In this blog post, we reach back to a 2003 Judge Ellis opinion applying FRCP Rule 4(k)(2). In Graduate Management Admission Council v. RPV Narasimha RJU d/b/a GMATPlus.com, 241 F. Supp. 2d 589 (E.D. Va. 2003)
(the “GMAC Case”), the judge applied this little-known rule to rescue a complaint from dismissal for lack of in personam
jurisdiction. The decision has had little visibility, but with the recent enactment of the Defend Trade Secrets Act of 2016 (“DTSA/2016”) the rule and the Judge Ellis’s opinion have new relevancy. Stated differently, Rule 4(k)(2), as applied by Judge Ellis thirteen years ago, potentially turbocharges DTSA/2106’s role in trade secrets litigation involving overseas defendants.
Rule 4(k)(2), the Federal Long-arm Statute
Rule 4(k)(2) is buried deep in Rule 4, which has the innocent title of “Summons.” Rule 4(k), titled “Territorial Limits of Effective Service,” also seems easily overlooked. Our target, subpart 4(k)(2), provides:
(2) Federal Claim Outside State-Court Jurisdiction.
For a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if:
(A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and
(B) exercising jurisdiction is consistent with the United States Constitution and laws.
It’s a decent bet that most of us (except some of the patent bar), even those with decades of federal court experience, have never before encountered Rule 4(k)(2). Since its arrival in 1993, the rule has only rarely been applied, and the limited appearances have mostly been in patent and copyright cases.
The 2003 GMAC Case
In the GMAC
Case, Judge Ellis rescued a copyright infringement complaint by resorting to Rule 4(k)(2) on behalf of a plaintiff who was having difficulty establishing in personam
jurisdiction using Rule 4(k)(1) and the Virginia long-arm statute. The issue was jurisdiction over an Indian citizen who was selling copyrighted GMAT questions marketed as test preparation resources for aspiring MBA candidates. The solicitations and sales of the test preparation materials were made over the Internet, and seemingly were not directed to any one state but at a broader United States market. The defendant failed to answer GMAC’s complaint notwithstanding adequate service in India.
Following routine court procedures, Judge Ellis referred the case to Magistrate Sewell to prepare the R&R report. The magistrate considered the jurisdiction claim under Rule 4(k)(1) and the Virginia-long arm statute as the complaint alleged. The magistrate concluded that while the conduct fell within the expansive reach of the long-arm statute, the constitutional due process requirements for in personam
jurisdiction were not met.
The case might have disappeared from the radar screen at that point, but Judge Ellis saved the case using Rule 4(k)(2). GMAC’s complaint came before Judge Ellis when the plaintiff challenged the R&R report. The judge agreed with the magistrate’s conclusions regarding the Virginia long-arm statute, but he applied retroactively Rule 4(k)(2) (the plaintiff had not alleged jurisdiction under Rule 4(k)(2)), which is often referred to as the Federal long-arm statute, to find in personam
jurisdiction. Citing authority from the 1st
Circuit and the 7th
Circuit, Judge Ellis explained:
Rule 4(k)(2) was added in 1993 to deal with a gap in federal personal jurisdiction law [identified in Omni Capital Int’l, Ltd v. Rudolph Wolff & Co.,
484 U.S. 97 (1987)] in situations where a defendant does not reside in the United States, and lacks contacts with a single state sufficient to justify personal jurisdiction, but has enough contacts with the United States as a whole to satisfy the due process requirements.
Case fell into the gap identified in the referenced 1987 Supreme Court decision, only to be rescued by the little-known rule.
Judge Ellis’ decision is important not just because it reminds that Rule 4(k)(2) is part of the landscape, but also for his retroactive use of the rule and how he assigned the burden of the tricky third element in the analysis under the rule.
Three-part Analysis Under Rule 4(k)(2)
When Rule 4(k)(2) comes into play, it tracks a three-part analysis taken directly from the rule’s text. First, the rule applies the same minimum contacts due process analysis that is conducted under Rule 4(k)(1), but with the significant difference that the relevant forum is the United States as a whole, not an individual state. The second element of the rule is that the claim arises under federal law. In the GMAC
Case, Judge Ellis cited five federal statutes, including the Copyright Act, invoked in the complaint.
The third and final element—the tricky element—requires a showing that the defendant is not subject to the jurisdiction of the courts of general jurisdiction in any particular state. Courts have wrestled with how to assign the burden on this element. Does the plaintiff have to prove a negative across 50 states? Or does the burden fall to the defendant to establish that at least one state should have jurisdiction?
Judge Ellis answered the burden question—it is the defendant’s burden to identify some other forum state, and if no state is identified then Rule 4(k)(2) applies. The defendant in the GMAC
Case was in default and did not appear; Judge Ellis found that there was no evidence showing the jurisdiction was not available in any one state, and from there moved to his conclusion that Rule 4(k)(2) gave the court jurisdiction. The judge followed a mix of the 1st
Circuit’s pure burden shifting approach from United States v. Swiss American Bank
, 191 F.3d 30 (1st
Cir. 1999) and the 7th
Circuit’s more pragmatic approach in ISI Int’l, Inc. v. Borden Ladner Gervais, LLP
, 256 F.3d 548 (7th
Cir. 2001) where a defendant must name a suitable forum state or concede that jurisdiction is not available in any state. Under Judge Ellis’s logic, a defendant who has general contacts with the United States but who coyly argues that it cannot be sued in the forum state and then refuses to identify any other state where the suit could be brought faces in personam
jurisdiction under Rule 4(k)(2).
The Rule 4(k)(2) case law in the years since the GMAC
Case is sparse outside the patent arena. Not surprisingly, because the cases where the rule has been applied are mostly patent and copyright matters, the Federal Circuit has spoken. In Merial Ltd. v. Cipla Ltd
, 681 F.3d 1283 (Fed. Cir. 2012), the Federal Circuit employed an analysis much like Judge Ellis’s GMAC
Case opinion, and approved retroactive application of the rule.
Circuit’s consideration of Rule 4(k)(2) is not completely blank. In the few reported cases, the court has been generally hostile to Rule 4(k)(2) argument, but has not offered much analysis. In Base Metal Trading v. OJSC Novokuznetsky Aluminum Factory
, 283 F.3d 208 (4th Cir. 2002), the Court rejected jurisdiction based on Rule 4(k)(1), and noted that there was insufficient evidence generally of contacts with the United States to support the Rule 4(k)(2) argument. The same result for the same reason appears in Saudi v. Northrop Grumman Corp.
, 427 F.3d 271 (4th Cir. 2005). More recently, in Unspam Techs., Inc. v. Chernuk
, 716 F.3d 322 (4th Cir. 2013), in a case that alleged a conspiracy involving illegal prescription drugs, the appellate court rebuffed the Rule 4(k)(2) jurisdiction argument against four foreign banks that processed the associated credit card transactions. The opinion cryptically states that jurisdiction “would not, in the circumstances here, be ‘consistent with the United States Constitution and laws.’”
The Combination of Rule 4(k)(2) and DTSA/2016
As suggested above, Rule 4(k)(2) and the GMAC
case might easily have been left in the irrelevancy bin. In copyright, patent, and trademark cases where the defendant is foreign, perhaps from India or China, the evidence often is sufficient to pinpoint one or more states, or at least to provide sufficient contacts to satisfy the due process concerns associated with suing the foreign persons or entities in the federal courts in those states. These cases likely arise after infringing goods are being sold and/or marketed, which means that there typically is evidence which supports jurisdiction under Rule 4(k)(1) and state long-arm statutes. In the few cases where a defendant might contest state-specific activity, Rule 4(k)(2) allows the plaintiff to hold the defendant in the proceeding.
Claims alleging trade secrets misappropriation, on the other hand, very well might present facts that confirm misappropriation, but where the facts precede any significant targeted sales and marketing by the misappropriator. The plaintiff could be seeking at an early stage to enjoin sales, and perhaps is aiming to employ DTSA/2016’s civil seizure remedies, including the ex parte
remedies. The conduct might come within DTSA/2016’s broad “misappropriation” definition, but limited facts connecting the activity to any one state could defeat in personam
jurisdiction under Rule 4(k)(1) and state long-arm statutes.
Until the DTSA/2016 enactment, trade secrets claims were governed by state laws, which meant that Rule 4(k)(2)’s application was blocked because the second element of the analysis could not be satisfied. Under DTSA/2016, just about every trade secrets claim is now a federal claim, and the rule’s three-step analysis can now be satisfied. This does not negate the requirement of established contacts with the United States generally, but trade secrets cases against foreign defendants now have a fortified argument to get around the earlier nemesis of the lack of in personam
The combination of Rule 4(k)(2), as applied by Judge Ellis back in 2003 in the GMAC
Case, and the enactment of DTSA/2016 potentially opens wide the doors of federal courthouses to trade secrets litigation against overseas defendants. For litigators who represent foreign companies, there is new concern that their clients can now be forced to defend trade secrets cases in the U.S. federal courts. And for those attorneys whose clients have reason to complain about misappropriation of their trade secrets by overseas entities, the combination of Rule 4(k)(2) and DTSA/2016 is an invitation to bring their claims here.