Petition — Marc Rich & Co. A.G. v. United States
Supreme Court brief1983
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82-2014 [ri
No. ;
IN THE
Supreme Court of the United States
OCTOBER TERM, 1982
-
In the Matter of a Grand Jury Subpoena Directed to
MARC RICH + CO. A.G., A Swiss Corporation.
MARC RICH + CO. A.G.,
Petitioner,
—against—
UNITED STATES OF AMERICA,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
MARVIN E. FRANKEL
919 Third Avenue
New York, New York 10°22
(212) 715-9430
PROSKAUER ROSE GOETZ
& MENDELSOHN
Of Counsel: 300 Park Avenue
MARVIN E. FRANKEL ec ocsapnn York 10022
JOHN W. RITCHIE (212) 909-
ROBERT C. FINKEL Attorneys for Petitioner
QUESTIONS PRESENTED
1. Whether a judge-made rule of long-arm jurisdiction may
serve to sustain service in 1982 of a federal grand jury sub-
poena upon an alien corporation not “present” or doing
business in the United States, based upon alleged acts for the
corporation in, or affecting, the United States in 1980.
2. Whether a “reasonable probability that ultimately” the
government can prove in personam jurisdiction is sufficient to
sustain a grand jury subpoena summoning an alien corpora-
tion, where the subpoena is then enforced without further
proof of jurisdiction.
3. Whether the use of in camera evidence, on unparticular-
ized grounds of grand jury secrecy, to establish the “reasonable
probability” of jurisdiction held sufficient by the court of
appeals, denied petitioner’s rights to confrontation and to the
due process of law.
TABLE OF CONTENTS
TE kk ca ewan cwcescunns
A Ol a ae
cia vi wet eean secon cada.
I Oe i icecewsacecaw cs
I a in eva vcwwecceeseees
Proceedings and Decision in the District Court ..
The Decision of the Court of Appeals ..........
Pm Gr CIR UE EE oo gcc oc cw kee ccc cnans
I. The Long-Arm Rule Created by the Court of
Appeals Is Unsupportable on Principle and Incon-
sistent with a Governing Federal Statute and Rule
Il. It Was Error to Enforce the Subpoena on a “Rea-
sonable Probability,” Never to be Tested, that
Jurisdictional Facts Could be Proved...........
Ill. The Use of /n Camera Evidence Denied Peti-
tioner’s Due Process and Confrontation Rights . .
i kcdid oe vccueecs
Appendix A
Decision of the United States Court of Appeals
bck vc hienencscenenes
Appendix B
Decision of the United States District Court for
the Southern District of New York .............
16
18
la
Appendix C
Order of the United States District Court for the
Southern District of New York entered September
Es ae 31a
Appendix D
Order of the United States District Court for the
Southern District of New York entered September
Be icc kk coke cacceeneseecnmenn toes 33a
TABLE OF AUTHORITIES
Cases: PAGE
Arrowsmith v. United Press International, 320 F.2d 219
SO ak cc bce ec ube ewewnes Zz. 32
Blackmer v. United States, 284 U.S. 421 (1932) ....... 13
Briscoe v. Kusper, 435 F.2d 1046 (7th Cir. 1970). ..17 n.13, 18
Brittingham v. Commissioner, 451 F.2d 315 (Sth Cir.
Te cman cwncaawes 1§
Chrysler Corp. v. Fedders Corp., 643 F.2d 1229 (6th
Cre), core. Gemieg, 454 U.S. 893 (1961). . 2... cance, 11 n.8
Dahl v. United Technologies Corp., 632 F.2d 1027 (3d
RE OO vic vacaneencunns 14n.11
Diversified Mortgage Investors v. U.S. Life Title Insur-
me Ce, See Fie ork Cee Gee. EST) Ln cc ween. 17
Dorfmann v. Boozer, 414 F.2d 1168 (D.C. Cir. 1969)... 17
Dunn v. Retail Clerks International Association, 299
eee Ew Oe vnc i nccweuwncecacws 17
Ford v. United States, 273 U.S. 593 (1927) ... 2... 200. 10 n.6
Founding Church of Scientology v. Verlag, 536 F.2d 429
Oe I ok eee kw kcincdcswascecas 15 n.12
Gillars v. United States, 182 F.2d 962 (D.C. Cir. 1950). . 14
Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947) ....... 14n.11
In re Arawak Trust Co. (Cayman) Ltd., 489 F. Supp. 162
15
NCO oo eek cbr esi cccucceendetscsae a
In re Frank Kitchen, Docket No. 83-6083 (Apri! 27,
ON ee ce saw sacantdisenans 19 n.14
In re Grand Jury Proceedings, 532 F.2d 404 (Sth C ir.),
crt, comet, 477 U.S. 900 01976).............___.. 10
In re Grand Jury Subpoenas Duces Tecum, 72 F. Supp.
iutieikiiciet egiities vo ug [ote cr iia ane in 10
In re September 1971 Grand Jury, 454 F.2d 580 (7th Cir.
1971), rev’d on other grounds, 410 U.S. 19 (1973)... 18
In re Taylor, 567 F.2d 1183 (2d Cir. gf | Sa ERE Te Sg 18
Ings v. Ferguson, 282 F.2d 149 oot ee... 10
International Shoe Co. v. Washington, 326 U.S. 310
Pe 1]
Leasco Data Processing Equipment C orp. Vv. Maxwell,
Sstgtiigh erwbecct 8 8: cence ad 11 n.8
Lewis v. Reagan, 516 F. Supp. 548 (D.D.C. EOGED < nue 15
Lott v. Burning Tree Club, Inc., 516 F. Supp. 913
Or 15 n.12
McGee v. International Life Insurance C. a, 355 US.
Oe ee 11
Melia v. United States, 667 F.2d 300 (2d Cis. 1961) .... 1]
Montship Lines, Ltd. v. Federal Maritime Board, 295
rrr Cr 16
Riverside & Dan River Cotton Mills v. Menefee, 237
Oe 11 n.8
Simonson v. International Bank, 14 N.Y. 2d 281 (1964) . 12
Strassheim v. Daily, 221 U.S. 280 Ceeeee 10, 12 n.9
United States vy. Aluminum Co. Of America, 148 F.2d
Sthsieces. eos, ee cate OE Th Ce 12 n.9
United States v. Germann, 370 F.2d 1019 (2d Cir.),
vacated on other grounds, 389 U.S. 329 fs as 10
United States v. Greco, 298 F.2d 247 (2d Cir.), cert.
WO We tae, ES ooo oe vee cece veces: 13-14
United States v. Haim, 218 F. Supp. 922 (S.D.N.Y. 1963) 14
United States v. Mendez-Rodriguez, 450 F.2d 1 (9th Cir.
ek inc cc dunce vencecace 14
United States v. Pizzarusso, 388 F.2d 8 (2d Cir.), cert.
I Oo. Fe NE oi ovine ccc ceccccccasacs 16
United States v. Thompson, 319 F.2d 665 (2d Cir.
nc hed bakecdadchucwcuce 3.
United States v. Wolfson, 322 F. Supp. 798 (D. Del.
1971), aff'd, 454 F.2d 60 (3d Cir.), cert. denied, 406
co in at, CEES ATT GS Se esa ng te 14
Visual Sciences, Inc. v. Integrated Communications,
mee., Gee ©.00 56 Gd Cor, I981).... cess ‘7, 17 8.83
W. A. Mack, Inc. v. General Motors Corp., 260 F.2d 886
CP oii soc cwcncesccens: 17
Statutes and Other Authorities:
Ze U.S.C.
rg eicacwadecnckcacecncs 2
es hi heb evk eben vc ccecscs 8, 14-15
5, 3. ee eer S,.9, 12, 13, 13 0.10, Ma.li, 4
ic iiec cess dbundnens 2-3
Fed. R. Civ. P.
a es he bib an ok oh cb ebocw ew’ 8, 15
Fed. R. Crim. P.
a bikes eb dene cenwaue 4
a buccuruswues 9
ee wale ee'e 2-3, 12
Vili
PAGE
Pee ee a ii cvcvcckuwacareeeseaues 6n.5
Restatement (Second) Conflict of Laws § 36 and id.,
ee ci cubeneeesueeun 15 n.12
Restatement (Second) Foreign Relations Law of the
Reet CORN, © SUED CURSE goo ci cca dace cscncenns 11 0.7
Restatement (Proposed) Foreign Relations Law of the
United States § 420 (Tent. Draft No. 3, March 15,
poer, mOneers Petes B. 1G. ww ck ccc iene: 15
S. Rep. No. 1580, 88th Cong., 2d Sess., 9-10, reprinted
in 1964 U.S. Code Cong. & Ad. News 3782, 3790-91 . 13
No.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1982
oe
In the Matter of a Grand Jury Subpoena Directed to
MARC RICH + CO. A.G., A Swiss Corporation.
MARC RICH + Co. A.G.,
Petitioner,
—against—
UNITED STATES OF AMERICA,
Respondent.
al
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Petitioner Marc Rich + Co. A.G.' respectfully prays that a
writ of certiorari issue to review the judgment and opinion of
the United States Court of Appeals for the Second Circuit
entered in this proceeding on May 4, 1983.
l Pursuant to Rule 28.1 of the Rules of this Court, it is stated that
petitioner is a privately-held corporation, which has none but wholly-
owned subsidiaries; any affiliates are likewise privately held.
OPINIONS BELOW
The opinion of the Court of Appeals, not yet reported, is
reprinted as Appendix A hereto. It affirms a decision of the
United States District Court for the Southern District of New
York dated August 25, 1982 (also not reported), which is
reprinted as Appendix B hereto. The latter opinion was ori-
ginaily sealed; the parties agreed that it could be unsealed at
the time of the decision in the Court of Appeals.
JURISDICTION
The judgment of the Court of Appeals for the Second
Circuit was entered on May 4, 1983.° This Court’s jurisdiction
is invoked under 28 U.S.C. § 1254(1).
STATUTE AND RULE INVOLVED
Relevant portions of 28 U.S.C. § 1783 and Rule 17 of the
Federal Rules of Criminal Procedure are as follows:
2 By order of the Court of Appeals entered May 24, 1983, petitioner’s
motion pursuant to Fed. R. App. P. 41(b) for a stay of mandate
pending filing and determination of a petition for a writ of certiorari
was granted, provided that the petition be filed by May 31; by order
entered May 31, 1983, the stay was continued, provided that the
petition be filed by the end of two days after the determination of
petitioner’s timely petition for rehearing en banc, filed on May 12. The
petition for rehearing en banc was denied by order dated June 7, 1983,
and this petition is being filed within two days thereafter.
3
Title 28, United States Code:
§ 1783. Subpoena of person in foreign country
(a) A court of the United States may order the issuance of
a subpoena requiring the appearance as a witness before
it, or before a person or body designated by it, of a
national or resident of the United States who is in a
foreign country, or requiring the production of a specified
document or other thing by him, if the court finds that
particular testimony or the production of the document or
other thing by him is necessary in the interest of justice,
and, in other than a criminal action or proceeding, if the
court finds, in addition, that it is not possible to obtain
his testimony in admissible form without his personal
appearance or to obtain the production of the document
or other thing in any other manner.
Federal Rules of Criminal Procedure:
Rule 17. Subpoena
(e) PLACE OF SERVICE
* * *
(2) Abroad. A subpoena directed to a witness in a
foreign country shall issue under the circumstances and in
the manner and be served as provided in Title 28, U.S.C.,
§ 1783.
STATEMENT OF THE CASE
Petitioner Marc Rich + Co. A.G. (“AG”) is a Swiss corpo-
ration engaged in international commodities trading, with
principal offices in Zug, Switzerland, and branch offices in
some 30 countries. It has no office or place of business in the
United States. AG has a wholly-owned subsidiary, Marc Rich
4
+ Co. International Ltd. (“International”), also a Swiss cor-
poration, which has offices in New York and is undisputedly
subject to jurisdiction there. (App. B 15a, 17a, 20a.)
In April 1982, AG received a subpoena duces tecum issued
by a federal grand jury sitting in the Southern District of New
York.’ The subpoena directed AG to produce, among other
things, its general ledger, bank records, invoices, bills of
lading, contracts, correspondence—in short, all documents in
its possession in Switzerland and other foreign countries—re-
lating to crude oil transactions anywhere in the world for the
years 1980 and 1981. (App. B 16a.)
Proceedings and Decision in the District Court
Pursuant to Fed. R. Crim. P. 17(c), AG moved to quash the
subpoena for lack of in personam jurisdiction on the grounds
that it had no offices or employees in the United States, and
did no business in the United States, directly or through its
subsidiary. In sum, AG asserted that at or about the time when
the subpoena was served, it was not “present” in the United
States, a contention accepted by the district court when it later
upheld the subpoena on the basis of the New York civil
long-arm statute.*
No evidentiary hearing was held in connection with AG’s
motion to quash. The motion was supported by affidavits
showing that AG, as a matter of explicit corporate policy,
transacts its business outside the United States, and that its
3 The subpoena was delivered to an attorney representing Interna-
tional (which had previously been served, and was complying, with a
similar subpoena); the subpoena was accepted without waiver of AG’s
objections to the validity of service (App. B 16a).
4 AG also contended that because compliance would require the
disclosure of trade secrets and other confidential information concern-
ing AG and third parties with which it trades, AG was barred from
producing the subpoenaed documents by Article 273 of the Swiss Penal
Code. The district court rejected this contention (App. B 29a), which
was not preserved as a separate question on appeal.
n
wholly-owned subsidiary, International, again as a matter of
purposeful corporate structuring, is present and does do busi-
ness in the United States, but is neither a “mere department”
nor the agent of its parent. (App. B 16a-19a.)
In opposition, the government tendered two theories of
jurisdiction. The first, that AG was “present” in the United
States, rested on two affidavits of an F.B.I. agent, with
documents, referred to in the district court’s opinion as
“public” because they were served upon AG (App. B 19a-20a).
The other (ultimately successful) theory, based on “contacts”
with the United States through transactions allegedly con-
ducted on AG’s behalf by International, rested mainly on
another affidavit by the F.B.I. agent, with an undisclosed
quantity of exhibits, submitted to the court ex parte (App. B
20a). The court ruled as “a threshold matter” (App. B 21a)
(held erroneous by the court of appeals, App. A 10a) that these
submissions need only show “a good faith basis for asserting
jurisdiction,” and that such a showing would shift to AG the
burden of disproving jurisdiction (App. B 22a).
The government’s “public” evidence was proffered to show
that AG was “present,” doing business in the jurisdiction,
because of sales of oil in 1979 and 1980 by AG to its subsidiary
(which took place, on AG’s showing, App. B 17a, outside the
United States and were at market prices, App. B 24a) and
subsequent sales, at large losses, by the subsidiary to third
parties.
On the “doing business” theory of jurisdiction, the district
court found the subsidiary, International, to be an independent
enterprise, not a “mere puppet” or “mere department” of AG
(App. B 23a). The court stated that it was “inclined to agree
with AG that the public affidavits alone do not establish that
the two corporations did not deal at arm’s length,” and held
that “[i]f we were to look only at the public affidavits, we
would find a serious question raised as to whether there was a
pattern of non-arm’s length transactions but we would find it
difficult solely on this basis to conclude that an agency rela-
tionship existed.” (App. B 24a.)
6
The court then turned to the ex parte affidavit, saying its
“contents. . . revealed that in sustaining these losses, Interna-
tional directed $20,000,000 of income, which should properly
have gone to [International], to AG.” (App. B 24a.) Recogniz-
ing that “[o]bviously, AG is disabled from showing that a
particular non-disclosed transaction did not occur,” the court
accepted the in camera affidavit “because the Government has
generally revealed its contents and demonstrated the signifi-
cance of the secret information, and because the need for
secrecy appears to be genuinely invoked.” (App. B 25a, 24a.)
Reviewing both the “public” and the secret information, the
court said that “{i]f ‘doing business’ were the only ground for
jurisdiction in this case, we would either require a hearing or
quash the subpoena. . . .” (App. B 25a, footnote omitted.)
The court then dealt with the government’s second jurisdic-
tional theory, saying (App. B 26a) that “we naturally turn to
the New York long arm statute,” applicable in civil suits where
jurisdiction is asserted over absent parties.” On that ground,
the court found the requisite “good faith basis” shown by the
government, held that AG had not sustained the shifted bur-
den of proof assigned earlier in the opinion, and denied the
motion to quash. The court subsequently entered an order
(Appendix C) directing AG to comply with the subpoena.
AG declined to obey the subpoena, and an order (Appendix
D) was entered holding it in contempt, imposing a coercive fine
of $50,000 per day, and staying the fine pending issuance of the
mandate on appeal. The appeal was briefed on an expedited
schedule; argument was heard on October 15, 1982, and the
court of appeals’ decision was handed down on May 4, 1983.
5 New York Civil Practice Law and Rules § 302, entitled “Personal
jurisdiction by acts of non-domiciliaries,” which provides, in the
section cited (App. B 26a) by the district court: “(a) Acts which are the
basis of jurisdiction. As to a cause of action arising from any of the
acts enumerated in this section, a court may exercise personal jurisdic-
tion over any non-domiciliary, or his executor or administrator, who in
person or through an agent: |. transacts any business within the state
or contracts anywhere to supply goods or services in the state. . . .”
-
The Decision of the Court of Appeals
The court of appeals rejected both the rule formulated by
the district court shifting the burden of proof on a showing of
a “good faith basis” for asserting jurisdiction, and the New
York State statutory authority relied on by the lower court in
upholding jurisdiction (App. A 10a, 6a). It held, however, that
the “ongoing interest in grand jury secrecy” (App. A 12a), not
further elaborated, justified the district court’s consideration
of evidence in camera. Based upon its “own review of the
affidavits submitted in the district court” (App. A 10a), the
court of appeals affirmed the district court’s decision on a
different, non-statutory, basis.
As to the quantum of proof necessary to support the
subpoena, the court of appeals held that the government need
show only a “reasonable probability that ultimately it will
succeed in establishing the facts necessary for the exercise of
jurisdiction” (App. A 12a). No mention was made of the
procedural fact, herein presented for this Court’s considera-
tion, that enforcement of the contempt order ends the proceed-
ing without any occasion for the government’s “establishing
the facts necessary for the exercise of jurisdiction. . . .”
The “reasonable probability” of ultimately proving in per-
sonam jurisdiction was shown, the court of appeals held,
because (1) there had been an alleged conspiracy (though not
yet proved or made the subject of indictment) to evade Ameri-
can taxes between AG and International in 1980 (App. A
7a-8a); (2) two directors of both corporations were United
States residents (App. A 8a); (3) “such circumstances would be
sufficient to warrant judicial enforcement of the grand jury’s
subpoena” served in 1982 (id.); and (4): “There is sufficient
likelihood that unlawful tax manipulation was taking place
between appellant and its wholly-owned subsidiary to make it
reasonable and just, according to our traditional conception of
fair play and substantial justice to require appellant to respond
to the grand jury’s inquiries. See International Shoe Co. v.
Washington, 326 U.S. 310, 320 (1945).” (App. A 12a.)
8
Invoking the all-writs statute, 28 U.S.C. § 1651, the court
rejected petitioner’s argument that the extraterritorial reach of
United States compulsory process is limited by, among other
things, 28 U.S.C. § 1783, which provides for such an extension
only in the case of a “national or resident of the United
States.” Moreover, the court held, it had authority for
“fashioning a method of serving process where none was
provided by statute” by virtue of Fed. R. Civ. P. 83. (App.
A 9a.)
REASONS FOR GRANTING THE WRIT
The decision of the court of appeals creates an unprece-
dented rule of long-arm power to sustain service of a federal
grand jury subpoena on a corporation created, organized, and
existing in a foreign country, and in no way “present” within
the United States at or about the time of the purported service
of the subpoena. Relying on a “reasonable probability” that,
at a time never to come in these proceedings, facts could
“ultimately” be proved about transactions dating back to 1980,
the court of appeals allowed that putative proof (much of it
submitted and examined in camera) to serve as a basis for in
personam jurisdiction in 1982, without finding even that the
alleged transactions would have constituted “presence” of this
foreign corporation when they occurred.
The result is a novel and sweeping extension of the reach of
American criminal process, raising fundamental questions as
to the federal judicial power and stirring significant concerns
with respect to the relationships between this and other na-
tions. While this decision affects a corporation, the long-arm
principles announced by the court below—allowing service at
some later time for misconduct in, or affecting, the jurisdiction
on an earlier occasion—would apply equally and no differently
to individuals. The same is true for the allowance of secret
evidence to found a contempt order and a fine of $50,000 per
day upon the routine and automatic ground of “grand jury
secrecy.”
9
This remarkable decision—announced almost seven months
after a rushed appeal, and rejecting the basic premises while
affirming the order of the district court—is not literally in
conflict with cases in other Circuits. It is, however, in essential
conflict with the applicable statute (28 U.S.C. § 1783) and
Rule (Fed. R. Crim. P. 17(e)). Moreover, it departs so widely
from bedrock principles in decisions of this and the lower
federal courts as to call for correction and for reaffirmation of
those principles. It is a case of compelling importance and
potentially devastating significance. It is, in our respectful
submission, a meaningful occasion for the exercise of this
Court’s supervisory authority on certiorari.
The Long-Arm Rule Created by the Court of Appeals Is
Unsupportable on Principle and Inconsistent with a
Governing Federal Statute and Rule
Despite the disclaimer of any need to create “a novel federal
long-arm rule” (App. A 8a), the court of appeals has an-
nounced a startling new doctrine departing from settled princi-
ples limiting federal criminal process. It has upheld service in
1982 upon an alien corporaiion concedediy not found in the
United States at the time of service based upon a “reasonable
probability” of proof of acts touching the United States in
1980. This is, of course, precisely the long-arm device hereto-
fore known to the law only (i) under statutes, (ii) for civil
actions, (iii) as a basis to assert adjudicatory jurisdiction, not
compulsory process of any kind.
The district court accomplished that result by reliance upon
a state long-arm statute. While all agree that that was a
mistaken basis for expanding federal (or any) grand jury
jurisdiction, the substitute rationale of the court of appeals is.
if anything, less supportable. It is not only without statutory
basis, but inconsistent with the federal statute and rule limiting
the overseas reach of the federal subpoena power. It confuses
10
substantive law jurisdiction with in personam jurisdiction to
enforce. It offends against foreign relations law principles
already tested with serious friction by other, validly authorized
extensions of our federal investigatory power. This extraor-
dinary outreach of in personam power is today applied to a
foreign corporation summoned by a federal grand jury. If its
principles are sound, however, they apply equally to individ-
uals abroad and to state claims, never before suggested, of
long-arm grand jury power. The principles are not sound, we
submit. but gravely erroneous. The errors are of great and
sweeping consequence, calling for correction by this Court.
Before the decision below, it has always seemed clear that a
foreign party, not found here, is beyond the reach of grand
jury process. The Second Circuit itself affirmed the limitation:
“Of course there is no power to compel [a non-resident alien]
to come from abroad.” United States v. Germann, 370 F.2d
1019, 1022-23 (2d Cir.), vacated on other grounds, 398 U.S.
329 (1967). See also In re Grand Jury Proceedings, 532 F.2d
404, 405 (Sth Cir.), cert. denied, 429 U.S. 940 (1976); Ings v.
Ferguson, 282 F.2d 149, 151 (2d Cir. 1960); In re Grand Jury
Subpoenas Duces Tecum, 72 F. Supp. 1013, 1019 (S.D.N.Y.
1947).
The absence of any long-arm exception to this rule was made
clear in an opinion of Justice Holmes, and has never until now
been doubted. In Strassheim v. Daily, 221 U.S. 280, 285
(1910), marking crisply the difference between substantive law
jurisdiction and in personam jurisdiction, the Justice wrote:
“Acts done outside a jurisdiction, but intended to pro-
duce and producing detrimental effects within it, justify a
state in punishing the cause of the harm as if he had been
present at the effect, if the state should succeed in getting
him within its power.” (Emphasis added.)°
6 The essential point was reaffirmed with equal brevity in Ford v.
United States, 273 U.S. 593, 607 (1927): “The court had jurisdiction to
try the offense charged in the indictment and the defendants were in its
jurisdiction because they were actually in its custody.”
1]
Of course, the underscored qualification would not exist were
there long-arm criminal process. But the court of appeals in
this case steadily blurred the distinction between jurisdiction to
prescribe applicable rules and jurisdiction to enforce them.’
See App. A Sa-6a, 7a-8a, citing cases that follow the distinc-
tion rather than ignoring it—e.g., Melia v. United States, 667
F.2d 300 (2d Cir. 1981), where extradition was necessary to
acquire the in personam jurisdiction for Canada’s enforcement
of its subject matter jurisdiction.*
Overriding the settled principles that give rise to complexities
like those of extradition, the court below found alleged “con-
tacts” in 1980—or a “reasonable probability” that such con-
tacts could be proved though they never need be—sufficient
for in personam jurisdiction in 1982. The authorities cited for
that are cases sustaining the constitutionality of state long-arm
statutes, e.g., McGee v. International Life Insurance Co., 355
U.S. 220 (1957); /nternational Shoe Co. v. Washington, 326
U.S. 310 (1945), not judge-made rules of either civil or
criminal process. But if the court below is correct, there is
obvious statutory ground, stronger than the judicial authority
herein asserted, for state grand jury process to extend at least
across the nation. Nobody appears ever to have thought of
that. The decision below is at least equally surprising.
7 See Restatement (Second) Fereign Relations Law of the United
States § 33(1) (1965).
8 The residence in the United States of two individuals who are
directors and executive officers of the subsidiary and also directors of
petitioner is without significance for jurisdiction over petitioner. River-
side & Dan River Cotton Mills v. Menefee, 237 U.S. 189, 195 (1915).
Nor does it add anything to allege that there was a “conspiracy”
between petitioner and parties in the United States. See Leasco Data
Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1343 (2d Cir.
1972) (“mere presence of one conspirator . . . does not confer per-
sonal jurisdiction over another alleged conspirator”); see also Chrysler
Corp. v. Fedders Corp., 643 F.2d 1229, 1236-37 (7th Cir.), cert. denied,
454 U.S. 893 (1981).
12
It merits emphasis that the new long-arm doctrine of the
Second Circuit is not less applicable to individuals than to
corporations. This is true generally, of course, of the principles
(where they properly apply) allowing in personam jurisdiction
over parties charged with wrongful acts at some past time in
(or affecting) the jurisdiction. Simonson v. International Bank,
14 N.Y. 2d 281, 288 (1964). See also Arrowsmith v. United
Press International, 320 F.2d 219, 227-28 (2d Cir. 1963). Thus,
a nonresident alien charged with a crime in the jurisdiction,
state or federal (even if never present there”), could be sub-
poenaed by the grand jury, held in coniempt, and made subject
to severe penalties without ever being present for service in the
heretofore required fashion. (To complete the analogy, the
service could be cifected upon a putative agent, though the
“method of service,” contrary to intimations in the decision
below, App. A 9a, is of no consequence for present purposes.)
That this is unheard of is, in our submission, a measure of the
extreme deviation effected by the decision of the court of
appeals.
Far from being supportable on statutory grounds, the deci-
sion of the court of appeals is in fundamental conflict with a
clear, narrowly drawn, tightly controlled federal statute gov-
erning the reach of federal subpoena power overseas.
28 U.S.C. § 1783 provides for a subpoena to be served upon
someone “who is in a foreign country” only if (in addition to
other restrictions) the proposed witness is “a national or
resident of the United States. . . .” Fed. R. Crim. P. 17(e)(2)
says a subpoena “directed to a witness in a foreign country
shall issue under the circumstances and in the manner and be
served as provided in ... § 1783.” The statute does not
authorize the subpoena here in question; on the contrary, read
with its history and application, § 1783 is seen to be trans-
gressed by the result below.
9 It is familiar, as noted earlier, that an offense against a jurisdiction’s
substantive law may be committed by someone who never enters the
jurisdiction. Strassheim v. Daily, supra, 221 U.S. at 285; United States
v. Aluminum Co. of America, 148 F.2d 416, 443 (2d Cir. 1945).
13
From United States v. Thompson, 319 F.2d 665 (2d Cir.
1963), we learn that prior to enactment of the Walsh Act, now
28 U.S.C. § 1783, subpoenas to compel attendance of wit-
nesses in grand jury proceedings could not reach even Ameri-
can citizens sojourning abroad. As this statute read at the time
of Thompson,'’ it was held not to authorize grand jury
subpoenas even though it covered subpoenas for “testimony in
a criminal proceeding . . . .” Even such a modest extension
was beyond judicial authority; it called upon a power that
could only
“be exercised by Congress, and the district court has no
such power or jurisdiction unless expressly conferred by
statute.” Jd. at 667.
For citizens who are reachable abroad because they “owe
allegiance to the United States,” Blackmer v. United States,
284 U.S. 421, 436 (1932), it took an Act of Congress to add an
“explicit provision” for the modest addition of power to force
appearances before grand juries, see S. Rep. No. 1580, 88th
Cong., 2d Sess., 9-10, reprinted in 1964 U.S. Code Cong. &
Ad. News 3782, 3790-91. But there is no “explicit” or other
authority for service upon someone, not a resident or citizen,
who at some prior time may have been here and acted in ways
giving rise to an effort to have the person’s testimony. There is
in other words no federal long-arm subpoena jurisdiction.
That this is so works sometimes against defendants claiming
the Sixth Amendment right to compulsory process. See United
States v. Greco, 298 F.2d 247, 251 (2d Cir.), cert. denied, 369
10 What is now § 1783 then said in material part:
“Subpoena of witness in foreign country
“(a) A court of the United States may subpoena, for appearance
before it, a citizen or resident of the United States who:
* * +
“(2) is beyond the jurisdiction of the United States and whose
testimony in a criminal proceeding is desired by the Attorney
General.”
14
U.S. 820 (1962); Gillars v. United States, 182 F.2d 962, 978
(D.C. Cir. 1950); United States v. Haim, 218 F. Supp. 922,
925-26 (S.D.N.Y. 1963); United States v. Wolfson, 322 F. Supp.
798, 819 (D.Del. 1971), aff'd, 454 F.2d 60 (3d Cir.), cert.
denied, 406 U.S. 924 (1972). It may also work, as here, against
the exertions of federal prosecutors. Cf. United States v.
Mendez-Rodriguez, 450 F.2d 1, 5 (9th Cir. 1971) (conviction
reversed because government returned witnesses to Mexico
“placing them beyond the reach of the subpoena power”). In
either event, the limitation of the jurisdiction, with the stated
narrow exceptions, marks the boundaries as Congress has
prescribed them.''
In the case at bar, the court of appeals noted that the
subpoena was “not served in a foreign country.” (App. A 9a.)
This, we submit, is immaterial; the subpoena was directed to
petitioner, regardless of the manner of its delivery, and peti-
tioner is not within the narrow exception created by 28 U.S.C.
§ 1783 to the strictly territorial limits of jurisdiction. Service
was accepted by a lawyer for petitioner’s subsidiary, waiving
questions about “method of service” but preserving all other
rights, including the basic right to contest in personam jurisdic-
tion. Equally clearly, the lack of a jurisdictional basis is not
supplied by the court of appeals’ references to the all-writs
1] The limitation is further evidenced in connection with the doctrine
of forum non conveniens. This Court in Gulf Oil Corp. v. Gilbert, 330
U.S. 501, 508, 511 (1947), stated that the “availability of compulsory
process for attendance of unwilling . . . witnesses” is an “important
consideration” in determining whether a forum is convenient for trial
since “litigants cannot compel personal attendance” of witnesses in
Virginia at a trial in New York State. See aiso Dahil v. United
Technologies Corp., 632 F.2d 1027, 1030-31 (3d Cir. 1980) (witnesses
and documents in Norway not subject to United States compulsory
process for attendance at civil trial in Delaware}. Except for the limited
effect of 28 U.S.C. § 1783, inapplicable here and inconsistent with the
decision below, no authority exists to extend grand jury process or
other criminal process beyond the national boundaries confining com-
pulsory civil process.
15
Statute, 28 U.S.C. § 1651, and to Fed. R. Civ. P. 83 (App. A
9a). The former does not create an independent basis of
jurisdiction, but only sanctions issuance of appropriate orders
Or process once subject matter and personal jurisdiction are
established. See Brittingham v. Commissioner, 451 F.2d 315,
317 (Sth Cir. 1971); Lewis v. Reagan, 516 F. Supp. 548, 554
(D.D.C. 1981). Rule 83 grants authority to regulate practice in
the district court, and is self-evidently not a jurisdictional
grant
The extraterritorial extension of federal criminal process is a
subject uniquely fitted for regulation by Congress and the
Executive in legislative enactments rather than judge-made
rules.'* At stake are delicate relations between sovereigns, at
best strained from time to time by what are seen as objection-
able intrusions. “No aspect of the extension of the American
legal system beyond the territorial frontiers of the United
States has given rise to so much friction as the request for
documents associated with investigation and litigation in the
United States.” Restatement (Proposed) Foreign Relations Law
of the United States § 420 (Tent. Draft No. 3, March 15, 1982),
Reporters’ Notes, p. 18. The point has not failed on other
occasions to be noted by the Second Circuit. See, e.g., Arrow-
smith v. United Press International, supra, 320 F.2d at 226,
228; United States v. Thompson, supra, 319 F.2d at 667; In re
Arawak Trust Co. (Cayman) Ltd., 489 F. Supp. 162, 165
(E.D.N.Y. 1980).
12 Even as to civil jurisdiction, it would seem that absent a specific
authorizing statute, a court cannot exercise in personam jurisdiction
over a nonresident defendant not found within the jurisdiction at the
time of service. See, e.g., Founding Church of Scientology v. Verlag,
536 F.2d 429, 432 (D.C. Cir. 1976); Lott v. Burning Tree Club, Inc.,
516 F. Supp. 913, 915 (D.D.C. 1980). See also Restatement (Second)
Conflict of Laws § 36 and id., comment g (1971).
16
It Was Error to Enforce the Subpoena on a “Reasonable
Probability,” Never to be Tested, that Jurisdictional
Facts Could Be Proved
The court of appeals held that all the government need show
to support the subpoena is a “reasonable probability that
ultimately it will succeed in establishing the facts necessary for
the exercise of jurisdiction. . . .” (App. A 12a.) In justifying
that relaxed burden, the court cited a number of inapposite
cases dealing, in other contexts, with the broad powers of
grand juries. Not only do those cases fail to address the issues
raised here; several of them explicitly recognize the physical
and territorial problems of acquiring in personam jurisdiction
over an absent alien. See, e.g., United States v. Pizzarusso, 388
F.2d 8, 11 (2d Cir. 1968) (“It may be possible that the
particular criminal sanctions . . . will never be enforced unless
the defendant enters the country”); Montship Lines, Ltd. v.
Federal Maritime Board, 295 F.2d 147, 154 (D.C. Cir. 1961)
(“the question as to whether the order can be enforced by
extra-territorial means is not presently before us”).
In any event, the “reasonable probability” test of the court
below is illusive and meaningless in a contempt proceeding
because it extends a promise certain to be broken as a substi-
tute for proof of jurisdiction. Whatever the government’s
burden may be, on which the two lower courts differed (App.
A 10a), it will never be sustained because there will never be a
test of it. The contempt proceeding has ended. The final order
has issued and a $50,000 per day coercive fine has been
imposed on a record that concededly fails to show jurisdiction
but is said to show only a hypothetical “probability” that it
would be proved somewhere if required—or, of course, would
not be proved if the hypothetical prediction is wrong. The
result is a departure from fundamental principle so marked
and so ridden with misconceptions as to call for this Court’s
supervisory intervention.
17
The vital mistake in this case is highlighted by reference to
such wholly distinguishable decisions as Visual Sciences, Inc.
v. Integrated Communications, Inc., 660 F.2d 56, 59 (2d Cir.
1981) (cited at App. A lla), where provisional proof is ac-
cepted on some issues because the preliminary “findings are
not conclusive, and may be altered after a trial on the merits.”
Id. at 58.'’ Even there, it is regularly held that preliminary
proof should not be allowed to support a provisional remedy
that “work[s] to give a party essentially the full relief he seeks
on the merits.” Dorfmann v. Boozer, 414 F.2d 1168, 1173 n.13
(D.C. Cir. 1969). See also Diversified Mortgage Investors v.
U.S. Life Title Insurance Co., 544 F.2d 571, 576 (2d Cir. 1976);
Dunn vy. Retail Clerks International Association, 299 F.2d 873,
874 (6th Cir. 1962); WA. Mack, Inc. v. General Motors Corp.,
260 F.2d 886, 890 (7th Cir. 1958). Here, the government has
had all it demanded, including a Draconian fine, without ever
being called upon to show that the alleged contemnor is within
the court’s jurisdiction.
13 Even where provisional proof is accepted, the party opposing the
preliminary relief must be accorded a full and fair opportunity to test
the proponent’s proof, an opportunity signally lacking here. See Point
II], infra; and see the court of appeals’ comment in the Visual Sciences
case:
“[I]f the hearing [on a motion for a preliminary injunction] is to
serve its intended purpose of illuminating and resolving factual
issues, it must be conducted fairly. The opposing party must be
afforded the opportunity to cross-examine the moving party’s
witnesses and to present witnesses.”
Id. at 58. See also Briscoe v. Kusper, 435 F.2d 1046, 1057 (7th Cir.
1970).
18
The Use of In Camera Evidenve Denied Petitioner’s Due
Process and Confrontation Rights
The acceptance of materials submitted ex parte and found
decisive for jurisdiction over petitioner—a procedure justified
by the court of appeals with a brief reference to “an ‘ongoing
interest in grand jury secrecy’ "—warrants review by this Court
because the use of secret evidence strikes at the “root require-
ments of due process.” Jn re Taylor, 567 F.2d 1183, 1188 (2d
Cir. 1977). In camera proceedings offend against the basic
premises of our judicial system. They are especially anomalous
in this case, where the court of appeals broadly justified its
novel jurisdictional theory on the assertion that petitioner was
given “adequate notice and an opportunity to be heard.” (App.
A 7a.)
The question whether ex parte submissions can be received
raises fundamental due process issues. “Reliance upon evi-
dence considered in camera as the basis for decision is funda-
mentally inimical to due process.” Briscoe v. Kusper, 435 F.2d
1046, 1057 (7th Cir. 1970). It should be allowed, if at all, only
in truly extraordinary situations, presenting compelling cir-
cumstances, and then only to the degree really necessary. F.g.,
In re Taylor, supra, 567 F.2d at 1187-88; In re Grand Jury
Proceedings, 486 F.2d 85, 93 (3d Cir. 1973). The court enforc-
ing grand jury subpoenas does not sit to “rubber stamp”
executive judgments or accusations, id., 486 F.2d at 90. “By
now it should be apparent that ‘grand jury secrecy’ is no
magical incantation making everything connected with the
grand jury’s investigation somehow untouchable.” Jn re Sep-
tember 1971 Grand Jury, 454 F.2d 580, 583 (7th Cir. 1971),
rev’d on other grounds, 410 U.S. 19 (1973). The automatic
acceptance, sanctioned by the court below, of grand jury
secrecy claims as a basis for using secret evidence to sustain
jurisdiction and a contempt finding, sacrifices “the enlighten-
ment which accompanies an adversary proceeding.” In re
Taylor, supra, 567 F.2d at 1189.
19
Moreover, the broad claim of grand jury secrecy is less
acceptable when, as here, secret materials do not consist of
proceedings before the grand jury. The ex parte materials in
this case appear to have consisted of simple hearsay and law
enforcement conclusions. No “extraordinary circumstances,”
In re Grand Jury Proceedings, supra, 486 F.2d at 93, were
shown justifying the in camera proceedings. Far from relying
upon “extraordinary circumstances” to warrant a departure,
the decision below, in a single sentence, declares secret evi-
dence in contempt proceedings a standard and everyday corol-
lary of “grand jury secrecy.”
14
There appears now to be a divergence of opinion on this subject
within the Second Circuit, which led to a petition for rehearing en banc
in the instant case. See note 2, supra. In another case involving alleged
contempt for disobedience to a grand jury subpoena, /n re Frank
Kitchen, Docket No. 83-6083 (April 27, 1983), another Second Circuit
panel said that “the right to confrontation ordinarily includes the right
to examine all documents considered by the court in reaching a
decision.” Slip op. at 3477. The court held, reversing the civil contempt
adjudication of Kitchen, a grand jury witness, that in the coniempt
proceedings “the right to confront all the government’s evidence, both
documentary and testimonial,” should be protected “unless particular
and compelling reasons peculiar to the grand jury function require
some curtailment of [that] right.” /d. at 3476. That left it clear, of
course, that denial of the right of confrontation could not be a routine
incident of grand jury contempt proceedings, but only an exceptional
departure commanded by “particular and compelling reasons... .”
For secrecy, like “urgency,” is a consideration “inherent in any grand
jury investigation” and neither should be “enough to justify eliminat-
ing a witness’s basic right to a fair hearing. . . .” Id. at 3475. The
panel in the instant case made no reference to “particular and compel-
ling reasons” for the im camera procedure, and none had been
presented by government counsel beyond the broad, uniformly avail-
able reference to grand jury secrecy.
20
CONCLUSION
For the reasons stated, this petition for a writ of certiorari
should be granted.
Respectfully submitted,
MARVIN E. FRANKEI
919 Third Avenue
New York, New York 10022
(212) 715-9430
PROSKAUER ROSE GOETZ & MENDELSOHN
300 Park Avenue
New York, New York 10022
(212) 909-7000
Attorneys for Petitioner
Of Counsel:
MARVIN E. FRANKEI
JOHN W. RITCHIE
ROBERT C. FINKEI
June 9, 1983
la
APPENDIX A
Decision of the United States Court of Appeals
for the Second Circuit
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
s
Cal. No. 50i—August Term, 1982
(Argued October 15, 1982 Decided May 4, 1983)
Docket No. 82-6226
as
IN THE MATTER OF A GRAND JURY SUBPOENA
DIRECTED TO MARC RICH & Co., A.G.
MARC RICH & Co., A.G., A Swiss Corporation,
Appellant,
—_—V—
UNITED STATES OF AMERICA,
Appellee.
—tt-
Before:
VAN GRAAFEILAND and PIERCE, Circuit Judges,
and Wyatt, District Judge*
-
° Of the Southern District of New York, sitting by designation.
2a
Appeal from an order of the United States District Court for
the Southern District of New York (Sand, J.) holding appellant
in contempt for failure to comply with a grand jury subpoena
duces tecum and imposing sanctions to compel compliance.
Affirmed.
+
MARVIN E. FRANKEL, New York, N.Y., (Pros-
kauer Rose Goetz & Mendelsohn, and John
W. Ritchie and Robert C. Finkel, New York,
N.Y., of counsel), for Appellant.
MORRIS WEINBERG, JR., Ass’t U.S. Attorney,
S.D.N.Y. (John S. Martin, Jr., U.S. Attor-
ney, and Gerard E. Lynch, Ass’t U.S. Attor-
ney, S.D.N.Y., of counsel), for Appellee.
-
VAN GRAAFEILAND, Circuit Judge:
Marc Rich & Co., A.G. appeals from an order of the United
States District Court for the Southern District of New York
(Sand, J.), which held it in civil contempt for failing to comply
with the court’s order directing it to produce certain records
pursuant to a grand jury subpoena duces tecum and which
imposed a coercive fine to take effect upon the disposition of
this expedited appeal. We affirm.
Appellant is a Swiss commodities trading corporation deal-
ing in the international market in bulk raw materials such as
petroleum, metals, and minerals. Its principal office is in Zug,
Switzerland. Although it has forty branch offices in thirty
countries around the world, it has no office in the United
States. However, Marc Rich & Co. International Limited
(International), a wholly-owned subsidiary of appellant, does
business in the State of New York. The same five persons serve
3a
as the directors of the two companies. Three board members
are Swiss residents, and two, Marc Rich and Pincus Green,
reside in the United States and are employed by International
as traders.
In March, 1982, a federal grand jury in the Southern District
of New York was investigating an alleged tax evasion scheme,
involving appellant, International, and the principals of each
company, whereby, during 1980, International diverted a mini-
mum of $20 million of its taxable income to appellant. On
March 9, 1982, a grand jury subpoena duces tecum was served
on International for the production of business records relating
to crude oil transactions during 1980 and 1981. International
complied with the subpoena. On April 15, 1982, a grand jury
subpoena duces tecum, addressed to appellant and served on
International, called for production by appellant of similar
records.
On June 9, 1982, appellant moved to quash the subpoena on
the grounds that appellant was not subject to the in personam
jurisdiction of the court and that Swiss law prohibited the
production of the materials demanded. In an opinion dated
August 25, 1982, Judge Sand denied the motion to quash,
finding that personal jurisdiction existed and that the opera-
tion of Swiss law was no bar to the production of the
documents. When appellant persisted in its refusal, Judge Sand
adjudged it to be in civil contempt. Appellant’s arguments on
appeal center principally on the issue of jurisdiction.
DISCUSSION
Because the grand jury is a centuries-old, common law
institution, adopted without definition by the framers of our
Constitution, its historical purposes and functions have been
explored at length by judges and legal scholars. See Wright,
Federal Practice and Procedure: Criminal 2d § 101 (1982). All
are agreed that a grand jury has both the right and the duty to
inquire into the existence of possible criminal conduct, Branz-
burg v. Hayes, 408 U.S. 665, 688 (1972), and “fijndispensable
to the exercise of its power is the authority. . . to require the
4a
production of evidence,” United States v. Mandujano, 425
U.S. 564, 571 (1976). “A grand jury’s investigation is not fully
carried out until every available clue has been run down and all
witnesses examined in every proper way to find if a crime has
been committed. . . .” United States v. Stone, 429 F.2d 138,
140 (2d Cir. 1970). The jury’s “investigative power must be
broad if its public responsibility is adequately to be dis-
charged.” United States v. Calandra, 414 U.S. 338, 344 (1974).
Since the mere possibility that violations of federal law have
occurred is sufficient authority for a grand jury to act, United
States v. Sisack, 527 F.2d 917, 920 (9th Cir. 1976), its investiga-
tion in the instant case cannot be faulted.
Congress has made clear its intent that this nation’s income
tax laws are applicable to foreign corporations. See, e.g., 26
U.S.C. §§ 881-884; Bittker and Eustice, Federal Income Tax-
ation of Corporations and Shareholders €¢ 17.01-17.43 (3d ed.
1971). Under well-settled rules of international law, the author-
ity of Congress to impose punishment for violation of these
laws is equally clear. Of the five generally recognized principles
of international criminal jurisdiction—territorial, nationality,
protective, universality, and passive personality—/ntroductory
Comment to Research on International Law, Part II, Draft
Convention on Jurisdiction with Respect to Crime, 29 Am. J.
Int’l Law 435, 445 (Supp. 1935), the territorial and protective
principles justify the enforcement of penal revenue statutes
such as 26 U.S.C. §§ 7201 and 7206. The territorial principle is
applicable when acts outside a jurisdicticn are intended to
produce and do produce detrimental effects within it. United
States v. Pizzarusso, 388 F.2d 8, 10 (2d Cir.), cert. denied, 392
U.S. 936 (1968). Under the protective principle, a state “has
jurisdiction to prescribe a rule of law attaching legal conse-
quences to conduct outside its territory that threatens . . . the
operation of its governmental functions, provided the conduct
is generally recognized as a crime under the law of states that
have reasonably developed legal systems.” /d. (quoting Re-
statement (Second) of Foreign Relations Law § 33 (1965)).
Where, as here, the territorial principle is applicable, the
Government may punish a defendant in the same manner as if
Sa
it were present in the jurisdiction when the detrimental effects
occurred. “The principle that a man who outside of a country
wilfully puts in motion a force to take effect in it is answerable
at the place where the evil is done, is recognized in the criminal
jurisprudence of all countries.” Ford v. United States, 273 U.S.
593, 623 (1927) (quoting 2 Moore’s International Law Digest
§ 202, at 244 (1906)).
[I]t is certain that the courts of many countries, even of
countries which have given their criminal legislation a
Strictly territorial character, interpret criminal law in the
sense that offences, the authors of which at the moment
of commission are in the territory of another State, are
nevertheless to be regarded as having been committed in
the national territory, if one of the constituent elements of
the offence, and more especially its effects, have taken
place there.
The S.S. Lotus, 1927 P.C.1.J., ser. A, No. 10, at 23, reprinted
in 2 Hudson, World Court Reports 23, 38 (1935). See also
Melia v. United States, 667 F.2d 300, 303-04 (2d Cir. 1981)
(quoting Strassheim v. Daily, 221 U.S. 280, 285 (1911)); United
States v. Aluminum Co. of America, 148 F.2d 416, 443 (2d Cir.
1945). This rule is most clearly applicable where the offense
involved a conspiracy and at least one overt act of the con-
spiracy occurred within the United States. Melia v. United
States, supra, 667 F.2d at 304; United States v. Perez-Herrera,
610 F.2d 289, 290-91 (Sth Cir. 1980).
It would be strange, indeed, if the United States could
punish a foreign corporation for violating its criminal laws
upon a theory that the corporation was constructively present
in the country at the time the violation occurred, see Hyde v.
United States, 225 U.S. 347, 362 (1912), but a federal grand
jury could not investigate to ascertain the probability that a
crime had taken place. See Montship Lines, Ltd. v. Federal
Maritime Board, 295 F.2d 147, 154 (D.C. Cir. 1961). The grand
jury is an appendage or agency of the court. Brown v. United
States, 359 U.S. 41, 49 (1959); United States v. Stevens, 510
F.2d 1101, 1106 (Sth Cir. 1975). It may investigate any crime
6a
that is within the jurisdiction of the court. 1 Orfield, Criminal
Procedure Under the Federal Rules § 6:39, at 403 (1966). Its
duty to inquire cannot be limited to conduct occurring in the
district in which it sits. United States v. Antill, 601 F.2d 1049,
1050-51 (9th Cir. 1979); United States v. Girgenti, 197 F.2d
218, 219 (3d Cir. 1952); see Masinia v. United States, 296 F.2d
871, 875 (8th Cir. 1961); United States v. Neff, 212 F.2d 297,
301-02 (3d Cir. 1954).
In performing its duty of inquiry, the grand jury must have
the right to summon witnesses and to require the production of
documentary evidence. “[T]he grand jury’s authority to sub-
poena witnesses is not only historic, . . . but essential to its
task.” Branzburg v. Hayes, supra, 408 U.S. at 688. So long as
the court which must enforce the grand jury process can obtain
personal jurisdiction of the summoned witness, the witness
may not resist the summons on the sole ground that he is a
non-resident alien. United States v. Field, 532 F.2d 404, 407-10
(Sth Cir.), cert. denied, 429 U.S. 940 (1976); United States v.
Germann, 370 F.2d 1019, 1022-23 (2d Cir.), vacated on other
grounds, 389 U.S. 329 (1967). Neither may the witness resist
the production of documents on the ground that the docu-
ments are located abroad. United States v. First National City
Bank, 396 F.2d 897, 900-01 (2d Cir. 1968); Federal Maritime
Commission v. DeSmedt, 366 F.2d 464, 468-69 (2d Cir.), cert.
denied, 385 U.S. 974 (1966). The test for the production of
documents is control, not location. Jn re Canadian Int’! Paper
Co., 72 F. Supp. 1013, 1020 (S.D.N.Y. 1947).
The question, then, in the instant case is whether the district
court had such personal jurisdiction over appellant that it
could enforce obedience to the grand jury subpoena. We agree
with counsel for both sides that Judge Sand should not have
looked to New York State’s long-arm statutes in answering this
question. Cryomedics, Inc. v. Spembly, Ltd., 397 F. Supp. 287,
290 (D. Conn. 1975); 18A Fletcher Cyc. Corp. § 8798, at 315
(1977). The subject of the grand jury’s investigation is the
possible violation of federal revenue statutes, and its right to
inquire of appellant depends upon appellant’s contacts with
the entire United States, not simply the state of New York.
7a
Cryomedics, Inc. v. Spembly, Ltd., supra, 397 F. Supp. at 290.
Nonetheless, we are satisfied that the district judge arrived at
the correct result.
With McGee v. International Life Ins. Co., 355 U.S. 220
(1957) as our lodestar, we have subscribed to the “modern
notion” that where a person has sufficiently caused adverse
consequences within a state, he may be subjected to its judicial
jurisdiction so long as he is given adequate notice and an
opportunity to be heard. See Leasco Data Processing Equip-
ment Corp. v. Maxwell, 468 F.2d 1326, 1340 (2d Cir. 1972).
Section 50 of the American Law Institute’s Restatement (Sec-
ond) of Conflict of Laws (1971), similarly provides:
A state has power to exercise judicial jurisdiction over a
foreign corporation which causes effects in the state by an
act done elsewhere with respect to any cause of action
arising from these effects unless the nature of these effects
and of the corporation’s relationship to the state makes
the exercise of such jurisdiction unreasonable.
While this principle must be applied with caution in matters
which have international complications, Bersch v. Drexel Fire-
stone, Inc., 519 F.2d 974, 1000 (2d Cir.), cert. denied, 423 U.S.
1018 (1975), we think it clearly applicable in the instant case.
That the United States is injuriously affected by the wrongful
evasion of its revenue laws is beyond dispute. Under such
circumstances, it well may be that the occurrence of the offense
itself is sufficient to support a claim of jurisdiction, provided
adequate notice and an opportunity to be heard has been
given. See Comment, Criminal Jurisdiction Over Foreign Cor-
porations: The Application of a Minimum Contacts Theory, \7
San Diego L. Rev. 429, 448 (1980); Lenhoff, /nternational
Law and Rules on International Jurisdiction, 50 Cornell L.Q.
5, 12 (1964). However, appellant’s contacts with the United
States were not limited to appellant’s alleged extraterritorial
violation of United States revenue laws.
If appellant did violate the United States tax laws, a question
whose answer must await the possible return of an indictment,
that violation occurred in cooperation with appellant’s wholly-
8a
owned subsidiary, Marc Rich & Co. International, Ltd., which
is authorized to do business in New York State and does so.
Moreover, two of the five members of appellant’s board of
directors, who are also on the board of Marc Rich & Co.
International, are residents of the United States. At least one
of these directors is alleged to have been directly involved in
the scheme to divert the taxable income of International. If, in
fact, there was a conspiracy among all of these parties to evade
the tax laws, both the conspiracy and at least some of the
conspiratorial acts occurred in the United States. See Melia v.
United States, supra, 667 F.2d at 303-04. Under such circum-
stances, service of a subpoena upon appellant’s officers within
the territorial boundaries of the United States would be suffi-
cient to warrant judicial enforcement of the grand jury’s
subpoena.’ FTC v. Compagnie de Saint-Gobain-Pont-a-
Mousson, 636 F.2d 1300, 1324 (D.C. Cir. 1980); In re Electric
& Musical Industries, Ltd., 155 F. Supp. 892 (S.D.N.Y.),
appeal dismissed, 249 F.2d 308 (2d Cir. 1957); In re Canadian
Int’l Paper Co., supra, 72 F. Supp. at 1019-20; Fed. R. Civ. P.
4(d)(3) & 17(e)(1).
We find no merit in appellant’s argument that ratification of
the service upon it of the subpoena would be tantamount to
creating a novel federal long-arm rule without congressional
authorization. That argument, as we understand it, proceeds as
follows:
1. Fed. R. Crim. P. 17(e)(2) provides that a “subpoena
directed to a witness in a foreign country shall issue under the
circumstances and in the manner and be served as provided in
Tite 26, US.C., § 1783."
2. Section 1783 provides for service upon a “national or
resident of the United States who is in a foreign country” for
the “production of a specified document or other thing by
him.”
l The subpoena was accepted by International’s attorney, and the
manner of service, as distinguished from jurisdiction, is not chal-
lenged.
9a
3. Since section 1783 is silent concerning foreign corpora-
tions which are not nationals or residents of the United States,
those corporations are not subject to subpoena, regardless of
the place and manner of service.
In making this contention, appellant ignores the fact that the
subpoena in the instant case was not served in a foreign
country and that, ever since the enactment of the first all-writs
statute as part of the Judiciary Act of 1789, 1 Stat. 73, 81-82,
judicial authority to issue subpoenas has had congressional
approval. From almost the birth of our nation, Congress has
recognized that the “right to resort to means competent to
compel the production of written, as well as oral, testimony,
seems essential to the very existence and constitution of a court
of common law.” American Lithographic Co. v. Werckmeister,
221 U.S. 603, 609 (1911) (quoting Amey v. Long, 9 East 473,
484, 103 Eng. Rep. 653, 658 (1808)). See also Harris v. Nelson,
394 U.S. 286, 299-300 (1969); Barry v. United States ex rel.
Cunningham, 279 U.S. 597, 613-616 (1929). Indeed, this Court
has found it unnecessary to look to the all-writs statute, now
28 U.S.C. § 1651, in fashioning a method of serving process
where none was specifically provided by statute. In Petrol
Shipping Corp. v. Kingdom of Greece, 360 F.2d 103, 108 (2d
Cir.), cert. denied, 385 U.S. 931 (1966), we relied upon Fed. R.
Civ. P. 83 which provides in part that “[iJn all cases not
provided for by rule, the district courts may regulate their
practice in any manner not inconsistent with these rules.”
Briefly summarized, appellant’s argument puts the cart be-
fore the horse. A federal court’s jurisdiction is not determined
by its power to issue a subpoena; its power to issue a subpoena
is determined by its jurisdiction. United States v. Germann,
supra, 370 F.2d at 1022-23; In re Shipping Industry, 186 F.
Supp. 298, 317-18 (D.D.C. 1960).
The crucial issue on this appeal is how much of a jurisdic-
tional showing the Government had to make in order to
warrant the issuance of the subpoena directed to appellant.
Appellant contends that the district court committed reversible
error in holding that, although the Government had to show in
10a
the first instance that it had a good faith basis for asserting
jurisdiction, once it did so, the burden of proving lack of
jurisdiction shifted to appellant. We agree with appellant’s
argument concerning burden of proof but disagree with appel-
lant’s contention that reversal is required. Based upon our own
review of the affidavits submitted in the district court, see
Diversified Mortgage Investors v. U.S. Life Title Ins. Co., 544
F.2d 571, 577 (2d Cir. 1976), we are satisfied that the Govern-
ment made a sufficient showing of personal jurisdiction to
justify the district court’s order.”
In the seminal case of Blair v. United States, 250 U.S. 273
(1919), Justice Pitney, writing for the Court, said that grand
jury witnesses “are not entitled to take exception to the
jurisdiction of the grand jury or the court over the particular
subject-matter that is under investigation.” /d. at 282. He
continued, “At least, the court and grand jury have authority
and jurisdiction to investigate the facts in order to determine
the question whether the facts show a case within their jurisdic-
tion.” Id. at 282-83.
Although Justice Pitney was discussing subject matter rather
than personal jurisidction, the same reasoning may be applied
in cases such as the instant one, where the appellant is not
challenging enforcement of the grand jury subpoena on the
due process grounds of notice and an opportunity to be heard,
see Blackmer v. United States, 284 U.S. 421, 440 (1932).
Requiring the Government to prove by a preponderance of
evidence the facts upon which it bases its claim of personal
jurisdiction “might well invert the grand jury function, re-
quiring that body to furnish answers to its questions before it
could ask them.” Jn re Harrisburg Grand Jury 79-1, 658 F.2d
211, 214 (3d Cir. 1981). “[A] sufficient basis for an indictment
may only emerge at the end of the investigation when all the
evidence has been received.” United States v. Dionisio, 410
U.S. 1, 15-16 (1973); see United States v. Bisceglia, 420 U.S.
141, 150 (1975); Associated Container Transportation (Austra-
2 At oral argument to the district court, both sides disclaimed need for
an evidentiary hearing.
lla
lia) Ltd. v. United States, Nos. 82-6242, -6314, -6316, slip. op.
at 2942 (2d Cir. April 8, 1983).
As already pointed out, a grand jury is not limited in its
investigation to criminal acts occurring in the district in which
it sits. In United States v. Girgenti, supra, 197 F.2d 218, the
witness challenged the right of a grand jury sitting in the
Eastern District of Pennsylvania to summon and examine him
concerning events which took place in New Jersey. In dismiss-
ing this contention, the court said:
There is not the slightest doubt that if people conspire
in New Jersey to . . . conceal tax liability. . . in the
Eastern District of Pennsylvania, the grand jury in the
latter district may inquire into it. To appellant’s argument
that this grand jury had not found anything about affairs
in New Jersey that affected matters in the Eastern District
of Pennsylvania, we answer that the grand jury had not
then and has not now completed its investigation. What it
will eventually find, no one, not even appeliant’s counsel,
knows.
Id. at 219.
Attendance and response to a subpoena is a public duty, a
duty “not to be grudged or evaded.” Hurtado v. United States,
410 U.S. 578, 589 n.10 (1973)(quoting 8 Wigmore, Evidence
§ 2192, at 72 (McNaughton rev. 1961)). “Whoever is impelled
to evade or to resent it should retire from the society of
organized and civilized communities and become a hermit.” /d.
When the defendant in a civil case challenges the grant of a
temporary injunction on the ground that the court is without
personal jurisdiction, the plaintiff is required to establish only
a reasonable probability of ultimate success on this issue.
Visual Sciences, Inc. v. Integrated Communications, Inc., 660
F.2d 56, 59 (2d Cir. 1981). The remedy for violation of the
district court’s order in such a case ordinarily is the same as
here, i.e., civil contempt. Shillitani v. United States, 384 U.S.
364, 368 (1966). “A subpoena is served in the same manner as
other legal process; it involves no stigma whatever; if the time
for appearance is inconvenient, this can generally be altered;
12a
and it remains at all times under the control and supervision of
a court.” United States v. Doe, 457 F.2d 895, 898 (2d Cir.
1972), cert. denied, 410 U.S. 941 (1973). In view of the
civilized world’s abiding concern for the disclosure of truth
and the proper administration of justice, see United States v.
Bryan, 339 U.S. 323, 331 (1950), we conclude that, in a case
such as this, if the Government shows that there is a reasonable
probability that ultimately it will succeed in establishing the
facts necessary for the exercise of jurisdiction, compliance with
the grand jury’s subpoena may be directed.
Such a showing has been made in the instant case. For
example, affidavits submitted by the Government disclose that,
in 1980, approximately 40% of International’s crude oil pur-
chases, worth $345 million, were from appellant. International
then realized a gross loss of over $110 million in selling to its
domestic customers. There is sufficient likelihood that unlaw-
ful tax manipulation was taking place between appellant and
its wholly-owned subsidiary to make it “reasonable and just,
according to our traditional conception of fair play and sub-
stantial justice” to require appellant to respond to the grand
jury’s inquiries. See International Shoe Co. v. Washington, 326
U.S. 310, 320 (1945).
Appellant’s remaining contentions require no extended dis-
cussion. Although in camera submissions of affidavits are not
to be routinely accepted, an exception to this general rule may
be made where an “ongoing interest in grand jury secrecy” is at
stake. Jn re John Doe Corp., 675 F.2d 482, 489-91 (2d Cir.
1982). The imposition of a coercive fine was not improper, Jn
re Grand Jury Impaneled January 21, 1975, 529 F.2d 543,
550-51 (3d Cir.), cert. denied, 425 U.S. 992 (1976), and wil! be
reversed only for abuse of discretion, United States v. Flores,
628 F.2d 521, 527 (9th Cir. 1980). in view of appellant’s
conceded size and the total monetary value of the transactions
taking place between appellant and its wholly-owned subsidi-
ary, the coercive fine of $50,000 per day did not constitute an
abuse of the district court’s discretion. Appellant may avoid
any liability by promptly complying with the subpoena. We
will direct that the mandate issue one week from the date of
l3a
this opinion in order to permit appellant to make the necessary
arrangements for compliance.
Affirmed.
ih
I concur.
L. W. PIERCE
5/3/83
=
I concur.
1.B.W.
15a
APPENDIX B
Decision of the United States District Court
for the Southern District of New York
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
M-11-188
+
In the Matter of a Grand Jury
Subpoena Directed to
MARC RICH & Co. A.G., A Swiss Corporation
+
OPINION
THIS OPINION IS TO BE SEALED.
SAND, J.
On this motion to quash a grand jury subpoena, we are
called upon to determine the reach of this Court’s jurisdiction
over a Swiss corporation, Marc Rich & Co., A.G. (“AG”).
AG claims that it has deliberately structured its business to
avoid any contact with the United States and is not subject to
this Court’s jurisdiction. The Government asserts that certain
activities of AG’s wholly owned subsidiary, Marc Rich & Co.,
International Ltd. (“International”), provide a sufficient basis
for the assertion of jurisdiction over AG. AG contends that
since there is neither an agency nor a “puppet-puppeteer”
relationship between the two companies, the acts of the subsid-
iary cannot be attributed to the parent for jurisdictional
purposes.
l6a
AG submits the affidavits of Alexander R. Hackel, chief
executive officer of AG (“Hackel Affidavit”), and Peter F.
Ryan, chief financial officer of International (“Ryan Affi-
davit”), to show that International exists as a substantial,
independent organization and that all of the dealings between
the companies have been at arm’s length.
The Government maintains that its investigation has re-
vealed that on at least twenty occasions in the year 1980,
International has engaged in transactions for the benefit of
AG, incurring over $110 million in losses on AG’s behalf.
Affidavit of Gerard J. Lang, Special Agent with the Federal
Bureau of Investigation dated July, 1982 [sic] at 44 4-6 (“Lang
Affidavit”). The government has furnished the Court with
details of this investigation in an ex parte affidavit of Special
Agent Lang (“Ex Parte Affidavit”).
AG also argues that Swiss penal law bars the disclosure
demanded by the grand jury.
I
BACKGROUND
A. The Subpoena
On April 15, 1982, a subpoena duces tecum for the produc-
tion of AG’s documents concerning crude oil transactions in
1980 and 1981 was served on Edward Bennet Williams, counsel
for International. Williams accepted service to avoid the need
to serve an officer of International but did not purport to
accept service for AG. Hackel Affidavit at ¢ 4. The Govern-
ment seeks these documents as part of a grand jury investiga-
tion of AG and International, as well as an investigation of
their principal officers and directors, for alleged criminal
violations of United States tax law.
AG’s board of directors, after determining that compliance
with the subpoena would violate Swiss law forbidding disclo-
sure of a “business secret” to a “foreign government author-
ity” (Swiss Penal Code, Art. 273), resolved not to comply with
the subpoena and to seek to establish its ineffectiveness in the
American courts.
17a
B. AG’s Version
AG’s picture of the parent and subsidiary, detailed below,
focuses on the formal separateness of the two companies. AG
is in the business of international commodities trading. It
purchases large quantities of raw materials, chiefly petroleum,
and attempts to resell them at a profit within a very short time
from the purchase. It avoids taking the materials into inven-
tory by usually taking title to the commodities after they are on
board ship and passing title to the purchaser either while the
ship is still in the loading port or while the ship is at sea. Jd. at
q 10. Nearly all of AG sales are to buyers in countries other
than that of the producer, owing to the fact that “most
countries which are large scale producers of the raw materials
in which AG deals seldom have an industrial infrastructure
consuming those materials.” Jd. at ¢ 10. Within the United
States, however, there exists a market for both the large scale
purchase and the large scale sale of these materials. Jd. at 4 9.
This uniqueness of the United States led AG to set up Interna-
tional. Jd. at 49 & 21-23. AG is governed by a board of
directors, which includes Marc Rich and Pincus Green, who
reside in the United States and also work as traders and serve
as directors for International. Jd. at ¢ 15. AG employs traders
and a support staff consisting of credit, financial and account-
ing personnel. /d. at ¥§ 16-17. AG’s financing arrangements
include some lines of credit which it shares with International.
Id. at ¢ 18. AG maintains more than 40 offices in 30 countries,
which employ their own traders and support staffs, and which
(with one exception) are empowered to bind AG. /d. at ¢ 19. It
does no business in the United States, nor is it authorized to do
so. Id. at 1. Transactions which involve the United States, such
as those with International, described below, are purposely
structured so that title passes offshore. /d. at § 26.
International is tailored to the special conditions of the
United States market. AG did not merely set up another
branch office to trade in this market both because of these
conditions and because “[t]he commodities business outside
the United States involves dealings with governmental monop-
18a
olies and cartels and may include business practices from
which United States companies are disabled.” Jd. at ¢ 22. One
difference between the two companies is that International
takes some of its commodities into inventory, and subsequently
distributes these materials in smaller lots. /d. at ¢ 14. To this
end, it rents storage space throughout the country and incurs
risk of loss for longer periods of time than does AG. Like AG,
it trades large quantities of raw materials, but “fi]t concen-
trates on business either wholly domestic to the United States
or having a United States component. . . .” Ryan Affidavit at
q 5. It has principal offices both in New York City and in Zug,
but “[iJts business operations are directed by senior manage-
ment in the New York office.” Ryan Affidavit at 4 6. This
senior management includes Marc Rich, as chairman, and
Pincus Green, as president. Jd. All of AG’s directors are also
directors of International, but “International operates as an
independent entity which pursues its own business without
control by AG, and does not represent or otherwise act for
AG.” Id. at 4. International employs nearly 160 persons in
the United States including 50 traders, 12 “traffic” persons,
and 35 finance, credit and accounting persons. Jd. at § 7-8.
These employees use their own financial expertise and knowl-
edge of the commodities markets in conducting International’s
business, without reliance on AG. /d. at ¢ 7-9. International
maintains separate books and records. Jd. at ¢ 9. International
also employs 11 traders and a support staff in Zug. Jd. at { 10.
This office handles transactions involving countries other than
the United States, including those between AG and Interna-
tional. /d. International pays United States taxes on its United
States income. /d. at 11. International “maintains relationships
with about 50 banks throughout the world, however, most of
its credit is in the form of a credit line extended to both it and
AG and guaranteed by AG.” /d. at 12. Although International
could now acquire credit in its own right, it chooses to
continue using this shared credit in order to receive “the best
possible terms.” Jd. at { 13.
Trades between parent and subsidiary result from the chance
confluence of the business needs of the two companies. For
19a
example, if AG is in possession of a commodity “which
International needs for one of its own customers” and “[if] for
some reason AG’s intended sale has not materialized or if it
can cover the intended sale with another lot of material,
International may purchase that commodity from AG for
resale to International’s customer. /d. at ¢ 17. Prior to 1981, at
some times, these roles may be reversed, and International
would sell to AG. /d. at § 18. These transactions formed
approximately 12% of International’s total sales and 7% of its
purchases in 1981. /d. at 19. (It should, however, be borne in
mind, as the Government points out, that International’s
annual sales exceed $1-1/2 billion.) International also uses
some of AG’s facilities, paying for this use on a pro-rata basis
at the end of the year. Jd. at 20. In addition, AG employees
sometimes consult International employees, taking advantage
of the latter’s expertise, and vice versa. /d. at 20-21. This
information is then used in AG or International’s own busi-
ness, independent of any direction or control by the other.
AG and International adhere to a policy of independence.
All transactions are conducted at arm’s length, pursuant to
independent business objectives. Hackel Affidavit at 4 25.
They are “recorded in appropriate detail in the books of both
AG and International.” /d. at ¢ 29. On occasion, AG acted as
International's representative and received a commission in
making a sale outside of the United States. /d. But Interna-
tional never acts as AG’s agent in the United States. /d.
C. The Government’s Version.
The Government attempts to show that this picture of
formal separateness masks a scheme of deliberate tax evasion
in which International regularly directed income to AG. Spe-
cial F.B.I. agent Gerard J. Lang states that his investigation
into the trading of crude oil between the two companies,
International’s corporate records, and his interviews with wit-
nesses (named in the Ex Parte Affidavit) contradict the asser-
tions of Messrs. Hackel and Ryan. Lang Affidavit at ¢ 3. The
Government’s view is as follows:
20a
In 1980, AG sold over $345 million worth of crude oil to
International. International’s general ledger reveals over
twenty sales contracts between AG and international, in half of
which transfer of title took place in the United States. /d. at
45 (copies of some of the invoices to AG are attached as
exhibits). International’s records show that it sustained a $110
million loss in the resale of the oil it purchased from AG. /d. at
q 6. “[I]n all but one case [International] sold the oil purchased
from AG at far below the purchase price from AG.” /d. These
1980 transactions represented approximately 25% of Interna-
tional’s total purchases and over 40% of its crude oil pur-
chases. Jd. at ¢ 7 (The 7% figure noted above at p. 6, while
itself substantial in terms of dollars, relates to the year 1981).
The contents of the ex parte affidavit were revealed to some
extent by counsel for the Government at oral argument and in
the Lang affidavit and can thus be generally summarized here.
See transcript of July 6, 1982 at 15-16; Lang Affidavit at
q4 5-6. While the affidavit served on AG only shows that
International sustained a loss, the ex parte affidavit shows that
it structured its resales to direct $20,000,000 domestic income
offshore to AG, a device which would avoid United States
taxes. The Government has submitted the affidavit detailing
this assertion ex parte to avoid revealing the name of a witness
who is cooperating with the Government, a revelation which
would jeopardize the grand jury investigation.
I]
DISCUSSION
There is no question that International is subject to the
Court’s jurisdiction by reason of its “doing business” in this
state. The question is whether some of its acts may be attrib-
uted to AG and whether those acts provide a sufficient basis
for jurisdiction over AG. Both parties agree that in answering
this question, the Court must look generally to standards of
jurisdiction in civil cases. However, the civil model of jurisdic-
tion provides an imperfect analogy, since the question before
2la
us is the validity of a grand jury subpoena, a proceeding which
has unique attributes. Therefore, we must bear in mind the
special context in which this controversy arises and the dif-
ferences between the circumstances here and those faced in the
cases cited by the parties.
A. Burden of Proof
As a threshold matter, we must establish which party has the
burden of proof. Generally, in a civil case, the burden is on the
plaintiff, as the party “asserting jurisdiction,” to ultimately
prove jurisdiction. Lehigh Valley Industries, Inc. v. Biren-
baum, 527 F.2d 87, 92 (2d Cir. 1975). But at noted supra, the
differences between this proceeding and civil cases must not be
overlooked. For example, the Government here, unlike a
plaintiff in a civil action, may invoke the general rule that a
“presumption of regularity” attaches to grand jury proceed-
ings. See, e.g., In re Grand Jury Proceedings, 632 F.2d 1033,
1041 (3d Cir. 1980); Universal Manufacturing Company v.
United States, 508 F.2d 684, 685 (8th Cir. 1975).
A more compelling reason why the civil model must be
distinguished is that in a civil case the plaintiff need only make
a prima facie showing of jurisdiction to avoid dismissal.
Courts will then permit discovery on the issue of jurisdiction,
which gives the plaintiff a fair opportunity to meet the burden
imposed upon it. See, e.g., Lehigh Valley Industries, Inc. v.
Birenbaum, 527 F.2d 87, 93-94 (2d Cir. 1975); Saraceno v.
Johnson & Sons, Inc., 83 F.R.D. 65, 71 (S.D.N.Y. 1979).
Application of this standard in the context of this motion
would be problematic. Ordering discovery to permit the Gov-
ernment to substantiate its assertions would force the very
production of documents that AG opposes. AG argues, how-
ever, that the Government has already had the opporunity to
discover jurisdictional facts, in that it has had the grand jury at
its disposal. But since the substance of this motion is AG’s
refusal to respond to the grand jury, AG cannot rely on the
grand jury’s ability to obtain discovery on its own. It is,
moreover, particularly important for the Government to reach
documents in AG’s possession if it is to bear the burden of
22a
proof. The agency relationship which is the key to the Govern-
ment’s theory of jurisdiction contradicts the formal picture of
corporate separateness which AG reveals to the world. If AG
and International are in fact engaged in a tax evasion scheme
as alleged by the Government, evidence of their clandestine
acts would be likely to be in their possession.
Thus, it appears appropriate that a prima facie showing by
the Government that jurisdiction is present here should be a
sufficient prerequisite to the requirement that AG produce the
requested documents. Although it is true that the subpoena
was not designed to seek jurisdictional facts, the Government
bases its theory of jurisdiction on the relationship between the
two companies, which relationship is central to the alleged
criminal scheme attributed to the two companies. Hence, the
subpoena would function in the same way as discovery on the
jurisdictional issue in a civil case.
Under the circumstances of this motion, we find that the
appropriate allocation of the burden of proof is as follows:
once the moving party raises the issue of jurisdiction, the
Government must show that it had a good faith basis for
asserting jurisdiction; thereafter, the burden of proof shifts to
the party challenging jurisdiction.
B. Jurisdiction
The Government argues that there are two bases for jurisdic-
tion over AG: 1. AG is “doing business” in New York through
the actions of its subsidiary International, and 2. some of the
specific acts which the grand jury is investigating took place in
New York, and thus AG has, again through International,
“transacted business” in this jurisdiction. AG argues that only
“doing business” jurisdiction can support the enforcement of a
grand jury subpoena and that even if the Government’s allega-
tions are true, the contacts with New York do not constitute
doing business.
1. “Doing Business”
Under New York law, which we are constrained to apply,
Arrowsmith v. United Press International, 320 F.2d 219 (2d
23a
Cir. 1963), a corporation is “present” in this state and hence
subject to the court’s jurisdiction if it does business “not
occasionally, or casually, but with a fair measure of per-
manence and continuity.” Tanza v. Susquehanna Coal Co., 220
N.Y. 259, 115 N.E. 915 (1917). See N.Y.Civ.Prac. Law § 301
(preserving common law bases of jurisdiction). Although mere
ownership of a subsidiary that does business in New York does
not automatically confer jurisdiction, a corporation may be
deemed “present” through the activities of its subsidiary in
either of two ways: 1. if the subsidiary is in reality merely a
department or a puppet of the parent, or, 2. if the subsidiary
has acted as the agent of the parent. Saraceno v. S. C. Johnson
& Son, Inc., 83 F.R.D. 65, 69 (S.D.N.Y. 1979). In the latter
instance, only those acts undertaken on behalf of the parent
“may properly be factored into the doing business equation.”
McLaughlin, Practice Commentaries, N.Y.Civ.Prac. Law
C301:3(2) (McKinney 1972).
The Government does not appear to contend that Interna-
tional is the mere puppet of AG. The Government does not
attempt to show that International has no independent exist-
ence or that all of its business is done at the behest of AG.
AG’s affidavits show that International regularly engages in
trade in its own right, using its own employees and facilities,
and is thus more than a mere department of AG.
Rather, the Government has concentrated on numerous in-
stances in which International allegedly acted as AG’s agent.
As indicated above, for the Court to find that AG “does
business” in New York by reason of these actions, these actions
alone must meet the “doing business” standard of permanence
and continuity. AG’s attack on this application of the agency
theory is twofold. First, it argues that the Government’s public
affidavits do not show any jurisdictional contact by AG and
that the ex parte affidavit cannot be used to supplement that
showing. And second, it argues that since the Government’s
showing is limited to actions that took place in 1980, the
Government has failed to show that AG is currently “present”
and amenable to process. We will deal with these two argu-
ments in sequence.
24a
The Court is inclined to agree with AG that the public
affidavits alone do not establish that the two corporations did
not deal at arm’s length. These affidavits show that Interna-
tional purchased large quantities of oil from AG at what
appears to have been the market price and that subsequently, in
reselling that oil, International sustained $110 million in losses.
The Government urges the Court to infer that AG must
somehow have ultimately benefitted from International’s unex-
plained willingness to sustain massive losses. If we were to look
only at the public affidavits, we would find a serious question
raised as to whether there was a pattern of non-arm’s length
transactions but we would find it difficult solely on this basis
to conclude that an agency relationship existed.
We turn then to the question of the ex parte affidavit. Much
of AG’s protest as to the unfairness of using an ex parte
affidavit is offset by the fact that the Government has revealed
to a great extent the contents of the affidavit both at oral
argument and in its public papers. The Government has re-
vealed that in sustaining these losses, International directed
$20,000,000 of income, which should properly have gone to it,
to AG. AG has thus had some opportunity to refute these
allegations. The Government alleges that it cannot identify the
other party to these transactions without disclosing the name
of an informant and therby jeopardize the grand jury investi-
gation.
The Court is thus placed in the position of having to balance
the Government’s need to maintain in secret the identity of the
informant and the movant’s need to know the asserted grounds
for jurisdiction in order to refute them. AG’s need for the
information is heightened since the Court has imposed the
burden of proof on it. Under the circumstances presented in
this case, we will consider the ex parte affidavit, because the
Government has generally revealed its contents and demon-
strated the significance of the secret information, and because
the need for secrecy appears to be genuinely invoked. In order
to mitigate the possible unfairness to the AG, we will only hoid
AG to a burden of proof which addresses the general disclo-
sure made to AG.
25a
Thus, since AG knows that the Government claims to be
able to show that the losses sustained by Internationa! actually
represented income funnelled to AG, AG must at least show
some reason for those losses other than the one asserted by the
Government. Obviously, AG is disabled from showing that a
particular non-disclosed transaction did not occur, and we have
taken that disability into account. We find it telling, however,
that AG has never attempted to explain International’s losses,
other than to advert to the “volatility” of the market, whereas
the Government has described and documented a scheme that
makes economic sense and appeals to reason. The Government
has therefore made its good faith showing of certain jurisidic-
tional facts and AG has not rebutted them.
It remains to be decided whether these jurisdictional facts
are sufficient to constitute “doing business.” In this regard, we
must consider the objection raised by AG that these facts only
relate to 1980 and that “doing business” requires current
presence in the state. See Rosenberg Bros. & Co. v. Curtis
Brown Co., 260 U.S. 516, 517 (1923). Although AG itself
admits that International continued to buy from AG and to sell
to AG in 1981, see Ryan Affidavit at § 19, the mere fact that
the two companies continued to trade is insufficient. We must
also be able to infer that the underlying relationship between
AG and International continued unchanged. We find that the
inference of a continued pattern cannot easily be made on the
present record which, of course, includes affidavits submitted
by AG that assert that all dealings between the two companies
took place at arm’s length. The credibility of AG’s two affiants
would have to be tested before we could determine whether AG
has met its burden of persuasion.
If “doing business” were the only ground for jurisdiction in
this case, we would either require a hearing’ or quash the
subpoena, granting leave to renew in the event that the Gov-
ernment could supply the Court with additional information.
The discussion of the second ground for jurisdiction will show
why neither of these actions need be taken.
1 At oral argument, both parties disclaimed the need for or appropri-
ateness of such a hearing.
26a
2. “Transaction of Business”.
The Government contends that past transactions can form
the basis of jurisdiction because the acts which occurred in this
state are the subject of the grand jury investigation. In support
of this contention, the Government cites civil cases in which
the plaintiff’s cause of action arose out of the acts in this state.
AG argues that a grand jury’s subpoena power can only be
exerted over persons and corporations present in the state,
except in the case of American nationals or residents, pursuant
to the statutory authority of 28 U.S.C. § 1783.
AG further contends that isolated acts have never been used
to form the basis of grand jury subpoena power and insists
that we must adhere to the model which equates jurisdiction
with territoriality and power. See McDonald v. Mabee, 243
U.S. 90, 91 (1917) (Holmes, J.) (“The foundation of jurisdic-
tion is physical power.”). The Government assumes it is per-
fectly obvious that past acts can form the basis for jurisdiction
in this case and dwells chiefly on the subject of the constitu-
tional requirement of fairness.
Before we reach the constitutional question of fairness, we
must determine whether state law provides for personal juris-
diction in this case. In considering whether the “transaction of
business” is a sufficient basis for the assertion of jurisdiction,
we naturally turn to the New York long arm statute.
N.Y.Civ.Prac. Law § 302(a)(1). We then note that this statute
permits jurisdiction “[a]s to a cause of action arising from” the
transaction of business in this state.” Jd. (emphasis added).
Although, in the context of this proceeding, we do not have a
civil “cause of action”, the statute nevertheless reflects a
legislative determination that it is appropriate to require a
person who has acted in this state to appear and account for
his actions here. It is certainly consistent with this policy to
require a corporation to produce documents for a grand jury
that is investigating specific actions carried out in this state. In
other words, the statute reveals a legislative intent to confer
jurisdiction where the subject matter of the litigation is related
to the contacts with the jurisdiction. Applying this standard in
the context of the grand jury, we find that if the subject matter
of the investigation is related to the contacts with the jurisdic-
27a
tion, the grand jury’s exercise of its subpoena power should
not be invalidated by the court.
The Government has shown a good faith basis for its
assertion of this ground of jurisdiction. It has shown that the
grand jury is investigating particular transactions in which
International allegedly acted on AG’s behalf in this state. It
has presented affidavits which support its allegations that
International directed income from the resale of oil purchased
from AG offshore to AG, in a manner designed to avoid
United States taxes. These alleged transactions on behalf of
AG would undoubtedly provide the minimum contacts needed
to comport with “traditional notions of fair play and substan-
tial justice” required by due process. See International Shoe
Co. v. Washington, 326 U.S. 310 (1945).
The Government having shown a good faith basis for its
assertion of jurisdiction, the burden shifts to AG to persuade
the Court that the transactions between the two companies
took place at arm’s length. In deciding whether AG has met its
burden, we again take into account that AG lacks some details
about the Government assertions. As stated above, AG has not
explained the massive losses incurred by International, and has
thus not met its burden of proof. The Court, therefore, will
not quash the subpoena on the ground that service upon
International was ineffectual.
C. Swiss Penal Law
The only remaining question is whether the Swiss statute
that bars the disclosure of a “business secret” to “a foreign
government” requires this Court to quash the subpoena.” AG
2 Article 273 of the Penal Code of Switzerland provides:
“Economic Espionage
A person who spies out a manufacturing or business secret to make
it accessible to a foreign governmental authority or to a foreign
organization or to a foreign private enterprise or their agents,
a person who discloses a manufacturing or business secret to a
foreign governmental authority or to a foreign organization or to a
foreign private enterprise or their agents,
shall be punished with prison, in severe cases with jail. The
imprisonment may be combined with a fine.”
28a
has submitted the affidavit of Dr. Peter B. Forstmoser, a
professor of law at the University of Zurich and an attorney
admitted to practice in Zurich, Switzerland. Forstmoser has
“considered the list of demanded documents [in the subpoena]
in the light of governing Swiss law,” and it is his “clear and
certain opinion that delivery of these documents to American
authorities . . . would constitute a violation or violations by
AG of art. 273 of the penal code of Switzerland. . . .”
Forstmoser affidavit at 2.
When compliance with a grand jury suL,oena would violate
the law of a foreign nation, the court must balance the interests
of the United States and the foreign nation, taking into
account the following factors:
“ “(a) vital national inverests of each of the states,
(b) the extent and the nature of the hardship that
inconsistent enforcement actions would impose upon the
person,
(c) the extent to which the required conduct is to
take place in the territory of the other State,
(d) the nationality of the person, and
(e) the extent to which enforcement by action of
either state can reasonably be expected to achieve com-
pliance with the rule prescribed by that state.’ ”
United States v. First Nationa! City Bank, 396 F.2d 897, 902
(2d Cir. 1968) (citing Restatement (2d), Foreign Relations Law
of the United States, § 40 (1965)). Although the fact that the
foreign nation threatens criminal penalties raises strong con-
cerns about the hardship that would be imposed if the sub-
poena is upheld, courts will nevertheless uphold the subpoena
if the interests of the United States are strong. S.E.C. v. Banca
Della Svizzera Italiana, 92 E.R.D. 111, 116-117 (S.D.N.Y.
1981). See also Societe International Pour Participations In-
dustrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197
(1958).
We think that the interest of the United States in investigat-
ing violations of its tax laws Outweighs the Swiss interest in
29a
avoiding possible disclosure of business secrets in this case.
The Government has made a substantial showing indicating
that AG used its United States subsidiary to convey income to
it overseas in circumvention of United States tax laws. To
permit AG to shield this conduct from the scrutiny of the
grand jury would be a “travesty of justice.” See S.E.C. v.
Banco Della Svizzera Italiana, 92 F.R.D. 111, 119 (S.D.N.Y.
1981). It is also highly significant that the Swiss government
has not intervened in this matter to defend any national
interests. See United States v. First National City Bank, 396
F.2d 897, 904 (2d Cir. 1968).
Most of AG’s argument directed at tilting the balance in
favor of Swiss law is aimed at denigrating the United States’
interest. AG essentially repeats its jurisdiction argument: since
AG had no contact with this country, the United States should
have little interest in obtaining the requested disclosure. Ob-
viously, our findings above relating to jurisdiction undermine
this argument.
Having considered the other factors in this case, the Court
finds that the Swiss penal statute in question should not bar the
disclosure sought by the grand jury.
CONCLUSION
AG’s motion to quash the grand jury’s subpoena duces
tecum is denied. Since this opinion relates to a proceeding
ancillary to a grand jury matter, we will order the opinion
sealed until further order of this Court.
SO ORDERED.
Dated: New York, New York
August 25, 1982
LEONARD B. SAND
U.S.D.J.
3la
APPENDIX C
Order of the United States District Court for the Southern
District of New York entered September 3, 1982
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
M-11-188
os
IN THE MATTER OF
A GRAND JURY SUBPOENA DIRECTED TO
MARC RICH & CO. A.G., A SWISS CORPORATION
-—-
ORDER
Pursuant to the Court’s Opinion dated August 25, 1982
denying Marc Rich & Co. A.G.’s motion to quash a grand jury
subpoena, IT Is HEREBY ORDERED AND ADJUDGED that:
Any duly authorized custodian of records for Marc Rich &
Co. A.G. produce to the grand jury on September 13, 1982 at
10:00 a.m. in Room 1401, United States Courthouse, Foley
Square, New York, New York the records called for in the
April 15, 1982 subpoena duces tecum directed to Marc Rich &
Co. A.G.
SO ORDERED
LEONARD B. SAND
Leonard B. Sand
United States District Judge
Dated: New York, New York
September 3, 1982
33a
APPENDIX D
Order of the United States District Court for the Southern
District of New York entered September 14, 1982
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
M-11-188
-t-
IN THE MATTER OF
MARC RICH & CO. A.G., A SWiSS CORPORATION,
CONTEMPT PROCEEDING UNDER TITLE 28,
United States Code, Section 1826(a)
a os
ORDER
Marc Rich & Co. A.G., having been subpoenaed to appear
before a federal grand jury in the Southern District of New
York to produce various records called for in an April 15, 1982
subpoena duces tecum and having been ordered by the Court
on September 2, 1982 to designate a duly authorized custodian
of records to appear before the July 13, 1982 Special Grand
Jury on September 13, 1982, to produce the records called for
in the April 15, 1982 subpoena duces tecum and Marc Rich &
Co. A.G. having on September 13, 1982, refused to comply
with the Court’s September 2, 1982 Order to produce the
records to the Grand Jury, and application having been made
by the Government for an order of confinement or other
sanctions pursuant to Title 28, United States Code, Section
1826(a), and the Court being satisfied that Marc Rich & Co.
34a
A.G. has unlawfully refused without just cause shown to
comply with the Order of this Court with full understanding of
its obligation to so comply, it is hereby ORDERED AND AD-
JUDGED that:
1. Marc Rich & Co. A.G. is in civil contempt under Title 28,
United States Code, Section 1826(a) pursuant to which the
Court imposes a fine of $50,000 per day until Marc Rich & Co.
A.G. is willing to comply with the order of this Court and to
produce the documents called for or until the expiration of the
term of said Grand Jury or until March 13, 1984, whichever
first occurs;
2. The imposition of said fine is stayed until such time as the
mandate of the Court of Appeals regarding an appeal from
this Order is issued, such stay being subject to the following
conditions:
a) A Notice of Appeal is to be filed by Mare Rich & Co.
A.G. by September 14, 1982; and
b) Marc Rich & Co. A.G. will join with the Government in
a motion to expedite the appea!, with the appellant’s brief to
be filed on or before September 22, 1982, and the Govern-
ment’s brief to be filed on or before October 4, 1982.
3. The sanctions ordered by the Court are without prejudice
to any application by the Government to increase the monetary
amount of the fine and/or to direct incarceration of an
individual who would be an appropriate person to effect
compliance with the April 15, 1982 subpoena duces tecum.
Dated: New York, New York
September 13, 1982
LEONARD B. SAND
Honorable Leonard B. Sand
United States District Judge
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