S.E.C. v. Bilzerian

• Decision Date: 13 August 2004
• Docket Number: No. 03-5237.,03-5237.
• Citation: 378 F.3d 1100
• Parties: SECURITIES AND EXCHANGE COMMISSION, and Deborah R. Meshulam, Appellees, v. Paul A. BILZERIAN Appellee. Ernest B. Haire, III, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1100

378 F.3d 1100

SECURITIES AND EXCHANGE COMMISSION, and Deborah R. Meshulam, Appellees, v. Paul A. BILZERIAN Appellee.

Ernest B. Haire, III, Appellant.

No. 03-5237.

United States Court of Appeals, District of Columbia Circuit.

Argued April 19, 2004.

Decided August 13, 2004.

Appeal from the United States District Court for the District of Columbia (No. 02cv01221).

S. Scott Morrison argued the cause for appellant. On the briefs was G. Michael Nelson.

Charles B. Wayne argued the cause for appellee Deborah R. Meshulam. On the brief was Deborah J. Israel.

Before: SENTELLE, ROGERS, and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge GARLAND.

GARLAND, Circuit Judge:

This case is ancillary to a long-standing Securities and Exchange Commission (SEC) enforcement proceeding against Paul A. Bilzerian for violation of federal securities laws. The United States District Court for the District of Columbia created a receivership estate and appointed a receiver to satisfy the SEC's judgment against Bilzerian's assets. In the instant action, the receiver filed a complaint against defendant Ernest B. Haire, III to collect on the principal, interest, and fees due and owing to the receivership estate on a $1 million loan. Haire moved to dismiss the complaint, alleging that the court lacked personal jurisdiction over him, that venue in the District of Columbia was improper, that the forum was not convenient, and that the receiver had failed to join a necessary party. The district court rejected those challenges, and entered summary judgment in the receiver's favor. We affirm.

I

In 1993, the United States District Court for the District of Columbia ordered Bilzerian to disgorge over $33 million in profits and $29 million in prejudgment interest obtained from his unlawful transactions in several common stocks. SEC v. Bilzerian, 814 F.Supp. 116 (D.D.C.1993), aff'd, 29 F.3d 689 (D.C.Cir.1994). On December 22, 2000, after finding Bilzerian in contempt for failing to pay the 1993 disgorgement judgment, the district court appointed the appellee, Deborah Meshulam, as receiver "for the purpose of identifying, marshaling, receiving and liquidating [Bilzerian's] assets." SEC v. Bilzerian, 127 F.Supp.2d 232, 232 (D.D.C.2000), aff'd, 75 Fed.Appx. 3 (D.C.Cir.2003) (hereinafter Receivership Order). The Receivership Order authorized the receiver to "take and maintain complete and exclusive control, possession and custody of Bilzerian's assets wherever situated" and to "liquidate any interest in any asset held by anyone on behalf of Bilzerian, including but not limited to the initiation and prosecution of litigation against others to recover such asset and/or interests in asset on behalf of the Receivership Estate." Id. at 233. The receiver filed copies of the Receivership Order in various federal district courts, including the United States District Court for the Middle District of Florida where Haire resides.

The assets of the receivership estate included, inter alia, the assets of Overseas Holdings Limited Partnership (OHLP), a partnership owned by the Bilzerian family to which Bilzerian transferred substantial assets during the course of the SEC litigation. On July 12, 2000, during the pendency of the contempt proceeding against Bilzerian, OHLP loaned Haire $1 million. The loan was reflected in a promissory note (the "Note"), which accrued interest at an annual rate of 12% and made the principal payable on demand. The Note was secured by Haire's pledge of his stock shares in Cimetrix, Inc. OHLP demanded payment on August 23, 2000, and Haire's failure to pay within 15 days of that demand triggered the Note's terms governing default and penalties. Haire and OHLP subsequently executed a Forbearance and Extension Agreement on March 1, 2001, under which Haire agreed to pay accrued interest immediately, and OHLP agreed to extend the due date for payment of principal until March 1, 2003.

In December 2001, OHLP agreed to "transfer to the Receiver all right, title and interest in that certain note and stock pledge agreement and related documents by Ernest Haire III in the principal amount of $1 million, as extended." Consent and Undertakings Agreement at 5 (J.A. 87); see also Assignment Without Recourse (J.A. 100). Haire, in his capacity as trustee of another Bilzerian-related entity, signed the agreement. On January 16, 2002, the court entered the agreement as a consent judgment. On April 19, 2002, the receiver sent a letter to Haire demanding that he immediately pay all accrued and unpaid interest due on the Note, and warning that failure to pay within fifteen days would result in a default under the Note's express terms. Haire failed to pay, and the receiver notified him that the entire $1 million principal (and accumulated interest and penalty fees) was immediately due.

On June 19, 2002, the receiver filed the present complaint against Haire, demanding judgment for the full amount of principal and accrued interest under the Note. Haire filed a motion to dismiss the complaint on the grounds of lack of personal jurisdiction, improper venue, forum non conveniens, and failure to name an indispensable party. At the same time, the receiver moved for summary judgment. The district court denied Haire's motion to dismiss, Mem. & Order (D.D.C. Jan. 17, 2003) (hereinafter Jan. 2003 Mem. Op.), and granted the receiver's motion for summary judgment, Mem. & Order (D.D.C. July 17, 2003) (hereinafter July 2003 Mem. Op.).

Haire now appeals.¹ We review both of the district court's orders de novo. See Gorman v. Ameritrade Holding Corp., 293 F.3d 506, 509 (D.C.Cir.2002); Gilvin v. Fire, 259 F.3d 749, 756 (D.C.Cir.2001). In Part II, we consider Haire's challenge to the court's conclusion that it had personal jurisdiction. In Part III, we consider Haire's remaining objections to the court's order denying dismissal, as well as his objections to the court's grant of summary judgment to the receiver.

II

We begin with the threshold question of whether the United States District Court for the District of Columbia has personal jurisdiction over the defendant, a Tampa, Florida resident who claims not to have any contacts with the District of Columbia. In SEC v. Vision Communications, Inc., a case also involving a receiver in a proceeding ancillary to an SEC enforcement action, we explained how such personal jurisdiction could be obtained. 74 F.3d 287, 290-91 (D.C.Cir.1996). Step one involves Federal Rule of Civil Procedure 4(k)(1)(D), which provides that "[s]ervice of a summons or filing a waiver of service is effective to establish jurisdiction over the person of a defendant ... when authorized by a statute of the United States." Fed.R.Civ.P. 4(k)(1)(D). Step two requires a statute that provides the "needed `authorization' to have [the defendant] served" in a district "outside the territorial boundaries of the U.S. District Court for the District of Columbia." 74 F.3d at 290. Section 1692 of Title 28, we said, could provide such authorization. Id. That section states:

In proceedings in a district court where 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 but orders affecting the property shall be entered of record in each of such districts.

28 U.S.C. § 1692. Finally, "to invoke § 1692, a receiver first must comply with 28 U.S.C. § 754." 74 F.3d at 290. Under that section, "a receiver appointed in one district may obtain jurisdiction over property located in another district by filing in the district court of that district, within ten days after the entry of his order of appointment, a copy of the complaint and his order of appointment." Id.² Thus, we said, § 754 is "a stepping stone on [the court's] way to exercising in personam jurisdiction over" one who holds receivership assets in a remote district. Id. at 290.³

As precedent, Vision Communications relied on the Sixth Circuit's decision in Haile v. Henderson National Bank, 657 F.2d 816 (6th Cir.1981), which is on all fours with the case presently before us. In Haile, a receiver was appointed in the Middle District of Tennessee for a bankrupt church and its assets. Id. at 818. The receiver then brought suit against an individual in the Northern District of Alabama who had defaulted on a note held by the church. Id. at 820. The Alabama defendant resisted on the ground that the district court in Tennessee lacked personal jurisdiction over him, and that court agreed, concluding that while they may provide the court with control of the property of the debtor, "neither 28 U.S.C § 754 nor 28 U.S.C. § 1692 ... grants this court personal jurisdiction of the defendants." Id. at 820.

The Sixth Circuit reversed. It held that, pursuant to § 754, "the territorial jurisdiction of the appointing court is extended 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." Id. at 823. It noted that "Rule 4 of the Federal Rules of Civil Procedure contemplates the use of statutes of the United States which provide for service of process upon a party not ... found within the state in which the district court is held." Id. at 824. And it concluded that the "statute of the United States which provides for service of process beyond the territorial limits of the state in which the district court sits in the case at bar is 28 U.S.C. § 1692." Id. "The process authorized by § 1692," the court said, "is not `extra-territorial' but rather nationwide." Id. at 826. Under that section, "[t]he appointment court's process extends to any judicial district where receivership property is found." Id.

In American Freedom Train Foundation v. Spurney, the First Circuit pronounced itself in "agreement with the...