The opinion of the court was delivered by: Kaplan, District Judge.
This is an action by Hallwood Realty Partners, L.P. ("Hallwood")
charging,
inter alia, that defendants Gotham Partners,
L.P. and Gotham Partners, Ill, LP. (collectively "Gotham"), EFO Reality,
Inc. ("EFO"), Private Management Group, Inc. ("PMG") and others have
violated Section 13(d) of the Securities and Exchange Act of 1934*fn1
(the "Exchange Act") by working secretly as a group to purchase
Hallwood's shares for the purpose of taking control of and fundamentally
changing or liquidating Hallwood. Hallwood's allegations are set out in
an opinion of this Court dated May 2, 2000, familiarity with which is
assumed.*fn2 The matter now is before the Court on PMG's motion to
dismiss for lack of personal jurisdiction over it or, in the
alternative, to sever the claims against it and transfer them to the
Central District of California.*fn3
PMG challenges personal jurisdiction on the ground that it lacks
minimum contacts with New York State as it claims is required under
International Shoe Co. v. Washington*fn4 and its progeny. Hallwood
responds that PMG was duly served under a federal statute providing for
nationwide service of process and, in consequence, that this Court
properly may exercise personal jurisdiction over it. The issue,
therefore, is the extent and basis of constitutional limitations on the
exercise of personal jurisdiction by federal courts in cases in which a
federal statute provides for nationwide service of process. Its
resolution requires close attention to the evolution of expanded concepts
of personal jurisdiction and the constitutional limits on its exercise.
A state court's exercise of personal jurisdiction historically was
understood to derive from the court's territorial power over the
defendant's person.*fn5 The limits on its exercise grew from the
principle that states, as separate sovereigns in a federal system, were
wholly authoritative within their own territories but without power to
encroach on the territorial authority of other states.*fn6 On this
basis, state courts were permitted to exercise jurisdiction over any
person served within the forum.*fn7
Over time, developments in commerce and transportation began to
highlight the limited nature of this territorial conception. The
requirement that the exercise of jurisdiction stem from the forum's
exercise of sovereign power over a defendant within its territory meant
that many doing business or traveling within a state were able to escape
judgment of the courts of that state, even on claims stemming from their
in-state activities, merely because they were not served with process in
the jurisdiction.
The Court next developed what has been called the "presence" theory,
which based amenability to service on the nature and frequency of a
defendant's activities in the forum state.*fn9 This approach addressed
some of the concerns associated with the implied consent theory, as the
notion of voluntary submission was discarded. However, no clear standard
governing the level of contacts required for legal presence emerged.
Consequently, lower courts divided sharply about how this doctrine should
operate.
After several decades of divergent lower court opinions, the Supreme
Court in 1945 attempted to define the doctrine more clearly in
International Shoe v. State of Washington, which held that state courts
may exercise personal jurisdiction over a defendant only where that
defendant has "minimum contacts" with the forum such that maintenance of
the suit does not offend "traditional notions of fair play and
substantial justice."*fn10 This approach required consideration not only
of the extent and frequency of a defendant's contacts with the forum
state, but also of the nature of those contacts and the relationship
between them and the subject matter of the litigation.*fn11
International Shoe and its progeny have grounded their limitations on
the exercise of personal jurisdiction over absent defendants in two
dominant themes. Limitations on state courts' exercise of personal
jurisdiction were said to stem in part from the Fourteenth Amendment's
restrictions on the sovereign powers of the states in a federal system.
*fn12 But they have rested also on a view of the Fourteenth Amendment as
protecting a defendant's liberty interest in not being forced to litigate
in a forum with which he or she has no ties.*fn13 These themes remain
salient parts of
Fourteenth Amendment personal jurisdiction jurisprudence to this day.
Federal courts of course are not subject to the constraints of the
Fourteenth Amendment, which control only state action. They are subject
instead to the Due Process Clause of the Fifth Amendment,*fn14 and it is
far from clear whether that provision imposes identical limitations on
their exercise of personal jurisdiction in federal question cases.
Indeed, the question does not often arise. Under the Federal Rules of
Civil Procedure, a defendant must be served either in the judicial
district where he or she is found or pursuant to the long-arm statute of
the forum state unless a federal statute provides for broader territorial
limits.*fn15 As state long-arm statutes almost invariably allow service
outside the judicial district in which the federal court sits, the
International Shoe standard or, indeed, an even narrower state long-arm
statute*fn16 usually controls the exercise of personal jurisdiction by
federal district courts. However, where the governing federal statute
provides for nationwide service of process, as does the Exchange Act,*fn17
the question arises whether the Fifth Amendment permits the exercise of
jurisdiction by federal courts in circumstances in which a state court of
the forum state would be proscribed from proceeding pursuant to
International Shoe.*fn18
The issue has arisen most frequently in connection with the question
whether foreigners, in order to be subjected to the personal jurisdiction
of a federal court, need only have minimum contacts with the United
States as a whole as opposed to minimum contacts with the forum state.
Cases addressing this issue generally have fallen into one of two camps,
with each drawing differently on the two dominant themes outlined above.
Most have adopted the view that minimum contacts with the United States
satisfy the Fifth Amendment in cases arising under federal law,*fn19
just as minimum contacts with the
forum state satisfy the
Fourteenth Amendment in actions arising under state law.*fn20 This
national contacts approach stems in large part from the notion that
concerns about state sovereignty and federalism are absent in federal
question cases, in contrast to cases in which the cause of action is
based on state law.*fn21 As these concerns drop out, so the argument
goes, the exercise of personal jurisdiction in federal question cases
need not be limited by the extent of defendant's contacts with the forum
state.*fn22 Most of these cases, moreover, have undertaken little
independent inquiry into the fairness of subjecting the defendant to the
jurisdiction of the forum.*fn23 Rather, they generally find these issues
to be addressed adequately by limitations on plaintiffs' choices of
venue.*fn24
Courts in the second group, in contrast, view the Fifth Amendment as
imposing far more substantial restrictions on the exercise of personal
jurisdiction.*fn25 This approach has its origins in World-Wide
Volkswagen Corp. v. Woodson, which found the personal jurisdiction
inquiry under the Fourteenth Amendment to be driven by concerns not only
with federalism and state sovereignty, but also with protecting the
defendant's liberty interest in not being forced to litigate in a distant
forum.*fn26 Although state sovereignty concerns are absent in federal
question cases, a defendant's liberty interest exerts an independent
limitation on the court's exercise of personal jurisdiction. This
interest, therefore, conceivably could constrain the exercise of
jurisdiction even if service otherwise were proper under a federal
statute providing for nationwide service of process.
This latter approach finds support in Insurance Corp. of Ireland v.
Compagnie des Bauxites,*fn27 where the Court went beyond Volkswagen and
suggested in dicta that the defendant's individual liberty interest is
the sole Fourteenth Amendment constraint on a court's exercise of
personal jurisdiction.*fn28 Taken to an extreme, the language in
Bauxites suggests that the Fifth Amendment's limitations on the exercise
of personal jurisdiction are coextensive with those under the Fourteenth
Amendment. Under such a view, the minimum contacts test developed in
International Shoe would apply equally to federal and state claims,
including those brought under federal statutes providing for nationwide
service, ...