SEC v. Ross

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