In re Focus Media Inc.

• Citation: 387 F.3d 1077
• Decision Date: 02 November 2004
• Docket Number: No. 03-55858.,03-55858.
• Parties: In re FOCUS MEDIA INC., Debtor, Thomas E. Rubin, Appellant, v. John P. Pringle, Chapter 7 Trustee, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

387 F.3d 1077

In re FOCUS MEDIA INC., Debtor Thomas E. Rubin, Appellant, v. John P. Pringle, Chapter 7 Trustee, Appellee.

No. 03-55858.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 14, 2004.

Filed November 2, 2004.

COPYRIGHT MATERIAL OMITTED

Julie M. McCoy, Newport Beach, CA, for the defendant-appellant.

Peter C. Anderson, Los Angeles, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California; Alicemarie H. Stotler, District Judge, Presiding. D.C. No. CV-02-00123-AHS.

Before: THOMPSON, SILVERMAN, and WARDLAW, Circuit Judges.

SILVERMAN, Circuit Judge.

We hold today that in an adversary proceeding in bankruptcy court, a lawyer can be deemed to be the client's implied agent to receive service of process when the lawyer repeatedly represented that client in the underlying bankruptcy case, and where the totality of the circumstances demonstrates the intent of the client to convey such authority. We also hold that Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999), does not bar the issuance of a preliminary injunction freezing assets where fraudulent conveyance or equitable causes of action are pleaded in the bankruptcy context.

I. Facts

On October 6, 2000, an involuntary bankruptcy case was filed against Focus Media, Inc., and John Pringle was appointed trustee. On January 3, 2002, Pringle brought an adversary proceeding against Thomas Rubin, the sole shareholder of Focus Media. The complaint alleged that Focus Media transferred approximately $20 million to Rubin in 2000, and further that Focus Media granted millions of dollars in unpaid loans to Rubin in 1999 and 2000. Pringle alleged that Rubin had used these funds in part to pay his personal taxes.

On the same day that the complaint was filed, Pringle also sought to freeze Rubin's assets by filing an ex parte motion for a temporary retraining order ("TRO"), a motion for a preliminary injunction, and a request for a writ of attachment.

The ex parte motion alleged Pringle's belief that Rubin resided in France. Bankruptcy Judge Kathleen March granted Pringle's motion and issued a TRO against Rubin, enjoining him from "spending, transferring, concealing, dissipating, encumbering, assigning, and/or hypothecating" $20 million in assets. The court additionally scheduled a hearing on Pringle's request for a preliminary injunction and ordered Rubin served with the complaint, the summons, the ex parte motion, and the TRO.

As ordered, Pringle filed with the bankruptcy court proofs of service of the required documents. These proofs of service reflect that service on Rubin was made "c/o Geoffrey C. Mousseau, 3435 Wilshire Blvd., Ste. 2700, Los Angeles, CA 90010." At the TRO hearing, Pringle's attorney told the court that "the only address I have for [Rubin] at this time would be care of Mousseau and Associates."

On January 14, 2002, the court conducted a hearing on the preliminary injunction motion and Rubin's emergency motion for a stay pending appeal. Rubin did not enter an appearance on the preliminary injunction motion; however, Yolanda Orozco, counsel for Rubin, was in attendance and argued the motion for stay on Rubin's behalf. The court indicated at the start of the hearing that its "tentative [ruling] is to grant a preliminary injunction with the same terms as the TRO if, and only if, the adversary summons and complaint were properly served on Rubin." The court specified that "the question here really comes down to whether Mousseau was ... impliedly designated as an agent for service of process for Mr. Rubin" under the bankruptcy rules.

The bankruptcy court subsequently issued a preliminary injunction. The court found that Mousseau, as counsel for Rubin in the underlying bankruptcy case, was impliedly authorized to receive service of process on Rubin's behalf in the adversary case. As a consequence, the bankruptcy court had personal jurisdiction over Rubin. The court issued the preliminary injunction based on a finding that Pringle was likely to prevail on his claims against Rubin for (1) fraudulent conveyance under 11 U.S.C. § 548 (count one of the complaint), (2) fraudulent conveyance under 11 U.S.C. § 544(b) (count two), and (3) turnover of property to the estate under 11 U.S.C. § 542 (count seven), and further that the bankruptcy estate would otherwise be irreparably injured.

Rubin appealed the preliminary injunction to the district court, which affirmed the bankruptcy court. The district court found that service on Mousseau was proper under Federal Rule of Bankruptcy Procedure 7004(b), noting that

[t]here appears to be no precedent that bound the Bankruptcy Court or binds this Court in determining whether an attorney has implied authority to accept service of process as a client's agent under Fed. R. Bankr.P. 7004(b)(8) when the attorney has made appearances in court on the client's behalf. However, the court "adopt[ed] the advisory precedent applied by the Bankruptcy Court," ruling that implied authority to accept service of process was proper under the bankruptcy rules. The district court summarized five instances of Mousseau's representation of Rubin and involvement in the bankruptcy case, concluding: "The circumstances of appellant Rubin's involvement in the involuntary petition hearings, where appellant was represented by Mousseau, indicate that Mousseau did have implied authority to accept service of process in the subsequent adversary proceeding." Having satisfied itself that it had jurisdiction, the district court affirmed the bankruptcy court's issuance of a preliminary injunction. The district court found Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999), which held that asset-freezing injunctions are impermissible where a creditor seeking money damages lacks any interest in the debtor's assets, inapplicable.

II. Jurisdiction and Standard of Review

We have jurisdiction pursuant to 28 U.S.C. § 158(d). We review de novo the district court's decision on appeal from a bankruptcy court. Saxman v. Educational Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1172 (9th Cir.2003). The bankruptcy court's decision is reviewed independently and no deference is given to the district court's determinations. Id. A bankruptcy court's conclusions of law are reviewed de novo and its factual findings are reviewed for clear error. Hanf v. Summers (In re Summers), 332 F.3d 1240, 1242(9th Cir.2003). We review de novo the determination that service of process was sufficient. Marshall v. Warwick, 155 F.3d 1027, 1030 (8th Cir.1998). "Our review of the decision to grant a preliminary injunction is limited and deferential." Harris v. Bd. of Supervisors, 366 F.3d 754, 766 (9th Cir.2004). We review de novo the legal premises underlying a preliminary injunction, and the decision to grant a preliminary injunction for an abuse of discretion. FTC v. Enforma Natural Prods., Inc., 362 F.3d 1204, 1211 (9th Cir.2004); see also Reebok Int'l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 563(9th Cir. 1992) ("We review the issuance of an asset freeze for an abuse of discretion.").

III. Discussion

A. Implied authorization to accept service is permitted under the Bankruptcy Rules where service is made in an adversary proceeding on a party's attorney in the underlying bankruptcy case.

"Before a federal court may exercise personal jurisdiction over a defendant, the procedural requirement of service of summons must be satisfied." Omni Capital Int'l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104, 108 S.Ct. 404, 98 L.Ed.2d 415 (1987). Rubin contends that service of process on an agent impliedly authorized to accept service on a client's behalf is impermissible, and, as a result, that the bankruptcy court lacked personal jurisdiction over him. We disagree.

It is undisputed that at the time Mousseau was served on Rubin's behalf Rubin resided in France. There is also no dispute that service was not attempted directly on Rubin by the means authorized to serve individuals in foreign countries. See, e.g., Fed. R. Bankr.P. 7004(b)(adopting Fed.R.Civ.P. 4(f), which provides for service on individuals in foreign countries). Instead, the basis for service here is Federal Rule of Bankruptcy Procedure 7004(b)(8), which provides:

[I]n addition to the methods of service authorized by Rule 4(e)—(j) F.R.Civ.P., service may be made within the United States by first class mail postage prepaid as follows:

...

(8) Upon any defendant, it is also sufficient if a copy of the summons and complaint is mailed to an agent of such defendant authorized by appointment or by law to receive service of process, at the agent's dwelling house or usual place of abode or at the place where the agent regularly carries on a business or profession and, if the authorization so requires, by mailing also a copy of the summons and complaint to the defendant as provided in this subdivision.

The question before us is whether "an agent of[a] defendant authorized by appointment... to receive service of process" can include an agent impliedly authorized to accept service of process on a client's behalf.

There appears to be only one circuit court case to address head-on the issue of implied authority to accept service of process. In United States v. Ziegler Bolt & Parts Co., 111 F.3d 878 (Fed.Cir.1997), the Federal Circuit stated that "[a]n agent's authority to accept service may be implied in fact." Id. at 881. In order to find implied authority to accept service of process, the Ziegler court said, "the record must show that the attorney exercised authority beyond the attorney-client relationship, including the power to accept service." Id. at 881. One additional circuit court has recognized that, at least in theory, implied authority to receive process may be allowed. See United States v....