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Silverman v. Berkson

August 2, 1995

A. JARED SILVERMAN, CHIEF NEW JERSEY BUREAU OF SECURITIES, PLAINTIFF-APPELLANT,
v.
ROBERT GARY BERKSON, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 276 N.J. Super. 6 (1994).

O'hern, J. Chief Justice Wilentz and Justices Handler, Pollock, Garibaldi, and Stein join in Justice O'HERN's opinion. Justice Coleman did not participate.

The opinion of the court was delivered by: O'hern

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

A. JARED SILVERMAN, ETC. V. ROBERT GARY BERKSON (A-97-94)

Argued March 13, 1995 -- Decided August 2, 1995

O'HERN, J., writing for a unanimous Court.

This appeal addresses the authority and power of a New Jersey agency investigating securities transactions involving New Jersey residents to issue a subpoena to a witness outside of the State's boundaries, and the corresponding authority and power of a New Jersey court to enforce such a subpoena.

The New Jersey Bureau of Securities (the Bureau) was investigating the activities of certain broker-dealers registered with the Bureau. In connection with that investigation, the Bureau issued a subpoena to Robert Gary Berkson, requiring him to appear at the Bureau's office in Newark, New Jersey, to testify about certain securities transactions. Bureau personnel personally served Berkson with the subpoena at his home in East Hills, New York. Berkson declined to appear in response to the subpoena.

Pursuant to N.J.S.A. 49:3-68 (the statute authorizing the Bureau to issue subpoenas or "the subpoena statute"), the Bureau applied to the Superior Court for an order enforcing its subpoena. The Chancery Division granted the order of enforcement, finding that Berkson was an "artful manipulator" of the securities industry in New Jersey; that he "had repeated substantial contacts within New Jersey relating to the Bureau's pending investigation;" and that it was not unreasonable to anticipate that Berkson, who was packaging securities for sale to New Jersey investors, might be subject to jurisdiction in New Jersey. The court concluded that to allow Berkson to reside in New York and do business in New Jersey without fear of investigation or subpoena offends judicial notions of fair play and substantial Justice.

Berkson appealed. The Appellate Division reversed, and ordered that the subpoena be quashed. The Appellate Division agreed that Berkson had minimum contacts within New Jersey, but found that the trial court could not issue a subpoena to compel Berkson's appearance and testimony because it violates his due process rights. According to the Appellate Division, a court cannot give an agency greater subpoena power than a subpoena issued in the name of the court via enforcement.

The Supreme Court granted the Bureau's petition for certification.

HELD: The New Jersey Bureau of Securities may subpoena a nonresident who has engaged in purposeful conduct expressly aimed at the New Jersey securities market. In addition, a New Jersey court may, consistent with due process principles, enforce such a subpoena.

1. Although conferring extraterritorial subpoena authority on the Bureau is unusual, it has been consistently held that powers expressly granted to an administrative agency should be liberally construed so that the agency can fulfill it legislative purpose. Where a statute is silent or ambiguous, it is the duty to chose a construction that will carry out the legislative intent of the statute as a whole. The Court is not inclined to create a presumption against any legislative intent that subpoena power extend beyond New Jersey borders. General principles of administrative law suggest that the Legislature intended the agency to have the authority necessary to fulfill its function to investigate, within and without the State, security transactions involving New Jersey residents. (pp. 5-8)

2. Under International Shoe v. Washington, a state court's assertion of personal jurisdiction does not violate the Due Process Clause if the nonresident defendant has certain minimum contacts with the State such that the maintenance of the suit does not offend traditional notions of fair play and substantial Justice. The power to exert authority over nonresidents exists as a matter of sovereignty. (pp. 9-12)

3. The power to issue a subpoena and the power to enforce a subpoena are different incidents of sovereignty, and such powers are not necessarily identical. The power to issue a subpoena is determined by the jurisdiction. Consistent with the principles of International Shoe, a state agency may require the appearance of witnesses from outside New Jersey. There is a difference between this case and International Shoe. International Shoe deals with long-arm jurisdiction over a cause of action, in which the nonresident is afforded the opportunity to appear and defend but need not do so, while a subpoena compels a person to do something. Nonetheless, the measures of sovereign power are ultimately the same. (pp. 12-19)

4. For reasons of fairness and efficiency of administration, federal courts have drawn a sharp distinction between agency power to issue subpoenas and judicial power to enforce them. Here, the issue is not what Court Rules do or do not permit New Jersey courts to do. The issue is whether the State may grant an agency extraterritorial authority over nonresident witnesses consistent with due process principles. If the Legislature grants such power, the proper role of a court under the subpoena statute is to ensure that principles of due process and comity between states have been observed in the issuance of the subpoena. In deciding whether to exercise enforcement jurisdiction, courts should balance the interest it seeks to protect against the interest of any other sovereign that might exercise authority over the same conduct. Because each sovereign has an interest in the welfare of its citizens, a court must consider: 1) the extent and nature of a hardship that inconsistent enforcement actions would impose on the person subpoenaed; 2) the extent to which the required conduct is to take place in the territory of the other state; 3) the residence of the person subpoenaed; and 4) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state. Process should be served only by those authorized to do so under the laws of this State. (pp. 19-24)

5. This decision comports with International Shoe and with the expanding role of states in the federalist system. As the federal government reduces its regulatory role and state governments increase theirs, the need to develop coherent principles of cooperation among states increases. Thus, it is reasonable to infer that the Legislature would, consistent with the principles of due process, intend that the Bureau's administrative power to compel the attendance of witnesses be coextensive with its substantive mandate to investigate securities transactions within or outside of the State. Consistent with principles of due process, that authority shall be limited to subpoenaing witnesses who have purposely availed themselves of the privilege to enter the New Jersey securities market. Before enforcing an agency subpoena, a court must determine that the party subpoenaed has engaged in such deliberate conduct. The court should consider the fairness to the witness and whether other available methods of discovery would adequately serve that agency's needs without having to bring the witness to New Jersey. In considering any civil sanctions to be imposed, a court shall not impose an order of arrest and shall limit monetary sanctions in accordance with the relevant principles applicable to Rule 1:10-3. (pp. 24-27)

Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Chancery Division for further proceedings in accordance with this opinion.

CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, and STEIN join in JUSTICE O'HERN's opinion. JUSTICE COLEMAN did not participate.

The opinion of the Court was delivered by

O'HERN, J.

This appeal concerns the authority and power of a New Jersey agency investigating securities transactions involving New Jersey residents to issue a subpoena to a witness outside of the State's boundaries, and the corresponding authority and power of a New Jersey court to enforce such a subpoena. We hold that (1) the New Jersey Bureau of Securities (the Bureau) may subpoena a nonresident who has engaged in purposeful conduct expressly aimed at the New Jersey securities market; and (2) a New Jersey court may, consistent with due process principles, enforce such a subpoena.

I

The case arises from the Bureau's investigation of securities transactions involving New Jersey residents. The Bureau's complaint states that it is conducting an investigation into the trading practices of L. C. Wegard & Co., Inc., and Hibbard Brown & Co., Inc., brokers-dealers registered with the Bureau, and of others. In connection with that investigation, the Bureau issued a subpoena to Robert Gary Berkson, requiring him to appear at the Bureau's office in Newark, New Jersey, to testify about certain securities transactions. Bureau personnel personally served Berkson with the subpoena at his home in East Hills, New York. Berkson declined to appear in response to the subpoena. Berkson's attorneys inform us that he "is not seeking to prevent the Bureau from conducting investigations or instituting proceedings; he is only seeking to prevent the unconstitutional use by the Bureau of an extraterritorial subpoena."

Pursuant to N.J.S.A. 49:3-68, the Bureau applied to the Superior Court for an order enforcing its subpoena. The Chancery Division granted an order of enforcement. It found that Berkson was an VI "artful manipulator" of the securities industry in New Jersey, that he "had repeated substantial contacts within New Jersey related to the Bureau's pending investigation," and that "it was certainly reasonable to anticipate that Berkson, who was packaging * * * securities for sale to New Jersey investors, could have anticipated that he would be subject to jurisdiction within the State." The court concluded that "to allow [Berkson] to reside in New York, do business in New Jersey more than minimally, and [affect] a well-regulated industry in New Jersey, without fear of investigation or subpoena, is offensive to traditional notions of fair play and substantial Justice."

Berkson appealed. The Appellate Division reversed the Chancery Division's decision and ordered ...


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