despite their objections to personal jurisdiction—a decision
equivalent to a denial of a motion to dismiss—as well as the scope of that discovery.
Because a final order has been entered, we have appellate jurisdiction to review the
district court’s interlocutory orders. See Meadaa v. K.A.P. Enterprises, L.L.C., 756 F.3d
875, 879 (5th Cir. 2014); Pacitti v. Macy’s, 193 F.3d 766, 776–77 (3d Cir. 1999).
14
II.
We start with the district court’s order finding the 2007 default judgment void for
lack of subject matter jurisdiction. While we usually review orders denying Rule 60(b)
motions for abuse of discretion, whether a judgment is void under Rule 60(b)(4) presents
an issue of law that we review de novo. See Wendt v. Leonard, 431 F.3d 410, 412 (4th
Cir. 2005); Compton v. Alton S.S. Co., 608 F.2d 96, 107 & n.21 (4th Cir. 1979). We
conclude that the district court erred in finding the default judgment void because there
was an arguable basis for subject matter jurisdiction.
A.
To begin with, the parties dispute what legal standard the district court should
have applied to determine whether the 2007 default judgment was void for lack of subject
matter jurisdiction. We conclude that i-TV must show that there was no arguable basis
for subject matter jurisdiction. And while the Respondents argue that a different standard
should apply to them, we need not resolve their request for Rule 60(b)(4) relief in light of
our separate ruling on personal jurisdiction.
We begin with i-TV, the only Appellee who was a party to the underlying
judgment. When a defendant named in a default judgment challenges it as void for lack
of subject matter jurisdiction, the standard of review often turns on whether the defendant
participated in the proceedings leading up to the judgment. Sometimes, the defendant
never shows up at all. And that is his right: if the court lacks jurisdiction over the subject
matter of the dispute, he need not appear. Insurance Corp. of Ireland v. Compagnie des
Bauxites de Guinee, 456 U.S. 694, 706 (1982). In that case, the defendant is usually free
15
to challenge the existence of subject matter jurisdiction in a later proceeding, and so the
district court must review the jurisdictional question afresh as if it faced a motion to
dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) during the underlying
litigation. Bell Helicopter Textron, Inc. v. Islamic Republic of Iran, 734 F.3d 1175, 1181
(D.C. Cir. 2013).
A different standard applies, however, when the defendant appeared during the
proceedings resulting in the default judgment but then declined to pursue a direct appeal.
Even if the defendant did not litigate the specific issue of subject matter jurisdiction, he
had a chance to do so, meaning that principles of res judicata apply. See Insurance Corp.
of Ireland, 456 U.S. at 702 n.9. 5 In that posture, we treat the default judgment like any
other final judgment. And out of respect for the finality of judgments, we will find the
judgment void for lack of subject matter jurisdiction only in the narrowest circumstances.
It is not enough for the court issuing the judgment to have erred in asserting jurisdiction
over the case: the error must be “egregious,” representing the “rare instance of a clear
usurpation of power.” Wendt v. Leonard, 431 F.3d 410, 413 (4th Cir. 2005). So long as
there was an “arguable basis” for jurisdiction, we will uphold the judgment. Id. We
make no distinction between factual and legal errors: we have upheld a final judgment
5
Despite the Respondents’ contention, a judgment on the merits has claim-
preclusive effect that extends to issues of subject matter jurisdiction. See, e.g., Corbett v.
MacDonald Moving Servs., Inc., 124 F.3d 82, 89 (2d Cir. 1997). The converse, though,
is not true: a dismissal for lack of subject matter jurisdiction has only a narrow issue-
preclusive effect, not a broad claim-preclusive effect on other issues. See, e.g., Perry v.
Sheahan, 222 F.3d 309, 318 (7th Cir. 2000).
16
where the propriety of jurisdiction turned on an issue of law that had split the courts of
appeals, because the very existence of a circuit split suggested to us that the issue was
arguable. See id. at 414.
Here, i-TV appeared through counsel in the 2007 proceedings, only to disappear—
leading to the default judgment. When it appeared, i-TV had a chance to challenge the
court’s subject matter jurisdiction but did not. So i-TV must show there was no arguable
basis for the district court’s subject matter jurisdiction.
The Respondents assert that the “no arguable basis” standard should not apply to
them because they, unlike i-TV, were not parties to the underlying action. In their view,
they should be treated like a party to the judgment who never appeared. We find it
unnecessary to address this argument because, as we explain below, the proceedings to
enforce the judgment against the Respondents must be dismissed for lack of personal
jurisdiction. That appears to afford them all the relief they seek in this appeal: they
characterize dismissal for lack of personal jurisdiction as an “alternative ground for
affirmance” of the district court’s Rule 60(b)(4) order. Brief of Appellees/Cross-
Appellants at 59 n.12. 6 Because the Respondents will otherwise receive the relief they
6
That characterization may not be quite right. Relief from the judgment under
Rule 60(b)(4) would mean it could not be enforced against the Respondents anywhere.
The dismissal of the proceedings for lack of personal jurisdiction leaves open, at least in
theory, the prospect of enforcement proceedings in a forum that has jurisdiction over the
Respondents. But if other barriers stood in the way of such proceedings, then both forms
of relief would effectively be the same, and that may be what the Respondents believe.
Ultimately, the Respondents appear content with a dismissal based on personal
jurisdiction, and so we will go no further.
17
want, we need not address whether they, as nonparties to the judgment, would have
standing to bring a Rule 60(b)(4) motion and, if so, what standard they would have to
meet.
B.
Applying the “no arguable basis” standard, we hold that the default judgment is
not void for lack of subject matter jurisdiction.
In the initial litigation, the Plaintiffs asserted subject matter jurisdiction based on
diversity of citizenship under 28 U.S.C. § 1332(a). That provision gives the district
courts original jurisdiction over actions between “citizens of different States,” as well as
actions between “citizens of a State and citizens or subjects of a foreign state,” where the
amount in controversy is over $75,000. The statute has long been interpreted to require
complete diversity: no plaintiff may be a citizen of the same state as any defendant.
Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). Despite the apparent simplicity of
diversity jurisdiction, in practice it can become complicated, ensnaring the parties (and
judges, too) in jurisdictional disputes.
One longstanding difficulty in applying this rule lies in determining the citizenship
of business organizations. See generally Hertz Corp. v. Friend, 559 U.S. 77, 84–88
(2010) (discussing evolving treatment of corporations). Different rules apply for
corporations and unincorporated associations. A corporation has dual citizenship: it is a
citizen of its state of incorporation and the state where its principal place of business is
located. 28 U.S.C. § 1332(c)(1). The Supreme Court has been stingy in applying this
dual-citizenship rule, holding that it applies only to true-blue “corporations.” Carden v.
18
Arkoma Assocs., 494 U.S. 185, 187–189 (1990). Any other business entity, such as a
partnership, is treated as an unincorporated association, which has the citizenship of each
of its members. Id. at 189. The citizenship-of-its-members rule sometimes turns subject
matter jurisdiction into a tedious exercise in drafting organizational charts: members of
an unincorporated association may themselves be unincorporated associations, requiring
courts and litigants to trace citizenship through multiple layers of ownership.
Diversity jurisdiction here turns on how we characterize a Hungarian “korlátolt
felelősségű társaság” or “kft.” One of the Plaintiffs, Hawkins, owned one-third of
Defendant Peterfia kft. when the complaint was filed. If Peterfia is a corporation, then it
is a Hungarian citizen and diverse from all of the (American) Plaintiffs. But if Peterfia is
an unincorporated association, then it shares Hawkins’s citizenship, destroying complete
diversity. 7
Even for American entities, drawing a principled distinction between corporations
and unincorporated associations is not always easy. The twentieth century saw the
creation of new types of business entities that straddled the boundary separating
7
In their briefs, the Plaintiffs treat this as a question of fact, arguing that the
Defendants’ answers contained binding judicial admissions that Peterfia was a
corporation. That is wrong. Whether a foreign business entity is a corporation for
diversity purposes is a question of law that must be answered categorically for all
business entities of that type, not a question of fact to be answered on an entity-by-entity
basis. See, e.g., Carden, 494 U.S. at 187–92 (considering whether a “limited partnership”
organized under Arizona law was a corporation based on the general characteristics of
such partnerships). We are not bound by the parties’ prior positions in deciding that legal
issue. See Meyer v. Berkshire Life Ins. Co., 372 F.3d 261, 265 n.2 (4th Cir. 2004); United
States v. Teeter, 257 F.3d 14, 28 (1st Cir. 2001).
19
traditional corporations from traditional partnerships: professional corporations, limited
liability partnerships, limited liability companies, and so forth. Lower courts have tended
to treat these newcomers as unincorporated associations given the Supreme Court’s
parsimonious approach to “corporation” status in Carden. For example, we and the other
courts of appeals have uniformly treated limited liability companies—an innovation of
the 1970s that offers some useful features of corporations (limited liability and separate
legal personality) but remains sufficiently distinct to warrant tax treatment as
partnerships—as unincorporated associations. See Zambelli Fireworks Mfg. Co. v. Wood,
592 F.3d 412, 420 (3d Cir. 2010) (collecting cases). Still, the results sometimes seem
arbitrary. Courts have generally found that all entities denominated as “corporations,”
even entities like professional corporations that differ in important ways from traditional
corporations, should be considered corporations for diversity purposes. Hoagland ex rel.
Midwest Transit, Inc. v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737, 739–43
(7th Cir. 2004).
The situation does not get any easier when we turn to foreign business entities,
particularly those from civil-law jurisdictions whose legal traditions differ from our own.
At one point, the Supreme Court seemed to suggest a more generous approach for
recognizing foreign business entities as “corporations.” In Puerto Rico v. Russell & Co.,
288 U.S. 476 (1933), the Court considered the citizenship of a “sociedad en comandita,”
a Puerto Rican business entity that had some features of a corporation (in particular,
separate legal personality) but some features of a partnership (some members did not
have limited liability). See id. at 480–81. The Court reasoned that this entity was “a
20
juridical person” and therefore a citizen of Puerto Rico, even though none of its members
was a Puerto Rican citizen. Id. at 481. This reasoning suggests that, for foreign business
entities, legal personhood alone should be the feature distinguishing foreign corporations
from foreign unincorporated associations. If adopted, that reasoning would sharply
diverge from our approach to domestic business entities, for we have treated American
limited liability companies as unincorporated associations even though they too have
separate legal personhood. The Supreme Court has since suggested that Russell’s
holding may be limited to its facts; certainly, it extends no further than foreign entities
from civil-law jurisdictions. Carden, 494 U.S. at 190. Since calling Russell into doubt,
however, the Court has not clarified how to determine whether a business entity
organized under the laws of a civil-law jurisdiction is a corporation.
Without guidance from the Supreme Court, the Seventh Circuit has adopted an
approach that involves examining the foreign entity’s substantive features and comparing
them to the characteristic features of an American corporation. See, e.g., BouMatic, LLC
v. Idento Operations, BV, 759 F.3d 790, 791 (7th Cir. 2014); Lear Corp. v. Johnson Elec.
Holdings Ltd., 353 F.3d 580, 582–83 (7th Cir. 2003). Those characteristic features
include “perpetual existence, govern[ance] by a Board of Directors, ab[ility] to issue
tradable shares . . . , and treat[ment] as independent of its equity investors—who are
neither taxable on its profits nor liable for its debts.” Lear, 353 F.3d at 583.
The Respondents and i-TV urge us to adopt the Seventh Circuit’s approach, which
they argue makes clear that Hungarian kfts. more closely resemble limited liability
21
companies than corporations. We find, however, that there are at least two “arguable
bases” for treating Peterfia as a corporation.
First, our circuit has not yet adopted any approach to characterizing foreign civil-
law business entities for diversity purposes. We have not espoused the Seventh Circuit’s
approach. Nor have we firmly rejected the Supreme Court’s more generous approach in
Russell, 8 under which Peterfia surely would count as a “corporation” because it has
separate legal personhood. Thus, it remains an open question in this Circuit whether to
apply the Seventh Circuit’s approach, the approach in Russell, or some other, entirely
different approach. To be sure, we might well be inclined to adopt the Seventh Circuit’s
approach if we were reviewing the issue de novo. But the only issue before us is whether
there is a colorable argument for a different approach under which Peterfia is a
corporation. In this Circuit, there is.
Second, even under the Seventh Circuit’s approach, the issue can be remarkably
slippery. The Seventh Circuit itself has admitted that “[d]eciding whether a business
enterprise based in a foreign nation should be treated as a corporation for the purpose of
[diversity jurisdiction] can be difficult.” Fellowes, Inc. v. Changzhou Xinrui Fellowes
Office Equip. Co., 759 F.3d 787, 788 (7th Cir. 2014). “Businesses in other nations may
8
A panel of this court did suggest, in R.H. Bouligny, Inc. v. United Steelworkers of
America, AFL-CIO, 336 F.2d 160 (4th Cir. 1964), aff’d, 382 U.S. 145 (1965), that Russell
had no bearing on the scope of diversity jurisdiction at all, because it involved a
jurisdictional statute specific to Puerto Rico. Id. at 162–63. Yet Carden threw cold water
on that conclusion, explaining that Russell had “arguable relevance” to the issue of how
to analyze the citizenship of business entities for diversity purposes. 494 U.S. at 190 n.2.
22
have attributes that match only a subset of those that in the United States distinguish a
‘corporation.’” Id. This problem is made worse by the mismatch between the Seventh
Circuit’s labels-based approach to domestic business entities and its features-based
approach to foreign business entities. The Seventh Circuit, like other courts, has accepted
some entities that lack all the features of traditional corporations (such as professional
corporations) as corporations for diversity purposes, while rejecting others (such as
limited liability companies), based almost entirely on whether that type of business entity
is called a “corporation.” See Hoagland, 385 F.3d at 743. That makes it difficult to
compare foreign entities to American entities based on their features alone.
The Seventh Circuit’s decision in BouMatic, LLC v. Idento Operations, BV, 759
F.3d 790, shows how hard this analysis can be. There, the court considered a type of
Dutch entity known as a “besloten vennootschap met beperkte aansprakelijkheid,” or
“BV.” The court noted that a BV “has the standard elements of ‘personhood’ (perpetual
existence, the right to contract and do business in its own name, and the right to sue and
be sued) and issues shares to investors who enjoy limited liability.” Id. at 791. The
shares are alienable, subject to any restrictions imposed by the business. Id. These
features, the Seventh Circuit concluded, caused a BV to resemble professional
corporations and other closely held corporations that are treated as “corporations” for
diversity purposes. Id.
The difficulty is that closely held corporations share most of these features with
limited liability companies. The one exception is that a corporation issues “shares” while
a limited liability company has “membership” interests. See, e.g., Fellowes, 759 F.3d at
23
788. In many respects, however, this distinction is purely semantic. Is the difference that
shares, but not membership interests, are freely alienable? Apparently not, because
membership interests in limited liability companies are often more freely alienable than
are shares in professional corporations. Shares in professional corporations usually can
be issued only to licensed professionals, see, e.g., 8 Del. C. § 610, and sometimes have
other sales restrictions as well, see 8 Del. C. § 612 (by default, transfers of shares must be
approved by majority of other shareholders). By contrast, as a default rule, economic
interests in a limited liability company are fully alienable, although governance interests
are not. See, e.g., 6 Del. C. § 18-702; Uniform Limited Liability Company Act § 502 &
cmt. (Nat’l Conf. of Comm’rs on Unif. State Laws 2013). Indeed, a few limited liability
companies have been publicly listed. See generally Suren Gomtsian, The Governance of
Publicly Traded Limited Liability Companies, 40 DEL. J. CORP. L. 207 (2015).
Alternatively, does the distinction lie in the fact that shares are embodied in certificates,
while membership interests are not? Here too, the distinction seems illusory. A stock
certificate is hardly what makes a share a share: some corporations do not have
certificates at all, and in any event, certificates are merely evidence of ownership of
shares, not the shares themselves. See 11 FLETCHER CYCLOPEDIA OF THE LAW OF
CORPORATIONS §§ 5089, 5091–5092. Moreover, at least some jurisdictions permit a
limited liability company to issue membership certificates. See Uniform Limited
Liability Company Act § 502(d); 6 Del. C. § 18-702(c).
The reasoning of BouMatic supports a colorable argument (but perhaps not a
persuasive one) for an analogy between a kft. and a closely held corporation. The parties
24
do not appear to dispute that a kft. has legal personality and limited liability for investors.
The main feature distinguishing a kft. from the foreign entity in BouMatic is that a kft.
has “quotas” rather than “shares.” Perhaps this is a difference in name only: the
Plaintiffs’ expert explained that, even if quotas in a kft. are subject to a right of first
refusal by default, this default rule can be changed. See J.A. 1571–72 (Plaintiffs’ expert
report). Similar default restrictions sometimes apply to shares in professional
corporations. See 8 Del. C. § 612. We also note that, while i-TV now asserts that this
issue was not even arguable, during the initial proceedings, its prior counsel (which also
represented Peterfia) described Peterfia as a “non-publicly traded corporation.” J.A. 86.
In the end, the Respondents and i-TV may be right that a Hungarian kft. is an
unincorporated association for diversity purposes. But this issue is arguable (and
certainly was arguable in 2007, when the judgment was entered). Therefore, the district
court erred in finding the judgment void for lack of subject matter jurisdiction. We need
not address the Plaintiffs’ alternative argument that the district court erred in declining to
drop Peterfia as a defendant to save the judgment.
C.
The Respondents and i-TV argue for affirmance on the alternative ground that the
judgment was void for lack of due process. We may decline to consider an alternative
ground for affirmance that was not addressed by the district court, see, e.g., United States
ex rel. Carson v. Manor Care, Inc., 851 F.3d 293, 307 (4th Cir. 2017), and we do so here.
We leave this argument for the district court on remand.
25
III.
We now turn to the cross-appeal, in which Respondents, all foreign persons, argue
that they lacked adequate contacts with the forum to support personal jurisdiction over
them. The district court’s orders of June 30, 2017—which denied without prejudice the
Plaintiffs’ motion to enforce and compelled the Respondents to submit to expansive
discovery—had the same effect as a denial of a motion to dismiss a complaint for lack of
personal jurisdiction under Rule 12(b)(2). We therefore apply the standards governing
Rule 12(b)(2) motions in reviewing the district court’s orders.
When personal jurisdiction is addressed under Rule 12(b)(2) without an
evidentiary hearing, the party asserting jurisdiction has the burden of establishing a prima
facie case of jurisdiction. This “prima facie case” analysis resembles the plausibility
inquiry governing motions to dismiss for failure to state a claim under Rule 12(b)(6).
That is, the district court must determine whether the facts proffered by the party
asserting jurisdiction—assuming they are true—make out a case of personal jurisdiction
over the party challenging jurisdiction. Sneha Media & Entm’t, LLC v. Associated
Broad. Co. P Ltd., 911 F.3d 192, 196–97 (4th Cir. 2018). Unlike under Rule 12(b)(6),
the court may also consider affidavits submitted by both parties, although it must resolve
all factual disputes and draw all reasonable inferences in favor of the party asserting
jurisdiction. Universal Leather, LLC v. Koro AR, S.A., 773 F.3d 553, 560 (4th Cir. 2014).
The existence of a prima facie case of jurisdiction is a question of law we review de
novo. See Carefirst of Maryland, Inc. v. Carefirst Pregnancy Centers, Inc., 334 F.3d
390, 396 (4th Cir. 2003).
26
Here, it is unclear whether the district court evaluated whether the Plaintiffs made
out a prima facie case of personal jurisdiction. The court did not provide a written
opinion explaining its decision to permit discovery in the face of the Respondents’
personal-jurisdiction challenge. Ruling from the bench, the court made only a passing
remark about personal jurisdiction, noting: “when there’s an allegation of contempt of
court, which is floating around in here, that changes the jurisdiction issue.” J.A. 757.
Reviewing the issue de novo, we conclude that the Plaintiffs did not make out a
prima facie case of personal jurisdiction over the Respondents. In their motion papers,
the Plaintiffs advanced two alternative theories of personal jurisdiction: (1) that
Respondents were successors-in-interest to the Defendants, and as such could be
substituted in as parties under Rule 25(c); and (2) that Respondents aided and abetted
Borsy in violating the district court’s injunctions when they purchased i-TV, and that this
represented a “super-contact” with the forum that alone permitted the exercise of personal
jurisdiction over the Respondents. We reject the first theory for procedural reasons. We
also conclude that the Plaintiffs’ “super-contact” theory is insufficient as a matter of law.
A.
We start with the Plaintiffs’ successor-in-interest theory. In principle, such a
theory can establish personal jurisdiction: where one corporation has succeeded to
another’s liabilities, the predecessor corporation’s forum contacts can be imputed to the
successor corporation. See City of Richmond v. Madison Mgmt. Grp., Inc., 918 F.2d 438,
454–55 (4th Cir. 1990). But it does not work here.
27
This theory has been a moving target. In the proceedings below, the Plaintiffs
argued that the Respondents were successors-in-interest to the “Original Defendants,”
without clearly specifying which ones. J.A. 444. Yet the arguments they presented could
only have applied to the defendant companies, such as i-TV. The Plaintiffs sought to
apply Virginia’s test for successor liability arising from asset transfers, which requires
that either: “(1) the purchasing corporation expressly or impliedly agreed to assume [the
predecessor corporation’s] liabilities, (2) the circumstances surrounding the transaction
warrant a finding that there was a consolidation or de facto merger of the two
corporations, (3) the purchasing corporation is merely a continuation of the selling
corporation, or (4) the transaction is fraudulent in fact.” J.A. 444–45 (emphasis omitted)
(quoting Kaiser Found. Health Plan of Mid-Atl. States v. Clary & Moore, P.C., 123 F.3d
201, 204 (4th Cir. 1997)). This test applies when one company has bought the assets of
another. See Kaiser, 123 F.3d at 204; Harris v. T.I., Inc., 413 S.E.2d 605, 608–609 (Va.
1992). The Plaintiffs never presented the district court with any argument grounded in
Virginia law to support a theory that the Respondents’ predecessor-in-interest was a
natural person, even though the Plaintiffs insist that Virginia law governs this issue. 9
9
We have our doubts about the Plaintiffs’ claim that Virginia law governs
successor-in-interest liability. In diversity cases, district courts do not always apply the
laws of the forum state; rather, they apply the forum state’s conflict-of-laws rules to
determine which law to apply. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941). And there are good reasons to doubt whether, under conflict-of-laws
principles, Virginia law should determine whether a Hungarian business entity that
bought another Hungarian entity in Hungary is liable for the debts of the seller, who also
happened to be a Hungarian national. Nonetheless, since the Respondents have not
raised the issue, we need not address it.
28
Thus, any such theory is waived for purposes of appeal. See Pornomo v. United States,
814 F.3d 681, 686 (4th Cir. 2016).
Now, on appeal, the Plaintiffs have disclaimed any theory that the Respondents
succeeded to the liabilities of i-TV or one of the other company defendants, asserting
instead that they are successors-in-interest to Borsy. Response and Reply Brief of
Appellants at 53. The Plaintiffs thus limit themselves to the very theory they did not
properly preserve for appeal: that the Respondents succeeded to the liabilities of a
natural person. By changing horses midstream, the Plaintiffs have sunk their successor-
in-interest theory. Thus, this cannot support their assertion of personal jurisdiction.
B.
The Plaintiffs’ next theory is that the Respondents were “in active concert” with
Borsy insofar as they aided and abetted his violation of the district court’s injunction,
Fed. R. Civ. P. 65(d)(2)(C), and that this fact suffices to establish personal jurisdiction.
The Fifth Circuit’s opinion in Waffenschmidt v. MacKay, 763 F.2d 711 (5th Cir. 1985), is
the seminal authority advancing this theory. For the reasons we explain below,
Waffenschmidt’s reasoning, to the extent it is viable at all, cannot be applied to foreign
nonparties like the Respondents. To exercise jurisdiction over a foreign nonparty, a
district court must find that the nonparty has minimum contacts with the forum, and as
the facts of this case demonstrate, aiding-and-abetting a violation of an injunction issued
by the forum court will not always suffice.
The Waffenschmidt court articulated two independent theories to support the
exercise of jurisdiction over nonparty aiders-and-abettors. First, it held that federal
29
district courts have the inherent authority to enforce their injunctions nationwide, and that
this authority necessarily includes the power to enforce injunctions against nonparties
who aid and abet violators. 763 F.2d at 716–17. It also held, in the alternative, that the
very act of aiding-and-abetting represents a sufficient contact with the forum state. See
id. at 717, 721–23. Under this alternative theory, the act of aiding-and-abetting is
sometimes called a “super-contact” because it alone supplies the “minimum contacts”
required for a court to exercise personal jurisdiction. See generally Julia K. Schwartz,
Comment, “Super Contacts”: Invoking Aiding-and-Abetting Jurisdiction to Hold
Foreign Nonparties in Contempt of Court, 80 U. CHI. L. REV. 1961 (2013).
We start our own analysis from fundamentals. To enter a judgment that
adjudicates the rights of a party, a federal court must have personal jurisdiction over that
party. Personal jurisdiction requires valid service of process that comports with due
process. Omni Capital Int’l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104 (1987). That
is, unless the party consents to jurisdiction, there must be (1) service that complies with
the requirements of an applicable rule or statute, as well as (2) “minimum contacts” with
the forum so that the exercise of jurisdiction “does not offend traditional notions of fair
play and substantial justice,” International Shoe Co. v. Washington, 326 U.S. 310, 316
(1945). When the defendant is “at home” in the forum, then its contacts are so strong that
it can be sued there on any cause of action without offending due process. See Daimler
AG v. Bauman, 134 S. Ct. 746, 751 (2014). This general or “all-purpose” jurisdiction is
not at issue here, because the Respondents are not at home in the United States. Instead,
30
this case is about specific or “case-linked” jurisdiction, meaning there must be contacts
related to this lawsuit. See Walden v. Fiore, 134 S. Ct. 1115, 1121 n.6 (2014).
Compliance with these basic personal-jurisdiction requirements is necessary to
start contempt proceedings against a nonparty aider-and-abettor. When an aider-and-
abettor was not a party to the underlying proceedings that led to the injunction, it must
nonetheless be made a party to the contempt proceedings. Zenith Radio Corp. v.
Hazeltine Research, Inc., 395 U.S. 100, 112 (1969); Lake Shore Asset Mgmt. Ltd. v.
CFTC, 511 F.3d 762, 767 (7th Cir. 2007). And that necessarily requires valid service of
process comporting with the Constitution. 10 Armed with these principles, we address
each of Waffenschmidt’s theories.
1.
According to Waffenschmidt’s first theory, district courts have inherent,
nationwide authority to institute civil contempt proceedings against nonparties who aid
and abet violations of injunctions and thus are “in active concert or participation” with a
party under Rule 65(d)(2). Without deciding whether this theory is viable as applied to
domestic aiders-and-abettors, we conclude that it does not extend to foreign ones. The
reason is simple: it would violate due process for a district court to reach foreign aiders-
and-abettors that lacked any contacts with the United States. See ESAB Grp., Inc. v.
10
In this appeal, the Respondents have raised only the constitutional aspect of
jurisdiction. They do not contest that they were served overseas in the manner prescribed
by the Hague Convention. Nor have they questioned whether Rule 4.1(b) limits the
service of orders to show cause that initiate a contempt proceeding.
31
Centricut, Inc., 126 F.3d 617, 626 (4th Cir. 1997) (explaining that due process “limits the
extraterritorial scope of federal sovereign power”). Accordingly, no court of appeals has
extended Waffenschmidt’s first theory to foreign nonparties, see Gucci America, Inc. v.
Weixing Li, 768 F.3d 122, 137 (2d Cir. 2014), and we decline to do so here. 11 Alleged
foreign nonparty contemnors must therefore have minimum contacts with the forum. 12
Even for foreign nonparties, the overall viability of Waffenschmidt’s first theory
may matter for the minimum-contacts analysis. If the theory is correct and courts may
exercise jurisdiction over nonparty aiders-and-abettors nationwide, then we should
arguably adopt a “national contacts” analysis, looking to foreign nonparties’ contacts
with the entire United States, not just the forum state. Cf. ESAB Group, 126 F.3d at 626–
27 (holding, where Congress had authorized nationwide service of process, that
jurisdiction over defendants served in the United States was proper despite inadequate
contacts with forum state). Still, we need not decide the issue today: the Respondents’
only alleged suit-related contacts with the United States were with Virginia. Thus, we
11
The Seventh Circuit has suggested U.S. citizenship might be a sufficient hook
for exercising personal jurisdiction over an aider-and-abettor, even if the relevant conduct
occurred overseas. See SEC v. Homa, 514 F.3d 661, 675 (7th Cir. 2008). We express no
view on that theory, which is not relevant here.
12
We note that our sister circuits have split on whether Waffenschmidt’s first
theory applies at all in diversity cases like this one. Compare ClearOne Commc’ns, Inc.
v. Bowers, 651 F.3d 1200, 1214–16 (10th Cir. 2011) (applying Waffenschmidt in
diversity case), with Canterbury Belts Ltd. v. Lane Walker Rudkin, Ltd., 869 F.2d 34, 40
(2d Cir. 1989) (holding that personal jurisdiction over alleged nonparty contemnor in
diversity action had to be supported by adequate contacts with forum state). Yet we need
not weigh in on that split, because it is clear that this theory does not apply to foreign
nonparties.
32
may turn to the “minimum contacts” analysis without resolving the viability of
Waffenschmidt’s first theory as a general matter.
2.
To satisfy the “minimum contacts” test, the Plaintiffs rely on Waffenschmidt’s
second, alternative theory: that the mere act of aiding and abetting a violation of an
injunction under Rule 65(d)(2) is necessarily a sufficient contact to support personal
jurisdiction. See 763 F.2d at 717, 721–23. We reject this theory because it sweeps too
broadly: the mere act of aiding and abetting is not always enough to provide minimum
contacts.
Waffenschmidt held that the in-forum “effects” of the nonparties’ conduct
established personal jurisdiction over them. In that case, a district court in Mississippi
had enjoined the defendant from dissipating the proceeds of a stock sale. He did so
anyway, transferring the funds from Mississippi to nonparty Texas residents. Id. at 714,
720–21. The Fifth Circuit found that the nonparty aider-and-abettors’ conduct had two
“effects” in Mississippi that constituted minimum contacts with the jurisdiction. First,
the nonparty aiders-and-abettors “intended that their actions would have the effect of
placing funds outside the reach of the Mississippi forum.” Id. at 723. Second,
“intentionally violating a court’s orders has a substantial effect on the administration of
justice in general, as well as the proper completion of the [plaintiffs’] litigation in
particular.” Id.
Waffenschmidt’s “effects” analysis cannot be generalized to every case of aiding
and abetting. It is true that the in-forum effects of out-of-forum conduct can constitute
33
minimum contacts with the forum sufficient to support personal jurisdiction. See
Walden, 134 S. Ct. at 1123–24 (citing Calder v. Jones, 465 U.S. 783 (1984)). There are,
however, important limitations on this principle. These effects must create a connection
to the forum, not just to parties who happen to live there. See id. at 1122–23. The
connection must be “substantial.” Id. at 1121. And a person cannot be haled into the
forum simply because he knew that his conduct would have incidental effects there; he
must have “expressly aimed” his conduct at the forum. Id. at 1124 n.7 (quoting Calder,
465 U.S. at 789); see Consulting Engineers Corp. v. Geometric Ltd., 561 F.3d 273, 280–
81 (4th Cir. 2009); Carefirst, 334 F.3d at 398–99. Put differently, the forum must be the
“focal point” of the conduct. E.g., Consulting Engineers, 561 F.3d at 280.
For two independent reasons, aiding-and-abetting under Rule 65(d)(2)(C) does not
always satisfy the “effects” test. First, as our facts demonstrate, there may not always be
a substantial effect—purposeful or otherwise—in the forum. In Waffenschmidt, the
nonparty respondents participated in transactions that took funds out of the forum
(Mississippi) and put them somewhere else (Texas). Here, by contrast, the property at
issue (shares in i-TV) appears to have been located—at all relevant times—in Hungary.
When the Respondents acquired this property, it did not move beyond the reach of the
district court; it merely moved from one inaccessible location overseas to another. 13 The
13
Of course, the district court appears to have personal jurisdiction over Borsy
both for procedural reasons (while he raised personal jurisdiction in his answer, he then
disappeared and never filed a direct appeal of the default judgment against him) and
substantive ones (some of Borsy’s allegedly fraudulent dealings with the Plaintiffs
(Continued)
34
lack of any real in-forum effect is shown by the Plaintiffs’ inability to enforce their
judgment against Borsy’s Hungarian assets. Apart from a $5,000 retainer in the hands of
Borsy’s American lawyers, the Plaintiffs have gotten nothing out of Borsy over the last
decade. Thus, transferring the shares from Borsy to DIGI kft. had no practical effect on
the “proper completion of the [Plaintiffs’] litigation.” Waffenschmidt, 763 F.3d at 723.
Nor was there any other in-forum effect that, from a practical standpoint, can be
characterized as substantial.
True, there is always an in-forum effect in the sense that any knowing violation of
an injunction represents an affront to the dignity of the district court. But this effect is
plainly not substantial enough to support personal jurisdiction. Every time a person
knowingly violates a lawful command—whether imposed by an injunction, by a
regulation, by a statute, or otherwise—that represents an affront to the body that issued
the command. Just as a violation of a district-court injunction is an affront to the court,
so a violation of a state statute is an affront to the state legislature. Yet a violation of the
forum’s law, standing alone, is not enough to establish personal jurisdiction—if that were
true, then personal jurisdiction would always follow the merits, which of course is not
correct.
Second, and independently, aiding-and-abetting under Rule 65(d)(2)(C) does not
necessarily involve the sort of “express aiming” at the forum that the effects test requires.
occurred in Virginia). But that does not change the calculus for the Respondents, whose
contacts with Borsy—which postdated the alleged fraud—occurred entirely abroad.
35
One person can help another violate an injunction for selfish reasons that make him
merely indifferent to any effect in the forum. Cf. Inst. of Cetacean Research v. Sea
Shepherd Conservation Soc’y, 774 F.3d 935, 950 (9th Cir. 2014) (holding that “the party
giving assistance need not affirmatively desire to cause a violation of the injunction; it is
enough that the party know a violation is highly likely to occur”). Once again, the facts
of this case are illustrative. The Plaintiffs have plausibly alleged, at most, that the
Respondents bought i-TV from Borsy despite knowing that the sale would violate the
injunction. Yet mere knowledge of an incidental in-forum effect falls short of express
aiming. Nothing in the record suggests that the Respondents, in buying i-TV, aimed their
conduct at Virginia or, more broadly, the United States as a whole.
For these reasons, the act of aiding-and-abetting does not necessarily constitute the
“minimum contacts” that due process requires. This conclusion finds support in the
serious comity concerns that would arise if we permitted the exercise of personal
jurisdiction over foreign nonparties based on purely foreign conduct. The Supreme Court
has cautioned, in other contexts, that the careless extension of personal jurisdiction over
foreigners could antagonize other nations and make them less likely to respect our
judgments. See Daimler, 134 S. Ct. at 762–63. The same concern applies here: other
nations would surely look askance at us if a mere allegation of aiding-and-abetting,
occurring entirely overseas, sufficed to provide our courts with jurisdiction over their
citizens. Alternatively, foreign courts might reciprocate, asserting jurisdiction over U.S.
citizens based on our conduct at home—an equally alarming prospect. Again, no court of
appeals has extended the reasoning of Waffenschmidt to foreign conduct by foreign
36
nationals, see Gucci America, 768 F.3d at 137, and we decline the Plaintiffs’ invitation to
become the first.
In this case, the Plaintiffs have identified no suit-related forum contacts apart from
their allegation of aiding-and-abetting. 14 They suggest that they should get jurisdictional
discovery to identify other relevant contacts. Yet they have already obtained extensive
discovery, and they do not suggest what other contacts they hope to uncover, meaning
that further discovery would simply be a fishing expedition.
We therefore conclude that the district court lacks jurisdiction over the
Respondents, who must be dismissed from these proceedings.
C.
The lack of personal jurisdiction over the Respondents may not necessarily end
this litigation. The district court continues to have personal jurisdiction over i-TV, which
was a party to the 2007 judgment. Yet it is unclear whether, as a practical matter, the
Plaintiffs’ attempt to enforce their judgment against i-TV in federal court is more than a
fool’s errand: i-TV appears to have no U.S. presence. And there are other issues, like
laches, that potentially stand in the way of the Plaintiffs’ attempt to enforce the 2007
14
At oral argument, the Plaintiffs suggested that there might be another contact
with the forum: Borsy allegedly put funds he acquired from the forum (that is, from the
Plaintiffs themselves) into i-TV. While this may represent a meaningful contact between
i-TV and the forum, there is no basis to attribute that contact to the Respondents who
later purchased i-TV. As explained above, the Plaintiffs have disavowed any theory that
the Respondents succeeded to i-TV’s liabilities. The Plaintiffs also referenced the
Respondents’ efforts to access the U.S. capital markets, but these are not suit-related
contacts that could support their assertion of specific jurisdiction.
37
injunction against i-TV. Still, we leave those issues for the district court to determine in
the first instance.
IV.
For the reasons given, we reverse the district court’s grant of Rule 60(b)(4) relief
and remand with an instruction that the Respondents be dismissed from the proceedings
for lack of personal jurisdiction.
REVERSED AND REMANDED
38