Opinion
Civil Action No. 03-5987.
September 21, 2004
MEMORANDUM
I. BACKGROUND
This controversy arises from the court's January 17, 2003 Order, which placed Acorn Technology Fund, L.P. ("ATF") in Receivership and appointed the United States Small Business Administration ("SBA") as Receiver. Pursuant to powers granted under that Order, the SBA undertook the task of marshaling the assets of ATF. This included making demands upon limited partners of ATF for balances due and owing on investor subscription agreements. On June 12, 2003, a demand for payment was made upon Peter E. Chimicles, based upon his September 15, 2000 promise to pay $65,000 in exchange for a limited partnership interest in ATF. The Receiver's records reflect that the Chimicles' subscription is unfunded by $50,000. (SBA's Compl. Ex. B). Chimicles refused to comply with the Receiver's demand. (Id.) The SBA, as Receiver for ATF, has instituted the instant action for breach of contract. Pending before the court is Chimicles' Motion to Dismiss for Lack of Personal Jurisdiction, pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. In the alternative, Chimicles requests a stay of the proceedings pending arbitration, pursuant to terms of the Agreement of Limited Partnership of Acorn Technology Fund, L.P. ("Limited Partnership Agreement"). For the reasons that follow, Chimicles' Motion to Dismiss for Lack of Personal Jurisdiction is denied. The Motion for a stay is also denied.
ATF is a New Jersey Limited Partnership formed in 1997 and was licenced to operate as a Small Business Investment Company ("SBIC") in 1999. (Chimicles' Mem. Supp. Mtn. Dismiss at 2).
After a hearing on the record, this court determined that the licensee engaged in activity that violated the Small Business Investment Act, as amended, 15 U.S.C. § 661, et seq., which warranted the removal of John Torkelsen from managing and controlling ATF and the appointment of the SBA as Receiver.
II. DISCUSSION
Chimicles, a non-resident defendant, argues that this court cannot constitutionally exercise personal jurisdiction over his person because the requisite "minimum contacts" with the Commonwealth, authorizing the exercise of such power, are lacking. (Chimicles' Mem. Supp. Mtn. Dismiss at 4). He claims that he never conducted business in the Commonwealth, owns no property here, was never required to pay taxes in Pennsylvania, nor has he traveled to the forum state to engage in activity that would cause him to reasonably anticipate being hauled into court here. (Id. at 2). He asserts that his only contacts with the Commonwealth were to visit relatives living within the forum. (Id.)
Chimicles maintains that all contracts between him and ATF were executed at ATF's offices in Princeton, New Jersey. (Id. at 3). He claims that at no time did he travel to the Commonwealth to meet with representatives of ATF, nor did he make or receive any phone calls, send or receive any e-mail or letters to or from any ATF office other than the Princeton, New Jersey office. (Id.) He states that, while he did reside in the State of New Jersey, he now resides in the State of Arizona. (Chimicles' Mem. Supp. Mtn. Dismiss at 2). Chimicles reasons that his residency in either New Jersey or Arizona precludes the exercise of personal jurisdiction. He urges dismissal of the Receiver's complaint. (Id.) Chimicles has no contention that the Receiver failed to comply with the statutory requirements of 28 U.S.C. § 754 or 28 U.S.C. § 1692.
The SBA counters that the receivership court has personal jurisdiction over Chimicles regardless of his contacts with Pennsylvania. (SBA's Mem. Opp. Mtn. Dismiss at 7-8). It argues that the "minimum contacts" analysis articulated inInternational Shoe v. Washington, 326 U.S. 310 (1945) and its progeny, which sets forth the analytical framework for determining the constitutional due process limits of in personam jurisdiction over nonresident defendants, is not required because jurisdiction is predicated on a federal statute and not on diversity of citizenship. (Id.) The SBA contends that it was appointed Receiver pursuant to 28 U.S.C. § 754, which vests it with complete jurisdiction and control over any and all property that pertains to ATF. (Id.) Further, the Receiver contends that it effected service of process on Chimicles pursuant to 28 U.S.C. § 1692. (SBA's Mem. Opp. Mtn. Dismiss at 7-8). Therefore, the question of whether Chimicles has Pennsylvania contacts sufficient to meet the requirements of International Shoe is wholly irrelevant. (Id.)
Section 754 reads:
§ 754. Receivers of property in different districts
A receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall, upon giving bond as required by the court, be vested with complete jurisdiction and control of all such property with the right to take possession thereof. He shall have capacity to sue in any district without ancillary appointment. . . . Such receiver shall, within ten days after the entry of his order of appointment, file copies of the complaint and such order of appointment in the district court for each district in which property is located. The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district. 28 U.S.C. § 754.
Section 1692 reads as follows:
§ 1692. Process and orders affecting property in different districts
In proceedings in a district court where a receiver is appointed for property, real, personal, or mixed, situated in different districts, process may issue and be executed in any such district as if the property lay wholly within one district, but orders affecting the property shall be entered of record in each of such districts. 28 U.S.C. § 1692.
A. This Court's Exercise of Personal Jurisdiction over Chimicles Is Proper
The SBA contends that 28 U.S.C. § 754 and its companion, 28 U.S.C. § 1692, vest this court with personal jurisdiction over Chimicles. It argues that together these statutes grant federal courts that administer receiverships the power to effectuate nationwide service of process, thereby vesting a receivership court with personal jurisdiction over parties against whom the Receiver has claims, including individuals who might not otherwise be subject to the federal jurisdiction. (SBA's Mem. Opp. Mtn. to Dismiss at 4).
The court agrees with the Receiver's argument. A "minimum contacts" analysis is not required in the case at bar because the exercise of in personam jurisdiction is predicated upon 28 U.S.C. §§ 754 and 1692. In reaching this decision, the court follows the well-reasoned opinions of the First, Sixth and District of Columbia Circuit Court of Appeals. See American Freedom Train Found. v. Spurney, 747 F.2d 1069 (1st Cir. 1984);Haile v. Henderson Nat'l Bank, 657 F.2d 816 (6th Cir 1981);SEC v. Vision Communications, Inc., 74 F.3d 287 (D.C. Cir. 1996); SEC v. Bilzerian, 378 F.3d 1100 (D.C. Cir. 2004).
The leading case addressing the issue of whether the "minimum contacts" analysis of International Shoe is applicable to ancillary actions and proceedings brought by a federal receiver appointed by statute is Haile v. Henderson Nat'l Bank. Haile, 657 F.2d at 817. In Haile, the United States District Court for the Middle District of Tennessee appointed W. Henry Haile as receiver of the Apostolic Faith Church of God Live Forever, Inc., for the purpose of locating and collecting Apostolic's assets to pay creditors, Williamson County Bank and Third National Bank.Id. at 818. In executing his duties under the appointment, Haile filed suit in the Middle District of Tennessee against certain non-resident defendants to recover property pertaining to Apostolic. Id. at 820. The Alabama defendants challenged the court's jurisdiction over their persons or property. Id. The district court found in favor of the moving defendants and dismissed the action, finding that since the defendants did not have sufficient "minimum contacts" with the State of Tennessee it did not have jurisdiction over the suit. Id.
The Sixth Circuit reversed, holding that the two-step analysis of International Shoe, traditionally used by federal courts sitting in diversity to determine the territorial limits of a court's jurisdiction, was inapposite. Id. at 825-26. The court held:
First, an ancillary receivership action is not an exercise of extra-territorial jurisdiction; and second, the territorial limits of the appointment court's effective service of process are extended to any district to which its territorial jurisdiction has been expanded by the presence in that district of property belonging to the receivership estate. Id. at 823.
The court further stated that "[i]n an action where service of process is effected pursuant to a federal statute which provides for nationwide service of process, the strictures ofInternational Shoe do not apply." Id. at 824. "Congress . . . provided for service of process beyond the territorial limits of the state in which the district court sits in 28 U.S.C. § 1692."Id. at 825.
Other Circuit courts have relied on the Sixth Circuit's decision in reaching the same conclusion. See, e.g., American Freedom Train Found. v. Spurney, 747 F.2d 1069, 1073 (1st Cir. 1984) ("We are therefore in agreement with the Sixth Circuit's holding that pursuant to section 754 and 1692, the `appointment court's process extends to any judicial district where receivership property is found. As such, the minimum contacts analysis, as a limitation on state extra-territorial power, is simply inapposite.'" (quoting Haile, 657 F.2d at 826)); SEC v. Vision Communications, Inc., 74 F.3d 287, 290 (D.C. Cir. 1996) (relying on Haile to explain that 28 U.S.C. § 1692 provided the needed authorization to have a non-resident defendant served outside the territorial boundaries of the District of Columbia however, to invoke § 1692, a receiver needed first to comply with 28 U.S.C. § 754); SEC v. Bilzerian, 378 F.3d 1100, 1106 (D.C. Cir. 2004) (concluding that the "`interplay' between Rule 4(k) and 28 U.S.C. §§ 754 and 1692 properly provided the district court" with personal jurisdiction).
It is undisputed that the Receiver has complied with the requirements of 28 U.S.C. § 754. The Receiver, through its brief, advises that it filed in every district court of the United States copies of the complaint and the receivership order within ten days following its appointment, as required by the statute. Thus, the Receiver has established control over the property at issue. See American Freedom Train Found., 747 F.2d at 1073 ("Section 754 is ancillary to the main suit in which the receiver is appointed, and the purpose of the statute is to give the appointing court jurisdiction over property in the actual or constructive possession and control of the debtor, wherever such property may be located.") and United States v. Arizona Fuels Corp., 739 F.2d 455, 460 (9th Cir. 1984) ("A receiver achieves jurisdiction and control of property in districts other than that of appointment by filing copies of the complaint and order of appointment in the district court where the property is located.").
The Receiver's compliance with § 754 permits the invocation of 28 U.S.C. § 1692. See Vision Communications, 74 F.3d at 290 (explaining that § 754 is the statutory stepping stone by which a district court, administering a receivership, may exercise in personam jurisdiction over a non-resident defendant). Having determined that the SBA complied with § 754, invocation of § 1692 extends this court's jurisdiction beyond the territorial limits of the forum and authorizes service of summons upon Chimicles anywhere outside the territorial boundaries of Pennsylvania.
Chimicles asserts that 28 U.S.C. § 1692 contains no provision authorizing nationwide service of process, but instead only provides for in rem jurisdiction, as opposed to in personam jurisdiction. Chimicles cites Stenger v. World Harvest Church, Inc., No. CIV.A.02-C-8036, 2003 WL 22048047 (E.D. Ill. Aug. 23, 2003). The Stenger court rationalized that § 1692 "does not mention service of process; rather it speaks only of issuance and execution of process." Stenger, 2003 WL 22048047 at *2. It declared that "[t]he issuance of process is the Clerk's ministerial act of issuing a summons to a plaintiff so that he or she can serve it on the defendant. The execution of process involves the act, in an in rem action, of attaching property." Id.
Since the Stenger decision, only one other court has alluded to the fact that the interplay of §§ 1692 and 754 may not provide a basis for in personam, as opposed to, in rem jurisdiction. Gilchrist v. General Elec. Capital Corp., 262 F.3d 295 (4th Cir. 2001). In Gilchrist, creditors challenged the receivership court's power to hold them in contempt for disobeying the court's temporary restraining order. Id. at 299. Although the issue of personal jurisdiction was not raised, and therefore not decided by the court, the Fourth Circuit stated that § 754 granted receivership courts with in rem jurisdiction and not "personal jurisdiction over persons in such other districts absent an express congressional grant of personal jurisdiction. Id. at 301. The court used this proposition to note that "the district court could be without power to enforce an injunction" against the creditors. Id. In this instance, theGilchrist decision is of limited, if no, guidance. The case involves the court's injunctive power over creditors, rather than debtors, who cannot be said to have assets owing to the estate.
This court declines to follow the Stenger court's conclusion. The well-reasoned precedent of the First, Sixth and District of Columbia Circuit Court of Appeals are best followed. TheStenger court reasoning would require federal receivers to go into every district which held property of the estate and thus frustrate the purpose of appointing federal receivers to bring to the appointing court all the assets of the estate. Therefore, we find that the Receiver's compliance with § 754 enables the Receiver to invoke § 1692, which in turn, allows this court to exercise jurisdiction over Chimicles.
B. The SBA Is Not Obligated to Arbitrate Pursuant to the Arbitration Clause of ATF's Partnership Agreement
Chimicles next argues that this court does not have jurisdiction to hear this dispute because the Receiver must arbitrate his claims. Chimicles contends that ATF's Subscription Agreement is governed by the provisions of the Limited Partnership Agreement, which has an arbitration provision that provides that partnership disputes will be arbitrated in New Jersey, under New Jersey law. Chimicles argues that the SBA, in its capacity as Receiver, is bound by this contract. (Chimicles' Mem. Supp. Mtn. Dismiss at 9). Chimicles contends that the Federal Arbitration Act, 9 U.S.C. § 1, et seq., compels arbitration because the SBA stands in the shoes of AFT. (Id.)
Section 2 of the Federal Arbitration Act provides that:
A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2.
The SBA responds that it never expressly agreed to arbitrate disputes arising from defendant's breach of contract. Therefore, the court cannot compel it to arbitrate. (SBA's Mem. Opp. Mtn. Dismiss at 7-8). The Receiver argues that ATF's Subscription Agreement lacks an arbitration clause and the court must honor the parties intent not to arbitrate disputes arising from that agreement. The Receiver contends that the Limited Partnership Agreement's arbitration clause is not, and cannot be, incorporated by reference into the Subscription Agreement. The two agreements, according to the Receiver, are independent of each other and cannot be construed as one.
The court finds that the Receiver is correct that it cannot be compelled to arbitrate. The Subscription Agreement contains no arbitration provision. It is a fully integrated contract that comprises the entire bargain; the payment of $65,000 in exchange for a limited partnership interest in ATF. The agreement is devoid of arbitration language. The language of the Subscription Agreement states unequivocally that it contains everything the parties have agreed upon relative to that undertaking. The subscription document is separately enforceable.
The Limited Partnership Agreement, which contains an arbitration clause, presumes all monies subscribed to have been paid in full. Only if the SBA consents to non-payment of the full amount is an issue open to arbitration. Thus, the arbitration provision has no effect without the SBA's consent or approval of non-payment. By its terms, the SBA never consented to arbitrate non-consensual non-payments or non-consensual partial payments.
Chimicles urges this court to compel arbitration because the SBA, in its capacity as Receiver, now steps into the shoes of ATF. The Receiver steps into the shoes of ATF only pursuant to an order of the court. The Receiver would be bound to arbitrate only if the court so concluded, given that the appointing court controls the receivership.
"Under the Federal Arbitration Act ("FAA"), a court may only compel a party to arbitrate where that party has entered into a written agreement to arbitrate that covers the dispute." Bel-Ray Co., Inc., v. Chemrite Ltd., 181 F.3d 435, 440 (3d Cir. 1999). "As a matter of contract, no party can be forced to arbitrate unless that party has entered into an agreement to do so."Painewebber Inc., v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990). "[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit." Andvik v. Advent Int'l Corp., 220 F.3d 99, 105 (3d Cir. 2000). However, a party "can be compelled to arbitrate under an agreement, even if he or she did not sign that agreement, if common law principles of agency and contract support such an obligation on his or her part." Bouriez v. Carnegie Mellon Univ., 359 F.3d 292, 294 (3d Cir. 2004).
Accordingly, the Receiver cannot be compelled to arbitrate a dispute arising under the Subscription Agreement.
III. CONCLUSION
Based on the foregoing, Peter Chimicles' motion must be and is denied. An appropriate Order follows.
ORDER
AND NOW, this ____ day of September, 2004, upon consideration of Peter E. Chimicles' Motion to Dismiss the Receiver's Complaint for Lack of Personal Jurisdiction pursuant to Rule 12(b)(2) and of the Fed.R.Civ.P., and the SBA's response thereto, it is hereby ORDERED that Chimicles' Motion is DENIED.