Fed. Sec. L. Rep. P 94,768 Phil A. Street and Clyde H. Street v. J.C. Bradford & Company

MILBURN, Circuit Judge,

concurring.

Although I concur in the result reached by the majority, I write separately to explain what I view as the genuine issues of material fact presented in this case. Reduced to the bare essentials, plaintiffs complain about essentially five activities of defendants: (1) fraudulently representing the “limit down” on daily losses in silver futures contracts trading, and fraudulently representing the time within which silver futures contracts could be filled; (2) fraudulently promising to recoup plaintiffs’ losses, suffered around February 25, 1983; (3) placing restrictions upon plaintiffs’ commodities trading; (4) conducting unauthorized transactions; and (5) liquidating and closing plaintiff Phil Street’s commodities account without consent or authorization.

While the district court accurately recognized the nature of plaintiffs’ factual allegations, in my view, the court erred by: (1) ignoring the Commodity Exchange Act (“the CEA”), 7 U.S.C. §§ 1-26 , and, particularly, section 22 of the Futures Trading Act of 1982, 7 U.S.C. § 25 , which provides a private right of action for violations of the CEA; (2) failing to analyze the possible exclusivity of the CEA as regards plaintiffs’ claims under federal securities law, see Point Landing, Inc. v. Omni Capital Inti, Ltd., 795 F.2d 415 , 422 (5th Cir.1986) (en banc), affd sub nom, Omni Capital Int’l, Ltd. v. Rudolf Wolff & Company, 484 U.S. 97 , 108 S.Ct. 404 , 98 L.Ed.2d 415 (1987); (3) overlooking the possible preemption of any state law claims in light of the CEA and its 1982 amendments, compare Kotz v. Bache Halsey Stuart, Inc., 685 F.2d 1204, 1207-08 (9th Cir.1982), with 7 U.S.C. § 25 (b)(5); and (4) neglecting to state the proper standards under the CEA which applied to defendants’ conduct in the present case.

The CEA provides extensive protection from a number of activities alleged by the plaintiffs to have occurred in the present case. Specifically, in 7 U.S.C. § 6b, the CEA provides protection for fraud or misrepresentation on the part of commodity futures brokers. See Clayton Brokerage Co. v. Commodity Futures Trading Comm’n, 794 F.2d 573, 578 (11th Cir.1986). The general fraud prohibitions cover fraud by any person in connection with a futures transaction on a contract market. See Horn v. Ray E. Friedman & Co., 776 F.2d 777, 780 (8th Cir.1985). As we have held, to establish a claim of fraud, a commodity investor must show that the broker: “[1] *1485 misrepresented a material fact [2] which was intended to induce reliance, [3] that [the investor] reasonably relied on the misrepresentation, and [4] that the reliance was the proximate cause of his damages.” First Nat’l Monetary Corp. v. Wein-berger, 819 F.2d 1334, 1340 (6th Cir.1987). In Weinberger, we held that a misrepresentation is material “if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision.” Weinberger, 819 F.2d at 1340 (quoting Saxe v. E.F. Hutton & Company, 789 F.2d 105, 111 (2d Cir.1986)).

Although in the present case the district court found that the alleged representation that plaintiffs could recoup losses was “mere puffing” and that the plaintiffs were thus not entitled to rely upon this representation, in my opinion, plaintiffs have raised a genuine issue of material fact in this regard under the Weinberger standard. Furthermore, plaintiffs’ testimony regarding defendants’ promises about the “limit down” and trading time on silver futures contracts also raises a genuine issue of material fact.

The CEA also prohibits unauthorized transactions on a commodities account. Haltmier v. Commodity Futures Trading Commission, 554 F.2d 556, 560 (2d Cir. 1977); Herman v. T & S Commodities, Inc., 578 F.Supp. 601, 603 (S.D.N.Y.1983); Commodity Futures Trading Commission v. Pyne Commodities Corp., 502 F.Supp. 194, 196 (S.D.N.Y.1980), affd, 681 F.2d 801 (2d Cir.1981). In Haltmier , the court held, “[tjhere is ... no doubt that it is a violation of the [CEA] for an account executive in the commodity brokerage business intentionally to carry on trading transactions not authorized by his customer.” 554 F.2d at 560 .

In dismissing Phil Street’s claim in this regard, the district court relied upon the Commodities Account Agreement executed by him, finding that the agreement provided defendants with authority to make trades unauthorized by Phil Street. A review of the contract, however, indicates that defendants were permitted to conduct unauthorized transactions only when “necessary for [their] protection.” In granting summary judgment, the district court stated that it was “obvious” that defendants found it necessary to conduct these trades to protect themselves. However, my review of the record discloses that no disposi-tive evidence was presented that all the alleged unauthorized transactions occurred for defendants’ protection. In my view, plaintiffs have raised a genuine issue of material fact in this regard, and thus summary judgment was inappropriate.

Defendants also maintain that any unauthorized transactions were ratified by plaintiffs because Phil Street received monthly reports of J.C. Bradford’s trading, yet never protested. Plaintiffs respond that Phil Street protested orally, and that in any event, he never really understood the reports. Given this factual dispute, a jury issue exists as to ratification. See Hill v. Bache Halsey Stuart Shields Inc., 790 F.2d 817, 827 (10th Cir.1986) (upholding a jury’s verdict that the investor did not ratify trades even though by contract the investor was required to protest in writing and yet failed to do so).

With these reservations, I concur.