FTC v. Cleverlink Trading Limited & Quilling v. Stark (Nationwide Personal Jurisdiction/28 U.S.C. 754)

The following cases stake out the court’s ability to excercise nationwide personal jurisdiction in SEC and FTC cases. Being able to hale defendants from around the country and possibly around the world (see footnote 5 in the Cleverlink case) to the receivership court creates tremendous efficiences for the receivership, and is a prowerful weapon in the receiver’s arsenal.

– Phil Stenger

Two federal district court cases handed down on the same day address the issue of jurisdiction.

Quilling v. Stark 2006 WL 1683442 (N.D. Tex., June 19, 2006) examines the scope of personal jurisdiction of a receivership court arising from the impact of 28 U.S.C. §§754 and 1692. While recognizing that, under due process, extraterritorial jurisdiction in diversity cases requires that the nonresident defendant have minimum contacts with the forum state, the Texas district court held that, where a federal statute authorizes extraterritorial service of process, the “minimum contacts” analysis is based upon the nonresident defendant’s contacts with the United States. The court concluded that, “Together, these statutes [§§754 and 1692] give a receivership court both in rem and in personam jurisdiction in all districts where property of the receivership estate may be located (emphasis the court’s),” and further noted that “This promotes judicial efficiency ‘by permitting courts to manage claims regarding receivership property in a single forum.’” *3

Quilling also confirmed the rule that the existence of a Ponzi scheme renders the transfer of investor funds fraudulent as a matter of law. *6

FTC v. Cleverlink Traking Limited 2006 WL 1735276 (N.D. Ill., June 19, 2006) confirmed that where nationwide service of process is authorized by federal law, the “minimum contacts” analysis focuses on contacts with the United States. The court further held that, under the wording of section 13(b) of the Federal Trade Commission Act, extraterritorial service such as injunctions may be had upon anyone, and not merely parties to the suit, and the court has subject matter jurisdiction through its in rem jurisdiction over receivership assets, even when in the possession of (and claimed by) a third person nonresident who is not a party to the action.