Commodity Futures Trading Commission v. Noble Metals International, Inc.

dissenting in part:

I would hold that the sanctions imposed upon Noble and Moorgate for discovery violation were excessive and unlawful. In my opinion, ordering that the plaintiffs complaint be taken as established as a Rule 37(b)(2) sanction was an abuse of discretion. Moreover, I conclude that the district court erred in failing to provide adequate warning to the defendants and failing to consider lesser alternative sanctions. On a separate point, I believe that the order denying Noble and Moorgate the opportunity to use any of their assets for purposes of attorneys fees was erroneous.

In United States ex rel. Wiltec Guam, Inc. v. Kahaluu Construction Co., we identified “orders taking the plaintiffs allegations as established and awarding judgment to the plaintiff on that basis” and “dismissal of the plaintiffs action” as the most severe penalties that can be imposed against a defendant and plaintiff, respectively. United States ex rel. Wiltec Guam, Inc. v. Kahaluu Constr. Co., 857 F.2d 600 , 603 n. 5 (9th Cir.1988). Entering a default judgment against a defendant as a discovery sanction precludes him from defending against the allegations raised against him. This court has…

Opinion by Judge THOMPSON; Partial Dissent by Judge REINHARDT.

Noble Metals International, Inc.; Moor-gate Ltd.; Richard Schulze, a principal of Moorgate and assistant secretary of Noble; and Richard Portaro, Jr., Moorgate’s former sales manager, (collectively defendants) appeal the district court’s grant of summary judgment in favor of the Commodity Futures Trading Commission (the CFTC or the Commission). The district court held that the defendants violated section 4(a) of the Commodity Exchange Act (the CEA ór the Act), 7 U.S.C. § 6 (a) (1988), by offering and selling to the public illegal “off-exchange” futures contracts. The district court also held the defendants committed fraud in connection with such sales, in violation of section 4b of the Act, 7 U.S.C. § 6b (1988).

The defendants contend the contracts which were sold to the public were not futures contracts, but rather cash forward contracts, which are excluded from the CFTC’s jurisdiction. Noble and Moorgate further contend the district court erred in prohibiting payment of attorney fees from their frozen assets.

In addition to joining in Noble’s and Moor-gate’s arguments, the individual defendants, Schulze and…