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In a recently decided case, Rubin v. Pringle (In re Focus Media Inc.), the 9th U.S. Circuit Court of Appeals held that in an adversary proceeding in bankruptcy court, a lawyer can be deemed to be the client’s implied agent to receive service of process when the lawyer repeatedly represented that client in the underlying bankruptcy case. The court also held that Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund Inc. does not bar the issuance of a preliminary injunction freezing assets where fraudulent conveyance or equitable causes of action are pleaded in bankruptcy. BACKGROUND In October 2000, an involuntary bankruptcy case was filed against Focus Media Inc., and a trustee was appointed. The trustee subsequently brought an adversary proceeding against Thomas Rubin, the sole shareholder of Focus Media. The complaint contained allegations that Focus Media had transferred approximately $20 million to Rubin in 2000 and that Focus Media had made millions of dollars in to Rubin in 1999 and 2000, which loans were never repaid. On the same day that the complaint was filed, the trustee sought to freeze Rubin’s assets by filing an ex parte motion for a temporary restraining order, a motion for preliminary injunction and a request for a writ of attachment. The bankruptcy court granted the ex parte motion and issued a TRO against Rubin, enjoining Rubin from spending, transferring, concealing, encumbering or dissipating $20 million in assets. At the hearing on the preliminary injunction, the bankruptcy court stated that it would grant the preliminary injunction on the same terms as the TRO only if the adversary summons and complaint had been properly served on Rubin. The complaint alleged that Rubin resided in France; the trustee’s proofs of service of the summons and complaint indicated that these documents were served on Rubin in care of the lawyer who had represented Focus Media and Rubin in the company’s bankruptcy case. The bankruptcy court ultimately issued a preliminary injunction, having found that counsel for Rubin in the underlying bankruptcy case was impliedly authorized to receive service of process on Rubin’s behalf in the adversary proceeding and that the trustee was likely to prevail on his fraudulent conveyance and turnover claims. Rubin appealed to the district court, and the district court affirmed. The district court found that Rubin’s counsel, having represented Rubin in at least five instances in the underlying bankruptcy case, had implied authority to accept service of process in the adversary proceeding. Consequently, service upon counsel was determined to be effective service upon Rubin. The district court also found inapplicable the facts of Grupo Mexicano, a 1999 U.S. Supreme Court case in which the court held that asset-freezing injunctions are impermissible where a creditor seeking money damages lacks any interest in the debtor’s assets. Rubin appealed. IMPLIED AUTHORIZATION The court of appeals first considered whether an agent of a defendant authorized by appointment to receive service of process can include an agent impliedly authorized to accept service on a client’s behalf. The court looked to Rule 7004(b)(8) of the Federal Rules of Bankruptcy Procedure, which provides in pertinent part that service may be made within the United States by first class mail, postage prepaid, upon an agent of a defendant authorized by appointment or law to receive service of process, at the place where the agent regularly carries on a business or profession. The court concluded that Rule 7004(b)(8)’s designation of “an agent of [a] defendant authorized by appointment … to receive service of process” can include an agent impliedly authorized to accept service of process on a client’s behalf if the agent is the attorney representing the party in the related bankruptcy proceeding and the totality of the surrounding circumstances demonstrates the intent of the client to convey such authority. Upon reviewing the totality of the circumstances, the court of appeals agreed with the bankruptcy court and the district court that service on Rubin’s counsel constituted proper service of process on Rubin. First, counsel was extensively involved in the underlying bankruptcy proceeding — not only did counsel appear on behalf of Focus Media, but he also represented to the bankruptcy judge and other parties that he was also there on behalf of Rubin as Rubin’s “personal lawyer.” Second, Rubin had previously been served with papers in the bankruptcy case in care of counsel and had not objected to such service. Finally, Rubin had filed a declaration in a state court proceeding shortly before the commencement of the adversary proceeding, which provided that counsel had been consulted on, and made privy to, many confidential financial, tax and legal matters related to both Focus Media and Rubin. The court of appeals then considered the applicability of Grupo Mexicano to the instant case. In Grupo Mexicano, investors sued for breach of contract on secured notes. During the course of the suit, the defendant had publicized its intention to transfer all of its assets out of the United States. The district court granted the plaintiffs’ motion for preliminary injunction, and enjoined the defendant from transferring assets. On appeal, the 2nd Circuit affirmed. After granting certiorari, the Supreme Court reversed, holding that preliminary injunctions may not issue to preserve assets to which a party did not yet have a legal claim. The holding of Grupo Mexicano does not bar issuance of a preliminary injunction where the plaintiff in an adversary proceeding alleges fraudulent conveyance or other equitable causes of action. However, the Supreme Court explicitly excluded from its ruling instances of fraudulent conveyance and bankruptcy, because these laws were developed specifically to prevent debtors from trying to avoid paying debts or favoring certain creditors over others. The Supreme Court also suggested in Grupo Mexicano that when equitable claims (as opposed to purely legal claims) are at issue, the rule barring issuance of a preliminary injunction is inapplicable. Accordingly, the court of appeals in Rubin found that the trustee had pleaded causes of action for fraudulent conveyance and constructive trust, and had crafted his complaint against Rubin sufficiently to avoid the impact of Grupo Mexicano. Rudolph J. Di Massa Jr., a partner at Duane Morris, concentrates his practice in the areas of commercial litigation and creditors’ rights. He is a member of the American Bankruptcy Institute, the American Bar Association and its business law section, the Commercial Law League of America, the Pennsylvania Bar Association and the business law section of the Philadelphia Bar Association. Joann C. Moscariello is an associate in the business reorganization and financial restructuring group of Duane Morris, practicing in the areas of business reorganization, bankruptcy law, commercial finance, insurance insolvency and secured transactions involving asset-based financing.

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