Opinion ID: 3050320
Heading Depth: 3
Heading Rank: 1

Heading: Claims against Securities Act violators

Text: [1] The Receiver’s first argument is that the district court had jurisdiction pursuant to the Securities Act of 1933 (“Securities Act”). Section 12 of the Securities Act, 15 U.S.C. § 77l, creates a private right of action for persons injured through the sale of unregistered securities. Section 22 of the Act provides that “process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.” 15 U.S.C. § 77v(a). [2] The Receiver argues that § 22 is a nationwide serviceof-process provision that authorizes the district court to exercise jurisdiction nationwide over any person who has minimum contacts with the United States. We agree that § 22 provides for nationwide service of process. The service of process language of § 22 tracks almost word-for-word that of the analogous provision in § 27 of the Securities and Exchange Act. Compare 15 U.S.C. § 77v(a) (§ 22 of the Act) with 15 U.S.C. § 78aa (§ 27 of the Act). In Sec. Investor Prot. 10 “The jurisdictional limits to the district court’s power in equity receivership proceedings are issues of law, reviewed de novo.” SEC v. Am. Capital Invs., 98 F.3d 1133, 1142 (9th Cir. 1996). We also review de novo due process challenges arising from claims that the district court lacked jurisdiction to enter an order in a federal equity receivership proceeding. Id. at 1146. 13922 SEC v. ROSS Corp. v. Vigman, 764 F.2d 1309 (9th Cir. 1985), we held that § 27 gave the district court the power to exercise personal jurisdiction over any party with minimum contacts with the United States and that the exercise of such jurisdiction comported with the principles of due process. Id. at 1315-16. Given the near identity in the language between these two provisions, we agree with the Receiver that, by empowering the district court to serve process nationwide, § 22 of the Securities Act permits district courts to obtain personal jurisdiction over parties who are properly served.11 [3] That the district court could have obtained jurisdiction over Bustos tells us nothing about whether it actually did so. The Receiver would apparently have us conclude that the ability to obtain jurisdiction coupled with actual notice of an intent to exercise jurisdiction gives birth to actual in personam jurisdiction over any interested party, whether or not that party has been properly served. Nothing in our jurisprudence supports such a remarkable extension of judicial power. The power to exercise jurisdiction nationwide is not selfexecuting. Mere contacts with the jurisdiction, even when coupled with some kind of actual notice, are not sufficient to invest the district court with in personam jurisdiction over a party-in-interest. As we discussed in the previous section, in order for the court to assert personal jurisdiction over a partyin-interest, the party must be properly served. See FED. R. CIV. P. 4(k). Bustos was not so served, and the district court’s power over him remained nothing more than a potentiality. 11 As in Vigman, the question of whether the court can exercise personal jurisdiction over a party is distinct from the question of whether venue will properly lie in the court exercising jurisdiction. See Vigman, 764 F.2d at 1317-18. Section 22 of the Act provides that venue for a securities action under § 12 lies “in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein.” 15 U.S.C. § 77v(a). Bustos has challenged venue in the District of Oregon. Because of our disposition on jurisdictional grounds, we do not reach this question. SEC v. ROSS 13923 It is true that we have described the service requirements of Rule 4 as “a flexible rule that should be liberally construed so long as a party receives sufficient notice of the complaint,” Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988) (discussing requirements for perfecting service against a corporation under FED. R. CIV. P. 4(d)(3)), but such liberal construction would be quite inappropriate in the circumstances of this case. First, we have generally held that “neither actual notice nor simply naming the defendant in the complaint will provide personal jurisdiction without substantial compliance with Rule 4.” Benny, 799 F.2d at 492; Direct Mail, 840 F.2d at 688 (stating that only “substantial compliance with Rule 4” will provide personal jurisdiction over the defendant). Given the complete absence of any effort to serve Bustos with a summons or a complaint, the Receiver cannot claim substantial compliance with Rule 4. The Receiver’s failure even to attempt to comply with Rule 4 is no “minor defect,” United Food & Commercial Workers Union v. Alpha Beta Co., 736 F.2d 1371, 1382 (9th Cir. 1984), that can be remedied by actual notice. [4] More importantly, the difficulty here runs deeper than mere insufficient service of process. The Receiver never filed a complaint and never named Bustos as a party. In other words, the Receiver never commenced an action against Bustos, see FED. R. CIV. P. 3; it simply named Bustos in a motion for the disgorgement of allegedly ill-gotten gains earned through the sale of unregistered securities. See In re Alpha Telcom, 2004 WL 3142555, at  (holding that a formal summons and complaint were unnecessary because “[t]he motion before the court is not an independent action”). Prior to Bustos’s intervention in the action, the Receiver apparently believed that he need not even obtain jurisdiction over Bustos. When Bustos sought leave to intervene in the disgorgement action, the Receiver took the position that Bustos’s involvement in the action was unnecessary because Bustos could raise whatever objections he had on appeal. In other words, at every stage of the proceedings, the Receiver fought to deprive 13924 SEC v. ROSS Bustos of any opportunity to participate as a party. We will not now permit the Receiver to claim that actual notice received by Bustos cured the jurisdictional defects that the Receiver himself created by failing to name Bustos in a complaint and effect service of that complaint and a summons upon him. In sum, although § 22 of the Securities Act authorized the district court to exercise in personam jurisdiction over Bustos, the Receiver failed to take steps consistent with the Due Process Clause or Rule 4 to perfect the court’s potential jurisdiction. Section 22 does not supply the personal jurisdiction needed to support the judgment.