Europe and Overseas Commodity Traders, S.A. v. Banque Paribas London

• Decision Date: 04 June 1998
• Docket Number: Docket No. 96-7900
• Citation: 147 F.3d 118
• Parties: Fed. Sec. L. Rep. P 90,223 EUROPE AND OVERSEAS COMMODITY TRADERS, S.A., Plaintiff-Appellant, v. BANQUE PARIBAS LONDON, Paribas Global Bond Futures Fund, Paribas Asset Management Ltd. and John Arida, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 118

147 F.3d 118

Fed. Sec. L. Rep. P 90,223

EUROPE AND OVERSEAS COMMODITY TRADERS, S.A., Plaintiff-Appellant, v. BANQUE PARIBAS LONDON, Paribas Global Bond Futures Fund,

Paribas Asset Management Ltd. and John Arida,

Defendants-Appellees.

Docket No. 96-7900.

United States Court of Appeals, Second Circuit.

Argued Feb. 5, 1997.

Decided June 4, 1998.

Richard H. Dolan, New York City (Katherine Oberlies, Schlam Stone & Dolan, of counsel), for Plaintiff-Appellant.

J. Portis Hicks, New York City (Frederick A. Brodie, Mary Ann Berger, and Marcia Landesman, Winthrop, Stimson, Putnam & Roberts, of counsel), for Defendants-Appellees.

(Allan A. Capute, Special Counsel to the Solicitor, Securities and Exchange Commission, Washington, DC; Richard H. Walker, General Counsel, Jacob H. Stillman, Associate General Counsel, and Paul Gonson, Solicitor, of counsel), for Securities and Exchange Commission, Amicus Curiae.

Before WINTER, Chief Judge, OAKES and CABRANES, Circuit Judges.

OAKES, Senior Circuit Judge:

Europe and Overseas Commodity Traders, S.A. ("EOC"), a Panamanian corporation, appeals from a final judgment dismissing EOC's complaint pursuant to a Memorandum-Decision of the United States District Court for the Southern District of New York, Barbara S. Jones, Judge, dated June 19, 1996, as amended June 28, 1996. Europe and Overseas Commodity Traders, S.A. v. Banque Paribas London, 940 F.Supp. 528, 530 n. 1 (S.D.N.Y.1996). EOC's sole business is the investment of its capital in securities and other ventures. It is wholly owned by Alan Carr, a citizen of Canada. Defendant-Appellees are Banque Paribas ("Paribas"), Paribas Global Bond Futures Fund, S.A. (the "Fund"), Paribas Asset Management Ltd. ("PAM"), and John Arida, a U.K. national who works as an account manager in the London, England, office of Paribas. Paribas is a French bank; the Fund is organized under the laws of Luxembourg; and PAM is a Bahamian corporation which manages the Fund.

The transaction underlying this dispute is entirely foreign inasmuch as there is no U.S. party, but not, strictly speaking, wholly extraterritorial in that EOC alleges that an offer to sell foreign securities was made over the telephone and facsimile to its sole shareholder and agent, Alan Carr, who was in Florida, and both parties agree that orders to purchase securities were placed from Florida. We therefore address the question whether phone calls and facsimiles to a person on U.S. soil provide enough of a connection to the United States to implicate the registration and fraud provisions of U.S. securities laws, and give us jurisdiction thereunder.

EOC's complaint, filed on October 14, 1994, asserts eleven claims. Five are based on federal securities law including the sale of unregistered securities pursuant to Section 12 of the 1933 Act, 15 U.S.C. § 77l(1); sale of securities of an unregistered investment company pursuant to the Investment Company Act of 1940, 15 U.S.C. § 80a-7 et seq.; false and misleading statements pursuant to Section 12 of the 1933 Act, 15 U.S.C. § 77l(2); deceptive practices pursuant to Section 10b of the 1934 Act, 15 U.S.C. § 78j and Rule 10b-5, 17 C.F.R. § 240.10b-5; and control person liability pursuant to 15 U.S.C. § 78t. The remaining claims are based on Florida Blue Sky laws and Florida common law.

Defendants, in April of 1995 and prior to any discovery, moved to dismiss the complaint for lack of subject matter jurisdiction, lack of personal jurisdiction over three of the defendants, and forum non conveniens. Although defendants sought permission from the district court also to move for dismissal on the grounds of failure to state a cause of action, the district court ordered the defendants to address only the jurisdictional and forum non conveniens issues. See Order dated March 14, 1995, 94 Civ. 7471 (Batts, Deborah A., Judge ). Paribas submitted declarations from Arida; John Baker, the Compliance Officer of the London branch of Paribas; Pierre Corbiau, Secretary of the Fund; Denis Coulon, Director of PAM; and Andrew Charles Smith, a member of the Bar of England and Wales experienced in the commercial and business law of England. The bank also offered a copy of its Investment Agreement with EOC. EOC submitted a declaration of Carr. After a hearing, the district court requested additional information on factual issues pertinent to the jurisdictional questions. EOC submitted a second Carr declaration, which contradicted in significant respects defendants' factual allegations, and defendants submitted further statements from Baker. Judge Jones issued her decision of dismissal on June 19, 1996. EOC filed notice of appeal on July 19, 1996. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291. On July 11, 1997, following oral argument in this case, we invited the Securities and Exchange Commission ("SEC") to submit an amicus curiae brief, which it did on October 9, 1997.

I. Facts

The facts of this case, though disputed, are sparse. We nevertheless attempt to sketch them in sufficient detail to provide background for the opinion that follows. In so doing, we state the allegations of the complaint, but also indicate some of the points which the defendants strongly dispute. ¹

EOC's account at Paribas was established in London in 1992. The "Non-discretionary Investment Agreement" between EOC and Paribas was executed on October 22, 1992, by EOC directors Ian F. Leger and Herbert W. Marvelly. In this agreement, EOC gave a corporate registration address in Panama and a mailing address in Monaco. The company also represented that its directors' meetings take place in Monaco, and named an agent for service of process in England.

In October of 1993, Carr was visiting England, as he often does in the autumn. Arida, on October 7, there informed him that a substantial amount of cash had accumulated in EOC's account, and offered to recommend an attractive investment opportunity for the money. Carr says he expressed interest in the proposal, but explained to Arida that he was preparing to leave for Florida on the 9th and that he would be happy to hear more after his arrival.

In a series of telephone conversations which began on October 14, Carr and Arida resumed their discussion of EOC's investment in the Fund as planned after Carr's arrival in Florida. The parties agree that each party initiated at least some of these calls. Carr claims that these conversations with Arida were their first significant discussion of the Fund. Carr also alleges that Arida misled him by conveying the following facts, which EOC now claims are not accurate: (a) the Fund was overseen by Paribas's proprietary trading desk; (b) the investors' capital in the Fund was traded along with Paribas's own capital; and (c) the Fund traded securities based primarily on technical as opposed to fundamental considerations. In reliance on these statements, Carr says that from Florida he ordered EOC's first purchase of shares of the Fund on October 18, 1993. He also alleges that these representations were repeated on the occasion of each of his subsequent six purchases which, together with the October 18 purchase, totaled some $1,800,000. Carr further alleges that the defendants at the time of his initial purchase agreed to provide him with weekly statements of the Fund's net asset value, but concealed from him the true net asset value of the Fund during the period of his later purchases.

Arida disputes this version of the events. He claims that his first significant conversation with Carr about the Fund occurred while Carr was still in England. He also asserts that Carr ordered the first purchase of Fund shares from England. In support of Arida's story, Paribas offers a copy of a facsimile transmission, dated October 8, from its London office to the Fund in Luxembourg placing an order for five shares. This transmission, which does not list a purchase price, also does not name Carr or EOC as the party for whom the transaction was made. It does, however, list an account number. Unfortunately, the record does not demonstrate whether the number identifies EOC.

EOC counters with a letter sent to Carr by Arida listing October 18 as the day of the first purchase of Fund shares and the number purchased as ten. Paribas explains that the October 8 order for five shares was combined with a second order for five shares, which was placed on October 14, to make the ten shares described in Arida's letter. The bank further explains that a transaction ordered on the 8th would have been valued, or priced, on the 18th, because of Fund Rules. The net asset value per share of the Fund is determined weekly on each Monday that is a bank business day in Luxembourg. Shares of the Fund may only be purchased on such days. Applications to purchase shares must be received in Luxembourg not later than 1:00 p.m. on the second business day preceding a valuation day (presumably most often a Thursday as here). October 8, 1993, being a Friday, any application received on that day would not have been valued on the following Monday, October 11, but would have been required to wait until the next Monday, which was the 18th. Thus, Fund rules require that orders placed on the 8th and the 14th would both be finalized on October 18.

Carr, in turn, says that Paribas promised him that these rules would not apply to EOC, because of the large size of its transactions. He also avers that Arida may have misunderstood their preliminary discussion as authorization to buy, or impetuously placed the initial order before Carr had consented to the purchase. Such is the disagreement concerning the date and place of the first purchase. Both parties agree, however, that at least six buy orders were placed by Carr on behalf of EOC from his vacation home in Florida.

Sale to O'Brien.

Shortly after EOC's first purchase, Carr says he told a Florida acquaintance, Matthew O'Brien, about the Fund, and passed along to him Arida's...