Haekal v. Refco, Inc. and Von Neefe, Docket No. 98-4372

• Citation: 198 F.3d 37
• Decision Date: 01 August 1999
• Docket Number: Docket No. 98-4372
• Parties: (2nd Cir. 1999) HUSSEIN M. HAEKAL, Petitioner, v. REFCO, INC. and RONALD VON NEEFE, Defendants-Respondents, U.S. COMMODITY FUTURES TRADING COMMISSION, Respondent
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 37

198 F.3d 37 (2nd Cir. 1999)

HUSSEIN M. HAEKAL, Petitioner, v. REFCO, INC. and RONALD VON NEEFE, Defendants-Respondents, U.S. COMMODITY FUTURES TRADING COMMISSION, Respondent.

Docket No. 98-4372

August Term, 1999

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Argued: Aug. 26, 1999

Decided: Dec. 20, 1999

Petition for review of an order of the Commodity Futures Trading Commission denying motion for reconsideration of dismissal of reparations claim on the ground that petitioner failed to file a bond pursuant to the Commodity Exchange Act, 7U.S.C. 1 et seq.

Petition granted in part and denied in part.

HUSSEIN M. HAEKAL, Berlin, Germany, Petitioner pro se.

STACIE R. HARTMAN, Chicago, Illinois (Richard J. Hoskins, Paul E. Dengel, Schiff, Hardin & Waite, Chicago, Illinois, of counsel) for Defendant-Respondent Refco, Inc.

C. MARIA D. GODEL, Washington, D.C. (Daniel R. Waldman, General Counsel, J. Douglas Richards, Deputy General Counsel, Washington, D.C., on the brief), for Respondent.

Before: WINTER, Chief Judge, KEARSE and STRAUB, Circuit Judges.

KEARSE, Circuit Judge:

Claimant pro se Hussein M. Haekal, a resident of the Federal Republic of Germany who filed a complaint with respondent Commodity Futures Trading Commission ("CFTC" or "Commission") against defendants Refco, Inc., and Ronald von Neefe, seeking reparations under the Commodity Exchange Act ("CEA" or "Act"), 7U.S.C. 1 et seq. (1994), petitions this Court for review of an order of the CFTC denying Haekal's motion for reconsideration of its dismissal of his complaint for failure to file a bond within the time limits imposed by the Commission. Haekal contends that the CFTC erred (1) in denying him a waiver of the bond requirement, and (2) in not finding that the bond he furnished was timely filed. Finding merit in Haekal's second contention, but not his first, we deny the petition to the extent that it challenges the Commission's refusal to waive the bond requirement, but we grant the petition to the extent that it challenges the Commission's ruling that the bond was not timely filed.

I. BACKGROUND

The CEA prohibits fraudulent and manipulative conduct in connection with commodity futures transactions and permits an aggrieved customer of a registered commodities broker to seek redress for alleged violations of the Act by applying to the Commission for an order requiring the broker to make reparation to the complainant. See CFTC v. Schor, 478 U.S. 833, 836 (1986). Refco, Inc., is a commodities broker registered with the CFTC.

In September 1991, Haekal opened an investment account with Refco, Inc., or one of its unregistered affiliates (collectively "Refco"), making an initial deposit of approximately 66mm Yen. According to the complaint, Haekal began as early as September 16, 1991, to suspect that von Neefe, the account executive, had misrepresented to him the rate of interest to be earned on the deposit, and began as early as October 3 to suspect that von Neefe was engaging in unauthorized trading in his account. After making a series of inquiries and complaints, Haekal demanded that Refco return his 66mm Yen. In December 1991, Refco wired Haekal approximately 58mm Yen. Haekal promptly complained to Refco that the amount that should have been returned to him was 66mm Yen. By telex dated January 15, 1992, Refco informed Haekal that the difference between the 66mm Yen he had invested and the 58mm Yen Refco returned to him was "the amount needed to cover losses which occurred in [Haekal's] foreign exchange trad[]ing account." On April 12, 1993, Haekal lodged a complaint with the CFTC against Refco and von Neefe under the CEA's reparations program, 7U.S.C. 18, seeking recovery of the unreturned 8,112,153 Yen, which was then equivalent to approximately $62,000.

The CEA provides that if a reparations complainant is not a resident of the United States, no formal action may be taken on his complaint unless he furnishes a bond in double the amount of his claim, to secure the payment of reasonable attorney's fees or an award on a counterclaim against him if the defendant prevails. 7U.S.C. 18(c). The Act also provides, however, that

the Commission shall have authority to waive the furnishing of a bond by a complainant who is a resident of a country which permits the filing of a complaint by a resident of the United States without the furnishing of a bond.

Id. The CFTC regulation promulgated to implement these provisions states that, in lieu of a bond, a claimant may make a

written request that the bond requirement be waived... accompanied by sufficient proof that the country of which the complainant is a resident permits the filing of a complaint by a resident of the United States against a citizen of that country without the furnishing of a bond.

17 C.F.R. 12.13(b)(4)(i)(B) (1999) ("reciprocity regulation"). The regulation further provides that unless the complaint is accompanied by either a bond or such proof, "the complaint shall not be considered duly filed." Id. 12.13(b)(4)(i).

Prior to submitting his complaint, Haekal inquired of the CFTC as to the applicability of the bond requirement to him. By letter dated February 10, 1993, the CFTC Director of Proceedings R. Britt Lenz ("CFTC Proceedings Director" or "Director") advised him that the bond requirement was waived for residents of Germany on account of reciprocity. Lenz furnished Haekal with a copy of an August 31, 1992 expert opinion Lenz had received from the German law firm of Thmmel, Schtze & Partner ("Thmmel Opinion"), concluding that residents of Germany are entitled to a waiver of the bond requirement. The Thmmel Opinion stated, inter alia, that the German Code of Civil Procedure ("German Code" or "GCCP") requires a bond only "to secure [a] respondent's claim for reimbursement of costs and expenses, but not any possible damage claims," and that "plaintiffs having their habitual abode in the U.S.A. need not furnish any security for the respondent's damage claim." (Thmmel Opinion at 7, 11.) It also opined that while the German Code generally requires nonresidents to post security for costs (id. at7), a "foreign plaintiff will not be obligated to provide security for the costs and expenses of [an] action if reciprocity is guaranteed" (id. at 8).

In light of this advice, when Haekal filed his complaint on April 12, 1993, he did not file a bond. He instead cited the letter he had received from the CFTC Proceedings Director assuring him, on the basis of the Thmmel Opinion, that no bond was required. The CFTC accepted Haekal's complaint for filing and commenced formal proceedings on it, assigning the case to an Administrative Law Judge ("ALJ").

Following several months of discovery and motion practice, the ALJ, by order dated October 8, 1993, see Haekal v. Refco, Inc., 1993 WL 403293 (CFTC Oct. 8, 1993), granted summary judgment dismissing Haekal's claim for lack of subject matter jurisdiction. The ALJ found that Haekal's account was not with Refco, Inc., but with one of its affiliates that was not registered with the CFTC. And although von Neefe himself was registered, the ALJ found that there was insufficient evidence that Haekal's account was, or was intended to be, one for the trading of futures contracts or commodity options. Accordingly, the ALJ concluded that the CFTC lacked jurisdiction to entertain Haekal's claim.

Haekal promptly appealed to the Commission, and briefing of the appeal was apparently complete by mid-January 1994. The appeal remained pending for several years, and its merits were never decided. Instead, by opinion and order dated September 26, 1997, see Haekal v. Refco, Inc., 1997 WL 592387 (CFTC Sept. 26, 1997) ("September 1997 Order"), the Commission stated that the complaint had not been properly filed because Haekal had not posted a bond. First, the Commission noted that the Thmmel Opinion's assertion that no bond would be required under the German Code to cover a counterclaim for damages did not negate the possibility that a bond might be required to cover costs. Second, although noting that GCCP 110 itself provides that a bond obligation "'does not arise... if, under the laws of the state of which the plaintiff is a national, a German would not be required to give security in an identical case,'" September 1997 Order, 1997 WL 592387, at *5 (quoting Code of Civil Procedure Rules of the Federal Republic of Germany of January 30, 1877 110(2) (Simon L. Goren trans. 1990)), the Commission pointed out that that section must be read in conjunction with the pertinent provisions of the 1954 Treaty of Friendship, Commerce and Navigation Between the United States of America and the Federal Republic of Germany, Oct. 29, 1954, 7U.S.T. 1839 ("Treaty"), art. VI, para. 1, and the Protocol to the Treaty, 7U.S.T. 1904 ("Protocol"), para. 6, and it concluded that the Treaty and the Protocol limit the exemption available under GCCP 110 to those United States citizens who reside in Germany or have real property in Germany sufficient to cover costs. Under the misapprehension that the Thmmel Opinion had first been proffered by Haekal, rather than by the CFTC Proceedings Director, the Commission concluded that although Haekal had "evidently satisfied the Director of the Office of Proceedings on the point," id. at *4, "[t]he determination below that Haekal is exempt from the bond [requirement] is not supported by the record," id. at *1. Accordingly, the Commission ordered Haekal "to show cause why his complaint should not be dismissed for lack of jurisdiction" on the ground that "Haekal neither posted the bond required of nonresident complainants ... nor adequately demonstrated that the bond requirement did not apply to him." Id.

Haekal responded by pointing out that the Thmmel Opinion had been obtained not by him but by the CFTC Proceedings Director. He stated that he had relied on the Director's advice that he need not post a bond, and he reiterated the views advanced by...