Opinion ID: 3050320
Heading Depth: 4
Heading Rank: 1

Heading: Personal jurisdiction and venue

Text: The district court concluded that it “necessarily ha[d] jurisdiction over matters pertaining to [the] Receivership, and the assets thereof.” Moreover, the agents had entered into agreements with Alpha Telcom, headquartered in Oregon, and those agreements specified that Oregon law would govern any disputes. Finally, the court noted that the securities laws permitted nationwide service of process, and the agents’ contacts with the United States alone were sufficient to support the exercise of personal jurisdiction over them (citing, inter alia, 15 U.S.C. § 77v(a)). The court also concluded that venue was proper because the agents were scattered across the country, and it was more efficient to try the case in one location. 2. Summary procedures and lack of service of process The district court rejected the agents’ argument that they had not been properly served, holding that formal service was required only to institute an action. Because the Receiver’s disgorgement motion was not an independent action but simply “part of the Receivership proceeding” that sought to “re13916 SEC v. ROSS cover funds the agents received from Alpha Telcom that they allegedly have no legitimate claim to possess,” the agents were “nominal defendants” who were entitled only to receive notice of the motion and a reasonable opportunity to be heard. The district court noted that the “more serious flaw” was the fact that the Receiver could not prove that any particular agent actually received notice of the motion because it had failed to send the notice by certified mail. This flaw, however, was remedied by the fact that the Receiver sent multiple mailings to the listed agents, that the court had required the Receiver to send “a follow-up mailing to the agents,” the “rebuttable presumption that mail, properly addressed, has been delivered,” and the fact that the agents appeared to be in regular contact with each other. Moreover, the court found, the “vast majority” of the agents appeared to have received actual notice of the motion, and presumably any agent who had not received actual notice could collaterally attack the disgorgement order if he or she could prove lack of actual notice. 3. Unjust enrichment The Receiver’s theory of unjust enrichment depended on whether the agents had a “legitimate claim” to the commissions they received. The district court noted that the Receiver had not formally alleged any wrongdoing on the part of the agents and chided the Receiver for filling its papers with accusations of wrongdoing that were not “germane to the legal theories he advances.” The court declined to hold that the commissions were analogous to disbursements in the typical gratuitous donee case, where a third party receives value for no consideration from a wrongdoer, and expressly rejected three theories put forth by the Receiver as to why the agents had no legitimate claim to the commissions: (1) that Alpha Telcom received no value for the agents’ services because the company lost money on each sale, (2) that agents were willing participants in a Ponzi scheme, and (3) that the agents’ services helped to perpetrate a fraud. Rather, the district court SEC v. ROSS 13917 found the agents had no legitimate claim on the commissions because “[t]he services provided by the agents were, in hindsight, illegal.” They had sold unregistered securities, which is a strict liability offense. Because they “were paid for furnishing illegal services[, t]he law [would not] permit them to benefit from the sale of unregistered securities.”8 4. Computation of disgorgement amount Having decided that the agents would be liable for the funds, the district court detailed how it would handle claims by remaining agents who contested the amounts claimed by the Receiver and sought setoffs for expenses and taxes paid on the commissions. The court found that many of the agents had likely claimed personal expenses as business expenses on their tax returns, and therefore, citing its discretionary powers, established “a uniform setoff for expenses: 10 percent of the first $50,000 in commissions received by an agent, and 5 percent of all commissions over that amount.” The court determined that it was not practicable—and was far too expensive —to require the Receiver to evaluate each agent’s claimed expenses and rejected objections, noting that “this is equity, not rocket science.” Finally, the district court refused to grant a setoff for income taxes paid on the commissions, noting that this was “a matter between the agents and the IRS (or state officials). The court will not interfere.” D. Appellants’ Response and Appeal The district court gave the agents 20 days to file an objection to the amount of disgorgement and then addressed each agent’s individual objections in a detailed order dated February 1, 2005. The court subsequently entered a Judgment of Disgorgement on March 31, 2005, and issued a “Notice to Agents” on March 31, 2005, advising them of the proper 8 The district court assumed for the purposes of the motion that the agents had acted in good faith. 13918 SEC v. ROSS method for filing an appeal and waiving the normal fee for filing a notice of appeal. The Appellants timely appealed. On appeal, Bustos reiterates most of the objections made to the district court, and these center on two sets of issues. The first of these involves due process violations arising from the district court’s lack of personal jurisdiction, the Receiver’s failure to properly serve him with a summons and complaint, and the use of summary proceedings to adjudicate the disgorgement motion. The second involves various contentions that the district court abused its discretion in granting the motion for disgorgement and calculating the amount to be disgorged. Because we hold that Bustos’s due process rights were violated by the proceedings below, we address only the first set of issues in this appeal. We begin with a brief review of the principles of personal jurisdiction and the relationship between jurisdiction and service of process.