Tuesday, August 25, 2020
Majority Says Action is in Rem—Personal Jurisdiction Is Not Needed
By a MetNews Staff Writer
A citizen of Saudi Arabia who headed an international multi-billion dollar money laundering ring yesterday failed in his effort to regain possession of stock that was seized by the U.S. government through a civil forfeiture action, with the Ninth U.S. Circuit Court of Appeals holding, in a 2-1 decision, that personal jurisdiction over the man was not necessary.
It was an in rem action, Judge Johnnie B. Rawlinson said in the majority opinion, and the res is the stock. Judge Mark J. Bennett signed her opinion and Sandra S. Ikuta dissented.
The 2.5 million shares in Palantir Technologies, a company headquartered in California, were purchased by plaintiff Tarek Obaid for $2 million through a wire transfer from an account in Switzerland, in the name of Good Star Limited, to a bank in Northern California.
Obaid was chief executive officer of PetroSaudi International (“PSI”) which hooked up with Malaysia Development Berhad (“1MDB”), an investment company owned by the government of Malaysia. It is alleged that between 2009 and 2011, more than $1 billion was sapped from 1MDB and diverted to the Good Star account with more than $400 million in laundered funds coming into the U.S. with Obaid and his co-conspirators purchasing luxury items and real estate.
Among those whose assets have also been seized are financier Low Taek Jho, a fugitive who allegedly diverted more than $400 million in laundered funds into the U.S., and Riza Aziz, stepson of former Malaysian Prime Minister Datuk Seri Najib Razak.
“Contemporaneous with the action brought against Obaid’s Palantir shares, the government filed multiple civil forfeiture suits seeking to reclaim assets such as luxury hotels, yachts, certain movies rights, and expensive real estate in Beverly Hills, connected to the fraudulent scheme. However, it is unclear from the complaint whether—and to what extent—Obaid maintains an ownership interest in the additional assets being sought by the government in the related civil forfeiture actions.”
Obaid insisted that the U.S. District Court for the Central District of California has no jurisdiction owing to his lack of “minimal contacts” with the forum, as required by the U.S. Supreme Court’s 1977 decision in Shaffer v. Heitner. Rawlinson responded that the nation’s high court in 2004, in Tennessee Student Assistance Corp. v. Hood, clarified that Shaffer is limited to quasi-in rem actions, which she termed a “nebulous concept.”
“Fortunately, there is no dispute that the underlying action is in rem because ‘[a] forfeiture action is in rem.’…Here, the focus is on the district court’s jurisdiction over the property in dispute, i.e., Obaid’s Palantir shares.”
“We hasten to add that we do not read Hood as overruling or purporting to overrule Shaffer. Rather, we conclude that each survives in its respective sphere: Shaffer in the realm of quasi in rem jurisdiction and Hood in the realm of in rem jurisdiction.”
Question of Venue
Obaid also asserted that venue does not properly lie in the Central District of California. Rawlinson said:
“Some of the alleged acts in furtherance of the conspiracy were conducted in the Central District, including expensive real estate purchases in Beverly Hills, the financing of a motion picture, and the purchase of the Palantir shares. Purchasing real estate in Beverly Hills and shares of stock in Palantir are not per se criminal acts. However, if the purchases were a mechanism to launder proceeds in furtherance of the IMDB scheme, “sufficient acts” giving rise to the forfeiture occurred in the Central District, thus making venue proper.”
“…Obaid’s assertion that the actions of third parties in the Central District (co-conspirators) cannot serve as a proxy to establish venue based on his conduct, misses the point. This civil forfeiture action is not premised on Obaid’s conduct; rather, the action is predicated on whether the Palantir shares, i.e., the res, are traceable to the proceeds of a crime….Accordingly, whether Obaid was involved in the conspiracy is immaterial to the venue analysis.”
Ikuta said in her dissent:
“With one stroke, the majority has swept away Shaffer v. Heitner, the Supreme Court’s landmark decision ensuring that ‘traditional notions of fair play and substantial justice’ apply to all persons with property subject to adjudication, regardless of the Latin label attached to the proceeding….Shaffer held that a court cannot extinguish a person’s property rights unless it first obtains personal jurisdiction over that person, and eliminated a 100-year-old rule to the contrary as ‘fundamentally unfair.’…Instead of applying Shaffer, the majority applies the principles of in rem jurisdiction that Shaffer rejected as lacking ‘substantial modern justification.’ ”
She pointed out that seven circuits view Shaffer as governing in in rem proceedings.
The case is United States v. Obaid, 18-56657.
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