Third Circuit Concludes that Civil RICO section 18 U.S.C. § 1965(b), not Section 1965(d), Applies to Determine Personal Jurisdiction over Defendants from a Neighboring State

Laurel Gardens LLC v. McKenna, 948 F.3d 1051 (3rd Cir. 2020)

The Appeals court vacated the order entered by the District Court disposing of the parties’ dismissal motions to the extent that it granted certain Defendants’ (Isken Defendants) motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2) as well as the District Court’s Rule 54(b) order insofar as it designated this prior order as the final judgment as to the Isken Defendants.

The case was brought in the Eastern District of Pennsylvania, although it is undisputed that Defendants Isken are residents of the State of Delaware and that IE is a Delaware limited liability company with its principal place of business located in Newark, Delaware.

The Court of Appeals concluded that 1965 subsection (b) (and not subsection (d)) applies here. In turn, Plaintiffs satisfied the statutory (and constitutional) requirements for the exercise of personal jurisdiction over the Isken Defendants. Furthermore, Plaintiffs’ state law claims then fall under the doctrine of pendent personal jurisdiction.

The Court agreed with Plaintiffs that the issue of personal jurisdiction under the RICO provision is properly before the Court.  Under the circumstances, the Court limited its ruling to this threshold jurisdictional issue under Rule 12(b)(2) and therefore refrained from considering whether Plaintiffs fail to state a claim upon which relief can be granted under Rule 12(b)(6).

The Appeals court discussed there is a circuit split regarding which specific subsection of the RICO provision governs the exercise of personal jurisdiction in this case. Plaintiffs recognize that two circuits (the Fourth and the Eleventh Circuits) have looked to § 1965(d). According to the Eleventh Circuit, “Section 1965(d) of the RICO statute provides for service in any judicial district in which the defendant is found.” Republic of Panama v. BCCI Holdings (Lux.) S.A., 119 F.3d 935, 942 (11th Cir. 1997). Citing Republic of Panama, the Fourth Circuit reached the same conclusion. ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 626 (4th Cir. 1997).

Five circuits (the Second, Seventh, Ninth, Tenth, and D.C. Circuits) (the Majority) have stated that subsection (b) governs nation-wide service of process and personal jurisdiction over “other parties.” See FC Inv. Grp. v. IFX Markets, Ltd., 529 F.3d 1087, 1098-1100 (D.C. Cir. 2008) Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1229-33 (10th Cir. 2006)PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 70-72 (2d Cir. 1998)Lisak, 834 F.2d at 671-72Butcher’s Union Local No. 498 v. SDC Inv., Inc., 788 F.2d 535, 538-39 (9th Cir. 1986). 

Holding–  The Third Circuit agreed with the majority approach based on the language and structure of the RICO provision itself as well as the relative absence of reasoning in support of the minority position. The history of the legislation and the Circuit’s own prior case law provide further support for this majority approach.

The Court stated that reading all of the subsections of § 1965 together, the court found that § 1965 does not provide for nationwide jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found.

First§ 1965(a) grants personal jurisdiction over an initial defendant in a civil RICO case to the district court for the district in which that person resides, has an agent, or transacts his or her affairs. In other words, a civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant.  

Second, § 1965(b) provides for nationwide service and jurisdiction over “other parties” not residing in the district, who may be additional defendants of any kind, including co-defendants, third-party defendants, or additional counter-claim defendants. This jurisdiction is not automatic but requires a showing that the “ends of justice” so require.

Going further, subsection (c) “simply refers to service of subpoenas on witnesses”—specifically in civil or criminal actions or proceedings instituted by the government. Id.

Finally, “subsection (d)’s reference to ‘ “all other process” ’ must mean process different than a summons or a government subpoena, both of which are dealt with in previous subsections.” Cory, 468 F.3d at 1230 (quoting PT United, 138 F.3d at 72).

The circuit courts adopting the minority approach did not offer a detailed explanation for their selection of subsection (d).

The structure of § 1965 as well as the “other parties” language of subsection (b) clearly require the presence of at least one defendant that meets the traditional contacts test. With the apparent exception of the Seventh Circuit, see Lisak, 834 F.2d at 671-72, the circuit courts following the majority approach have adopted this requirement.

“Where Congress has statutorily authorized nationwide service of process, such service establishes personal jurisdiction, provided that the federal court’s exercise of jurisdiction comports with Fifth Amendment due process.” Cory, 468 F.3d at 1229 (citing Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206, 1209 (10th Cir. 2000)); see also, e.g., In re Automotive Refinishing Paint Antitrust Litig., 358 F.3d 288, 297-99 (3d Cir. 2004)Pinker, 292 F.3d at 368-71. Having determined that “the ends of justice require” the Isken Defendants “be brought before” the District Court under § 1965(b), we have no difficulty concluding that the District Court’s exercise of personal jurisdiction over them comports with the Fifth Amendment. In this context, we are not limited to the defendant’s contacts with the forum state and instead consider contacts with the nation as a whole.

The Court concluded that the District Court’s exercise of personal jurisdiction over defendants from a neighboring state does not offend traditional notions of fair play and substantial justice.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s