126 F.3d 617 (4th Cir. 1997), 96-2504, ESAB Group, Inc. v. Centricut, Inc.

Docket Nº:96-2504.
Citation:126 F.3d 617
Party Name:44 U.S.P.Q.2d 1490 ESAB GROUP, INCORPORATED, Plaintiff-Appellee, v. CENTRICUT, INCORPORATED; Thomas Aley, Defendants-Appellants, and John Bergen; Thomas Fitzpatrick; Gordon Thomas Aley; Linda Aley, d/b/a Corbin Consulting; Mark Lindberg, Defendants.
Case Date:October 17, 1997
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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126 F.3d 617 (4th Cir. 1997)

44 U.S.P.Q.2d 1490



CENTRICUT, INCORPORATED; Thomas Aley, Defendants-Appellants,


John Bergen; Thomas Fitzpatrick; Gordon Thomas Aley;

Linda Aley, d/b/a Corbin Consulting; Mark

Lindberg, Defendants.

No. 96-2504.

United States Court of Appeals, Fourth Circuit

October 17, 1997

Argued July 9, 1997.

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ARGUED: John Phillips Linton, Sinkler & Boyd, P.A., Charleston, SC, for Appellants. C. Craig Young, Willcox, McLeod, Buyck & Williams, Florence, SC, for Appellee. ON BRIEF: Manton M. Grier, Sinkler & Boyd, P.A., Columbia, SC, for Appellants. Wm.

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Reynolds Williams, Willcox, McLeod, Buyck & Williams, Florence, SC, for Appellee.

Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Judge MOTZ joined.


NIEMEYER, Circuit Judge:

In this case we must determine whether the district court in South Carolina obtained personal jurisdiction over New Hampshire defendants pursuant to a complaint alleging a civil RICO claim and related state law claims. The district court, relying on South Carolina's long-arm statute, found that the defendants' intentional tortious conduct directed at the South Carolina plaintiff supplied sufficient minimum contacts to satisfy the requirements of the South Carolina statute and the Fourteenth Amendment.

For reasons that follow, we disagree with the district court's rationale. But we nonetheless affirm the district court's finding of personal jurisdiction over the defendants because of the nationwide service of process authorized by the RICO statute and the doctrine of pendent personal jurisdiction.


The ESAB Group, Inc. is a Delaware corporation located in Florence, South Carolina, which engages in the business of developing and manufacturing welding and cutting systems. In its amended complaint against Centricut, Inc., Thomas Aley, and others, the ESAB Group alleged that Centricut and Aley participated in a conspiracy to appropriate the ESAB Group's trade secrets and customer lists. The complaint alleged that they accomplished this with the assistance of John Bergen, a Florida resident who served as an ESAB Group sales representative in Florida from 1980 to 1984 and as the ESAB Group's regional sales manager in Florida from 1987 to 1995. The ESAB Group charged in its amended complaint that the misappropriation was effected "pursuant to an intentional plan ... to appropriate Plaintiff's business" and by means of a "scheme or artifice to defraud." The complaint contains six counts based on state law, alleging conspiracy, intentional interference with economic relations, breach of contract accompanied by a fraudulent act, South Carolina Unfair Trade Practices Act violations, misappropriation of trade secrets, intentional interference with prospective contractual relations, and entitlement to equitable relief. It also contains a count for civil RICO based on 18 U.S.C. § 1962.

Centricut is a New Hampshire limited liability company that manufactures and sells replacement parts for cutting machines, and arguably competes to some degree with the ESAB Group. Centricut conducts its business entirely through mail order. It has no offices or sales representatives in South Carolina; it has no property in South Carolina; it has no phone listings there; and it has never paid South Carolina taxes. Moreover, it claims that no employee has ever traveled to South Carolina "for any purpose." As of 1995, Centricut did have 26 customers who resided in South Carolina, constituting 1% of all of its customers and representing .079% of its gross annual sales. It also purchased on one occasion between $10,000 and $20,000 worth of parts from a South Carolina supplier. Centricut stated that it had never targeted formal advertising at South Carolina, having only once published formal advertising in a trade journal of national circulation.

Aley, Centricut's CEO at the time, stated in an affidavit that he was a New Hampshire resident until November 1995 and a Florida resident thereafter. He stated that for the past 25 to 30 years he has never been in South Carolina and that he has conducted no business and owns no property there.

Centricut and Aley filed several motions, one of which sought to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(2), alleging that their contacts with South Carolina were insufficient to subject them to personal jurisdiction there. The ESAB Group responded that the defendants "purposefully directed their activities toward the State of South Carolina and its corporate

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citizens, and this litigation arises from those activities." The ESAB Group claimed alternatively that the court had personal jurisdiction over the defendants by reason of the nationwide service of process in RICO actions permitted by 18 U.S.C. § 1965(b).

The district court denied the motion to dismiss, holding that it had personal jurisdiction over Centricut and Aley, based on "the effects test" drawn from Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984). The district court said that because Centricut's actions "were designed to damage the [South Carolina] plaintiff ... and did damage the plaintiff," it was fair to hale Centricut into a South Carolina court. The district court granted leave to the defendants to file an interlocutory appeal under 28 U.S.C. § 1292(b), and we did likewise.


Federal district courts may exercise in personam jurisdiction only to the degree authorized by Congress acting under its constitutional power to "ordain and establish" the lower federal courts. U.S. Const. art. III, § 1; see also id. art. I, § 8, cl. 9. The exercise of personal jurisdiction is also constrained by the Due Process Clause of the Fifth Amendment. See Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97, 103-04, 108 S.Ct. 404, 409, 98 L.Ed.2d 415 (1987). As prerequisites to exercising personal jurisdiction over a defendant, a federal court must have jurisdiction over the subject matter of the suit, venue, "a constitutionally sufficient relationship between the defendant and the forum," and "authorization for service of a summons on the person." Id. at 104, 108 S.Ct. at 409. Thus, a federal court's exercise of jurisdiction over a person is closely linked to effective service of process.

Federal Rule of Civil Procedure 4(k)(1) provides that "[s]ervice of a summons or filing a waiver of service is effective to establish [a federal court's] jurisdiction over the person of a defendant" if such service is accomplished on a defendant whom the law has made amenable to the court's process. See also Omni Capital, 484 U.S. at 104, 108 S.Ct. at 409. Rule 4(k) enumerates five sources authorizing service to effect in personam jurisdiction: (1) state law; (2) Federal Rules of Civil Procedure 14 and 19 (relating to third party practice and joinder), provided service is effected "not more than 100 miles from the place from which the summons issues"; (3) the federal interpleader statute, 28 U.S.C. § 1335; (4) federal statute; and (5) Federal Rule of Civil Procedure 4(k)(2) itself, to enforce claims "arising under federal law" on defendants who are not subject to the jurisdiction of any state.

In the district court, the ESAB Group argued that it had served the defendants in the manner specified by South Carolina's long-arm statute, S.C.Code Ann. §§ 36-2-803(1)(c) & (d), and by RICO, 18 U.S.C. § 1965. Because the district court held that the ESAB Group had effectively served the defendants under South Carolina's long-arm statute, the court did not address whether service was effective under the RICO statute.

When authorized by Federal Rule of Civil Procedure 4(k)(1)(A), service of process sufficient to exercise jurisdiction over a defendant is limited by state law, so that any challenge to the personal jurisdiction requires us to assess the jurisdiction of the courts in the state where the district court is located. Centricut and Aley contend that service on them under South Carolina's long-arm statute crossed the boundaries of that statute as constrained by the Fourteenth Amendment and that the district court erred in finding such service effective.

Since in personam jurisdiction of a state court is limited by that state's laws and by the Fourteenth Amendment, we first inquire whether the state long-arm statute authorizes the exercise of jurisdiction over the defendant. See Wolf v. Richmond County Hosp. Auth., 745 F.2d 904, 909 (4th Cir.1984). If it does, we must then determine whether the state court's exercise of such jurisdiction is consistent with the Due Process Clause of the Fourteenth Amendment. See id. Because Rule 4(k)(1)(A) delimits the scope of effective federal service in terms of the limits on...

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