Commodity Futures Trading Comm'n v. Worldwide Mkts.

1

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. WORLDWIDE MARKETS, LTD; TAB NETWORKS, INC; THOMAS PLAUT; and ARTHUR DEMBRO, Defendants.

Civ. No. 21-20715 (KM) (LDW)

United States District Court, D. New Jersey

September 9, 2022

OPINION & ORDER

Hon Kevin McNulty, United States District Judge

On December 27, 2021, the Commodity Futures Trading Commission (“Commission”) brought the Complaint (DE 1) against Defendants WorldWideMarkets, Ltd. (“WWM”), TAB Networks, Inc. (“TAB”) Thomas Plaut (“Plaut”), and Arthur Dembro (“Dembro”) (together, the “Defendants”) seeking civil penalties injunctive, and other equitable relief, for violations of the Commodity Exchange Act (“CEA”), 7 U.S.C §§ et seq., and its implementing regulations. On August 18, 2022, I granted in part and denied in part Dembro's motion to dismiss (DE 24), in which WWM, TAB, and Plaut had joined. (DE 37 at 7-35; see also DE 28, 29.)

Dembro now moves, pursuant to 28 U.S.C. § 1292(b), to certify an interlocutory appeal on the question of “whether the activities of Defendants were outside the territorial jurisdiction of this Court under the [CEA] because they were ‘predominantly foreign' pursuant to” the Second Circuit's decision in Parkcentral Global Hub Ltd. v. Porsche Auto. Holding Se, 763 F.3d 198, 215 (2d Cir. 2014).^[1] (DE 40-1 at 2-3,7.) For the following reasons, the motion is DENIED.

BACKGROUND

I assume familiarity with the factual background and procedural history of the dispute as set forth in my prior opinion granting in part and denying in part Dembro's motion to dismiss. (DE 37 at 7-35.) Most relevant to Dembro's current motion is the Court's holding that, although the CEA does not apply extraterritorially, the Commission plausibly alleged a domestic application of the statute against Defendants. (Id. at 17.) In analyzing extraterritoriality, the Court performed a two-step analysis to determine (1) whether the statute has an extraterritorial effect, and if not, (2) whether the focus of the Commission's claim consists in foreign conduct. (See RJR Nabisco, Inc. v. European Cmty., 579 U.S. 325, 337 (2016).

First, I observed that although the CEA “is silent as to [its] extraterritorial reach,” cases have typically found that the CEA “is primarily concerned with domestic conditions.”^[2] I found no cause to deviate from the reasoning in those cases, and agreed that the CEA does not apply extraterritorially. (DE 37 at 18.)

Second, as to the Commission's claims brought under Sections 4b(a)(2) and 6(c)(1) of the CEA and their implementing regulations (Counts I and II), I found that the CEA, like the Securities Exchange Act (“SEA”), is “transaction” focused;^[3] thus, for purposes of the Court's extraterritoriality analysis, I focused on the forex transactions between WWM and its customers. (DE 37 at 18-19.) I also stated that courts assessing CEA claims brought by both (1) the Commission under Section 6c, 7 U.S.C. § 13a-1(a), or (2) private plaintiffs under Section 22, 7 U.S.C. § 25(a)(1) have applied the “transactional test” from Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247, 267 (2010). Under the Morrison test, a transaction will be considered domestic if (1) the transaction occurred on a domestic exchange or (2) the transaction itself is domestic.

Third, I observed that in determining whether a transaction is “domestic,” in the context of an SEA claim, the U.S. Court of Appeals for the Third Circuit has stated that courts should consider “not .. the place where the deception originated, but [the place where] purchase and sales of securities” occurred. (DE 37 at 21 (citing United States v. Georgiou, 777 F.3d 125, 135 (3d Cir. 2015) (citing Morrison, 561 U.S. at 266.) The Third Circuit and other courts have interpreted this to mean that the “transaction is domestic when the parties incur irrevocable liability to carry out the transaction within the United States or when the title is passed within the United States.”^[4] “Irrevocable liability” can be established though facts including the “formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money.” Georgiou, 777 F.3d at 136 (citing Absolute Activist, 677 F.3d at 69, 70).

Fourth, applying the foregoing principles, I found that the forex trades between WWM and its customers were “domestic transactions” under Morrison. (DE 37 at 21.) I highlighted that in order to execute a trade on WWM's software application, customers were allegedly required to send electronic orders to WWM's server in New Jersey. (Id. (citing DE 1 at ¶¶ 42, 44).) Additionally, the Commission alleged that WWM (1) received orders, (2) executed trades, and (3) sent electronic trade confirmations to customers from WWM's New Jersey office. (Id. ¶ 45.) Because the Complaint's allegations suggested that irrevocable liability concerning the forex trades occurred within the United States, I determined that the Commission plausibly alleged a domestic application of Sections 4b(a)(2) and 6(c)(1) of the CEA. (Id. at 21-22.)

DISCUSSION AND ANALYSIS

Generally an appeal will lie only from “final decisions” of federal district courts. 28 U.S.C. § 1291; see also Def. Distrib. v. Att'y Gen. of N.J., 972 F.3d 193, 198 (3d Cir. 2020). An interlocutory order, like a partial dismissal, merges with the final decision, and so an appeal encompasses review of such orders. See Verma v. 3001 Castor, Inc., 937 F.3d 221, 228 (3d Cir. 2019) (stating general merger rule). The final decision rule, however, is “subject to limited exceptions.” Def. Distrib., 972 F.3d at 198.

Interlocutory orders, like the partial dismissal here, merge with the final judgment, and so an appeal from that final decision encompasses review of such orders. See Verma v. 3001 Castor, Inc., 937 F.3d 221, 228 (3d Cir. 2019) (stating general merger rule). The final decision rule, however, is “subject to limited exceptions.” Def. Distrib., 972 F.3d at 198.

One such exception is for certified questions. A non-final order may be certified for appeal if the court determines that it (1) involves a “controlling question of law,” (2) for which there is “substantial ground for difference of opinion,” and (3) which may “materially advance the ultimate termination of the litigation” if appealed immediately. 28 U.S.C. § 1292(b). A “controlling question of law” is one which, if answered erroneously, would result in reversal on appeal, or which is “serious to the conduct of the litigation, either practically or legally.” Hall v. Wyeth, Inc., 2010 WL 4925258 at *1 (D.N.J. Dec. 2, 2010) (quoting Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974) (en banc)); see also Ensey v. Gov't Employers Ins. Co., No. CV 12-7669 (JEI/KMV), 2014 WL 12613400, at *2 (D.N.J. Aug. 18, 2014). A “substantial ground for difference of opinion” exists where “courts that have examined an issue reach ‘conflicting and contradictory opinions ... upon the particular question of law.'” Ensey, 2014 WL 12613400 at *2 (quoting Kolbeck v. General Motors Corp., 702 F.Supp. 532, 542 (E.D. Pa. 1998)); see also Cuttic v. Crozer-Chester Med. Ctr., 806 F.Supp.2d 796, 804-05 (E.D. Pa. 2011) (“[S]ubstantial grounds for difference of opinion exist where there is general doubt or conflicting precedent as to the correct legal standard.”) Finally, certification may materially advance a lawsuit's ultimate termination where “the moving party shows that an immediate appeal would (1) eliminate the need for trial, (2) reduce the extent or cost of discovery, or (3) simplify the trial by eliminating complex issues.” Children First Found., Inc. v. Legreide, Civ. No. 04-2137, 2005WL 3088334, at *10 (D.N.J. Nov. 17, 2005).

Certification, however, is discretionary, and I may decline certification of a question for immediate appeal even if the minimum criteria are met. Ensey, 2014 WL 12613400 at *2 (citing Bachowski v. Usery, 545 F.2d 363, 368 (3d Cir. 1976)); ADP, LLC v. Ultimate Software Grp., Inc., Civ. No. 16-8664, 2018 WL 1838003, at *3 (D.N.J. Apr. 17, 2018). Moreover, the Third Circuit has long disfavored piecemeal appeals and departure from the final decision rule. See Def. Distrib., 972 F.3d at 198; Camesi v. Univ. of Pittsburgh Med. Ctr., 729 F.3d 239, 244 (3d Cir. 2013); see also Cox Broad. Corp. v. Cohn, 420 U.S. 469, 479 n.7 (1975) (“[I]n deciding the question of finality the most important competing considerations are ‘the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the other.'” (quoting Gillespie v. United States Steel., 379 U.S. 148, 152-53 (1964))).

I turn to Dembro's motion for certification. With respect to the first element, I agree that the issue presented involves a “controlling question of law.” In my prior opinion, I found that even if the Court were to apply Parkcentral's holding, the Commission's claims are not “so predominantly foreign as to be impermissibly extraterritorial.” (DE 37 at 22 (citing Parkcentral, 763 F.3d at 216.)) Leaving aside the forex trades between WWM and customers, I emphasized that the Commission alleged that WWM and TAB shared an office in New Jersey, in which both Plaut and Dembro worked as corporate officers. (Id. ¶¶ 1, 16.) From this New Jersey office, the Complaint asserts, Plaut “controlled all aspects of WWM's and TAB's business activities as the companies' CEO.” (Id. ¶ 15). From the same New Jersey office, Dembro, as WWM's CFO, (1) “performed accounting and financial reporting functions” and (2) was involved in the development of WWM's marketing materials to prospective customers and Introducing Brokers. (Id. ¶¶ 16, 76 82-85.) Moreover, Dembro allegedly knew that restricted funds were being transferred from WWM to TAB, and the Commission contends that Dembro...