Appeal from a judgment entered in the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, dismissing a complaint alleging violations of federal securities laws as well as various state law violations. The Court of Appeals affirmed the judgment of the district court, basing its decision on lack of subject matter jurisdiction.
Before Gurfein and Meskill, Circuit Judges, and Wyzanski,*fn* District Judge.
This is an appeal from a judgment entered in the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, dismissing a complaint brought primarily under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. The district court determined both that it lacked subject matter jurisdiction and that the plaintiffs lacked standing to pursue their claims under the statute, each determination being sufficient and independent reason for ordering dismissal. The court also determined that it lacked in personam jurisdiction over all but two of the defendants, and that the forum non conveniens argument put forth by the defendants was "persuasive." After the district court had entered its order, and after a notice of appeal had been filed, appellants moved for relief pursuant to Fed.R.Civ.P. 60(b)(2). The district court, per Milton Pollack, Judge, determined that the allegedly new evidence tendered by the plaintiffs "warrant(ed) no change" in Judge Frankel's decision and that, "even if the Court were disposed to grant the motion, it would not have jurisdiction to do so unless the case were remanded by the Court of Appeals." Appellants ask us to reverse Judge Frankel's decision and to review Judge Pollack's order. We decline to do either, basing our decision on the "fundamentally preliminary" defect in the appellants' case lack of subject matter jurisdiction.*fn1 Leroy v. Great Western United Corp., 443 U.S. 173, 99 S. Ct. 2710, 61 L. Ed. 2d 464 (1979).
The plaintiffs in this action are a Swiss company by the name of Fidenas AG, a Bahamian company by the name of Sidesco International Ltd., and a German citizen residing in Switzerland by the name of G. P. Jurick. Jurick is described as the "managing executive" of Fidenas and Sidesco. It appears that he and his family own all of the Fidenas and Sidesco stock. On this appeal, the plaintiffs describe themselves as "international dealers in commercial paper and financial advisers" and as being "engaged in the business of financing and arranging financing for companies." The central defendant is a Swiss computer sales company operating exclusively in Switzerland under the name of Honeywell Bull (Schweiz) A.G., hereafter referred to as "HBS." Also sued is Compagnie Internationale Pour L'Informatique CII Honeywell Bull S.A., referred to as "CII-HB," and Compagnie Honeywell Bull S.A., referred to as "CHB." CII-HB is a French company, partly owned by Honeywell Information Systems, Inc., and engaged in the production and sale of computers and peripheral equipment; CII-HB is HBS's current "parent." CHB, also a French company and also partly owned by Honeywell Information Systems, Inc., preceded and eventually merged into CII-HB; CHB was HBS's "parent" at the time of the transactions that gave rise to this suit. In addition, the plaintiffs named as defendants (1) Honeywell Information Services AG, a Swiss company owned by a French company which in turn is owned partly by Honeywell Information Services, Inc., engaged in the sale of computer time sharing services; (2) Honeywell AG, a Swiss subsidiary of Honeywell, Inc., located in Minneapolis, Minnesota, engaged in the sale of controls for commercial and residential customers; and (3) Bull Holding S.A., a Swiss subsidiary of CII-HB existing solely as a holding company. Finally, the plaintiffs named as defendants two individuals by the names of Josef Grandi, a Swiss citizen and resident working as managing director of HBS, and Maxime Bonnet, a French citizen and resident working as a marketing executive for CII-HB.
According to the plaintiffs, "(t)his case involves a multi-national fraud and conspiracy of world-wide proportions involving events and parties in at least six countries the United States, Canada, France, Switzerland, Liechtenstein and the Bahamas." The facts asserted to support this characterization are as follows.*fn2 In late 1972, Jurick was introduced to Roland Staempfli, then working as HBS's chief financial officer. As a result of this meeting, Fidenas arranged a financing for HBS in the amount of DM 3,500,000 through the issuance of one-year promissory notes. Sidesco purchased the first four of these notes in December of 1972 and immediately sold them to Bishops Bank and Trust Co., Ltd., the predecessor of the Bishops International Bank Ltd., which in turn is an affiliate of the National Westminster Bank and the Royal Bank of Canada, located in Nassau, Bahamas. Almost a year later, another note financing took place. This note, for DM 4,000,000, was apparently intended to provide funds to cover the original notes, was not to mature until July of 1975 and was placed by the plaintiffs directly with Bishops Bank. The plaintiffs also entered into an underwriting agreement which lasted between late 1973 and early 1975, pursuant to which the plaintiffs sold HBS notes to various of its customers, including the Merban Corporation in New York City. These notes were in turn sold by Merban to other financial institutions.
As it turns out, the HBS notes were fraudulent, having been prepared and forged by Staempfli. The proceeds of these notes were apparently invested by Staempfli in speculative ventures through a Canadian company called Chemalloy Minerals Ltd., a firm which was hoping to develop natural gas fields in Texas. Chemalloy went bankrupt, however, and virtually all of the proceeds of the notes were lost. On February 7, 1979, Staempfli was convicted of criminal fraud and was sentenced by the Zurich Court to four and one-half years in prison. In the meantime, the fraud having been discovered and announced, and various of the HBS notes having fallen due, those left holding the notes understandably sought their redemption. HBS, denying responsibility for the fraudulently issued notes, declined to honor them, a decision leading to a number of suits in Switzerland against HBS. None of the purchasers of the unredeemed notes is a party to this action.*fn3 Also in the meantime, the plaintiffs had lost their principal American customer, Merban Corporation, and, at least in their estimation, began to suffer the consequences of a reputation tarnished by involvement with the HBS notes. Although this summary does not exhaust the factual allegations contained in plaintiffs' complaint, it represents the essential core of those assertions, at least for purposes of this appeal.
Judge Frankel treated the matter of subject matter jurisdiction in the following fashion:
The transactions involved were "on any view predominantly foreign," . . . . The court concludes that Congress would not "have wished the precious resources of the United States courts . . . to be devoted to" a claim of this nature. . .
The complaint contains allegations of fraudulent activity in the United States, but these are totally conclusory, charging only that Honeywell, Inc.'s main office in Minneapolis was acquainted with an alleged cover-up phase of the fraud. These allegations fail to satisfy the requirements of Rule 9(b) as to particularity in alleging the circumstances constituting fraud, or even the ordinary rules of notice pleading. The events on which plaintiffs rely in order to demonstrate fraudulent activity in the United States are secondary or tertiary aspects of the fraud at most. Noteworthy also is the absence of any allegation that these acts were committed by defendants. This void is made critical by plaintiffs' steady use of the passive voice in their complaint, which obscures the identity and locus of various events alleged, and the plaintiffs' failure to challenge the defendants' representation that the acts listed were performed by the Plaintiffs. In any event, even if these acts were performed by defendants, or some of them, within this jurisdiction, they do not alter the conclusion that the transaction was predominantly foreign, and that subject matter jurisdiction is therefore lacking. . . .
It is undisputed that all of the parties to this action, both plaintiffs and defendants, are foreign. It is also clear that whatever the scope of the activity within the United States that might emerge from discovery, the essential core of the alleged fraud took place in Switzerland. Any activities in the United States were clearly secondary and ancillary. Such relatively minor activity in the United States does not alter the conclusion that subject matter jurisdiction is lacking, particularly when, as is charged here, it primarily takes the form of culpable nonfeasance. . . .
Plaintiffs' reliance on the fact that some of the notes issued by HBS were ultimately acquired by American purchasers is entitled to little weight in the setting of this case, unlike a class or derivative action where the group represented includes American "victims" or an SEC enforcement proceeding. Here the critical consideration is that the plaintiffs, the defendants, and the transaction are foreign.
We believe that the district court was entirely correct on this point.*fn4
The 1934 Act offers little assistance regarding subject matter jurisdiction. Section 27 grants exclusive jurisdiction to district courts over all actions "brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder." 15 U.S.C. § 78aa. And the only provision which deals specifically with extraterritorial jurisdiction is § 30(b), which provides:
The provisions of this chapter or of any rule or regulation thereunder shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States, unless he transacts such business in contravention of such rules and regulations as the Commission may ...