Petition for Writ of Certiorari — Bache & Co. (Lebanon) S. A. L. v. Tamari

> 88-1904

No. Oftice-Supreme Court, U.S.

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IN THE MAY 21 i9e¢

Supreme Court of the Hnited BBG. stevas,

CLERK

OCTOBER TERM, 1983

BACHE & CO. (LEBANON) S.A.L.,

a Lebanese corporation,

Petitioner,

—against—

ABDALLAH W. TAMARI, LUDWIG W. TAMARI, FARAH

TAMARI, co-partners d/b/a WAHBE TAMARI & SONS CO.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

MARVIN SCHWARTZ

FLORENCE A. DAVIS SULLIVAN & CROMWELL

Of Counsel 125 Broad Street

New York, New York 10004

(212) 558-4000

N.A. GIAMBALVO Counsel for Petitioner

JAMES W. COLLINS Bache & Co. (Lebanon) S.A.L.

LAWRENCE M. GAVIN

BOODELL, SEARS, SUGRUE,

GIAMBALVO & CROWLEY

69 West Washington Street

Chicago, Illinois 60602

(312) 269-0300

Of Counsel

May 21, 19384

T

QUESTIONS PRESENTED

1. Are claims under the Commodity Exchange Act which

are brought by citizens and residents of a foreign country

against a foreign affiliate of a Delaware corporation, concern-

ing alleged misconduct that occurred entirely outside the

United States, properly within the subject matter jurisdiction

of the federal courts solely because some of the commodity

futures transactions at issue were executed on a United States

exchange?

2. Did Congress intend to provide a private right of action

under the Commodity Exchange Act to citizens and residents

of foreign countries who complain of misconduct that oc-

curred entirely outside of the United States?

LIST OF PARTIES TO THE APPEAL IN THE

SEVENTH CIRCUIT

The names of all of the parties to the appeal in the Seventh

Circuit are provided in the caption to this petiton. Sup. Ct. R.

21.1(b). A list of the parents, subsidiaries and affiliates of

Bache Lebanon is annexed hereto as Appendix A pursuant to

Rule 28.1.

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TABLE OF CONTENTS

PAGE

UTE WE PRIMED wc ccc ets ccccccccnns i

LIST OF PARTIES TO THE APPEAL IN THE

ee eee eh K CC b CRS Oeseneeee ii

PET PUP PIERO EEE s vc cnc ccccccccccsccccese iv

eae eek ek peek nbeeesececsecs l

BASIS FOR JURISDICTION IN THIS COURT...... 2

ea cc kee sccnseeceens 2

SEATON E OF THE CASE 2... cc ccc cece ccc cnes 2

REASONS FOR GRANTING THE WRIT........... 5

LC. Sin dns ee 6th stn sdsccecisceres 15

EEE ee eee ee A-l

ee eek keh cc eeensendeccecner A-1

B. Court of Appeals Opinion .................... A-3

See IE SE IID wae cncaccccncssncece A-15

D. Commodity Exchange Act Sections ............ A-29

E. 1 N.Y.S.E. Guide (CCH) 671-680 (1984) ........ A-33

iV

TABLE OF AUTHORITIES

Cases: PAGE

Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d Cir.),

cert. denied, 423 U.S. 1018 (1975) .......... 6, 8, 9, 10, 14

Blackmer v. United States, 284 U.S. 421 (1932) ....... 7

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) 12

Cresswell v. Prudential-Bache Securities Inc., 580 F.

, Se Sees Oe CUED wwe ce atans cdeeencataccue 13

Fidenas AG v. Compagnie Internationale Pour

L’Informatique CII Honeywell Bull S.A., 606 F.2d 5

ge Fy rer ee ry ree 6, 7, 8,9

Foley Bros., Inc. v. Filardo, 336 U.S. 281 (1949) ...... 7

IIT v. Vencap, Ltd., 519 F.2d 1001 (2d. Cir. 1975) ..... 6

Leasco Data Processing Equipment Corp. v. Maxwell,

ae ee Be ee A Chan con cacccnccecatiss 5

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,

Se es Be EE 46.6:400.0400%645 0% en dae saeennsee 10, 11

Mormels v. Girofinance, S.A., 544 F. shes 3 815

Sn SE 9.5 Kndenccbueskutdcannetuennes cent 6, 8, 9

Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981) ..... 13

Psimenos v. E.F. Hutton & Co., 722 F.2d 1041 (2d Cir.

SE + 0.3.400b eck bandteeeetekscannnne 5, 6, 12, 13, 14

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) ....11, 12

Schoenbaum vy. Firstbrook, 405 F.2d 200 (2d Cir.), aff’d

as to jurisdiction and rev’d on other grounds, 405 F.2d

215 (2d Cir. 1968) (en banc), cert. denied, 395 U.S.

Tamari v. Bache & Co. (Lebanon) S.A.L., No. 83-2452,

slip op. (7th Cir. March 30, 1984)................. passim

)

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PAGE

Tamari v. Bache & Co. (Lebanon) S.A.L., 547 F. Supp.

Ps ne EE Wk 0 45664 06065400.05 166K e KEE Ss 1,4

Tamari v. Bache Halsey Stuart, Inc., No. 77 C 301

(N.D. Ill. 1979), aff'd, 619 F.2d 1196 (7th Cir.), cert.

SE, Gs ee ED hw wha ceceecasuxctesss 3

Tamari v. Bache & Co. (Lebanon) S.A.L., No. 76 C 21

(N.D. Ill. 1976), aff’d, 565 F.2d 1194 (7th Cir. 1977),

cert. denied, 435 U.S. 905 (1978)... ...........008- 3

Tamari v. Conrad, No. 76 C 2071 (N.D. Ill. 1976), aff'd,

— be ef Le 8. er er re 3

Wie v. Swan, $46 U.S. 427 (ISSS) 2... wc seccccccess 12

Statutes:

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Other Authorities:

Proposed Duties of Futures Commission Merchants To-

ward Accounts of Foreign Brokers and Traders,

[1980-1982 Transfer Binder] Comm. Fut. L. Rep.

(CCH) § 21,028 (CFTC May 14, 1980)............. 12

CFTC Statement of Policy Concerning the Exercise of

Commission Jurisdiction Over Reparations Claims

That Involve Extraterritorial Activities of Respond-

ents, 49 Fed, Reg. 14721 (April 13, 1984)........... 13

iia eal

vi

PAGE

CFTC Revision of Registration Regulations; Proposed

Rules, 45 Fed. Reg. 18356 (Marcl. 20, i980) ........ 14

1 N.US.B. Guide (CCH) (1984)... . ccc ccc cccccccccn 6

P.J. Kaufman, Handbook of Futures Markets (1984)... 10

13 C. Wright & A. Miller, Federal Practice and Proce-

ED bib dns koe ee ces baeasoaiee sk 14

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

.

>

BACHE & Co. (LEBANON) S.A.L.,

a Lebanese corporation,

Petitioner,

—against—

ABDALLAH W. TAMARI, LUDWIG W. TAMARI, FARAH

TAMARI, co-partners d/b/a WAHBE TAMARI & SONS Co.,

Respondents.

=>

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioner Bache & Co. (Lebanon) S.A.L. (“Bache Le-

banon”) respectfully requests that a writ of certiorari issue to

review the interlocutory order of the United States Court of

Appeals for the Seventh Circuit entered on March 30, 1984.

OPINIONS BELOW

The opinion of the Court of Appeals, which has not been

officially reported, is annexed as Appendix B. The opinion of

the United States District Court for the Northern District of

Illinois (Getzendanner, J.), reported as Tamari v. Bache & Co.

(Lebanon) S.A.L., 547 F. Supp. 309 (N.D. Ill. 1982), is

annexed as Appendix C.

BASIS FOR JURISDICTION IN THIS COURT

The jurisdiction of this Court is invoked pursuant to 28

U.S.C. § 1254(1). Jurisdiction in the District Court was pre-

mised on 28 U.S.C. §§ 1331, 1337 and 1350. After the District

Court denied Bache Lebanon’s moiion for summary judgment

or judgment on the pleadings, the Court of Appeals granted

permission for an interlocutory appeal pursuant to 28 U.S.C.

§ 1292(b). The order of the Court of Appeals, which affirmed

the District Court’s ruling, was entered on March 30, 1984.

STATUTE INVOLVED

Sections 4b and 4c of the Commodity Exchange Act, as

amended in 1968 (“CEA”), 7 U.S.C. §§ 6b and 6c, are annexed

as Appendix D. The Commodity Exchange Act of 1974 and the

Futures Trading Act of 1982, which amended the CEA, are not

applicable to this case because the disputes at issue arose

before the passage of the amendments. In any event, the 1974

and 1982 amendments would not affect the questions posed by

this petition.

STATEMENT OF THE CASE

Respondents Abdallah Tamari, Ludwig Tamari and Farah

Tamari (“the Tamaris”) are citizens and residents of Lebanon.

In 1972, the Tamaris opened two commodity futures accounts

with Bache & Co., Inc., a Delaware corporation (“Bache

Delaware”), through Bache Lebanon, a Lebanese corporation

with its sole office in Beirut. Bache Lebanon, a wholly-owned

subsidiary of Bache Delaware, acted as Bache Delaware’s

agent in Lebanon in connection with the Tamaris’ account and,

as the Court of Appeals said, “all communications and meet-

ings between Bache Lebanon and the Tamaris regarding the

commodity futures contracts traded in the United States took

place in Lebanon.” (App. B at A-7)

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A. Prior Litigation Between the Parties

Since 1975 the Tamaris have filed four lawsuits relating to

the disputes at issue in this case. In addition, Bache Delaware

and the Tamaris arbitrated their disputes before an arbitration

panel of the Chicago Board of Trade.

The Tamaris filed this action in 1975 2 ;ainst both Bache

Delaware and Bache Lebanon. The Tamaris alleged common

law fraud, negligence, breach of fiduciary duty and violations

of sections 4b and 4c of the CEA, 7 U.S.C. §§ 6b and 6c,

claiming, inter alia, that Bache Delaware and Bache Lebanon

had churned their accounts, made false representations to them

and deceived them as to the status of their accounts.

In 1976, the District Court dismissed the complaint against

Bache Delaware and ordered the Tamaris to proceed with an

arbitration that had already been commenced before the Chi-

cago Board of Trade and involved the same claims as those

‘ alleged in this action.' After evidentiary hearings, the arbitra-

tors found in Bache Delaware’s favor on its claim against the

Tamaris and dismissed all of the Tamaris’ counterclaims

against Bache Delaware. The arbitration award was confirmed

and a judgment entered on the award.’ Thus, the only entity

that conducted any relevant business in the United States with

respect to the Tamaris’ accounts was found to have acted

properly and lawfully.

l The Tamaris’ counterclaims in the arbitration were virtually

identical to their claims in this action.

2 Tamari v. Bache Halsey Stuart, Inc., No. 77 C 301 (N.D. Til.

1979), aff'd, 619 F.2d 1196 (7th Cir.), cert. denied, 449 U.S. 873

(1980). The Tamaris filed two other lawsuits seeking to stay or

overturn the arbitration proceedings on various grounds. The District

Court dismissed both of these actions, and the Seventh Circuit

affirmed beth judgments. Tamari v. Bache & Co. (Lebanon) S.A.L.,

No. 76 C 21 (N.D. Ill. 1976), aff'd, 565 F.2d 1194 (7th Cir. 1977),

cert. denied, 435 U.S. 905 (1978); Tamari v. Conrad, No. 76 C 2071

(N.D. Ill. 1976), aff’d, 552 F.2d 778 (7th Cir. 1977).

4

B. The Overwhelmingly Foreign Locus of This Case

The only claims remaining in this lawsuit are those asserted

by the Tamaris against Bache Lebanon. Thus, the lawsuit has

become one brought by foreign citizens against a foreign

business, arising out of dealings in a foreign country. It is

undisputed that all of the Tamaris’ dealings with Bache Le-

banon, including all of the alleged misconduct that underlies

the Tamaris’ complaint, took place in Lebanon, where Bache

Lebanon conducted all of its activities. (App. B at A-4, 7; App.

C at A-16-7)

When Bache Lebanon received orders from the Tamaris for

commodity futures transactions, it transmitted them to Bache

Delaware, which relayed the orders to the appropriate ex-

changes for execution in either England or the United States.

(App. C at A-16, 25-6) Bache Delaware gave final acceptance

to and processed the Tamaris’ orders. (App. B at A-6) Bache

Lebanon did not execute any of the Tamaris’ orders; it is not

registered as a futures commission merchant under the CEA’

nor is it a member of any exchange in the United States, (App.

C at A-16 n.2). Thus, any acts in the United States with respect

to the Tamaris’ accounts, including acceptance, processing and

execution of orders, were done by Bache Delaware, a non-

party, and have been found entirely proper by virtue of the

arbitration before the Chicago Board of Trade.

C. The Rulings on Subject Matter Jurisdiction

In July 1981, Bache Lebanon moved for judgment on the

pleadings or alternatively for summary judgment on the

grounds, inter alia, that the District Court lacked subject

matter jurisdiction over the plaintiffs’ claims and that the

Tamaris had no private right of action under the CEA. Bache

Lebanon argued that Congress did not intend to provide for

extraterritorial application of the CEA to a dispute between

foreigners concerning alleged misconduct that occurred in a

foreign country.

3 See section 4d of the CEA, 7 U.S.C. § 6d.

wieaticagonbein UedicndioP Wi Baker

5

The District Court, relying on the judicially created “ef-

fects” and “conduct” tests of extraterritorial jurisdiction,‘

denied Bache Lebanon’s motion, but certified its order for

appeal with respect to the issue of subject matter jurisdiction.

The Seventh Circuit granted permission for an interlocutory

appeal pursuant to 278 U.S.C. § 1292(b), and affirmed the

District Court’s ruling, expressly sanctioning the District

Court’s application of the “conduct” and “effects” tests and

adopting the District Court’s analysis under those tests. (App.

B at A-12)

REASONS FOR GRANTING THE WRIT

The Seventh Circuit now joins the Second Circuit® in permit-

ting the extraterritorial application of the CEA to disputes in

which the sole nexus to the United States is execution of the

customer’s order on a domestic exchange. The Second and

Seventh Circuits’ interpretation of the CEA is contrary to

analogous decisions of this Court and results in an impermissi-

ble and unwarranted extension of the CEA to disputes that

have, at most, an utterly insignificant and incidental impact on

United States interests.

The extraterritorial application of the CEA sanctioned by

Tamari and Psimenos extends the law governing extraterrito-

rial application of United States statutes far beyond its already

4 The “effects” test, as set forth in Schoenbaum v. Firstbrook,

405 F.2d 200 (2d Cir.), aff’d as to jurisdiction and rev’d on other

grounds, 405 F.2d 215 (2d Cir. 1968) (en banc), cert. denied, 395 U.S.

906 (1969), “focuses on whether conduct occurring outside the

United States causes foreseeable and substantial effects within the

United States.” (App. B at A-7 n.6) The “conduct” test, set forth in

Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326

(2d Cir. 1972), “focuses on the significance of conduct within the

United States to the accomplishment of illegal activities.” (App. B at

A-7 n.6)

5 Psimenos v. E.F. Hutton & Co., 722 F.2d 1041 (2d Cir. 1983).

6

generous bounds,° and adversely affects every major American

brokerage firm with foreign offices or affiliates abroad. Mem-

bers of the New York Stock Exchange presently have 266

foreign offices or representatives in 31 foreign countries.

1 N.Y.S.E. Guide (CCH) at 671-680 (1984) (annexed as Appen-

dix E). Tamari and Psimenos bring within the jurisdiction of

the federal courts any dispute involving American securities or

commodities futures occurring in any of those offices and in

any of those countries, even if the dispute is entirely between

foreigners and the subject matter of the dispute is alleged

misconduct that occurred entirely outside the United States.

There is no suggestion in the legislative history of the CEA that

Congress intended that the federal courts should be burdened

by cases of this sort.

ms. (1)

Initially, the Seventh Circuit correctly held that legislative

intent must be considered in determining the scope of jurisdic-

tion under the CEA. (App. B at A-8) The Court relied on

Second Circuit precedent for this position, citing the seminal

Bersch case in which the Second Circuit held that

“When, as here, a court is confronted with transactions

that on any view are predominantly foreign, it must seek

to determine whether Congress would have wished the

precious resources of United States courts and law en-

forcement agencies to be devoted to them rather than

leave the problem to foreign countries.” Bersch v. Drexel

Firestone, Inc., 519 F.2d 974, 985, cert. denied, 423 U.S.

1018 (1975).’ See also Fidenas AG v. Compagnie Interna-

tionale, 606 F.2d at 10.

6 Compare Fidenas AG v. Compagnie Internationale Pour

I’Informatique CII Honeywell Bull S.A., 606 F.2d 5 (2d Cir. 1979);

IIT v. Vencap, Ltd., 519 F.2d 1001 (2d Cir. 1975).

7 Although Bersch is a securities case, courts have applied

principles developed in securities cases relating to subject matter

jurisdiction to cases arising under the CEA. See, e.g., Mormels v.

Girofinance, S.A., 544 F. Supp. 815, 817 n.8 (S.D.N.Y. 1982).

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The Court of Appeals could not find clear legislative intent to

extend the CEA to foreign disputes. (App. B at A-10)

It is well settled that in the absence of clear legislative intent,

it must be presumed that Congress did not intend to provide

for extraterritorial application of a United States statute to

disputes that are predominantly foreign. See, e.g., Foley Bros.,

Inc. v. Filardo, 336 U.S. 281, 284-5 (1949); Blackmer v. United

States, 284 U.S. 421, 437 (1932). But the Court below did not

end its inquiry with a review of the CEA’s legislative history.

Instead, it incorrectly assumed that execution of commodity

futures transactions on United States exchanges had sufficient

impact on United States commerce to justify recourse to the

conduct and effects tests, p. 5 n.4, supra, to determine whether

extraterritorial application would be consistent with the pur-

poses underlying the CEA. (App. B at A-10)

The Seventh Circuit’s error in venturing beyond its inquiry

into legislative intent was compounded by its extension of

extraterritorial application of a United States statute beyond

the already generous bounds established in recent cases. More-

over, the Court based this unwarranted extension solely upon a

highly questionable presumption of generalized impact on the

United States commodities markets. The Court merely stated

its own view that “[t]he transmission of commodity futures

orders to the United States would be an essential step in the

consummation of any scheme to defraud through futures

trading on United States exchanges.” (App. B at A-12) The

Court also speculated that fraudulent activity in connection

with commodity futures transactions would affect prices and

trading volumes on futures exchanges and could undermine

public confidence in the markets. /d.

In recent decisions under the federal securities laws, courts

have been unwilling to extend application of those statutes to

predominantly foreign disputes, even in cases in which there

are far more contacts with the United States than exist here. In

Fidenas AG v. Compagnie Internationale Pour L’ Informatique

CII Honeywell Bull S.A., 606 F.2d 5 (2d Cir. 1979), foreign

8

plaintiffs agreed to raise money for defendant Honeywell Bull

(“HBS”), a Swiss subsidiary of an American company, by the

sale of promissory notes. Pursuant to an underwriting agree-

ment, the plaintiff underwriters sold HBS notes to various

customers, including a New York resident. It subsequently was

learned that the HBS notes sold by plaintiffs had been forged

and HBS refused to honor them.

The plaintiff underwriters sued HBS in federal court for

violations of the antifraud provisions of the federal securities

laws. Plaintiffs alleged that numerous acts related to the fraud

had been committed by the defendants in the United States: the

closing of the underwriting in New York City, the transmission

of note proceeds through several United States banks, repeated

communications between New York and Switzerland and pur-

chases of HBS notes by American customers. The District

Court dismissed the complaint and the Court of Appeals

affirmed.

Relying on Bersch, the Second Circuit concluded that the

core of the allegedly fraudulent activity occurred abroad and

that the contacts between the alleged fraud and the United

States, including the sale here of the HBS notes, were not

sufficient to constitute fraudulent acts in this country. The

Court summarized, “[f]raud there might have been, and plain-

tiffs may very well have been damaged by its perpetra-

tion. . . . {bjut the dispute here presented is rightfully

resolved in the courts of another land.” Fidenas AG v. Com-

pagnie Internationale, 606 F.2d at 10.

In Mormels v. Girofinance S.A., 544 F. Supp. 815 (S.D.N-Y.

1982) (Weinfeld, J.), the court dismissed foreign securities

claims on similar grounds. The plaintiffs in that case were two

German nationals and a former Texan, all residing in Costa

Rica, who sued to recover monies allegedly converted by theim

Costa Rican broker, defendant Girofinance. Also named as a

defendant was E.F. Hutton & Co., Inc., a New York invest-

ment firm. The complaint alleged violations of the federal

securities laws and the CEA.

rs

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9

The crux of the claim against Hutton was that it knew

Girofinance was holding itself out as an agent of Hutton,

thereby inducing plaintiffs to deposit funds with it for invest-

ment. American contacts with the alleged fraud included Giro-

finance’s use of plaintiffs’ funds to open an omnibus account

with Hutton in the United States for trading, one plaintiff’s

placement of orders directly with a Hutton branch in the

United States and the transmission of various telexes from

Girofinance to that Hutton office.

The court found that the American contacts notwithstand-

ing, all false representations were made in Costa Rica. Thus,

under Bersch and Fidenas, no jurisdiction existed because the

activity that occurred in the United States was not fraudulent.

Judge Weinfeld stated that the American contacts with the

transaction, including United States trading, “were ‘relatively

minor’ and of a ‘secondary’ nature and [did] not detract from

the fact that the core of the primary fraud was centered and

committed in Costa Rica and not the United States.” Mormels

v. Girofinance, 544 F. Supp. at 818.

Similarly, in this case, the execution of the Tamaris’ orders

on the trading floor of an American exchange was an inconse-

quential fact in the context of their dispute with Bache Le-

banon. Obviously, but for the mechanical act of execution on a

United States exchange, the transactions that the Tamaris

complain of might not have been consummated. But since the

Tamaris do not claim that the mere execution of their trans-

actions on the floor of the exchange was in any way fraudu-

lent, the mechanical act of execution cannot properly be held

to create a substantial justification for applying the CEA to the

Tamaris’ claims. Their claims of fraud and mishandling of

their accounts, even if true, do not raise questions of domestic

market integrity. They do not allege market or price manipula-

tion. None of their claims, if true, would have any measurable

impact on American investors. (Cf. App. B at A-12)* Thus, the

8 The volume of the Tamaris’ futures trading at Bache was de

minimus. They claim to have traded 2800 futures contracts over a

(footnote continued on following page)

10

Tamaris’ alleged injuries are unrelated to, and provide no

evidence of, the effects presumed by the Seventh Circuit.

An assumption of unparticularized and speculative impact

on the United States economy, or on American investors

generally, is not sufficient to confer subject matter jurisdiction

on the federal courts. See Bersch v. Drexel Firestone, 519 F.2d

at 988. The Seventh Circuit presumed impact even though the

record showed none and the Court’s presumptions were not

sanctioned by anything in the legislative history of the CEA.

The Court’s recourse to the “conduct” and “effects” tests was

erroneous and its analysis of its own speculative assumptions

under those tests, which were designed to measure actual

impact on United States commerce, was incorrect.

(2)

As the Court of Appeals correctly concluded, neither the

words of the CEA nor its legislative history suggest Congres-

sional intent to provide for extraterritorial application of the

Act to predominantly foreign disputes in which the alleged

misconduct occurred outside the United States.

In Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,

456 U.S. 353 (1982), this Court held that a private party could

maintain an action for damages caused by a violation of the

CEA, although Congress had not expressly provided for such

(footnote continued from preceding page)

thirteen month period in 1972 and 1973. Complaint § 17; Tamaris’

Answer to Arbitration Complaint ¢ 12(1). Many of their trades were

executed on London commodities exchanges. See Tamaris’ Answer to

Arbitration Complaint ¢ 9. According to figures provided by the

Futures Industry Association Inc., the volume of trading in 1972 and

1973 on United States exchanges was 18.3 million and 25.8 million

contracts respectively. P. J. Kaufman, Handbook of Futures Markets

(1984). Even if all of the Tamaris’ 2800 contracts were executed on

American exchanges, they comprised approximately one one-hun-

dredth of one percent of the annual trading volume during the years

relevant to this case.

ithe: stalte ada ih aisit din “4

11

actions.” The Merrill Lynch case involved an alleged massive

conspiracy to manipulate che potato futures market on the

New York Mercantile Exchange. The alleged fraud and manip-

ulation took place in the United States and, assuming the

plaintiffs’ allegations were true, had a demonstrable impact on

domestic investors and the integrity of the domestic potato

market. In Merrill Lynch, the execution of customers’ orders

for transactions in commodity futures and physical commodi-

ties, and the effect of those executions on prices, were not

secondary or minor aspects of the alleged misconduct but went

to the heart of the case. On those facts, the implication of a

private right of action advanced Congress’ purpose in pro-

mulgating the CEA to foster orderly and fair markets.

This case is entirely different. Respondents do not allege a

conspiracy to manipulate prices on American commcdity ex-

changes. Their trades comprised a minuscule percentage of the

total futures contracts traded during the period they main-

tained their accounts at Bache Lebanon. See p. 9 n.8, supra.

Any alleged misrepresentations or misconduct by Bache Le-

banon in Lebanon with respect to the Tamaris’ accounts did

not and could not undermine the fairness of the United States

commodities markets, nor did the mere execution of the

Tamaris’ orders lie anywhere near the heart of Bache Le-

banon’s alleged misconduct. To imply a private right of action

under the CEA in favor of the Tamaris, or to extend the

express right of action in the 1982 Futures Trading Act to

disputes with an overwhelmingly foreign locus, would burden

the federal courts without any attendant benefit to American

investors or the domestic markets.

In an analogous case, Scherk v. Alberto-Culver Co., 417

U.S. 506 (1974), this Court held that an arbitration agreement

involving extranational transactions was enforceable even

though the claims to be asserted in arbitration arose under the

9 A private right of action was expressly provided for in the

1982 amendments to the CEA. Section 22, Futures Trading Act of

1982, 7 U.S.C. § 25.

12

Securities Act of 1933. Arbitration agreements involving do-

mestic transactions are unenforceable with respect to claims

arising under the Act. Wilko v. Swan, 346 U.S. 427 (1953).

But as the Court said in Scherk, in distinguishing domestic

and extranational transactions,

“The invalidation of such an agreement in the case before

us would . . . reflect a ‘parochial concept that all dis-

putes must be resolved under our laws and in our courts

. . . We cannot have trade and commerce in world

markets and international waters exclusively on our

terms, governed by our laws, and resolved in our

courts.’” Jd. at 519, quoting The Breman v. Zapata

Off-Shore Co., 407 U.S. 1, 9 (1972).

If foreign citizens trading commodity futures through for-

eign entities are to be afforded the full protections of the CEA,

it should be accomplished by a program of legislation and

related treaties under which American citizens would receive

similar protections under the laws of foreign nations. The

development and coordination of a comprehensive scheme of

redress for disputes involving the commodities markets are

tasks peculiarly within the legislative province that should

await further guidance from Congress. Judicial expansion of

CEA jurisdiction by any Court of Appeals in circumstances

such as those presented here is plainly improper and should be

halted.

(3)

The decision below, together with the Second Circuit’s

decision in Psimenos and the growing internationalization of

trading markets,'° presage a steady flow into the federal courts

of disappointed foreign speculators in commodity futures,

10 The CFTC itself “recognizes the international character of

the futures markets which it regulates.” Proposed Duties of Futures

Commission Merchants Toward Accounts of Foreign Brokers and

Traders, {1980-1982 Transfer Binder] Comm. Fut. L. Ren. (CCH)

§ 21,028 (CFTC May 14, 1980) at 24,044.

—

13

financial futures, options and securities whose essentially for-

eign claims have as their sole nexus to the United States a

mechanical execution on the floor of a United States ex-

change.'' The judicial burden will be entirely federal, because

the jurisdiction over CEA claims has been exclusively federal

since 1983. Section 22(c), Futures Trading Act of 1982, 7

U.S.C. § 25(c).

This Court observed in a forum non conveniens case that the

American courts have become “extremely attractive to foreign

plaintiffs.” Piper Aircraft Co. v. Reyno, 454 U.S. 235, 252

(1981). In rejecting a court of appeals ruling that restricted the

application of the forum non conveniens doctrine, the Court

recognized that under such a ruling, “[t]he flow of litigation

into the United States would increase and further congest

already crowded courts.” Jd.

The Commodity Futures Trading Commission (“CFTC”),

which is charged with the administration of the CEA and

regulation of the commodities markets, has announced that it

will shed the burden created by the decisions below and in

Psimenos by dismissing reparations complaints, even if there

are sufficient domestic contacts to satisfy the “conduct” or

“effects” tests, if adjudication of a reparations complaint

would cause substantial inconvenience to the respondent or to

the Commission. CFTC Statement of Policy Concerning the

Exercise of Commission Jurisdiction Over Reparations Claims

That Involve Extraterritorial Activities of Respondents, 49

Fed. Reg. 14721 (April 13, 1984).'”

11 One such case, Cresswell v. Prudential-Bache Securities Inc.,

580 F. Supp. 55 (S.D.N.Y. 1984), involving 85 exclusively foreign-

based plaintiffs complaining of alleged misrepresentations made to

them by foreign-based brokerage firm employees, is now winding its

way toward a jury trial of at least three month’s duration. By the

time of trial there will have been more than 100 depositions.

12. The CFTC has likewise shed a comparable burden by ex-

empting from registration under the CEA account executives whose

business is confined to foreign customers:

(footnote continued on following page)

14

in thus applying a forum non conveniens analysis, the CFTC

has exercised an option not available to the federal district

courts. If, as the Court of Appeals below and the Second

Circuit have held, the CEA has extraterritorial application, the

district courts have exclusive jurisdiction over foreign claims

unless the plaintiff elects a reparation proceeding before the

CFTC. Unlike the CFTC in reparations cases, a federal district

court may not dismiss on the ground of forum non conveniens

a federal claim over which it has exclusive jurisdiction. See 13

C. Wright & A. Miller, Federal Practice and Procedure § 3564

(1975) at 429.

This Court should act now to settle the questions posed by

petitioner rather than await the inevitable conflict among the

courts of appeals. The questions posed here have critical

importance. By the time another court of appeals comes to a

different conclusion in another case, the federal courts will

have been needlessly burdened and litigants will have need-

lessly spent millions of dollars in litigation expense because of

the inducement to litigation erroneously offered by the Second

and Seventh Circuits.

So long as Bersch was the seminal decision on the extraterri-

torial application of federal statutes, there was little need for

this Court to speak on the subject. Judge Friendly’s decision in

Bersch was manifestly sound and seemed to be leading the

federal courts to results consistent with Congressional intent.

The decisions in the present case and in Psimenos, however,

(footnote continued from preceding page)

“The Commission believes that, given this agency’s limited

resources, it is appropriate at this time to focus its customer

protection activities upon domestic firms and upon firms

soliciting or accepting orders from domestic users of the

futures markets and that the protection of foreign customers

of firms confining their activities to areas outside this coun-

try, its territories, and possessions may best be for local

authorities in such areas.” CFTC Revision of Registration

Regulations; Proposed Rules, 45 Fed. Reg. 18356 at 18360

(March 20, 1980).

15

represent an unwarranted and dangerous erosion of this sound

federal judicial benchmark and soon will lead to a burden of

litigation in the federal courts involving foreign claims and

claimants never envisioned by Congress. We respectfully sub-

mit that now is the time for this Court to act.

CONCLUSION

For the foregoing reasons, Bache Lebanon respectfully re-

quests that the Court grant a writ of certiorari to review the

decision of the Seventh Circuit.

May 21, 1984

Respectfully submitted,

MARVIN SCHWARTZ

FLORENCE A. DAVIS SULLIVAN & CROMWELL

Of Counsel 125 Broad Street

New York, New York 10004

(212) 558-4000

N.A. GIAMBALVO Counsel for Petitioner

JAMES W. COLLINS Bache & Co. (Lebanon) S.A.L.

LAWRENCE M. GAVIN

BOODELL, SEARS, SUGRUE,

GIAMBALVO & CROWLEY

69 West Washington Street

Chicago, Illinois 60602

(312) 269-0300

Of Counsel

APPENDIX A

Appendix A

STATEMENT PURSUANT TO SUPREME COURT

RULE 28.1

Respondent Bache & Co. (Lebanon) S.A.L. (“Bache Le-

banon”) is a wholly-owned subsidiary of Prudential-Bache

Securities Inc. (formerly Bache & Co., Inc., designated as

“Bache Delaware” in the foregoing petition). The following

are additional parent companies and affiliates of Bache Le-

banon.

The Prudential Insurance Company of America

PRUCO, Inc.

Prudential Capital ana Investment Services Inc.

Bache Group Inc.

Prudential-Bache Leasing Inc.

Prudential-Bache Commodity Management Company, Inc.

Bache Securities Inc.

Bache Commodities Ltd.

Bache Guinness Mahon Futures Limited

Prudential-Bache Metal Co. Inc.

Bache Precious Metals, Inc.

Prudential-Bache Energy Corp.

Prudential-Bache Latin America Inc.

Prudential-Bache Southern Europe Inc.

Prudential-Bache Properties, Inc.

Halsey Stuart Corporate Services Limited

Bache Halsey Stuart Shields Holding Corporation

Prudential-Bache Agriculture Inc.

Bache Insurance Agency of Louisiana, Inc.

Bache Insurance Agency of Nevada, Inc.

Prudential-Bache Energy Production Inc.

P-B Finance Ltd.

Prudential-Bache Venture Capital Inc.

Bache Insurance Agency of Arkansas, Inc.

R & D Funding Corp.

A-2

Appendix A

Bache Securities Asia Pacific Ltd.

Bache Securities Espana S.A.

Bache Securities (France) S.A.

Bache Insurance Agency, Incorporated

Bache Insurance of Arizona, Inc.

Bache Insurance of Kentucky, Inc.

Bache Securities (Hong Kong) Limited

Bache Securities (Greece) S.A.

Bache Securities (Monaco) Inc.

Prudential-Bache (Pan America) Inc.

Prudential-Bache Puerto Rico Inc.

Bache Securities (Japan) Ltd.

Bache Securities (South America) S.A.

Bache Securities (Argentina) S.A.

Bache Securities (Belgium) Inc.

Bache Securities (Germany) Inc.

Bache Securities (Holland) Inc.

Bache Securities (Switzerland) Inc.

Bache Securities (U.K.) Inc.

Bachfurn Corporation

Shields Model Roland Company (London)

Prudential-Bache Real Estate, Inc.

APPENDIX B

Appendix B

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

i

No. 83-2452

ABDALLAH W. TAMARI, LUDWIG W. TAMARI, FARAH

TAMARI, co-partners d/b/a WAHBE TAMARI & SONS Co.,

Plaintiffs-A ppellees,

v.

BACHE & CO. (LEBANON) S.A.L., a Lebanese corporation,

Defendant-Appellant.

as

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 75 C 4189—Susan Getzendanner, Judge.

++—

ARGUED JANUARY 18, 1984—DECIDED MARCH 30, 1984

+

Before BAUER and FLAUM, Circuit Judges, and SWYGERT,

Senior Circuit Judge..

SWYGERT, Senior Circuit Judge. The plaintiffs-appellees

(“the Tamaris”), citizens of Lebanon, brought this suit under

the Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 6b and

6c, for damages resulting from alleged fraud and mismanage-

A-4

Appendix B

ment of their commodity futures trading accounts. The defen-

dant-appellant, Bache & Co. (Lebanon) S.A.L. (“Bache

Lebanon”), is a Lebanese corporation wholly owned by Bache

& Co., Inc., a Delaware corporation (“Bache Delaware”). The

issue presented in this interlocutory appeal is whether the

district court has subject matter jurisdiction under the CEA

over a dispute between nonresident aliens when the trading of

commodity futures contracts giving rise to the suit took place

on United States exchanges but the contacts between the

parties occurred in Lebanon.' The district court held that it

had subject matter jurisdiction in ruling on Bache Lebanon’s

motion for judgment on the pleadings, or, in tne alternative,

for summary judgment. The court later denied Bache Le-

banon’s motion to reconsider its ruling, but certified for

appeal those parts of its order dealing with its subject matter

jurisdiction over the case.” This court granted permission to

1 The plaintiffs also stated a claim of common law fraud,

asserting jurisdiction under 28 U.S.C. § 1350 and principles of

pendent jurisdiction. Both parties appear to assume that this claim

would not survive if jurisdiction is lacking under the CEA. We note

that 28 U.S.C. § 1350 has been narrowly construed and would not

supply a basis for federal jurisdiction over the common law claim.

See ITT v. Vencap, Ltd., 519 F.2d 1001, 1015 (2d Cir. 1975). Without

a federal claim that could survive a motion to dismiss, the plaintiffs

also could not rely upon principles of pendent jurisdiction. United

Mine Workers v. Gibbs, 383 U.S. 715 (1966).

2 In its original motion, Bache Lebanon had asserted tiat it

was entitled to judgment for three reasons: (1) the district court

lacked subject matter jurisdiction; (2) the claims against it were

collaterally estopped by an arbitrator’s decision in favor of its parent,

Bache Delaware; and (3) the Tamaris had no implied right of action

under the Commodity Exchange Act. The district court ruled against

Bache Lebanon on all three issues. Tamari v. Bache & Co. (Lebanon)

S.A. L., 547 F. Supp. 309 (N.D. Ill. 1982). Bache Lebanon now seeks

reversal of the district court only on the ground that subject matter

jurisdiction is lacking over the dispute. Although Bache Lebanon also

has discussec the issues of res judicata and collateral estoppel in

A-5

Appendix B

take an interlocutory appeal pursuant to 28 U.S.C. § 1292(b)

on July 20, 1983. For the reasons stated below, we affirm the

district court’s denial of Bache Lebanon’s mction.

A. Background of this Suit

When the Tamaris filed this action in December 1975, both

Bache Lebanon and its parent, Bache Delaware, were named

as defendants. The Tamaris alleged that Bache Lebanon solic-

ited them to open two commodity futures trading accounts,

which they did early in 1972. The Tamaris further alleged that

in soliciting and trading for their accounts, Bache Lebanon,

Bache Delaware, or both, violated the CEA, causing losses to

the Tamaris’ accounts of more than two million dollars.’ The

alleged violations include excessive trading and churning of the

accounts; making false representations, false reports and false

statements to the Tamaris; and deceiving the Tamaris as to the

true condition of the accounts.

The district court dismissed the action against Bache Dela-

ware on May 19, 1976,‘ because an arbitration proceeding

support of its position on subject matter jurisdiction, we find it

unnecessary to consider these issues in reaching our decision on

subject matter jurisdiction. Nor do we rule on whether we have

jurisdiction to decide them given the district court’s limited certifica-

tion order. See Nuclear Engineering Co. v. Scott, 660 F.2d 241 (7th

Cir. 1981), cert. denied, 455 U.S. 993 (1982).

3 The parties disagree on the extent of Bache Lebanon’s in-

volvement in the solicitation and management of the Tamaris’ ac-

counts and on the nature of the agency relationship between Bache

Lebanon and Bache Delaware.

4 This court dismissed the Tamaris’ appeal of the district

court’s order dismissing the action against Bache Delaware without

prejudice to any further appeal from an appealable order in this case.

Tamari v. Bache & Co. (Lebanon) S.A.L., No. 76-1729 (7th Cir.

Sept. 23, 1976) (unreported order).

A-6

Appendix B

between the Tamaris and Bache Delaware was pending at the

time suit was filed. The proceeding was before the Chicago

Board of Trade pursuant to an arbitration agreement between

the parties. Bache Delaware sought an award of $376,366.96

against the Tamaris for the balance owed in the Tamaris’

trading accounts; the Tamaris sought $2,150,000 in damages

based on a counterclaim similar to the claims of this lawsuit.

Bache Delaware ultimately prevailed in the arbitration pro-

ceeding,’ and successfully defended against the Tamaris’ later

suit seeking to vacate the arbitration award. See Temari v.

Bache Halsey Stuart, Inc., 619 F.2d 1196 (7th Cir.), cert.

denied, 449 U.S. 873 (1980). The only action remaining,

therefore, is that against Bache Lebanon.

B. Motion for Judgment on the Pleadings

| In light of the arbitation decision, Bache Lebanon filed its

motion for judgment on the pleadings or summary judgment.

| The undisputed facts relevant to the question of subject matter

jurisdiction raised by the motion can be briefly stated. The

plaintiffs are citizens of Lebanon and reside outside the United

States. Bache Lebanon, a wholly-owned subsidiary and agent

of Bache Delaware, is a Lebanese corporation and has its sole

office in Beirut, Lebanon. In the course of trading for the

Tamaris’ accounts, Bache Lebanon received futures orders

from the Tamaris in Lebanon and transmitted them by wire to

Bache Delaware for execution on the Chicago Board of Trade

and the Chicago Mercantile Exchange. Bache Delaware, a

member of both exchanges, then executed the contracts. Al-

though there were daily conversations between the Tamaris,

5 The Tamaris filed two additional lawsuits seeking to stay the

arbitration on various grounds. The district court dismissed both

suits, and those dismissals were affirmed by this court. Jamari v.

Bache & Co. (Lebanon) S.A.L., No. 76 C 21 (N.D. Ill. May 19,

1976), aff'd, 565 F.2d 1194 (7th Cir. 1977), cert. denied, 435 U.S. 905

(1978); Tamari v. Conrad, No. 76 C 2071 (N.D. Ill. Nov. 15, 1976),

aff'd, 552 F.2d 778 (7th Cir. 1977).

J

A-7

Appendix B

Bache Lebanon, and Bache Delaware, all communications and

meetings between Bache Lebanon and the Tamaris regarding

the commodity futures contracts traded in the United States

took place in Lebanon.

The district court denied Bache Lebanon’s motion, holding

that subject matter jurisdiction exists over a cause of action

arising from trading on United States exchanges even though

the parties are nonresident aliens and the contacts between

them occurred in a foreign country. The court reached its

decision by applying two doctrines used to analyze jurisdic-

tional questions that arise from transnational disputes—the

effects test and the conduct test.° Under both tests, the court

concluded that jurisdiction exists over this case.

Bache Lebanon now challenges this determination. It first

contends that the district court failed to consider whether

Congress intended the CEA to apply to nonresident aliens

when the alleged illegal acts occurred in a foreign country, and

then argues that subject matter jurisdiction is lacking because

Congress did not intend such application. Bache Lebanon also

contends that subject matter jurisdiction does not exist under

either the conduct test or the effects test.

6 The effects test derives from section 18 of the Restatement

(Second) of Foreign Relations Law of the United States (1965), and

focuses on whether conduct occurring outside the United States

causes foreseeable and substantial effects within the United States.

See Schoenbaum vy. Firstbrook, 405 F.2d 200 (2d Cir.), rev’d on other

grounds, 405 F.2d 215 (2d Cir. 1968) (en banc), cert. denied sub nom.

Manley v. Schoenbaum, 395 U.S. 906 (1969). The conduct test

derives from section 17 of the Restatement and focuses on the

significance of conduct within the United States to the accomplish-

ment of illegal activities. See Leasco Data Processing Equipment

Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972); Bersch v. Drexel

Firestone, Inc., 519 F.2d 974 (2d Cir.), cert. denied sub nom. Bersch

v. Arthur Andersen & Co., 423 U.S. 1018 (1975).

A-8

Appendix B

We agree with Bache Lebanon’s contention that legislative

intent must be considered. See, e.g., Psimenos v. E. F: Hutton

& Co., 722 F.2d 1041, 1044-45 (2d Cir. 1983); Bersch v. Drexel

Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert. denied sub

nom. Bersch v. Arthur Andersen & Co., 423 U.S. 1018 (1975).

Subject matter jurisdiction exists over this dispute only if the

antifraud provisions of the Commodity Exchange Act were

intended to apply to foreign brokers or agents of commodity

exchange members whenever they facilitate futures trading on

United States exchanges.’ Looking to the language of the

statute and its legislative history, we find no indication, how-

ever, that Congress intended to prohibit fraudulent dealings

connected with futures trading on domestic exchanges only if

the futures transactions originate in the United States.

One of Congress’s fundamental purposes in enacting the

CEA was to ensure fair practice and honest dealings on

commodity exchanges, for the protection of the market itself

as well as those who could be injured by unreasonable fluctua-

tions in commodity prices. S. Rep. No. 93-1131, 93d Cong., 2d

Sess. 14, reprinted in 1974 U.S. Code Cong. & Ad. News 5856.

See also 7 U.S.C. § 5. To effectuate this purpose, the Act

creates a comprehensive regulatory scheme premised on con-

trol over domestic stock exchanges and the trading of futures

contracts on those exchanges.* The specific provisions of the

7 Jurisdiction over civil actions arising under the CEA is

conferred by 28 U.S.C. §§ 1331 and 1337 rather than by any specific

provision in the CEA.

8 Congress has authorized the regulation of commodity futures

exchanges for over seventy years. In 1922, Congress enacted the

Grain Futures Act, 42 Stat. 998, which prohibited any person from

dealing in futures contracts off a designated contract market. It

further provided that the Secretary of Agriculture could designate a

board of trade as a contract market only if the board prevented its

members from disseminating misleading market information and

A-9

Appendix B

CEA upon which this suit is based broadly proscribe fraudu-

lent commodity futures transactions. Under 7 U.S.C. § 6b, any

member of a contract market, or its agents, is prohibited from

defrauding any person in connection with the making of a

futures contract on any contract market.’ Under 7 U.S.C. § 6c,

it is unlawful for any person to enter into or confirm the

execution of a meretricious commodity futures transaction.

We recognize that the Act does not expressly state that the

term “agent” includes, or excludes, agents doing business in

foreign countries, or that “person” includes, or excludes,

nonresident aliens. See 7 U.S.C. § 2. Nor does the legislative

history provide any guidance on whether these provisions

should be applied to all agents of commodity exchange mem-

bers, regardless of their location. in support of their respective

positions, the parties and the Commodity Futures Trading

Commission, as amicus curiae, have referred to congressional

reports on the 1974 and i982 amendments to the CEA, and to

subsequent regulations promulgated by the Commission."

prevented price manipulation. Though the regulatory scheme has

become more expansive and complex, these basic provisions are still

included in the Commodity Exchange Act. See 7 U.S.C. §§ 6 and 7.

9 The Commodity Futures Trading Commission designates a

board of trade as a “contract market” when it complies with and

carries out certain conditions and requirements. 7 U.S.C. § 7.

10 See H.R. No. 93-975, 93d Cong., 2d Sess. 61-64 (1974)

(discussing expansion of the CEA’s coverages to include world com-

modities); 17 C.F.R. §§ 17.00 and 21.02 (1983) (requiring foreign

brokers and foreign traders to comply with Commission reporting

provisions and “special calls” for information on their market

positions); 17 C.F.R. § 30.02 (1983) (proscribing fraud in connection

with futures transactions other than on domestic contract markets);

45 Fed. Reg. 18360 (March 20, 1980) and 17 C.F.R. § 3.12 (1983)

(rescinding registration requirement for foreign associated persons of

domestic firms). See also H.R. Rep. No. 97-565, 97th Cong., 2d Sess.

68, reprinted in 1982 U.S. Code Cong. & Ad. News 3917 (discussion

relating to 17 C.F.R. §§ 17.00 and 21.02).

A-10

Appendix B

Bache Lebanon attaches particular significance to the Commis-

sion’s decision to exclude foreign associated persons of domes-

tic firms from registration requirements. However, we do not

regard this decision as an indication of congressional intent on

the jurisdictional limits of the antifraud provisions, especially

when the Commission has taken the position that the CEA

confers subject matter jurisdiction over this dispute. Likewise,

the other references illustrate specific iegisiative and adminis-

trative responses to increased international trading in commod-

ity futures, but do not address the intended jurisdictional scope

of the antifraud provisions of the Act.

Finding nothing in the Act or its legislative history to

indicate that Congress did not intend the CEA to apply to

foreign agents, but recognizing there also is no direct evidence

that Congress intended such application, we believe it is appro-

priate to rely on the “conduct” and “effects” tests in discerning

whether subject matter jurisdiction exists over this dispute.’

11 As a matter of foreign relations law, the conduct and effects

principles indicate whether the United States has jurisdiction to

prescribe a rule that attaches legal consequences to conduct occurring

in the United States, or to conduct occurring outside the United

States that causes effects within the United States. See Restatement

(Second) of Foreign Relations Law of the United States §§ 17 and 18

(1965). Were Congress to enact a rule beyond the scope of these

principles, the statute could be challenged as violating the due process

clause on the ground that Congress lacked the power to prescribe the

rule. See Blackmer v. United States, 284 U.S. 421, 436 (1931);

Leasco, supra, 468 F.2d at 1334.

When the question instead is whether Congress intended a statute

to have extraterritorial application, the analysis of legislative intent

becomes intertwined with these principles of foreign relations law. If

extraterritorial application would have no impact on domestic condi-

tions, it is presumed that Congress did not intend the statute to apply

outside the territory, unless a contrary intent appears. Foley Bros.,

Inc. v. Filardo, 336 U.S. 281, 285 (1949). Reliance on this presump-

tion is misplaced, however, when the conduct under scrutiny has not

occurred wholly outside the United States, or when conduct outside

the United States could otherwise affect domestic conditions. Leasco,

A-11

Appendix B

Both tests were devcioped in cases brought under the antifraud

provisions of the federal securities laws and have recently been

applied in similar cases arising under the Commodity Exchange

Act. See, e.g., Psimenos, supra, 722 F.2d at 1044-48 (CEA);

Grunenthal GmbH v. Hotz, 712 F.2d 421 (9th Cir. 1983); SEC

v. Kasser, 548 F.2d i109 (3d Cir.), cert. denied sub nom.

Churchill Forest Industries (Manitoba), Ltd. v. SEC, 431 U.S.

938 (1977); Bersch, supra, 519 F.2d 985-93; ITT v. Vencap,

Ltd., 519 F.2d 1001, 1015-19 (2d Cir. 1975); Leasco, supra, 468

F.2d at 1333-39; Schoenbaum, supra, 405 F.2d at 206-08;

Alemano v. ACLI International, Inc., 2 Comm. Fut. L. Rep.

(CCH) 4 21,898 at 27,894 (S.D.N.Y. Nov. 2, 1983) (CEA);

Mormels v. Girofinance, S.A., 544 F. Supp. 815 (S.D.N_Y.

1982) (CEA). The conduct test focuses on the foreigner’s

conduct within the United States as it relates to the alleged

scheme to defraud. See, e.g., Grunenthal, supra, 712 F.2d at

423-26; Kasser, supra, 548 F.2d at 112-16; Travis v. Anthes

Imperial Ltd., 473 F.2d 515, 523-28 (8th Cir. 1973); Bersch,

supra, 519 F.2d at 987. When the conduct occurring in the

United States is material to the successful completion of the

alleged scheme, jurisdiction is asserted based on the theory that

Congress would not have intended the United States to be used

as a base for effectuating the fraudulent conduct of foreign

companies. See Psimenos, supra, 722 F.2d at 1046; Kasser,

supra, 548 F.2d at 116. See also Vencap, supra, 519 F.2d at

1017. Under the effects test, courts have looked to whether

conduct occurring in foreign countries had caused foreseeable

supra, 468 F.2d at 1334; Schoenbaum, supra, 405 F.2d at 206. In

these cases, courts have looked to the nature of the conduct or effects

in the United States to determine whether extraterritorial application

would be consistent with the purposes underlying the statute. See,

e.g., Grunenthal GmbH vy. Hotz, 712 F.2d 421, 424-25 (9th Cir.

1983); SEC v. Kasser, 548 F.2d 109 (3d Cir.), cert. denied sub nom.

Churchill Forest Industries (Manitoba), Ltd. v. SEC, 431 U.S. 938

(1977); Bersch, supra, 519 F.2d at 985-93; Schoenbaum, supra, 405

F.2d at 206-08.

A-12

Appendix B

and substantial harm to interests in the United States. See,

e.g., Continental Grain (Australia) Pty. Ltd. v. Pacific Oil-

seeds, Inc., 592 F.2d 409, 416-17 (8th Cir. 1979); Vencap,

supra, 519 F.2d at 1015-17; Leasco Data Processing Equipment

Corp. v. Maxwell, 468 F.2d 1326, 1334 (2d Cir. 1972); Schoen-

baum v. Firstbrook, 405 F.2d 200, 206-09 (2d Cir.), rev’d on

other grounds, 405 F.2d 125 (2d Cir. 1968) (en banc), cert.

denied sub nom. Manley v. Schoenbaum, 395 U.S. 906 (1969).

The underlying theory is that Congress would have wished

domestic markets and domestic investors to be protected from

improper foreign transactions. See Vencap, supra, 519 F.2d at

1016-17; Schoenbaum, supra, 405 F.2d at 206. See alse Kasser,

supra, 548 F.2d at 116.

The district court’s anaiysis under the conduct and effects

tests was derived from these analogous cases. We find that the

district court correctly applied the tests to the facts of this case

and adopt its analysis under both tests.'? See Tamari v. Bache

& Co. (Lebanon) S.A.L., 547 F. Supp. 309 (N.D. Ill. 1982).

The transmission of commodity futures orders to the United

States would be an essential step in the consummation of any

scheme to defraud through futures trading on United States

exchanges. Further, when transactions initiated by agents

abroad involve trading on United States exchanges, the pricing

and hedging functions of the domestic markets are directly

implicated, just as they would be by an entirely domestic

transaction. If transactions are the result of fraudulent repre-

sentations, unauthorized trading or mismanagement of trading

accounts, prices and trading volumes in the domestic market-

place will be artificially influenced, and public confidence in

the markets could be undermined.

12 We also note that the Second Circuit in Psimenos, supra,

expressly approved the district court’s conclusion that the transmis-

sion of a customer’s orders from abroad to the United States

constitutes sufficient conduct within the United States to support

jurisdiction under the CEA.

A-13

Appendix B

By asserting jurisdiction under the conduct and effects

rationales, the purposes of the Act are advanced. Were we to

construe the CEA as inapplicable to the foreign agents of

commodity exchange members when they facilitate trading on

domestic exchanges, the domestic commodity futures market

would not be protected from the negative effects of fraudulent

transactions originating abroad. Because the fundamental pur-

pose of the Act is to ensure the integrity of the domestic

commodity markets, we expect that Congress intended to

proscribe fraudulent conduct associated with any commodity

future transactions executed on a domestic exchange, regard-

less of the location of the agents that facilitate the trading.

We therefore affirm the district court’s order and opinion

finding subject matter jurisdiction over this case.

APPENDIX C

Appendix C

UNITED STATES DISTRICT COURT

N. D. Illinois, E. D.

No. 75 C 4189

May 25, 1982

7

Abdallah W. TAMARI, et al.,

Plaintiffs,

Vv.

BACHE & Co. (LEBANON) S.A.L.,

Defendant.

os

Robert P. Howington, Jr., Howington, Elworth, Osswald &

Hough, Chicago, Ill., for plaintiffs.

N.A. Giambalvo, James W. Collins, Lawrence M. Gavin,

Boodell, Sears, Sugrue, Giambalvo & Crowley, Chicago, IIl.,

for defendant.

a

MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge.

This matter is before the court on the motion of defendant

Bache & Co. (Lebanon) S.A.L. (“Bache Lebanon”) for judg-

ment on the pleadings or, in the alternative, for summary

judgment. Defendant asserts three grounds for its motion: lack

NN NE FIN,

A-16

Appendix C

of subject matter jurisdiction; collateral estoppel; and no right

of action under the Commodity Exchange Act, 7 U.S.C.

§§ 1-24 (the CEA) and associated rules and regulations. For

the reasons that follow, the motion is denied, except as to the

alleged violations of the exchange rules.

Subject Matter Jurisdiction

Plaintiffs Abdallah Tamari, Ludwig Tamari and Farah Ta-

mari (the Tamaris) are Lebanese citizens and residents of that

country. Defendant Bache Lebanon is a wholly-owned subsidi-

ary of Bache & Co., Inc., a “elaware corporation (“Bache

Delaware”)', and it is a Lebanese corporation having its sole

office in Beirut, Lebanon. The Tamaris allege that Bache

Lebanon solicited commodity futures orders (apparently for

silver, coffee and pork bellies, among other commodities) from

them in Lebanon and then transmitted such orders by wire

from its Beirut office to Bache Delaware’s Chicago offices for

execution on the Chicago Board of Trade (the CBOT) and the

Chicago Mercantile Exchange (the CME).” They further allege

that Bache Lebanon made misrepresentations regarding its

expertise, gave false advice on market conditions, mismanaged

their accounts, and breached its fiduciary duty. Their com-

plaint has two counts, the first under the CEA, and the second

for common-law fraud.

The jurisdictional issue is whether this court has subject

matter jurisdiction over a cause of action arising from trading

on American commodities exchanges when the parties to the

suit are nonresident aliens and the contacts between them

1 Bache Delaware was formerly a defendant in this litigation,

but on May 19, 1976, Judge Grady, to whom this case was previously

assigned, dismissed Bache Delaware. The Tamaris then arbitrated

their claims against Bache Delaware and Bache Delaware prevailed in

the arbitration proceedings.

2 Bache Lebanon is not a member of either exchange and thus

could not execute the orders itself.

perros

A-17

Appendix C

occurred outside the United States. The court concludes that it

does have jurisdiction of this dispute.

The CEA has been held to have extraterritorial application

in some circumstances, Commodity Futures Trading Commis-

sion v. Muller, 570 F.2d 1296, 1299 (Sth Cir. 1978). Both

parties, in arguing for and against the applicability of the CEA

to the circumstances in this case, have primarily relied on the

case law in analogous securities law cases. There is a substan-

tial body of such case law defining the transnational scope of

the Securities Act of 1933 and the Securities Exchange Act of

1934. See generally the cases and articles listed in Continental

Grain (Australia) Pty., Ltd. v. Pacific Oilseeds, Inc., 592 F.2d

409, 413 (8th Cir. 1979).?

In these cases, courts have developed two related doctrines

for analyzing transnational problems, the effects test and the

conduct test.* While some courts have indicated that both tests

must be satisfied in order to sustain subject matter jurisdiction,

the weight of authority holds that meeting either test es-

tablishes jurisdiction. Continental Grain, supra, 592 F.2d at

417 (8th Cir. 1979) (jurisdiction may be established by meeting

either test); Straub v. Vaisman & Co., 540 F.2d 591, 595 (3d

Cir. 1976) (conduct alone sufficient from a jurisdictional stand-

point); Leasco Data Processing Equipment Corp. v. Maxwell,

468 F.2d 1326, 1334 (2d Cir. 1972) (same). This court need not

resolve the issue, however, as under each test jurisdiction exists

here.

3 For additional analyses of the important case law in this area,

see Grunenthal GmbH yv. Hotz, 511 F.Supp. 582, 585-87

(C.D.Cal.1981); and Recaman v. Barish, 408 F.Supp. 1189, 1194-

1202 (E.D.Pa.1975).

4 “Of course, the courts may in reality by [sic] using a much

more flexible, and more traditional, approach; that is, the courts

may, in each particular fact situation, be balancing the competing

interests presented. . . . cf. Comment, Jurisdiction in Transnational

Securities Fraud Cases—SEC v. Kasser, supra, note 4, 7 Den.J. Int’l

L. & Pol’y at 286 n.46 (suggesting “test” is too simplistic a term).”

Continental Grain, supra, 592 F.2d at 416 n.11.

A-18

Appendix C

The Effects Test

Under the effects test, courts sustain jurisdiction over con-

duct occurring in foreign countries when that conduct causes

forseeable and substantial harm to interests within the United

States, that is, when there is a substantial impact on domestic

investors or on the domestic market. The doctrinal basis for

this test derives from the Restatement (Second) of Foreign

Relations Law of the United States § 18.° The first court to

formulate and apply the effects test was the Second Circuit in

Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir.), aff’d as to

jurisdiction and rev’d on other grounds, 405 F.2d 215 (2d Cir.

1968) (en banc), cert. denied sub nom., Manley v. Schoen-

baum, 395 U.S. 906, 89 S.Ct. 1747, 23 L.Ed.2d 219 (1969).

In Schoenbaum, an American shareholder in a Canadian

corporation brought a derivative suit alleging fraud in viola-

tion of the 1934 Securities Exchange Act. The challenged

transaction occurred in Canada, but it involved Canadian

stock registered on the American Stock Exchange. The court

held that the securities laws applied extraterritorially in that

case “in order to protect domestic investors who have pur-

chased foreign securities on American exchanges and to protect

the domestic securities market from the effects of improper

foreign transactions in American securities.” 405 F.2d at 206.

5 § 18. Jurisdiction to Prescribe With Respect to Effect

Within Territory.

A state has jurisdiction to prescribe a rule of law attaching legal

consequences to conduct that occurs outside its territory and causes

an effect within its territory, if either

(a) the conduct and its effect are generally recognized as constitu-

ent elements of a crime or tort under the law of states that have

reasonably developed legal systems, or

(b)(i) the conduct and its effect are constituent elements of activity

to which the rule applies; (ii) the effect within the territory is

substantial; (iii) it occurs as a direct and foreseeable result of the

conduct outside the territory; and (iv) the rule is not inconsistent with

the principles of justice generally recognized by states that have

reasonably developed legal systems.

A-19

Appendix C

The effects test enunciated in Schoenbaum was later iimited

by two cases from the Second Circuit decided on the same day,

Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d Cir.), cert.

denied sub nom., Bersch v. Arthur Andersen & Co., 423 U.S.

1018, 96 S.Ct. 453, 46 L.Ed.2d 389 (1975) and JIT v. Vencap,

Ltd., 519 F.2d 1001 (2d Cir. 1975). In Bersch, a plaintiff class

consisting of thousands of shareholders, most of whom were

foreign, had purchased stock in an international corporation

organized under the laws of Canada. The named plaintiff, an

American, brought an action against various American and

foreign underwriters and an American accounting firm. The

challenged public offering had been deliberately structured to

avoid sales in America, but despite this some sales had been

made to Americans, both within the United States and abroad.

One of the grounds for jurisdiction asserted in Bersch was

the adverse general effect the collapse of the international

corporation had on the American stock market, even though

its securities were not traded on American exchanges. To

support this assertion, plaintiffs submitted an affidavit from

an economics professor. The Bersch court rejected this argu-

ment, stating:

[W]e do not doubt that the collapse of IOS after the

offering had an unfortunate financial effect in the United

States. Nevertheless we conclude that the generalized

effects described by Professor Mendelson would not be

sufficient to confer subject matter jurisdiction over a

damage suit by a foreigner under the anti-fraud provi-

sions of the securities laws.

519 F.2d at 988. See also Recaman v. Barish, 408 F.Supp. 1189,

1199 n.11 (E.D.Pa. 1975) (study showing general adverse

impact on economy in case where securities were not traded on

domestic exchanges held to be insufficient under effects test).

In SEC v. Kasser, 548 F.2d 109, 113 (3d Cir.) cert. denied sub

nom. Churchill Forest Industries (Manitoba) Ltd. v. SC, 431

U.S. 938, 97 S.Ct. 2649, 53 L.Ed.2d 255 (1977), the Third

Circuit found the effects test to be inapplicable in a case where

the securities involved were not traded on American exchanges.

The Court reasoned:

A-20

Appendix C

Frequently, trading on an exchange has helped to under-

grid findings of jurisdiction in other transnational cases.

Where a stock exchange is involved, courts have found

sufficient impact in the United States to sustain jurisdic-

tion.

The Eighth Circuit in Continental Grain (Australia) Pty. Ltd.

v. Pacific Oilseeds, Inc., 592 F.2d 409, 417 n.12 (8th Cir. 1979),

used a similar rationale to find the effects test unavailing where

the plaintiff was a foreign corporation, where the securitie;

involved were those of a foreign corporation and were never

registered or listed on American exchanges, and where the

alleged harm to the plaintiff’s American corporate parent was

indirect. In distinction to Kasser and Continental Grain stands

the case of JJT v. Cornfeld, 619 F.2d 909, 918 (2d Cir. 1980), in

which the court upheld jurisdiction partially on the basis that

the challenged transactions involved American securities.

Bache Lebanon argues that the facts in the present case do

not satisfy the effects test for jurisdiction. It contends that a

“personal dispute between private foreign parties cannot have

any impact whatever upon United States investors or upon the

United States commodities market.” (Def. Memo in Support at

12.) Concededly, both the plaintiffs and the defendant in this

case are Lebanese and the allegedly fraudulent representations

all occurred in Lebanon. The commodities involved, however,

were traded ori American exchanges.

Relying on this fact, the Tamaris counter that fraudulent

transactions on American commodities exchanges have a detri-

mental effect on the trading on such exchanges and they have

submitted an affidavit by an economics professor to that

effect. Bache Lebanon attacks the sufficiency of this affidavit

on the grounds discussed in the Bersch case, that it only

describes a theoretical and generalized harm and that this type

of harm cannot confer subject matter jurisdiction. Bache

Lebanon continues: “Moreover, given the limited volume of

Tamaris’ trades in relation to total volume, it is difficult to

perceive how any impact could have been felt.” (Def. Reply

Memo at 8.)

A-21

Appendix C

The flaw in Bache Lebanon’s arguments is that the trans-

actions at issue here directly involved domestic futures ex-

changes. The cases Bache Lebanon cites, in which courts found

no jurisdiction, all involved foreign securities that were not

traded on American exchanges: //T v. Vencap, Ltd., 519 F.2d

1001, 1016 (2d Cir. 1975); Investment Properties International,

Ltd. v. IOS, Ltd., [1970-71] Fed.Sec.L.Rep. (CCH) 4 93,011

at 90,736 (S.D.N.Y.), @ff’d without opinion (2d Cir. 1971);

Fidenas AG v. Compagnie Internationale Pour L’Informatique

Cll Honeywell Bull S.A., 606 F.2d 5, 7 (2d Cir. 1979); Finch v.

Marathon Securities Corp., 316 F.Supp. 1345, 1347 (S.D.N-Y.

1970) (“It should be noted that [the securities involvedj have

never been registered in this country—nor have they ever been

listed on any of our national securities exchanges or traded on

our over-the-counter market.”).°

Similarly, while Bache Lebanon correctly characterizes the

affidavit of the Tamaris’ expert as theoretical and generalized,

the affidavit was not necessary in the first instance to establish

an impact on the American futures market. In Bersch, the case

6 The one case cited by Bache Lebanon that involved American

securities is Manus v. The Bank of Bermuda, [1971-72]

Fed.Sec.L.Rep. (CCH) ¢ 93,299 (S.D.N.Y. 1971). There Canadian

plaintiffs sued a Bermuda defendant for a transaction that occurred

in London involving the unregistered stock of a New York corpora-

tion. The court stated:

In addition to the foregoing which compels dismissal of this

complaint for failure to state a claim upon which relief can be

granted, subject matter jurisdiction appears to be lacking. The

parties are aliens and the principal transaction of which plain-

tiffs complain took place in London. The plaintiffs do not

claim . . . that the transaction was detrimental to the interests

of domestic investors or of the domestic securities market. . . .

But the question of jurisdiction need not be reached here.

Id. at 91,650. Apart from the factual distinction between the unregis-

tered securities in Manus and the commodities traded on national

exchanges in this case, the court’s view of the present jurisdictional

problem is not swayed by the New York court’s dictum.

A-22

Appendix C

where the court found a similar affidavit insufficient to estab-

lish jurisdiction, the securities involved in the allegedly fraudu-

lent scheme were not registered on American exchanges and

were not intended to be sold within the United States. As the

court reads Bersch and other similar cases, the need fox

plaintiffs to demonstrate a particularized harm to domestic

interests only arises when domestic investors or exchanges are

not directly involved. Conversely, in a case such as this, where

the challenged transactions involve trading on domestic ex-

changes, harm can be presumed, because the fraud alleged

implicates the integrity of the American market.

The court recognizes that no prior case has had to decide

whether to sustain jurisdiction under the effects test solely on

the basis that the securities involved were traded on American

exchanges. The case law, however, does emphasize that “the

absence of certain of the elements which led to finding subject

matter jurisdiction in [prior] cases does not necessarily pre-

clude a similar conclusion on the different facts presented

here.” Bersch, supra, 519 F.2d at 986. See also J/T v. Cornfeld,

619 F.2d 909, 918 (2d Cir. 1980), “the presence or absence of

any single factor which was considered significant in other

cases . . . is not necessarily dispositive,” quoting Continental

Grain, supra, 592 F.2d at 414. Applying this case-by-case

approach here, the court concludes that it has jurisdiction

under the effects test in this dispute involving the allegedly

fraudulent solicitation of orders for American commodities.

The Conduct Test

The conduct test bases jurisdiction on conduct occurring

within the United.States. The residence or citizenship of the

parties and the foreign or domestic nature of the securities

involved, while relevant, is not the focus of inquiry; instead the

courts concentrate on the relative importance of activities

within the United States to the success of the alleged scheme to

defraud. If such conduct is substantial rather than merely

preparatory, incidental or fortuitous, the courts are more likely

to find jurisdiction. This test derives from Restatement (Sec-

rein an towe~

ao omen

A-23

Appendix C

ond) of Foreign Relations Law of the United States § 17’ and

as a policy matter seeks to prevent the United States from

being “used as a base for manufacturing fraudulent security

devices for export, even when these are peddled only to

foreigners.” JT v. Vencap, Ltd., 519 F.2d 1001, 1017 (2d Cir.

1975).

This test was first used in Leasco Data Processing Equip-

ment Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972). In

Leasco, American plaintiffs alleged fraud in the sale of the

securities of an English corporation that were not registered or

traded on American exchanges and were not sold within the

United States. The court upheld jurisdiction because “substan-

tial misrepresentations” were made within this country. 468

F.2d at 1339. Since Leasco, courts have focused on defining the

limits of the conduct test.

In Travis v. Anthes Imperial Ltd., 473 F.2d 515 (8th Cir.

1973), the facts paralleled those in Leasco. American plaintiffs

sued Canadian defendants over a tender offer and merger

involving Canadian securities that were not registered or traded

on American exchanges. The plaintiffs alleged that they were

led to believe that if they retained their stock until after a

tender offer had been made to Canadian shareholders, a

separate tender offer would be made to them and other United

States shareholders. The court reasoned that subject matter

jurisdiction depended on the existence of “significant conduct

with respect to the alleged violations in the United States.” 473

F.2d at 524.

In finding such significant conduct, the court noted that the

plaintiffs alleged that the mails and telephones had been used

7 § 17. Jurisdiction to Prescribe with Respect to Conduct,

Thing, Status or Other Interest within Territory.

A state has jurisdiction to prescribe a ruie of law

(a) attaching legal consequences to conduct that occurs within its

territory, whether or not such consequences are determined by the

effects of the conduct outside the territory, and

(b) relating to a thing located, or a status or other interest local-

ized, in its territory.

A-24

Appendix C

to communicate misrepresentations. The court also considered

as “significant contacts” within the United States the closing of

the ultimate sale of the plaintiffs’ shares (which took place in

St. Louis, Missouri) and communications leading thereto

“even though they were made at a time when the plaintiffs

were aware of the defendants’ true intentions and were thus

not misleading.” 473 F.2d at 527. The court reasoned:

These contacts were the final stage of the defendants’

alleged scheme to defraud the named plaintiffs which

began with the limitation of the tender offer to Anthes

Canadian shareholders and continued on through the

acquisition of plaintiffs’ shares by [one of the defen-

dants.] They were essential to the alleged scheme and may

not be ignored in determining the propriety of subject

matter jurisdiction.

Id. Similarly, in Straub v. Vaisman & Co., 540 F.2d 591, 595

(3rd Cir. 1976), one of the factors that the court relied upon to

establish sufficient conduct within the United States was that

the stock involved had been traded on an American over-the-

counter exchange.

In Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 987 (2d

Cir.), cert. denied sub nom. Bersch v. Arthur Andersen & Co..

423 U.S. 1018, 96 S.Ct. 453, 46 L.Ed.2d 389 (1975), the

Second Circuit cut back on the reach of the conduct test,

stating:

[W]e see no reason to extend it to cases where the United

States activities are merely preparatory ... and are

relatively small in comparison to those abroad.

See also Vencap, supra, 519 F.2d at 1018, where the court

indicated:

[JJurisdiction is limited to the perpetration of fraudulent

acts themselves and does not extend to mere preparatory

activities or the failure to prevent fraudulent acts where

the bulk of the activity was performed in foreign coun-

We Se

Be SA Bed UR nt aS wee

RPP PORE OED ee

A-25

Appendix C

Conduct that occurs within the United States by chance or

merely for convenience is also insufficient for jurisdictional

purposes. Leasco, supra, 468 F.2d at 1338 (2d Cir. 1972)

(dictum; no jurisdiction when a German and a Japanese meet

in New York for convenience and the latter fraudulently

induces the former to purchase Japanese securities on the

Tokyo Stock Exchange); Grunenthal GmbH v. Hotz, 511

F.Supp. 582, 583, 588 (C.D.Cal. 1981). In Grunenthal, all the

parties were foreign nationals or corporations; the securities

involved were foreign and not traded on any American ex-

change; the negotiations involved conduct in four countries,

including the United States; and the conduct in each country

was of relatively equal importance. The challenged transaction,

however, was concluded within the United States because one

of the defendants was here on a temporary non-immigrant visa

for business. The court concluded that the fact that the

transaction was concluded here was insufficient because it

found that this was only a matter of convenience.

Bache Lebanon argues that the conduct of Bache Delaware

and its agents that occurred within the United States was

determined to be lawful in the arbitration proceedings and “it

follows that ail of the activity, if any, constituting the violations

must, of necessity, have occurred outside the United States. We

are thus left with a case of an alleged fraud on foreigners by a

foreign corporation in a foreign country.” (Def. Memo in

Support at 14.) The Tamaris argue that Bache Lebanon wired

the orders it solicited from them to Bache Delaware in Chi-

cago, Illinois, for execution on the Chicago exchanges.*® They

8 In its reply brief, Bache Lebanon asserts that it wired at least

some of the Tamaris’ orders to London and that the orders were then

wired from London to the United States on Bache Delaware’s

“Hassler System.” “In essence,” Bache Lebanon argues, “Bache

Delaware not Bache Lebanon, wired the orders from London to

within the United States.” (Def. Reply Memo at 5 n.3) (emphasis in

original). The Hassler System is a private wire system. Testimony

establishes that, with this system, an order is teletyped on the system

from a branch in Beirut to a central computer in London, where it is

A-26

Appendix C

further contend that these transmission constitute conduct

within the United States and that such conduct is sufficient to

confer jurisdiction.

Several courts have found that making phone calls or send-

ing mail to the United States should be deemed conduct within

the United States for jurisdictional purposes in transnational

cases. E.g., Continental Grain, supra, 592 F.2d at 420 n.18:

Both the place of sending and the place of receipt consti-

tute locations in which conduct takes place when the mails

or instrumentalities of interstate commerce are used to

transmit communications;

Travis, supra, 473 F.2d at 524 n.16; Leasco, supra, 468 F.2d at

1335. Thus, Bache Lebanon’s transmission of the Tamaris’

orders from Beiruit to Chicago constitutes conduct within the

United States.

The court determines, moreover, that such conduct is sub-

stantial or significant when viewed in relation to its importance

to the success of the alleged scheme to defraud. As in Travis,

supra, 473 F.2d at 527, Bache Lebanon’s wiring the Tamaris’

orders to Chicago and the execution of those orders on the

Chicago exchanges were the final steps in the alleged scheme.

And again as in Travis, the “lawfulness” of Bache Delaware’s

execution of the orders, as found by the arbitrators, does not

cure any prior fraud in Bache Lebanon’s solicitations from the

Tamaris, nor does it prevent the execution of the orders from

almost simultaneously relayed to the United States by the computer.

(Dep. of Mr. Fivian, pp.12-13). In light of this testimony, the court

assumes for purposes of this motion (without, however, finding such

to be a fact on the merits, see Grunenthal, supra, 511 F.Supp. at 584

n.2) that Bache Lebanon’s use of this system constituted a communi-

cation from outside to within the United States. Moreover, there is

testimony suggesting that the Hassler System could be bypassed and

an order placed directly by phone. (Dep. of Mr. Fivian, p. 14).

Whether any of the Tamaris orders were directly telephoned from

Beiruit to Chicago is not clear from this record.

SAP AE REE Vinee echt

RAEN 1 ERC ER pa eT AE AES

LRP LE IRM ER UII HEN?

A-27

Appendix C

being a necessary and foreseeable step in a scheme to defraud,

and thus substantial conduct within the United States. On the

basis of these transmissions, therefore, the court finds subject

matter jurisdiction under the conduct test.

Collateral Estoppel

Bache Lebanon argues that the Tamaris, in their complaint,

allege the same violations that were the subject of the arbitra-

tion proceedings between the Tamaris and Bache Delaware,

that “all actions taken by Bache Lebanon in connection with

the Tamaris’ accounts were taken by Bache Lebanon as agent

for Bache Delaware” (Def. Memo in Support at 15-16), and

therefore that the arbitral decision in Bache Delaware’s favor

constitutes an adjudication that Bache Lebanon’s actions were

proper and lawful. Bache Lebanon was not a party to the

arbitration; thus, if it is to rely on the decision there, it must

show that it is entitled to do so under principles of collateral

estoppel.

Once before in this litigation Bache Lebanon raised this

identical argument, that the arbitral decision collaterally estops

the Tamaris from proceeding against it. This was the subject of

a motion to dismiss, treated as a motion for summary judg-

ment, that Bache Lebanon argued to Judge Grady when this

case was assigned to him. In a memorandum opinion dated

March 17, 1978, Judge Grady rejected Bache Lebanon’s argu-

ment and denied its motion. |

In his opinion, Judge Grady made three points: he con-

cluded that it was impossible to tell what the arbitration panel

had decided regarding Bache Lebanon’s conduct due to the

absence of any express findings* that at least one issue—that of

Bache Lebanon’s independent tiability—could not be pre-

cluded by the decision in any case; and that the totality of the

circumstances established that it would be inequitable to apply

the doctrine of collateral estoppel in this case. Bache Lebanon

has not persuaded this court that Judge Grady’s conclusions

were incorrect.

A-28

Appendix C

Right of Action

Bache Lebanon’s final argument, that there is no implied

private right of action under Sections 4b and 4c of the CEA, 7

U.S.C. §§ 6b and 6c, can be quickly answered. Prior to the

1974 amendments to the CEA, federal courts had routinely

recognized a private cause of action under the statute, and in

the recent case of Merrill Lynch, Pierce, Fenner & Smith, Inc.

v. Curran, Us. —. awe See ee Bee, Tee fe

L.Ed.2d 182 (1982), the Supreme Court held that the private

cause of action survived the 1974 amendments.

Bache Lebanon also argues that no private right of action

exists for violations of the rules of the exchanges involved, but

the court need not decide this issue. The Tamaris’ complaint

alleges violations of CBOT Rules Nos. 210, 1822(8), (12), (14)

and (15), 1822-A and 1990, and violations of CME Rules Nos.

928 and 942. All of these rules regulate the conduct of

members of the respective exchanges. Bache Lebanon, how-

ever, is not a member of either the CBOT or the CME. The

Tamaris cannot base a cause of action against Bache Lebanon

on any violation of the exchange rules, and to the extent that

their complaint is based on such violations, Bache Lebanon’s

motion is granted.

Conclusion

Bache Lebanon’s motion for judgment on the pleadings or,

in the alternative, for summary judgment is denied, except that

it is granted as to all claims based on violations of the

commodity exchanges’ rules.

AP? ENDIX D

A-29

Appendix D

SEC. 4b. It shall be unlawful (1) for any member of a

contract market, or for any correspondent, agent, or employee

of any member, in or in connection with any order to make, or

the making of, any contract of sale of any commodity in

interstate commerce, made, or to be made, on or subject to the

rules of any contract market, for or on behalf of any other

person, or (2) for any person, in or in connection with any

order to make, or the making of, any contract of sale of any

commodity for future delivery, made, or to be made, on or

subject to the rules of any contract market, for or on behalf of

any other person if such contract for future delivery is or may

be used for (a) hedging any transaction in interstate commerce

in such commodity or the products or by products thereof, or

(b) determining the price basis of any transaction in interstate

commerce in such commodity, or (c) delivering any such

commodity sold, shipped, or received in interstate commerce

for the fulfillment thereof—

(A) to cheat or defraud or attempt to cheat or defraud

such other person;

(B) willfully to make or cause to be made to such other

person any false report or statement thereof, or willfully

to enter or cause to be entered for such person any false

record thereof;

(C) willfully to deceive or attempt to deceive such other

person by any means whatsoever in regard to any such

order or contract or the disposition or execution of any

such order or contract, or in regard to any act of agency

performed with respect to such order or contract for such

person; or

(D) to bucket such order, or to fill such order by offset

against the order or orders of any other person, or

willfully and knowingly and without the prior consent of

such person to become the buyer in respect to any selling

A-30

Appendix D

order of such person, or become the seller in respect to

any buying order of such person.

Nothing in this section or in any other section of this Act

shall be construed to prevent a futures commission merchant

or floor broker who shall have in hand, simultaneously, buying

and selling orders at the market for different principals for a

like quantity of cotton for future delivery in the same month,

from executing such buying and selling orders at the market

price: Provided, That any such execution shall take place on

the floor of the exchange where such orders are to be executed

at public outcry across the ring and shall be duly reported,

recorded, and cleared in the same manner as other orders

executed on such exchange.

SEc. 4c. It shall be unlawful for any person to offer to

enter into, enter into, or confirm the execution of, any trans-

action involving any commodity, which is or may be used for

(1) hedging any transaction in interstate commerce in such

commodity or the products or by products thereof, or (2)

determining the price basis of any such transaction in interstate

commerce in such commodity, or (3) delivering any such

commodity sold, shipped, or received in interstate commerce

for the fulfillment thereof—

(A) if such transaction is, is of the character of, or is

commonly known to the trade as, a “wash sale,” “cross

trade,” or “accommodation trade,” or is a fictitious sale;

(B) if such transaction is, is of the character of, or is

commonly known to the trade as, a “privilege”, “indem-

nity”, “bid”, “offer”, “put”, “call”, “advance

guaranty”, or “decline guaranty”, or

(C) if such transaction is used to cause any price to be

reported, registered, or recorded which is not a true and

bona fide price.

Nothing in this section shall be construed to prevent the

exchange of futures in connection with cash commodity trans-

A-31

Appendix D

actions or of futures for cash commodities, or of transfer

trades or office trades if made in accordance with board of

trade rules applying to such transactions and such rules shall

not have been disapproved by the Secretary of Agriculture.

Nothing in this section or section 4b shall be construed to

impair any State law applicable to any transaction enumerated

or described in such sections.

APPENDiX ELE

A-33

Appendix E

FOREIGN OFFICES AND FOREIGN REPRESENTATIVES

Arranged Alphabetically as to Countries and Cities

ARAB EMIRATES (UNION OF)

Cairo

Kidder, Peabody & Co. Incorporated

9 Had el Laban Street

Garden City

(Kidder, Peabody & Co., Ltd.)

Dubai

Hutton (E.F.) & Company, Inc.

Chamber of Commerce Bldg.,

P.O. Box 5241

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Union of Arab Emirates

P.O. Box 3911 Al Fuleij Bldg.

ARGENTINA

Buenos Aires

Becker (A.G.) Paribas Incorporated

LaValle 648, 1047

Merrill Lynch, Pierce, Fenner & Smith de Argentina

San Martin 323 Piso 13

Prudential-Bache Securities, Inc.

25 De Mao 537, Piso 14

AUSTRALIA

Melbourne

First Boston Corporaton

535 Bourke St.

A-34

Appendix E

AUSTRIA

Vienna

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Tegetthoffstrasse NBR 1, A-1015

BAHRAIN

Manama

Hutton (E.F.) & Company Inc.

Unitag House, Mezzanine Floor

Government Rd.

P.O. Box 82

BELGIUM

Brussels

Dominick & Dominick Incorporated

Rue de L’Aurore 2

Drexel Burnham Lambert Incorporated

5, Boulevard de l’Empereur

(Burnham Securities, S.A.)

First Manhattan Co.

203 Avenue Louise

Hutton (E.F.) & Company Inc.

10 Place Du Champ De Mars

Laidlaw Adams & Peck, Inc.

15 Rue Blanche

Merrill Lynch, Pierce, Fenner & Smith Incorporated

221 Avenue Louise

(Merrill Lynch, Pierce, Fenner & Smith Belge S.A.)

Prudential-Bache Securities, Inc.

Marubeni Bldg., 7th FI.,

283 Ave. Louise, Box 11

A-35

Appendix E

Shearson/American Express Inc.

368 Ave. Louise

Thomson McKinnon Securities Inc.

43 Rue de Namur

CANADA

ALBERTA

Calgary

Merrill Lynch, Pierce, Fenner & Smith Incorporated

480 7th Ave. S.W.

(Royal Securities Corp. Ltd.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

480 7th Avenue, S.W. Bentall Bidg.

Prudential-Bache Securities, Inc.

220 Three Calgary Place

Edmonton

Merrill Lynch, Pierce, Fenner & Smith Incorporated

10M-10303 Jasper Ave.

(Royal Securities Corp., Ltd.)

Prudential-Bache Securities, Inc.

820-10025 Jasper Ave.

Montreal

Dean Witter Reynolds Inc.

635 Dorchester Blvd. West

Vancouver

Merrill Lynch, Pierce, Fenner & Smith Incorporated

200 Granville St.

Merrill Lynch, Pierce, Fenner & Smith Incorporated

544 Howe Street

(Royal Securities Corp., Ltd.)

A-36

Appendix E

Paine, Webber, Jackson & Curtis Inc.

595 Howe St., Ste. 1115

Prudential-Bache Securities, Inc.

MacMillan Bloedel Bldg.,

1075 West Georgia St.

Victoria

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Royal Trust Bldg.

(Royal Securities Corp., Ltd.)

MANITOBA

Winnipeg

Merrill Lynch, Pierce, Fenner & Smith Incorporated

1300 One Lombard PI.

(Royal Securities Corp., Ltd.)

NEW BRUNSWICK

St. John

Merrill Lynch, Pierce, Fenner & Smith Incorporated

44 Prince William Street

(Royal Securities Corp., Ltd.)

NEWFOUNDLAND

St. John’s

Merrill Lynch, Pierce, Fenner & Smith Incorporated

139 Water Street

(Royal Securities Corp., Ltd.)

NOVA SCOTIA

Halifax

Merrill Lynch, Pierce, Fenner & Smith Incorporated

300 Barrington Tower

Scotia Square B3J 2A8

(Royal Securities Corp., Ltd.)

A-37

Appendix E

ONTARIO

Hamilton

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Canada Trust Bldg.

(Royal Securities Corp., Ltd.)

Montreal

D-an Witter Reynolds Inc.

635 Dorchester Blvd. West

First Boston Corporation

1155 Dorchester Blvd. West

Ottawa

Merrill Lynch, Pierce, Fenner & Smith Incorporated

151 Sparks St., La Promenade

Toronto

Dean Witter Reynolds Inc.

181 University Avenue

Dominick & Dominick Incorporated

111 Royal Trust Tower,

Toronto Dominion Center,

P.O. Box 272

(Dominick Corp. of Canada)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Toronto-Dominion Centre

(Royal Securities Corp., Ltd.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

11 King West

Midland Doherty Inc.

Commercial Union Tower,

P.O. Box 25, Toronto Dominion Centre

Prudential-Bache Securities, Inc.

18 King St., East

Shearson/American Express Inc.

55 University Ave., Ste. 501

A-38

Appendix E

PRINCE EDWARD ISLAND

Charlottetown

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Grafton St.

(Royal Securities Corp. Ltd.)

QUEBEC

Montreal

Dominick & Dominick Incorporated

Place Ville Marie

(Dominick Corp. of Canada)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

800 Dorchester Boulevard, West

Merrill Lynch, Pierce, Fenner & Smith Incorporated

800 Victoria Sq.

(Royal Securities Corp., Ltd.)

Prudential-Bache Securities, Inc.

4 Westmount Sq., Ste. 160

Shearson/American Express Inc.

Capital Centre,

1200 McGill College Ave.

Transatlantic Securities Company*

1155 Sherbrooke West., Ste. 1401

Quebec

Merrill Lynch, Pierce, Fenner & Smith Incorporated

220 Grand Alles

(Royal Securities Corp., Ltd.)

CHILE

Santiago

Shearson/American Express Inc.

Augustinas 1360, 4th FI.

A-39

Appendix E

ENGLAND

Bradford

Prudential-Bache Securities, Inc.

Five Wool Exchange

London

Bear, Stearns & Co.

10-12 Copthall Ave.

Becker (A.G.) Paribas Incorporated

17/19 Lincoln’s Inn Fields

Brown Brothers Harriman & Co.

Prince Rupert House

64 Queen Street

Burns Fry and Timmins, Inc.

9 Bosinghall Street

Dean Witter Reynolds Inc.

One Throgmorton Avenue

Dean Witter Reynolds Inc.

56 Leadenhall Street

(Dean Witter International, Ltd.)

Dillon, Read & Co. Inc.

10 Cheaterfield St.

Dominick & Dominick Incorporated

8 Little Trinity Lane

Donaldson, Lufkin & Jenrette Securities Corporation

22 Austin Friars

Drexel Burnham Lambert Incorporated

Winchester House

77 London Wall

Eberstadt (F.) & Co., Inc.

Brettenham House

Lancaster PI.

A-40

Appendix E

Fahnestock & Co.

62 London Wall

First Boston Corporation

22 Bishopsgate, 3rd FI.

Goldman, Sachs & Co.

40 Basinghall Street,

(Goldman Sachs International Corp.)

Hambrecht & Quist Incorporated

Queens House

8 Queens St., 2nd FI.

Hutton (E.F.) & Company Inc.

58 Mark Lane

Cereal House

Hutton (E.F.) & Company Inc.

17 C. Curzon

(Hutton (E.F.) International)

Kidder, Peabody & Co. Incorporated

99 Bishopsgate

(Kidder, Peabody & Co., Ltd.)

Ladenburg, Thalmann & Co., Inc.

108 Cannen St.

Lehman Brothers Kuhn Loeb Incorporated

16 St. Martins LaGrana

Lehman Brothers Kuhn Loeb Incorporated

Commercial Union Bldg.

Merrill Lynch, Pierce, Fenner & Smith Incorporated

153 New Bond St.

(Merrill Lynch, Pierce, Fenner & Smith Ltd.)

Merrill Lynch, Pierce Fenner & Smith Incorporated

3-5 Newgate St.

Merrill Lynch, Pierce, Fenner & Smith Incorporated

P.O. Box 236

Black Swan Howse

Kennet Wharf Lane

ee

A-4]

Appendix E

Moseley, Hallgarten, Estabrook & Weeden, Inc.

Bilbao House

New Broad St., 4th FI.

Neuberger & Berman

4 and 5 Grosvenor PI.

Oppenheimer & Co., Inc.

Portland House

72-73 Basinghall St.

Ovest Securities, Inc.

Plantation House

Mincing Lane

Paine, Webber, Jackson & Curtis Incorporated

11/12 Finsbury Sq.

Pollock (Wm. E.) & Co. Inc.

114 Old Broad St.

Prudential-Bache Securities, Inc.

5 Burlington Gardens

Prudential-Bache Securities, Inc.

First Floor

Plantation House

Fenchurch St.

Prudential-Bache Securities, Inc.

River House 119-121

Minories

Roulston Research Corp.

55 New Bond Street

Salomon Brothers Inc.

One Angel Court

(Salomon Brothers International Ltd.—Corporate Affiliate)

Seeman (Aubrey N.) & Co., Inc.

Salisbury House

Finsbury Circus

A-42

Appendix E

Seligmann, Harris and Co., Inc.

Friendly House

21-24 Chiswell Street

Shearson/American Express Inc.

16 Moorfields

High Walk

Shearson/American Express Inc.

Saint Alphage House

2 Foure Street

Smith Barney, Harris Upham & Co. Incorporated

Brewers’ Hall

Aldermanbury Sq.

Smith Barney, Harris Upham & Co. Incorporated

18 Finsbury Circus

Thomson McKinnon Securities Inc.

55 London Wall

Wertheim & Co.

54/55 London Wall

FRANCE

Paris

Bear, Stearns & Co.

7 Rue Drouot, 75009

Brown Brothers Harriman & Co.

17 Ave. Matignon

(Brown Harriman Corp.)

Dean Witter Reynolds Inc.

10, Rue de la Paix

Donaldson, Lufkin & Jenrette Securities Corporation

42 Avenue Montaigne

Drexel Burnham Lambert Incorporated

23 Place Vendome

(Burnham and Company, S.A.R.L.)

A-43

Appendix E

Eberstadt (F.) & Co., Inc.

8 Place Vendome

Fahnestock & Co.

5 Rue Gaillon 2 EME

Hutton (E.F.) & Company Inc.

43 Avenue Marceau, 75116

Kidder, Peabody & Co. Incorporated

422, Rue Saint Honore

(Kidder, Peabody S.A.)

Ladenburg, Thalmann & Co., Inc.

28 Rue des Petites-Ecuries

Laidlaw Adams & Peck, Inc.

42 Ave. Friedland

Merrill Lynch, Pierce, Fenner & Smith Incorporated

25 Avenue des Champs-Elysee

(Merrill Lynch, Pierce, Fenner & Smith S.A.F.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

142 Boulevard Haussman

Merrill Lynch, Pierce, Fenner & Smith Incorporated

4, Rue Saint-Florentin, 75

(Merrill Lynch, Pierce, Fenner & Smith Securities

Underwriter Limited)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

96 Avenue D’ lena

Moore & Schley, Cameron & Co.

120 Ave. des Champs Elysees

(du Pasquier et Cie, S.A.R.L.)

Moseley, Haligarten, Estabrook & Weeden Inc.

125 Champs Elysee

Paine, Webber, Jackson & Curtis Inc.

41 Avenue George V

Paine, Webber, Jackson & Curtis Incorporated

10 Rue Duphot, 75001

A-44

Appendix E

Prudential-Bache Securities, Inc.

6 Rue Royale

Prudential-Bache Securities, Inc.

370 Rue St. Honore

Shearson/American Express Inc.

12114 Rond-Point Champs Elysees

Smith Barney, Harris Upham & Co. Incorporated

7, Place Vendome

Stralem & Company Incezporated

30, Ave. Marceau

Thomson McKinnon Securities Inc.

23 Rue Royale

Wertheim & Co.

4, Place de la Concorde

(Wertheim & Cie., S.A.)

Wertheim & Co., Inc.

23 Boulevard Haussman, 75009

GERMANY

Dusseldorf

Dean Witter Reynolds Inc.

Konigsalle 88

Merrill Lynch, Pierce, Fenner & Smith Incorporated

KOE Center Bldg.

Koenig Sallee 30

Prudential-Bache Securities, Inc.

Benrather/Ecke

Kasernenstrasse, 4000

Frankfurt

Dean Witter Reynolds Inc.

Westendstrasse 8, 6000

A-45

Appendix E

Dominick & Dominick Incorporated

Westendrasse 28

Hutton (E.F.) & Company Inc.

6000 Frankfurt 1

Bockenheimer Landstrasse 51-53

Rhein-Main-Ctr.

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Ulmenstrasse 30, 6000

Frankfurt/Main, Germany

(Merrill Lynch, Pierce, Fenner & Smith

International Limited)

Moseley, Hallgarten, Estabrook & Weeden, Inc.

Friedrichsstrasse 34, 6000

Prudential-Bache Securities, Inc.

Wiesenhuettenstrasse 18

Roulston Research Corp.

17 Unterlindau

Shearson/American Express Inc.

Mainzer Landstrasse 27-3!

6000 Frankfurt/Main

Thomson McKinnon Securities Inc.

Hochstrasse 43

Hamburg

Dominick & Dominick Incorporated

Grosse Bleichier 32

2000 Hamburg 36

Hutton (E.F.) & Company Inc.

Hamburgerof

Jungfernstieg 30, 5000

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Paul Strasse 3

Prudential-Bache Securities, Inc.

Neuer Wall 10, 2000

A-46

Appendix E

Shearson/American Express Inc.

Neuer Wall 84

Munich

Prudential-Bache Securities lic.

Ludwigstrasse 8

Dean Witter Reynolds Inc.

Sonnenstrasse 1

Fahnestock & Co.

Frauenplatz 11

Hutton (E.F.) & Company Inc.

Odeonsplatz 18

Stuttgart

Dominick & Dominick Incorporated

Calwerstrasse 19

Prudential-Bache Securities, Inc.

Koenigstrasse 1A, 5-7000

GREECE

Athens

Droulia & Co.

3 Stadiou Street

Hutton (E.F.) & Company Inc.

Vassilissis Sophias 1201

Merrill Lynch, Pierce, Fenner & Smith Incorporated

17 Hellas L.L.C.

Valooriton Street

Paine, Webber, Jackson & Curtis Inc.

(International)

Koumbari #4

Prudential-Bache Securities, Inc.

5 Koumbari St.

A-47

Appendix E

GUAM

Agana

Merrill Lynch, Pierce, Fenne’ & Smith Incorporated

Julale Shopping Center

HOLLAND

Amsterdam

Bear, Stearns & Co.

Singel 540

Drexel Burnham Lambert Incorporated

Signel 540

Herzfeld & Stern

Singel 160

Hutton (E.F.) & Company, Inc.

Dam 21

Merrill Lynch, Pierce, Fenne’ & Smith Incorporated

Weesperstraat 107

(Merrill Lynch, Pierce, Ferner & Smith International

Limited)

Prudential-Bache Securities, nc.

Geboaw Rivierstaete

Amsteldijk 166

Shearson/American Express [nc.

491 Herengracht

Rotterdam

Merrill Lynch, Pierce, Fenne & Smith Incorporated

30 Korte Hoogstraat

HONG KONG (B.C.C.)

Hong Kong

Dean Witter Reynolds Inc.

(Dean Witter Reynolds Inernational Inc.)

1501 Gloucester Tower

A-48

Appendix E

Donaldson, Lufkin & Jenrette Securities Corporation

Bank of America Tower,

12 Harcourt Rd., Ste. 1008

Drexel Burnham Lambert Incorporated

2708 New World Tower

Queen’s Rd. Central

Drexel Burnham Lambert Incorporated

World Wide House

Des Voeux Rd., Rm. 2002

Kidder, Peabody & Co. Incorporated

Rooms 1707-1709

Connaught Center

Connaught Road, Central

(Kidder, Peabody & Co., Ltd.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

St. George’s Bldg.

2 Ice House Street

(Merrill Lynch, Pierce, Fenner & Smith International

Limited)

Paine, Webber, Jackson & Curtis Incorporated

St. George’s Bldg.

2 Icehouse Street

Prudential-Bache Securities, Inc.

Shell House

Queens Road Central

Salomon Brothers Inc.

2907 Alexandra House

16-20 Charter Rd.

Schwab (Charles) & Co. Inc.

The Bank of America Tower, 7th Floor

12 Harcourt Road

Shearson/American Express Inc.

St. Georgia’s Bldg.

2 Ice House St.

(Shearson Hayden Stone Far East Limited, subsidiary)

A-49

Appendix E

ITALY

Milan

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Via Hoepli 7

(Merrill Lynch, Pierce, Fenner & Smith S.PA)

Rome

Dean Witter Reynolds Inc.

Via Bertoloni 57

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Via Carducci 10

(Merrill Lynch, Pierce, Fenner & Smith S.PA.)

Thomson McKinnon Securities Inc.

8 Via Lacullo

JAPAN

Tokyo

Becker (A.G.) Paribas Incorporated

Yurakucho Denki Bldg.

7-1 Yurakucho-Cham

Chiyoda-Ku

Drexel Burnham Lambert Incorporated

Ste. 430, Fuji Bldg.

2-3 Marunouchi 3 Chome

Chiyoda-Ku

First Boston Corporation

Kokusai, Bldg.

1-1 Marunouchi, 3-Chome

Chiyoda-Ku

Goldman, Sachs & Co.

704 Yurakucho Blidg., 7th FI.

1-10-i Yurakucho

Chiyoda-Ku

(Goldman Sachs International Corp.)

A-50

Appendix E

Kidder, Peabody & Co. Incorporated

AIU Bldg.

1-3 Maranouchi, 1-chome

Chiyoda-Ku

Lehman Brothers Kuhn Loeb Incorporated

P.O. Box 127

Kasumigaseki Bldg.

3-2-5 Kasumigaseki, Ste. 2618

Chiyoda-Ku

(Kuhn, Loeb & Co. Asia)

Merrill Lynch, Pierce, Fenner & Smith Incorpor:ated

Toranomon-Mitsui Bldg. 8-1

Kasumi Gaseki, 3-Chome

Chiyoda-Ku

(Merriil Lynch, Pierce, Fenner & Smith S.A.)

Paine, Webber, Jackson & Curtis Incorporated

AIV Bldg., 5th Floor

1-3 Marunouchi, 1 Chome

Chiyoda-Ku

Salomon Brothers Inc.

Fukoku Seimei Bldg., 22

Uchisaiwai-Cho, 2 Chome

Chiyoda-ku

LEBANON

Beirut

Hutton (E.F.) & Company Inc.

Estral Centre, 8th FI.

Hamra St.

P.O. Box 113-5583

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Starco North Building

P.O. Box 5316

(Merrill Lynch, Pierce, Fenner & Smith International

Limited)

A-51

Appendix E

LUXEMBOURG

Luxembourg

Hutton (E.F.) & Company Inc.

1 Rue Du Fort Elizabeth

MONACO

Monte Carlo

Hutton (E.F.) & Company

Le Montaigne

7/9 Ave., De Grande

Prudential-Bache Securities, Inc.

Sporting d’Hiver

Shearson/American Express Inc.

Park Place

25 Ave., De La Costa

Thomson McKinnon Securities Inc.

Le Schuylkill

19 Blvd. De Suisse

KOREA

Seoul

Merrill Lynch, Pierce, Fenner & Smith Inccrporated

Hankook Ilbo Bldg.

14 Chung Hak-Dong

Chongnoku

NETHERLANDS, ANTILLES

Amsterdam

Merrill Lynch, W.V.

Merrill Lynch House, 51

Frederiksplein

A-52

Appendix E

Prudential-Bache Securities, Inc.

Geboaw Riverstaeter

Amsteldijk 166

PANAMA (REPUBLIC OF)

Panama

Merrill Lynch, Pierce, Fenner & Smith Incorporated

18 Acquilono de la Guardia

Apartado 8065

PHILIPPINES

Manila

Merrill Lynch, Pierce, Fenner & Smith Incorporated

A.1.U. Bldg., Ayala Ave.

Makati Rizal

P.O. Box 7110 Mia Airmail Exchange Ctr. 3120

PUERTO RICO

Hato Rey

Dean Witter Reynolds Inc.

Banco de Ponce Bldg., 268

Munoz Rivera Ave.

First Boston Corporation (The)

Banco Popular Ctr.

Kidder, Peabody & Co. Incorporated

920 Banco Popular Center

Philips, Appel & Walden, Inc.

Banco de Ponce Bldg., Mezzanine FI.

Raymond, James & Associates, Inc.

Banco de Ponce Bidg., 268

Munoz Rivera Ave., Ste. 2201

Shearson/American Express Inc.

Banco de Ponce Bldg., 16th FI.,

P.O. Box SLR

A-53

Appendix E

San Juan

Becker (A.G.) Paribas Incorporated

Banco de Ponce, Ste. 1209

G.P.O. Box 892

Merrill Lynch, Pierce, Fenner & Smith Incorporated

1 Banco Popular Ctr., Munoz Rivera Ave.

Paine, Webber, Jackson & Curtis, Inc.

Chase Manhattan Bank Bldg.

Prudential-Bache Securities, Inc.

255 Ponce de Leon Avenue and Bolivia Street

SINGAPORE (B.C.C.)

Singapore

Dean Witter Reynolds Inc.

4108 O.C.B.C. Centre, Chulia St.

Drexel Burnham Lambert Incorporated

5 Shenton Way, 22-03 UIC Bldg.

Singapore 0106

Merrill Lynch, Pierce, Fenner & Smith Incorporated

18th Fl., Shing Kwanhouse, Shenton Way

Prudential-Bache Securities, Inc.

Ste. 1402, UOB Building, ! Bonham St.

Shearson/American Express Inc.

1201-1205 12th FI.,

Shing Kwan House, 4 Shenton Way

SPAIN

Barcelona

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Avinguda Diagonal 534

(Merrill Lynch, Pierce, Fenner & Smith Espanola, S.A.)

A-54

Appendix E

Madrid

Drexel Burnham Lambert Incorporated

Gorbea 2, Paseo De La Castillana 149

Hutton (E.F.) & Company, Inc.

Calle Fortuny 39

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Edificio Piramide, 7th Floor, Paseo de la Castellana 31

(Merrill Lynch, Pierce, Fenner & Smith Espanola S.A.)

Prudential-Bache Securities, Inc.

Alcala 32

Shearson/American Express Inc.

63 Avenida Del Generalisimo

SWITZERLAND

Basle

Dominick & Dominick Incorporated

Aeschengraben 10

Shearson/American Express Inc.

Asschenvoistadt 55

Chesieres

Donaldson, Lufkin & Jenrette Securities Corporation

Case Postale 55, 1885 Chesieres

Chiasso

Prudential-Bache Securities, Inc.

6830 Via Valdani 2

Geneva

Baird, Patrick & Co., Inc.

9 Rue Calvin

Bear, Stearns & Co.

P.O. Box 40, 30 Rue du Rhone 1211

A-55

Appendix E

Becker (A.G.) Paribas Incorporated

16 Ave. Eugene-Pittard

(Becker Securities Incorporated S.A.)

Dean Witter Reynolds Inc.

7, Rue Versonnex

Drexel Burnham Lambert Incorporated

P.O. Box 290

Eberstadt (F.) & Co., Inc.

24 Avenue de Champel

First Boston Corporation

No. 7 Place du Molard

Herzfeld & Stern

14 Avenue Ernest H 2ntsch

Hutton (E.F.) & Company Inc.

9 Place du Bourg-de-Four

Kidder, Peadudy x Co. Incorporated

11, Cours de Rive, 211 Geneva 3

(Kidder, Peabody, Geneve S.A.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

65 Rue du Rhone

(Merrill Lynch, Pierce, Fenner & Smith S.A.)

Merrill Lynch, Pierce, Fenner & Smith Incorporated

31 Rue du Rhone

Merrill Lynch, Pierce, Fenner & Smith Incorporated

62 Rue du Rhone

Moseley, Hallgarten, Estabrook & Weeden, Inc.

Cours de Rive 4

Paine, Webber, Jackson & Curtis Inc.

3 Place St. Gervais

Prudential-Bache Securities, Inc.

40 Rue du Rhone

A-56

Appendix E

Rothschild (L.F.), Unterberg, Towbin

21 Rue du Rhone

Shearson/American Express Inc.

P.O. Box 1211, One Place Longemalle

Smith Barney, Harris Upham & Co. Incorporated

6-8 Rue de Candolle

Stralem & Company incorporated

6, Ave. de Frontenex

Lausanne

Dean Witter Reynolds Inc.

10 Ave. de la Gare

Dominick & Dominick Incorporated

Rue St. Martin 7

Droulia & Co.

2 Place St. Francois

Shearson/American Express Inc.

2 Place Pepinet

Lugano

Hutton (E.F.) & Company Inc.

9 Via S. Balestra

Merril! Lynch, Pierce, Fenner & Smith Incorporated

Via Balestra 27, 6900

(Merrill Lynch, Pierce, Fenner & Smith, §.A.)

Prudential-Bache Securities, Inc.

Via Pioda 9

Shearson/American Express Inc.

Viali Ste Fani Franscini 22

Thomson McKinnon Securities Inc.

Via Cantonale-16

Tucker, Anthony & R.L. Day, Inc.

Piazza Monte Ceneri 9

A-57

Appendix E

Zurich

Brown Brothers Harriman & Co.

Stockerstrasse 38

(Brown Brothers Harriman Services AG)

Donaldson, Lufkin & Jenrette Securities Corporation

Beethovenstrasse 5, Ist Floor

Drexel Burnham Lambert Incorporated

Limmat quai 112

Hutton (E.F.) & Company Inc.

Kuttelgasse 4

Lawrence (Cyrus J.) Incorported

Bleicherwig 7, 8002

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Muehlenbachstrasse 25

Prudential-Bache Securities, Inc.

Bahnhofstrasse 106

Smith Barney, Harris Upham & Co. Incorporated

Gartenstrasse 25

URUGUAY

Montevideo

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Rincon 454, Piso 5

Prudential-Bache Securities, Inc.

Calle Buenos Aires 585-BiS

U.S. VIRGIN ISLANDS

St. Croix

Merrill Lynch, Pierce, Fenner & Smith Incorporated

55 Company St., The Mahogany Inn

Prudential-Bache Securities, Inc.

14 Church St.

A-58

LL

Appendix E

St. Thomas

Prudential-Bache Securities, Inc. |

9 Norre Gade, Charlotte Amailie

VENEZUELA

Caracas

Fahnestock & Co.

Edificio Seguras Venezuela, Avenida Francisco

DeMiranda, 2nd Fl., Apartado 3089

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Venezolana S.R.L. Apartado 5136

(Merrill Lynch, Pierce, Fenner & Smith Venezolana S.R.L.)

For Vol,

— J

re

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