795 F.2d 415 (5th Cir. 1986), 84-3445, Point Landing, Inc. v. Omni Capital Intern., Ltd.

Docket Nº:84-3445.
Citation:795 F.2d 415
Party Name:POINT LANDING, INC. and Point Landing Fuel Corp., Plaintiffs-Appellants, v. OMNI CAPITAL INTERNATIONAL, LTD., et al., Defendants-Third Party Plaintiffs- Appellants-Appellees, v. RUDOLF WOLFF & CO., LTD., Defendant-Third Party Defendant-Appellee, and James Gourlay, Third Party Defendant-Appellee. William S. SMITH, Jr., and Ruby M. Smith, Plaintiffs,
Case Date:July 25, 1986
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 415

795 F.2d 415 (5th Cir. 1986)

POINT LANDING, INC. and Point Landing Fuel Corp.,

Plaintiffs-Appellants,

v.

OMNI CAPITAL INTERNATIONAL, LTD., et al., Defendants-Third

Party Plaintiffs- Appellants-Appellees,

v.

RUDOLF WOLFF & CO., LTD., Defendant-Third Party Defendant-Appellee,

and

James Gourlay, Third Party Defendant-Appellee.

William S. SMITH, Jr., and Ruby M. Smith, Plaintiffs,

v.

OMNI CAPITAL INTERNATIONAL, LTD., et al., Defendants-Third

Party Plaintiffs- Appellants,

v.

RUDOLF WOLFF & CO., LTD. and James Gourlay, Third Party

Defendants-Appellees.

Frank J. GEORGE and Brenda A. George, Plaintiffs,

v.

OMNI CAPITAL INTERNATIONAL, LTD., et al., Defendants-Third

Party Plaintiffs- Appellants,

v.

RUDOLF WOLFF & CO., LTD. and James Gourlay, Third Party

Defendants-Appellees.

Dennis M. ROSENBERG and Joan Rosenberg, Plaintiffs,

v.

OMNI CAPITAL INTERNATIONAL, LTD., et al., Defendants-Third

Party Plaintiffs- Appellants,

v.

RUDOLF WOLFF & CO., LTD. and James Gourlay, Third Party

Defendants-Appellees.

No. 84-3445.

United States Court of Appeals, Fifth Circuit

July 25, 1986

As Corrected Aug. 8, 1986.

Page 416

[Copyrighted Material Omitted]

Page 417

Robert A. Kutcher, New Orleans, La., for Omni, Friedburg, Stern and northglen.

Anita M. Warner, New Orleans, La., for Point Landing.

Elliot Paskoff, Townley & Updike, New York City, Dando B. Cellini, New Orleans, La., for Rudolf Wolff Co. Ltd.

Sheldon H. Elsen, Lawrence M. Solan, New York City, Michael S. Fawer, Marie O. Ricco, New Orleans, La., for Gourlay.

Robert B. Bieck, Jr., New Orleans, La., for Barry Minsky.

Leslie E. Smith, Atty., S.E.C., Rosalind C. Cohen, Washington, D.C., for amicus Securities and Exchange Comm.

H. Lowell Brown, Whitney Adams, Kenneth M. Raisler, Commodity Futures Trading Com'n, Washington, D.C., for amicus Commodity Futures Trading Comm.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before CLARK, Chief Judge, and WISDOM, GEE, RUBIN, REAVLEY, POLITZ, RANDALL, JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS, HILL and JONES, Circuit Judges. [*]

PER CURIAM:

This appeal presents two important issues. First, does the Commodity Exchange Act ("CEA") provide an exclusive cause of action arising out of the commodities futures transactions the plaintiffs engaged in here, preempting claims under federal securities laws? Our answer must be "Yes". The second question arises because of the absence of any provision in the CEA for nationwide service of process such as that which is explicitly stated in the Securities Exchange Act of 1934 ("1934 Act"). In this federal question case must personal jurisdiction 1 be obtained in accordance with Federal Rule of Civil Procedure 4(e), by applying the long-arm statute of the state in which the district court sits? Or, may a defendant's contacts throughout the country be aggregated to permit jurisdiction to be asserted over a defendant who could not be reached by the state's long-arm statute? The district court applied Rule 4(e) and dismissed the claims against two of the defendants for lack of personal jurisdiction. We affirm the judgment of the district court.

I.

The plaintiffs in these four consolidated actions are two Louisiana corporations, Point Landing, Inc. and Point Landing Fuel Corporation (collectively referred to as "Point Landing"), and individual investors William and Ruby Smith ("Smith"), Frank and Brenda George ("George"), and Dennis and Joan Rosenberg ("Rosenberg"). In the Point Landing action the defendants are: two New York corporations, Omni Capital International, Ltd. and Omni Capital Corporation (collectively referred to as "Omni"); their broker, Rudolf Wolff & Co. Ltd. ("Wolff"), a British corporation; and certain officers or employees of Omni, Richard Friedburg, Michael Stern, and Barry Minsky.

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Omni impleaded James Gourlay, Wolff's representative, and Main, Hurdman, an accounting firm. In the Smith, George, and Rosenberg suits, the defendants are Omni, Northglen Capital Corporation ("Northglen"), Richard Friedburg, Michael Stern, Barry Minsky, and Competex, S.A., a now defunct Swiss company that has not appeared in the case. In the Smith and George suits, Omni and Northglen filed third-party complaints against Wolff, Gourlay and Main Hurdman. Wolff had no relationship with Smith, George, or Rosenberg and is not a defendant in their actions. 2

The complaint alleges that the defendants, by making misrepresentations concerning their "investment program", fraudulently induced the plaintiffs to invest in silver straddle 3 commodity futures traded on the London Metals Exchange through discretionary trading accounts. Wolff and Competex handled these trades. Earlier, Wolff had approached Omni in New York to solicit Omni's business through Gourlay, a former director who acted as an agent for Wolff. Wolff billed Omni over 105,000 British pounds for commissions, part of which went to Gourlay.

The plaintiffs contend that Omni had meetings and did extensive advertising in which Omni represented that participation in its investment program would entitle the investors to federal income tax deductions on losses incurred, in addition to future profits. Unfortunately for the investors, the Internal Revenue Service disallowed the plaintiffs' deductions on the ground that the trades in London were not "bona fide, arm's length" transactions. The IRS concluded that the London Metals Exchange is not a public market and that its members were setting prices. All parties agree that the transactions involved "commodities" for purposes of federal law; plaintiffs allege, but Omni denies, that these were also "securities".

The original complaints allege violations of Sec. 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77q(a), Secs. 10b and 20 of the Securities Exchange Act of 1934, 15 U.S.C. Secs. 78j, 78t, Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, and the Louisiana Blue Sky law. The district court dismissed the plaintiffs' claims under the 1933 Act and under Sec. 20 of the 1934 Act. The plaintiffs do not appeal from those dismissals.

In Rivers v. Rosenthal & Co., 5 Cir.1980, 634 F.2d 774, vacated, 1982, 456 U.S. 968, 102 S.Ct. 2228, 72 L.Ed.2d 841, this Court held that the CEA affords no implied private right of action. The plaintiffs' original complaints therefore allege no violations of federal commodities law. While these actions were pending, the Supreme Court recognized an implied private right of action under the CEA and vacated our judgment in Rivers. Merrill Lynch, Pierce, Fenner & Smith v. Curran, 1982, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182. In the light of Curran, the plaintiffs amended their complaints to allege violations of Secs. 4b and 9(b) of the CEA, 7 U.S.C. Secs. 6b, 13(b). 4

Wolff and Gourlay contest the court's jurisdiction over their persons. The district

Page 419

court initially considered the defendants' contacts with the United States as a whole and found that the aggregate contacts were sufficient to subject both parties to the court's jurisdiction.

Shortly thereafter this Court issued its opinion in DeMelo v. Toche Marine, Inc., 5th Cir.1983, 711 F.2d 1260. In DeMelo the question was: "[W]hat standard of amenability [to personal jurisdiction] should apply when the plaintiff's claims are founded in part upon federal question jurisdiction, but service is effected under a state long-arm statute?" 711 F.2d at 1265. The Court noted that the two most recent Fifth Circuit cases on this point, Lapeyrouse v. Texaco, 5 Cir.1982, 693 F.2d 581, and Burstein v. State Bar of California, 5 Cir.1982, 693 F.2d 511, "decided only three days apart, give different answers". 5 711 F.2d at 1265. Writing for the DeMelo Court, Judge Gee chose to follow Burstein, holding that "when a federal question case is based upon a federal statute that is silent as to service of process, and a state long-arm statute is therefore utilized to serve an out-of-state defendant, Rule 4(e) requires that the state's standard of amenability to jurisdiction apply". Id. at 1266.

Wolff and Gourlay, relying on DeMelo, then renewed their objections to the court's personal jurisdiction. The district court held that: (1) the CEA preempts private actions under Sec. 10(b) of the 1934 Act and Rule 10b-5; (2) the CEA does not expressly or impliedly authorize nationwide service of process in private actions; (3) DeMelo requires an application of the Louisiana long-arm statute in private actions under the CEA; and (4) neither Wolff nor Gourlay is subject to the jurisdiction of Louisiana state courts. The court therefore dismissed the claims against Wolff and Gourlay for lack of personal jurisdiction. Because our opinions on the issue of personal jurisdiction in federal question cases, "[l]ike a Tower of Babel ... spoke in irreconciliable voices", DeMelo, 711 F.2d at 1268, the Court decided to hear this appeal en banc without an opinion by the panel to which the consolidated appeals were assigned.

We agree with the district court. The plaintiffs can recover, if at all, only under the CEA. Absent a rule or statute to the contrary, Federal Rule of Civil Procedure 4(e) permits a federal court to exercise jurisdiction over only those defendants who are subject to the jurisdiction of courts of the state in which the court sits. Because the plaintiffs do not challenge the district court's findings that Wolff and Gourlay are not subject to the jurisdiction of Louisiana state courts under that state's long-arm statute, we affirm the dismissal of all claims against Wolff and Gourlay.

II.

We would not need to decide the question of amenability to personal jurisdiction by service under the Louisiana long-arm statute, if the commodity trades here were governed by the securities laws. Wolff and...

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