Commodity Futures Trading Com'n v. Nahas

• Decision Date: 06 July 1984
• Docket Number: No. 83-2313,83-2313
• Citation: 738 F.2d 487
• Parties: In the Matter of an Application to Enforce an Administrative Subpoena of the COMMODITY FUTURES TRADING COMMISSION v. Naji Robert NAHAS, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 487

738 F.2d 487

238 U.S.App.D.C. 93

In the Matter of an Application to Enforce an Administrative

Subpoena of the COMMODITY FUTURES TRADING COMMISSION v. Naji Robert NAHAS, Appellant.

No. 83-2313.

United States Court of Appeals, District of Columbia Circuit.

Argued March 12, 1984.

Decided July 6, 1984.

Appeal from the United States District Court for the District of Columbia (D.C. Civil No. Misc. 83-00256).

Thomas W. Kelly, New York City, with whom Lawrence Z. Lorber, Washington, D.C., James D. Zirin, and Noah Nunberg, New York City, were on the brief, for appellant.

Howard Lowell Brown, Atty., Commodity Futures Trading Com'n, Washington, D.C., with whom Kenneth M. Raisler, Gen. Counsel, Commodity Futures Trading Com'n, Washington, D.C., was on the brief, for appellee.

Before WRIGHT, TAMM and STARR, Circuit Judges.

Opinion for the court filed by Circuit Judge TAMM.

TAMM, Circuit Judge:

This appeal concerns a federal district court's jurisdiction under 7 U.S.C. Sec. 15 (1982) to enforce an investigative subpoena served by the Commodity Futures Trading Commission (Commission) on a foreign citizen in a foreign nation. Naji Robert Nahas, a citizen and resident of Brazil, was served in Brazil with a subpoena duces tecum issued by the Commission. The subpoena required Nahas to appear and produce documents at the Commission's offices in Washington, D.C. Nahas did not comply with the subpoena, nor did he comply when the district court, exercising jurisdiction pursuant to 7 U.S.C. Sec. 15, enforced the subpoena. The district court then froze pendente lite Nahas' assets in the United States and, after a full hearing, found Nahas in contempt for his failure to comply with the enforcement order. On appeal, Nahas contends that the enforcement order is void and that he should not be held in contempt for noncompliance with a void enforcement order.

Because we find that the district court lacks jurisdiction under 7 U.S.C. Sec. 15 to enforce an investigative subpoena served on a foreign citizen in a foreign nation, the court's enforcement order, freeze order, and contempt order are void. Accordingly, we vacate all three orders.

I. BACKGROUND

A. The Commission's Investigative Subpoena

In March 1980, the Commission began investigating whether certain individuals had violated the Commodity Exchange Act (Act), 7 U.S.C. Secs. 9, 13(b), 13b (1982), by manipulating the price of silver and silver futures contracts in 1979 and 1980. In the course of its investigation, the Commission discovered that Naji Robert Nahas, a Brazilian citizen and resident, had opened accounts in 1979 with several brokerage houses in the United States. Through these accounts, Nahas had purchased numerous silver futures contracts and approximately ten million ounces of silver bullion. Joint Appendix (J.A.) at 19, 183. Nahas also may have controlled accounts containing large quantities of silver maintained in the names of other individuals and entities. J.A. at 19-20, 103.

On May 6, 1983, the Commission issued a subpoena duces tecum pursuant to its investigative power under 7 U.S.C. Sec. 15. The subpoena, served by substituted service in Sao Paulo, Brazil, directed Nahas to appear on July 12, 1983 at the Commission's offices in Washington, D.C. and to produce certain documents. ¹ When Nahas failed to comply with the Commission's subpoena, the Commission petitioned the district court for an order directing Nahas to show cause why he should be relieved of compliance. J.A. at 10-11. The show cause order was issued on August 23, 1983 and served on Nahas in Sao Paulo. CFTC v. Nahas, No. 83-0256 (Order to Show Cause) (D.D.C. Aug. 23, 1983), J.A. at 8-9.

Nahas ignored the show cause order, prompting the court to issue an enforcement order directing Nahas to comply with the Commission's subpoena by October 6, 1983. CFTC v. Nahas, No. 83-0256 (Enforcement Order) (D.D.C. Sept. 14, 1983),

                J.A. at 94. 2   Nahas failed to respond to the enforcement order.  Upon the Commission's motion, the district court issued orders freezing pendente lite Nahas' assets in the United States 3 and directing Nahas to show cause why he should not be held in civil contempt.    CFTC v. Nahas, No. 83-0256 (D.D.C. Oct. 11, 1983) (Order to Show Cause), J.A. at 142-43, (Order Freezing Assets), J.A. at 134-35
                

B. The Contempt Proceeding

On November 14, 1983, Nahas formally responded for the first time in this proceeding. He filed a cross-motion to quash the Commission's subpoena, vacate the freeze order, deny the Commission's motion for contempt, and dismiss the proceedings in their entirety. J.A. at 162-63. Nahas contended that the Commission had exceeded its statutory authority in issuing an investigative subpoena to a foreign citizen in a foreign nation, and that the Commission's method of serving the subpoena was illegal. ⁴ J.A. at 189-94. In support of his contentions, Nahas submitted an affidavit prepared by Professor Irineu Strenger, a Brazilian attorney and a professor of law at the University of Sao Paulo, stating that the service of the Commission's subpoena violated Brazilian and international law. J.A. at 174-80. Nahas also submitted a document signed by thirty-five members of the Congress of Brazil protesting the administrative and judicial proceedings taken against Nahas as violative of Brazilian and international law. J.A. at 167-71. ⁵

The district court rejected Nahas' arguments:

It is well established that a civil contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed. An order by a court with jurisdiction over the subject matter and the parties must be obeyed until reversed by orderly and proper proceedings.... It is clear, therefore, that if the September 14 [Enforcement] Order ... may be challenged at all in this contempt action, it may be challenged only on the grounds that the court lacked the power or jurisdiction to issue the order.

CFTC v. Nahas, 580 F.Supp. 245 at 247-248 (D.D.C.1983), J.A. at 220, 224-25 (citations omitted). The court found subject-matter jurisdiction under 7 U.S.C. Sec. 15. Id. at 6-7, J.A. at 225-26. The court also found that Nahas' substantial participation in the futures markets of the United States constituted sufficient contacts for the court to exercise personal jurisdiction. Id. at 248, J.A. at 226-27. Concluding that it had competent jurisdiction to issue the enforcement order, the court held Nahas in contempt for disobeying the order without good cause. ⁶ Id. at 8, J.A. at 227.

On appeal, Nahas challenges the district court's contempt and freeze orders on the ground that the enforcement order is void. Because we find that the district court lacked subject-matter jurisdiction under 7 U.S.C. Sec. 15 to enforce an investigative subpoena served upon a foreign citizen in a foreign country, we agree that the enforcement order, freeze order, and contempt order are void.

II. ANALYSIS

A.

The Commission argues at the outset that Nahas may not challenge at the contempt proceeding the jurisdiction of the district court to issue the enforcement order. Because Nahas failed to pursue a timely appeal of the enforcement order, the Commission contends that the doctrine of res judicata bars Nahas from reopening an issue that could have been litigated during the enforcement proceeding. We disagree.

The Commission's argument fails to acknowledge that the enforcement order against Nahas was entered by default. "A defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding." Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706, 102 S.Ct. 2099, 2106, 72 L.Ed.2d 492 (1982). See Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522, 525, 51 S.Ct. 517, 518, 75 L.Ed. 1244 (1931). Because the instant enforcement proceeding resulted in a default order, Nahas was not barred by res judicata from challenging the court's enforcement jurisdiction at the contempt proceeding. ⁷ See Insurance Corp. of Ireland, 456 U.S. at 706, 102 S.Ct. at 2106; United States v. Thompson, 319 F.2d 665, 668 (2d Cir.1963); Heasley v. United States, 312 F.2d 641, 648-49 (8th Cir.1963); Restatement (Second) of Judgments Sec. 65 (1982).

B.

Nahas challenges the subject-matter jurisdiction of the district court to enforce the Commission's subpoena under 7 U.S.C. Sec. 15. He contends that 7 U.S.C. Sec. 15 does not empower a district court to enforce an administrative subpoena served on a foreign citizen in a foreign country. He claims the court therefore erred at the contempt proceeding in finding him in contempt and in imposing civil sanctions to compel his compliance. ⁸ We agree.

It is a principle of first importance that a federal court possesses only In the instant case, the jurisdiction of the district court to enforce Commission subpoenas arises from 7 U.S.C. Sec. 15:

                limited jurisdiction. 9   Insurance Corp. of Ireland, 456 U.S. at 701, 102 S.Ct. at 2103.  A federal court's subject-matter jurisdiction, constitutionally limited by article III, extends only so far as Congress provides by statute.  Id. at 701-02, 102 S.Ct. at 2103-04;  13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3522, at 44 (1975).  When a federal court reaches beyond its statutory grant of subject-matter jurisdiction, its judgment is void. 10   Similarly, when an enforcement order entered by default is beyond the jurisdictional grant of the issuing court, the order is void.   See United States v. Thompson, 319 F.2d 665, 668 (2d Cir.1963).  See generally EEOC v. Shell Oil Co., --- U.S. ----, ----, 104 S.Ct. 1621, 1628, 80 L.Ed.2d 41 (1984) (federal courts must observe congressional limits on agency investigative powers in enforcement of agency subpoenas)
                

For the purpose of securing effective enforcement ... and for the purpose of any investigation or proceeding...