United States v. Obaid

• Citation: 971 F.3d 1095
• Decision Date: 24 August 2020
• Docket Number: No. 18-56657,18-56657
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Tarek OBAID, Claimant-Appellant, Certain Rights to and Interests in Shares of Series D Preferred Stock in Palantir Technologies, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

971 F.3d 1095

UNITED STATES of America, Plaintiff-Appellee,

v. Tarek OBAID, Claimant-Appellant,Certain Rights to and Interests in Shares of Series D Preferred Stock in Palantir Technologies, Defendant.

No. 18-56657

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 11, 2019 Pasadena, California

Filed August 24, 2020

RAWLINSON, Circuit Judge:

Appellant-claimant Tarek Obaid (Obaid) appeals the district court's order denying his motion to dismiss for lack of personal jurisdiction and for lack of proper venue in this civil forfeiture case involving his shares of stock in Palantir Technologies (Palantir), a corporation with its principal place of business in California. Reviewing de novo , we affirm the judgment of the district court.

I. BACKGROUND

Obaid is a citizen of Saudi Arabia, who serves as the chief executive officer of PetroSaudi International (PSI), an oil and gas exploration company. In 2009, PSI entered into a joint venture with 1Malaysia Development Berhad (1MDB), an investment company wholly-owned by the government of Malaysia. 1MDB was created to pursue economic development for the benefit of the Malaysian people. According to the government, 1MDB was riddled with fraud from its inception, as multiple individuals conspired to divert and launder billions of dollars from the fund. From 2009 to 2011, 1MDB and PSI arranged for the fraudulent transfer of more than $1 billion from 1MDB to a Swiss bank account in the name of Good Star Limited (Good Star Account). Jho Low, a Malaysian national, was involved in the creation of 1MDB, and laundered more than $400 million through the Good Star Account into the United States. Low then used the laundered funds to, among other things, purchase luxury items and real estate.

As the chief executive of PSI, Obaid allegedly facilitated the 1MDB and PSI joint venture, including by signing various documents to effectuate the transfers of money into the Good Star Account. Additionally, Obaid personally received $153 million from the Good Star Account that was processed through a bank account in New York and ultimately sent to Obaid's personal account in Switzerland. Relevant to this appeal, Obaid wired $2 million from his account in Switzerland to a bank in California to purchase 2,500,000 shares of Series D preferred stock in Palantir.¹

As part of its efforts to recoup money fraudulently obtained in the scheme, the government filed this in rem civil forfeiture action against Obaid's Palantir shares. In a lengthy complaint, the government alleged that the Palantir shares were forfeitable because they were derived from proceeds traceable to the wire fraud and money laundering scheme involving 1MDB and PSI. Contemporaneous with the action brought against Obaid's Palantir shares, the government filed multiple civil forfeiture suits seeking to reclaim assets such as luxury hotels, yachts, certain movies rights, and expensive real estate in Beverly Hills, connected to the fraudulent scheme. However, it is unclear from the complaint whether—and to what extent—Obaid maintains an ownership interest in the additional assets being sought by the government in the related civil forfeiture actions.

Obaid confirmed his ownership of the Palantir shares and subsequently moved to dismiss the forfeiture action, contending that the district court lacked personal jurisdiction over him as the property owner. Obaid also maintained that venue was improper because the disputed res, i.e. , the Palantir shares, was not alleged to be located in the Central District of California. The district court rejected Obaid's argument that personal jurisdiction over him was required to adjudicate rights to the named property. And the district court concluded that venue was proper in the Central District, reasoning that civil forfeiture actions may be brought in the district "in which any of the acts or omissions giving rise to the forfeiture occurred." In the district court's view, venue was proper because multiple acts giving rise to the alleged conspiracy occurred in the Central District.

Obaid moved for reconsideration of the district court's rulings and, in the alternative, to certify the rulings for interlocutory appeal. The district court denied the motion for reconsideration, but granted the motion to certify its ruling for interlocutory appeal.

II. STANDARD OF REVIEW

A district court's rulings on personal jurisdiction and venue are reviewed de novo. See Myers v. Bennett Law Offices , 238 F.3d 1068, 1071 (9th Cir. 2001).

III. DISCUSSION

Obaid contends that the district court erred when it denied his motion to dismiss for lack of personal jurisdiction. According to Obaid, in personam jurisdiction over him was necessary to adjudicate this in rem forfeiture action, and the district court was required to apply the minimum contacts standard established by United States Supreme Court precedent to determine whether he had sufficient contacts with the forum. Applying that standard, Obaid asserts that he lacked sufficient contacts with the forum to satisfy due process requirements. Obaid also challenges the district court's determination that venue was proper in the Central District.

A. In Personam Jurisdiction in an In Rem Action

Obaid urges us to conclude that the district court erred when it held that the United States Supreme Court's decision in Shaffer v. Heitner , 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977) does not control the outcome of the jurisdiction issue in this in rem civil forfeiture action. Obaid maintains that Shaffer squarely stands for the proposition that all assertions of jurisdiction—in rem, quasi in rem , and in personam —must be evaluated according to a minimum contacts standard.

Before delving into the issues in this case, it is helpful to distinguish among the types of potential jurisdiction in federal cases. "In personam jurisdiction, simply stated, is the power of a court to enter judgment against a person." SEC v. Ross , 504 F.3d 1130, 1138 (9th Cir. 2007). By contrast, in rem jurisdiction is the court's power to adjudicate rights over property. See id. "Jurisdiction in rem is predicated on the fiction of convenience that an item of property is a person against whom suits can be filed and judgments entered...." United States v. Approximately $1.67 Million (US) in Cash, Stock & Other Valuable Assets , 513 F.3d 991, 996 (9th Cir. 2008) (citation and internal quotation marks omitted). More nebulous is the concept of quasi in rem jurisdiction:

A quasi in rem action is basically a halfway house between in rem and in personam jurisdiction. The action is not really against the property; rather, the action involves the assertion of a personal claim against the defendant of the type usually advanced in an in personam action and the demand ordinarily is for a money judgment, although in some contexts the objective may be to determine rights in certain property. The basis for transforming the suit from one in personam to an action against the defendant's property is the attachment or garnishment of some or all of the property the defendant may have in the jurisdiction.

Ventura Packers, Inc. v. F/V Jeanine Kathleen , 424 F.3d 852, 860 n.4 (9th Cir. 2005), as amended (citations and alteration omitted).

Fortunately, there is no dispute that the underlying action is in rem because "[a] forfeiture action is in rem. " $1.67 Million , 513 F.3d at 996 (citation omitted). The Supreme Court recognizes a "sharp distinction between in rem civil forfeitures and in personam civil penalties such as fines." United States v. Ursery , 518 U.S. 267, 275, 116 S.Ct. 2135, 135 L.Ed.2d 549 (1996). While a civil action to recover penalties is similar to a criminal prosecution in that "it is the wrongdoer in person who is proceeded against, in an in rem forfeiture proceeding, it is the property which is proceeded against." Id. at 283, 116 S.Ct. 2135 (citation, alteration, and internal quotation marks omitted). Thus in a civil forfeiture proceeding in rem , "jurisdiction [is] dependent upon seizure of a physical object." Id. at 277, 116 S.Ct. 2135 (citation omitted). Here, the focus is on the district court's jurisdiction over the property in dispute, i.e. , Obaid's Palantir shares. See Ross , 504 F.3d at 1138.

To resolve this case we must decide which of two cases is the more pertinent precedent. The first is Shaffer , which involved a Delaware shareholder derivative suit against Greyhound Corporation, as well as its officers and directors. See 433 U.S. at 189–90, 97 S.Ct. 2569. In conjunction with his action, the plaintiff moved to sequester the Delaware property—stock in Greyhound Corporation—of the individual defendants. See id. at 190–91, 97 S.Ct. 2569. Under Delaware law, the primary purpose of "sequestration" was to use the property as a basis to "compel the personal appearance of a nonresident defendant to answer and defend a suit brought against him in a court of equity." Id. at 193, 97 S.Ct. 2569 (citation omitted). The individual defendants challenged the suit on personal jurisdiction grounds, contending that they lacked sufficient contacts with Delaware to satisfy the jurisdictional requirements of International Shoe Co. v. Washington , 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). See Shaffer , 433 U.S. at 192–93, 97 S.Ct. 2569. The Delaware Supreme Court rejected the defendants' argument, holding that the quasi in rem jurisdiction was predicated "on the presence of capital stock [in Delaware], not on prior contact by defendants with this forum." Id. at 195, 97 S.Ct. 2569 (quoting Greyhound Corp. v. Heitner , 361 A.2d 225, 229 (Del. 1976) ).

The United States Supreme Court reversed the ruling of the Delaware courts See id. In the Supreme Court's view, the same precepts that govern in personam jurisdiction, "fair play and substantial justice," also applied in Shaffer because "judicial jurisdiction over a thing, is a customary elliptical way of referring to jurisdiction over the...