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IN RE SUMITOMO COPPER LITIGATION

October 30, 2000

IN RE SUMITOMO COPPER LITIGATION


The opinion of the court was delivered by: Milton Pollack, Senior United States District Judge.

  OPINION

Defendants Ashley M. Levett ("Levett") and Charles A.M. Vincent ("Vincent") each move, pursuant to Rules 12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing Plaintiffs' Sixth Amended Consolidated Class Action Complaint and Supplemental Sixth Amended Complaint (collectively, the "Complaints") against them for lack of personal jurisdiction, for having been filed in violation of Rules 15 and 21 of the Federal Rules of Civil Procedure, and as barred by the statute of limitations. For the reasons stated herein, this Court denies Levett and Vincent's motion to dismiss on all grounds.

I. BACKGROUND

In the Complaints, Plaintiffs assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and the common law of New York alleging that the prices of copper futures contracts traded on the Commodity Exchange Inc. and the Comex division of the New York Merchantile Exchange Inc. were artificially inflated between June 24, 1993 and June 15, 1996, inclusive, by an alleged conspiracy of certain defendants.

A. PROCEDURAL HISTORY

On June 8, 1996, Plaintiff Zuccarelli filed a complaint against several defendants, including Levett and Vincent. Zuccarelli v. Sumitomo Corp., 96 Civ. 4940. After that case was consolidated into In re Sumitomo Copper Litig., 96 Civ. 4584, Plaintiffs filed a Consolidated Amended Class Action Complaint which also named Levett and Vincent as defendants. On September 30, 1997, Plaintiffs voluntarily dismissed, without prejudice, their claims against Levett and Vincent. On December 10, 1998, this Court entered Order No. 55 permitting Plaintiffs to file and serve amended complaints and summons making allegations against and naming and adding new defendants in this action. Pursuant to that order, Plaintiffs filed the Sixth Amended Consolidated Class Action Complaint on April 7, 2000 and the Supplemental Sixth Amended Complaint on June 13, 2000. Plaintiffs added Levett and Vincent as defendants in the Supplemental Sixth Amended Complaint. On August 23, 2000, Levett and Vincent filed the Motion to Dismiss at issue here.

B. JURISDICTIONAL FACTS
1. Undisputed Facts

Levett and Vincent are citizens of the United Kingdom who have lived in Monaco since 1995 and 1996, respectively. They are both shareholders and former officers and directors of Winchester Commodities Group Limited ("Winchester"). At various times, they each served as officers and directors of some Winchester subsidiaries. In addition, Levett and Vincent each attended the annual Comex Copper Club Dinners in 1992 and 1994 in New York.

2. Plaintiffs' Averment of Facts

On or about May 20, 1991, Levett, Winchester, and CLR entered into a profit sharing agreement (the "Winchester-CLR joint venture"*fn1) for the purpose of trading in non-ferrous metals on the London Metal Exchange (the "LME") and on New York's Comex. Pursuant to the profit sharing agreement, Winchester was the introducing broker, and CLR was the clearing broker for all clients introduced by Winchester. Vincent did not individually enter into the agreement at that time, because he was having problems with the Securities and Futures Authority ("SFA"), and the parties later agreed to delay any transfer of shares to Vincent for six months. On or around June 30, 1992, CLR made various changes to the profit sharing agreement, including requiring Levett and Vincent to each provide a personal guarantee of $500,000.00.

The Winchester-CLR profit sharing agreement provided that CLR was responsible for 20% of Winchester's losses, and CLR would receive 20% of Winchester's profits. Throughout the class period, Winchester submitted to CLR monthly management accounts analyzing Winchester's gross and net income. These reports establish that (1) the overwhelming majority of Winchester's brokerage income was generated by Defendant Hamanaka, code named AMOD, and (2) Levett and Vincent regularly sought reimbursement for their business travel to New York and to other locations in the United States. These reports indicate that Levett traveled to New York in July, 1994 and August, 1994 and to the United States in November, 1993, December, 1993, February, 1994, and August, 1994. These reports also indicate that Vincent traveled to New York in November, 1993, December, 1993, July, 1994, and October, 1995, to the United States in May, 1994 and July, 1994, to Memphis in July, 1994, and to Miami in October, 1995.

The Winchester-CLR joint venture agreed that CLR and Winchester Brokerage Limited, a subsidiary of Winchester, would "have ajoint venture in the USA . . . with a view to commence trading in January 1992." Affidavit of Gary S. Jacobson in Opposition to Motion to Dismiss for Lack of Personal Jurisdiction Ex. 2 [hereinafter Jacobson Aff.]. A Commodity Futures Trading Commission ("CFTC") form identifying special accounts filed on October 14, 1991 named Levett as the account executive for an account named Winchester Trading Limited, a subsidiary of Winchester, and named CLR as the relevant firm. A similar CFTC form filed on January 24, 1996 named Levett and Vincent as the persons controlling the Winchester Trading Limited account. The CFTC assigned Winchester Trading Limited a "Trader Code" on both forms.

At a Winchester-CLR joint venture management meeting held on July 18, 1991, the participants discussed a "Japan/America Trip," noting:

Japan — As discussed the Far East trip was a great success. AL [Levett], CV [Vincent] and [Shiichi] Nishi visited all the potential Copper customers and appeared to be well received. . . . America — Again well received by all ongoing and future Clients. Several new trading relationships are in the process of being established particularly with Banks and Financial Institutions. . . . . . . AL [Levett] and CV [Vincent] feel sure that they will engage the best brokerage person in the US by the end of August.

Jacobson Aff. Ex. 4. At a later Winchester-CLR joint venture management meeting held on November 21, 1991, the participants noted: "USA Trip: AL [Levett]/CV [Vincent] reported that they had been well received and prospects for business looked good." Jacobson Aff. Ex. 5. At the February, 18, 1992 management meeting, Levett and Vincent reported on their business development trip to the United States and their attendance at the annual Comex Copper Club Dinner in New York.

Levett and Vincent worked with CLR to create, structure, and finance a series of transactions in June, 1993, referred to as the RADR transaction, in order to generate an immediate $50 million payment to the Winchester-CLR joint venture and to artificially inflate copper futures prices. In late May, 1993, Roy Leighton of CLR ("Leighton") met with Hamanaka in Tokyo to discuss the terms by which CLR would finance the RADR transaction. On June 3, 1993, CLR sent Hamanaka "a Terms of Business Letter for the proposed No. 2 account" informing Hamanaka that CLR, with Credit Lyonnais Paris's approval, had extended a special and additional credit line of $100 million to Hamanaka. Jacobson Aff. Ex. 10. In early June, 1993, Hamanaka communicated with Leighton and Philip Gamble of CLR ("Gamble") regarding negotiations for the No. 2 account taking place in New York between June 7 and June 10, 1993. On June 11, 1993, Leighton submitted to Hamanaka the planned RADR copper futures and options transactions, which were to be executed by Winchester Brokerage Limited in six stages and accepted by CLR in the No. 2 account.

The No. 2 account "was a general term used to describe sub-accounts MAGM1 and MAGM2." Jacobson Aft Ex. 11. William Bradwell of CLR ("Bradwell") explained:

The codes "MAGM' and "RADR' were proposed by Winchester Brokerage Limited for mutual use when referring to the Sumitomo Corporation and Winchester Trading Limited sub-accounts set up to record certain LME copper futures and OTC positions entered into on and after 24 June 1993 — what later became referred to as the RADR transaction. In this respect, we recall that Winchester Brokerage Limited were [sic] concerned about maintaining confidentiality. . . . they did not want to use similar sub-account references to those already employed for other sub-accounts of Sumitomo and Winchester Trading. We are not certain why these specific mnemonics or codes were chosen, but they are often associated in the market place with Magma and Marc Rich, respectively. We assume Winchester thought that the use of the particular codes chosen would assist confidentiality.

Jacobson Aff. Ex. 11.

On or about January 4, 1994, Levelt and Vincent caused a Winchester subsidiary in New Jersey to execute fraudulent transactions in connection with the unwinding of the manipulative RADR transaction. These transactions involved 3, 220 lots (80,500 tons) of three months copper for an approximate value of $140 million.

In February, 1994, Leighton and Hamanaka attended the annual Comex Copper Club activities in New York. They met "separate from the main activities of Copper Week," and discussed, among other things, CLR's financing of Sumitomo's copper trading. Jacobson Aff Ex.23.

In February, 1994, Levett and Vincent introduced CLR to Defendant Global Minerals and Metal Corporation ("Global") in New York. CLR issued a "terms of business letter" to Global on February 8, 1994, after Levett and Vincent caused Winchester Brokerage Limited to secure a guarantee of $250,000.00 on Global's behalf. In a letter dated January 10, 1995, Defendant Bipin Shah ("Shah"), a principal of Global, sought additional financing for copper transactions by forwarding Global's financial statement for 1994 to Vincent and requesting that Winchester increase Global's credit line to the maximum extent possible.

Levett and Vincent also caused Winchester to purchase large amounts of Comex futures contracts in 1995 and 1996, in order to artificially inflate Comex futures prices. As investigators from the CFTC and other exchanges examined the manipulators during 1996, the Defendants needed to take focused actions in order to reduce their LME long futures positions and appease the regulators, while continuing to artificially support and manipulate prices. In order to compensate for the reductions in Sumitomo's positions, Levett and Vincent caused Winchester Trading Limited to purchase large Comex copper futures contract long positions through another Winchester subsidiary, Winchester Holdings USA. Levett and Vincent caused Winchester Trading Limited to purchase more than 2,000 contracts by early January, 1996 and more than 4,000 contracts by February, 1996, and to continue to hold those contracts until at least March, 1996 when Sumitomo no longer needed to reduce its positions to appease the regulators. These positions, purchased on New York's Comex, called for delivery of more than three times the total copper stocks that were then held in Comex warehouses, and they had a significant upward effect on copper prices. On January 26, 1996, CLR expressed its concern over these Comex positions when Gamble spoke by telephone with Philip Bellanti of Winchester Trading Limited ("Bellanti") and pointed out the size of Winchester Trading Limited's March Comex copper position of 6000 lots, which "represented in excess of 20% of the open interest and substantially more of the fairly meager stocks held by Comex." Jacobson Aff. Ex. 35.

In connection with these activities, Levett and Vincent traveled to New York and other locations in the United States frequently in late 1995. In October, 1995, Vincent's business costs for travel to New York and other locations in the United States was approximately 12,200 for travel and currency and £ 26,300 for hire of aircraft. In addition, Winchester identified Levett and Vincent as the persons controlling the Winchester Trading Limited positions on a CFTC form identifying special accounts filed on January 24, 1996.

II. DISCUSSION

A motion to dismiss under Rule 12 must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). For purposes of this motion, the factual allegations in the Complaints are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993) (McLaughlin, J.).

A. PERSONAL JURISDICTION

Rule 4(k)(1)(A) of the Federal Rules of Civil Procedure provides, "Service of a summons or filing a waiver of service is effective to establish jurisdiction over the person of a defendant (A) who could be subjected to the jurisdiction of a court of general jurisdiction in the state in which the district court is located."*fn2 Fed. R. Civ. P. 4 (k)(1)(A). Levett and Vincent were served in Monaco pursuant to Rule 4 (1) of the Federal Rules of Civil Procedure. Thus, this Court must look to New York's long-arm statute to determine whether this Court may exercise personal jurisdiction over Levett and Vincent. Fed. R. Civ. P. 4 (k)(1)(A); Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997) (Van Graafeiland, J.); PDK Labs. Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997) (Feinberg, J.). Since this Court determines that it may exercise personal jurisdiction over Levett and Vincent pursuant to New York's long-arm statute, "the court then must decide whether such exercise comports with the requisites of due process." Bensusan Restaurant Corp., 126 F.3d at 27. See also Metropolitan Life Ins. Co. v. RobertsonCeco Corp., 84 F.3d 560, 567 (2d Cir. 1996) (Cabranes, J.), cert. denied, 519 U.S. 1006, 117 S.Ct. 508, 136 L.Ed.2d 398 (1996) and 519 U.S. 1007, 117 S.Ct. 508, 136 L.Ed.2d 398 (1996).

1. The Legal Standard

Plaintiffs bear the burden of establishing that this Court has personal jurisdiction over Levett and Vincent. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) (Sotomayor, J.). Plaintiffs'

obligation varies depending on the procedural posture of the litigation. Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, see Fed. R. Civ. P. 11, legally sufficient allegations of jurisdiction. At that preliminary stage, the plaintiff's prima facie showing may be established solely by allegations. After discovery, the plaintiff's prima facie showing, necessary to defeat a jurisdiction testing motion, must include an averment of facts that, if credited by the trier, would suffice to establish jurisdiction over the defendant. Hoffritz for Cutlery. Inc. v. Amajac. Ltd., 763 F.2d [55], at ...

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