In the Matter of an Application to Enforce an Administrativesubpoena of the Commodity Futures Trading Commission v. Naji Robert Nahas, Appellant, 738 F.2d 487 (D.C. Cir. 1984)

This appeal concerns a federal district court's jurisdiction under 7 U.S.C. § 15 (1982) to enforce an investigative subpoena served by the Commodity Futures Trading Commission (Commission) on a foreign citizen in a foreign nation. Naji Robert Nahas, a citizen and resident of Brazil, was served in Brazil with a subpoena duces tecum issued by the Commission. The subpoena required Nahas to appear and produce documents at the Commission's offices in Washington, D.C. Nahas did not comply with the subpoena, nor did he comply when the district court, exercising jurisdiction pursuant to 7 U.S.C. § 15, enforced the subpoena. The district court then froze pendente lite Nahas' assets in the United States and, after a full hearing, found Nahas in contempt for his failure to comply with the enforcement order. On appeal, Nahas contends that the enforcement order is void and that he should not be held in contempt for noncompliance with a void enforcement order.

Because we find that the district court lacks jurisdiction under 7 U.S.C. § 15 to enforce an investigative subpoena served on a foreign citizen in a foreign nation, the court's enforcement order, freeze order, and contempt order are void. Accordingly, we vacate all three orders.

In March 1980, the Commission began investigating whether certain individuals had violated the Commodity Exchange Act (Act), 7 U.S.C. §§ 9, 13(b), 13b (1982), by manipulating the price of silver and silver futures contracts in 1979 and 1980. In the course of its investigation, the Commission discovered that Naji Robert Nahas, a Brazilian citizen and resident, had opened accounts in 1979 with several brokerage houses in the United States. Through these accounts, Nahas had purchased numerous silver futures contracts and approximately ten million ounces of silver bullion. Joint Appendix (J.A.) at 19, 183. Nahas also may have controlled accounts containing large quantities of silver maintained in the names of other individuals and entities. J.A. at 19-20, 103.

On May 6, 1983, the Commission issued a subpoena duces tecum pursuant to its investigative power under 7 U.S.C. § 15. The subpoena, served by substituted service in Sao Paulo, Brazil, directed Nahas to appear on July 12, 1983 at the Commission's offices in Washington, D.C. and to produce certain documents.¹  When Nahas failed to comply with the Commission's subpoena, the Commission petitioned the district court for an order directing Nahas to show cause why he should be relieved of compliance. J.A. at 10-11. The show cause order was issued on August 23, 1983 and served on Nahas in Sao Paulo. CFTC v. Nahas, No. 83-0256 (Order to Show Cause) (D.D.C. Aug. 23, 1983), J.A. at 8-9.

Nahas ignored the show cause order, prompting the court to issue an enforcement order directing Nahas to comply with the Commission's subpoena by October 6, 1983. CFTC v. Nahas, No. 83-0256 (Enforcement Order) (D.D.C. Sept. 14, 1983), J.A. at 94.²  Nahas failed to respond to the enforcement order. Upon the Commission's motion, the district court issued orders freezing pendente lite Nahas' assets in the United States³  and directing Nahas to show cause why he should not be held in civil contempt. CFTC v. Nahas, No. 83-0256 (D.D.C. Oct. 11, 1983) (Order to Show Cause), J.A. at 142-43, (Order Freezing Assets), J.A. at 134-35.

On November 14, 1983, Nahas formally responded for the first time in this proceeding. He filed a cross-motion to quash the Commission's subpoena, vacate the freeze order, deny the Commission's motion for contempt, and dismiss the proceedings in their entirety. J.A. at 162-63. Nahas contended that the Commission had exceeded its statutory authority in issuing an investigative subpoena to a foreign citizen in a foreign nation, and that the Commission's method of serving the subpoena was illegal.⁴  J.A. at 189-94. In support of his contentions, Nahas submitted an affidavit prepared by Professor Irineu Strenger, a Brazilian attorney and a professor of law at the University of Sao Paulo, stating that the service of the Commission's subpoena violated Brazilian and international law. J.A. at 174-80. Nahas also submitted a document signed by thirty-five members of the Congress of Brazil protesting the administrative and judicial proceedings taken against Nahas as violative of Brazilian and international law. J.A. at 167-71.⁵ 

The district court rejected Nahas' arguments:

It is well established that a civil contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed. An order by a court with jurisdiction over the subject matter and the parties must be obeyed until reversed by orderly and proper proceedings.... It is clear, therefore, that if the September 14 [Enforcement] Order ... may be challenged at all in this contempt action, it may be challenged only on the grounds that the court lacked the power or jurisdiction to issue the order.

CFTC v. Nahas, 580 F. Supp. 245 at 247-248 (D.D.C. 1983), J.A. at 220, 224-25 (citations omitted). The court found subject-matter jurisdiction under 7 U.S.C. § 15. Id. at 6-7, J.A. at 225-26. The court also found that Nahas' substantial participation in the futures markets of the United States constituted sufficient contacts for the court to exercise personal jurisdiction. Id. at 248, J.A. at 226-27. Concluding that it had competent jurisdiction to issue the enforcement order, the court held Nahas in contempt for disobeying the order without good cause.⁶  Id. at 8, J.A. at 227.

On appeal, Nahas challenges the district court's contempt and freeze orders on the ground that the enforcement order is void. Because we find that the district court lacked subject-matter jurisdiction under 7 U.S.C. § 15 to enforce an investigative subpoena served upon a foreign citizen in a foreign country, we agree that the enforcement order, freeze order, and contempt order are void.

The Commission argues at the outset that Nahas may not challenge at the contempt proceeding the jurisdiction of the district court to issue the enforcement order. Because Nahas failed to pursue a timely appeal of the enforcement order, the Commission contends that the doctrine of res judicata bars Nahas from reopening an issue that could have been litigated during the enforcement proceeding. We disagree.

The Commission's argument fails to acknowledge that the enforcement order against Nahas was entered by default. "A defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding." Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706, 102 S. Ct. 2099, 2106, 72 L. Ed. 2d 492 (1982). See Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522, 525, 51 S. Ct. 517, 518, 75 L. Ed. 1244 (1931). Because the instant enforcement proceeding resulted in a default order, Nahas was not barred by res judicata from challenging the court's enforcement jurisdiction at the contempt proceeding.⁷  See Insurance Corp. of Ireland, 456 U.S. at 706, 102 S. Ct. at 2106; United States v. Thompson, 319 F.2d 665, 668 (2d Cir. 1963); Heasley v. United States, 312 F.2d 641, 648-49 (8th Cir. 1963); Restatement (Second) of Judgments Sec. 65 (1982).

Nahas challenges the subject-matter jurisdiction of the district court to enforce the Commission's subpoena under 7 U.S.C. § 15. He contends that 7 U.S.C. § 15 does not empower a district court to enforce an administrative subpoena served on a foreign citizen in a foreign country. He claims the court therefore erred at the contempt proceeding in finding him in contempt and in imposing civil sanctions to compel his compliance.⁸  We agree.

It is a principle of first importance that a federal court possesses only limited jurisdiction.⁹  Insurance Corp. of Ireland, 456 U.S. at 701, 102 S. Ct. at 2103. A federal court's subject-matter jurisdiction, constitutionally limited by article III, extends only so far as Congress provides by statute. Id. at 701-02, 102 S. Ct. at 2103-04; 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3522, at 44 (1975). When a federal court reaches beyond its statutory grant of subject-matter jurisdiction, its judgment is void.¹⁰  Similarly, when an enforcement order entered by default is beyond the jurisdictional grant of the issuing court, the order is void. See United States v. Thompson, 319 F.2d 665, 668 (2d Cir. 1963). See generally EEOC v. Shell Oil Co., --- U.S. ----, ----, 104 S. Ct. 1621, 1628, 80 L. Ed. 2d 41 (1984) (federal courts must observe congressional limits on agency investigative powers in enforcement of agency subpoenas).

In the instant case, the jurisdiction of the district court to enforce Commission subpoenas arises from 7 U.S.C. § 15:

For the purpose of securing effective enforcement ... and for the purpose of any investigation or proceeding ..., any member of the Commission ... may ... subpena [sic] witnesses ... and require the production of any ... records that the Commission deems relevant .... The attendance of witnesses and the production of any such records may be required from any place in the United States or any State at any designated place of hearing. In case of ... refusal to obey a subpena [sic] ..., the Commission may invoke the aid of any court of the United States within the jurisdiction in which the investigation or proceeding is conducted .... Such court may issue an order requiring such person to appear before the Commission ... to produce records ... or to give testimony .... Any failure to obey such order of the court may be punished by the court as a contempt thereof.

7 U.S.C. § 15 (emphasis added). The district court thus has jurisdiction to enforce only those subpoenas issued to "such person [s]" as defined in section 15. The plain language of the statute limits "such person [s]" to "witnesses ... from any place in the United States or any State ...." Id.

Although courts, in some instances, have construed similar language as authorizing enforcement of administrative subpoenas requiring the production of records from outside the United States, those subpoenas were served on individuals within the United States.¹¹  No court has expressly considered whether Congress intended 7 U.S.C. § 15 to authorize judicial enforcement of an investigative subpoena served upon a foreign citizen in a foreign nation. Although the plain language of the statute does not confer such power, the district court in this case nevertheless inferred jurisdiction. Because this inference is not supported by legislative history or analogous precedent, we believe that sound rules of statutory construction compel a different conclusion.

An important canon of statutory construction teaches that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States ...." Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285, 69 S. Ct. 575, 577, 93 L. Ed. 680 (1949). See Steele v. Bulova Watch Co., 344 U.S. 280, 285, 73 S. Ct. 252, 255, 97 L. Ed. 319 (1952); United States v. Mitchell, 553 F.2d 996, 1001-03 (5th Cir. 1977). The text of 7 U.S.C. § 15 does not empower the Commission to serve subpoenas on foreign nationals in foreign countries. Similarly, the legislative history does not indicate that Congress intended to clothe the Commission with the power to serve investigative subpoenas extraterritorially. We are not prepared, in the face of a silent statute and an uninstructive legislative history, to infer the existence of this power:

The service of an investigative subpoena on a foreign national in a foreign country ... [is] a sufficiently significant act as to require that Congress should speak to it clearly.

FTC v. Compagnie de Saint-Gobain-Pont-A-Mousson, 636 F.2d 1300, 1327 (D.C. Cir. 1980) (McGowan, J., concurring).¹² 

We are influenced as well by another canon of statutory construction that requires courts, wherever possible, to construe federal statutes to ensure their application will not violate international law.¹³  Murray v. The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118, 2 L. Ed. 200 (1804); Saint-Gobain, 636 F.2d at 1323 & n. 130. To construe 7 U.S.C. § 15 as empowering the district court to enforce an investigative subpoena served on a foreign citizen in a foreign nation would seriously impinge on principles of international law. "When compulsory process is served [on a foreign citizen on foreign soil in the form of an investigative subpoena¹⁴  ], ... the act of service itself constitutes an exercise of one nation's sovereignty within the territory of another sovereign. Such an exercise [absent consent by the foreign nation] constitutes a violation of international law." Id. at 1313 (footnote omitted). See also id. at 1313-14, 1317; Restatement (Second) of the Foreign Relations Law of the United States Secs. 7, 8, 32 & comment b, 44 (1965).

The extent of the intrusion on Brazil's sovereignty in this case is reflected in a letter of protest sent by the Brazilian government to the United States Secretary of State. Brazilian law requires that service of process by foreign nations be made pursuant to a letter rogatory or a letter of request transmitted through diplomatic channels. See Reply of Appellee to Appellant's Supplement of the Record, Exhibit 3. In its letter of protest, Brazil remonstrated that the Commission's method of serving the subpoena " [did] not conform to the [Brazilian laws] governing the handling of ... material [at the international level] ...."¹⁵  Letter from Brazilian Ministry of Foreign Affairs to United States Embassy (Mar. 2, 1984), Reply of Appellee to Appellant's Supplement of the Record, Exhibit 2. Brazil therefore admonished the United States to "ensure compliance, in future cases, with the formalities prescribed by Brazilian law for the execution of legal instruments required by foreign courts." Id. See supra note 5.¹⁶  In light of this apparently significant intrusion on Brazilian sovereignty, inferring enforcement jurisdiction under 7 U.S.C. § 15 would seriously impact on principles of international law. Because "an act of Congress ought never to be construed to violate the law of nations, if any other possible construction remains," The Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118, we are unwilling to infer enforcement jurisdiction absent a clearer indication of congressional intent.

We emphasize that this case does not pose a question about the authority of Congress; rather, it poses a question about the congressional intent embodied in 7 U.S.C. § 15. Federal courts must give effect to a valid, unambiguous congressional mandate, even if such effect would conflict with another nation's laws or violate international law. Saint-Gobain, 636 F.2d at 1323. A clear congressional mandate authorizing the Commission to serve investigative subpoenas on foreign citizens in foreign nations is lacking in 7 U.S.C. § 15, and inferring such a mandate would run contrary to established canons of statutory construction. In short, construing enforcement jurisdiction in the instant case would be, we believe, tantamount to enacting, rather than explicating, a law.¹⁷ 

Finally, our conclusion that Congress did not intend in 7 U.S.C. § 15 to empower federal courts to enforce investigative subpoenas served on foreign citizens in foreign nations comports with analogous cases in which courts have construed similar language. For example, in SEC v. Minas de Artemisa, S.A., 150 F.2d 215 (9th Cir. 1945), the agency was statutorily authorized to subpoena witnesses and documents "from any place in the United States or any Territory ...." Id. at 218. The Ninth Circuit construed the agency's authority broadly to require the production of documents outside the United States, provided only that the service of the subpoena is made within the territorial limits of the United States." Id. (emphasis added). In Ludlow Corp. v. DeSmedt, 249 F. Supp. 496 (S.D.N.Y.), aff'd sub nom. FMC v. DeSmedt, 366 F.2d 464 (2d Cir.), cert. denied, 385 U.S. 974, 87 S. Ct. 513, 17 L. Ed. 2d 437 (1966), the agency was authorized to subpoena documents "from any place in the United States ...." 249 F. Supp. at 498 n. 2. The court there also construed broadly the agency's power to require the production of documents located outside the country, but it was careful to acknowledge "that the service of the subpoena [was] made within the territorial limits of the United States ...." Id. at 500 (emphasis added); see id. at 501. Finally, in SEC v. Zanganeh, 470 F. Supp. 1307 (D.D.C. 1978), the agency was authorized to subpoena witnesses "from any place in the United States or any State ...." Id. The court stated that where no individual service occurred and respondent was not in the United States, "the [agency] has no power to subpoena an alien nonresident to appear before it from a foreign land." Id. (emphasis added).

Our construction of 7 U.S.C. § 15 is further strengthened by the existence of statutes in which Congress explicitly has authorized the extraterritorial service of investigative subpoenas on aliens. For example, Congress has authorized the Department of Justice in its antitrust investigations to serve civil investigative demands on foreign nationals "in such manner as the Federal Rules of Civil Procedure prescribe for service in a foreign country."¹⁸  15 U.S.C. § 1312(d) (2) (1982). Congress also has empowered the Federal Trade Commission to serve its subpoenas on foreign nationals "in such manner as the Federal Rules of Civil Procedure prescribe for service in a foreign nation." Id. Sec. 57b-1(c) (6) (B). The existence of these statutes "indicates that when Congress intends to authorize extraterritorial service of investigative subpoenas, it will express that intent explicitly." Saint-Gobain, 636 F.2d at 1325 n. 140. An explicit grant of power is conspicuously absent from 7 U.S.C. § 15. Sound rules of statutory construction as well as analogous precedent therefore compel a construction of 7 U.S.C. § 15 that does not authorize enforcement jurisdiction in the instant case.¹⁹ 

CONCLUSION

For the foregoing reasons, we find that the district court lacked jurisdiction under 7 U.S.C. § 15 to enforce the investigative subpoena served on Nahas in Brazil. The enforcement order, freeze order, and contempt order are therefore void. Accordingly, all three orders are vacated.

It is so ordered.