Article courtesy of Michael Robson (Greenberg Traurig, LLP)
Peters Broadcast Engineering, Inc. v. 24 Cap., LLC, 40 F.4th 432 (6th Cir. 2022)
In a dispute between Peters Broadcast Engineering, Inc. (“Peters Broadcast”), a broadcasting company, alleging RICO violations against 24 Capital, LLC (“24 Capital”) and its operations manager, the United States Court of Appeals, Sixth Circuit (the “Court”) held, amongst other things, that (1) Peters Broadcast’s allegations did not establish a prima facie case that 24 Capital had sufficient minimum contacts with the State of Ohio to establish personal jurisdiction over 24 Capital in a civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) case; (2) evidence submitted by 24 Capital was sufficient to refute a prima facie case of personal jurisdiction in Ohio; and (3) the transfer of the civil RICO case to Indiana was not warranted.
The dispute stemmed from an agreement between Peters Broadcast and 24 Capital. Peters Broadcast is an Indiana corporation with its principal place of business in Indiana. 24 Capital is a New York limited liability company with its principal place of business in New York. Jason Sankov (“Sankov”), the Operations Manager at 24 Capital, resides in Florida. In February 2019 Peters Broadcast and 24 Capital entered a contract titled “Merchant Agreement,” in which 24 Capital agreed to provide an advance to Peters Broadcast in exchange for assuming an interest in Peters Broadcast’s future receivables. However, soon thereafter, the relationship between the parties devolved. 24 Capital, believing that Peters Broadcast breached their agreement, moved for judgment by confession in the Supreme Court of New York which was granted in May 2019. Peters Broadcast moved to vacate the judgment, but the motion was denied. Thereafter, Peters Broadcast initiated an action alleging that 24 Capital and Mr. Sankov engaged in a conspiracy to steal from unsuspecting merchants by inducing them to borrow funds against receivables. Specifically, Peters Broadcast alleged that 24 Capital misrepresented the terms of the Merchant Agreement by promising to recover payment only in proportion to incoming receivables, while actually extracting daily payments without regard to receivables and that 24 Capital engaged in a scheme which used deceptive and misleading communications. Peters Broadcast’s complaint characterized the alleged scheme as racketeering activity in violation of RICO and accordingly argued that 24 Capital and Sankov were subject to personal jurisdiction under the nationwide service of process provisions of RICO. Peters Broadcast further made a motion to certify as a class. 24 Capital and Sankov sought to dismiss the complaint for lack of personal jurisdiction. The lower court concluded that neither 24 Capital nor Sankov had sufficient minimum contacts with Ohio and that the court lacked personal jurisdiction to adjudicate the state law claims and therefore dismissed the complaint. Peters Broadcast then appealed arguing the district court erred in granting the motion to dismiss asserting that the district court misconstrued RICO and incorrectly it lacked personal jurisdiction.
The Court first noted that (i) under the Federal Rules of Civil Procedure, “serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant … when authorized by a federal statute” and (ii) Congress can authorize nationwide service of process in a regulatory statute permitting claimants to sue a defendant in any of the federal district courts in the country. The Court then noted that the appeal implicated a question of first impression for the Sixth Circuit. Namely whether provisions of § 1965(d) of the RICO statute governs the exercise of personal jurisdiction over out of district defendants in RICO cases. The Court further noted that over the past 30 years a split has emerged as the circuits determined whether RICO venue and process subsection permits service of process on out of district defendants. The minority approach holds that § 1965(d) governs service over out of district defendants. This approach considers a defendant’s aggregate contacts with the nation as a whole rather than its contacts with the forum state and authorizes personal jurisdiction based upon minimum contacts with the United States. On the other hand, the majority approach holds that § 1965(d) governs service over out of district defendants and provides a “forum state” approach which provides that the statute does not provide for nationwide personal jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found. The Court then held that the forum state approach is the appropriate standard to adopt as this approach is, among other things, most consistent with the Congressional intent.
After adopting the forum state approach, the Court applied this approach to the facts at hand to determine whether RICO conferred personal jurisdiction on 24 Capital or Sankov. The Court noted that, for a nonresident defendant to be subject to personal jurisdiction of a forum state, the following three criteria be met: (1) the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state; (2) the cause of action must arise from the defendant’s activities there; and (3) the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable. The Court then went to note that there was no prima facie evidence presented demonstrating either defendant had sufficient minimum contact Ohio to warrant the exercise of personal jurisdiction. The Court further noted that, even if Peters Broadcast did provide sufficient evidence of contracts, the defendants can refute the same. In that vein, the Court noted that 24 Capital expressly stated in their motion to dismiss that “24 Capital does not market or advertise its funding products in the State of Ohio and does not transact business in the State of Ohio. The Merchant Agreement was not entered into in the State of Ohio, 24 Capital is not located in Ohio, and the Merchant Agreement provides for jurisdiction and venue in New York. There is simply no reason why 24 Capital would anticipate being hailed [sic] into Court in Ohio.” The Court further noted that Sankov’s motion to dismiss similarly noted no contacts with Ohio. Given the forum-state approach to personal jurisdiction and the lack of contact of the defendants with Ohio, the Court held that under 18 U.S.C. § 1965(b) Peters Broadcast failed to establish personal jurisdiction for its RICO claims or pendent state law claims.