Pyrenee, Ltd. v. Wocom Commodities, Ltd.

• Decision Date: 20 October 1997
• Docket Number: No. 96 C 4401.,96 C 4401.
• Citation: 984 F.Supp. 1148
• Parties: PYRENEE, LTD., a Liberian Corporation d/b/a Pyrenee Real Estate Holding Co., Inc., a California business enterprise, Plaintiff, v. WOCOM COMMODITIES LTD., a Hong Kong Corporation, and Wocom Limited, a Hong Kong Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

984 F.Supp. 1148

PYRENEE, LTD., a Liberian Corporation d/b/a Pyrenee Real Estate Holding Co., Inc., a California business enterprise, Plaintiff, v. WOCOM COMMODITIES LTD., a Hong Kong Corporation, and Wocom Limited, a Hong Kong Corporation, Defendants.

No. 96 C 4401.

United States District Court, N.D. Illinois, Eastern Division.

October 20, 1997.

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James Arthur McGurk, Santiago A. Durango, Chicago, IL, for plaintiff.

David T. Pritikin, Thomas K. Cauley, Jr., Jonathan I. Loevy, Sidley & Austin, Chicago, IL, for defendants.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

This suit represents the second attempt to litigate against the defendants in United States to recover for an alleged commodity fraud scheme that occurred principally in Hong Kong. In a previous case, plaintiff Pyrenee's President, Michael Mak, was unsuccessful in establishing jurisdiction over the defendant Wocom entities. See Mak v. Wocom Commodities Ltd., 1996 WL 388408 (N.D.Ill.1996), aff'd, 112 F.3d 287 (7th Cir. 1997). Unfortunately, this "second bite at the apple" does not fare significantly better.

Pyrenee brings this lawsuit alleging violations of the Commodity Exchange Act ("CEA") in connection with trades that Wocom Commodities or Wocom Limited placed (or, in some cases, feigned placing) on the Chicago Mercantile Exchange ("CME"). Instead of executing the trades as Pyrenee requested, Wocom allegedly "bucketed" some, that is, conducted the trades privately in its Hong Kong office, and "stole the ticks" on others, that is, placed the trades but misrepresented their price and kept the difference. The legality of these rather complicated schemes is not at issue here. As an initial matter, we must confront the jurisdictional issues that Wocom raises in its motion. Reduced to its essentials, the motion contends that this Court lacks subject matter jurisdiction and personal jurisdiction over Pyrenee's claims; should these grounds fail, Wocom urges us to dismiss the suit on forum non conveniens or statute of limitations grounds. Although we find subject matter and personal jurisdiction, we ultimately dismiss this suit for its resolution in Hong Kong, a more convenient forum under the circumstances.¹

RELEVANT FACTS²

A. The Parties' National Affiliations

The Wocom entities are Hong Kong corporations that do business in Hong Kong. Hung Aff. ¶ 2, 4; Li Aff. ¶¶ 2-3. From 1985 through 1990, Wocom Commodities ("WC") was a Hong Kong broker/dealer trading in spot bullion, foreign currency, foreign exchange, and United States commodities and futures. Hung Aff. ¶ 2. Since 1990, WC has gradually limited its trading activities, and now deals only in Hong Kong spot bullion trading. Id. Wocom Limited ("WL") operated as an investment holding company until 1990, when it began acting as a broker in foreign currency, commodities and futures. Li Aff. ¶ 2. Neither WL nor WC has ever had offices in the United States or solicited customers from the United States. Hung Aff. ¶¶ 4-6; Li Aff. ¶¶ 3-5. Nor have they registered as members of any United States exchange. Hung Aff. ¶ 5; Li Aff. ¶ 4. As nonmembers, WC and WL must rely on a United States-based registered futures commission merchant ("FCM") to place their customers' trades on American exchanges. Pl. Resp. Ex. 6.

Pyrenee was organized under the laws of Liberia and is registered there as an "Offshore Company." Am. Compl. ¶ 3; Def. Mot. Dismiss/S.J. ("Def.Mot.") Ex. D. Offshore companies are not permitted to trade in Liberia, which serves as a tax haven for businesses that operate elsewhere. Def. Mot. Ex. D. Pyrenee alleges that it does business in the United States as Pyrenee Real Estate Holding Co., a California business enterprise based in San Francisco and Menlo Park, CA. Am. Complt. ¶ 3. Pyrenee claims that it is currently qualified to do business in California and continues to own real estate, conduct real estate ventures, and perform under contracts there. Id. But Pyrenee submits evidence of only one real estate transaction on California soil, and the evidence reveals that its status as a California corporation is uncertain.³ We are left without a clear impression as to the location of Pyrenee's primary business activities, although Pyrenee alleges that it does not do business in Hong Kong.

Pyrenee's President, Michael Mak, is a Hong Kong citizen and resident. Am. Compl. ¶ 9; Def. Mot. Ex. B. From 1980 to 1985, he lived in California, directing the operations of Pyrenee Real Estate Holding Co. Pl. Resp. Ex. 2, ¶ 4.

B. Trading in Pyrenee's Account

In May 1985, Mak returned to Hong Kong and opened a trading account with Wocom⁴ in Pyrenee's name. Pl. Resp. Ex. 2, ¶ 5. Mak signed a "General Agreement for Customer Accounts" ("the Agreement"), which provided that Wocom would act as Pyrenee's broker in executing trades for, among other things, foreign currency futures on various exchanges. Agreement p.1. Wocom acknowledged that any commodity trades in the United States would be subject to the Commodity Futures Trading Commission Act of 1974 and "any applicable Federal or State laws or regulations having the force of law." Id. ¶ 4(c)-(d). In the event of a legal dispute, the Agreement granted Pyrenee the right to proceed in any court of competent jurisdiction. Id. ¶ 16(b).

From May 1985 to June 1996, Mak conducted trading in the Pyrenee account from Hong Kong, spending much of his time in Wocom's offices for this purpose and for the purpose of placing trades in a personal account he maintained with Wocom. Pl. Resp. Ex. 2, ¶ 5; Hung Aff. ¶ 8. In July 1996, Mak went back to the United States for six months. Am. Compl. ¶ 10. Mak remained in California until December 1996, all the while directing trading in Pyrenee's Wocom account. Pl. Resp. Ex. 2, ¶ 6. Mak testifies that he frequently discussed Pyrenee's account with Wocom representatives on the phone during this time, but his affidavit does not specify who initiated the calls. Id. Wocom claims it had no idea that Mak had returned to the United States, or for that matter, that Pyrenee maintained offices in California as a real estate holding company. Supp. Hung Aff. ¶¶ 4-5. Wocom's Director and General Manager testifies that all daily confirmations of Pyrenee's trades were sent to Mak's Hong Kong address. Hung Aff. ¶ 9. Mak states that the trade confirmations were forwarded to him in California, and contends that he made it clear to Wocom officials that California was his operational base in the latter half of 1996. Pl. Resp. Ex. 2, ¶ 6; Am. Compl. ¶ 10. According to Mak, Wocom acknowledged his change in residence by complying with requests to "notify" him (but it is unclear by what means) in California when various commodities reached threshold prices. Am. Compl. ¶ 10.

It was during the period of Mak's California residence—July to December 1986—that Wocom allegedly began mishandling the Pyrenee account. Pyrenee claims that Wocom engaged in two distinct types of commodity fraud: "bucketing" and "stealing the ticks." See 7 U.S.C. § 6b. Bucketing has been described as

a method of doing business wherein orders of customers for the purchase or sale of commodities for future delivery, instead of being executed by bona fide purchases and sales with other traders, are simply matched and offset in the soliciting firm's own office and the firm itself takes the opposite side of the customer's orders.

Purdy v. CFTC, 968 F.2d 510, 520 (5th Cir. 1992). In accordance with this scheme, Wocom allegedly ignored Mak's requests to place foreign currency trades for Pyrenee on the CME and conducted the trades in its own offices instead, putting itself on the opposite side and reaping the profits. Am. Compl. ¶¶ 14-19. Secondly, Wocom allegedly "stole the ticks" from trades that it actually placed for Pyrenee on the CME. Id. ¶¶ 21-24. In other words, Wocom placed Pyrenee's trades as requested, but then "confirmed the orders at a less favorable price than executed at the exchange and kept the difference." Id. ¶ 22. Pyrenee allegedly did not discover this fraudulent activity until August 1994. Id. ¶¶ 12-13.

C. The Hong Kong Litigation

Mak returned to Hong Kong at the end of 1986 and, in 1990, filed suit in Hong Kong against Wocom in connection with trading on his personal account. Hung Aff. ¶ 10. The Hong Kong action alleged improprieties in "spot" foreign currency transactions, which, in contrast to currency futures trades, are not conducted on any exchange. Pl. Resp. Ex. 2, ¶ 9. The litigation centered on whether Wocom had followed Mak's instructions in making these trades, and included claims that Wocom had made and retained "secret profits." Hung Aff. Ex. 6 (Hong Kong Supreme Court's Judgment in Michael Mak v. Wocom Commodities Ltd.). Following a three-month trial ending in June 1994, the court ruled against Mak and in favor of Wocom's counterclaim. Id. at 63-64. The ruling was affirmed on appeal and currently awaits the next level of judicial review. Hung Aff. ¶ 10.

Through discovery conducted during the trial, Mak obtained in April 1994 Wocom's office order documents memorializing other transactions in Mak's personal account— trades in commodity futures. Pl. Resp. Ex. 2, ¶ 9. Because Mak could not tell from these documents whether all his futures trades had been placed, he retained a commodity futures expert in August 1994 to review the records. Id. ¶ 10-11. The expert, Charles M. Seeger III, compared Wocom's documents with information recorded at United States exchanges revealing the actual dates, times, and prices of the trades, and concluded that Wocom's representations departed significantly. Seeger Aff. ¶ 15.

D. Actions in the United States

Based on Seeger's analysis, Mak also filed suit in the United States alleging that Wocom had bucketed trades in his personal futures account. That suit, which was filed one year before this litigation, was dismissed on July 9, 1996 for lack of subject matter...