UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
_______________________________ : RENDITA GLOBAL INVESTMENT, A.G.: : v. :CFTC Docket No. 93-R106 : MERCAFE CLEARING, INC., : ORDER TO SHOW CAUSE SEBASTIAN ANGELICO, and : DONALD E. LONGMORE : _______________________________:
Respondents Mercafe Clearing, Inc. ("Mercafe"), Sebastian Angelico, and Donald Longmore (collectively "respondents") appeal from the February 15, 1995 order refusing to dismiss the complaint and from the initial decision awarding Rendita Global Investment, A.G. ("Rendita") approximately $200,000 in damages.
In this appeal, we are called upon to address the issue of the country of residence of a non-United States corporate reparation complainant. Our analysis will in turn determine Rendita's compliance with the bond requirement of Section 14(c) of the Commodity Exchange Act ("Act"), 7 U.S.C. 18(c) (1994), and Commission Rule 12.13(b)(4), 17 C.F.R. 12.13(b)(4) (1996).
Based upon our review of the record, we disagree with the ALJ's conclusion that Rendita is a resident of Switzerland for purposes of a bond waiver. We find instead that Rendita is a resident of the Republic of the Marshall Islands, its nation of incorporation. We also disagree with the ALJ's conclusion that, once the Director of the Commission's Office of Proceedings ("Director") granted a waiver of the bond requirement, such waiver was not reviewable by the ALJ.
Rendita and Eike Bohmelt, Rendita's sole principal, filed their reparation complaint against respondents on April 12, 1993. They alleged that respondents were liable for unauthorized trading in violation of Section 4b of the Act, 7 U.S.C. 6b (1994), and for failure to supervise in violation of Commission Rule 166.3, 17 C.F.R. 166.3 (1996). They also asserted that respondents had churned their account and entered into "unsuitable" transactions, among other things. Complainants sought damages, attorneys' fees, and costs. Respondents challenged jurisdiction for failure to satisfy the nonresident bond requirement and, on the merits, denied liability.
The first hearing in this case took place in New York City on April 14, 1994. During this hearing, Bohmelt identified himself as a resident of Germany, not Switzerland, and in addition testified that he had never seen the reparation complaint. Respondents' counsel moved to strike the complaint and have the case dismissed. Complainants' counsel argued that the latter testimony amounted to a miscommunication between complainants' translator and Bohmelt who is a native German speaker. Due to the objections of respondents' counsel, the ALJ adjourned the hearing. By order dated April 20, 1994, the ALJ found that Bohmelt's lack of familiarity with the complaint violated Commission Rule 12.13(b)(2). Rather than dismiss the complaint, the ALJ permitted the complainants to file an amended complaint to cure the defects in the original complaint.
Rendita and Bohmelt filed their amended complaint on May 2, 1994, again stating that Rendita was located in Zurich. The amended complaint was silent as to Bohmelt's place of residence. A second hearing was held on January 12, 1995 in Washington, D.C. Shortly before that hearing, Mercafe and Angelico moved for summary disposition, based upon complainants' noncompliance with the nonresident bond requirement of Section 14(c) of the Act and Commission Rule 12.13. Additional grounds for summary disposition based upon violations of the Commission's subscription rules and the applicable statute of limitations were alleged. On February 15, 1995, the ALJ granted in part the motion for summary disposition. He ordered Bohmelt dismissed as a complainant for failure to comply with the nonresident bond requirement set forth in Commission Rule 12.13(b)(4) and Section 14(c) of the Act. The ALJ, however, denied the motion insofar as it sought the dismissal of Rendita for its failure to comply with the nonresident bond requirement.
In his Initial Decision, the ALJ found that unauthorized trades were placed in Rendita's account at Mercafe by non-party Hans Reichenau on February 5, 1992. The ALJ also found that respondents were liable for unauthorized trading in violation of Section 4b of the Act. Consequently, respondents were ordered to pay Rendita for its losses.
All three respondents have challenged the February 15th order on jurisdictional grounds. See Mercafe and Angelico Appeal Brief at 28-31 and Longmore Appeal Brief at 1, 3 n.2. They dispute the ALJ's conclusion that Rendita fulfilled the requirements of Section 14(c) of the Act and Commission Rule 12.13(b)(4) by proving that it is a resident of a country that permits the filing of a complaint by a resident of the United States without the furnishing of a bond. They argue that Rendita is a resident of the Marshall Islands or Germany and that there is nothing in the record showing that these countries permit residents of the United States to file a complaint without the furnishing of a bond. They urge the Commission to dismiss the complaint.
Rendita has not addressed either the factual or legal issues underlying respondents' jurisdictional challenge. It merely asserts that "these issues were waived when not properly presented at hearing." Complainant's Reply Br. at 11.
A complaint by a nonresident is not properly filed until the nonresident complainant submits either evidence of the requisite double bond or the necessary written request for a waiver of the double bond requirement, along with satisfactory evidence supporting that request. See 51 Fed. Reg. 35506 (Oct. 6, 1986); see also Adham v. Drexel Burnham Lambert, Inc., [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) 23,156 at 32,389 (CFTC July 9, 1986) applying Final Rules Relating to Reparations, 49 Fed. Reg. 6602, 6607-09 and n.14 (Feb. 22, 1984). Compliance with the bond requirements is jurisdictional and, as the ALJ correctly observed in his February 15, 1995 order, not subject to waiver. See Feb. 15, 1995 order at 3-4.
There is no dispute that Rendita is a nonresident of the United States subject to the requirements set forth in Section 14(c) of the Act and Commission Rule 12.13(b)(4). There also is no dispute that Rendita did not file a bond.
The Director of the Office of Proceedings apparently thought that the complainants had adequately requested a bond waiver and that sufficient proof existed to forward the complaint for adjudication. The ALJ concluded that he could not reconsider the Director's apparent grant of a bond waiver in his April 8, 1993, letter to complainants' counsel. See February 15, 1995 order at 4-5. We disagree and take the opportunity to clarify the matter.
First, the Director does not exercise quasi-judicial powers to grant or to deny bond waivers under Rule 12.13(b)(4), but rather, only makes a determination to forward (or not to forward) a complaint for adjudication under Rule 12.15. In adopting amendments to our reparation rules in 1984, we explained:
It was not the Commission's intention in proposing new rules to involve the Director of the Office of Proceedings in a difficult and probing review of issues relating to sufficiency of allegations in a complaint. Rather, the Commission contemplated that the Director would conduct only a superficial review of the complaint before determining whether to forward the complaint pursuant to 12.15.
See Final Rules Relating to Reparations, 49 Fed. Reg. at 6608. With respect to Rule 12.18(b)(motions for reconsideration of determination to forward complaint), the Commission assumed that the Director would make only "an initial cursory review" of the complaint and would forward it to the ALJ if there was any colorable basis for doing so. Id. at 6608-6609.
As this case illustrates, there are sound legal and policy reasons for permitting an ALJ (and the Commission on appeal) to reconsider the Director's determination to forward a complaint when a bond waiver is at issue. The Director may be called upon to screen a bond waiver request on a minimal factual presentation or a less-than-exhaustive legal opinion. Additional facts or law bearing on these issues may surface in respondents' answer or during discovery.
At the time the Director's letter was issued, Rendita had not yet acknowledged its nation of incorporation, and Bohmelt had not yet identified his country of residence. The Director's April 8, 1993 letter did not purport to find as a fact that Rendita or Bohmelt were Swiss, and it is unclear how such a factual determination could have been made on the facts then known. Furthermore, there is no indication that the Commission had endorsed the reasoning of the Moramia opinion letter. Indeed, prior CFTC case law shows that the availability of a bond waiver for Swiss residents depends on individual Swiss cantonal law and remains a question to be resolved on a case-by-case basis. See Trust & Investment A.G. v. Stotler & Co., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 23,928 at 34,264-65 (CFTC July 15, 1987), aff'd on other grounds, 841 F.2d 1116 (2d Cir. 1988).
In any event, the ALJ erred in determining that he was bound by the Director's decision to forward the complaint. The issue of compliance with Section 14(c) of the Act is determinative of the Commission's jurisdiction over a matter and should be considered whenever it appears that compliance is in doubt.
Moreover, respondents Mercafe and Angelico raised the issue in a timely fashion. They moved for reconsideration of the Director's determination to forward the complaint for adjudication in their answer filed June 14, 1993. In his June 17, 1993 letter to respondents' counsel, the Director declined to rule on the motion for reconsideration because it "would best be decided by the Presiding Officer assigned to this case when it is forwarded for adjudication."
The Director's June 17, 1993 letter was consistent with the general approach set out in the Part 12 rules. Once the complaint is forwarded to the ALJ, it is his responsibility to address the jurisdictional requirements raised by Rule 12.13(b). This follows from the Commission's practice of considering its jurisdiction at any stage of a case, on its own motion if necessary. See Martaglafonso, S.A. v. Merrill Lynch Futures, Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) 25,685 at 40,259 n.1 and 40,261 (CFTC May 4, 1993), where the Commission reconsidered and sua sponte reversed the Director's determination to forward the complaint of a nonresident who had filed neither a bond nor a properly-supported waiver request. See also Trust & Investment, 23,928 at 34,264-65. We do not view the statements or conclusions of Office of Proceedings staff as binding the ALJ or the Commission with regard to the nonresident bond request. Edwards v. Balfour Maclaine Futures, Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,108 at 41,666 n.6 (CFTC June 16, 1994).
With these procedural issues resolved, we turn to the question of Rendita's residency. The scant mention of Switzerland in the record concerns Eike Bohmelt's contacts there with non-parties Iron Horse Resources, Inc. and Hans Reichenau. In August 1991, Bohmelt read an Iron Horse advertisement in a German magazine for investors. He telephoned Iron Horse in Geneva, Switzerland to find out about investment opportunities, and Reichenau responded to his inquiry. (Apr. 14, 1994 Tr. 14, 43-46.) The two men communicated by telephone and facsimile several times (id. 47-49), and Reichenau eventually suggested that Bohmelt form a corporation, Rendita, to trade futures. On November 13, 1991, Reichenau chartered Rendita under the laws of the Republic of the Marshall Islandsand installed Bohmelt as Rendita's sole officer. Initial Decision at 7.
Bohmelt and Reichenau then met for eight hours in the lobby of a Zurich, Switzerland hotel on November 25, 1991. (Apr. 14, 1994 Tr. 17-18; 46-52.) At Reichenau's suggestion, Rendita established a Zurich postal address through a "corporate service company." Trade confirmations and monthly account statements from Mercafe were sent to that address and then forwarded to Bohmelt in Germany. That Zurich postal address is the principal evidence linking Rendita to Switzerland.
This scant evidentiary basis, however, does not support the ALJ's ruling that Rendita was "located in Switzerland" for purposes of Section 14(c) and Commission Rule 12.13(b)(4). See February 15, 1995 order at 5-6. Bohmelt's contacts with Iron Horse and Reichenau in Geneva are largely irrelevant to the issue of Rendita's residence, because they occurred before Rendita was incorporated. Bohmelt's post-incorporation actions in Zurich-- meeting Reichenau in the lobby of a hotel and establishing a mail drop "to construct the image of a Swiss company"--were insufficient under settled corporate law. The general rule in corporate law is that, insofar as a corporation can be regarded as a resident of any country, it is a resident of the country under the laws of which it was organized. See, e.g., 17 Fletcher Cyc. Corp. 8300 (Permanent Ed).
Our determination of a corporation's country of residence under Section 14(c) of the Act and Rule 12.13(b)(4) is similar to the determination of the citizenship of a corporation under 28 U.S.C. 1332(a)(2) and (c)(1) which govern a district court's jurisdiction in diversity cases. Specifically, in determining the country of residence, we look to the foreign corporation's country of organization, absent evidence in the record showing a principal place of business in another country. Under this approach, whenever a nonresident corporate complainant wishes to claim "residence" in a country other than its country of organization, it bears the burden of pleading and proving such a claim. Complainant should be guided by the case law interpreting 28 U.S.C. 1332(c)(1) in meeting this burden. See, e.g., Amoco Rocmount Co. v. Anschutz Corp., 7 F.3d 909, 914 (10th Cir. 1993)(adopting the "total activity" test for determining corporate residence under 28 U.S.C. 1332(c)).
We find that Rendita's use of an "office service" in Zurich, Switzerland is an insufficient basis upon which to prove that Rendita's principal place of business was in Zurich. The record shows only that Rendita is a resident of the Republic of the Marshall Islands, its country of incorporation. The record contains no pleadings or evidence as to the law of that nation on the bond waiver issue--a matter with respect to which Rendita clearly bore the burden of establishing a record. Finding an inadequate basis to grant Rendita a bond waiver for the purposes of Section 14(c) of the Act and Commission Rule 12.13(b)(4), we reverse that portion of the ALJ's decision.
In the interest of efficiency, we grant Rendita an opportunity within 30 days of the date of this order to post a bond in double the amount awarded by the ALJ or to submit a properly documented waiver request addressing the nonresident bond law applicable to complainants in the Republic of the Marshall Islands. Respondents will have 30 days to reply to any submission by Rendita.
If no such showing is made by Rendita within the time allowed, the Initial Decision will be vacated, and this proceeding will be dismissed for Rendita's failure to comply with Section 14(c) of the Act and Commission Rule 12.13(b)(4) in a timely manner. If Rendita makes an appropriate showing within the time allowed, this matter will be the subject of a further order of the Commission addressing the merits issues on appeal from the Initial Decision.
IT IS SO ORDERED.
By the Commission (Chairperson BORN and Commissioners DIAL, TULL, HOLUM, and SPEARS).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: February 20, 1997