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Hawkins v. I-TV Digitalis Tavkozlesi Zrt.

United States Court of Appeals, Fourth Circuit

August 15, 2019

WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR; JUSTIN PANCHLEY, Plaintiffs - Appellants,
v.
I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt., Defendant-Appellee, DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS MANAGEMENT S.A.; DIGI COMMUNICATIONS, N. V.; ZOLTAN TESZARI, Respondents - Appellees, and LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.; PETERFIA KFT.; SAM BLACK, Defendants. WILLIAM HAWKINS; ERIC KELLER; THOMAS ZATO; KRISTOF GABOR; JUSTIN PANCHLEY, Plaintiffs - Appellees,
v.
I-TV DIGITALIS TAVKOZLESI ZRT., f/k/a DMCC Kommunikacios Rt., Defendant-Appellant, DIGI TAVKOZLESI ES SZOLGALTATO KFT.; RCS & RDS S.A.; RCS MANAGEMENT S.A.; DIGI COMMUNICATIONS, N. V.; ZOLTAN TESZARI, Respondents - Appellants, and LASZLO BORSY; MEDIAWARE CORPORATION; MEDIATECHNIK KFT.; PETERFIA KFT.; SAM BLACK, Defendants.

          Argued: January 31, 2019

          Appeal from the United States District Court for the Eastern District of Virginia at Alexandria. Leonie M. Brinkema, District Judge. (1:05-cv-01256-LMB-JFA)

         ARGUED:

          Robert B. Gilmore, STEIN, MITCHELL, CIPOLLONE, BEATO & MISSNER, LLP, Washington, D.C., for Appellants/Cross-Appellees.

          Christopher Landau, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellees/Cross-Appellants.

         ON BRIEF:

          Jonathan E. Missner, Brittany W. Biles, Kevin L. Attridge, STEIN, MITCHELL, CIPOLLONE, BEATO & MISSNER, LLP, Washington, D.C., for Appellants/Cross-Appellees.

          Charles Wm. McIntyre, Jr., Anand V. Ramana, Phillip C. Chang, MCGUIREWOODS, LLP, Washington, D.C., for Appellees/Cross-Appellants RCS & RDS S.A., DIGI Communications, N.V., and Zoltán Teszári.

          Tara M. Lee, Michael Madigan, Washington, D.C., Carl Hennies, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Houston, Texas, for Appellees/Cross-Appellants i-TV Digitális Távközlési zrt. and DIGI Távközlési és Szolgáltató kft.

          Before WYNN, DIAZ, and RICHARDSON, Circuit Judges.

          RICHARDSON, CIRCUIT JUDGE.

         In this case, we are called upon to decide several jurisdictional issues arising from an international business dispute. Over a decade ago, in 2007, five American Plaintiffs obtained a default judgment against Hungarian businessman László Borsy and several companies he controlled, including one called i-TV Digitális Távközlési zrt. ("i-TV").[1]The judgment afforded the Plaintiffs not just money damages but also injunctive and declaratory relief requiring Borsy to give them a majority interest in i-TV and the other companies. In 2008, some of the Defendants tried to have the judgment set aside, but the district court rejected their efforts in a decision we upheld on appeal. The Plaintiffs, though, found it hard to enforce their judgment against Borsy and the defendant companies, apparently because almost all of their assets were located overseas.

         The judgment lay mostly dormant until 2017, when the Plaintiffs moved to enforce it against Defendants Borsy and i-TV along with several foreign Respondents[2]that had bought i-TV from Borsy. The Plaintiffs argued that the Respondents were the Defendants' successors-in-interest and that, by buying i-TV from Borsy, Respondents aided and abetted him in violating the injunction. The Respondents, all located overseas, strenuously objected to the district court's personal jurisdiction over them; despite those objections, the district court permitted the Plaintiffs to take extensive discovery from the Respondents.

         While discovery was ongoing, the Respondents and i-TV discovered a potential technical defect in subject matter jurisdiction during the initial litigation that led to the 2007 default judgment. On that basis, they moved the court to set aside the default judgment as void under Federal Rule of Civil Procedure 60(b)(4). The district court granted the motion.

         The Plaintiffs appeal from the district court's decision finding the 2007 default judgment void for lack of subject matter jurisdiction. They argue that the judgment was not void because there was an arguable (even if erroneous) basis for jurisdiction. We agree with the Plaintiffs and reverse the district court's ruling on the Rule 60(b)(4) motion.

         Additionally, the Respondents have filed a cross-appeal challenging the district court's decision to permit extensive discovery from them notwithstanding a lack of personal jurisdiction. The Plaintiffs respond that it is enough to allege that the Respondents aided and abetted Borsy in violating the injunction; such aiding-and-abetting, they argue, is always enough to establish personal jurisdiction. We reject this theory as applied to foreign nonparties like these Respondents. Consider the facts here: the foreign Respondents allegedly helped a foreign national carry out a purely foreign business transaction whose only tie to our country was that it allegedly violated a federal- court injunction. That is not enough to supply the minimum contacts that due process requires. The Plaintiffs alternatively argue that the Respondents are Borsy's successors-in-interest, but the Plaintiffs have effectively waived that theory by changing their argument on appeal. Therefore, we hold that the district court lacked personal jurisdiction over the Respondents and order them dismissed. On remand, the district court will determine whether and how the matter should proceed against i-TV.

         I.

         A.

         In the early 2000s, Borsy controlled three Hungarian business entities: MediaTechnik kft. (a software company), i-TV (the operator of a cable television network in Debrecen, Hungary), and Peterfia kft. (a real estate company that owned the buildings used by MediaTechnik and i-TV). In 2002 and 2003, Borsy sold roughly one-third of MediaTechnik and Peterfia to an American, Plaintiff William Hawkins, in exchange for an investment of $330, 000.

         Not long afterward, Borsy proposed a "roll-up" transaction in which MediaTechnik, i-TV, and Peterfia would be placed under a single parent company, Mediaware Corporation. He solicited an additional $1 million from Hawkins and, in return, promised Hawkins a 49% stake in Mediaware. He also invited four other Americans to participate in the roll-up: Plaintiffs Eric Keller, Thomas Zato, Kristof Gabor, and Justin Panchley, each an executive or engineer in the computer-software industry. Borsy promised each of them an ownership stake of varying size (ranging from 0.98% to 8%) in Mediaware, plus a substantial salary, as compensation for working at his companies.

         The Plaintiffs claim that they lived up to their end of the bargain but Borsy did not live up to his. Instead, they claim, he absconded with their money and the fruits of their labor. Borsy failed to deliver the salaries or shares he had promised to Keller, Zato, Gabor, and Panchley. And while Borsy apparently delivered the Mediaware shares to Hawkins, he never completed the roll-up of i-TV into Mediaware, meaning Hawkins never acquired the indirect ownership interest in i-TV that Borsy had promised. Borsy also allegedly forged a stockholders' agreement authorizing him to vote Hawkins' shares in Mediaware.

         In October 2005, all five Plaintiffs filed a civil action against Borsy, Mediaware, MediaTechnik, Peterfia, and i-TV in the Eastern District of Virginia. Their claims included fraud, breach of contract, conversion, breach of fiduciary duty, and unjust enrichment. They requested, among other things, an order that Borsy and the companies give them the shares that they had been promised.

         The Defendants failed to timely answer the complaint, and default was entered against them. In April 2006, the Defendants finally appeared through counsel and successfully moved to set aside the default. Peterfia and i-TV then moved to dismiss for lack of personal jurisdiction, while Borsy, Mediaware, and MediaTechnik answered the complaint. The district court denied i-TV and Peterfia's motion to dismiss without prejudice, and the case proceeded to discovery.

         The Defendants' participation in the litigation was short-lived. In May 2006, Defendants' counsel withdrew. The Plaintiffs then moved for a second entry of default due to the Defendants' failure to participate in discovery. The district court granted the motion. Next, the Plaintiffs requested default judgment. That request was referred to a magistrate judge, who recommended entering a default judgment that included over $1.5 million in compensatory relief and an injunction requiring the Defendants to deliver the promised ownership interests.

         Soon after, in September 2006, the Plaintiffs filed an emergency motion requesting prompt entry of their requested judgment. They reported that Borsy now claimed to have sold his shares in i-TV, and they sought an immediate injunction to prevent "Borsy's ongoing efforts to dissipate assets rightfully belonging to Plaintiffs and to render any judgment in favor of Plaintiffs meaningless." J.A. 339. The district court granted the request in part: on October 2, 2006, it enjoined the Defendants "from disposing or dissipating any assets, by sale, merger, or otherwise, or from undertaking any transactions out of the ordinary course of business, without the consent of the shareholders holding a majority of the stock in such companies." J.A. 343-44.

         In January 2007, the Plaintiffs again requested the prompt entry of default judgment in full. They reported that Borsy had disobeyed the court's injunction by convening an i-TV shareholder meeting and issuing i-TV shares to Respondent DIGI Távközlési és Szolgáltató kft ("DIGI kft."), which thereby became the majority owner of i-TV. In February 2007, the district court entered default judgment, adopting the magistrate judge's recommendation. The judgment, among other things, ordered specific performance of the promised share transfers, awarding the Plaintiffs collectively majority interests in Mediaware, MediaTechnik, i-TV, and Peterfia. It also enjoined the Defendants "from disposing of or dissipating any assets of the defendant entities and the defendant entities may not engage in any transactions without the consent of plaintiffs William Hawkins, Eric Keller, Kristof Gabor, Justin Panchley, and Thomas Zato." J.A. 376. None of the Defendants appealed from the default judgment.

         In 2008, three of the Defendants-Mediaware, MediaTechnik, and Borsy- resurfaced and, through new counsel, moved to set aside the judgment as void for lack of subject matter jurisdiction under Rule 60(b)(4). They argued that Mediaware's principal place of business was Virginia when the Plaintiffs filed suit, meaning that Mediaware was a Virginia citizen for diversity purposes. If true, that would have destroyed complete diversity, because three of the Plaintiffs were also Virginia citizens.

         The district court denied the motion from the bench. It noted that Borsy had, during the proceedings leading up to the default judgment, entered a declaration stating that Mediaware had no relevant contacts with Virginia. That was inconsistent with his new, post-judgment argument that Mediaware was in fact headquartered there. We affirmed, reasoning that the 2007 default judgment was not void unless there was "no arguable basis" for jurisdiction. Hawkins v. Borsey, 319 Fed.Appx. 195, 196 (4th Cir. 2008) (citing Wendt v. Leonard, 431 F.3d 410, 412-13 (4th Cir. 2005)). This standard was not satisfied, particularly given Borsy's earlier declaration.

         B.

         The Plaintiffs proved unable to enforce the 2007 default judgment, collecting just over $5, 000 from a retainer held by Borsy's American attorney. Despite some contact with DIGI kft. and the other Respondents, the Plaintiffs never initiated enforcement proceedings in Hungary, ostensibly because the Hungarian courts would not afford them relief. However, the Plaintiffs later learned that one of i-TV's indirect parent companies had sought to access the U.S. capital markets in 2012 through a bond offering and, more recently, planned an initial public offering of stock in Romania. That apparently inspired them to try to collect from i-TV's owners in federal court.

         Thus, in May 2017, the Plaintiffs returned to the Eastern District of Virginia. They moved to enforce the judgment against i-TV as well as several Respondents that were not parties to the original judgment. Four of the Respondents are companies, each representing a link in i-TV's chain of ownership: DIGI kft. (which owns i-TV, having acquired it from Borsy), RCS & RDS, S.A. (a Romanian company that wholly owns DIGI kft.), DIGI Communications N.V. (a Dutch company that controls RCS & RDS, S.A.), and RCS Management S.A. (a Romanian company that controls DIGI Communications N.V.). The Plaintiffs later added Zoltán Teszári (a Romanian citizen who owns a controlling stake in RCS Management S.A.) as a Respondent.[3] The Respondents were served overseas pursuant to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

         Before the district court, the Plaintiffs presented two theories for imposing liability on the Respondents. The first is a successor-in-interest theory, according to which DIGI kft. succeeded to the Defendants' obligations under the default judgment when it acquired i-TV. The second is a civil-contempt theory, which posits that DIGI kft. aided and abetted Borsy's violation of the district court's injunctions. Borsy himself allegedly violated the injunctions when he sold i-TV to DIGI kft. in a two-step transaction. First, in October 2006, just after the district court entered its first injunction, Borsy convened a meeting of i-TV's shareholders and issued new shares to DIGI kft., giving it a 51% interest in i-TV. Second, in October 2008, Borsy sold his remaining shares to DIGI kft. through an entity incorporated in the Marshall Islands, violating the final injunction entered in 2007. The Plaintiffs claim that DIGI kft. was "in active concert or participation" with Borsy, Fed.R.Civ.P. 65(d)(2)(C), because it bought i-TV despite knowing that the injunctions forbade the sale.[4]

         The Respondents opposed the Plaintiffs' motion to enforce. They argued, among other things, that the district court lacked personal jurisdiction over them as required to grant the requested relief. The district court denied the motion to enforce without prejudice from the bench. It concluded that the motion raised "real issues that have to be fleshed out," requiring discovery. J.A. 754. The court barely addressed personal jurisdiction, noting that "when there's an ...


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