The opinion of the court was delivered by: GAGLIARDI
Plaintiffs Fairchild, Arabatzis & Smith, Inc. ("FAS") and Steven M. Arabatzis have commenced this action for damages alleging violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and common law fraud. Jurisdiction is based upon 15 U.S.C. § 78aa and 28 U.S.C. § 1332. Defendant Prometco (Produce & Metals) Co., Ltd. ("Prometco") has counterclaimed against FAS to recover upon a judgment of the United Kingdom's High Court of Justice. Defendants Prometco and J. R. Charbit have moved for summary judgment dismissing the complaint, and Prometco has moved for summary judgment on its counterclaim. Plaintiffs FAS and Arabatzis have cross-moved for summary judgment on their complaint, and FAS has moved to dismiss Prometco's counterclaim. For the reasons stated below, plaintiffs' motions are denied and defendants' motions are granted.
Plaintiff FAS is a New York corporation which operates as a commodity futures commission merchant. Plaintiff Arabatzis is an officer of FAS. At a meeting with defendant Charbit in New York in July 1977, Arabatzis, on behalf of FAS, agreed to purchase through Prometco commodity options for futures contracts to be performed in the United Kingdom. Option purchases were made during the period September 1977 through March 1978. FAS defaulted on payments due Prometco relating to these options, and Prometco instituted an action against FAS and Arabatzis in the High Court of Justice, Queen's Bench Division, in the United Kingdom for $ 189,000, the amount allegedly due. Notice of the action was provided to FAS and Arabatzis by service of the writ of summons (complaint) at FAS' New York offices.
Because Arabatzis failed to appear and defend in the British court, a default judgment was entered against him in June 1978. An action to enforce the judgment has been commenced in New York Supreme Court. FAS, however, through its London solicitors filed a memorandum of appearance in the action which stated as follows:
This appearance stands as unconditional unless the defendant applies within 28 days to set aside the writ, or service thereof, and obtains an order to that effect.
By "summons" (motion) filed August 25, 1978, FAS sought an order setting aside service of the writ of summons on the grounds of insufficiency of service of process and lack of personal jurisdiction. FAS, by its solicitors, filed voluminous affidavits in which it claimed that: 1. the contract in question was made in New York when Charbit and Arabatzis discussed FAS' obtaining London options from Prometco in July 1977; 2. New York law governed its performance; 3. FAS and Arabatzis telephoned their orders to Prometco in New York rather than telexing them to Prometco in London; 4. New York was the forum conveniens; and 5. service had not been made upon a proper agent of FAS as required by New York's Civil Practice Law and Rules. FAS' affidavits also raised the issue of Charbit's fraudulent conduct, I. e., that Charbit wilfully misrepresented that the options Prometco would sell to FAS would be registered with various London commodity exchanges. FAS claimed that Prometco furnished to FAS documents purportedly issued by the various exchanges but which were not, in fact, genuine.
On October 9, 1978, following a three-day hearing, the High Court of Justice, per Mr. Justice Mocatta, dismissed FAS' summons. The court determined that service had been made upon a proper agent of the corporation, and that extraterritorial service (and personal jurisdiction) were properly premised upon Order 11, Rule 1(f)(i) and (iii) of the Rules of the Supreme Court.
Finding that FAS had placed the orders to Prometco's London office via telex, the court concluded that the contract between the parties had been made in the United Kingdom. In addition, the court found England to be the forum conveniens. The judgment entered on October 9, 1978 was not, however, a final determination on the issue of jurisdiction. Under British law, the court need only decide that plaintiff has made out a prima facie case under Order 11 for it to find jurisdiction initially. The defendants may reopen the issue of jurisdiction at trial or on summary judgment, and final judgment cannot be pronounced unless the court is satisfied that it does have personal jurisdiction.
By order dated October 9, 1978, Justice Mocatta gave leave to Prometco to serve FAS' solicitors on short notice with Prometco's summons for summary judgment pursuant to Order 14 of the Rule of the Supreme Court.
FAS chose not to appear at the hearing of October 13, 1978. Prometco relied upon the twenty-seven affidavits and accompanying exhibits, which together comprised over 1,000 pages, previously filed by the parties. The court entered judgment for Prometco on the contract pursuant to Order 14 in the amount of $ 189,331.31 plus interest from April 27, 1978 and costs of 5,000. No written decision was filed, nor was any oral decision transcribed.
Three months after Prometco commenced its action against Arabatzis and FAS in the High Court of Justice and two months after Prometco brought suit in New York Supreme Court to enforce the English judgment against Arabatzis, FAS and Arabatzis instituted this lawsuit against Prometco and Charbit. The complaint contains two separate causes of action, one for common law fraud and the other for violation of the federal securities laws. For their state claim, plaintiffs allege that Charbit and Prometco defrauded them when Charbit deliberately misrepresented that the London commodity options sold to plaintiffs were registered with various London commodity exchanges. For their federal securities law claim, plaintiffs allege that Charbit intentionally misrepresented to plaintiffs that: 1. he had an interest in several corporations including Prometco; 2. he could sell registered London options to FAS through his various corporations; and 3. he would send FAS confirmations from London that the options were registered. Plaintiffs seek compensatory and punitive damages.
I. Defendants' Motion for Summary Judgment Dismissing the Complaint
Plaintiffs invoke the judicially implied private right of action pursuant to § 10(b) of the Securities Exchange Act of 1934 to challenge defendants' allegedly fraudulent activities in trading commodity options. For transactions occurring prior to the enactment of the Commodity Futures Trading Act of 1974 ("CFTC Act") there is a clear split of authority over whether commodity options are "securities" within the meaning of the federal securities laws. Compare SEC v. Commodity Options International Inc., 553 F.2d 628 (9th Cir. 1977) And SEC v. American Commodity Exchange, 546 F.2d 1361 (10th Cir. 1976) With Glazer v. National Commodity Research & Statistical Service, Inc., 547 F.2d 392 (7th Cir. 1977), Aff'g., 388 F. Supp. 1341 (N.D.Ill.1974). The Court of Appeals for this Circuit has not decided this issue. British American Commodity Options Corp. v. Bagley, 552 F.2d 482, 486 n.7 (2d Cir.), Cert. denied, 434 U.S. 938, 98 S. Ct. 427, 54 L. Ed. 2d 297 (1977). Since the enactment of the CFTC Act, however, trading in commodity options is no longer subject to a private action under the securities laws. Bartels v. International Commodities Corp., 435 F. Supp. 865 (D.Conn.1977). In Bartels, supra, Judge Newman persuasively reasoned that the CFTC Act removed commodity options from the scope of the implied private right of action under the securities laws. Dissatisfied with previous attempts to regulate commodity options under existing legislation, Congress established an independent agency, the Commodity Futures Trading Commission, with exclusive jurisdiction over regulation of ...