United States Court of Appeals For the First Circuit
No. 22-1865
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff, Appellee,
v.
RAIMUND GASTAUER,
Relief-Defendant, Appellant,
ROGER KNOX; WINTERCAP S.A.; MICHAEL T. GASTAUER; WB21 US INC.; SILVERTON SA INC.; C CAPITAL CORP.; WINTERCAP SA INC.; B2 CAP INC.,
Defendants,
SIMONE GASTAUER FOEHR; B21 LTD.; SHAMAL INTERNATIONAL FZE; WB21 DMCC,
Relief-Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Kayatta, Howard, and Rikelman, Circuit Judges.
Alex H. Loomis, with whom William D. Weinreb and Quinn Emanuel Urquhart & Sullivan, LLP were on brief, for appellant. Archith Ramkumar, Appellate Counsel, Securities & Exchange Commission, with whom Megan Barbero, General Counsel, John W. Avery, Deputy Solicitor, and Theodore J. Weiman, Senior Appellate Counsel were on brief, for appellee.
February 9, 2024 KAYATTA, Circuit Judge. Raimund Gastauer ("Gastauer")
is a German citizen who resides in Germany. He has never been to
Massachusetts. In fact, he has had no contact with the United
States since before 2009, when he last visited as a tourist. The
United States District Court for the District of Massachusetts
nevertheless entered a judgment against Gastauer personally,
ordering him to pay just over $3.3 million, plus prejudgment
interest, to the United States Securities and Exchange Commission
("SEC"). To justify the exercise of jurisdiction over Gastauer,
the district court relied solely on its finding that Gastauer had
received that $3.3 million from his son, Michael, who had obtained
the money by committing securities fraud in the United States.
For the following reasons, we reverse the judgment against Raimund
Gastauer.
I.
The SEC alleges that Michael Gastauer and others
facilitated a scheme enabling corporate insiders to sell stock
while evading statutory and regulatory registration and disclosure
rules. The complaint claims that between December 26, 2017 and
February 27, 2018, two of Michael Gastauer's United States-based
companies transferred approximately $3.3 million to his father or
to accounts held for his father's benefit. That money represented
proceeds from Michael Gastauer's illegal scheme, although there is
no allegation that Raimund Gastauer knew the money's illicit
- 3 - provenance when he received it. The SEC nevertheless named
Gastauer as a so-called "relief defendant" in the case against his
son and petitioned the court for an order of disgorgement against
Gastauer under 15 U.S.C. § 78u(d)(5), pursuant to which "the
Commission may seek, and any Federal court may grant, any equitable
relief that may be appropriate or necessary for the benefit of
investors."
Gastauer moved to dismiss the action against him for
lack of personal jurisdiction. He explained that he is a citizen
of and resides in Germany, has been to the United States only five
times as a tourist and all before 2009, and otherwise lacks any
business or other contacts with the United States sufficient for
the court to sustain jurisdiction over him. Nor had the SEC
alleged that he played any role in his son's fraudulent dealings.
The district court denied the motion in a docket order,
citing two non-binding cases without further explanation.
Gastauer subsequently filed an answer, in which he again asserted
as an affirmative defense the district court's lack of personal
jurisdiction over him. After a series of delays, the SEC moved
for summary judgment against Gastauer. The motion claimed that
the evidence established without dispute that Gastauer had
received about $3.3 million from his son. Gastauer opposed the
motion by asserting for the first time that he had never received
any of his son's ill-gotten gains, based on evidence he had not
- 4 - previously disclosed in discovery. The district court found that
Gastauer could not reasonably contest his liability as to the first
$500,000, but that factual disputes remained as to the other
$2.8 million. It therefore denied in part the motion for summary
judgment. Recognizing, however, that Gastauer's opposition was
based on evidence not disclosed to the SEC during discovery, the
district court allowed the SEC to take an additional deposition of
Gastauer and file a renewed motion for summary judgment as needed.
After a series of negotiations with the SEC regarding
the timing and scope of the additional deposition, Gastauer
indicated that he did not intend to sit for it because the district
court lacked personal jurisdiction over him. The SEC responded
with a motion for sanctions against Gastauer under Federal Rule of
Civil Procedure 37(d) for failure to comply with his discovery
obligations. The district court granted the motion, reiterating
that it had personal jurisdiction over Gastauer. It explained for
the first time that once it established personal jurisdiction over
the son, Michael, as the real defendant-in-interest, that
jurisdiction could be imputed to Gastauer to the extent he holds
any of the "fraudster's spoils." The court then concluded that
given what it called Gastauer's "severe and repetitive" discovery
violations, granting summary judgment against him was an
appropriate sanction. It thus held Gastauer liable for $3,315,305
- 5 - in disgorgement (plus interest equaling $604,839). This appeal
follows.
II.
Before reaching the merits of the jurisdiction issue, we
consider the SEC's contention on appeal that Gastauer waived his
personal jurisdiction defense by opposing the motion for summary
judgment without repeating his arguments as to personal
jurisdiction.
"[P]ersonal jurisdiction is a personal defense that may
be waived or forfeited." Mallory v. Norfolk S. Ry. Co., 600 U.S.
122, 144 (2023). A party may forfeit a defense of lack of personal
jurisdiction by "express submission, conduct, or failure to assert
the defense." Precision Etchings & Findings, Inc. v. LGP Gem,
Ltd., 953 F.2d 21, 25 (1st Cir. 1992). Typically, a defendant
"wishing to raise" a problem with personal jurisdiction "must do
so in their first defensive move, be it a Rule 12 motion or a
responsive pleading." Mitrano v. Jerry's Ford Sales, Inc., 82
F.3d 403, at *1 (1st Cir. 1996) (unpublished table decision)
(emphasis omitted) (quoting Glater v. Eli Lilly & Co., 712 F.2d
735, 738 (1st Cir. 1983)).
Gastauer took a belt-and-suspenders approach -- he both
filed a motion to dismiss based on lack of personal jurisdiction,
and then reasserted the defense in his answer to the SEC's
- 6 - complaint. As even the SEC agrees, this would normally be enough
to raise the "threshold" jurisdictional issue.
The SEC nevertheless contends that Gastauer subsequently
forfeited his defense by proceeding to defend the case on
substantive grounds. The SEC proffers that Gastauer could have
declined to oppose the summary judgment motion on the merits,
allowing for the court to enter a default judgment against him,
and subsequently collaterally attacked that judgment for lack of
personal jurisdiction. By instead actively litigating the
substance of the case, argues the SEC, Gastauer created an
expectation that he had forfeited his personal jurisdiction
defense, which should preclude him from reasserting that defense
on appeal.
But "once the issue [of personal jurisdiction] is
litigated to resolution in the district court, a defendant's pivot
to defending on the merits by itself is an insufficient basis for
inferring abandonment." Shatsky v. Palestine Liberation Org., 955
F.3d 1016, 1032 (D.C. Cir. 2020). Any other standard puts
defendants between a rock and a hard place, requiring them to
either forfeit a defense of their position on the merits, or waive
their due process rights.1
1For this same reason we do not adopt wholesale the standard that "those submissions, appearances and filings that give '[P]laintiff a reasonable expectation that [Defendants] will
- 7 - The SEC resists this commonsense conclusion by pointing
to a statement made in one of this circuit's opinions that "even
if the issue of personal jurisdiction is raised in its answer or
other responsive pleading," a defendant "may nevertheless waive
jurisdiction if it makes voluntary appearances and contests the
case at all stages until judgment is rendered." Lechoslaw v. Bank
of Am., N.A., 618 F.3d 49, 55 (1st Cir. 2010). But nothing in
Lechoslaw dictates that a defendant who contests the merits only
after first losing a Rule 12(b)(2) motion somehow waives the
jurisdictional defense. Indeed, Lechoslaw itself concluded that
the trial court did not abuse its discretion in finding that a
defendant had preserved a personal jurisdiction defense raised in
its answer, despite the fact that it had moved to dismiss for lack
of jurisdiction only after propounding discovery requests,
negotiating extensions of time for discovery, and moving to expand
the scope of a tracking order. Id. at 52, 56.
So too, here, and even more so. Gastauer sought and
obtained a ruling on his defense at the very outset of his
participation in the case. He then left no doubt as to his position
defend the suit on the merits or must cause the court to go to some effort that would be wasted if personal jurisdiction is later found lacking' . . . result in waiver of a personal jurisdiction defense." Gerber v. Riordan, 649 F.3d 514, 519 (6th Cir. 2011) (alterations in original) (quoting Mobile Anesthesiologists Chi., LLC v. Anesthesia Assoc. of Hous. Metroplex, P.A., 623 F.3d 440, 443 (7th Cir. 2010)).
- 8 - by reasserting the defense in his answer. Further preservation
did not require him to abandon the pursuit of other defenses he
might have to the claim against him.
The SEC nevertheless says we should find waiver because
Gastauer "did not press [his defense] again for three years." Any
delay, however, must be considered in light of the entire
procedural history of this case. "[T]he passage of time alone is
generally not sufficient to indicate forfeiture of a procedural
right," and merely "provides the context in which to assess the
significance of the defendant's conduct," including "the
opportunities to litigate the jurisdictional issue that were
foregone." Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61
(2d Cir. 1999). Gastauer properly and fully litigated the issue
of personal jurisdiction, resulting in a ruling that became law of
the case, which invited no revisiting absent new law, new facts,
or other cause. Indeed, when Gastauer did reassert his position
to justify his refusal to be deposed, the district court opined
that "Gastauer's insistence that the court lacks personal
jurisdiction over him despite its order to the contrary suggests
at least willful blindness, if not bad faith." Requiring Gastauer
to continue beating that dead horse would incentivize redundancy.
The SEC next contends that the discovery behavior that
led to the Rule 37 sanction -- what it repeatedly refers to as
Gastauer's "sandbagging" -- should also support a finding that
- 9 - Gastauer waived his personal jurisdiction defense. The simple
answer to this argument is that the district court decided that
the appropriate sanction to Gastauer's alleged sandbagging was to
grant summary judgment against him and hold him liable for
disgorgement of the full amount sought notwithstanding its
previous finding that there remained a material dispute as to his
receipt of the remaining $2.8 million. We review Rule 37 sanctions
for abuse of discretion, see United States v. Toth, 33 F.4th 1, 8
(1st Cir. 2022), and the SEC offers no argument that the district
court abused its discretion in failing to craft a sanction that
also deemed Gastauer's previously raised and rejected
jurisdictional defense waived. Indeed, the SEC did not even
request such a sanction from the district court, presumably because
the subject of the pertinent discovery had nothing to do with
Gastauer's jurisdictional defense.2 We therefore decline to
effectively modify the scope of the Rule 37 order -- which the
appellant has not raised on appeal -- to also prevent Gastauer
from reasserting his personal jurisdiction defense on appeal.
2Indeed, it is not clear that such a sanction would even be possible when the litigation misconduct is unrelated to the merits of the jurisdictional issue. See Fuld v. Palestine Liberation Org., 82 F.4th 74, 94 (2d Cir. 2023) (presumption of implied consent to personal jurisdiction was "appropriate only because the defendant's litigation conduct related to whether personal jurisdiction existed").
- 10 - The SEC alternatively suggests that Gastauer could have
filed an interlocutory appeal of the district court's denial of
his motion to dismiss. But typically "failure to take an
interlocutory appeal does not automatically foreclose review after
final judgment." Rivera-Domenech v. Calvesbert L. Offs. PSC, 402
F.3d 246, 249 n.2 (1st Cir. 2005). Moreover, this circuit has
made clear that "[a]s a general rule, we do not grant interlocutory
appeals from a denial of a motion to dismiss." Caraballo-Seda v.
Municipality of Hormigueros, 395 F.3d 7, 9 (1st Cir. 2005); see
also In re Zofran (Ondansetron) Prods. Liab. Litig., 235 F. Supp.
3d 317, 319-20 (D. Mass. 2017) (declining to certify for
interlocutory appeal an order dismissing certain claims for lack
of personal jurisdiction). It would be odd to require litigants
to make a likely futile gesture to preserve their defenses on
appeal.
In sum, we see no basis for finding that Gastauer failed
to preserve his objection to the district court's exercise of
personal jurisdiction over him.
III.
We now consider the heart of Gastauer's argument on
appeal: that the district court erred in finding that it had
personal jurisdiction over him merely because it had jurisdiction
over the real defendants-in-interest from whom he had received the
wrongfully obtained funds. We review de novo a district court's
- 11 - exercise of personal jurisdiction over a party to the litigation.3
Plixer Int'l, Inc. v. Scrutinizer GmbH, 905 F.3d 1, 6 (1st Cir.
2018).
In a federal question case such as this one, the Fifth
Amendment Due Process Clause requires "the plaintiff to 'show that
the defendant has adequate contacts with the United States as a
whole, rather than with a particular state.'" Id. at 7 (quoting
United States v. Swiss Am. Bank Ltd., 274 F.3d 610, 618 (1st Cir.
2001)). In determining whether such adequate contacts exist, "the
federal court's role is the same" as when it "adjudicates state-
created rights based on diversity of citizenship jurisdiction."
Baskin-Robbins Franchising LLC v. Alpenrose Dairy, Inc., 825 F.3d
28, 34 n.2 (1st Cir. 2016) (quoting 4 Charles Alan Wright & Arthur
R. Miller, Federal Practice and Procedure § 1068.1 (4th ed. 2015)).
Due process dictates that a court may only assert its
power over an out-of-forum defendant if the party has "such
'contacts' with the forum [] that 'the maintenance of the suit' is
'reasonable, in the context of our federal system of government,'
and 'does not offend traditional notions of fair play and
substantial justice.'" Ford Motor Co. v. Mont. Eighth Jud. Dist.
Ct., 141 S. Ct. 1017, 1024 (2021) (quoting Int'l Shoe Co. v.
3 Our foregoing discussion of the SEC's waiver argument also disposes of the SEC's contention that we should treat this appeal as a challenge to the Rule 37 sanction rather than a challenge to the assertion of personal jurisdiction.
- 12 - Washington, 326 U.S. 310, 316-17 (1945)). Traditionally, courts
have identified "two kinds of personal jurisdiction" over an out-
of-forum defendant -- general and specific. Id. General
jurisdiction exists where a party has "continuous and systematic
contacts with the forum" and subjects the party to a court's power
even when the cause of action may not be directly related to those
contacts. Bluetarp Fin., Inc. v. Matrix Constr. Co., 709 F.3d 72,
79 (1st Cir. 2013). Specific jurisdiction, by contrast, "covers
defendants less intimately connected with a [forum], but only as
to a narrower class of claims." Ford Motor Co., 131 S. Ct. at 1024.
It requires there to be "an affiliation between the forum and the
underlying controversy, principally, [an] activity or an
occurrence that takes place in the forum [] and is therefore
subject to the [forum's] regulation." Bristol-Myers Squibb Co. v.
Superior Ct. of Cal., 582 U.S. 255, 262 (2017) (first alteration
in original) (quoting Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. 915, 919 (2011)). Any such contacts with the forum
must also "represent a purposeful availment of the privilege of
conducting activities in that [forum]." Motus, LLC v. CarData
Consultants, Inc., 23 F.4th 115, 122 (1st Cir. 2022) (quoting Chen
v. U.S. Sports Acad., Inc., 956 F.3d 45, 59 (1st Cir. 2020)).
Gastauer argues that he is not subject to either type of
personal jurisdiction. He contends that the SEC's failure to
demonstrate the existence of minimum contacts between him and the
- 13 - United States -- let alone that he has "purposefully availed"
himself of the protections of the forum -- renders any United
States court's exercise of personal jurisdiction over him a
violation of due process.
On appeal, the SEC makes no claim that Gastauer has any
actual contacts with the United States.4 Instead, the SEC urges
us to "impute" to Gastauer the contacts of his son. Why, one might
ask? Because, says the SEC, his son sent him the money, he is
joined only for the purpose of retrieving that money (as what the
SEC calls a "relief defendant"), and it would be more difficult
for the SEC to pursue a claim against Gastauer abroad.
It is very often true that pursuing a defendant in a
court that can assert jurisdiction over the defendant poses greater
difficulties than would pursuing the defendant in the plaintiff's
preferred forum. But that difficulty cannot outweigh the absence
of any actual jurisdictional contacts, "no matter how . . .
morally compelling the [SEC's] claims." Waldman v. Palestine
Liberation Org., 835 F.3d 317, 344 (2d Cir. 2016).
4While in the proceedings below the SEC argued in the alternative that Gastauer did satisfy the minimum contacts requirement -- by engaging in financial transactions routed through U.S.-based institutions -- the SEC has limited its argument on appeal to the imputation of jurisdictional contacts from the defendant-in-interest. We therefore consider only this latter argument in our analysis.
- 14 - There are, of course, doctrines that do support the
imputation of all sorts of things, including liability itself,
between parties with a sufficiently close relationship. See, e.g.,
Torres-Negron v. Merck & Co., 488 F.3d 34, 40 (1st Cir. 2007)
(employer may be liable for an employee's harassing behavior where
certain conditions are met); Goya Foods, Inc. v. Wallack Mgmt.
Co., 290 F.3d 63, 75 (1st Cir. 2002) (nonparty "in active concert
or participation with the party specifically enjoined" may "be
liable for civil contempt notwithstanding their nonparty status"
(citation omitted)); Donatelli v. Nat'l Hockey League, 893 F.2d
459, 469 (1st Cir. 1990) (member's jurisdictional contacts may be
attributed to an association where "association exercised
substantial influence over the member's decision to carry on the
in-forum activities").
The SEC argues that by the same token, once a court has
established personal jurisdiction over the defendant-in-interest,
those jurisdictional contacts can be imputed to the relief
defendant. The SEC cites to only one out-of-circuit decision in
support of this novel position, and identifies no persuasive
precedent directly stating that a court need not have personal
jurisdiction over a relief defendant to hold him liable for
monetary disgorgement. See SEC v. Harden, No. 05-CV-354, 2005 WL
2649857, at *3 (W.D. Mich. Oct. 17, 2005) ("[B]oth subject matter
jurisdiction . . . and personal jurisdiction over the nominal
- 15 - party [a]re unnecessary provided that there [i]s subject matter
and personal jurisdiction over the real parties and the nominal
party held property as a mere custodian for the real parties in
interest.").
No matter -- the SEC tells us -- as this circuit has
already blessed the imputation of jurisdictional contacts between
related parties. It points to our opinion in Rodríguez-Miranda v.
Benin, in which we upheld the district court's decision to join
the defendant's mother and alter-ego corporations as jointly and
severally liable parties in the judgment against the defendant,
despite lacking separate personal jurisdiction over the additional
parties. 829 F.3d 29 (1st Cir. 2016). We reasoned that "once
personal jurisdiction is established over the original party, it
'is retained over Rule 25(c) successors in interest.'" Id. at 45
(quoting Maysonet-Robles v. Cabrero, 323 F.3d 43, 49 (1st Cir.
2003)). We acknowledged that "[w]ere this not so, the owners of
the property could merely transfer legal ownership of the assets
from one shell corporation to another in a different jurisdiction,
putting a party whose initial suit satisfied the jurisdictional
requirements to the immense burden of chasing the involved assets
from courtroom to courtroom." Id. (quoting Minn. Min. & Mfg. Co.
v. Eco Chem, Inc., 757 F.2d 1256, 1263 (Fed. Cir. 1985)).
The SEC argues that the same rationale justifies the
exercise of jurisdiction over Gastauer in this case. But the
- 16 - circumstances in Rodríguez-Miranda differ from the instant case in
crucial ways. First, Rodríguez-Miranda arose under Federal Rule
of Civil Procedure 25(c), which provides that "[i]f an interest is
transferred, [an] action may be continued by or against the
original party unless the court, on motion, orders the transferee
to be . . . joined with the original party." Id. at 40 (quoting
Fed. R. Civ. P. 25(c)). There is no similar motion in this case.
Nor could there be, as Rule 25(c) "governs substitution [or
joinder] where a party to a lawsuit transfers an interest during
the pendency of the lawsuit or after judgment has been rendered."
Negrón-Almeda v. Santiago, 579 F.3d 45, 52 (1st Cir. 2009). And
here, the funds were transferred to Gastauer well before the SEC
brought suit against his son.
More importantly, the Rule 25(c) parties in Rodríguez-
Miranda were successors in interest and alter egos of the original
defendants over whom the court did have jurisdiction. 829 F.3d
at 41. The Rule 25(c) parties "routinely treated" the original
defendants' "coffers as their own," and the record suggested that
the parties had "engaged in the fraudulent transfer of [their]
intellectual property" between each other "for the sole purpose of
making [the company] judgment proof." Id. at 44. "Under these
extraordinary circumstances," we found that it was not error for
the district court to have joined the alter ego entities and
exercised jurisdiction over them. Id. at 44-45.
- 17 - Here, there is no allegation that Gastauer had a similar
relationship with any of the defendants-in-interest. The extent
of his alleged participation in any wrongdoing is as an after-the-
fact recipient of funds that were previously obtained
fraudulently. The SEC does not even claim that he knew that the
money he was receiving was the fruit of illegal activity. Indeed
any accusation that Gastauer was involved in wrongdoing might well
render him an unsuitable relief defendant. See SEC v. Ross, 504
F.3d 1130, 1144 (9th Cir. 2007) ("[B]ecause the Receiver's
disgorgement claim turns on [the relief defendant's] own violation
of the securities laws, the Receiver cannot treat [him] as a
nominal defendant . . . .").
This distinction matters. Due process requires that an
out-of-state defendant have "certain minimum contacts" with the
forum, and that those contacts "represent a purposeful availment
of the privilege of conducting activities in that forum." Knox v.
MetalForming, Inc., 914 F.3d 685, 690 (1st Cir. 2019). A central
purpose of this requirement is to "ensure[] that a defendant will
not be haled into a jurisdiction solely as a result of . . . the
'unilateral activity of another party or a third person.'" Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (quoting
Helicopteros Nacionales de Colom., S.A. v. Hall, 466 U.S. 408, 417
(1984)). Instead, as a general rule "[j]urisdiction is
proper . . . where the contacts proximately result from actions by
- 18 - the defendant himself that create a 'substantial connection' with
the forum State." Id. (quoting McGee v. Int'l Life Ins. Co., 355
U.S. 220, 223 (1957)); Hanson v. Denckla, 357 U.S. 235, 253 (1958)
("The unilateral activity of those who claim some relationship
with a nonresident defendant cannot satisfy the requirement of
contact with the forum State.").
The SEC seeks to avoid the thrust of this precedent by
characterizing Gastauer as a sort of successor in interest to his
son with respect to the fraudulent funds. But it offers no
definition of what constitutes a successor in interest, nor does
it provide any explanation as to why Gastauer would meet that
definition (other than because he possesses funds that were once
possessed by his son).
There are cases in which the jurisdictional contacts of
one person or entity are imputed to another deemed to be a
"successor-in-interest." See, e.g., Minn. Min. & Mfg. Co., 757
F.2d at 1263. But the successor in interest in such cases is a
party that has quite entirely stepped into its predecessor's shoes,
such as by a corporate merger. Id.; see U.S. Bank Nat'l Ass'n v.
Bank of Am. N.A., 916 F.3d 143, 156 (2d Cir. 2019) (finding that
"[b]ecause a successor by merger is deemed by operation of law to
be both the surviving corporation and the absorbed
corporation . . . we see no reason to doubt that . . . the
surviving entity, would be subject to jurisdiction" in the same
- 19 - way as would its predecessor); SUEZ Water N.Y. Inc. v. E.I. du
Pont de Nemours & Co., 578 F. Supp. 3d 511, 537-58 (S.D.N.Y. 2022)
(declining to exercise jurisdiction under a successor-jurisdiction
theory where there was no "continuity of ownership" between
entities and therefore "the rationales for successor
jurisdiction . . . d[id] not apply"). The SEC cites no authority
for the proposition that the mere receipt of money from another
person brings with it the personal jurisdictional attributes of
that person. Indeed, the authority runs to the contrary. See
U.S. Bank Nat'l Ass'n, 916 F.3d at 156 ("The fair inference of the
precedents is that . . . successor liability based on acquisition
of a predecessor's assets does not necessarily make the defendant
also amenable to jurisdiction . . . .").
Ultimately, the issue is not the legal form of the
relationship between Gastauer and his son. Rather, it is the
substantive incompatibility between the SEC's position and our
well-established understanding that due process prohibits the
imputation of contacts to a relief defendant like Gastauer, whose
only involvement in the case is his receipt of a unilateral
transfer of money from a third party. Haling him into court on
the basis of that involvement alone would accomplish exactly what
- 20 - due process prohibits.5 See also SEC v. Montle, 65 F. App'x 749,752
(2d Cir. 2003) (the government must "show that the relief
defendants have 'minimum contacts' with the United States, and
that the assertion of jurisdiction . . . comports with the
traditional notions of fair play and justice").
The SEC next theorizes that because Gastauer is brought
into the litigation merely "as a means of facilitating collection,"
and is himself not liable for any wrongdoing, then the
jurisdictional requirements are somehow lesser. SEC v. Cherif,
933 F.2d 403, 414 (7th Cir. 1991). A prototypical relief
defendant, the argument goes, "is a person who 'holds the subject
matter of the litigation in a subordinate or possessory capacity
as to which there is no dispute.'" SEC v. Colello, 139 F.3d 674,
676 (9th Cir. 1998) (quoting Cherif, 933 F.2d at 414)); see also
SEC v. Sanchez-Diaz, 88 F.4th 81, 87-88 (1st Cir. 2023) (defining
5The SEC also appears to gesture towards the doctrine of fraudulent transfers, which allows a trustee to "avoid any transfer . . . of an interest of the debtor . . . incurred by the debtor" made within two years of the date of the filing of a bankruptcy petition if the transfer was not made for "reasonably equivalent value." In re Palladino, 942 F.3d 55, 58-59 (1st Cir. 2019) (quoting 11 U.S.C. § 548(a)(1)(B)(i)). We understand the argument to be that a court should also be able to "undo" a transfer of money to a relief defendant not made for reasonably equivalent value, as in this case. But the SEC fails to demonstrate why the specific power granted to a trustee by statute in the bankruptcy context should translate to a securities enforcement action. Nor, critically, does the SEC argue that characterizing the $3.3 million as a fraudulent transfer allows us to circumvent Gastauer's constitutionally protected due process rights.
- 21 - a relief defendant as a person who: "(1) has received ill-gotten
funds; and (2) does not have a legitimate claim to those funds"
(citation omitted)). A relief defendant is not accused of any
wrongdoing and "is part of a suit only as the holder of assets
that must be recovered in order to afford complete relief." CFTC
v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 192 (4th Cir. 2002).
And because a nominal defendant "has no interest in the subject
matter litigated . . . there is no claim against him and it is
unnecessary to obtain subject matter jurisdiction over him once
jurisdiction over the defendant is established."6 Cherif, 933 F.2d
at 414; SEC v. World Cap. Mkt., Inc., 864 F.3d 996, 1004 (9th Cir.
2017) ("[A] relief defendant . . . 'can be joined to aid the
recovery of relief without the assertion of subject matter
jurisdiction' because he or she 'has no ownership interest in the
property which is the subject of litigation.'" (quoting Cherif,
933 F.2d at 414)); Janvey v. Adams, 588 F.3d 831, 834 (5th Cir.
2009) (same); SEC v. George, 426 F.3d 786, 800 (6th Cir. 2005)
(same).
6 Gastauer disagrees that a court need not establish subject- matter jurisdiction over claims against a relief defendant, but theorizes in the alternative that district courts have subject- matter jurisdiction over claims against relief defendants under the Securities Exchange Act, 15 U.S.C. § 78aa. Because both parties agree that the district court had proper subject-matter jurisdiction over the claim against Gastauer, though they disagree as to why, we need not resolve that question today.
- 22 - But none of these cases say anything about personal
jurisdiction over a relief defendant. Indeed it defies common
sense to think that the district court, in imposing a multi-million
dollar judgment against Gastauer personally, is doing anything but
exercising coercive power over him, and challenging his right to
property in his hands. And "[i]t is common ground that, for a
court to render a binding decision consonant with due process, it
must have personal jurisdiction over the parties, that is, the
power to require the parties to obey its decrees." United States
v. Swiss Am. Bank, Ltd., 191 F.3d 30, 35 (1st Cir. 1999) (citing
Burnham v. Superior Ct. of Cal., 495 U.S. 604, 608-09 (1990)).
Thus, that the SEC has not accused Gastauer of any legal wrongdoing
does nothing to diminish the constitutional protections he is owed
before a court may order him to participate in a proceeding
challenging his property interests.
Gastauer's status as a foreign resident who lacks any
relevant contacts with the entire United States further cautions
against the SEC's expansive view of the district court's
jurisdiction. An "uninhibited approach to personal jurisdiction"
in a case such as this would pose "risks to international comity."
Daimler AG v. Bauman, 571 U.S. 117, 141 (2014) (detailing
concerns). And even were we to affirm the district court's
judgment against Gastauer, the SEC would still have to enforce the
order in a foreign tribunal before it could realize any portion of
- 23 - the judgment. While the SEC assures us that it is able to address
any issues of enforcement, such "[c]onsiderations of international
rapport thus reinforce our determination" that exercising in
personam jurisdiction over Gastauer "would not accord with the
'fair play and substantial justice' due process demands." Id. at
142 (quoting Int'l Shoe Co., 326 U.S. at 316).
We understand the SEC's motivating concern that our
ruling today may in some instances make it more difficult to recoup
the spoils of a crime. But to the extent that is true, it cannot
overcome Gastauer's fundamental "right to be subject only to lawful
power." J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 884
(2011) (plurality opinion) (citing Ins. Corp. of Ir., Ltd. v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)).
IV.
We therefore decline to adopt the SEC's novel theory
regarding the imputation of jurisdictional contacts to Gastauer in
this case. The district court's exercise of personal jurisdiction
over appellant is accordingly reversed and the case is remanded to
the district court for further proceedings consistent with this
opinion.
- 24 -