Opposition Brief — Behrman Capital IV, L.P., et al., Petitioners v. Thomas E. Reynolds, Trustee

No. 21-207

================================================================================================================

In The

Supreme Court of the United States

---------------------------------♦--------------------------------BEHRMAN CAPITAL IV, L.P.,

BEHRMAN BROTHERS IV L.L.C., AND

MIDCAP FINANCIAL INVESTMENT, L.P.,

Petitioners,

v.

THOMAS E. REYNOLDS, TRUSTEE,

Respondent.

---------------------------------♦--------------------------------On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Eleventh Circuit

---------------------------------♦--------------------------------BRIEF IN OPPOSITION

---------------------------------♦--------------------------------BILL D. BENSINGER

Counsel of Record

DEBORAH A. SMITH

DANIEL D. SPARKS

RICHARD E. SMITH

CHRISTIAN & SMALL LLP

1800 Financial Center

505 North 20th Street

Birmingham, Alabama 35203

205-250-6626

bdbensinger@csattorneys.com

Counsel for Respondent Thomas E. Reynolds, Trustee

================================================================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

This Court has applied the derivative jurisdiction

doctrine only in cases concerning issues of subject matter jurisdiction. The court below restricted its application of the derivative jurisdiction doctrine to issues of

subject matter jurisdiction. Did the court of appeals err

when it refused to expand the derivative jurisdiction

doctrine to apply to issues of personal jurisdiction?

ii

RULE 29.6 DISCLOSURE STATEMENT

Debtor Atherotech Holdings, Inc., is the sole parent corporation for debtor Atherotech, Inc. No publicly

held company owns 10% or more of Atherotech Holdings, Inc.’s stock.

iii

TABLE OF CONTENTS

Page

Table of Authorities .............................................

v

Opinions Below ....................................................

1

Jurisdiction ..........................................................

1

Statement of the case ..........................................

1

A.

The fraudulent transfer.............................

1

B.

The district court proceedings ...................

3

C.

The appellate court proceedings ...............

4

Reasons for denying the Petition .........................

4

I.

II.

The Court should deny the Petition because the court of appeals, following this

Court’s application of the derivative jurisdiction doctrine, correctly held that the

derivative jurisdiction doctrine is limited

to issues of subject matter jurisdiction .....

4

a. This Court has applied the derivative

jurisdiction doctrine only to cases involving issues of subject matter jurisdiction ..................................................

5

b. The Petitioners encourage this Court,

as they did the court of appeals, to go

beyond the Court’s precedents and expand the scope of the derivative jurisdiction doctrine ....................................

8

This Court should deny the Petition because the court of appeals correctly identified this Court’s use of the statement “or

of the parties” as dicta ............................... 10

iv

TABLE OF CONTENTS – Continued

Page

III.

This Court should deny the Petition because Congress, like the court of appeals,

understood that derivative jurisdiction

concerned issues of subject matter jurisdiction ........................................................ 12

IV.

This case does not present a Cert-worthy

issue because, while there are courts of appeals that have mentioned the derivative

jurisdiction doctrine in cases discussing

minimum contacts and service of process,

those cases do not analyze the derivative

jurisdiction doctrine as it relates to personal jurisdiction ....................................... 13

Conclusion............................................................ 17

v

TABLE OF AUTHORITIES

Page

SUPREME COURT

Arizona v. Manypenny, 451 U.S. 232 (1981) .... 7, 8, 10, 11

Crawford Fitting Co. v. J.T. Gibbons, Inc., 482

U.S. 437 (1987) ........................................................10

Ecker v. United States, 358 F. App’x 551 (5th Cir.

2009) ..........................................................................6

Freeman v. Bee Mach. Co., 319 U.S. 448

(1943) ................................................... 7, 8, 10, 11, 14

Gonzalez v. United States, 553 U.S. 242 (2008) .........11

Lambert Run Coal Co. v. Baltimore & O.R. Co.,

258 U.S. 377 (1922) ......................................... passim

Metro. Stevedore Co. v. Rambo, 515 U.S. 291

(1995) .......................................................................11

Minnesota v. United States, 305 U.S. 382

(1939) ..................................................... 6, 7, 8, 10, 11

Murphy Bros. v. Michetti Pipe Stringing, 526

U.S. 344 (1999) ........................................................15

Omni Capital Intern., Ltd. v. Rudolf Wolff & Co.,

Ltd., 484 U.S. 97 (1987) ...........................................15

United States v. Mitchell, 463 U.S. 206 (1983) .............6

Ex parte Watkins, 32 U.S. 568 (1833) .........................11

COURTS OF APPEALS

Aanestad v. Beech Aircraft Corp., 521 F.2d 1298

(9th Cir. 1974).................................................... 14, 15

Allen v. Ferguson, 791 F.2d 611 (7th Cir. 1986) ..... 16, 17

vi

TABLE OF AUTHORITIES – Continued

Page

Block v. Block, 196 F.2d 930 (7th Cir. 1952) ......... 16, 17

Fitzgerald v. Henderson, 251 F.3d 345 (2d Cir.

2001) ........................................................................11

Garden Homes, Inc. v. Mason, 238 F.2d 651 (1st

Cir. 1956) .................................................................16

Meyer v. Indian Hill Farm, Inc., 258 F.2d 287 (2d

Cir. 1958) ..................................................... 14, 15, 16

DISTRICT COURT

District Title v. Warren, 181 F.Supp.3d 16

(D.D.C. 2014) .............................................................9

Harris v. FBI, No. 2:16-CV-30, 2016 U.S. Dist.

LEXIS 123955 (S.D. Ohio Sep. 13, 2016) ..................7

Harvey v. Price, 603 F.Supp. 1205 (S.D. Ill.

1985) ..................................................................... 9

Rhoads v. Washington Mut. Bank, F.A., 2010 WL

2691560 (D. Ariz. July 6, 2010) .................................9

Samson v. General Cas. & Ins. Co. of America,

104 F.Supp. 751 (N.D. Iowa 1952) .............................9

STATUTES

H.R. Rep. No. 99-423 (1985), reprinted in 1986

U.S.C.C.A.N. 1545....................................................13

RULES

Fed. R. Civ. P. 4(k)(1)(A) ..............................................15

1

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a20a) is reported at 988 F.3d 1314. The decisions of the

district court dismissing the complaint (Pet. App. 21a33a; 34a-51a) are not published in the Federal Supplement but are available at 2019 U.S. Dist. LEXIS 21630

and 2019 U.S. Dist. LEXIS 149390, respectively.

---------------------------------♦---------------------------------

JURISDICTION

The court of appeals entered its judgment on February 23, 2021. The court of appeals denied the Petitioners’ petition for rehearing on May 14, 2021. Pet.

App. 53a-54a. The court of appeals entered a stay of its

mandate on June 3, 2021. Pet. App. 51a-52a. The Petitioners filed their petition for a writ of certiorari on August 10, 2021. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

---------------------------------♦---------------------------------

STATEMENT OF THE CASE

A. The fraudulent transfer.

Atherotech, Inc. (“Atherotech”) was a leading cholesterol blood-testing company located in Birmingham,

Alabama. Pet. App. 3a. Atherotech Holdings, Inc.

(“Holdings”), was Atherotech’s sole shareholder. Id.

Behrman Capital IV L.P. (“Behrman Capital”) owned

94 percent of the Holdings stock, and Behrman Brothers IV L.L.C. (“Behrman Brothers”) and MidCap

2

Investment, L.P. (“MidCap”) owned the remaining 6

percent of the Holdings stock. Id. Behrman Capital

also controlled Holdings’ board of directors, and therefore Atherotech. Id.

Prior to 2012, Atherotech paid physicians that

used Atherotech’s services a processing and handling

fee (the “P&H Fee”). Id. In 2012, the Department of

Justice (the “DOJ”) commenced an investigation into

Atherotech’s practice of paying P&H Fees as possible violations of the False Claims Act and the AntiKickback Statute, 31 U.S.C. §§ 3729-3730, and 42

U.S.C. § 1320a-7b, respectively. Id.

In the face of the DOJ investigation, in 2013 Atherotech – under Behrman Capital’s control – executed

a dividend recapitalization. Pet. App. 4a. The dividend

recapitalization required Atherotech to obtain a $40.5

million loan, and then immediately pay dividends to its

ultimate shareholders: Behrman Capital, Behrman

Brothers, and MidCap. Id. Behrman Capital received

a dividend in the amount of $31,433,596.05; Behrman Brothers received a dividend in the amount of

$87,374.00; and MidCap received a dividend in the

amount of $351,890.70. Id. Behrman Capital then distributed its dividend to its partners (collectively, the

“Behrman Capital Partners”). Id. Likewise, Behrman

Brothers distributed its dividend to its members (collectively, the “Behrman Brothers Members”). Id.

Subsequent to the DOJ investigation and the dividend recapitalization, in July 2014, Atherotech ceased

paying P&H Fees to physicians. Id. Soon thereafter,

3

Atherotech’s revenues began to decrease. Id. By March

2016, Atherotech and Holdings had no choice but to file

for bankruptcy liquidation pursuant to chapter 7, title

11, United States Code. Id. The bankruptcy court appointed the Respondent, Thomas E. Reynolds (“Reynolds”), as chapter 7 trustee of the Atherotech and

Holdings bankruptcy estates. Id. at 4a-5a.

B. The district court proceedings.

Reynolds filed a complaint in Alabama state court

against Behrman Capital, Behrman Brothers, MidCap,

the Behrman Capital Partners, and the Behrman

Brothers Members to avoid and recover fraudulent

transfers related to the dividend recapitalization. Pet.

App. 5a. The defendants removed the case from the

Alabama state court to the U.S. District Court for the

Northern District of Alabama. Id. The district court

determined that removal was appropriate pursuant to

the bankruptcy removal statute, 28 U.S.C. § 1452(a).

Id.

After removing the case to the district court, the

defendants moved to dismiss the case pursuant to Rule

12(b)(2), arguing that because the state court did not

have personal jurisdiction over the defendants, the

district court could not acquire personal jurisdiction

upon removal. Id. The district court agreed. Id. The district court held that the derivative jurisdiction doctrine

prevented the court from obtaining personal jurisdiction pursuant to Fed. R. Bankr. P. 7004(a), because the

state court did not have personal jurisdiction over the

4

defendants. Id. After giving Reynolds an opportunity

to amend his complaint to bolster his allegations concerning the defendants’ contacts with Alabama,1 the

district court dismissed Reynolds’ amended complaint.

Id.

C. The appellate court proceedings.

Reynolds timely appealed the district court’s dismissal. Pet. App. 2a. The court of appeals reversed the

district court and held that the derivative jurisdiction

doctrine does not apply to issues of personal jurisdiction. Pet. App. 13a. Accordingly, the court of appeals

reasoned, the district court could obtain personal jurisdiction over the defendants after removal pursuant to

Fed. R. Bankr. P. 7004(a), assuming the defendants had

sufficient minimum contacts with the United States.

Pet. App. 18a-19a.

---------------------------------♦---------------------------------

REASONS FOR DENYING THE PETITION

I.

The Court should deny the Petition because the court of appeals, following this

Court’s application of the derivative jurisdiction doctrine, correctly held that the

derivative jurisdiction doctrine is limited

to issues of subject matter jurisdiction.

The Petitioners argue that this Court has held

that the derivative jurisdiction doctrine applies to

1

In the amended complaint, Reynolds voluntarily dismissed

all defendants except Behrman Capital and Behrman Brothers.

5

issues of personal jurisdiction. Pet. 9-10. Specifically,

the Petitioners contend that the Court’s statement in

Lambert Run Coal Co. v. Baltimore & O.R. Co., that “If

the state court lacks jurisdiction of the subject-matter

or of the parties, the federal court acquires none. . . .”

Lambert Run Coal Co. v. Baltimore & O.R. Co., 258 U.S.

377, 382 (1922), extends to both personal and subject

matter jurisdiction. However, a text without a context

is a pre-text.

The context of Lambert Run and its progeny show

that this Court has only applied the derivative jurisdiction doctrine in cases involving issues of subject

matter jurisdiction. The Court first applied the “or of

the parties” language in Lambert Run, and the Court’s

three subsequent cases discussing derivative jurisdiction never presented an opportunity for the Court to

further analyze or parse this language. This Court’s

use of the statement “or of the parties” is therefore contextually dependent on the fact that the United States

was the party in question in Lambert Run.

a. This Court has applied the derivative

jurisdiction doctrine only to cases involving issues of subject matter jurisdiction.

In each of the four cases in which this Court has

discussed the derivative jurisdiction doctrine, the issues involved only subject matter jurisdiction, at best.

First, in Lambert Run the United States was an indispensable party to the action, was not joined in the

6

action, and had not consented to the state court’s jurisdiction. Lambert Run Coal Co. v. Baltimore & O.R. Co.,

258 U.S. 377, 382 (1922). When the United States asserts immunity, a state court does not have subject

matter jurisdiction over claims against the United

States. United States v. Mitchell, 463 U.S. 206, 212

(1983) (“It is axiomatic that the United States may not

be sued without its consent and that the existence of

consent is a prerequisite for jurisdiction.”); Ecker v.

United States, 358 F. App’x 551, 552-53 (5th Cir. 2009)

(“Sovereign immunity ordinarily protects the United

States from liability and deprives courts of subject

matter jurisdiction over the claims against it.”). Therefore, in Lambert Run, because the United States had

not consented to the state court action, the state court

did not have subject matter jurisdiction and neither

did the district court upon removal. Lambert Run, 258

U.S. at 382.

Second, in Minnesota v. United States, the United

States was a named party in a state court action but

had not consented or otherwise waived its sovereign

immunity. Minnesota v. United States, 305 U.S. 382,

383-84 (1939). The United States removed the case and

then moved for dismissal, which the district court denied. Id. at 384. After the court of appeals reversed,

this Court held that the state court did not have subject matter jurisdiction over the claims against the

United States and therefore, the district court did not

obtain subject matter jurisdiction over the claims

against the United States upon removal. Id. at 389.

Again, the issue before this Court was one of subject

7

matter jurisdiction. See Harris v. FBI, No. 2:16-CV-30,

2016 U.S. Dist. LEXIS 123955, at *4 (S.D. Ohio Sep. 13,

2016) (citing Minnesota for the proposition that “[t]he

derivative jurisdiction doctrine holds that if the state

court where an action is filed lacks subject matter jurisdiction, the federal court, upon removal, also lacks

subject matter jurisdiction.”).

Third, in Freeman v. Bee Mach. Co., the plaintiff

commenced an action in Massachusetts state court and

the defendant removed to the district court on diversity grounds. Freeman v. Bee Mach. Co., 319 U.S. 448,

449-50 (1943). After removal, the plaintiff moved to

amend his complaint to include a claim under the

Clayton Act; a claim over which the district court had

exclusive subject matter jurisdiction. Id. at 450. The

district court denied the motion to amend. Id. The

court of appeals reversed on the issue of the amendment. Id. This Court ultimately affirmed the court of

appeals and held that the amendment should have

been allowed. Id. at 451. While the derivative jurisdiction doctrine was not specifically implicated, the context is clear: the state court would not have had subject

matter jurisdiction over the Clayton Act claims and the

district court did have subject matter jurisdiction after

removal. Id. There was never an issue of personal jurisdiction in Freeman.

Fourth, this Court mentioned the derivative jurisdiction doctrine in Arizona v. Manypenny, 451 U.S. 232

(1981). As in Freeman, this Court did not extensively

discuss the derivative jurisdiction doctrine, relegating

its discussion to a single footnote. See id. at 242 n.17.

8

In Arizona, however, this Court analogized the derivative jurisdiction doctrine to issues of what law a court

should apply on appeal when the case was removed

from state court to federal court. Id. at 241-50. In Arizona, there was never an issue of personal jurisdiction

before this Court.

This Court has discussed the derivative jurisdiction doctrine in two cases (Lambert Run and Minnesota), and merely mentioned the derivative jurisdiction

doctrine in two cases (Freeman and Arizona). None of

these cases involved issues of personal jurisdiction.

Nonetheless, in this Court’s articulation of the derivative jurisdiction doctrine, the Court described it as encompassing issues of jurisdiction of “the subject matter

or of the parties.” See Lambert Run, 258 U.S. at 382.

The contextual key to understanding the statement “or

of the parties” is the presence of the United States as

a party in Lambert Run and in Minnesota. And the

United States’ presence in those cases presented the

Court with issues of subject matter jurisdiction.

b. The Petitioners encourage this Court,

as they did the court of appeals, to go

beyond the Court’s precedents and expand the scope of the derivative jurisdiction doctrine.

Despite this Court’s application of the derivative

jurisdiction doctrine to only issues of subject matter jurisdiction, the Petitioners urge the Court to expand the

doctrine to include issues of personal jurisdiction as

9

well. Lower courts, however, have rejected this type of

expansion of the derivative jurisdiction doctrine. District Title v. Warren, 181 F.Supp.3d 16, 21 n.2 (D.D.C.

2014) (“But that [derivative jurisdiction] doctrine does

not transform a question of personal jurisdiction into

a question of this Court’s subject-matter jurisdiction.”);

Rhoads v. Washington Mut. Bank, F.A., 2010 WL

2691560 (D. Ariz. July 6, 2010) (rejecting the argument

that the derivative jurisdiction doctrine required case

to be remanded because the state court lacked personal jurisdiction over defendants and thus federal

court could not obtain it; “the doctrine of derivative jurisdiction cannot form the basis for remand, because

. . . it does not prevent this court from obtaining personal jurisdiction over [defendants].”); Harvey v. Price,

603 F.Supp. 1205, 1207 (S.D. Ill. 1985) (“[A] federal

court can retain a removed case for new service if it

determines that the state court lacked jurisdiction

over the person of the defendant.”); Samson v. General

Cas. & Ins. Co. of America, 104 F.Supp. 751, 752 (N.D.

Iowa 1952) (stating that the derivative jurisdiction

doctrine “does not necessarily compel dismissal of a

removed case in which the state court lacked jurisdiction of the person of the defendant, because the federal

court may acquire jurisdiction of the person of the defendant subsequent to removal of the case.”). This

Court should likewise resist the Petitioners’ invitation

to expand the derivative jurisdiction doctrine after

nearly a century of this Court applying the doctrine

only to issues of subject matter jurisdiction.

10

II.

This Court should deny the Petition because

the court of appeals correctly identified this

Court’s use of the statement “or of the parties” as dicta.

The Court’s use of the statement “or of the parties”

is dictum. Dicta are statements in an opinion that are

not in any way necessary to the decision of the issue

before the court. See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 443 (1987) (defining dictum as

“something mentioned in passing, which is not in any

way necessary to the decision of the issue before the

Court”). The Court’s use of the statement “or of the parties” in Lambert Run and its progeny was not “necessary to the decision of the issue before the court” in any

of those cases. Had the Court not used the statement

“or of the parties,” the result would have been the same

in each of those cases because personal jurisdiction

was not an issue before the Court.

While acknowledging the context of this Court’s

cases addressing the derivative jurisdiction doctrine –

the context of subject matter jurisdiction – the Petitioners maintain that the statement “or of the parties”

must be read as an integral part of the Court’s holdings

and that the Court intended to go beyond the context

of the cases and address issues of personal jurisdiction

as well. Pet. 11 (“While it is true that subject matter

jurisdiction was the issue in Lambert Run, Minnesota,

Freeman, and Manypenny, that does not change the

fact that the Court held in each of those cases that the

doctrine encompasses both forms of jurisdiction.”). But

such a reading is contrary to the context of the Court’s

11

opinions. Cf., Ex parte Watkins, 32 U.S. 568, 680 (1833)

(“It is but just and fair in construing the language of a

judicial opinion, to consider it in reference to the point

of the case, and to consider the court as not intending

to extend the doctrine advanced, beyond the limit necessary to support the decision. All beyond that must be

considered as a dictum, and of no greater weight than

that of the authorities by which it is supported.”).

The Petitioners’ understanding of the statement

“or of the parties” wrenches this Court’s dictum from

its context, and attributes to the Court an observation

extraneous to its prior cases. The Petitioners’ construction of the Court’s dictum requires an assumption that

the Court in Lambert Run (and to a lesser extent in

Minnesota, Freeman, and Arizona) meant to decide an

issue which was not before the Court: whether the

state court must have personal jurisdiction over the

parties for the federal court to acquire jurisdiction

upon removal. Rather than focusing on the holding and

historical context of these precedents, the Petitioners

seize on dicta and, free from such context, repeatedly

call it a holding. But, “[b]reath spent repeating dicta

does not infuse it with life.” Metro. Stevedore Co. v.

Rambo, 515 U.S. 291, 300 (1995). See also Gonzalez v.

United States, 553 U.S. 242, 256 (2008) (“a formula repeated in dictum but never the basis for judgment is

not owed stare decisis weight”); Fitzgerald v. Henderson,

251 F.3d 345, 375 (2d Cir. 2001) (rejecting the notion

that, “mere repetition can convert dictum to binding

precedent”). The Court should not grant the Petition

12

based on the Petitioners’ insistence that the Court

treat its dictum in Lambert Run as a holding.

III. This Court should deny the Petition because Congress, like the court of appeals,

understood that derivative jurisdiction

concerned issues of subject matter jurisdiction.

The Petitioners further argue that Congress understood the derivative jurisdiction doctrine to include

issues of personal jurisdiction. The Petitioners assert

that, “Congress implicitly adopted this Court’s articulation of the derivative jurisdiction doctrine as encompassing personal jurisdiction when it enacted the 1985

Act and 2002 Act and left the doctrine largely intact.”

Pet. 16. A close look at the congressional history, however, belies the Petitioners’ assertions. When considering the Judicial Improvements Act, Pub. L. No. 99-336,

§ 3(e), 100 Stat. 633 (1985), a House Report stated:

[t]he purpose of section 3 of H.R. 3570 is to

abolish the present judicial rule that an improvidently brought state civil action, the subject matter of which is within the exclusive

jurisdiction of a federal district court, must be

dismissed when it is removed to the district

court by the defendant under 28 U.S.C. § 1441.

The theory behind the current rule is that removal confers only ‘derivative jurisdiction’ on

the federal courts; and therefore, since the

state court lacked subject matter jurisdiction

of the civil action, the federal court cannot acquire subject matter jurisdiction by removal.

13

The doctrine dates back to Lambert Run Coal

Co. v. Baltimore & Ohio Rail Co., 258 U.S. 377,

382 (1922).

H.R. Rep. No. 99-423, at 13 (1985), reprinted in 1986

U.S.C.C.A.N. 1545 (emphasis added). According to the

House Report, it was Congress’ concerns with issues of

subject matter jurisdiction – not personal jurisdiction,

as the Petitioners argue – that were the genesis of the

amendments to the general federal removal statutes.

The court of appeals’ decision was fully consonant

with Congress’ understanding of Lambert Run and

its progeny. The derivative jurisdiction doctrine is

limited to issues of subject matter jurisdiction. The

Court should therefore deny the Petition.

IV. This case does not present a Cert-worthy

issue because, while there are courts of appeals that have mentioned the derivative

jurisdiction doctrine in cases discussing

minimum contacts and service of process,

those cases do not analyze the derivative

jurisdiction doctrine as it relates to personal jurisdiction.

The Petitioners allege that the court of appeals

has created a split among the circuits. Pet. 14 (“The

court of appeals’ opinion in this case is in direct conflict

with the holdings of the four circuits that had previously addressed the scope of the derivative jurisdiction

doctrine.”). The Petitioners again fail to differentiate

between the other courts’ holdings and their dicta. For

14

example, in Aanestad v. Beech Aircraft Corp., 521 F.2d

1298 (9th Cir. 1974), the court framed the issue as a

straightforward question of the district court’s concurrent personal jurisdiction in a diversity jurisdiction

case based on whether the defendant had minimum

contacts, stating “the only issue to be resolved is

whether an exercise of jurisdiction by a California

court would violate the Due Process Clause of the Fourteenth Amendment.” Aanestad, 521 F.2d at 1300. The

court went on to analyze the facts in accordance with

its minimum contacts standard as announced in L.D.

Reeder Contractors v. Higgins Industries, 265 F.2d 768

(9th Cir. 1959), and concluded that “[u]nder the standard announced in Reeder, the district court was correct

in holding that California courts could not, within the

requirements of due process, exercise jurisdiction over

this case.” Id. at 1301. While the court cited to Freeman

Bee and made a single reference to the derivative jurisdiction doctrine, such a passing reference was not

material to the court’s analysis or its holding concerning the district court’s concurrent personal jurisdiction

with the state court. The court of appeals did not hold

that the derivative jurisdiction doctrine applies to personal jurisdiction.

The Petitioners also cite to Meyer v. Indian Hill

Farm, Inc., 258 F.2d 287 (2d Cir. 1958), for the proposition that derivative jurisdiction applies to personal jurisdiction. Pet. 14. However, the Petitioners again fail

to appreciate the difference between dicta and a holding. Furthermore, with regard to Meyer, the Petitioners

also fail to grasp the difference between questions of

15

service of process and questions of a constitutionally

sufficient relationship between the defendant and the

forum; i.e., personal jurisdiction.2 The issue in Meyer

was a question of the former – service of process –

not the latter. Meyer, 258 F.2d at 292. As the court of

appeals framed the issue: “The crucial question is

whether delivery of copies of the summons and complaint to the New Jersey Secretary of State is service

[in accordance with New York law].” Id. The court resolved this issue, holding that “the service of process

questioned here was proper service of process under

the law of New York. Hence we hold that the district

court acquired personal jurisdiction over [the defendant]. . . .” Id. at 293. As in Aanestad, the court made

a single reference to the derivative jurisdiction doctrine, but that reference was not necessary to the

court’s analysis or its holding. The court of appeals did

not hold that the derivative jurisdiction doctrine applies to personal jurisdiction.

2

Personal jurisdiction and insufficiency of process are two

different but interrelated issues. In particular, adequate service

of process is a prerequisite for a court’s exercise of personal jurisdiction: “Before a federal court may exercise personal jurisdiction

over a defendant, the procedural requirement of service of summons must be satisfied.” Omni Capital Intern., Ltd. v. Rudolf

Wolff & Co., Ltd., 484 U.S. 97, 104 (1987); accord Murphy Bros. v.

Michetti Pipe Stringing, 526 U.S. 344, 350 (1999) (“In the absence

of service of process (or waiver of service by the defendant), a court

ordinarily may not exercise power over a party the complaint

names as defendant.”); see also Fed. R. Civ. P. 4(k)(1)(A) (“[s]erving a summons . . . establishes personal jurisdiction over a defendant: (A) who is subject to the jurisdiction of a court of general

jurisdiction in the state where the district court is located[.]”).

16

Next, the Petitioners rely on Garden Homes, Inc. v.

Mason, 238 F.2d 651 (1st Cir. 1956), to support their

assertion of a circuit split. Pet. 14. But the court of appeals in Garden Homes considered the sufficiency of

service of process, not issues of strict personal jurisdiction. Garden Homes, 238 F.2d at 652 (“This is an appeal

from an order by the district court dismissing an action

removed from the state court in which it was begun.

The ground of dismissal was the insufficiency of service of process upon the defendant.”). The court resolved the issue by holding that, “[i]t is evident from

the record that the plaintiff here has not complied with

these service requirements, and it follows that neither

the state court of Massachusetts, nor, derivatively, the

federal district court, had personal jurisdiction over

the defendant.” Id. at 654. Like the court of appeals in

Meyer, the court of appeals in Garden Homes mentioned the derivative jurisdiction doctrine, but did not

apply it to an issue of personal jurisdiction. The court

of appeals did not hold that the derivative jurisdiction

doctrine applies to personal jurisdiction.

Finally, the Petitioners allege a circuit split based

on Block v. Block, 196 F.2d 930 (7th Cir. 1952). Block,

like Meyer and Garden Homes, concerned issues of service of process. Block, 196 F.2d at 932-33 (“When [the

district court] developed upon this examination that

this was an original proceeding and that there had

been no personal service of process on defendant . . . it

was clear that the state court had obtained no jurisdiction over him, hence that the District Court could obtain none upon removal.”). See also Allen v. Ferguson,

17

791 F.2d 611, 615 (7th Cir. 1986) (“In [Block], there had

been no personal service of process on the defendant

prior to removal, and the district court dismissed the

complaint.”). The court in Block did not analyze the

derivative jurisdiction doctrine as it applies to service

of process or personal jurisdiction. It mentioned the

doctrine, but that reference was not dispositive of the

issue before the court.

The court of appeals’ decision in this case is not in

tension with any other court of appeals’ holding concerning the derivative jurisdiction doctrine. While

other courts have mentioned the derivative jurisdiction doctrine when addressing issues of minimum contacts or service of process, those courts have not

analyzed whether the derivative jurisdiction doctrine

applies to personal jurisdiction, as did the court of appeals below, nor have they held, in conflict with the

court of appeals below, that the derivative jurisdiction

doctrine applies to issues of personal jurisdiction. The

Court should therefore deny the Petition.

---------------------------------♦---------------------------------

CONCLUSION

The Petitioners trade dicta for precedent. This

Court’s analysis and application of the derivative jurisdiction doctrine is limited to issues of subject matter

jurisdiction. In following this Court, and after extensive analysis of the derivative jurisdiction doctrine, the

court of appeals limited the derivative jurisdiction

doctrine to issues of subject matter jurisdiction. Other

18

courts of appeals have not analyzed the derivative jurisdiction doctrine to determine its application. Therefore the court of appeals’ decision is not contrary to any

holding of this Court or that of any other court of appeals. The Court should therefore deny the Petition.

Respectfully submitted,

BILL D. BENSINGER

Counsel of Record

DEBORAH A. SMITH

DANIEL D. SPARKS

RICHARD E. SMITH

CHRISTIAN & SMALL LLP

1800 Financial Center

505 North 20th Street

Birmingham, Alabama 35203

205-250-6626

bdbensinger@csattorneys.com

Counsel for Respondent Thomas E. Reynolds, Trustee