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STENGER v. WORLD HARVEST CHURCH

August 29, 2003

PHILLIP S. STENGER, RECEIVER, PLAINTIFF, VS. WORLD HARVEST CHURCH, INC., DEFENDANT


The opinion of the court was delivered by: Mathew Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

This case is before the court on the motion of the defendant World Harvest Church, Inc. to dismiss for lack of personal jurisdiction the action brought by plaintiff Phillip Stenger, the court appointed receiver for the assets of Charles Richard Homa, Michael E. Cause, and D. Dean Pearson. For the reasons stated below, the Court grants defendant's motion.

Between 1996 and October 1999, Homa, Cause and Pearson ("the Receivership Subjects") engaged in an elaborate scheme, fraudulently inducing investors to purchase interests in an enterprise called Cash 4 Titles ("C4T") whose ostensible purpose was to provide capital to consumer lending companies. The enterprise was not profitable, and as in the classic "Ponzi" scheme, the contributions of later investors were used to pay off earlier investors. The Receivership Subjects also diverted significant amounts of the investors' funds for their personal use and for the benefit of their friends and associates. All told, they defrauded some 2,400 investors out of an excess of $200 million.

Homa and Cause pled guilty to criminal charges of securities fraud and money laundering [ Page 2]

in the Southern District of New York, and, in a separate civil action in this District, they were ordered to pay civil disgorgement in excess of $150 million in addition to criminal restitution. Pearson consented to a civil judgment in the amount of approximately $3 million. In the civil proceedings, each of the Receivership Subjects agreed to the appointment of Phillip Stenger as receiver for their assets and those of the entities involved in the schemes, for the benefit of the defrauded investors. The orders appointing Stenger name him "as receiver for the benefit of investors to marshal, conserve, protect, hold funds, operate and, with the approval of the Court, dispose of any wasting assets, wherever those assets maybe found. . ." See, e.g., First Am. Cplt., Ex. 1 ¶ 1.

Between 1994 and 1999, Pearson and Gause, who were members of the World Harvest Church, are claimed to have diverted over $1.9 million of C4T investor funds to the Church. In March 2003, Stenger, in his capacity as receiver, filed suit against World Harvest, making claims of fraudulent transfers and unjust enrichment. Stenger alleges that the Church knew or should have known that the transfers from Pearson and Gause were fraudulent and made with the intent to defraud the C4T investors and/or to perpetuate the C4T scheme. World Harvest, which is based in Georgia, has moved to dismiss the complaint for lack of personal jurisdiction.

Discussion

Federal Rule of Civil Procedure 4(k) provides that service of a summons is effective to establish jurisdiction over a defendant who could be subjected to jurisdiction in a court of the forum state; when service is authorized by a federal statute; or if the exercise of jurisdiction is consistent with the Constitution (as well as certain other bases not applicable here). Fed.R.Civ.P. 4(k)(1)(A) & (D), 4(k)(2). World Harvest argues, without contradiction, that it has had no [ Page 3]

contact whatsoever with Illinois. It contends that as a result, it cannot be subjected to jurisdiction in an Illinois court and that constitutional due process principles likewise do not permit this Court's exercise of jurisdiction. Stenger argues that service of summons on World Harvest was authorized by a federal statute, thus conferring this Court with jurisdiction over World Harvest pursuant to Federal Rule of Civil Procedure 4(k)(1)(D).

Stenger relies on the interplay between the federal receivership statute, 28 U.S.C. § 754, and 28 U.S.C. § 1692, which Stenger argues authorizes extraterritorial service of process in cases brought by receivers. Section 754 provides as follows:

A receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall, upon giving bond as required by the court, be vested with complete jurisdiction and control of all such property with the right to take possession thereof.
He shall have the capacity to sue in any district without ancillary appointment, and may be sued in respect thereto as provided in section 959 of this title.
Such receiver shall, within ten days after the entry of his order of appointment, file copies of the complaint and such order of appointment in the district court for each district in which property is located. The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district.
28 U.S.C. § 754. This statute by itself does not confer extraterritorial in personam jurisdiction; rather it permits the receiver to obtain in rem jurisdiction over receivership property. See Gilchrist v. General Electric Corp., 262 F.3d 295, 301 (4th Cir. 2001); Terry v. June, No. 3:03CV00047, 2003 WL 21738299, at *3 (W.D. Va. July 21, 2003). Moreover, § 754 does not purport to authorize extraterritorial service of process, and thus it is not a statute that confers jurisdiction under Rule 4(k)(1)(D).

Stenger argues, however, that in personam jurisdiction exists by virtue of § 1692, which, he contends, authorizes nationwide service of process in aid of actions filed by receivers. Section [ Page 4]

1692 provides that

[i]n proceedings in a district court where a receiver is appointed for property, real, personal or mixed, situated in different districts, process may issue and be executed in any such district as if the property lay wholly within one district, but orders affecting the property shall ...

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