Hawkins v. I-TV Digitalis Tavkozlesi ZRT

• Decision Date: 15 August 2019
• Docket Number: No. 18-1288,No. 18-1197,18-1197
• Citation: 935 F.3d 211
• Parties: 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. 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.
• Court: U.S. Court of Appeals — Fourth Circuit

935 F.3d 211

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,andLaszlo Borsy; Mediaware Corporation ; MediaTechnik kft.; Peterfia kft.; Sam Black, Defendants.

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,andLaszlo Borsy; Mediaware Corporation ; MediaTechnik kft.; Peterfia kft.; Sam Black, Defendants.

No. 18-1197

No. 18-1288

United States Court of Appeals, Fourth Circuit.

Argued: January 31, 2019

Decided: August 15, 2019

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 EMANUEL URQUHART & SULLIVAN, LLP, Houston, Texas, for Appellees/Cross-Appellants i-TV Digitális Távközlési zrt. and DIGI Távközlési és Szolgáltató kft.

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.

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 Respondents² 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 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-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 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.

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 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 ...