Opinion ID: 4558187
Heading Depth: 3
Heading Rank: 1

Heading: In Personam Jurisdiction in an In Rem Action

Text: 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 (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 UNITED STATES V. OBAID 9 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 (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 (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 (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. 10 UNITED STATES V. OBAID 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. 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. 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 (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 (1945). See Shaffer, 433 U.S. at 192–93. 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 (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 interests of persons in a thing.” Id. at 207 (citation, footnote reference, and internal quotation marks omitted). Logically, this means that “in order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be sufficient to justify exercising jurisdiction over the interests of persons in a thing.” Id. UNITED STATES V. OBAID 11 (footnote reference and internal quotation marks omitted). “The standard for determining whether an exercise of jurisdiction over the interests of persons is consistent with the Due Process Clause is the minimum-contacts standard elucidated in International Shoe.” Id. The Supreme Court thus concluded that “all assertions of state-court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny.” Id. at 212 (footnote reference omitted). Left with this conclusion from Shaffer, one might deduce that Obaid’s position carries the day. But not so fast. Another Supreme Court decision, Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004), decided some twenty-five years after Shaffer, has something to say about in rem jurisdiction and it does not say the same thing that Shaffer seemingly says. The Tennessee Student Assistance Corporation (TSAC) is a government agency that administers student assistance programs in the state of Tennessee. See id. at 443. Among other things, TSAC guarantees student loans to residents of Tennessee. See id. at 444. Hood was one such resident, and she signed promissory notes for loans guaranteed by TSAC. See id. Years after receiving the loans, Hood filed a “no asset” bankruptcy petition. She did not mention her student loans and those debts were not included in her discharge. See id. Hood then reopened her bankruptcy petition for the limited purpose of seeking a discharge of her student loans pursuant to the “undue hardship” provision of the Bankruptcy Code. See id. TSAC was named as a defendant. See id. at 445. 12 UNITED STATES V. OBAID TSAC filed a motion to dismiss Hood’s complaint for lack of jurisdiction, on the basis of the state’s sovereign immunity under the Eleventh Amendment. See id. The bankruptcy court, Sixth Circuit Bankruptcy Appellate Panel, and the Sixth Circuit all agreed that states have no immunity from suit in the bankruptcy context. See id. The Supreme Court granted certiorari and affirmed. See id. at 443. Rather than addressing the “broader question” of whether states have no immunity from suit in the bankruptcy context, the Court addressed the narrower question of whether discharge of a student loan debt implicated Eleventh Amendment immunity. See id. at 445. The Court’s answer to this question was “no.” See id. To resolve this question, the Court first clarified that “[t]he discharge of a debt by a bankruptcy court is . . . an in rem proceeding and that [b]ankruptcy courts have exclusive jurisdiction over a debtor’s property.” Id. at 447 (citations omitted). The Court noted that its precedent “has drawn a distinction between in rem and in personam jurisdiction, even when the underlying proceedings are, for the most part, identical.” Id. at 453. For the purpose of adjudicating the discharge claim, the bankruptcy court’s “jurisdiction is premised on the res, not on the persona.” Id. at 450. The Court concluded that the case did not implicate the Eleventh Amendment because the bankruptcy court’s in rem jurisdiction “allows it to adjudicate the debtor’s discharge claim without in personam jurisdiction over the State.” Id. at 453 (citation omitted). “The bankruptcy court’s in rem jurisdiction permits it to determine all claims that anyone, whether named in the action or not, has to the property or thing in question. . . . Id. at 448 (citation, alteration, and internal quotation marks omitted). This conclusion follows UNITED STATES V. OBAID 13 because in an in rem action, “jurisdiction over the person is irrelevant if the court has jurisdiction over the property.” Id. (citation omitted). The Court emphasized that Hood did not ask the bankruptcy court to exercise personal jurisdiction; she simply wanted “a determination of the dischargeability of her debt.” Id. For that reason, the Eleventh Amendment was not implicated and the denial of TSAC’s motion to dismiss was upheld. See id. at 455. Neither of these two cases is precisely on point. Shaffer addressed a quasi in rem proceeding rather than a true in rem proceeding. See Ventura Packers, 424 F.3d at 860 n.4 (describing a quasi in rem proceeding as “a halfway house between in rem and in personam jurisdiction” with the “action not really against the property” but more “a personal claim . . . of the type usually advanced in an in personam action”). As noted in Shaffer, the primary purpose of sequestration was “not to secure possession of property” but to “compel the personal appearance of a nonresident defendant to answer and defend a suit brought against him in a court of equity.” 433 U.S. at 193 (citation omitted). In other words, “the only role played by the property [was] to provide the basis for bringing the defendant into court.” Id. at 209 (footnote reference omitted). Indeed, once the defendant made a general appearance before the court, the res was released. See id. at 193. Unlike in a true in rem proceeding, the seized property “[was] not the subject matter of [the] litigation, nor [was] the underlying cause of action related to the property.” Id. at 213. Thus, despite the Court’s reference to in rem proceedings, it is apparent from its 14 UNITED STATES V. OBAID analysis that Shaffer is limited to quasi in rem proceedings.2 There is no dispute that civil forfeiture does not involve the quasi in rem proceedings contemplated by Shaffer, in which 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.” 4A C. Wright & A. Miller, Federal Practice and Procedure § 1070 (4th ed. 2020). This conclusion is supported by the failure of the Court to expressly overrule its longstanding precedent anchoring in rem jurisdiction to the presence of the res. See, e.g., Republic Nat. Bank of Miami v. United States, 506 U.S. 80, 84 (1992) (“Certainly, it long has been understood that a valid seizure of the res is a prerequisite to the initiation of an in rem civil forfeiture proceeding. . . .”) (citations omitted); see also Kline v. Burke Constr. Co., 260 U.S. 226, 229 (1922) (“Where the action is in rem the effect is to draw to the federal court the possession or control, actual or potential, of the res . . .”); Overby v. Gordon, 177 U.S. 214, 221 (1900) (“An essential characteristic of a proceeding in rem is that there must be a res or subject-matter upon which the court is to exercise its jurisdiction. . . .”). 2 See also James Weinstein, The Federal Common Law Origins of Judicial Jurisdiction, 90 Va. L. Rev. 169, 246 & n.28 (2004) (“In continuing the common law process that gave rise to the in rem rules in the first place, the Court has, for a variety of reasons (including forum state interest, history, and considerations of individual fairness), decided that most of the traditional in rem rules continue to square with its vision of how state judicial authority should be allocated in our federal system. Only where changed circumstances have rendered a traditional practice outmoded and dysfunctional, as was the case with attachment jurisdiction [in Shaffer], has the Court, in the best common law tradition, declared the practice invalid.”). UNITED STATES V. OBAID 15 It would be “exceeding strange”3 if the Supreme Court intended to eliminate the historical distinction between in personam and in rem jurisdiction without explicitly saying so. See United States v. Ten Thousand Dollars, 860 F.2d 1511, 1513 (9th Cir. 1988) (applying “traditional in rem principles” in a forfeiture action).4 We should not assume that the Supreme Court has implicitly overruled its precedent. See Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18 (2000) (“This Court does not normally overturn, or so dramatically limit, earlier authority sub silentio. . . .”). In our view, the more reasonable interpretation of Shaffer limits it to the scenario presented to the Court—a quasi in rem statutory scheme. The Supreme Court evidently did not sweep away traditional in rem principles in Shaffer, as it relied on those same principles almost thirty years later in Hood to conclude that “the bankruptcy court’s jurisdiction is premised on the res, not on the persona.” Hood, 541 U.S. at 450. We are persuaded that Hood provides more direct guidance for the issue we are called upon to decide. Unlike in Shaffer, Hood involved a true in rem case. In this case and in Hood, the res is the subject of the action, not a substitute for the person who is the subject of the action. See Shaffer, 433 U.S. at 213 (explaining that the property was “not the subject matter of this litigation”). 3 William Shakespeare, The Merchant of Venice, Act 1, Scene 1. The dissent maintains that the Supreme Court “explicitly said” that it was overruling decades of precedent governing in rem jurisdiction. Dissenting Opinion, p.38–39. However, it is notable that the dissent does not point to one in rem case that the Supreme Court overruled in Shaffer. 4 The dissent ignores this language in its citation of this case. See Dissenting Opinion, p.40. 16 UNITED STATES V. OBAID The dissent’s attempt to restrict Hood’s application of traditional in rem principles to bankruptcy cases where the absent party is the creditor, rather than the debtor, is unpersuasive. The Court was clear that its jurisdiction was “premised on the res,” see Hood, 541 U.S. at 448, and that “jurisdiction over the person is irrelevant if the court has jurisdiction over the property.” Id. at 453 (citation omitted). Contrary to the characterization in the dissent of our “misunderstanding of the nature of bankruptcy proceedings” and our misreading of Hood, Dissenting Opinion, 34, we fully understand and faithfully apply the statutory bankruptcy scheme as interpreted by the Supreme Court in Hood. Under 28 U.S.C. § 1334(e), bankruptcy courts have “exclusive jurisdiction of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate.” Thus, in rem bankruptcy jurisdiction “essentially creates a fiction that the property—regardless of actual location—is legally located within the jurisdictional boundaries of the district in which the court sits.” Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 971 (9th Cir. 2005) (citation omitted) (emphasis in the original).5 The jurisdictional statute here creates a similar legal fiction, providing that a “forfeiture action or proceeding may be brought in the district court for the district in which any of the acts or omissions giving rise to the forfeiture occurred,” even if the property is located in a foreign country. 28 U.S.C. § 1355(b). 5 The dissent elides our reliance on this precedent, preferring to reference only a treatise cited in Hood. See Dissenting Opinion, p.36. The dissent’s only attempted response to the express language in Hood is to seek to blunt its impact through resorting to “context.” Id. UNITED STATES V. OBAID 17 The discharge of a debt by a bankruptcy court is “an in rem proceeding.” Hood, 541 U.S. at 447. Although the bankruptcy court’s discharge order “operat[es] as an injunction to prohibit creditors from attempting to collect or to recover the debt,” the court need not have personal jurisdiction over the creditor. Id.6 If we adopt the broad reasoning of Shaffer advocated by Obaid and the dissent, we would be discarding a longstanding body of Supreme Court authority. We hasten to add that we do not read Hood as overruling or purporting to overrule Shaffer. Rather, we conclude that each survives in its respective sphere: Shaffer in the realm of quasi in rem jurisdiction and Hood in the realm of in rem jurisdiction.7 6 The dissent states that “[n]othing in Hood suggests that a court may exercise in rem jurisdiction without personal jurisdiction over the owner of the res.” Dissenting Opinion, p. 36. But Hood is clear that in rem jurisdiction is “premised on the res, not on the persona”—this statement would make no sense if the personal jurisdiction is also necessary. 541 U.S at 450. The “owner of the res” is “persona” not “res.” In rem jurisdiction does not include an additional personal jurisdiction requirement over the debtor: the debtor filed the petition and 28 U.S.C. § 1334(e) provides the bankruptcy court with “exclusive jurisdiction of all the property . . . of the debtor . . . and of property of the estate.” In accordance with traditional in rem principles, jurisdiction over property is all that is required. See also United States v. Gurley, 434 F.3d 1064, 1068 (8th Cir. 2006) (holding that when the “government, as a creditor, asserted a right to payment” through filing a proof of claim in debtor’s bankruptcy proceeding, “there was no need to establish personal jurisdiction over” the debtor “[b]ecause it was an in rem proceeding”). 7 Contrary to the dissent’s unpersuasive reading of Hood, see Dissenting Opinion, p.36, everything in Hood points to the court’s in rem jurisdiction without regard to personal jurisdiction over the owner of the res. See 541 U.S. at 447. 18 UNITED STATES V. OBAID The dissent concedes that in the forty-plus years since Shaffer was decided, no court has dismissed a civil forfeiture action for lack of personal jurisdiction over a claimant. See Dissenting Opinion, p.43 n.12. The dissent attempts to minimize this fact by saying that “this is to be expected.” See id. We beg to differ. Generally, when the Supreme Court makes a sweeping change in a fundamental legal theory, there is a tsunami of reversals in the lower courts applying the new precedent. One need only compare the legal aftermath of the Supreme Court’s decision in Ashcroft v. Iqbal, 556 U.S. 662 (2009), to make the point. Iqbal redefined the pleading standards under Rule 8 of the Federal Rules of Civil Procedure, see id. at 678–80, and prompted a barrage of dismissals. See Daniel W. Robertson, In Defense of Plausibility: Ashcroft v. Iqbal and What the Plausibility Standard Really Means, 38 Pepp. L. Rev. 111, 140 (2010) (“In the few months since the decision in Iqbal came down, it has resulted in the dismissal of 1500 district court and 100 appellate court cases, many if not most of which would probably have survived; more dismissals are pending.”) (citation omitted). Nevertheless, we acknowledge that two of our sister circuits have noted in passing that Shaffer requires a minimum contacts analysis in an in rem proceeding. In United States v. Batato, 833 F.3d 413 (4th Cir. 2016), on which the dissent relies to support its reading of Shaffer, the Fourth Circuit acknowledged that “Shaffer provides only limited guidance as to how to proceed.” Id. at 423. Contrary to the dissent’s contention that the Court “applied” Shaffer to require satisfaction of International Shoe in an in rem action, the Batato panel “assume[d] without deciding that a traditional, state-based minimum contacts approach is UNITED STATES V. OBAID 19 appropriate” in a forfeiture action. Id. (footnote reference omitted).8 Obaid also cites a Second Circuit case, LiButti v. United States, 178 F.3d 114 (2d Cir. 1999), for the proposition that “in rem jurisdiction cannot lie to adjudicate ownership of shares owned by a non-resident . . . when the shareowner lacks minimum contacts with the forum.” But the Second Circuit’s holding was not as sweeping as Obaid contends. LiButti involved litigation over the ownership of a racehorse, “Devil His Due.” Id. at 116. When the IRS issued a levy against the horse, contending that LiButti owned it, his daughter brought a wrongful levy action, claiming that she, not her father, was the owner. See id. at 116–17. While the case was pending on appeal, the daughter entered into a syndicate agreement dividing ownership of the horse into shares, half of which were sold to a third party. See id. at 117. When the IRS ultimately prevailed on appeal, it sought restitution for the full value of “Devil His Due” from the daughter and the third party. Id. at 118. The Second Circuit determined that the third party could not be compelled to pay restitution because the court had no personal or in rem jurisdiction under a minimum-contacts analysis. See id. at 122–23. Contrary to Obaid’s contention, the court did not dismiss the in rem action for lack of jurisdiction—it upheld the determination about the ownership of the horse, notwithstanding any lack of jurisdiction over the third party claimant. See id. at 120. The court simply held that the third 8 Faced with these explicit statements from the Batato decision, the dissent again falls back on “context” to spin its analysis. Dissenting Opinion, p.40 n.9. 20 UNITED STATES V. OBAID party could not be ordered to reimburse the IRS. See id. at 122–23.9 We are not persuaded by the lukewarm discussion of Shaffer by the Fourth Circuit and the Second Circuit. Neither are the other cases cited by the dissent of sufficient persuasive value to undermine our analysis of the Shaffer decision. For starters, not one of the cases cited by the dissent involves a civil forfeiture action, which is governed by a statute expressly allowing a forfeiture action to be brought in any district “in which any of the acts or omissions giving rise to the forfeiture occurred,” even if the property “is located in a foreign country.” 28 U.S.C. § 1355(b)(1)(A), (b)(2). Consequently none of the cases, or the dissent for that matter, grapples with the application of Shaffer to civil forfeiture proceedings brought under a statute conferring exclusive jurisdiction. A brief discussion of each of the cases confirms this observation. • Inland Credit Corp. v. M/T Bow Egret, 556 F.2d 756, 757 (5th Cir. 1977) - admiralty case brought in rem against the vessel and in personam against the owner of the vessel. Cites Shaffer for its “philosophy” without analysis and notes that it was decided “in a quite different context”—but did not apply Shaffer. Id. The dissent quotes an order denying a petition for rehearing. The underlying opinion expressly declined to address the question: “We need not decide in the present case whether the philosophical underpinnings of the system of in rem jurisdiction in admiralty have 9 The dissent once more resorts to analytic gyrations in an effort to twist the Second Circuit decision to more closely mirror Shaffer. See Dissenting Opinion, p.40 n.9. UNITED STATES V. OBAID 21 been critically shaken. . . .” 552 F.2d 1148, 1152 (5th Cir. 1977). • Pickens v. Hess, 573 F.2d 380, 387 (6th Cir. 1978) - a case addressing in personam jurisdiction. Cites Shaffer in a see also citation, without analysis, to support the proposition that the modern view of jurisdiction does not “herald[] the eventual demise of all restrictions on the personal jurisdiction of state courts.” Id. (citation omitted). • Lakeside Bridge & Steel Co. v. Mountain State Const. Co., Inc., 597 F.2d 596, 600–02 (7th Cir. 1979) - a case addressing in personam jurisdiction. Restates the holding of Shaffer, without analysis, to support application of International Shoe to the question of in personam jurisdiction over a non-resident defendant, not jurisdiction over a res. Characterizes the Delaware court’s exercise of jurisdiction as “in rem jurisdiction to sequester shares of stock and stock options” even though the action was quasi in rem. Id. at 601. • Salazar v. Atlantic Sun, 881 F.2d 73, 76, 80 (3d Cir. 1989) - admiralty case. Distinguishes Shaffer on the basis that Shaffer did not arise “in the admiralty context,” and rejected a due process claim raised by the owner. Id. at 76. • Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522, 525 (4th Cir. 1987) - a case addressing in personam jurisdiction. Recognizes that International Shoe addresses in personam jurisdiction and agrees with our interpretation that in Shaffer, “the 22 UNITED STATES V. OBAID litigation there was not related to the property [and] the only role played by the property was to bring the defendants before the court.” Id. at 526. As stated previously, not one of the cited cases purported to address civil forfeiture proceedings. Thus, the dissent’s declaration of a circuit conflict is much exaggerated, particularly in view of the lack of any mention in Shaffer of overruling the legion of cases embodying principles of in rem jurisdiction. And the Supreme Court has continued to recognize in rem jurisdiction predicated on presence of the res in civil forfeiture proceedings post-Shaffer. See, e.g., Republic Nat. Bank of Miami v. United States, 506 U.S. 80, 84–85 (1992). We are persuaded that Hood supports our view that Shaffer is limited to quasi in rem actions and does not extend to in rem actions. See Hood, 541 U.S. at 453 (noting the distinction in Supreme Court precedent between in rem and in personam jurisdiction).10 10 The law review articles cited by the dissent—all of them published before the Supreme Court’s decision in Hood—are similarly unpersuasive on the issue of jurisdiction in forfeiture proceedings. At best, commentators at the time confirmed that the effect of Shaffer on in rem forfeiture proceedings is uncertain. See, e.g., Andreas Lowenfeld, In Search of the Intangible: A Comment on Shaffer v. Heitner, 53 N.Y.U.L. Rev. 102 (1978) (“The debate goes on whether Shaffer v. Heitner really overruled Pennoyer v. Neff [95 U.S. 714 (1878)], whether Seider v. Roth [216 N.E.2d 312 (N.Y. 1966)] can survive after Shaffer, [and] whether one can build an effective structure to enforce judgments obtained in forum 1 against assets maintained in (or removed to) forum 2. . . .”); Angela M. Bohmann, Applicability of Shaffer to Admiralty in Rem Jurisdiction, 53 Tul. L. Rev. 135, 141 (1978–79); Kenneth G. Whyburn, Attachment Jurisdiction After Shaffer v. Heitner, 32 Stan. L. Rev. 167, 167 n.1 (1979). UNITED STATES V. OBAID 23