Petition — Hunt v. Commodity Futures Trading Commission

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Bongos Court, U.

"ILED

APR 6 1979

MICHAB RODAK, JR., CLEI

88-1529

IN THE ~

Supreme Court of the Gnited States

OcroBer TERM, 1978

N. B. Hunt, W. H. Hunt, DouGias Hunt,

HOUSTON HUNT, ELIZABETH HUNT CURNES,

ELLEN HUNT FLOWERS, MARY HUNT HUDDLESTON,

AND HunT HOLDINGS, INC., Petitioners,

vs.

THE COMMODITY FUTURES TRADING COMMISSION, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT.

HENRY L. Pitts,

JOHN V. Ryan, III,

WILLIAM M. STEVENS,

Rooks, Pitts, Fullagar and Poust,

Suite 1776,

208 South LaSalle Street,

Chicago, Illinois 60604,

A. B. CONANT,

ROBERT B. Cousins, Jr.,

Shank, Irwin, Conant, Williamson

& Grevelle,

3100 First National Bank Building,.

Dallas, Texas 75202,

Attorneys for Petitioners.

Pandick Press Midwest, inc., Chicago * 454-0900

TABLE OF CONTENTS

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Statutes and Regulations SESS I

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I. Introduction

Il. The Judicial Enforcement Action...............

Ill. The Administrative Enforcement Action

IV. Petitioners’ Injunction Action

Reasons for Granting Writ......

I. The Commodity Futures Trading Commission’ s Dupli-

cative Administrative Enforcement Action Under-

mines the Integrity of the Judicial Process and Im-

ges Upon Constitutional Due Process of Law and

paration of Powef®s................s0..s00

II. The Lower Courts’ Misapplication of the Exhaustion

Doctrine is in Conflict with Various Decisions of this

A. The exhaustion doctrine should not be invoked

where the purposes served by the doctrine are

defeated by its application

B. The exhaustion doctrine should not be invoked

where the sole question presented is whether the

agency, as a matter of law, has statutory power to

prosecute duplicative enforcement actions .............

C. The exhaustion doctrine should not be invoked

where the Commodity Futures Trading Commis-

sion has waived its jurisdiction to decide the case

by invoking the district court’s plenary jurisdiction

and by addressing the issues in the administrative

ie lai RI ec

D. The exhaustion doctrine should not be invoked

where judicial review from final agency action

EES

I icccicinttitintantncinimnn

I LLL SLATED

A. The Opinion of the Court of Appeals entered January 8,

1979, in petitioners’ injunction action .................s.es0e00

B. The Complaint filed April 28, 1977, in the judicial

ED EE TTT

C. The Opinion of the District Court entered September 28,

1977, in the judicial enforcement action

D. The Opinion of the Court of Appeals entered January 8,

1979 in the judicial enforcement action ................:..s0000.

The Complaint filed November 28, 1977, in the Adminis-

trative Enforcement Action.......................ccccccccsssssccceseees

The Statutes Involved ..... aT

AUTHORITIES CITED. |

CASES

Page

j Inc., Comm.

Barker v. Commodity Management Systems, m

Fut. L. Rep. (CCH) {| 20, 432 ’ 14; 20

Beck v. Securities and Exchange Commission, 430 F.2d 7”

673 (6th Cir. 1970) ..........ccccccccsrssrsecseserescessecesees

Binderup v. Pathe Exchange Inc., 263 U.S. 291 (1925)....... 16, fn 7

California. vy. Federal Power Commission, 369 U.S. 482 3

CRIES Pincccnsexccisconestevccennsbiant =

Trading Commission v. N. B. Hunt,

“— meee oa Con. Nos. 77-1672, -2086 and -2087 ”

(January 8, 1979).............cecccccessccsreeseeceees

- ‘prebuiiee

Kerotest Manufacturing Co. v. C-O-Two Fire

Co. 342 U.S. 180 (1952) 16

McKart v. United States, 395 U.S. 185 (1969)... 17; 19

Matthews v. Diaz, 426 U.S. 67 (1976) .......cccccccssscesseeseseeenes 20

Matthews v. Eldridge, 424 U.S. 319 (1976) ........cccssceseeseesees 20

Myers v. Bethlehem Ship Building Corp., 303 US. 41 -

(TOT) cesincnisnvscsisscsbetsieresnscnnsnecresinconasccnesnncessenesenssbeonsenoptantine

Prentis v. Atlantic Coast Line, 211 U.S. 210 (1908)............ 16, fn 7

Skinner & Eddy Corp. v. United States, 249 U.S. 557 ‘

CRN gs aasasicicinncaceticsintapnexechsconiensstignnansitinnsanianncienmnntniiios

United States v. Morgan, 307 U.S. 183 (1939) .......cccscsseeeee 12

Weinberger v. Salfi, 422 U.S. 749 (1975) .....ccesesseseseseeseseeeeee 21

ACTS AND REGULATIONS

Commodity Exchange Act, 7 U.S.C. § 1, ef seq.

Section 2

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Preamble, 41 Fed. Reg. 3994, January 27, 1976

Section 10.42, 17 C.F.R. § 10.42

Section 12.21(a)(7), 17 C.F.R. 12.21(a)(7)

Section 150.4, 17 C.F.R. 150.4

MISCELLANEOUS

3 K. Davis, Administrative Law Treatise § 20.01 ef

(1958 ed. 1965 Supp. )

H. R. Rep. No. 93-975, 93 Cong. 2nd Sess. 30 (1974)

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Commodity Futures Trading Commission Regulations

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NO.

IN THE

Supreme Court of the United States

Ocroser Term, 1978

N. B. Hunt, W. H. Hunt, DouGias Hunt,

HOUSTON HUNT, ELIZABETH HUNT CURNES,

ELLEN HUNT FLOwers, Mary HUNT HUDDLESTON,

AND HuNT HOLDINGS, INC.,

Petitioners,. |

vs.

THE COMMODITY FUTURES TRADING COMMISSION,

Respondent.

PETITION FOR WRIT OF CERTIORARI TQ

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT.

‘

N. B. Hunt, W. H. Hunt, Douglas Hunt, Houston Hunt,

Elizabeth Hunt Curnes, Ellen Hunt Flowers, Mary Hunt

Huddleston, and Hunt Holdings, Inc., hereby petition for a writ

of certiorari to review the judgment of the United States Court

of Appeals for the Seventh Circuit which affirmed a decision of

the United States District Court for the Northern District of

Illinois.

ORDERS AND OPINIONS BELOW.

The decision of the Court of Appeals (Pet. App. pp. la-

18a)‘ is reported at Comm. Fut. L. Rep. (CCH) § 29,727, and

the decision of the Northern District of Illinois (Pet. App. pp.

24a-3la) is reported at Comm. Fut. L. Rep. (CCH) § 20,496.

JURISDICTION.

The Decision and Judgment of the Court of Appeals was

entered on January 8, 1979 (Pet. App. p. la). The jurisdiction

of this Court is invoked under 28 U.S.C. § 1254(1).

QUESTION PRESENTED.

Where the Commodity Futures Trading Commission

(“CFTC”) has invoked the plenary jurisdiction of a federal

district court pursuant to § 6c of the Commodity Exchange Act,

as amended, 7 U.S.C. § 1 et seg. (“Act”), seeking complete

relief in a full trial on the merits, can the CFTC conduct a

subsequent administrative enforcement action under §§ 6(b)

and 6(c) of the Act asserting the identical cause of action

against the same parties, involving exactly the same evidence

and issues, and seeking essentially the same relief available in

the judicial enforcement action?

STATUTES AND REGULATIONS INVOLVED.

The relevant portions of §§ 4a, 6(b), 6(c) and 6c of

Commodity Exchange Act, as amended, 7 U.S.C. §§ 6a, 9,

13(b) and 13a-1, respectively, and CFTC Regulation 150.4, 17

C.F.R. § 150.4, are set forth in Pet. App. at pp. 79a-82a2.

1“Pet.App.” refers to the Petitioners’ Appendix ‘which is at-

tached to this Petition.

2 Sections 6(c) and 6c are separate sections of the Act.

STATEMENT OF THE CASE.

I. Introduction.

The CFTC is authorized to institute judicial enforcement

actions in federal district court pursuant to § 6c of the Act and

administrative enforcement actions before the agency pursuant

to §§ 6(b) and (c) of the Act to prohibit any act or practice in

violation of or to enforce compliance with any provision of the

Act, or any rule, regulation or order thereunder. Section 6c of

the Act provides that where the CFTC elects to institute suit in

federal court:

“... Said courts shall have jurisdiction to entertain such

actions. .. .*** Where the Commission e/ects to bring the

action [in the courts], it shall inform the Attorney General

of such suit and advise him of subsequent developments.

(7 U.S.C. § 6a) (Bracketed material supplied ) (Emphasis

added) (Pet. App. p. 81a).

In addition to the Act’s express provisions, the legislative

history of the Act establishes that Congress did not empower

the CFTC to supplement or collaterally attack a judicial

decision obtained pursuant to § 6c by instituting an adminis-

trative action under §§ 6(b) and (c). For example, the House

Committee stated with regard to § 6c of the Act that:

“The Committee assumes that there will be an informal

determination by the Commission that other remedies

provided by this or other Acts are inadequate or not

realistic to the fact situation then being addressed by the

Commission before seeking an injunction.” (H.R. Rep.

No. 93-975, 93 Cong. 2nd Sess. 30 (1974)).

With respect to the instant matter, the CFTC elected to

seek complete relief from the district court in a judicial enforce-

ment action, but subsequently became dissatisfied with the

district court’s preliminary rulings and apprehensive about the

eventual outcome of the case. While continuing to press the

judicial enforcement action, the CFTC instituted an adminis-

trative enforcement action against the same parties based on

the identical cause of action, issues and facts.

Trials on the merits in both actions are to be conducted in

the near future at or about ihe same time with regard to

petitioners’ 1977 soybean futures contract trading on the Chi-

cago Board of Trade. The CFTC asserts in both actions that

such trading was done pursuant to an express or implied

agreement which constituted a technical violation of the three

million bushel speculative limit established by 17 C.F.R.

§ 150.4. |

The instant Petition for Writ of Certiorari arises from an

action filed by petitioners in the district court to enjoin the

duplicate administrative enforcement action. Even though the

CFTC originally lodged the entire case with the court, even

though the administrative enforcement action is based solely on

the court record, and even though the ALJ and the full

Commission had addressed the question of the CFTC’s power

to prosecute dual proceedings, the Court of Appeals held that

the doctrine of exhaustion of administrative remedies precludes

judicial review except in an appeal from final agency action.

The need for this Court’s supervision over the conflict

between court and agency in the present action is delineated in

cogent fashion by the dissent of the Honorable Howard T.

Markey? (Pet. App. pp. 7a-18a). The Court of Appeals’

acquiescence to duplicate judicial and administrative actions

presents important questions regarding statutory construction of

the Act, due process of law and separation of powers which

have not, but should be, settled by this Court. Further, the

lower court’s misapplication of the exhaustion doctrine is a

rejection of applicable decisions of this Court.

Il. The Judicial Enforcement Action.

The judicial enforcement action originated on April 28,

1977, when the CFTC invoked the plenary jurisdiction of the

federal district court under § 6c of the Act by instituting an

2 The Honorable Howard T. Markey, Chief Judge of the United

States Court of Customs and Patent Appeals, sitting by designation.

as as te

action styled CFTC vy. N. B. Hunt, et al., N. D. Ill., No. 77 C

1489, alleging that petitioners’ combined soybean futures con-

tract positions were held pursuant to an express or implied

agreement or understanding and exceeded the CFTC’s

3,000,000 bushel speculative limit in violation of § 4a of the Act’

and Regulation 150.4. (Pet. App. pp. 2la-22a). The CFTC

requested the district court to grant a temporary restraining

order and preliminary and permanent injunctive relief prohibit-

ing the asserted violation, order liquidation of petitioners’

positions, compel defendants to disgorge any profits, and grant

all other necessary and proper relief. A copy of the complaint

in the judicial enforcement action is set forth at Pet. App. pp.

19a-23a.

On May 2, 1977, at the outset of the judicial enforcement

action, the CFTC advised the district court that the court’s

jurisdiction had been invoked pursuant to § 6c of the Act in lieu

of an administrative enforcement action under §§6(b) and (c)

of the Act, as follows:

Mr. Stewart (Counsel for CFTC): “I was just going to

point out that the Commission has chosen this (judicial

enforcement action) as opposed to other possible avenues

that they could have taken.” (CFTC v. N.B. Hunt, et al.,

N. D. Ill., No. 77 C 1489, May 2, 1977 Tr., p. 44).

The CFTC has also admitted that

“(I]t is well settled that when my ey entrusts injunctive

jurisdiction to the district courts for the enforcement of

statutory prohibitions, the district courts are thereby grant-

ed authority to exercise all of their equitable powers to

provide the full relief necessary to effectuate statutory

objectives.” (Reply and Answering Brief of Appellants,

CFTC v. N.B. Hunt, et al., C.A. 7th, Con.Nos. 77-1672,-

2086 and -2087, p. 26).

* *

“[ T]he district court: has discretion how best to fashion an

appropriate remedy; and it is conceivable that the court

might be able to vindicate the Congressional purpose

through a form different from that which the Commission

has requested. (Brief for Appellants, CFTC v. N. B. Hunt,

C.A. 7th, Doc. No. 77-1474, p. 38).

On May 6, 1977, the district court denied the CFTC’s

request for a temporary restraining order on the grounds that

no violation had been proven and that no market effect or

emergency existed. (CFTC v. N. B. Hunt, et al., N. D. Ill., No.

77 C 1489, May 6, 1977 Tr., pp. 341-342). The CFTC took an

interlocutory appeal, but the district court’s order was affirmed

by the Seventh Circuit on May 12, 1977. (CFTC v. N. B. Hunt,

C.A. 7th, Doc. No. 1474). The parties thereafter engaged in

extensive discovery and trial proceedings in the district court

stretching over several months.

On September 28, 1977, the district court entered a

Judgment Order and Memorandum Opinion finding that peti-

tioners had violated § 4a of the Act and Regulation 150.4, but

denying the CFTC’s request for preliminary injunctive relief on

the basis of its finding that no likelihood of future violation

existed. The district court held that imposition of harsh or

punitive remedies was inappropriate because the CFTC had not

demonstrated that defendants intended to violate the specula-

tive limit and because the CFTC had stated that the finding of a

violation would have the prophylactic effect sought. The

district court also denied the request for disgorgement of

alleged profits because, inter alia, there was no evidence that

petitioners intended to violate the law and it was impossible to

fashion an equitable decree for a technical violation. The court

further determined that no other relief was necessary. A copy

of the district court’s Memorandum Opinion in the judicial

enforcement action is set forth at Pet. App. pp. 24a-3 la.

On October 7, 1977, the CFTC appealed from the district

court’s September 28, 1977 Order,‘ and on January 8, 1979, the

4 The CFTC’s appeal from the September 28, 1977 Order was its

third appeal in this matter. In addition to the CFTC’s appeal from the

district court’s denial of the temporary restraining order (CFTC v. N.

B. Hunt, C.A. 7th, Doc. No. 77-1474), the CFTC had also appealed

from the district court’s order enjoining the CFTC from affecting the

soybean futures marxet through improper press releases regarding

petitioners’ trading and positions. (CFTC v. N. B. Hunt, C.A. 7th,

Doc. No. 77-1672).

i LE i A

ne a

Seventh Circuit affirmed the finding of a violation, but reversed

(Markey, J., dissenting) the denial of injunctive relief and

remanded the cause to the district court for further proceedings.

A copy of the Seventh Circuit’s decision in the judicial enforce-

ment action is set forth at Pet. App. pp. 32a-73a. Trial on the

merits before the district court on remand is anticipated in the

near future.

III. The Administrative Enforcement Action.

After extensive discovery, trial, and the judgment of the

district court, on November 28, 1977, the CFTC instituted the

administrative enforcement action styled Jn the Matter of N. B.

Hunt, et al, CFTC Docket No. 78-7, in which it asserts the

identical cause of action on the same facts and issues and seeks

essentially the same relief against the same parties as in the

judicial enforcement action. The relief sought in the adminis- -

trative action is an order pursuant to §6(b) of the Act

prohibiting petitioners from trading on any futures contract

market; civil penalties pursuant to § 6(b) of the Act in the

amount of $100,000 per violation5; and a cease and desist order

pursuant to §6(c) of the Act prohibiting petitioners from

further violation of the speculative limit. A copy of the

complaint in the administrative enforcement action is set forth

at Pet. App. pp. 74a-78a.

In the order which instituted the administrative action, the

CFTC incorporated into the administrative record and admit-

ted into evidence the entire record of the judicial enforcement

action. (Pet. App. p. 77a). On April 20, 1978, counsel for the

CFTC advised the ALJ that the CFTC would not present any

5 In view of the fact that petitioners were soybean futures traders,

the CFTC’s request for civil penalties of $100,000 per violation is

patently unfounded, since under § 6(b) of the Act this remedy is

available only with respect to commodity trading advisors, commodity

pool operators, floor brokers, and registered futures commission

merchants and persons associated therewith. (Pet. App. p. 80a).

evidence in addition to that in the court record. ( Appellants’

Suggestion of Additional Authorities, filed April 26, 1978, N. B.

Hunt, et al. v. CFTC, C.A. 7th Cir., No. 77-1055, p. A-1).

The CFTC unabashedly advised the Court of Appeals that

both the judicial and administrative actions are identical, as

follows:

“Prior to the commencement of the administrative pro-

ceeding, the Commission had brought an action against the

Hunts in the court below in which the Commission alleged

the same violations of law as are involved in the adminis-

trative case.” (Answer Brief and Supplemental Appendix

of CFTC, dated March 13, 1978, N.B. Hunt, et al. v.

CFTC, C.A. 7th, No. 78-1055, p. 3).

** *

“The administrative complaint charged the Hunts with

speculative limits violations identical to those that the

Commission had alleged in its injunction action.” (Jd., p.

9) (Emphasis added).

Likewise, the CFTC advised the ALJ that:

“The administrative complaint issued by the Commission

is, in all material respects, identical to the one filed in the

District Court on April 28, 1977.”

** *

“The threshold issue before this Court (sic), like that

before the District Court, is whether or not respondents

acted pursuant to an “expressed or implied agreement or

understanding (in violation of) Regulation 150.4.” Appen-

dix to Brief of Appellants, V. B. Hunt, et al. v. CFTC, C.A.

7th, No. 77-1055, pp. 51-52).

** *

“[U]nder the doctrine of collateral estoppel there are no

genuine issues of material fact in the (administrative

action) ...” (Jd., p. 62) (Emphasis added).

The CFTC seeks to justify these dual proceedings on the

ground that, unlike the judicial enforcement action which is

assertedly concerned with future and ongoing violations, the

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purpose of the administrative action is to punish the petitioners

for past technical violations of the speculative limit, as follows:

Mr. Peter Berman (Counsel for the CFTC): “The present

(administrative ) case, on the other hand, is seeking admin-

istrative sanctions of a penal nature to redress past viola-

tions of the law.” (Appellants’ Suggestion of Additional

Authoiities, filed Aprii 26, 1978, N. B. Hunt, et al. v.

CFTC, C.A. 7th, No. 77-1055, p. A-2).

Similarly the CFTC informed the lower court that the

administrative enforcement action is justified as

“. .. seeking remedial sanctions to punish violations of the

law.” (Appendix to Brief of Appellants’, NV. B. Hunt, et al.

v. CFTC, C.A. 7th, No. 77-1055, p. 55).6

The CFTC takes the position that the potential for incon-

sistent results in the two identical actions is inconsequential:

Mr. Peter Berman: “[W]hatever happened in the District

Court (in the judicial enforcement action) is irrelevant to

what happen(s) here (in the administrative action).” (Jn

the Matter of N. B. Hunt, et al., CFTC Docket No. 78-7,

April 20, 1978 Tr., p. 55).

Thus, the CFTC maintains that the assertions made and results

reached in these two identical actions are totally unrelated.

The ALJ denied a motion by petitioners to dismiss the

duplicate administrative action, and the full commission there-

after denied petitioners’ Application for Interlocutory Review

on the novel ground that petitioners had not exhausted their

judicial remedies, i.e., the CFTC declined to make a ruling on

the ground that the question whether duplicate enforcement

6 Notwithstanding the representation to the appellate court that

the administrative action concerned past violations, the CFTC in-

formed the ALJ that it concerned future violations: “Public policy

dictates that (the administrative enforcement action) dispose of this

entire matter in the normal course of its business in order to deter any

future violations of the law.” (Jn the Matter of N.B. Hunt, et al.,

CFTC Docket No. 78-7, April 20, 1978 Tr., p. 9) (Emphasis added).

actions can be prosec ‘ted is pending before the courts. (See Jn

the Matter of N. B. Hunt, et al., CFTC Doc. No. 78-7, Comm.

Fut. L. Rep. (CCH) 420,650). The dilemma faced by

petitioners is that the CFTC refuses to address the issue of

duplicate actions in the administrative enforcement action

because the question is properly before the courts, yet the courts

below have declined to address the question on the ground that

the matter should be determined in the first instance by the

CFTC.

IV. Petitioners’ Injunction Action.

This instant Petition for Writ of Certiorari arises out of an

action filed by petitioners on December 13, 1977, styled N. B.

Hunt, et al. «. CFTC, N. D. Ill., No. 77 C 4618, to enjoin the

CFTC’s duplicitous administrative action. On December 23,

1977, the district court denied petitioners’ request for prelimi-

nary injunctive relief, and on January 8, 1979, the Seventh

Circuit affirmed on the ground that the doctrine of exhaustion

of administrative remedies limits judicial relief under these

circumstances to review from final agency action.

Despite the fact that the entire matter was already before

the courts at the CFTC’s behest, despite the fact that CFTC’s

attorney stipulated that the evidence to be presented in both

actions would be exactly the same, and despite the fact that

both the ALJ and the full Commission have addressed this

question of law, the lower courts held that the question whether

the duplicative administrative action is precluded cannot be

determined by the courts until after that action is completed.

Dissenting from the majority opinion, Judge Markey arti-

culated the need for the coordination of the roles of court and

agency, as follows: :

“(The Court’s majority opinion is) an unwarranted abdi-

cation of the judicial role. It is not too strong to =~ that

application of the exhaustion doctrine in this instance

obscures, if it does not obliterate, the line between judicial

deference and judicial surrender.” (Pet. App. p. 7a).

***

“({T]o apply the exhaustion doctrine is to turn it on its

head, to judicially approve interrupted agency action, to’

accept agency review of judicial action, to endorse regu-

latory end-runs around the justice system, and to judicially

countenance an administrative abuse of the judicial proc-

ess.” (Jd., pp. 7a-8a).

* **

“Obviously dissatisfied with the outcome in the district

court, and uncertain of the outcome here, the Commission

has, in effect, constituted itself a quasi-appellate tribunal,

prepared to grant itself relief not obtained in the district

court. In so electing, the Commission is thus conducting a

disjointed, interrupted and repetitive investigation, one of

the evils sought to be prevented by the exhaustion doc-

trine. At the same time, in asserting that this court may

review the present administrative proceeding at some

future date, the Commission exhibits a willingness to

unnecessarily expend judicial resources, the other evil

sought to be prevented by the exhaustion doctrine.” (Jd.,

p. 9a-10a).

*_* *

“In asserting a naked “right” to institute its administrative

proceeding, on the same facts and allegations involved in

the judicial process it initiated, and during the course of

that judicial process, the Commission’s words reflect an

attitude perhaps subliminal, but uncomfortably close to

contempt for the courts as mere agency appendages.” (/d.,

p. 10a).

*-_* *

“A decent respect for the courts would appear to preclude

concurrent conduct of both judicial and administrative

processes on the same facts and allegations in this case.”

(/d., p. 12a).

*-* *

“The Commission dismisses the contention that it is viola-

ting the separation of powers doctrine solely on the

assertion that it has remedial powers not available to the

courts. In confusing its remedial powers with a naked right

to independent, simultaneous determination of substantive

rights on the same facts currently before this court, the

Commission demonstrates that we deal here not merely

with agency exuberance, but with agency exhaltation.”

(Id., p. 14a).

As demonstrated by Judge Markey’s dissent, the question

of the CFTC’s power to prosecute parallel actions based on the

same cause of action against the same parties at the same time

for essentially the same relief presents fundamental and impor-

tant issues regarding the constitutional and statutory relation-

ship between courts and agencies as well as the integrity and

finality of the judicial process.

REASONS FOR GRANTING WRIT.

I. THE CFTC’S DUPLICATIVE ADMINISTRATIVE

ENFORCEMENT ACTION UNDERMINES THE

INTEGRITY OF THE JUDICIAL PROCESS AND

IMPINGES UPON CONSTITUTIONAL DUE PRO-

CESS OF LAW AND SEPARATION OF POWERS.

This Court should not tolerate the CFTC’s abuse of the

judicial process. The lower courts’ acquiescence to the CFTC’s

duplicitous enforcement actions sets a precedent of far reaching

national importance, which the dissenting opinion suggests as

crossing “the line between judicial deference and judicial

surrender” and which has extensive impact on the finality of

judicial determinations and the relationship between courts and

agencies. In Judge Markey’s view, the decision below renders

the judiciary “irrelevant” and condones “agency review of

judicial action.” (Pet. App. p. 7a).

In United States v. Morgan, 307 U.S. 183 (1939), this

Court stated:

“Court and agency are the means adopted to attain the

prescribed end, and so far as their duties are defined by the

words of the statute, those words should be construed so as

to attain that end through codrdinated action.” (307 U.S.

at 191).

ee ey

The precedent in the instant case, on the other hand, condones

uncoérdinated actions engendering potentially conflicting deci-

sions and extravagant waste of judicial resources.

The Act cannot be reasonably construed to afford the

CFTC complete relief for an alleged technical violation through

the federal court system and, at the same time, afford it the

power to overrule the decision reached by the court through an

independent administrative action. Section 6c of the Act

expressly provides that actions which the CFTC elects to

institute in district court shall be within the court’s jurisdiction,

and the legislative history establishes that Congress intended

that the CFTC’s judicial and administrative remedies be

alternative. (See H.R. Rep. No. 93-975, 93 Cong. 2nd Sess.

. 30(1974)).

If the judicial decision on remand is rendered first, the

CFTC in effect assumes the power to review the court’s decision

and grant to itself, through the administrative action, any relief

denied by the court. If, on the other hand, the administrative

action is completed first, the judicial action will be rendered

totally superfluous, notwithstanding extensive trial and appel-

late proceedings. In either case, if litigation in both actions is

completed, conflicting decisions are all but inevitable. Other-

wise, there is no reason why the subsequent administrative

action was filed.

Duplicate actions cannot be justified on the ground that

some emergency justifies judicial relief in aid of the remedies

available through administrative proceedings. As the appellate

court affirmed in the CFTC’s first appeal in this case, no

emergency has ever existed in this matter. Both the iudicial and

administrative enforcement actions merely involve an alleged

technical violation of the CFTC’s speculative limit.

Likewise, separate actions cannot be justified on the

ground that different remedies are requested in the two actions.

There can be no question that a United States district court

sitting in equity has jurisdiction to enjoin traders from utilizing

commodities futures markets or from violating the speculative

limit. As for the CFTC’s request for penalties, since petitioners

are traders, the CFTC does not have jurisdiction under § 6(b)

to award such relief in the administrative action, supra at fn. 5.

Moreover, although the CFTC did not specifically seek such

sanctions in the judicial enforcement action, the court could

have awarded such relief or its equivalent.

The CFTC’s regulations recognize the evil inherent in

duplicate actions. With respect to administrative reparations

actions instituted by futures contract traders against a broker,

CFTC Regulation 12.21(a)(7), 17 C.F.R. 12.21(a)(7), re-

quires an allegation whether civil litigation or arbitration

proceedings have been utilized, and the Preamble to the

CFTC’s Rules and Regulations relating to reparations actions

states that such prior actions constitute a waiver of adminis-

trative reparations remedies. (41 Fed. Reg. 3994, January 27,

1976). Where it is the CFTC which has utilized civil court

litigation, the same principle should bar duplicate adminis-

trative enforcement actions.

Moreover, the CFTC’s order instituting the administrative

action which incorporates the judicial record in the adminis-

trative proceeding, supra at p. 7, violates CFTC Regulation

§ 10.42, 17 C.F.R. § 10.42, which strictly limits discovery in

administrative actions to requests to admit (except where a

prospective witness is unable to testify). The CFTC’s use of the

judicial enforcement action to circumvent discovery limitations ~

in the administrative enforcement action is a misuse of dis-

covery procedures under the Federal Rules of Civil Procedure.

Finally, the CFTC has held in reparations proceedings that

administrative actions to penalize past violations of the law are

unauthorized. For example, see Barker v. Commodity

Management Systems, Inc., Comm. Fut. L. Rep. (CCH) 920,

432, where the CFTC held that “The Commodity Exchange Act

does not provide for punitive or exemplary damages, or for

Ne ee

damages unrelated to violations of the Act or the Rules of the

Commission.” ( Jd., p. 21, 756). Also see Beck v. Securities and

Exchange Commission, 430 F.2d 673, 675 (6th Cir. 1970),

regarding the impropriety of an SEC order awarding punitive,

as distinguished from remedial, relief.

In California v. Federai Power Commission, 369 U.S. 482

(1962), the Government commenced a judicial action alleging —

that a gas company’s acquisition of the stock of a pipe company

violated the Clayton Act. Subsequently, the gas company

applied to the FPC for authority to acquire the pipe company’s

assets. Noting the waste of time and money and unnecessary

confusion which would be created by potentially inconsistent

results, this Court held that the FPC should not proceed to a

decision on the merits of the merger application in view of the

pendency of the action in the courts challenging the validity of

the transaction under the antitrust laws, as follows:

“We rule only on one select issue and that is: should

the Commission proceed to a decision on the merits of a

merger application when there is pending in the courts a

suit challenging the validity of the transaction under the

antitrust laws. We think not. We think the Commission

should await the decision of the courts.”

** *

“The orderly procedure is for the Commission to await

decision in an antitrust suit before taking action.” (/d., at

487-489).

The same principle should apply a fortiori in the instant action

which, unlike California v. FPC, supra, involves the same party

asserting the same actions.

The CFTC, having elected to complain as plaintiff in the

district court, is prohibited by due process of law and separation

of powers from interfering with the court’s jurisdiction. While

“forum shopping” is permitted by the Act, the CFTC is not

authorized to prosecute two actions where one will suffice or to

shift from one forum to another. See Kerotest Mfr. Co. v. C-O-

Two Fire Equip. Co., 342 U.S. 180, 183 (1952), where this

Court recognized that “[w]ise judicial administration, giving

regard to conservation of judicial resources and comprehensive

disposition of litigation” required an injunction limiting the

litigation to the prosecution of a single suit.’

The issue presented by this Petition is especially ripe for

consideration since no trial on the merits has been held in either

case. This Court should not tolerate the CFTC’s disregard of

judicial economy and disrespect for judicial process. Comity is

not a unilateral concept. If the courts are required to defer to

administrative agencies in proper cases under the doctrines of

exhaustion of administrative remedies and primary jurisdiction,

administrative agencies should be required to defer to the

courts where the agency invokes the court’s plenary jurisdiction

in the first instance. Under these circumstances, constitutional

due process of law, separation of powers and the Act preclude

the agency from proceeding independently with a separate,

albeit identical administrative action.®

7 Also see Binderup v. Pathe Exchange Inc., 263 U.S. 291, 305

(1925): “Jurisdiction is the power to decide a justiciable controversy,

and includes questions of law as well as fact”; and Prentis v. Atlantic

Coast Line, 211 U.S. 210, 226 (1908): “A judicial inquiry investi-

gates, declares and enforces liabilities as they stand on present or past

facts and under laws supposed already to exist. That is its purpose

and end”.

8 Intricate questions of res judicata and collateral estoppel will

arise when the district court enters a final judgment. In fact, following

the district court’s Order dated September 28, 1977, in the judicial

enforcement action, the CFTC took the position that the court’s order

was a final decision on the merits and that “... under the doctrine of

collateral estoppel there (were) no genuine issues of material fact (in

the administrative action).” (Appendix to Brief of Appellants, N.B.

Hunt, et al. v. CFTC, C.A. 7th, No. 77-1055, pp. 61-62). (On

February 15, 1978, however, the CFTC filed an Addendum to Motion

for Summary Disposition in the administrative enforcement action in

which it purported to withdraw its reliance on the doctrine).

ta pl

Rial ate mctanagnsaraninle es aa a

Il. THE LOWER COURTS’ MISAPPLICATION OF

THE EXHAUSTION DOCTRINE IS IN CONFLICT

WITH VARIOUS DECISIONS OF THIS COURT.

In McKart v. United States, 395 U.S. 185, 193-194 (1969),

this Court explained that exhaustion is generally required where

the relevant statute creates exclusive administrative procedures

which promote the agency’s efficient operation, afford the

parties and the courts the benefit of the agency’s experience and

expertise, and permit the agency to develop the necessary

factual background. The doctrine, however, has been held

inapplicable where the question presented is purely one of law,

the agency is violating a clear right secured by statute or agency

regulation, or the issue cannot be raised upon judicial review

from final agency action. See generally 3 K. Davis, Adminis-

trative Law Treatise § 20.01 ef seg. (1958 ed. 1965 Supp. ).

A. The exhaustion doctrine should not be invoked where the

purposes served by the doctrine are defeated by its application.

As Judge Markey stated in his dissenting opinion in the

instant action, application of the exhaustion doctrine here

constitutes judicial approval of “disjointed, interrupted and

repetitive” actions and “unnecessarily expends judicial re-

sources”, the evils which the doctrine seeks to prevent. (Pet.

App. p. 10a).

In McKart, supra, this Court stated that

“Application of the [exhaustion] doctrine to specific cases

requires an understanding of its purposes and of the

particular administrative scheme involved.” (395 U.S. at

193-194).

*-* *

“[C]ases decided by this Court [do not] stand for the

proposition that the exhaustion doctrine must be applied

blindly in every case.” (Jd., at 201).

The CFTC’s contention that the courts will not become

involved if petitioners are successful in the administrative action

is absurd. Since the courts are already involved with the entire

case in the judicial enforcement action, it is not a question

whether the courts will become involved at all, but rather,

whether the courts will become involved twice—the second

time following final agency action. While it may generally be

desirable to let the agency develop the necessary factual

background, here the administrative action is based on the

record developed by the court. While it may generally be

desirable to afford the agency an opportunity to utilize its

expertise, here the CFTC relies on the court’s expertise. While

‘it may generally be more efficient for an administrative action

to be completed without interruption, here relitigation of the

same cause of action in the administrative enforcement action is

obviously wasteful of judicial resources.

Myers v. Bethlehem Ship Building Corp., 303 US. 41

(1938), is distinguishable from the instant action. In Myers the

company brought an action in district court to enjoin a NLRB

proceeding on the ground that the company’s facility was not in

interstate commerce and was therefore not within the NLRB’s

jurisdiction. Since the question whether the company was

engaged in interstate commerce was one of fact and since

Congress had conferred exclusive jurisdiction on the NLRB to

resolve such matters, this Court held that the administrative

action should not be interrupted.

The instant action is distinguishable from the Myers deci-

sion for a number of reasons. First, in Myers the NLRB had

exclusive jurisdiction whereas here the CFTC may elect to bring

the action either in the district court or before the CFTC.®

9 Although §2 of the Act, 7 U.S.C. §2, confers “exclusive

jurisdiction” on the CFTC with respect to futures transactions, this

section also provides that “Nothing in this section shall supercede or

limit the jurisdiction conferred on courts of the United States...” In

addition, as noted supra at p. 3, § 6c expressly confers jurisdiction on

the district courts with respect to enforcement actions and makes it

clear that Congress intended the CFTC to be subject to the doctrine of

election of forums.

ee es

Kenna eee

Second, in Myers the issue whether the company was in

interstate commerce presented a question of fact whereas here

the CFTC’s power to institute simultaneous actions under § 6c

and §§ 6(b) and (c) is a question of law. Third, in Myers the

question whether the company was in interstate commerce had

not been determined by the NLRB whereas here the question

whether the CFTC has power to prosecute duplicate actions has

been addressed by both the ALJ and the full Commission on

review. Fourth, here the CFTC lodged the entire matter with

the court in the first instance seeking the court’s expertise and

ability to marshall the facts. Fifth, the CFTC’s expertise and

experience can be made available to the court in the judicial

' enforcement action.

B. The exhaustion doctrine should not be invoked where the

sole question presented is whether the agency, as a matter of law,

has statutory power to prosecute duplicative enforcement actions.

The issue whether the CFTC has power to conduct dupli-

cative and repetitive judicial and administrative actions

presents a purely legal question of the statutory construction of

§ 6c and §§ 6(b) and (c) of the Act. In McKart v. United

States, supra, the issue was whether the petitioner was a sole

surviving son within the meaning of the selective service laws.

Since this issue was solely a question of statutory interpretation,

the Court held that the exhaustion doctrine did not apply. (395

U.S. at 197-198).

Certiorari should be granted in the instant case if only to

rectify the Seventh Circuit’s rejection of the principle estab-

lished by this Court in McKart. See the appellate court’s

decision where it is stated that “The supposed doctrine (that

the exhaustion doctrine does not apply to questions of law

involving statutory construction ) has been explicitly rejected by

this court.” (Pet. App. p. 5a). This direct conflict between this

Court’s decision in McKart, supra, and the instant case should

not be permitted to stand.

C. The exhaustion doctrine should net be invoked where the

CFTC has waived its jurisdiction to decide the case by invoking

the district court’s plenary jurisdiction and by addressing the

issues in the administrative action.

The CFTC waived any requirement that petitioners ex-

haust administrative remedies when it filed the judicial enforce-

ment action and litigated the case for months in the district and

appellate courts. If the CFTC may have resort to the courts

with respect to the complex factual questions involved in the

judicial enforcement action, the petitioners should not be

denied access to the courts with regard to the purely legal

questions raised here. Having sought complete judicial relief,

the CFTC has waived any requirement that petitioners exhaust

administrative remedies. cf. Barker v. Commodity Management

Systems, Inc., Comm. Fut. L. Rep. (CCH) 920,432.

Moreover, the CFTC has addressed the question at issue

and for all practical purposes the administrative process in that

regard is at an end. The ALJ denied petitioners’ motion to

dismiss, and the full Commission denied petitioners’ Appli-

cation for Interlocutory Review on the ground jurisdiction rests

with the courts, supra at pp. 9-10. Under these circumstances,

no useful or legitimate Purpose is served by deferring judicial

review until completion of the administrative action.

In Mathews v. Diaz, 426 U.S. 67, 77( 1976), a class action

in the district court attacking the Social Security Adminis-

tration’s statutory construction of the claimant’s qualification |

for the Medicare program, the named plaintiff did not seek

administrative remedies until after the judicial action was filed

and never completely exhausted all avenues of administrative

review. In view of the Government’s stipulation that no facts

were in dispute and its submission of the matter for summary

disposition, this Court held that the Government’s action was

tantamount to final agency action and a waiver of the exhaus-

tion requirements. Similarly, see Mathews v. Eldridge, 424 U.S.

319, 330 (1976), and Weinberger v. Salfi 422 U.S. 749, 765

( 1975) recognizing the court’s jurisdiction prior to final oe

action where further administrative proceedings would be futile

or otherwise inappropriate.

D. The exhaustion doctrine should not be —

judicial review from final agency action may be foreclose

The standard of review in an appeal from an ——

determination is established by Section 6(b) of the Act:

Ce ee de

ge hall have jurisdiction to affirm, to set aside,

or ‘cally the aie of x peg ps ~~ cgeecieel

the Commission, as to the facts, 11 su . es

idence shall in like manner be co ’

use + 136) (Emphasis added ) (Pet. App. p. 80a).

from final agency action pursuant to § 6(b)

of Porshe ten may be precluded from spt. a ng

CFTC’s statutory authority to institute the adminis r

enforcement action. In Skinner & Eddy Corp. v. aes cc

249 U.S. 557, 562 (1919), an action to enjoin the en on

of an ICC order was brought in district court age the ate

decision had become final. This Court held that the geen

whether the administrative order was in excess > = sb

powers could be determined in the independent Ju icia one

prior to final action by the agency because the wee 7

outside the scope of review in an appeal from final agency

action.

CONCLUSION

The instant action presents unique questions of national

importance regarding the relationship between courts and

agencies, constitutional due process of law, separation of pow-

ers, the statutory construction of the Commodity Exchange Act,

and the enforcement powers of the CFTC. |

The CFTC’s duplicate proceeding is more than an abuse of

the judicial process, it is a studied and deliberate denigration of

the courts by an administrative agency. As Judge Markey

observed in the dissenting opinion:

“Obviously dissatisfied with the outcome in the district

court, and uncertain of the outcome here, the Commission

has, in effect, constituted itself a quasi-appellate tribunal,

prepared to grant itself relief not obtained in the district

court.” (Pet. App. p. 9a-10a).

For the reasons set forth above, the Petition for Writ of

Certiorari should be granted.

Respectfully submitted,

Henry L. Pitts,

JOHN V. RYAN, III,

WILLIAM M. STEVENS,

Rooks, Pitts, Fullagar & Poust,

Suite 1776,

208 South LaSalle Street,

Chicago, Illinois 60604,

A. B. CONANT,

ROBERT B. Cousins, Jr.,

Shank, Irwin, Conant,

Williamson & Grevelle,

3100 First National Bank Building,

Dallas, Texas 75202,

Attorneys for Petitioners.

APPENDIX

3n the

Gnited States Court of Appeals

For the Seventh Circuit

No. 78-1055

NELSON BUNKER HUNT, W. H. HUNT, ELLEN H.

FLOWERS, MARY H. HUDDLESTON, ELIZABETH H.

CURNES, Houston B. HUNT, DoucLas H. HUNT, and

_ HUNT HOLDINGS, INC.,

Plaintiffs-A ppellants,

COMMODITY FUTURES TRADING COMMISSION,

Defendant-A ppellee.

Appeal from the United States District Court for the

Northern District of Ilinois, Eastern Division.

No. 77-C-4618—Frank J. MeGarr, Jadye.

ARGUED APRIL 26, 1978—DECIDED JANUARY 8, 1979

Before SWYGERT, Circuit Judge, MARKEY, Chief

Judge,' and TONE, Circuit Judge.

SWYGERT, Circuit Judge. The principal question

before us is whether parties aveiied in ministrative

proceedings before the Commodity weaves Trading

Commission must exhaust their administrative remedies

prior to seeking judicial review of the Commission’s

' The Honorable Howard T. Markey, Chief Judge of the

United States Court of Customs and Patent Appeals, sitting

by designation.

- No. 78-1055

authority to bring the administrative action when the

Commission has previously brought a similar, court en-

forcement action against the same parties. We hold that

administrative remedies must be exhausted and sustain

the district court's denial of the appellants’ motion for a

preliminary injunction halting the administrative

proceedings.

On November 28, 1977 the Commodity Futures

Trading Commission instituted administrative

proceedings against seven members of the Hunt family

and an affiliated company for violating the speculative

trading limits for soybean futures set by the Commission

pursuant to section 4a(1) of the Commodity Exchange

Act, 7 U.S.C. § 6a(1) (1976). The transactions that con.

stitute the factual basis for the Commission’s action are

chronicled in a companion case decided today. Commodi-

ty Futures Trading Comm. v. Hunt, No. 77-1672 (7th

Cir., Nov. ....., 1978) (“Hunt J’”).2 In that case the Com-

mission brought an action in the United States district

court based on the same violations of law involved in the

administrative proceedings, but seeking different relief.

7 U.S.C. § 13a-1. The district court found that the Hunts

had violated provisions of the Commodity Exchange

Act, but denied the Commission’s motions for an injunc-

tion and ancillary relief. Commodity Futures Trading

Comm. v. Hunt, No. 77-C-1489 (N.D. Ill., Sept. 28, 1977).

On appeal we upheld the trial court’s conclusion that

the Hunts had violated the statute. We reversed,

however, the trial court's denial of injunctive and an-

cillary relief and remanded those issues for proceedings

not inconsistent with our opinion. Hunt J, supra.

On December 13, 1977 the Hunts filed a complaint in

support of their request that the district court enjoin the

administrative proceedings before the Commodity

Futures Trading Commission. At a hearing held

December 14, the district court denied the Hunts’ re-

quest for a temporary restraining order. On December

23, 1977 the district court denied their motion for

a preliminary injunction.

* The record from the three 7 genes consolidated for hearin

A Hunt I was made part of the record in this case in Apri

978.

No. 78-1055 3

On appeal the Hunts offer several grounds for their

contention that the administrative proceedings should be

enjoined. Most importantly, the Hunts argue that

because the Commission previously decided to bring an

enforcement action in district wre it is nay —

itiating administrative proceedings pursuan section

6(c) of the Act. 7 U.S.C. § 13b (1967). They also contend

that the Commission has violated its own discovery rules

by adopting the evidentiary record developed in the dis-

trict court for use in the administrative proceedings.

None of the arguments advanced by the Hunts, however,

is sufficient to overturn the deference courts ordinarily

extend to ongoing administrative proceedings.

Judicial review of administrative actions of the Com-

modity Futures &xchange Commission is provided for in

section 6(b) of the Commodity Exchange Act, 7 U.S.C.

§ 9 (1976). See Frey v. Commodity Exchange Authority,

547 F.2d 46, 49 (7th Cir. 1976). The Hunts can present

their claims sg: sige the illegitimacy of the Com-

mission’s actions for judicial review after the completion

of the administrative process and the entry of a Commis-

sion order. Absent special circumstances, the courts will

not provide copper! | or injunctive relief interrupting

administrative proceedings.

8 Section &b), 7 U.S.C § 9 (1976), states in relevant part:

After the issuance of the order by the Commission, the

person against whom it is issued may obtain a review of

such order or such other equitable relief as to the court

may seem just by filing in the United States court of

appeals of the circuit in which the petitioner is doing

business a written petition, within fifteen days after the

notice of such order is given to the offending person

praying that the order of the Commission be set aside. A

copy of such petition shall be forthwith transmitted by the

clerk of the court to the Commission and thereupon the

Commission shall file in the court the record theretofore

made, as provided in section 2112 of Title 28. Upon the

filing of the petition the court shal] have jurisdiction to

affirm, to set aside, or modify the order of the Com-

mission, and the findings of the Commission as to the

facts, if supported. by the weight of the evidence, shall in

like manner be conclusive.

4 No. 78-1055

It is a “long settled rule of judicia! administration that .

no one is entitled to judicial relief, for a supposed or

threatened injury, until the prescribed administrative

remedy has been exhausted.” Myers v. Bethlehem Ship-

building Corp., 303 U.S. 41, 50-51 (1938). See also, e.g.,

Rosenthal & Co. v. Bagley, No. 77-C-521, slip op. at 2

(7th Cir., Aug. 10, 1978). Squillacote v. International

Brotherhood of Teamsters (Teamsters I), 561 F.2d 81, 37-

40 (7th Cir. 1977); Grutka v. Barbour, 549 F.2d 5 (7th

Cir.), cert. denied, 431 U.S. 908 (1977); Frey, supra,

at 49-50. This rule prevents courts from precipitously

reviewing cases which, if the administrative process

is allowed to run its. course, may result in determina-

tions favorable to a petitioner, thereby rendering his

objections moot. See Rosenthal, supra, slip op. at 5; Frey,

supra at 49. Awaiting the conclusion of the administra-

tive proceedings also insures that a record will be

developed—including conclusions reached by the agency

In its area of expertise—which can facilitate judicial

review. See Teamsters J, supra at 39. And the exhaustion

doctrine curbs frequent, litigious interference with the

administrative procedures established by Congress for

achieving the agency’s goals. Rosenthal, supra, slip op.

at 5; Teamsters J, supra at 38-39.

The exhaustion doctrine, of course, is not absolute.

There are exceptional circumstances in which courts

will interrupt administrative proceedings. The Hunts

argue that their claims fall within such an exception to

the exhaustion requirement. One exception, long

recognized by the courts, is the “clear right” exception:

if an agency would violate a clear right of a petitioner

by disregarding a specific and unambiguous statutory,

regulatory, or constitutional directive, a court will not

require the | ges ah. to exhaust his administrative

remedies and will intervene immediately. Rosenthal,

supra, slip op. at 5-6; Teamsters I, supra at 36. See

Leedom v. Kyne, 358 U.S. 184 (1958).

The Hunts, however, have failed to establish that the

Commission has violated a “clear right.” Neither the

Commission’s decision to institute administrative

No. 78-1055 5

proceedings after its previous enforcement efforts before

the district court nor its incorporation of the record of

the civil action into the administrative proceedings con-

stitute such a violation. There is nothing in the statutory

language of the Commodity Exchange Act which in-

. dicates that the Commission’s initial election of remedies

is exclusive, and the legislative history provides little sup-

port for the Hunts’ position. See, e.g., ft. R. Rep. No. 95-

1181, 95th Cong., 2d Sess. 51 (1978). The Hunts

allegations regarding the Commission’s disregard of its

own discovery rules fail to demonstrate that the Com-

mission has violated a clear right. When the im-

_ plications of one of an agency’s own rules is in question,

a court should be hesitant to conclude that the agency

has disregarded a specific and unambiguous directive

warranting judicial intervention_in the administrative

proceedings. See Borden, Inc. v. FTC, 495. F.2d 785, 789

(7th Cir. 1974). And while the Commission’s discovery

procedures are limited, there is nothing in the Com-

mission's rules explicitly prohibiting the incorporation of

evidence compiled in a prior judicial proceeding. See

also 17 C.F.R. § 10.42(b) (1977). Thus the “clear right

exception does not apply.

The Hunts also contend that the instant case comes

within other exceptions to the exhaustion doctrine. One

other exception applies to cases in which judicial review

effectively will be foreclosed if the court does not in-

tervene in the administrative proceedings. See Jewel

Companies, Inc. v. FTC, 432 F.2d 1155 (7th Cir. 1970).

In the instant case, however, the Hunts will have an op-

portunity to assert their claims, if necessary, in an

appeal from the Commission’s final order. 7 U.S.C.

§ 9 (1976).

The Hunts also argue that the only questions at issue

in their appeal are matters of law, not of fact, and

therefore the exhaustion requirement does not apply.

This argument can be disposed of without determining

whether any factual disputes are at issue in the Hunts

appeal. The supposed doctrine which the Hunts employ

to advance their position has been explicitly rejected by

this court. In Teamsters J, supra at 39, we said that the

conclusion that a dispute was a “matter of law” wo-ld be

6 | No. 78-1055

insufficient in and of itself to trigger an except

exhaustion requirement. See aie Rosehthat peri ter a

the instant case, where no clear right has been violated

and judicial review will be available to the petitioners in

accordance with the statutory framework of the Com-

i to proceedings, the exhaustion requirement

Fiennes sement of the district court accordingly is af-

No. 78-1055 7

MARKEY Chief Judge, dissenting.

With the greatest respect, I dissent fromm what I con-

sider an unwarranted abdication of the judicial role. It

is not too strong to say that application of the exhaustion

doctrine in this instance obscures, if it does not

obliterate, the line between judicial deference and

judicial surrender.

Citing no compelling reason whatever for having in-

stituted an administrative proceeding on the same facts

and allegations pending before this court, the Commis-

sion says the courts are rendered powerless to enjoin

that proceeding by the exhaustion doctrine. That doc-

trine is of a piece with efforts extant for centuries to

avoid multiple litigation. Repeated litigation in the

courts is resisted by rules like res judicata and collateral

estoppel. Simultaneous litigation on the same facts and

allegations, the evil occurring here, is resisted in the |

courts by rules like those concerning venue, transfer,

“forum non conveniens,” class actions, consolidation and

the Panel on Multi-district Litigation. Nonetheless, the

Commission says it, and impliedly all similar executive

agencies, can do what courts can’t and won't do, 1.e., con-

duct simultaneous litigation, because Congress gave it

punishment powers not within the arsenal of the courts,

arguing thus that Congress intended the incongruous.

The exhaustion doctrine is salutory. Ordinarily, action

is initiated and proceeds in orderly fashion to completion

within the agency. Withholding of judicial intervention

well serves the twin goals of uninterrupted agency ac-

tion and saving of scarce judicial resources. Judicial in-

volvement may be obviated. If not, — review can

be conducted on a complete record. The authorities cited

by the parties, including those establishing properly

limited exceptions to the doctrine, stand unchallenged

and insure the continued viability of the doctrine in ap-

prontise cases. Those authorities are of little comfort

ere, however, where to apply the doctrine is to turn it

on its head, to judicially approve interrupted agency ac-

tion, to accept agency review of judicial action, to en-

8 No. 78-1055

dorse regulatory end-runs around the justi

egulé Justice system

and to judicially countenance an administrati

the judicial process. at

Chronology supplies the key to what is ha i

here. The Commission elected to fully emp ee

judicial process, filing its complaint for plenary, not

mereiy preliminary, relief in the district court in April

1977.2 The district court having expended substantial

* The Commission's unquestioned right to seek merely a

preliminary injunction against a violation on an

other valid basis, while 5 conducts a proceeding. is not here

inves. The Commission here sought declaratory judgment

of violation, a temporary restraining order, a preliminarv

ath pgs a final permanent injunction, disgorgement of

profits, liquidation of excess holdings, and “other” relief

Appellants challenged the regulation itself and sued agency

ere er en. The district court enjoined the Commission from

isclosing appellants’ trading. The Commission sought a full

panoply of relief and relied on the court's expertise, not its

> n. All of these matters are before this court in Hunt I. It is

disingenuous of the Commission’s brief, therefore, to excuse

its proceeding administratively, after the district court's

decision, on the ground that it w i tnt

al fn “dee: as see =

relief from the district court. king only preliminary

The Commission’s statement to us th imi

mel at onl

— was sought in the district court is the cre ng eg

light of its position before its Administrative Law Jud

) in opposing appellants’ wea. :

er pts te ppellants’ motion to dismiss the adminis-

The order of the District Court in the matter FTC

. Mi 0.

‘. NB. Hunt, et al., (77 C 1489) satisfies this veal After the

ag Court Denied the Commission’s original motion

ior a preliminary injunction, the matter was set for trial

xtensive discovery was conducted by both parties.

Several days of 0 a ake heard by the Court in both

June and July of 1977. Findings were proposed by both

sides, briefs submitted, and a final decision rendered. In

short, both the CFTC and respondents were accorded a full

opportunity for an adversary hearing. Additionally, the

istrict | urt ruling is a fina for purposes of

— it carries the label of a final order; it disposes o

¢ of the claims between the parties; jurisdiction has

rom the District Court to the Court of Appeals; and the

pong ao Ed precseninee was such that the District Court

: ee :

5 lee tengo render a final decision on the issues.

No. 78-1055 9

resources, and having necessarily deprived others seek-

ing a share of those same limited resources, rendered a

final judgment in September, 1977. The Commission

and the defendant both appealed from that judgment.

The Commission, however, in November, 1977, the

final order of the district court and while the appeal was

pending in this court,? instituted an administrative

roceeding against the same defendants, on the same

acts and making the same allegations of statutory

violations, as were and are involved in the judicial

process which the Commission initiated and which is

still ongoing.

Presumably, the Commission conducted some sort of

investigation before availing itself of the resources of the

district court. It conducted full discovery on all issues

before the court. Unwilling to await the decision of this

court,’ ie, to await an orderly completion of the

judicial process, the Commission elected to conduct its

investigative function all over again, albeit under the

formal label “administrative proceeding.” Obviously dis-

satisfied with the outcome in the district court, and un-

certain of the outcome here, the Commission has, in

> And without notification to the courts, hardly an example

of the “coordinated action” of courts and agencies envisaged

by the Court as ideal in United States v. Morgan, 307 U.S. 183

at 191. Appellant moved this court to stay the administrative

roceedings until this court decides this appeal in Hunt II.

hat motion should have been granted.

‘ The record reflects no “emergency” extant, and the

Commission asserts none before us. The district court’s May 6

finding of “no emergency,” affirmed by this court, still stands.

Indeed, in resisting appellants’ motion for this court to enjoin

its administrative proceeding, the Commission says appellants

should have gone first to the district court use “No

emergency exists.” The nearest the Commission comes is @

reference to the risk of future violations, ignorin completely

the district court’s contrary finding and the pendency of that

question before this court in Hunt 1. The only authority it

cites for its simultaneous yongen me is United States v.

Kordel, 347 U.S. 1 38705 in which the court sanctioned

simultaneous criminal and civil court, proceedings by the

FDA in view of the public interest in protection against

misbranded drugs. In Kordel, however, the FDA. did not

institute an administrative proceeding on the same facts and

allegations on which a district court had ruled and during the

pendency of cross-appeals from those rulings.

10a

10 No. 78-1055

effect, constituted itself a quasi-appellate tribunal,

prepared to grant itself relief not obtained in the district

court. In so electing, the Commission is thus conducting

a disjointed, interrupted and repetitive investigation,

one of the evils sought to be prevented by the exhaustion

doctrine. At the same time, in asserting that this court

may review the present administrative proceeding at

some future date, the Commission exhibits a willingness

to unnecessarily expend judicial resources, the other evil

sought to be prevented by the exhaustion doctrine

The denigration of the courts exhibited by the Com-

mission’s actions is repeated in its brief. In asserting a

naked “right” to institute its administrative proceeding,

on the same facts and allegations involved in the judicial

process it initiated, and during the course of that

Judicial process, the Commission’s words reflect an at-

titude perhaps subliminal, but uncomfortably close to

contempt for the courts as mere agency appendages.

First, the Commission relies on the familiar rule that a

district court’s denial of an injunction is discretionary,

* The Commission makes the standard argument that appel-

lants show no irreparable injury, merely a loss of time and

money, and says any mistakes it makes can be rectified on

appeal. Sympathy for the apparently wealthy appellants is not

required. The injury done to the justice system by simul-

taneous litigation is enough.

_ Nonetheless, it is idle to ree that unwarranted waste of

time and money by appellants (and by the taxpayers who

must fund the Commission and the courts) is “reparable” in a

second appeal. Regulatory agencies are essentially immune

from responding in damages for even the most ‘flagrantly

arbitrary and capricious action. The balance is not easily

drawn. Government agencies must be able to act expeditiously

in performing their duties to advance the public interest. if

pee respect for the regulatory process is to be maintained

Owever, responsible agency action is an imperative. Until

Congress shall devise some means for compensating the

citizen for time and money lost to unequivocally arbitrary and

Capricious agency action, the poorer citizen must surrender.

Win or lose, only the richer rich can fight. That the great

majority of agency actions have been fully responsible, despite

a ‘heads-we-win-tails-you-lose” Status, is a tribute to the

support of the public interest by dedicated and selfless agency

emplovees.

lla

No. 78-1055 1]

be disturbed absent abuse. Yet the Commission

rig attacks the same court’s denial of the ae

tion in Hunt I, and its administrative proceeding looks

to its own issuance of a cease and desist order, an effec-

tive overruling of the district court’s denial of the in-

junction it sought through the judicial process in Hunt I.

ite apart from honoring the judicial discretion to

én Pa tah sh it praises in this case, the Commis-

sion is prepared to ignore it in its administrative

roceeding, for all the world as though the district court

ba never spoken. The Commission vigorously relied on

the collateral estoppel effect of the district court trial in

successfully resisting appellants’ motion to organi

administrative proceeding; it tells this court that the dis-

trict court trial has no collateral estoppel effect.

Further, the agency is prepared to issue a cease _

desist order in the face of this court’s potential af nt

mance of the district court's injunction denial, as thoug

the judicial process in which this court is presently in-

volved were a nullity.

xt, the Commission praises the exhaustion doctrine

(citing cases and language applicable to the ordinary

situation in which an effort is made to involve the nt ti

in action initiated within an agency), as precluding

“premature” judicial review, as though all of the facts,

allegations and law involved in its administrative

proceeding were not already under judicial review.

It is at best fatuous to assert, as does the Commission:

“But, if the administrative process is allowed to go to

completior, the Hunts might prevail on their motion to

dismiss or on the merits or might otherwise persuade

the Commission that remedial sanctions are inap-

ropriate. In any of those events, the courts would never

a to become involved.” Yet the courts are already ful-

ly involved with the entire case, and at the behest of 0

Commission. Moreover, the Commission has made the

district court’s violation finding of record in its ad-

ministrative proceeding. Whether appeilants’ allegation

that the Commission is engaged in an administrative

vendetta be true or false,* the Commission’s assertion

issi i fendants’

6 Commission conceded in Hunt I that de

netivities had no effect on, and posed no threat to, the market.

The record in Hunt I clearly confirms that fact.

12a

12 No. 78-1055

that it might disregard the violation findi i

nding i

another illustration of a willingness to pretend that in

district court action (and ours) never occurred.

That the Commission intends to constitute i

ute 1

appellate tribunal over the district court is cet we

quivocally in its brief: “Even if the administrative law

judge should deny the Hunts’ motion to dismiss the

proceeding and should render an initial decision adverse:

to them, they may seek review b issi

that time the Commission, upon Pig i = gel

of the administrative record, can consider each of the

claims that the Hunts have asserted in the court below

To the extent that plaintiffs may demonstrate the merits

of their claims and that prejudicial errors (Query: by the

district court? by this court?] have therefore been made

the Commission will have the opportunity to rectify them

and will presumably do so.” (Enphesis added.)

The Commission dismisses concern over i

. . . C

between actions it might take in its sce libetiative

proceedings, and those consistent with this court’s deci-

sion and opinion on appeal, with: “It will be soon

enough for a court of Piney to consider the matter

when and if a conflict shouid arise between what this

court has said and what the Commission has done.”

Surely the ap arent arrogance, expressed with such

amazing aplomb, is unintended. This “court of appeals” is

nou’ considering the entire “matter” at the behest of the

Commission. I find no basis, in law or policy, for a Com-

mission “right” to act in the interim, in potential con-

travention of the courts’ decisions, and then to require

this court to “consider the matter” a second time.

A decent respect for the courts would

preclude concurrent conduct of both sealer ana ad.

ministrative processes on the same facts and allegations

in this case.” In the pending appeal (Hunt I), this court

Even when the actions differed ( i i

n court antitr

Comaraission Be, ae ely of asset merger), the “odons teg ‘Court

said, “We think the Commission in those circumstances should

” ait the decision of the courts.” California v. Federal Power

ommission, 369 U.S. 482 at 487. Here, the Commission’s

(Footnote continued on following page)

13a

No. 78-1055 | 18

may (1) affirm or reverse the declaratory finding of a

violation; (2) affirm or reverse the district court’s denial

of an injunction, and (3) remand for further considera-

tion of injunctive relief, disgorgement of | pete liquida-

tion of excess positions, and “other” relief originally and

presently ret 9 from the courts by the Commission. Yet

the Commission, in its. simultaneous administrative

roceeding, may have by that time barred defendants

rom the commodity markets, imposed civil money.

penalties, and applied what its brief calls “criminal”

sanctions, rendering our decision in Hunt I superfluous.

It would appear at least as important to the integrity

of the judicial process to require the exhaustion of

judicial remedies, as it is important to the integrity of

the regulatory process to require the exhaustion of ad-

ministrative remedies. Indeed, a reasonable regard for

the exalted exhaustion doctrine would appear to require

the Commission to stay its administrative hand, or, if

there be a compelling reason to proceed (and none is of

record), then to abandon and undo its self-initiated

judicia! proceeding.

I had not till now thought that anyone would consider

deference a one-way street, i.e., that only the judiciary

should defer. Nor would I think unholy a requirement

that an administrative agency, after initiating full court

action, should defer acting on the same facts and

allegations until the judicial process be com leted. It

would not, I think, destroy some “vast eterna plan” if

deference, under the non-emergency circumstances here,

were a two-way street.

7 continued

Enforcement Division, in its Motion for Summary Disposition,

told Commission’s ALJ:

The administrative complaint issued by the Commission in

this case is, in all material respects. identical to the one

filed in the District Court on April 28, 1977.

_The threshold issue before this Court [see n.8, infra],

like that before the District Court, is whether or not

respondents acted pursuant to an “expressed or implied

agreement or understanding” hs * Regulation 150.4.

Moreover, under the doctrine of collateral estoppel there

are no genuine issues of material fact in the present case

l4a

14 No. 78-1055

If the agency continues its administrative proceeding,

I cannot see why this court should bother deciding Hunt

I seek not alone to make the judicial job in Hunt I

easier, however, but to make it meaningful. As matters

now stand, we are irrelevant.

Perhaps even more importantly, the Commission’s brief

mirrors the movement toward a self-generated “executive

judiciary,” with powers not merely equal to but greater

than those of the courts established by Article III of the

Constitution. The Commission dismisses the contention

that it is violating the separation of powers doctrine

solely on the assertion that it has remedial powers not

available to the courts. In confusing its remedial powers

with a naked right to independent, simultaneous deter-

mination of substantive rights on the same facts

currently before this court, the Commission demon-

Strates that we deal here not merely with agency

exuberance, but with agency exhaltation.®

Reminding us that the Supreme Court has long

recognized quasi-judicial authority in administrative

agencies, the Commission meets the argument that its

administrative proceeding will impede the ability of the

district court and this court to expeditiously resolve the

substantive rights of the parties in Hunt I with this: “Of

course, this argument erroneously assumes that all ‘the

substantive rights of the parties’ were in issue before the

district court in the injunctive case {Hunt I] and could

be decided [sic] by that court. To the contrary, however,

if violations should be found [sic, they were by the dis-

trict court, and are at issue before this court only the

* In its administrative proceeding, the Commission's En-

forcement Division moved for “summary disposition,” re-

meyer | and universally referring to the Commission’s

earing examiner (now-by-change-of-name Administrative

Law Judge) as “this Court,” e.g., “The threshold issue before

this Court like that before the District Court, is whether or

not respondents acted pursuant to an “expressed or implied

agreement or understanding’ in acquiring soybean futures

contracts, which, when aggregated, exceed the speculative

limit established by Regulation 150.4.” The district court here

involved is referred to in the motion as merely “Frank J.

McGarr.” The Constitution reposes in the Congress the power

to create courts.

15a

No. 78-1055 15

Commission may lawfully decide [sic] whether the

Hunts may enjoy the privilege of further participation

in the futures markets and whether civil money

penalties should be imposed.”

aving unmentioned the prayer in its complaint for

“sug other further relief as the court may deem

necessary and proper under the circumstances,” the

Commission says this: :

In the district court, the Commission sought those

forms of equitable relief expressly contemplated un-

der Section 6c of the act—preliminary and perma-

nent injunctions against further violations of the

Act—as well as ancillary equitable relief requiring

liquidation of unlawful nanan and disgorgement

of any profits derived from unlawful activity. In

contrast, the administrative proceeding has been in-

stituted to determine whether an order should be

entered by the Commission coe erg bage the Hunts

from vats Tie on contract markets for a period of

time, assessing civil money penalties against them

and directing them to cease and desist from unlaw-

ful activity. The imposition of these remedial sanc-

tions are expressly entrusted exclusively to the

Commission—and not to a court—under Sections

6(b) and &c) of the Act.

. ing remedies and the facts on which remedies must

be bane aie Commission says it is not agin arg d the same

question of fact because the district court ruled “only on its

prayer for preliminary relief,” totally ignoring the os

court’s findings that continued violations were unlikely -

that defendants may_have acted in good faith, its refusal to

order disgorgement and liquidation, and its injunction . ogee

disclosure, all of which the Commission has appealed to 2 is

court in Hunt I now pending. Further, if any substantive rights

‘remain to be determined in a trial, after remand from this

court in Hunt I, the Commission does not indicate how its

simultaneous administrative proceedings and remedies can be

consistent with fairness in such a trial or with the integrity

of the judicial process, and nowhere indicates any new or

different facts remaining to be found in its administrative .

proceedings. Nor does the Commission indicate how i

simultaneous litigation on the same facts a =

justice, the quintessential goal and golden quest of the courts.

16a

16 _ No. 78-1055

and this:

Federal district courts possess only such power as is

expressly conferred by statute or is traditionally in-

herent in a court of equity. The Act provides no

authority to a district court to grant the remedies

that may be applied by the Commission in the ad-

ministrative case and remedial sanctions of these

kinds are not within the traditional equity jurisdic-

tion of a district court.?°

Though the Commission cites no supporting judicial

authority, and no statutory language so stating, it says

that disqualification from trading, assessment of a civil

money penalty and a cease and desist order, “could not

be granted in the injuction action,” and “could not have

been considered in a court forum.” It distinguishes

Williamson v. Columbia Gas and Electric Co., 186 F.2d

464 (8rd Cir. 1950) (barring relitigation in court on the

same wrong and facts even when brought under a

different statute), on the sole ground that the recovery

sought was there the same, and the remedies it here in-

tends are “different.”

10 ~The Commission’s brief in Hunt I lauds the equity power

of the courts as supporting its “demand” that profits be

disgorged, theugh the statute admittedly makes no provision

whatever for that remedy.

1! The Commission’s brief in this case (Hunt II) distinguishes

its contemplated cease and a age as having greater

force and effect than a mere court injunction punishable only

as a contempt of court:

Although both an administrative cease and desist order _

and a court injunction are designed to restrain further

violations of law, they are distinct remedies. Failure to

obey an injunction carries the sanction of criminal or civil

contempt in the court’s discretion; on the other hand, non-

compliance with an agency’s cease and desist order subject

ell ah psig Fess jes — penalties set forth in

1on 6(c) of the Act of up to one year imprisonment and

a $100,000 fine. . ; :

The Commission’s brief in Hunt I insists that the injunction

it there sought should have been granted, referring to the

significant role of injunctive relief,” and the “deterrent effect

of a possible contempt proceeding.” .

17a

No. 78-1055 i

Continuing to ignore its request to the court for

“other” relief, the Commission says that in Hunt I the

district court was “not requested to consider ad-

ministrative sanctions,” that it “did not purport to do so

in its order,” and that it “lacked jurisdiction to entertain

such claims for relief.”!2 The Commission’s statement

flies in the face of its own enabling statute, which

rovides, “Nothing in this section shall supersede or.

fimit the jurisdiction conferred on courts of the United

States or any State.” 7 U.S.C. § 2. Moreover, the assump-

tion that regulatory agencies may limit the jurisdiction

of a court presented with the entire case, by merely

tailoring their prayers for relief, leaving the agencies

free to conduct simultaneous litigation on the same facts

and allegations, is at best monstrous. Only a little less

ludicrous is the suggestion that solely because appellate

courts have the power to approve or disapprove agency

imposition of penalties, a district court could not grant,

on a proper showing, an agency request for district

court imposition of those penalties determined appro-

riate by an agency, particularly in light of the

anguage of the very section (6(c), now 7 U.S.C. § 13a-1)

relied on by the Commission: “Upon application of the

Commission, the district courts * * * shall have jurisdic-

tion to issue writs of mandamus, or orders affording like

relief, commanding any person to comply with * * *

any * * * order of the Commission.” ’

The Commission’s reliance on its remedial powers, as

a basis for its absolute right to disregard an on-going

judicial process involving the same facts and allegations,

ignores the necessity for determination that there be

something to be remedied and that the remiedy be conso-

12 The Commission also says the district court “recognized”

and “relied on” the availability of “other remedies” in refusing

an injunction in Hunt I. It is at best difficult to suppose that a

district court, which denied an injunction, would have rested

its denial on an expectation that the agency would frustrate

its order by issuance of its own order to cease and desist.

18a

18 No. 78-1055

nant with the wrong.!3 Those determinations have been.

made by the district court and are under consideration

in this court, yet the Commission insists on making those

determinations simultaneously and independently. It is

difficult to visualize a more invidious invasion of the

constitutional construct variously labeled as “The

Federal] Judiciary,” the “Third Branch,” and “Article

III,” -or of the governmental scheme expressed as the

“separation of powers” doctrine. .

If the majority remains reluctant to enjoin the con-

tinuation of the administrative proceeding, and feels

compelled to defer to the Commission, I would respect-

fully recommend that it defer fully: that it cease the

charade in which the court defers on the one hand (Hunt

If it must defer, the court should (1) terminate in-

stanter all further judicial] process in Hunt I and Hunt

II, (2) vacate the judgments below in both cases in their

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

‘* On April 26, 1978, the Commission’s Administrative Law

Judge certified to the Commission the questions of whether:

(1) the administrative sah ey | was barred by the district

court decision; (2) the violation inding was binding: (3) the

non-likelihood of continued violation finding was binding; (4)

the good faith finding was binding: (5) application of sanctions

by the Commission would be lega) if (3) and (4) are answered

“yes”: and (6) such sanctions should be im “as a matter

of policy” if (3) and (4) are answered “yes”. On Ju'y 20, 1978,

the Commission declined to answer those questions.

19a

United States District Court

For THE

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

COMMODITY FUTURES TRADING

COMMISSION,

Plaintiff,

NELSON BUNKER HUNT, Civil Action

owspats Runes oii F No. 77-C-1489

DOUGL ,

W. H. Hunt,

ELIZABETH BUNKER HUNT,

ELLEN HUNT FLOWERS,

Mary Hunt HUDDLESTON,

Hunt Ho pincs INC.

Defendants... ,

COMPLAINT FOR A Eph Ng re a

STRAINING ORDER ae Vonng

LIEF AND A PRELI eae

N FOR VIOLA

MANENT INJUNCTIO aie ae.

TION 4a OF THE COM

Cuan ACT, AS AMENDED Hheoye-t * vl

ON 150.4 OF THE RE

AT ONDER THE ACT (17 C.F.R. § 150.4)

Plaintiff, Commodity Futures Trading Commission

(“Commission”) for its complaint alleges:

20a

1. It appears that the defendants, Nelson Bunker Hunt,

Houston Bunker Hunt, Douglas Hunt, W. H. Hunt, Elizabeth

Bunker Hunt, Ellen Hunt Flowers, Mary Hunt Huddleston, and

Hunt Holdings, Inc., and each of them, singly and in concert,

directly and indirectly, through the instrumentalities of inter-

State commerce and through the mails, have engaged, are

engaged, and are about to engage in acts and practices which

constitute and will constitute violations of Section 4a of the

Commodity Exchange Act, as amended, (“Act”) (7 U.S.C.

§ 6a) (Supp. V, 1975)) and Section 150.4 of the Regulations

under the Act (17 C.F.R. 150.4 (1976)).

2. Section 150.4 of the Commission’s regulations (17

C.F.R. § 150.4) was promulgated by the Commission pursuant

to its authority under Section 4a of the Act (7 U.S.C. § 6a).

That section is now in effect and was in effect at all times

relevant to this complaint.

3. The Commission brings this action pursuant to Section

6c of the Act (7 U.S.C. § 13a-1 (Supp. V, 1975)) to restrain

and enjoin the defendants, and each of them, from engaging in

and from aiding and abetting the acts and practices set forth

herein and for such further equitable relief as may be necessary

and appropriate under the circumstances.

4. This Court has jurisdiction of this action pursuant to

Section 6c of the Act (7 U.S.C. § 13a-1).

5. Certain of the acts and practices, constituting the

violations of law alleged herein have occurred, are occurring

and are about to occur within this district and defendants are

transacting business within this district.

THE DEFENDANTS

1. W. H. Hunt resides at 4205 McFarland Street, Dallas,

Texas, and is the brother of the defendant N. B. Hunt and the

father of defendant Douglas Hunt.

2la

2. N. B. Hunt resides at 4508 Lakeside Drive, Dallas,

Texas, and is the brother of defendant W. H. Hunt and the

father of defendants Houston Bunker Hunt, Ellen Hunt Flo-

wers, Mary Hunt Huddleston, and Elizabeth Bunker Hunt.

3. Douglas Hunt resides at 5903 Sandhurst, Dallas, Texas

and is the son of defendant W. H. Hunt.

4. Houston Bunker Hunt resides at 617 Edgefield, Gar-

land, Texas and is the son of defendant N. B. Hunt.

5. Ellen Hunt Flowers resides at 3217 Colgate Avenue,

Dallas, Texas and is the daughter of defendant N. B. Hunt.

6. Mary Hunt Huddleston resides at 6425 Westheimer,

Houston, Texas and is the daughter of defendant N. B. Hunt.

7. Elizabeth Bunker Hunt resides at the University of

Alabama, Tuscaloosa Campus, P. O. Box 6183, University of

Alabama and is the daughter of defendant N. B. Hunt.

8. Hunt Holdings, Inc. is a closely held corporation

controlled and dominated by defendant Douglas Hunt and is

located at 2500 National Bank Building, Dallas Texas; which is

also the business mailing address used by defendants for the

transactions that are the subject of this complaint.

COUNT I

VIOLATIONS OF SECTION 4a OF THE ACT

(7 U.S.C. § 6a) AND SECTION 150.4 OF THE

REGULATIONS THEREUNDER (17 C.F.R.

§ 150.4)

9. Plaintiff hereby realleges and incorporates by reference

the allegations contained in paragraphs | through 8, and

further alleges:

10. Since at least January 17, 1977 and continuing to the

present, defendants, directly and indirectly, by their combined

positions of futures contracts established on the Board of Trade

22a

of the City of Chicago, a designated contract market (7 U.S.C.

§5), and pursuant to an express or implied agreement or

understanding, have exceeded, are exceeding, or will exceed the

maximum net positions for soybean futures contracts fixed by

the Commodity Futures Trading Commission under Section 4a

of the Act (7 U.S.C. § 6a) and section 150.4 of the regulations

thereunder (17 C.F.R. § 150.4).

11. By reason of the foregoing, defendants, Nelson Bunker

Hunt, Houston Bunker Hunt, Douglas Hunt, W. H. Hunt,.

Elizabeth Bunker Hunt, Ellen Hunt Flowers, Mary Hunt

Huddleston, and Hunt Holdings, Inc., singly and in concert,

directly and indirectly, have violated, are violating and are

about to violate and are aiding and abetting violations of

Section 4a of the Act (7 U.S.C. § 6a) and section 150.4 of the

regulations under the Act (17 C.F.R. § 150.4); the defendants

unless restrained and enjoined will continue to engage in the

acts or practices set forth in this complaint and in acts and

practices of similar purport and object.

WHEREFORE, Plaintiff Commodity Futures Trading Com-

mission respectfully demands that the Court enter:

A. A temporary restraining order, a preliminary injunction

and final judgment of permanent injunction, restraining and

enjoining each of the defendants, their officers, directors,

subsidiaries, affiliates, agents, servants, employees, successors,

attorneys and assigns, and those persons in active concert or

participation with them who receive actual notice of this order

by personal service or otherwise, and each of them, from

directly or indirectly, exceeding the maximum net position

limits for commodity futures contracts fixed by the Commodity

Futures Trading Commission under section 4a of the Com-

modity Exchange Act, as amended, 7 U.S.C. § 6a and section

150.4 of the regulations thereunder (17 C.F.R. §§ 150.4).

B. A mandatory order requiring defendants immediately

to liquidate in an orderly manner all existing positions which

23a

exceed the limits established by Section 4a of the Act (7 U.S.C.

§ 6a) and section 150.4 thereunder (17 C.F.R. 150.4).

C. An order directing defendants to disgorge all profits

unlawfully obtained or to be obtained by reason of their

violations of Section 4a of the Commodity Exchange Act, as

amended (7 U.S.C. § 6a) and Section 150.4 thereunder (17

C.F.R. 150.4).

D. Such other further relief as the Court may deem

necessary and proper under the circumstances.

Respectfully submitted,

Lloyd Kadish William R. Schief

46th Floor

233 South Wacker Drive

Chicago, Illinois 60606

(312) 353-9004 Michael J. Stewart

Jerry W. Markham

Attorneys for Plaintiff

Commodity Futures

Trading Commission

2033 K. Street, N.W.

Washington, D.C. 20581

(202) 254-7424

Dated: April 28, 1977

24a

IN THE

United States District Court

For THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

COMMODITY FUTURES TRADING

COMMISSION,

Plaintiff,

v. q No. 77 C 1489

NELSON BUNKER HUNT, et al.,

Defendants.

MEMORANDUM OPINION AND ORDER

The plaintiff Commodity Futures Trading Commission

(hereinafter, CFTC or Commission) is a federal agency en-

trusted by Congress with enforcement of the Commodity

Exchange Act as amended (7 U.S.C.A.), and with the power to

regulate commodity futures trading. Section 4a of the Act

authorizes the Commission to set trading limits for the purpose

of curbing excessive speculation and the Commission has set

such limits. At all times relevant to this litigation, Commission

Regulation 150.4(f) limited individual positions in soybean

futures to 3,000,000 bushels. The limit applied not only to

individuals but, in the words of the Regulation, “... to

positions held by, and trading done by, two or more persons

acting pursuant to an express or implied agreement or under-

standing, the same as if the positions were held by or the

trading were done by, a single person”.

25a

It is plaintiff's contention that the defendants, six of them

individuals related by blood or marriage and the seventh a

corporation controlled by some of the six, have acted in concert,

pursuant to an express or implied agreement or understanding,

to acquire aggregate holdings in soybean futures greatly in

excess of the three million bushel limit, and thereby have

violated Regulation 150.4(f).

The filing of this complaint by the CFTC was accompanied

by an application for a temporary restraining order seeking a

court determination of excessive aggregate holdings and an

order of divestiture. After preliminary hearings, this relief was

denied, and after extensive discovery and further hearings, the

court has now under advisement the prayer of plaintiff CFTC

that defendants be found to have acquired holdings in soybeans

in accord with a plan to circumvent and violate the speculative

limit regulation (3,000,000 bushels), and that defendants be

enjoined from continuing or future violation of said limit, that

they divest themselves of excessive holdings, and disgorge

profits thereby made.

The financial relationships and activities of the defendants

relevant to soybean futures have been extensively spread of

record, and the central dispute in the case is not the facts, but

the inferences to be drawn from them. Plaintiffs point to close

family ties, some common use of brokerage firms, and common

record keeping and financing, as the major indicators of

concerted action to evade individual position limits. Defend-

ants argue that the facts do not justify the inferences of joint

activity which plaintiffs draw therefrom.

Defendants have argued that the CFTC is ignobly

motivated in the filing of this suit, and that the agency has

singled out the Hunts for vindictive action. The court excluded

much proferred evidence on this issue at the trial, and does not

deem it relevant now. Whatever the motives of the CFTC, the

issue is whether in fact the defendants acted in concert to evade

and exceed position limits. Neither is the wisdom of the

26a

3,000,000 bushel limit set by CFTC Reg. Sec. 150.4 before the

court, nor the question of whether the Hunt holdings distorted

the market or made possible a squeeze or manipulation of the

market. Proof of a violation of Regulation 150.4 does not

require prvof of market effect. What is before the court, as has

been phrased and rephrased so many times, is whether the

defendants deliberately acted in concert to evade the individual

Position limits, and if so, what relief at this point in time would

be meaningful.

As is evident from the findings of fact which accompany

this memorandum, the court has reached the conclusion and

made the finding that the named defendants have acted in

concert pursuant to an implied agreement or understanding in

the acquisition of soybean futures in excess of the maximum

Position limits permitted by Section 4(a) of the Commodity

Exchange Act as amended (U.S.C. § 6a) and Regulation 150.4

thereunder (17 C.F.R. § 150.4). Because this was a civil rather

than a criminal case, the standard of proof imposed upon the

plaintiff agency inthe establishment of this conclusion was that

the conclusion stated above is more probably true than not true.

In the case of allegations of concerted action, it is difficult

to determine the fair application of position limits or the

circumstances which constitute their violation. People with the

same investment philosophies will find themselves on the same

side of the market. People who are friends and who discuss -

their investment philosophies with one another may, find them-

selves getting in and out of the market at the same time, as a

result of the application of their common Philosophies to facts

which, by mutuai discussion, they have come to accept as true.

Investors who rely on the advice of the same investment

counsellor may find themselves getting into and out of com-

modity positions at the same time. None of these circumstances

are necessary indicia of action in concert. All of these

circumstances can be compatible with independent action.

27a

But in the instant case, there has been more. There is

evidence establishing that there was little or no exercise of

independent judgment by the female members of the defendant

group, and very little more by Houston Bunker Hunt and

Douglas Herbert Hunt. Unique also to the Hunt situation was

the virtual daily transmission to Nelson Bunker Hunt and

William Herbert Hunt of information on the holdings of all

other members of the family and of each other.

These are among the factors unique to this case which

carry the court beyond the idea of parallel reaction to market

forces without collusion, to the conclusion of concerted action

which has been reached in the instant case.

Much of the activity described in the findings of fact

reflects the normal and understandable desire of a father to

place his children in potentially profitable investment situations,

and to associate them with brokers whose advice he has found

trustworthy. The easy availability of family funds to its various

members may also reflect a commendable spirit of family unity.

It is not necessary to impute sinister motives to Nelson Bunker

Hunt and William Herbert Hunt in the creation of this highly

family oriented situation. It is sufficient to conclude that the

financial arrangements created by the two older Hunts for the

benefit of the next generation of Hunts, created the opportunity

for, and ultimately the fact of, an aggregation of positions in

contravention of the regulation in issue here.

The relief to be framed based upon this conclusion is not

readily apparent. The prayer for relief filed by the government

seeks a declaration of violation of the regulations as stated

above, and a permanent injunction prohibiting further viola-

tions. Since the regulation in question precisely and with clarity

proscribes the conduct which the Hunts have been found to

have engaged in, an injunction of this court could be no better

phrased than to adopt the words of the regulation. It seems

obvious that this is a meaningless exercise of the court’s

injunctive power. Since sanctions are provided by law for

28a

violations of the regulation, the regulation stands as a proscrip-

tion against the forbidden conduct more meaningful than any

court injunction. Plaintiffs have not explained their failure to

seek the imposition of sanctions. For whatever reason, the case

proceeded in the context of a civil action with the lesser burden

of proof thus required to be met. Plaintiffs are not obligated to

explain to the court their choice of remedies or types of actions.

A partial explanation, however, lies in the statement of the

Commission that a declaration of a violation of the regulations

by the Hunts would have a prophylactic effect, and that such an

injunction would have a similar effect.

In any event, there is no basis for a finding that the

violations are likely to continue. To the extent that the

regulation itself has a prophylactic effect and to the further and

greater extent that a declaration by this court of a violation

thereof has an additional prophylactic effect, it is the view of the

court that sufficient prophylaxis has been achieved. In the face

of an existing regulation, with penal sanctions, proscribing the

conduct complained of, no injunction of the court against this

conduct in the future is necessary or desirable, and this prayer

for relief is denied.

The plaintiff Commission further seeks an order of the

court requiring the defendants to immediately liquidate in an

orderly manner all existing positions which exceed the limits

established by Section 4(a) of the Act. Since the proof heard

by the court revolved principally around soybean futures

contracts for May and July beans, it is obviously necessary to

assume that the defendants hold no present position in these

commodities. Whether the defendants are now in violation of

Section 150.4 of the regulations is unknown to the court and

unreached by the evidence which the court has before it for

consideration. It is therefore impossible to enter a meaningful

order requiring the defendants to liquidate their existing posi-

tions in excess of the limits established by the Act, and this

prayer for relief must be denied.

29a

Plaintiffs finally seek an order directing the defendants to

disgorge all profits unlawfully obtained or to be obtained by

reason of their violations of Section 4(a) of the Commodity

Exchange Act. No statutory authority for this dramatic prayer

for relief is cited. Further, the evidence of the shifting positions

of the Hunts in the market, and the complexity of the evidence

relevant to individual responsibility for exceeding position

limits when the family holdings are aggregated, make it

impossible to fashion a formula by which the profits to be

disgorged by the individual defendants could be determined

with any measure of equity.

This case is the first clear cut application of Section 4(a) of

the Act and Section 150.4 of the regulations to family trading

activity. While not relevant to a determination of whether

defendants’ conduct violated the regulation, it is appropriate to

observe that the defendants may have operated in the good

faith belief that their conduct was not illegal. The evidence in

the case neither establishes this thesis nor is it inconsistent with

it. The inconclusive proof in this area does militate against

harsh and punitive results, especially in the face of the Commis-

sion’s election to seek declaratory and equitable relief rather

than the imposition of the criminal sanctions also available.

The prayer for an order of disgorgement of profits, there-

fore, is denied.

This leaves the matter in the incongruous posture that the

court has declared a violation of the regulations by the defend-

ants, but finds inappropriate any of the relief sought by the

Commission. While the relief of an ordered divestiture would

have been appropriate at an earlier date, the court did not

deem the evidence sufficient at that time to order that relief.

This period having passed, and now with all the evidence

before it, the court finds itself unable, in the context of a civil

and equitable case, to fashion appropriate relief. It is obvious

that if the Hunts were in knowing and deliberate violation of

30a

the position limits established by statute and defined by the

regulations, that sanctions could have been sought and im-

posed. The Commission having not attempted this remedy now

must be content with whatever prophylactic effect flows from a

finding of fact by the court that the Hunts were, for a time, in

violation of the regulation.

In summary plaintiff's prayer for a declaration that the

defendants aggregated a position in soybean futures in excess of

the 3,000,000 bushel limit prescribed by regulation is granted.

Plaintiff's prayers for injunctive relief and an order to disgorge

profits are denied.

The aggregate holdings of the defendants in soybean

futures at the date of this order is unknown to the court. If it

exceeds the 3,000,000 bushel limit, as of this date, orderly

divestiture under court supervision to protect the market would

seem to be appropriate. If the defendants’ aggregate holdings

do not exceed 3,000,000 bushels, no further exercise of this

court’s jurisdiction is necessary or desirable, and the order of

this date will close the case.

Defendants Hunts and Hunt Holdings, Inc. responded to

the plaintiff Commodity Futures Trading Commission with a

counterclaim against the Commission and a third-party com-

plaint against William Bagley, Chairman of the CFTC. The

evidence does not support the several counterclaims and third-

party claims asserted by the defendants. Much of the injunctive

relief that they seek has been mooted by the passage of time,

and the damages they pray for as the resuit of the conduct of

the Commodity Futures Trading Commission or its members

3la

are not supported by the evidence. Therefore, the several and

various prayers for relief found in the counterclaim and third-

party claims are denied.

ENTER:

FRANK J. MCGARR

UNITED STATES DISTRICT JUDGE

DATED: September 28, 1977

32a

3n the

Gnited States Court of Appeals

For the Seventh Circuit

Nos. 77-1672, 77-2086, 77-2087

COMMODITY FUTURES TRADING COMMISSION,

Plaintiff-A ppellant,

Cross-Appellee,

NELSON BUNKER HUNT, et al.,

Defendants-A ppellees,

Cross-A ppellants.

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 77-C-1489—Frank J. McGarr, Judge.

ARGUED APRIL 26, 1978—DECIDED JANUARY 8, 1979

Before SWYGERT, Cireuit J’ , MARKEY, }

Judga* abd Town, Ccak falas utd

_ SWYGERT, Circuit Judge. This case presents several

issues arising out of a complaint brought by the

Commodity Futures Exchange Commission, pursuant to

the Commodity Exchange Act, against seven members

of the Hunt family and an lliated company. The

complaint was instituted by the Commission on April 28,

1977 to compel the defendants to comply with limits

* The Honorable Howard T. Markey, Chief Judge of the -

United States Court of Customs and Patent Appeals, sitting

by designation.

33a

2 Nos. 77-1672, 77-2086 & 77-2087

established by the Commission on the speculative

position that any individual or group may have in

sovbean futures contracts. See Commodity Exchange

Act, § 4a(1), 7 U.S.C. § 6a(1) (Supp. 1978); Rule 150.4, 17

C.F.R. § 150.4 (1977).

The Commission’s complaint alleges that from at least

January 17, 1977 and continuing to the commencement

of the court action, two brothers, Nelson Bunker Hunt

and William Herbert Hunt, five of their children, and a

corporation they control, had been exceeding collectively

the limit of three million bushels that had been set for

soybean futures contracts. The complaint sought pre-

liminary and permanent injunctions against future

violations of these limits, the disgorgement of any profits

the Hunts had obtained as a result of their unlawful

conduct, and an order requiring the Hunts to liquidate

all existing positions in soybean futures in excess of the

speculative limits. Contemporaneous with the filing of

the complaint, the Commission, pursuant to section 8a(6)

of the Commodity Exchange Act, 7 U.S.C. § 12a(6)

(1978), publicly disclosed the soybean trading activity

and positions of the Hunts.

During the first week in May 1977 the Hunts filed an

answer to the Commission’s complaint in which they

sought to enjoin the Commission from wigs en any

further disclosures of their soybean positions. The Hunts

also asserted claims for money damages from the

Commission and several of its employees for injuries

incurred as a result of the Commission’s publication of

their trading positions. On May 17, 1977 the Hunts

moved for a preliminary injunction prohibiting any

further disclosure of their soybean trading activity. The

district court, on May 19, 1977, enjoined the Commission

from making public the Hunts’ holdings, purchases,

sales or positions in the futures market. The Commission

appealed this order on May 20, 1977.

On September 28, 1977 the district court, after

hearings on the Commission's motion for a preliminary

injunction, issued a memorandum opinion accompanied

34a

Nos. 77-1672, 77-2086 & 77-2087 3

by findings of fact and law, and enter j

order. Commodity Futures Trading igang Ni gm No

77-C-1489 (N.D. Ill., Sept. 28, 1977). The lower court

concluded that the Hunts, acting in concert, had

acquired soybean futures in excess of the three million

bushel limit prescribed by regulation, thereby violating

Rule 150.4 and section 4a(1) of the Commodity Ex-

change Act. The court, however, denied the Commis-

sions motion for an order enjoining future violations of

the limits and rejected the Commission's request for

Cogcragmntns, (Of ac el taggin a profits. The lower

rt also rejec e counterclaim ird-

claims brought by the Hunts. Sr rit

The Commission appealed from the lower court’

decision, arguing that both the injunction and the

ancillary relief of disgorgement should have been

granted. The Hunts cross-appealed, seeking to overturn

the district court’s declaratory judgment that the Hunts

had violated the speculative limit, and also challenging

the validity of the regulation itself. The Hunts also

challenged the dismissal of their counterclaim and

third-party claims. The Commission’s appeal and the

Hunts’ cross-appeal were consolidated in November 1977

with the Commission’s earlier appeal of the lower court's

Injunction against publication of trading information

regarding the Hunts.

I. Validity of the Speculative Limit

Regulation: Rule 150.4

Section 4a(1) of the Commodity Exchange Act, 7

U.S.C. § 6a(1), authorizes the Commodity ence Trad-

ing Commission to set commodity trading limits.

Congress concluded that excessive speculation in com-

modity contracts for future delivery can cause adverse

fluctuations in the price of a commodity, and authorized

the Commission to restrict the positions held or trading

done by any individual person or by certain groups of

35a

4 Nos. 77-1672, 77-2086 & 77-2087

people acting in concert.! Pursuant to this statutory

authority, the Commodity Exchange Authority, the

predecessor of the Commodity Futures Trading Com-

mission, established trading limits on a variety of

commodities, including soybeans. In 1951 the Authority

set the soybean speculative position limit at one million

bushels, 16 Fed. ae 8107 (Aug. 18, 1951). The

Authority raised the limit to two million bushels in

1953, 18 Fed. Reg. 7230-31 (Nov. 14, 1953), and to three

million bushels in 1971, 36 Fed. Reg. 1263 (June 6,

1971). This three million bushel position limit, Regula-

1 Section 4a(1) of the Commodity Exchange Act, 7 U.S.C.

§ 6a(1), provides in pertinent part:

Excessive speculation in any commodity under contracts

of sale of such commodity for future delivery made on or

subject to the rules of contract markets causing sudden or

unreasonable fluctuations or unwarranted changes in the

oo of such commodity, is an undue and unnecessary

urden on interstate commerce in such commodity. For

the purpose of diminishing, eliminating, or preventing

such burden, the commission shall, from time to time,

after due notice and ey for hearing, by order,

proclaim and fix such limits on the amounts of trading

which may be done or positions which may be held by any

rson under contracts of sale of such commodity for

uture delivery on or subject to the rules of any contract

market as the commission finds are necessary to diminish,

eliminate, or prevent such burden. In determining

whether any person has exceeded such limits, the positions

held and trading done by any persons, directly or

indirectly controlled by such person shall be included with

the positions held and trading done by such person: and

further, such limits upon positions and trading shall apply

to positions held by, and trading done by, two or more

persons acting pursuant to an expressed or implied

agreement or understanding, the same as if the positions

were held by, or the trading were done by, a single

person. Nothing in this section shall be construed to

prohibit the commission from fixing different trading or

position limits for different commodities, markets, futures,

or delivery months.

36a

Nos. 77-1672, 77-2086 & 77-2087 5

tion 150.4, 17 C.F.R. § 150.4 (1977),? was in effect at the

time of the Hunt family soybean transactions.

The Hunts present multiple challenges to the soybean

trading regulation, contending that there were pro-

cedural defects in its adoption and that it is an arbitrary

and capricious exercise of administrative authority. The

essence of the Hunts’ attack on the validity of the

regulation is their substantive contention that there is no

connection between large scale speculation by individual

traders and fluctuations in the soybean trading market.

_ The procedures used in the adoption of the speculative

limits contemplated in the Commodity Exchange Act

§ 4a(1), 7 U.S.C. § 6a(2), must satisfy the rules of the

' 2 Regulation 150.4, 17 C.F.R. § 150.4 (1977), states:

The following limits on the amount of trading under

contracts of sale of soybeans for future delivery on or

subject to the rules of any contract market, which may be

done by ay person, are hereby proclaimed and fixed, to

be in full force and effect on and after June 26, 197i:

(a) Position limit. The limit on the maximum net lon

or net short position which any person may hold or contro

in soybeans on or subject to the rules of any one contract

market is 3,000,000 bushels in any one future or in all

futures combined.

(b) Daily trading limit. The limit on the maximum

amount of soybeans which any person may buy, and on the

maximum amount which any person may sell, on or

subject to the rules of any one contract market during any

one business day is 3,000,000 bushels in any one future or

in all futures combined.

se eeaeee

_ (e) Definition. As used in this part, the word “person”

imports the plural or singular and includes individuals,

associations, partnerships, corporations, and trusts.

(f) Application of limits. The foregoing limits upon

positions and upon daily trading shall be construed * to

apply, respectively, to positions held by, and trading done

by, two or more persons acting pursuant to an expressed

or implied agreement or understanding, the same as if the

positions were held by, or the trading were done by, a

Single individual.

37a

6 Nos. 77-1672, 77-2086 & 77-2087

Administrative Procedure Act regarding informa!

agency rulemaking. 5 U.S.C. § 353. See United States v.

Allegheny-Ludium Steel Corp., 406 U.S. 742 (1972);

United States vu. Florida East Coast RR, 410 U.S. 224

(1973). These rules were followed by the Commodity

Exchange Authority when it raised the soybean trading

limit from two to three million bushels. The Authority

published the proposed changes in the Federal Register,

36 Fed. Reg. 1340 (1971), and there was opportunity for

written comment. In addition the Authority held a

hearing on the proposal. The agency considered the

material presented and ultimately amended Regulation

150.4 by raising the limit.’

The Hunts also claim that Regulation 150.4 is invalid

and unenforceable because it represents an arbitrary

and capricious decision by the Commodity Exchange

Authority. They argue that the Authority failed to

consider relevant factors in its decision to set the

soybean trading limit at three million bushels. The

substance of the Hunts’ argument is that the Authority

made no analysis of the relationship between the size of

sovbean price changes and the size of the change in the

net positions of large traders. They argue that there is

no direct relationship between these phenomena, and,

therefore, the regulation limiting the positions and the

trading of the large soybean traders is unreasonable.

The appropriate standard for reviewing agency

decision-making pursuant to section 553 of the Adminis-

trative Procedure Act is described by the Supreme

Court in Citizens to Preserve Overton Park v. Volpe, 401

U.S. 402 (1971):

Section 706(2XA) requires a finding that the

actual choice made was not “arbitrary, capricious.

an abuse of discretion, or otherwise not in accord-

ance with law.” 5 U.S.C. § 706(2KA) (1964 ed.,

Supp. V). To make this finding the court must

$ The propriety of the procedures emploved by the Com-

modity Exchange Authority in the 1971 amendment to

Regpurston 150.4 was upheld ey in Economou v..Butz,

370 F. Supp. 361 (S.D.N.Y. 1974).

38a

No. 77-1672, 77-2086 & 77-2087 7

consider whether the decision was based on a

consideration of the relevant factors and whether

there has been a clear error of judgment. ...

Although this inquiry into the facts is to be

searching and careful, the ultimate standard of

review is a narrow one. The court is not empowered

to substitute its judgment for that of the agency.

Id. at 416. See also American Meat Inst. v. Environmen-

tal Protection Agency, 526 F.2d 442, 452-53 (7th Cir.

1975). In assessing whether the Commodity Exchange

Authority’s three million bushel limit was an arbitrary

or capricious means to achieve the congressionally ar-

ticulated purpose of preventing excessive speculation, it

must be remembered that the fact that “some other

remedial provision might be preferable is irrelevant.”

. Mourning v. Family Publications Service, Inc., 411 U.S.

356, 371 (1973). In situations in which

reasonable minds may differ as to which of several

remedial measures should be chosen, courts should

defer to the informed experience and judgment of

the agency to whom Congress delegated appropriate

authority. Northwestern Co. v. FPC, 321 is 119,

124 (1944); National Broadcasting Co. v. United

States, 319 U.S. 190, 224 (1943); American

Telephone & Telegraph Co. v. United States, 299

U.S. 232, 236 (1936).

Id. at 371-72.

The Hunts point to a variety of sources to substantiate

their claim that the soybean position and trading limit is

arbitrary and capricious. For the most part they allege

that the Commodity Exchange Authority failed to con-

sider the relevant factors in reaching its determination.

The Hunts cite the Ham Study of 1971, the Ime! Study

of 1978, the testimony of their expert witness, Dr. T. A.

Hieronymus, and even recent statements by a com-

missioner of the Commodities Futures Trading Commis-

sion questioning the three miliion bushel limit. Virtually

all of the evidence the Hunts offered to challenge the

three million bushel limit, however, was not part of

the administrative record which formed the basis for the

Commodity Exchange Authority’s 1971 decision to raise

39a

8 Nos. 77-1672, 77-2086 & 77-2087

the limit to three million. The law is well settled that

the administrative record already in existence—not

some new record made initially in the reviewing court—

should be the focus of judicial review. Camp v. Pitts, 411

U.S. 188, 142 (1973); United States v. Nova Scotia Food

Products Corp., 568 F.2d 240, 250 (2d Cir. 1977). In fact,

most of the evidence cited by the Hunts is found in

reports or testimony developed well after the promulga-

tion of the 1971 trading limit. Last term the Supreme

Court stated:

As we have said in the past: “Administrative con-

sideration of evidence ... always creates a gap

between the time the record is closed and the time

the administrative decision is promulgated [and, we

might add, the time the decision is judicially

reviewed]. ... If upon the coming down of the

order litigation might demand rehearing as a

matter of law because some new circumstances has

arisen, some new trend has been observed, or some

new fact discovered, there would be little hope that

the administrative process could ever be con-

sumated in order that would not be subject to

reopening.” Interstate Commerce Commission v.

Jersey City, 322 U.S. 503, 514-515 (1944). See also

United States v. Interstate Commerce Commission,

396 U.S. 491, 521 (1970).

Vermont Yankee Nuclear Power Corp. v. Natural

Resources Defense Council, Inc., 46 U.S.L.W. 4301, 4310

(1978). In Vermont Yankee the Court remonstrated a

party objecting to an administrative regulation for

cryptically referring to matters that “ought to be” con-

sidered in the administrative proceedings, and then

judicially attacking the agency’s determination for fail-

ing “to consider matters ‘forcefully presented.’” Jd. at

4309-10. And while an administrative agency must con-

sider “the relevant factors” in its decisionmaking,

Citizens to Preserve Overton Park, supra, at 416, we can-

not permit this requirement to become a device by

which parties can thwart enforcement of an established

regulation by offering new evidence challenging the

wisdom of the regulation in the context of the judicial

enforcement proceeding. The reports and testimony

40a

Nos. 77-1672, 77-2086 & 77-2087 9

presented by the Hunts simply provide diff

i regarding the need for the thrue million bushel

pices in the present soybean market. There is no in-

ication that the Commodity Exchange Authority ig-

ee pita set “ “relevant factors” in

i etermination. See Citi

Overton Park, supra, at 411-13. i gris Shai

The Hunts do rely on one re

{ port, the Cal

uy which was prepared by the Comactign te

2 ange Authority to guide its decision regarding soy-

— trading limits and, importantly, was made part of

the administrative record of the agency’s decision to

‘h the limit from two to three million bushels. The

a isolate a sampling of quotations from this report

“ would seem to suggest that the dangers of large

— commodity trading are minimal. The Callander

rat hy at other points, however, does discuss the

adverse effects large scale trading can have on the

eet And the report concludes that the soybean limit

should be raised from two to three million bushels. The

“an in the report minimizing the dangers of

ae scale trading should be viewed in the context in

. ich they were written. The Commodity Exchange

uthority, operating under an express congressional

ie to formulate limits on trading in order to

piles sw the evils of large scale speculation, was

ocsing whether to raise its then existing limit on

se eans. Naturally the language in a report concluding

; at the limit should be raised would not constantly

focus on the dangers of large scale trading; a case had to

made to justify raising the trading limits. Thus, it is

rae unusual] that the administrative record supporting

e June 1971 soybean trading regulation is not con-

ra focused on the relationsh'p tween large scale

trading and adverse pice fluctuations. Neither this fact

ce) the possibility that reasonable men may disagree

about the wisdom of the agency’s conclusion, renders the

regulation arbitrary or capricious. See City of DesPlaines

fh, aoenes Sanitary Dist., 552 F.2d 736, 737 (7th

ir. 1977). There is ample evidence in the administra-

tive record to support the regulation.

4la

10 Nos. 77-1672, 77-2086 & 77-2087

Il. Violation of the Speculative Limits

The district court found that Nelson Bunker Hunt and

William Herbert Hunt, five of their children, and a cor-

poration they control had exceeded the speculative limit

of three million bushels that had been established for

soybean futures contracts by Rule 150.4, promulgated

pursuant to section 4a(1) of the Commodity Exchange

Act. 7 U.S.C. § 6a(1). The Hunts claim that the district

court misinterpreted section 4a(1) in applying it to the

Hunts’ activities, and that there was no factual basis for

a finding that the Hunts had violated the statute and its

corollary regulation.

Section 4a(1) provides for the aggregation of commodi-

ty positions for purposes of determining whether the

speculative limit has been exceeded, when one person

“directly or indirectly” controls the trading of another,

* or when two persons are acting “pursuant to an express

or implied agreement or understanding. . . ”7U.S8.C.

§ 6a(1). Thus, even though two persons acting in concert

might each individually have a commodity position

below the limit, if their combined position exceeds the

limit they have violated the statute. urther, contrary to

the arguments advanced by the Hunts, there is nothing

in either the statutory language or legislative history

which suggests that intent—either to affect market

tte or specific intent to exceed the speculative

imits—is a necessary element of a violation of section

4a(1). In fact, the Senate Report to the 1968

amendments to the statute states that a speculative

futures position excerams the limit can constitute a

statutory violation “regardless of how or when or for

what purpose such position was created.” 1968 U.S. Code

Cong. & Ad. News 1673, 1677. A violation occurs simply

when an individual or several individuals acting in con-

cert exceed the commodity position limits set pursuant

to the statute.

The Hunts contend that the evidence compiled in the

district court is insufficient to prove a violation of

the statute. In assessing the district court’s findings,

we must defer to the reasonable inferences of the

trial court. Fed.R.Civ.P.52a. See SEC v. Parklane

42a

Nos. 77-1672, 77-2086 & 77-2087 1]

Hosiery Co., 558 F.2d 1088, 1086 (2d Ci

Markieweicz v. Greyhound Corp., 358 F.2d 26 ith Cnr}

cert. denied, 385 U.S. 828 (1966). Under this rule, the

tee —— . ver fur nn ee the Hunts violated section

y collectively exceeding th imi

Rule 150.4 must “4 opleld. ssn seen aah

A brief survey of the Hunt family’s complic

bean trading substantiates this Poise tig Bn

Bunker Hunt and William Herbert Hunt were the prin-

cipal family figures in these transactions. They are

brothers, and the chief officers of the Hunt Energy Cor-

poration. In mid-1976 N. B. and W. H. Hunt-entered the

i bean market. By August 1 each brother consistently

eld a long position at the three million bushel limit

usually for the closest delivery month. Through a series

of purchases—the date, timing, and size of which were

virtually identical—each brother, by January 1977, held

a three million bushel position in March 1977 soybeans

Over the next six weeks each of the Hunt brothers

entered into eight transactions—on the same days, using

the same broker, involving virtually identical] quantities

and prices. Throughout this time an employee of the

Hunt Energy Corporation, Charles Mercer, prepared

commodity position statements for the brothers reflect-

— combined holdings and unrealized profits and

On February 25, with both N. B. and W

the personal position limit, N. B. Hunt yt -

purchase, through one of his brokers, of 750,000 bushels

of May soybeans in the name of his son, Houston Hunt.

On March 8 he ordered the purchase of 750,000 May

bushels to be allocated equally among accounts he had

opened on behalf of his three daughters. And, although

ie bank accounts of the various children lacked the

unds to cover these purchases, the transactions were

made yossihis by_a short-term transfer of interest-free

funds from their father’s account. N. B. Hunt's children

did not participate in these initial soybean transactions

made in their names: they had nothing to do with open-

ing the accounts, placing the first order, or arranging

financing for their purchases. And once these family

43a

12 Nos. 77-1672, 77-2086 & 77-2087

members had entered the soybean market, their transac-

i were added to the composite report sent to N. B.

unt.

A similar relationship existed between W. H. Hunt

and his son, Douglas. On March 1 W. H. Hunt and his

wife transferred their interests in Hunt Holdings, Inc. to

their three sons. Less than a week later Dougias Hunt

angemeer and through Hunt Holdings, whose trading

e controlled, began purchasing July soybeans. These

pereaase were financed in part by money advanced by

is father.

The overall involvement of the Hunt family in the soy-

bean market also was increased by the spread trading—

purchasing old crop contracts and es contracts in

new crop markets—of N. B. and W. H. Hunt. Some of

N.-B.-Hunt’s purchases in this period were financed by

temporary advances from his brother. As of April 14,

1977 the Hunt family’s collective position involved over

twenty-three million bushels of old crop soybeans: over

10.8 million in May futures, 7.7 million in July futures,

and 5.2 million in August futures. These collective

figures, of course, put the Hunt family well over the

speculative limits in soybeans set by Rule 150.4. And the

evidence presented in the district court clearly indicates

that the indiyigae. Pop ons of the family members

should be aggregated. Thus, the Hunt family soybean

transactions constituted a violation of section 4a(1) of the

Commodity Exchange Act, 7 U.S.C. § 6a(1).

III. caner Court's Refusal to Grant Injunction Against

u i

Pursuant to section 6c of the Commodit} e

Act, 7 U.S.C. § 13a-1, the Commodity Futures Tradin

Commission is authorized to institute an action seeking

injunctive relief whenever it appears that any person

“has engaged, is engaging, or is about to engage in any

act or practice constituting a violation of any provision

of this Act or any rule, regulation, or order thereunder.”

Section 6c further provides that upon a proper showing,

a permanent or temporary injunction or restraining

order shall be granted by the district court without

Nos. 77-1672, 77-2086 & 77-2087 13

bond. The discretion afforded the district court in

deciding whether to issue such relief, while broad, see

United States v. W. T. Grant, 345 U.S. 629, 633-34

(1953), is not completely unfettered. This court has noted

that when Congress has integrated traditional modes of

equitable relief into a statutory enforcement scheme, the

court's equitable power should be exercised in harmony

with the overall objectives of the legislation. SEC t.

Advance Growth Capital Corp., 470 F.2d 40, 53 (7th Cir.

1972). In that case we cautioned that

. . While trial courts should properly be accorded

wide latitude in fashioning equitable remedies in

cases of this type, it is the inescapable function of

the appellate court to make sure that the fashioned

remedy meets that criterion in accordance with the

regulatory scheme and adequately serves the partic-

ularized needs of the case before the court.

Although injunctive relief is never automatic upon

the showing of a violation of the Act or regulations

(see Hecht Co. v. Bowles, supra), we should not

hesitate to reverse an order denying such relief

when it is evident that the trial court's discretion

has not been exercised to effectuate the manifest ob-

jectives of the specific legislation involved.

Actions for statutory injunctions need not meet the re-

quirements for an injunction imposed by traditional

equity jurisprudence. Once a violation is demonstrated,

the moving pe need show only that there is some

reasonable likelihood of future violations. SEC v. Ad-

vance Growth Capital Corp., supra, at 54; Commodity

Futures Trading Comm. v. British American Commodity

Options Corp., 560 F.2d 135, 142 (2d Cir. 1977); SEC v.

Management Dynamics, Inc., 515 F.2d 801, 807 (2d Cir.

1975). Whilepast misconduct does not lead necessarily

to the conclusion that-there is a likelihood of future mis-

conduct, it is highly py oyna of the likelihood of

future violations.” SEC v. Management Dynamics, Inc.,

supra, at 807. See also Commodity Futures Trading

Comm. v. British American Commodity Options Corp.

supra, at 142;-SEC v. Advance Growth Capital Corn.

supra, at 53. In drawing the inference from past

violations that future violations may occur, the court

45a

14 Nos. 77-1672, 77-2086 & 77-2087

should look at the “totality of circumstances, and factors

sugpesting that the infraction mig not have been an

isolated occurrence are always relevant.” SEC v. Man-

agement Dynamics, Inc., supra, at 807; SEC v.

Bausch & Lomb, Inc., 565 F.2d 8 (2d Cir. 1977).

Other circuit decisions analyzing the problem whether

or not to grant statutory injunctive relief after a violation

has been proven have looked to a variety of factors to

determine whether there is a reasonable likelihood of

future misconduct. The fact that a violator has con-

tinued to maintain that his conduct was blameless has

prompted several courts to look favorably on injunctive

relief. See SEC v. Shapiro, 494 F.2d 1301, 1308 (2d Cir.

1974); SEC v. Manor Nursing Centers, Inc., 458 F.2d

1082, 1101 (2d Cir. 1972). Similarly, when a defendant

ace ee in its illegal activities “right up to the Lvs of

earing in the district court ... the likelihood of

futures violations, if not restrained, is clear.” Commodity

Futures Trading Comm. v. British American Commodity

Options Corp., supra, at 142 (citations omitted). More

importantly, courts have analyzed the nature of the past

misconduct and the violator’s occupation or customary

business activities to determine whether an injunction

should be granted. When the violation has been founded

on systematic wrongdoing, rather than an isolated oc-

currence, a court should be more willing to enjoin future

misconduct. SEC v. Manor Nursing Centers, Jnc., supra,

at 1100. And when a defendant, because of his

professional wise or career interest, will be in a

position in which future violations could be possible,

relief is appropriate. SEC v. Commonwealth Chemical

Securities, Inc., No. 76-6175 (2d Cir., March 3, 1978).

In light of these standards, we conclude that the dis-

trict court was incorrect in denying the injunctive relief

sought by the Commission. It would be anomalous to

conclude, as did the district court, that the carefully

organized, large scale, and long term soybean trading

activities of the Hunts constituted a violation of Section

4a(1) of the Commodity Exchange Act, but that relief

under section 6c of the Act was inappropriate. Their

misconduct was systematic and carefully preconceived.

46a

Nos. 77-1672, 77-2086 & 77-2087 15

Their soybean positions which were challenged by the

mmission were maintained throughout the enforce-

ment proceedings until the futures contracts came to

their natural conclusion. Further, the Hunts consistently

maintained that their conduct was blameless. And finai-

ly, the prominent place of the Hunt family in the com-

modity markets generally, suggests that it is not unlike-

ly that they will be regular participants in the soybean

markets in the future.‘ Thus, they will be in a position

in which they are capable of committing future

violations. Given the presence of all these factors, injunc-

tive relief should have been granted.

IV. Lower Court’s Denial of Commission's Request for

Disgorgement

The original complaint of the Commission sought, in

addition to injunctive relief, an order compelling the

Hunts to disgorge all profits they obtained as a result of

their illegal activities. Although no hearing on the

merits of the propriety of this relief was held in the trial

court, the request for an order of disgorgement was

denied. The lower court’s rejection of the Commission’s

prayer for disgorgement was precipitous, and we re-

‘ Virtually all of the planning and decisionmakin regardin

the Hunts’ trading activities was done by the brothers, W. H

and N. B. Hunt. And, prior to the transactions in question

here, they were the only defendants significantly active in the

commodities markets. In fact, N. B. Hunt’s children had no

knowledge or experience regarding commodity trading. It

could be argued that an injunction is appropriate against only

W. H. and N. B. Hunt and Hunt Holdings, Inc. However, the

record in this case clearly indicates that. the ounger

generation of the Hunt defendants possess the financial

wherewithal to be substantia! participants in the soybean

market. It is not unlikely that they, either personally or with

the advice of the Hunt family financial counselors, will be in a

position to violate the regulation in the future. This fact,

coupled with their complicity in the systematic wrongdoing

which constituted the statutory violation in the instant case.

warrants the imposition of injunctive relief.

47a

16 Nos. 77-1672, 77-2086 & 77-2087

mand the issue to the district court for reconsideration

in light of the following observations.°

. issenting opinion argues, inter alia, that because the

Comimiaston never v*lackled opp rtunity pore for the

t rem it specifically fia'e 5

Sonnet a the hearin held in the district court, the

disgorgement issue should not be remanded for more

complete consideration. Jnfra p. 40. The dissent fails to note,

however, that the proceedings before the trial judge were on -

renewed motion for a preliminary injunction, not p ripanen

relief. These hearings focused only on the validity of the

regulation, its application to gh ge De rah ly oe gh ee

n_ injunction inst the

future hadion’ neither plaintiff nor defendants sccreaeey me

cisgorgement question in their trial motions or in oo post .

tria Memoranda and proposed conclusions of law. Pla'nti -

failure to raise the disgorgement issue in these hearin . ape

be viewed against the background of the mutual $ ort

plaintiff, defendants, and the court to expedite reso tan oO

the motion for preliminary relief. See, e.g., mpage ey r

Ryan, counsel for defendants, Transcript. July 5, pod 1, B 9

reprinted in Supplementary Apes Hunt es y

Futures Trading Commission, No. 78-1055, p. 42sa.

issent also refers to a statement. made by the

Ophaanionion "in the administrative proceeding which em-

phasizes the completeness of the district court hearings. Jnfra,

p. 39. This statement, however, presumably was made in ,

context of the Commission’s oy to use the doctrine o

collateral estoppel to establish only that the Hunts violated the

commodity trading statute. Given that the Commission was

seeking different relief in the administrative proceeding than

it had in the district court, it is improbable that it would have

made an argument based on principles of prior adjudication

with respect to what forms of relief were appropriate. The

Commission, moreover, “having recognized that the Cesena

court’s findings had been made only for Purposes , is

reliminary relief,” Brief of Appellee, Hunt v. Com ;

Futures Trading ‘Commission, No. 78-1055, P10 n.. 14

amended its motion for summary disposition of the adminis-

trative complaint (presumabl e source for the quotation

the dissent) and ars ped its collateral estoppel

contention, on shy hort Pay 1978. iy es a

i und, it was not inappropri:

Comptiica is pentvhns presentation of its evidence =

arguments in support of its de te for disgorgement unti

after the resolution of the motion for preliminary rellet, nee

importantly, the Commission should not be preclud _

offering these arguments to the district court on remand.

48a

Nos. 77-1672, 77-2086 & 77-2087 17

Disgorgement of illegally obtained profits has been

ordered in a number of Securities Exchange Com-

mission judicia] enforcement proceedings. See, e.g., SEC

v. Commonwealth Chemical Securities, Inc., No. 76-6175

(2d Cir., March 3, 1978); SEC v. Shapiro, 494 F.2d 1301

(2d Cir. 1974); SEC v. Texas Gulf Sulphur Co., 446 F.2d

1301 (2d Cir.), cert. denied, 404 U.S. 1005 (1971). In

these cases, disgorgement was ordered despite the fact

that there was no specific, express authority for this.

remedy in the Securities Exchange Act. Further, the

Second Circuit in these cases explicitly rejected the ob-

jection that disgorgement is a penalizing rather than a

remedial, equitable device, correctly reasoning that dis-

gorgement does not penalize, but merely. deprives

wrongdoers of ill-gotten gains. See, * SEC v. Texas

Sulphur Co., supra, at 1308; SEC v. Shapiro,

supra, at 1309.

The question whether disgorgement is an a propriate

form of ancillary relief in the mmodity Exchange Act

context, as in the Securities Exchange Act setting, is,

however, a closer one. Both sections 21(e) and 27 of the

Securities Exchange Act discuss remedies for the en-

forcement of the norms of the Act. Section 21(e) on!

authorizes the Securities Exchange Commission to see

injunctive relief. Section 27, however, grants the district

court general equitable powers to enforce the Act. The

leading case authorizing the disgorgement remedy

rested its conclusion, in part, on the general remedial

powers possessed by the district court pursuant to sec-

tion 27. SEC v. Texas Gulf Sulphur Co., supra, at 1307.

Section 21(e) was relevant to that court's reasoning only

insofar as the court rejected the objection that section

21(e) limits the type of remedy the Securities Exchange

mmission can pursue to injunctions.

_ Section 6c of the Commodity Exchange Act tracks the

injunction language of section 21(e), but adds the

broadening language that the Commodity Futures

Trading Commission may bring an action in the district

court “to enforce compliance with this chapter, or any

rule, regulation or order. thereunder ....” 7 U.S.C.

§ 13a-1. There is, however, no provision in the Com-

49a

18 Nos. 77-1672, 77-2086 & 77-2087

ity Exchange Act comparable to the express grant

of eauitable authority found in section 27 of the

Securities Exchange Act. Thus, the principal statutory

authority the Second Circuit has relied on in approving

disgorgement in the Securities Exchange Act context is

absent from the Commodity Exchange Act.

In the Texas Gulf Sulphur decision, however, the

court referred to cases in other contexts in which the

Supreme Court has upheld

the power of the Government without specific

statutory authority to seek restitution, and has up-

held the lower courts in granting restitution, as an

ancillary remedy in the exercise of the courts

general equity powers to afford complete relief.

Mitchell v. Robert DeMario Jewelry, 361 U.S. 288,

80 S.Ct. 332, 4 L.Ed.2d 323 (1960); United States

v. Moore, 340 U.S. 616, 71 S.Ct. 524, 95 L.Ed. 582

(1951); Porter v. Warner Holding Co., 328 U.S. 395,

66 S.Ct. 1086, 90 L.Ed.2d (1946).

Id.

And in these cases, there is no explicit statutory expres-

sion, like section 27, of the court’s equitable enforcement

powers; the authority to grant disgorgement is found in

the traditional equity powers of a court. See Renegotia-

tion Bd. v. Bannercraft Clothing Co., 415 U.S. 1, 19

(1974).

orter v. Warner Holding Co., 328 U.S. 395 (1946),

Pi Rabies. le, the Supreme Court dealt with an action

brought by the Price Administrator pursuant to the

Emergency Price Control Act to enjoin the collection of

excessive rents and to compel reimbursement of money

collected by landlords as a result of past violations.

Assessing language describing the authority of the dis-

trict court which parallels the language of section 6c of

the Commodity Exchange Act,® the Court stated:

6 The relevant statutory provision, section 205(a) of the

Emergency Price Control Act of 1942, states:

Thenever in the judgment of the Administrator any

Neca has en or is about to engage in any acts or

practices which constitute or will constitute a violation of

any provision of section 4 of this Act, he may make

(Footnote continued on following page)

50a

Nos. 77-1672, 77-2086 & 77-2087 19

.. . the Administrator invoked the jurisdiction of

the District Court to enjoin acts and practices made

illegal by the Act and to enforce compliance with

the Act. Such a jurisdiction is an equitable one. Un-

less otherwise provided by statute, all the inherent

equitable powers of the District Court are available

for the proper and complete exercise of that

jurisdiction. And since the public interest is in-

vuived in a proceeding of this nature, those

equitable powers assume an even broader and more

flexible character than when only a private con-

troversy is at stake. . . . [TJhe court may go

beyond the matters immediately underlying its

equitable jurisdiction . . . and give whatever other

relief may be necessary under the circumstances.

**+* *

Moreover, the comprehensiveness of this equitable

jurisdiction is not to be denied or limi in the

absence of a clear and valid legislative command.

Unless a statute in so many words, or by a

necessary and inescapable inference, restricts the

court's jurisdiction in equity, the full scope of that

jurisdiction is to be recognized and applied.

Id. at 398. See also Mitchell v. DeMario Jewelry, Inc., 361

U.S. 288 (1960). In Porter, the Court reasoned that an

order for restitution could be justified either as an ad-

junct to an injunction decree or as “an order ap-

propriate and necessary to enforce compliance with the

Act.” 328 U.S. at 399-400.

The Commodity Exchange Act contains no provision

similar to section 27 of the Securities Exchange Act, but

neither does it have any provision restricting the

equitable power of the district court. Porter and Mitchell

& continued

application to the appropriate court for an order en joining

such acts or practices, or for an order enforcing

compliance with such provision, and upon a showing by

the Administrator that such person has engaged or is

about to engage in any such acts or practices a permanent

or temporary injunction, restraining order, or other order

shall be granted without bond. 56 Stat. 23, 33.

S5la

20 Nos. 77-1672, 77-2086 & 77-2087

indicate that the latter fact is a sufficient basis for con-

cluding that a district court possesses the authority to

order restitution pursuant to the Commodity Exchange

Act. Further, as the Second Circuit noted in the

Securities Exchange Act context, to allow a violator to

retain the profits from his violations would frustrate the

pur of the regulatory scheme. See SEC v. Texas

Gulf Sulphur Co., supra, at 1308; SEC v. Manor Nurs-

ing Centers, Inc., supra, at 1104. Thus we conclude that

a district court may compel a violator of regulations

romulgated under the pa. limit provisions of the

mmodity Exchange Act to disgorge his illegally ob-

tained profits.

This conclusion, however, does not complete our in-

quiry. Both the district court’s memorandum opinion

and the Hunts’ briefs refer to the complex evidentiary

problems involved in the attempt to isolate the profits

achieved by the Hunt family members on the basis of

their soybean trading in excess of the speculative limits.

Further, even if it can be determined with some preci-

sion what amounts should be disgorged, the Commodity

Futures Trading Commission has made no oh

about what a court would do with the disgorged funds.

This is a particularly vexing problem given the difficul-

ty of determining injured parties in a large, compiex

system of exchange like the soybean market. Therefore,

we remand this issue to the district court to give the

Commission the opportunity to present arguments and

evidence regarding the feasibility of this form of remedy

in the instant case.

V. Lower Court’s Authority to Enjoin Publication of

Hunts’ Trading Positions

On May 19, 1977 the district court entered an order

reliminarily enjoining the Commodity Futures Tradin

Eovaetioniem, in the absence of prior court approval,

from making public the holdings, purchases, positions, or

sales of the Runes in the commodity futures market. The

district court vacated this order on September 22, 1977.

The Commodity Futures roe Commission appealed

the imposition of this order. We find that in light of the

$2a

Nos. 77-1672, 77-2086 & 77-2087 21

district court’s removal of the injunction against ici-

ty, the issue is moot. J g publici

Under Article III of the Constitution, the exercise of

federa] ee power depends on the existence of a

usticiable case or controversy; federal courts do not

ave jurisdiction to review moot cases. Liner v. Jafco,

Inc., 375 U.S. 301, 806 n. 3 (1964). In the instant case,

the alleged injury suffered by the Commission because

of the imposition of the injunction is no longer extant;

the district court’s order has expired. Further, this is

not a case in which, because the issue is “capable of

repetition, yet evading review,” we should hold that the

issue is not moot. See Southern Pacific Terminal Co. v.

ICC, 219 U.S. 498, 515 (1911); Nebraska Press Ass'n v.

Stuart, 427 U.S. 589 (1976). Unlike the res nding par-

ties in these cases, see also, e.g., Nader v. Volpe, 475 F.2d

916 (D.C.Cir. 1973), the Hunts, especially given the impo-

sition of an injunction supervising their trading, are un-

likely to be involved in future litigation in which they

seek to enjoin the Commission publicity about their com-

modity trading. They do not have any significant in-

terest in the question whether, in the future, a district

court can impose a_ publicity injunction upon the

Commodity Futures Trading Commission; thus, they

lack the personal interest which stimulates adverseness.

See generally O'Shea v. Littleton, 414 U.S. 488, 493-94

(1974). There is little likelihood that the Hunts will seek

an injunction like this one in the future. Without such a.

likelihood of recurrence, the Southern Pacific Terminal

A — = apply ag? we yg teat must be con-

moot. See v. Medical Committee for H'

Rights, 404 U.S. 403 (1972). pa coecamy

VI. Dismissal of Counterclaims and Third-Party

Claims

‘The Hunts have cross-appealed from that portion of the

district court’s order which denied their counterclaims

against the Commodity Futures Trading Commission

and their third-party claims against Commissioner

Bagley and unknown employees of the Commission for

53a

22 Nos. 77-1672, 77-2086 & 77-2087

damages. These claims were based on the Commission’s

allegedly wrongful disclosure of the Hunt’s soybean

trading positions. The Commission published this infor-

mation pursuant to section 8a(6) of the Commodity

Exchange Act, 7 U.S.C. § 12a(6) (1976) which authorizes

the Commission to publish “the full facts concerning any

transaction or market operation, including the names of

parties thereto, which in the judgment of the Commis-

sion disrupts or tends to disrupt any market or is

otherwise harmful or against the best interests of

producers and consumers.” Jd. We sustain the result

reached in the lower court.

Without explicit authority, or unless the agency is the

offspring of a suable entity, an agency of the federa!

vernment cannot be sued eo nomine for damages.

lackman v. Guerre, 342 U.S. 512 (1952). See also Bell v.

Groark, 371 F.2d 202 (7th Cir. 1966). Congress did not

write such authority into the Commodity Exchange Act.

Thus, the Hunts’ counterclaim against the Commodity

Futures Trading Commission as an entity cannot be

maintained.

The Hunts’ third-party claims against Bagley and the

unnamed employees of the Commission also fail. First,

these parties were impleaded improperly by the Hunts.

Fed.R.Civ.P. 14(a) authorizes the impleader of a person

only when that person “is or may be liable to [the

defendant] for all or part of the plaintiff's claim against

him.” Clearly the Commission employees who are the

subject of the Hunts’ third-party complaint are not liable

for the Hunts’ violation of the soybean trading limits.

And this was the only claim brought by the plaintiff-

Commission against the Hunts. Thus, Bagley and the

unknown employees of the Commission cannot be

oo before the court pursuant to Fed.R.Civ.P.

a).

More fundamentally, the Commission actions which

are the substance of the Hunts’ claims—publishing the

Hunt family’s positions in the soybean futures market—

were clearly within the scope of the official duties of

Commissioner Bagley and the other Commission em-

employees. See Commodity Exchange Act § 8a(6), 7

54a

Nos. 77-1672, 77-2086 & 77-2087 23

U.S.C. § 12a(6) (1976). Thus, the third-party defend

enjoy immunity from the Hunts’ rear salons ae

Economou, 46 U.S.L.W. 4952 (1978); Barr v. Mateo, 360

U.S. 564 (1959); Expeditions Unlimited Aquatic Enter-

prises, Inc. v. Smithsonian Inst., 566 F.2d 289 (D.C.Cir.

1977) (en banc).

Accordingly, we remand this case for further

ceedings not inconsistent with this opinion. as

55a

24 Nos. 77-1672, 77-2086 & 77-2087

MARKEY, Chief Judge, concurring and dissenting.

I concur in upholding Regulation 150.4, in affirming

the declaratory judgment of a violation,’ in holding moot

the injunction-against-publication issue, and in affirm-

a dismissal of the counterclaim and third-party

claims.

I dissent, most respectfully, from reversal] of the in-

junction denial, because it unjustifiably diminishes, if it

does. not disregard, the deference due the district judge's

discretion.

1 The “violation” is technical. The Commission conceded that

defendants’ penne had no effect on, and represented no

threat to, the market. The evidence from which an “implied

agreement or understanding” could be inferred is feeble. No

intent to manipulate, or to aggregate, no “sinister” intent of

any kind, was charged or shown. Defendants point to evidence

of independent trading and the absence of an overal] pattern.

The district court, however, declared a violation on the basis

of some instances reflecting non-exercise of independent judg-

ment and the use of centralized reports. The question is not

without doubt, but I cannot say that the district court’s

declaration was clearly erroneous.

I would add a dissent to the i ogee discussion of what

constitutes a violation. Even if, as the majority impermissibly

does, one substitutes “acting in concert” for hn pursuant

to an * * * implied agreement or understanding,” the need for

inferring some scienter remains. Persons cannot act “in con-

cert” without knowing it. To say that “nothing” in the act re-

quires intent is to ignore the statute’s own words “agreement

or rrp airy my =, Even if the majority’s phrase be sub-

stituted, it is difficult to see how persons may be held to have

acted “in concert” with no evidence of any intent to act in con-

cert. Both the district court and the majority here, I respect-

fully submit, skate dangerously close to the thin ice, whereat a

post-hoc aggregation equals violation. Absent some

understanding” the itions of any two or more traders

could be “aggrega and a “violation” be thereby found.

Though the evidence here might well support a finding of no

“agreement or understanding’ of any kind, we do not sit de

novo, and I agree with the majority in its deference to in-

ferences drawn by the trial court. Fed. R. Civ. P. 52(a).

56a

Nos. 77-1672, 77-2086 & 77-2087 25

I dissent, with equal respect, from remand of the dis-

orgement issue, because it wastefully compels a busy

istrict judge to attempt the impossible.”

I. Refusal to Grant Injunction

; I would affirm the district court’s refusal of an injunc-

ion.

The statute requires that the Commission make “a

proper showing,” and that showing must include “some

reasonable likelihood of future violations.”

The district court, who heard and observed the

witnesses, who entered a carefully considered and

reasoned Memorandum Opinion, and who supplied

_ voluminous Findings and Conclusions, stated: “A ‘pro-

r showing’ for preliminary injunctive relief under

tion 6c of the Act requires the Commission to es-

tablish a prima facie case that there is a likelihood of

future violations. [emphasis the court’s] No such showing

has been made.” (emphasis added)

To order that a district court enjoin a party, when the

other party has not made to that equtt aves a prima

facie showing of future violations, is to render merely

platitudinous the majority’s references to the district

court’s broad “discretion,” and the concept that “injunc-

tive relief is never automatic.”

The district court also found “no basis for a finding

that the violations are likely to continue.” Nowhere does

the record reflect a basis for our declaring that finding

clearly erroneous.

_ Importantly, the denial we here review is the second

in this case. On May 6, 1977 the district court denied a

preliminary injunction because the Commission had

? The Commission briefs on appeal made no ar i

n appeal m gument in

support of its request below jor liquidation of excess holdings,

perhaps because, as the district court stated in its Memoran-

dum Opinion and Order of October 11, 1977, the aggregate

sac oe vr defendants “do not exceec the three million

57a

26 Nos. 77-1672, 77-2086 & 77-2087

failed to make a “proper showing” therefor, even if

defendants’ positions were aggregated, (v.e., if there were

a violation). The Commission appealed and this court,

after briefs and argument, affirmed the refusal] to grant

the injunction, in an unpublished order of May 12, 1977.

Nothing in the subsequent record adds any fact in-

dicating a likelihood of future violation, or removes that

affirmance from its standing as the law of the case. |

In all events, this court should not reverse itself

without at least some effort to distinguish its contradic-

tory positions on the same facts.

The majority opinion lists various generalized bases on

which an injunction can be rested, nowhere indicating,

however, wherein the district judge abused his liscre-

tion in this case. Whatever may have been the

relationship of the views expressed in the majority’s

cited cases to the facts in those cases (discussed below),

no adequate foundation for application of those views

appears in the record of this case.

If past misconduct be so suggestive of future violations

as to require reversal, whence a reference to any

“discretion” of a district judge? If past misconduct does

not “necessarily” lead to a conclusion that future

violations are + hy how can an appellate court rely on

se reverse this district judge's determination that it

id not?

I find unhelpful a reference to “factors suggesting that

the infraction might not have been an isolated oc-

currence,” and “systematic wrongdoing,” when no such

“factors” are present or cited here. That reference is

particularly inapt in this case, which the district court

described as involving “the first clear cut application” of

Rule 150.4 to family trading activity.®

8 In Kent v. Hardin, 425 F.2d 1936 (5th Cir. 1970), there was

control by the father-in-law, and a letter expressing agree-

ment to trade identically. Neither control nor express agree-

ment is even alleged here, and neither was shown or in-

ferrable.

(Footnote continued on following page)

58a

Nos. 77-1672, 77-2086 & 77-2087 27

That a defendant maintains his innocence, and refuses

to cease blameless-in-his-eyes activities until a court

declares him wrong, can hardly warrant an appellate

court in substituting its judgment for every exercise of a

district judge's discretion to deny an injunction, and in

thus destroying all vestige of discretion and all right to

an honest belief in one’s own innocence sufficient to

warrant a fight.

The facts must control. An honest belief in one’s own

innocence is one en A knowingly false claim of in-

nocence is quite another. In this “first clear cut” case,

defendants submitted extensive evidence ‘yaten

differences in trading patterns and lack of centralize

trading control. All trades were fully reported on time

to the Commission. Intent to aggregate or to manipulate

was not shown and was not charged. Nothing whatever

of record would etn a conclusion that defendants’

assertion of innocence here was disingenuous, and the

majority cites no basis for any such conclusion.

Similarly, it’will not do to found a reversal her

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.