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#2191 signed 1-22-96

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS



In Re:

AMERICAN FREIGHT SYSTEM, INC.,

DEBTOR(S).

NO. 88-41050-11

CHAPTER 11

AMERICAN FREIGHT SYSTEM, INC.,

PLAINTIFF(S),

v.

601391 ONTARIO, LTD.,

MALCOLM C. GRAHAM, et al.,

DEFENDANT(S),

ADV. NO. 91-7234



ORDER GRANTING SUMMARY JUDGMENT TO

DEFENDANT MALCOLM C. GRAHAM

In this proceeding, debtor American Freight System, Inc. (AFS), has objected to a claim and made a counterclaim for conversion and an accounting against, among others, Malcolm C. Graham. Mr. Graham filed a motion to dismiss for lack of personal jurisdiction and insufficiency of service of process. His supporting brief was accompanied by an affidavit in which he swore to be a citizen and resident of Canada and to have essentially no contacts with the State of Kansas. At a hearing on the motion, the Court directed the parties to submit briefs addressing why Mr. Graham is a proper defendant. Later, believing the affidavit supplied a possible resolution of AFS's claims against Mr. Graham but unable to consider it on a motion to dismiss, the Court informed the parties it would treat the motion as one for summary judgment and gave them an opportunity to submit any additional materials they might deem necessary. Both sides have now filed new pleadings and the matter is ready for decision. Mr. Graham appears by counsel C. Edward Peterson and Jeremiah Finnegan. AFS appears by counsel Kurt Stohlgren.

In the notice that the motion to dismiss would be treated as one for summary judgment, the Court stated AFS would need to present materials showing it has evidence which could prove that the Court can properly exercise personal jurisdiction over an individual who resides in, is a citizen of, and has been served in Canada, and swears to have no contacts with the State and District of Kansas. In response, AFS does not question any of the facts alleged in Mr. Graham's affidavit. Rather, AFS first notes that Mr. Graham was served by United States mail, though it makes no argument based on this fact.(1) Then it proceeds to the real basis of its argument that this Court may properly exercise personal jurisdiction over Mr. Graham, namely that personal service was accomplished pursuant to Federal Rule of Civil Procedure 4(i)(1)(C) (1990),(2) made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7004(a) and (g). However, AFS has overlooked limitations on such service. Rule 4(i)(1) provided in pertinent part:

When the federal or state law referred to in subdivision (e) of this rule authorizes service upon a party not an inhabitant of or found within the state in which the district court is held, and service is to be effected upon the party in a foreign country, it is also sufficient if service of the summons and complaint is made:

. . .

(C) upon an individual, by delivery to the individual personally.

Subdivision (e) of the Rule provided:

Whenever a statute of the United States or an order of court thereunder provides for service of a summons . . . upon a party not an inhabitant of or found within the state in which the district court is held, service may be made under the circumstances and in the manner prescribed by the statute or order, or, if there is no provision therein prescribing the manner of service, in a manner stated in this rule. Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons . . . upon a party not an inhabitant of or found within the state, . . . service may . . . be made under the circumstances and in the manner prescribed in the statute or rule.

AFS's argument appears to address only the manner of service. With respect to Mr. Graham, the significant question is the circumstances under which he was served. The relevant circumstances are that Mr. Graham is a Canadian citizen and resident who was served in Canada and has no personal contacts with the State of Kansas. AFS has cited no statute or rule that authorized service to be made on Mr. Graham in Canada.

While Bankruptcy Rule 7004(d) authorizes this Court to exercise personal jurisdiction over any party served in the United States so long as the party has sufficient contacts with this country, Donald G. Atteberry, DVM, P.A., v. Barclays Bank (In re Atteberry, P.A.), 153 B.R. 901 (Bankr.D.Kan. 1992), aff'd 159 B.R. 1 (D.Kan. 1993), that provision is limited to service "anywhere in the United States." The only case AFS relies on to support its position did involve service on citizens of a foreign country, Alco Standard Corp. v. Banalal, 345 F.Supp. 14 (E.D.Pa. 1972), and though the opinion does not expressly say so, it does imply by quoting Rule 4(i)(1)(C) that service was made in a foreign country, id. at 26-27. However, the decision clearly indicates the service was permissible because section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C.A. §78aa, authorized service "wherever the defendant may be found." Alco Standard Corp. v. Banalal, 345 F.Supp. 14, 26-27 (E.D.Pa. 1972). The Court does not suppose AFS is suggesting the Securities Exchange Act applies to this proceeding, and is not aware of any other federal statute or rule that would authorize the service made on Mr. Graham.

One last possible source of authority for service on Mr. Graham in Canada does exist--state law. In the absence of a federal statute, Rule 4(e) required a federal court to look to the long-arm statute of its forum state to determine who would be amenable to service issued by the court. Omni Capital International v. Rudolf Wolff & Co., 484 U.S 97, 105 (1987); see also Michael W. Silberman, Note, Far-Reaching Changes: The Future Expansion of Personal Jurisdiction Over Foreign Defendants Under the Federal Rules of Bankruptcy Procedure, 11 Bankr. Dev. J. 819, 822-26 (1994-95). While Omni Capital suggested and inspired some of the changes made to Rule 4 in 1993, thanks to Bankruptcy Rule 7004(g), the ruling still applies to bankruptcy proceedings. 11 Bankr. Dev. J. at 830-33. At least under the pre-1993 version of Rule 4, when a federal court seeks to exercise personal jurisdiction under the long-arm statute of the state in which it sits, it is subject to the same Fourteenth Amendment constraints on the assertion of such jurisdiction over a defendant who is not a resident of or found in the state as the state courts are. See Hunt's Pier Assocs. v. Conklin (In re Hunt's Pier Assocs.), 156 B.R.. 464, 468 (Bankr.E.D.Pa. 1993); Note 11 Bankr. Dev. J. at 830-33. Supreme Court cases starting with International Shoe Co. v. Washington, 326 U.S. 310 (1945), have made clear that a state may exercise personal jurisdiction over an out-of-state defendant only if the defendant has "certain minimum contacts with [the state] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" 326 U.S. at 316 (quoting Millikan v. Meyer, 311 U.S. 457, 463 (1940)); see also Worldwide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980); Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985); Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987). Although it can sometimes be difficult to determine whether a defendant's contacts with a forum state are sufficient to meet this standard, AFS has not disputed that Mr. Graham has no contacts with the State of Kansas. Perhaps recognizing the futility of doing so, AFS has not referred to the fact that Mr. Graham did, as an agent for co-defendant 601391 Ontario, Ltd., sign a proof of claim which was filed in AFS's bankruptcy case. At least the Ninth Circuit has had occasion to indicate that a corporate representative whose contacts with a state occurred only in a corporate capacity is not subject to personal jurisdiction in that state. Kransco Mfg. v. Markwitz, 656 F.2d 1376, 1379 (9th Cir. 1981). Thus, Mr. Graham has no personal contacts with the State of Kansas, and service on him could not constitutionally have been authorized by the Kansas long-arm statute.

For these reasons, the Court concludes Mr. Graham was not amenable to the service made on him in this case, and the Court does not have personal jurisdiction of him. Consequently, summary judgment is hereby entered dismissing him from this proceeding.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of January, 1996.











__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

1. The Court notes this assertion is probably not completely correct. Presumably the United States mail does not itself deliver mail in Canada but instead passes it on to a Canadian mail system of some sort.

2. Although Civil Rule 4 was extensively amended in 1993, Bankruptcy Rule 7004(g) provides that the subdivisions of that rule which are made applicable to adversary proceedings are those in effect on January 1, 1990, rather than any subsequent amendments.

 

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