Petition — HEINOLD COMMODITIES, INC. v. NEIL LEIST (Nos. 80-936, 80-203, 80-757, 80-895)
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80-936
DEC d 1980
No.
In THI .
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1980
HEINOLD COMMODITIES, iNC., THOMSON & MCKINNON AUL-
CHINCLOSS KOHLMEYER INC.,
Petitioners,
v.
NEIL LEIST, PHILIP SMITH AND INCOMCO,
Respondents
HEINOLD COMMODITIES, INC., THOMSON & MCKINNON AUL-
CHINCLOSS KOHLMEYER INC..,
Petitioners,
»
NATIONAL SUPER SPUDS, INC., et ai.,
Respondents.
JOINT PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Of Counsel: LAWRENCE H. HUNT JR.
STUART S. BALL One First National Plaza
MICHAEL W. Davis Chicago, Illinois 60603
JOSEPH H. HARRISON, JR. (312) 329-5400
SIDLEY & AUSTIN Counsel for Petitioners
One First National Plaza
Chicago, Illinois 60603
Counsel for Petitioner Heinold Commodities, Inc.
DoNALD G. MCCABE
EDWARD J. BOYLE
BARBARA A. MENTZ
HaALt, MCNICOL, HAMILTON, CLARK & MURRAY
330 Madison Avenue
New York, New York 10017
Counsel for Petitioner Thomson & McKinnon
Auchincloss Kohlmeyer Inc.
QUESTION PRESENTED FOR REVIEW
Did Congress create an implied cause of action for damages
against commodity brokers under the following provisions of the
Commodity Exchange Act:
(i) section 4a which authorizes the Commodity Futures
Trading Commission, formerly the Commodity Exchange
Commission, to set speculative trading and position limits for
specific commodity futures contracts and which makes it un-
lawful to exceed those limits;
(ii) section 4b which makes it unlawful for a member of a
commodity exchange “to cheat or defraud” his customers;
and
(iii) section 9(b) which makes it a felony for any person “to
manipulate... the price of any commodity in interstate com-
merce, or for future delivery on or subject to the rules of any
contract market, or to corner . . . any such commodity. . .”
despite expressly providing many judicial and administrative
means of enforcing these provisions including criminal penalties,
civil fines and an administrative remedy for plaintiffs’ claims.
Similar issues are the subject of the pending petition in Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Curran, (U.S. Aug. 9,
1980) (No. 80-203). In addition, the question whether Section
5(d), 5a(8) or 9(b) of the CEA provides an implied cause of ac-
tion for damages against a commodity exchange and its officials 1
the subject of the pending petition of the New York Mercantile
Exchange (“‘Exchange”’) in one of these cases.
The present cases and the Curran case together provide the op:
portunity for review of the implied cause of action
most of the key provisions of the CEA. See Brief An
with Respect to Petition for a Writ of Certiorari file
change in Curran.*
PARTIES BELOW
The parties to the three consolidated appeals belo
No. 79-7402
Appellants: Neil Leist, Philip Smith and Incon
Appellees: Heinold Commodities, Inc. (“Heino
son & McKinnon Auchincloss Kohlmeyer Ir
son’’), Clayton Brokerage Co. of St. Louis, Exc!
ard B. Levine, Howard Gabler, and Alfred Pen
No. 79-7464
Appellant: Incomco,
Appellee: Exchange.
No. 79-7482
Appellants; National Super Spuds, Inc., Willia
Jr., Willard C, Shiner, Eugene P. Weisman, Ri
Raymond Rothberg, Arthur S. Armstrong, TI
nek, Capgain Holdings, Inc., and Heiz Rommiu
Appellees: Heinold and Thomson.
Heinold and Thomson seek review of the judg
79-7402 and No. 79-7482. Heinold and Thom:
parties to the appeal in No. 79-7464.
*The following abbreviations are sometimes used in
“CEA” for the Commodity Exchange Act, as amended (|
seq.); “CFTC” for Commodity Futures Trading Commis
for futures commission merchant. In addition, the page n
majority and dissenting opinions which are cited in this Pi
page numbers appearing in the opinions as issued by
Appeals. These opinions are contained in the Appendix (
ill
TABLE OF CONTENTS
TABLE OF AUTHORITIES ....ceececeeeeeeenes
OPINIONS BELOW ..cccccccsccccccscccccccces
JURISDICTION .wcccccccccccscccccversccccese
CONSTITUTIONAL AND STATUTORY PRO\
SIONS INVOLVED. .cccccccccccccvccccces
STATEMENT OF THE CASE ..ccsciccccccccees
REASONS WHY THE WRIT SHOULD BE A
LOWED cccccccccccedeccccedsesseveccesese
A, Since Congress Did Not Provide Any Priv:
Right Of Action Under Any Of The Provisions
The CEA, The Holding That Such Rights Can
Implied Under Sections 4a, 4b And 9(b) Of TI
Act Raises Important Questions Of Const
tional Law In Light Of The Vesting Of Legislat
Powers Exclusively In The Congress ........
B. The Majority Erred In Assuming That The Is:
Was Whether “A Private Cause Of Actic
Exists Under The CEA Geuerally, Rather Th
Whether An Implied Cause Of Action |
Damages Exists Under Section 4a, 4b Or 9
Each Separately Considered. ........ee00s
C, Because The Text And Legislative History
Sections 4a, 4b And 9(b) Provide No Evide:
That Congress Intended To Create A Cause
Action For Damages For Violation Of Th
Provisions, The Majority Opinion Cannot
Reconciled With Recent Decisions Of T
COUrt a occccccceseeccesecosececsccccss
D, The Majority Erred In Failing To Give Pro
Weight To The Fact That Sections 4a, 4b /
9(b) Are Criminal Provisions Which Are Enfo1
able Both By Fines And Imprisonment And Ot
Judicial And Administrative Means .......
1. Because Sections 4a, 4b and 9(b) a
provisions, no private cause of
damages should be inferred whi
there is no clear evidence that C
tended to create such a remedy..
2. The presumption against implic
private cause of action for dama;
provision imposing criminal penal
made conclusive by the plethor:
judicial and administrative remedi
LY PFOVIGET wccccccccccccccess
3. The fact that Sections 4a, 4b and 9
no language creating a civil right |
reason why no right of action sh
SORTER ccccsrcccccscccccoecnes
4. The multiple remedies for violatic
tions 4a, 4b and 9(b) make impli
private cause of action for damage
sary to achieve Congress’ purpose:
The Majority Erred In Assuming, Ci
Fact, That The 1974 Congress “Re-en
Relevant Provisions Of The CEA, And
ing Incorporated A “Preceding Judici:
tation’ Upholding Implied Causes Of
Even If The 1974 Amendments Con
“Re-enactment” Of The Relevant Pr
The CEA, The Majority Erred In Ho
The Pre-1974 Lower Court Decisions
To A “Settled” Interpretation Th
Causes Of Action For Damages Could
Under Sections 4a, 4b And 9(b) ....
G.
|. The basic premise of the majority's
that “every” decision prior to 19
private causes of action under the ¢
EFUG cocccececeseceeccccoeces
2. The pre-1974 cases did not establ
tled” judicial interpretation that ri
tion against FCMs could be imp
either Section 4a, 4b or 9(b) in far
customer speculators since not ¢
cases $0 held .......cce eee eees
Even If The Actions Of The 1974 Cor
Been Relevant To The Ascertainment |
tent Of The 1936 Congress In Enactin
4a, 4b And 9(b), The Majority Erred |
That The 1974 Congress Conscious!
That A Settled Judicial Interpret:
Recognized Implied Rights Of A
Damages Under Those Sections And I
Preserve And Ratify Those Rights
1. No clear evidence supports the
that the 1974 Congress believed th
tence of implied private causes of
damages had been “settled” by the
pre-1974 decisions, or that Co
proved and consciously refrained
ing the result of those erroneous d
2. Congress must have known tha
under the Securities Acts uphold
causes of action for damages wer
since they were based on provisio
Acts entirely omitted from the Cl
vi
3. That the 1974 Congress ¢
existence of private causes
strated by the amendments
4. The 1974 Congress consid
enact a bill which would
private cause of action for
tions of the CEA .......
CONCLUSION .....ccceceeceeees
Vil
TABLE OF AUTH!
Cases
Anderson v. Francis I. duPont & Co.
705 (D. Minn. 1968) ..........
Arnold v. Bache & Co., Inc., 377 F.S
Pen Se tees Che ned 6 an a
Baird v. Franklin, 141 F.2d 238 (2d
Blue Chip Stamps v. Manor Drug St
Tas CASTS) sccvccceducsdccces
Booth v. Peavey Co. Commodity Ser\
152 (Gt Cie. 1976) 2 ccideseccs
Brown v. Bullock, 194 F. Supp. 20
aff'd, 294 F.2d 415 (2d Cir. 1961)
Cannon v. University of Chicago, :
CIDTD) occccncecccescsesececs
Chipser v. Kohlmeyer & Co., 600 F
Sls BREF) a ccccccccnsedcecsee
Chrysler Corp. v. Brown, 441 U.S. 2
Comstock Investors, Inc. v. Rosentha
1980 Transfer Binder] Comm. F
(CCH) % 20,934 (C.D. Cal. 1979)
Consumer Product Safety Commissi
vania, Inc., 100 S.Ct. 2051 (1980)
Cort v. Ash, 422 U.S. 66 (1975)...
Deaktor v. L.D. Schreiber & Co., 476
Cir.), rev'd on other grounds sub
Mercantile Exchange v. Deaktor,
CEPIS) cedcroccocceccsaccsccre
Erie Railroad Co. v. Tom
2) A eee
Fischman v. Raytheon Mfg. ¢
Cit. 1951) .ccccecscecce:
Fitzgerald v. Pan American
F.2d 499 (2d Cir. 1956)...
Gonzalez v. Paine, Webber, Ji
493 F. Supp. 499 (S.D.N.Y
Goodman v. H. Hentz & Ce
CRED TE. .BOGTY. oc acdeesa
Gould v. Barnes Brokerage C
$B eo ) Sa
Gray v. Thomson McKinnon
C-79-3325 SAW (N.D. |
ISGO) ci b vdawensnsces
Hecht v. Harris, Upham & C€
(N.D. Cal. 1968), modified
Cee. IFTS) cectwniestcews
Hensley v. Maduff & Sons, li
Rep. (CCH) £21,017 (C.D.
Insdorf v. Chicago Mercantile
606 (N.D. Ill. Oct. 18, 1965
ion, (7th Cir. Sept. 13, 196¢
International Brotherhood of
States, 431 U.S. 324 (1977
J.1. Case Co. v. Borak, 377 U
Johnson v. Espey, 341 F. §S
ISTE) ccccccvecescevecss
Kissinger v. Reporters Cor
the Press, 445 U.S. 136 |
Liang v. Hunt, 477 F. Supt
McCurnin v. Kohlmever &
(E.D. La. 1972), aff'd,
Mullis v. Merrill Lynch, F
Inc., 492 F. Supp. 1345 (
Nashville Milk Co. v. Ce
U.S. 373 (1958)
National Railroad Passeng
sociation of Railroad Pi
(1974)
National Super Spuds, Inc.
Exchange, 470 F. Supp. |
Oscar Mayer & Co. v. Evar
Piper v. Chris-Craft indu
(1977)
Reitmeister v. Reitmeister
1947)
Rosee v. Chicago Board of '
Cir. 1963)
Santa Fe Industries, Inc.
(1977)
SEC v. Capital Gains Res
U.S. 180 (1963)
Securities Investor Protecti
U.S. 412 (1975)
Seligson v. New Yi
F. Supp. 1076 (S.|
Miller v. New Y
F.2d 762 (2d Cir.
(1977)
Sinking-Fund Cases,
Southeastern Comm
U.S. 397 (1979) ..
Switchmen’s Union \
320 U.S. 297 (194.
Texas & Pacific R.
(1916)
T.1.M.E., Inc.
(1959)
Touche Ross & Co.
(1979)
Transamerica Morta
U.S. 11 (1979) ..
TVA v. Hill, 437 U.S
United Egg Produces
Supp. 1375 (S.D.N
United Housing Fou
U.S. 837 (1975) .
United States v. Pric
U.S. Indus., Inc. v. 4
1976)
Wheeldin v. Wheeler.
Wilson v. First Houst
1235 (Sth Cir. 19
cated in reliance oi
(1979)
Commodity Excha
amended, 7 U.S
7 U.S.C. §
7US.C. §
7 U.S.C. §7
7 U.S.C. §
7 U.S.C. §12(a)..
7 U.S.C. §l2c ...
7 U.S.C. §12c(1)(A
7 U.S.C. §13(b)..
7 U.S.C. §13(c) .
7 U.S.C. §l3a-1..
7 U.S.C.
7 U.S.C.
7 U.S.C. §21(b)(1
Commodity Futur
1974
Pub. L. Nu. 93-4
Restatement of To
SUPRE)
HEINOLD CON
CHINCLOSS K(¢
NEIL LEIST, Pl
HEINOLD CON
CHINCLOSS K(¢
NATIONAL Sl
JOINT PE
TO THE
The opinion:
167a) are not!
at 2 Comm.
The opinion of
was reversed b
1256 (S.D.N.)
The judgme
1980. The Cor
for rehearing a
9, 1980. The ju
§1254(1).
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
Sections 4a, 4b and 9(b) of the Commodity Exchange Act, as
amended (7 U.S.C. §§6a, 6b and 13(b)), and Article |, Section | of
the United States Constitution are set forth in the Appendix here-
to (192a-21 3a).
STATEMENT OF THE CASE
Petitioners are commodity brokers which are registered as “fu-
tures commission merchants” with the CFTC. The two cases in
which these petitioners are defendants charge petitioners with
violations of Sections 4a, 4b and 9(b) of the CEA. Section 4a,
which was enacted in 1936, authorizes the CFTC to set specula-
tive (cading and position limits for commodity futures contracts
and makes it unlawful to exceed those limits. Section 4b, which
also was enacted in 1936, makes it “unlawful to cheat or defraud”
a customer in connection with the making of futures contracts.’
Section 9(b) prohibits any person from manipulating the price of
or cornering any commodity in interstate commerce or for future
delivery on or subject to the rules of any commodity exchange.
This language was added in 1936 to Section 9 of the Grain Fu-
tures Act of 1922. All three sections are criminal provisions.
None of these sections, nor any other provision of the Act, ex-
pressly authorizes the institution of actions by traders in the
federal courts; nor does the CEA provide a general grant of juris-
diction to the federal courts to hear such actions as was provided
in the 1933 and 1934 Securities Acts.
The CEA does, however, expressly provide for fines and impris-
onment in criminal prosecutions, and for numerous other judicial
and administrative means for enforcing these provisions, Among
‘The language of Section 4b is strikingly similar to the language of
Section 206 of the Investment Advisers Act of 1940 (15 U.S.C. §80b-1
et seq.) which this Court held in Transamerica Mortgage visors, Ine.
v. Lewis, 444 U.S, 11 (1979) did not provide a private cause of action for
damages.
those means, enacted in 1974, is an administrative proceeding
before the CFTC for the redress of any person's claims or
grievances against FCMs such as petitioners. Plaintiffs’ claims
against the petitioners could have been presented and adjudicated
in such an administrative proceeding.
Plaintiffs in these actions are traders who held long positions in
May 1976 Maine potato futures contracts which were liquidated
prior to the close of trading on May 7, 1976. All of these plaintiffs
are admittedly “speculators” as distinct from “hedgers,” the lat-
ter being persons who produce, use, handle, or merchandise a par-
ticular commodity. None of the plaintiffs was a customer of these
petitioners with respect to the purchase of their “long” contracts
Indeed, petitioners acted as brokers for persons on the opposite
side of the market from plaintiffs
The District Court granted these petitioners’ motions for sum-
mary judgment on the counts in the complaints which charge
violations of Sections 4a, 4b and 9(b) of the CEA.’ The plaintiffs
appe ed and over the vigorous and well-reasoned dissent of
Judy. Mansfield, the Court of Appeals reversed
‘The jurisdiction of the District Court in No, 79-7402 with respect to
the claims asserted under the CEA was allegedly based on 28 U.S.C. §§
1331 and 1337 and in No, 79-7482 jurisdiction was allegedly based on 28
U.S.C, §1337
‘In reaching its decision, the District Court applied the test enunciated
in Cort v, Ash, 422 U.S. 66 (1975) and applied in Cannon v. University
of Chicago, 441 U.S, 677 (1979). The District Court did not have the
benefit of this Court's decisions in Transamerica Mortgage Advisors,
Inc. v. Lewis, 444 U.S. 11 (1979) and Touche Ross & Co. v. Redington,
442 U.S, 560 (1979), After examining the provisions of the CEA which
provide the CFTC with an array of enforcement powers and these plain-
tiffs with an administrative remedy to recover damages arising from
violations of the Act, the District Court held that no private right of ac-
tion against futures commission merchants existed under that Act
because “two critical elements of the [Cort v. Ash] test, congressional in-
tent and consistency with the statutory scheme, weigh strongly against
the implication of such a right.” (470 F.Supp. at 1261)
REASONS WHY THE WRIT SHOULD BE ALLOWE
Since the enactment of the 1974 amendments to the CEA,
question of the existence of implied private rights of action un
the CEA has frequently been presented to the courts. The maj
ty opinion lists at least nineteen decisions upholding such rig
and eight decisions in addition to that of the district court in th
cases denying such rights.’ The split of decisions requires a f
and definitive answer by this Court
The questions before the Court are of extraordinary pract
importance to the commodity futures industry, The decisior
the Court of Appeals, if permitted to stand, will expose comm
ty brokers to enormous liability, never intended by Congress,
will vitiate Congressionally-mandated procedures governing
olution of disputes between commodity brokers and their ¢
tomers, The reparations procedure provided by the 1974 ame
ments to the CEA and other non-judicial means for resols
complaints such as arbitration will be undermined and the cos
resolving Customer grievances is likely to increase.
‘Other decisions which are not cited in the opinions below but wl
have passed on implied causes of action under certain provisions of
CEA include Gonzalez v. Paine, Webber, Jackson & Curtis, Inc.,
F.Supp. 499 (S.D.N.Y. 1980); Mullis v. Merrill Lynch, Pierce, Fei
& Smith, Inc., 492 F.Supp. 1345 (D. Nev, 1980); Hensley v. Madu
Sons, Inc., 2 Comm. Fut. L. Rep. (CCH) 921,017 (C.D.Cal, Api
1980); and Comstock Investors, Inc. vy. Rosenthal & Co., (1977+)
Transfer Binder] Comm, Fut. L. Rep. (CCH) 920,934 (C.D
December 7, 1979). The courts in cach of these cases denied the ¢
tence of implied causes of action under the CEA, Since the deci
sought to be reviewed, other lower courts have faced the issue and
sharp division of judicial opinion continues. See Gray v. Thon
McKinnon Securities, Inc,, No, C-79-3325 SAW (N.D, Cal, Septen
29, 1980) (denying an implied cause of action)
In 1974, Congress required contract markets to establish proced
for private arbitration of customers’ claims and grievances against
exchange member (7 U.S.C, §7a(11)). In addition, a registered fut
association must provide procedures for the resolution of custon
claims and grievances against any member of the association (7
§21(b)(10))
In addition, the decision of the Court of Appeals will ope
doors of the district courts to a large body of additional new |
tion which Congress has never expressly authorized. This ts |
tion of a type which this Court has held “presents a danger o
atiousness different in degree and in kind from that which ac
panies litigation in general.” Blue Chip Stamps v. Manor
Stores, 421 U.S. 723, 739 (1975). The present cases well
trate this point. Petitioners are charged with cheating an
frauding persons with whom they have had no relationship. I
dition, in these cases the longs are claiming manipulation b
shorts and the shorts are asserting manipulation by the longs
the interacting net effect of these alleged manipulations on
ket prices at any specific time is impossible of even rough mea
ment
The holding of the Court of Appeals majority that Sectior
4b and 9(b) of the CEA provide implied causes of actio
damages in favor of tiese plaintiffs is erroneous and confli
principle with the decisions of this Court setting forth the
dards for the implication of private causes of action.” The h«
which, as pointed out in Judge Mansfield’s dissent, goe:
beyond statutory construction and amounts instead to “ju
legislation’ — (i) raises important questions of constitution:
in light of the vesting of legislative powers exclusive
Congress; (ii) erroneously assumes that the issue is wheth
private cause of action” exists under the CEA generally, 1
Transamerica, supra; Redington, supra; Kissinger v. Reporters
mittee for Freedom of the Press, 445 U.S. 136 (1980); Cannon,
Chrysler Corp. v. Brown, 441 U.S. 281 (1979); Blue Chip Stamps,
Cort, supra; Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (
Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977); Securit
vestor Protection Corp. v. Barbour, 421 U.S. 412 (1975); Nationa
road Passenger Corp. v. National Association of Railroad Passe
414 U.S, 453 (1974) (“Amtrak”); Wheeldin v. Wheeler, 373 VU.
(1963); 7.1.M.E., Inc. v. United States, 359 U.S. 464 (1959); S
men's Union v. National Mediation Board, 320 U.S. 297 (194:
Judge Mansfield’s dissent at pp. 4107-11.
6
than whether these plaintiffs can base an implied ca
for damages on either Section 4a, 4b or 9(b); (ii)
the principles established in this Court's decisions |
statute expressly provides many judicial and a
means of enforcement, including criminal penalti
and an express administrative remedy, an addit
remedy will rarely be implied; (iv) is based on t
assertion that Congress, by amending various pro\
CEA in 1974, “re-enacted” Sections 4a, 4b and 9|
the judicial interpretations given to the Act by a fe
decisions based on clearly erroneous grounds; (v) er
sumes that pre-1974 decisions had unanimously and
interpreted the CEA as providing the causes of act
plaintiffs’ claims are based despite the fact that no p
sion had held that members of a class to which pla
had a cause of action for damages under either Sect
9(b); (vi) erroneously avoids analysis of the legislat
these sections at the time of their enactment; and (vi
clusions as to the intent of the 1974 Congress which
to the legislative history.
If certiorari is granted, this will be the first time ti
raised by the petitioners will have been placed before
A. Since Congress Did Not Provide Any Private Ri;
Under Any Of The Provisions Of The CEA,
That Such Rights Can Be Implied Under Sectioi
%b) Of That Act Raises Important Questions
tional Law In Light Of The Vesting Of Legisl
Exclusively In The Congress.
Article I of the Constitution vests “‘all legislative p
Congress. Under Article III, Congress also has
sponsibility for determining the jurisdiction of the |
courts. Congress alone can create rights of action a
diction over them in the courts. Article III also make
the legislative power can only be exercised through
both Houses of “bills” which after approval by
become “laws.’’ While courts can construe such law
what Congress did in fact enact, the courts have n
what they may feel Congress omitted, even inadv
ever desirable the courts may feel such additions w
cannot rewrite or correct the laws they are callec
strue.
Thus, under our Constitution, a right of action u
“law” cannot exist unless Congress intended to cre;
law was passed, and has somehow made its intentic
creation must be unmistakably the “act” of Cong
Mansfield said in his dissent (p. 4111): “Absent ev
intent, judicial creation of a private remedy amo
sumption or usurpation of the legislative function
the separation of powers doctrine.” Even if these |
tional principles have been occasionally overlook«
such oversights cannot operate to amend the Const
made clear in Erie Railroad Co. v. Tompkins, 304
(1938).
In the days before Erie when the federal court
existence of a federal common law, the courts utili
law theory to justify actions for damages for brea
statute, treating such breach as a “tort.”’ Thus this (
& Pacific R. Co. v. Rigsby, 241 U.S. 33 (1916), he
ployee could bring an action based on an injury du
of the federal Safety Applicance Act. The Court |
“A disregard of the command of the statute
act, and where it results in damage to one ¢
See TVA v. Hill, 437 U.S. 153, 194-95 (1978); Sink,
99 U.S. 700, 718 (1878); Cannon, 441 U.S. 677, 730-49
senting); See also Wilson v. First Houston Investment
1235, 1244-45 (Sth Cir. 1978) (Hill, J., dissenting), va
on Transamerica, 444 U.S. 959 (1979)
8
whose especial benefit the statute was
recover the damages from the party in
cording to a doctrine of the common |,
39)
No effort was made to ascertain whether
create a cause of action; on common law pri
... be deemed to create a liability in [plainti
in the form of an actionable tort.
The concept of a violation of a statute c
able tort is embodied in the Restatement :
(1963). Logically, its validity with respect t
ended with Erie Railroad, which made it
federal common law, and hence no feder
However, the outdated tort rationale was th
lower court decisions upholding implied rij
the majority opinion.
Under the “tort theory,” an action co
brought without any evidence of Congressi
the statute prohibited certain conduct and
was an obvious beneficiary of the prohibitio
nition that under the Constitution an implic
be just as much the intentional creation of
plicit one has forced the rejection of argum¢
theory.”’ Express rejection occurred as earl
v. Wheeler, 373 U.S. 647 (1963), where an
tionable tort in a violation of the statute gov
subpoenas was rejected. Justice Douglas pi
“As respects the creation by the feder
law rights, it is perhaps needless to st
the free-wheeling days antedating Erie
(373 U.S. at 651)
"Mr. Justice Brennan dissented because he
existence of federal common law torts based on v
ute.
Common law tort theory cannot take
evidence of Congressional intent necessar
private right of action not expressly pro'
language. This Court has repeatedly he
private cause of action not expressly pro'
less be held to have been created is by fi
Congressional intent to provide one. Tra
20; Amtrak, 414 U.S. at 457-58; S/PC
Cannon, 441 U.S. at 731. The necessity fo
tent’ was made plain in Amtrak, 414 U.S.
and the “tort theory” was specifically repu:
U.S. 560, 568 (1978). As Cannon, 441 |
*.. [T]he fact that a federal statute has
person harmed does not automatically giv
of action in favor of that person.” Nev
Second Circuit cases cited and relied on
were expressly based on tort theory.’ Tl
where recognizes the demise of the tort t
B. The Majority Erred In Assuming
Whether “A Private Cause Of Act
CEA Generally, Rather Than Wheth
Action For Damages Exists Under
Each Separately Considered.
The first error of the majority opinion
any provision of the CEA implied a priv
“a private cause of action existed under
plicable to all violations of any of its prov
E.g. Brown v. Bullock, 194 F.Supp. 207, ;
F.2d 415 (2d Cir. 1961) (cited at p. 4049); F
World Airways, 229 F.2d 499, 501 (2d Cir
Fischman v. Raytheon Mfg. Co., 188 F.2d 7
(cited at p. 4047); Reitmeister v. Reitmeister
Cir. 1947) (cited at p. 4051); Baird v. Frank
1944) (cited at pp. 4047, 4050).
10
reasoning, the majority opinion f
1974 “unanimously upheld the im
action under the CEA” (p. 4053; ¢
reversed the District Court.
The fact that none of the pre-19'
ity opinion had upheld a private
speculators and non-customers agi
tion 4a, 4b or 9(b) was ignored
majority assumed that if some plai
a violation of some provision of the
anybody else for violating any ott
strange fallacy, the majority opini
before it as whether “there is an i
CEA” (p. 4022 n.1).
This notion is plainly bad law. T
even when an implied private reme
statutory provision, it is not necess
plaintiffs under the same provisio!
the statute. Redington, supra; Pipe
Inc., supra, Blue Chip Stamps, st
causes of action may be implied u
customers against their brokers, tl
who are not within this protected c
some courts have held that suits
changes under Section 5(a) does
brought by speculators against bre
As a result of this mistaken view
ion never faced up to the real issue
The assumption that the issue was
right of action existed “under the ¢
speaks at least eight times of “an im
4057, 4059 n.19, 4060 n.19, 4062, 407
times of “a private cause of action” (f
4063 n.21, 4077, 4078, 4080) and at le
of action” (pp. 4051 n.14, 4059, 4060 hy
damages against brokers could
tomer speculators because of alle
and 9(b).
C. Because The Text and Legis
And %b) Provide No Evide
Create A Cause Of Action
These Provisions, The Maj
ciled With Recent Decision:
Section 4b makes it unlawful
with orders “for or on behalf of <
or defraud . . . such other persor
other person any false report. .
other person.” (7 U.S.C. §6b) T
the broker cheats or defrauds /
section mention parties having nc
face of this language, no possibl
tiffs, non-customers of these peti
especial benefit this provision v
field’s dissent at 4126-47.
Section 9(b) makes it a felony
the price of any commodity in in
delivery on or subject to the ru!
corner... any such commodit'
Mansfield points out in his disse
* . , §9(b), like §4b, does n:
special class of which plain
the light of the Act’s overall
enacted for the benefit of th
See Chipser v. Kohlmeyer & Ce
1979) (“Section 4b makes it unlawf
or defraud’ a customer or willfully
or reports to a customer in conne
modities exchange.’’) (Emphasis ac
consumers of comm
tors | T |here is nm
or legislative history
ed it to be enforced
remedies provided t
Act.”
Similarly, Section 4a, wl
tion of the burden of *
CFTC to set speculative |
ty futures contracts and |
was surely not intended |
whose activities it was di
Fe Industries, Inc., 430 \
891, 893 (N.D, Ill, 1975
mention of any remedy n
Judge Mansfield wrote i
No court has ever
under §4a, The secti
excessive speculatio
language of the sect
for the protection ol
gestion that Congre:
action upon any per:
claimed to be damay
section, (pp. 4141-4
As with Sections 4b and §
or alter any civil liabiliti
Because Sections 4a, :
Congress’ intent at that
mining whether a private
ed, not the intent of Co)
575 n.16." And the 19,
"The principle that legis
Congress is well-settled. Se
GTE Sylvania, Inc., 100 §
(Footnot
evidence suggesting th
enforced through priv
Yet even if the leg
considered, it is clear
private cause of action
wrote in his dissent
“The legislative |
runs into hundred
and debates, fails
right of action, de
a Senator to the s
The Majority En
The Fact That Se
sions Which Are
ment And Other J
I. Because Sect
no private cai
when as here
tended to cre
Sections 4a, 4b ani
adopted were punishal
1958, this Court poin
Robinson-Patman Act
“Section 3 contai
provisions; in the
sional intent to t
familiar principle
plemented by civi
Milk Co. v. Carna
(Footnote continued froi
Community College \
Maver & Co. v. Evans, 4
hood of Teamsters v, |
SEC v. Capital Gains }
(1963); United States v.
Nashville Milk «
Congress had “n
tion could not be
The principle :
today. In Chrysi
Court said
“In Corty
has rarely
statute, ..
2. The pr
of actic
nal pen
other |
provide
The CEA pro
violation of Sec
13(c)), other juc
The CFTC is at
these petitioners
or revoke the rej
up to $100,000 ;
U.S.C. §9), to su
ties exchange or
exchange (7 U.!
modify action |
members (7 U.S
against FCMs ai
a writ of mandar
tigations as it di
operations of boi
Any person com
mence an admin
damages with av
$18). See, in addi
authorized to
tive relief, dar
may deem apr
of the enforce
said in Transé
“Yet it is
where a |
remedies,
ing Cases)
ministrat
First, unc
the Act a)
ment or |
bring civi
the Act, i
authorize
tions on p
of these e
by §206,
mindedly
non v, U?
dissenting
Where, as her
times (in 1968
action under
proaches certa
3. The
guag
right
Criminal sti
the general pu
individuals. Tl
“contrast sha)
specific class |
them a particu
points out (44
16
sions relied on by the majority opinion (p, 4052) are either cases
dealing with statutes creating express rights (Su/livan v. Little
Hunting Park, Inc., 396 U.S, 229 (1969); Tunstall v. Brother-
hood of Locomotive Firemen and Enginemen, 323 U.S, 210
(1944); and Allen v. State Board of Elections, 393 U.S, 544
(1969)); or cases dealing with statutes creating a duty in favor of
the public at large which imply a right of action only on behalf of
the United States (Wyandotte Transportation Co, v, United
States, 389 U.S. 191 (1967); United States v. Republic Steel
Corp., 362 U.S. 482 (1960)), The results in all these cases are
thus irrelevant to the consideration of the present case, since
neither Section 4a, 4b nor 9(b) creates any civil rights or duties,
Cannon went on to point out that “the Court has been especial-
ly reluctant to imply causes of action under statutes that create
duties on the part of persons for the benefit of the public at large”
(441 U.S, at 690 n.13), Criminal statutes making conduct unlaw-
ful are among those which simply create duties “for the benefit of
the public at large.” Here we have another reason why no private
right of action should be implied from Sections 4a, 4b and 9(b).
As Cannon states (441 U.S, at 690 n.13):
“Not surprisingly, the right-or duty-creating language of the
statute has generally been the most accurate indicator of the
propriety of implication of a cause of action (citing cases),”
Neither Section 4a, 4b nor Section 9(b) contain any such “right-
creating” language.
4. The multiple remedies for violations of Sections 4a, 4b
and %b) make implication of a private cause of action for
damages unnecessary to achieve Congress’ purposes.
This Court has recently emphasized that an intent to create a
private right of action can rarely be found to exist unless it is clear
that such a right of action is necessary to “insure the fulfillment of
Congress’ purposes.” Piper, 430 U.S, at 41, This Court has
further said that “a private cause of action under the anti-fraud
17
provisions of the Securities Exchange Act should not be implied
where it is unnecessary to ensure the fulfillment of Congress’
purposes in adopting the Act.” Santa Fe Industries, Inc., 430 US,
at 477, Hence, an important reason for refusing to imply a private
cause of action in these cases is that “it is not necessary to make
effective the Congressional purpose.” Chrysler Corp. v. Brown,
441 U.S, 281, 316 (1979),
In view of the numerous other remedies for violations of Sec-
tions 4a, 4b and 9(b), no one could seriously contend that a
private right of action was necessary to ensure the fulfillment of
Congress’ purposes in enacting those provisions.
E. The Majority Erred In Assuming, Contrary To Fact, That
The 1974 Congress “Re-enacted” The Relevant Provisions
Of The CEA, And By So Doing Incorporated A “Preceding
Judicial Interpretation” Upholding Implied Causes Of Ac-
tion.
The fundamental premise of the majority opinion was that the
1974 amendments to the CEA constituted a “re-enactment” of
the provisions under which private causes of actions are claimed
by these plaintiffs:
“However, what we have developed up to this point is alone
sufficient to invoke ‘the well-recognized canon of construc-
tion that the reenactment of a statute incorporates preceding
judicial interpretations,’ * (p, 4078)
The majority opinion would apply the presumption arising from a
“re-enacted” statute to the post-1974 CEA, and emphasizes its
reliance on such “presumption” by asserting that it would require
“an exceedingly strong showing of an intention to abolish the
private cause of action” (p. 4080; see also p. 4082). Finally, the
majority flatly asserts:
But the law before us was enacted on October 23, 1974 and
‘the relevant inquiry is not whether Congress correctly per-
ceived the then state of the law, but rather what its percep-
tion of the law was.” * (p, 4090)
18
But the “law before us,” to the extent that it refers to Sectio
4a, 4b and 9(b), was enacted in 1936, not 1974, Public Li
93.463, 88 Stat. 1389, enacted October 23, 1974, was nothi
more than a series of amendments and additions to the CEA, a)
in no sense was a “re-enactment” of that Act. Most important)
it contained no “re-enactment” of the relevant language of S«
tions 4a, 4b and 9(b), Such language is nowhere repeated in t
1974 legislation; nor was the wording on which plaintiffs ba
their claims even amended at that time. As the author of t
majority opinion admits, “the relevant substantive provisio
were left unchanged” in 1974, Thus the “canon of constructio
dealing with “re-enactments” has no relevance to these cases,
F. Even If The 1974 Amendments Constituted A “Re-ena
ment” Of The Relevant Provisions Of The CEA, The Majo
ty Erred In Holding That The Pre-1974 Lower Court De
sions Amounted To A “Settled” Interpretation That Priva
Causes Of Action For Damages Could Be Implied Under Sc
tions 4a, 4b And %b).
1. The basic premise of the majority's reasoning, t
“every” decision prior to 1974 upheld private causes
action under the CEA is not true.
The majority opinion asserts that private rights of action unc
the CEA had been “universally recognized” (p. 4080) by “the u
broken line of decisions upholding a private right of action unc
pre-1974 law” (p. 4054). The majority lists eleven cases as cons
tuting this “unbroken line” (pp. 4054-55)."’ However in asserti
that “every” pre-1974 decision confronting the question h
"The extent of the majority's reliance on the supposed unanimity
these pre-1974 decisions is emphasized by the fact that the unanimit;
claimed in at least eleven other places in the majority opinion (pp. 40
4059, 4061, 4072, 4079, 4080, 4094).
19
found an implied right of action (p. 4079 n.32), the majority «
ion overlooked at least two important decisions to the contri
| Rosee v. Chicago Board of Trade, 311 F.2d 524
Cir. 1963).
A member of the Board of Trade brought suit because o
suspension from trading, but his suit was dismissed for “wat
jurisdiction under... the Commodity Exchange Act” (311
at 525). The Court of Appeals explained:
“The Act proscribes certain practices by members of a b
or contract market and provides the sanction of crin
penalties. The statute does not expressly provide for
enforcement of any correlative rights corresponding t
Statutory duties.” (311 F.2d at 527)
The court concluded that “Appellant has failed to establish
. the Commodity Exchange Act provides a civil remedy
review of arbitration and disciplinary proceedings by the Boa
Trade” (311 F.2d at 528).
The Court specifically pointed out that the Board’s “pros:
tion of fraudulent contracts creates public rights, as is manife
by criminal sanctions,” but that “in this respect” the CEA di
from the Railway Labor Act which created rights for the be
of specific parties (311 F.2d at 527-28). Rosee thus denied
the criminal provisions of the CEA could imply a private cau
action,
2. Insdorf v. Chicago Mercantile Exchange, No. 61 ¢
(N.D. Ill. Oct. 18, 1965), aff'd without opinion, (7th
Sept. 13, 1966).
Here a speculator alleged that the Exchange permitted va)
onion traders to hold positions in excess of daily trading Ii
and also charged the Exchange with other failures to enfor¢
rules and to perform its duties under the CEA. The complain
serted claims under Section 4 of the Clayton Act, the CEA
20
the common law. A motion to dismiss relying, inter ali
ville Milk and Rosee was granted by the district
Seventh Circuit dismissed the appeal by order becaus:
ment from which this appeal was taken is suppor
record.”
The number of times suits based on asserted priva
actions under the CEA may have been denied by dis
without opinion cannot of course be ascertained from
To assert, as the majority opinion does, that “ever
case” (p. 4079 n.32) upheld a right of action is not on
in face of Rosee and Jnsdorf, but in any event “lacl
empirical basis,” to use Judge Friendly’s phrase (p. ¢
2. The pre-1974 cases did not establish a “sett!
interpretation that rights of action against I
be implied under either Section 4a, 4b or 9b
non-customer speculators since not one of |
held.
Five of the eleven cases relied on by the majority ¢
hold” a right of action under the CEA." In Gould
denying defendant’s motion to dismiss for want of
did not decide whether a cause of action existed as the
not before it. Hecht involved a charge that a broker *“*c
account in violation of Section 10(b) of the Securitie
Act. While the court remarked obiter that a cause of :
the CEA might lie, since the account included comm
‘Gould v. Barnes Brokerage Co., 345 F.Supp. 294 (N.D
Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (N.D
modified, 430 F.2d 120? (9th Cir. 1970); Booth v. Peay
modity Services, 430 F.2d 132 (8th Cir. 1970); Johnson \
F.Supp. 764 (S.D.N.Y. 1972); Seligson v. New York
change, 378 F.Supp. 1076 (S.D.N.Y. 1974), aff'd. sub ne
New York Produce Exchange, 550 F.2d 762 (2d Cir.), ceri
U.S. 823 (1977).
21
actions, no such claim was considered and both the t
appellate court held that the “commodity losses
recoverable by plaintiff as such” (283 F.Supp. at 44!
1212). In Booth the court affirmed a directed verd
dant for lack of evidence of violation of the CEA. Ir
court dismissed a suit by a customer against her
Section 4b for failure to comply with Rule 23.1 of Fe
Seligson the district court granted the Exchange su
ment on plaintiffs claim under Section 5(d). The
however, expressed the opinion that a cause of actio
citing Deaktor, infra. The Court of Appeals said nc
subject.
Four of the remaining six cases upheld rights of
frauded customers against their brokers under Secti
the decision specifically upon the fact that defraud:
were a class “especiaily” protected by Section 4b." G:
Hentz & Co., 265 F.Supp. 440 (N.D. Ill. 1967), the
decision upholding a cause of action for damages u
4b, was a class action by customers against their brok
primarily violations of Section 10b of the Securities f
(265 F.Supp. at 443), but also asserting a claim und
of the CEA. The court distinguished Rosee on the
"In the last four of these cases, obiter dicta asserted tha
tion under the CEA existed, citing Goodman, infra, or it
judicial construction of a statute is not “settled” by mer
especially when based solely on wrongly decided preced
more, all but the last of these five cases were suits by ¢
tomers against their broker, so they could not be authorit
ence of implied causes of action in favor of non-customer
broker-petitioners. The fifth case (Seligson) did not invo
tion 4a, 4b or 9(b).
“Goodman v. H. Hentz & Co., 265 F. Supp. 440 (N.D.
derson v. Francis 1. duPont & Co., 29\ F.Supp. 705 (Db
Arnold v. Bache & Co., Inc., 377 F.Supp. 61 (M.D. f
McCurnin v. Kohlmeyer & Co., 340 F.Supp. 1338 (E.D
Rosee “was not a defrauded investor, as in the
ing out that defrauded customers “fall direct!
persons Congress sought to protect by enact
the Commodities Exchange Act.’ Goodman
soundly reasoned, would stand for no more th
customer may sue his broker for violation of
The remaining two cases relied on by t
relevant to the charges against these petitione
rely solely on the repudiated tort theory of li
held, relying solely on Goodman, that egg pro
tors such as plaintiffs here, could enjoin a pe
inaccurate market information in violation of
9(b) not relevant to the present case. The cou!
that plaintiffs as producers “are within the cl:
tended to protect from false, or misleading, 0
rate reports” (311 F.Supp. at 1384); but theo
was an injunction and not an action for dam
In Deaktor two cases brought against an
CEA were consolidated. One alleged violati
This disposes of the majority opinion’s asserti
eleven cases] stressed the broker-customer relatio
more, in its dicta in Johnson v. Espey, supra, the
6b... makes it unlawful for any member of a cor
or defraud or attempt to cheat or defraud’ person:
i.e. customers. (341 F.Supp. at 766; emphasis ad
‘United Ege Producers v. Bauer Int'l Corp., 3)
N.Y. 1970); Deaktor v. L. D. Schreiber & Co., ¥
rev'd. sub nom. Chicago Mercantile Exchange v.
(1973).
"The majority opinion is mistaken (p. 4058 n
existence of an implied cause of action for injun
includes a right to collect damages. In Transan
that, while a suit to rescind and for restitution c
Statutory provision declaring certain agreemen
damage action was thereby implied.
23
and the other alleged violation of Section ‘
peals, falling into the same error as the
framed the question overbroadly as: “whet
tions are allowable under the Commodity
stead of the questions (1) whether a priv:
damages could be implied under Sectior
separately considered and (2) if so, in wh
such a right of action vested? The Court o
its error by answering affirmatively the ir
tion solely on the authority of the Restate
precedents afforded by Goodman and its
534), not one of which dealt with Section
which (United Egg) had considered wheth
a private remedy.
The Deaktor decision was reversed by th
that the entire matter should have been
Commodity Exchange Commission becau
and application of the Act” were issues to
instance” by the Commission (414 U.S. at
means “assumed” that “plaintiffs’ clain
federal court,” as the majority opinion ass
Even if the issues in these cases had |
eleven pre-1974 cases, those cases would
judicial interpretation since each was base
ated theory of tort liability. Goodman hek
cause of action for damages against their
violation of Section 4b on the principle set
the Restatement of Torts (265 F.Supp. al
rationalizes its result solely on the theory |
standard of conduct set out in Section [4b
plaintiffs, as members of the class Congres
have a federal civil remedy... .” (265 F
24
man, applying the repudiated “tort t
ly mistaken view that:
“Implied rights of action are n
language which affirmatively in
ed. On the contrary, they are i
evidences a contrary intention.
This, of course, violates the princip!
considerations, that an implied right
evidence of a Congressional intent to
ly Congress can legislate.
Every one of the other ten cases w!
“(t]he unbroken line of decisions up
under pre-1974 law” relied upon the
man. These cases, therefore, are ;
precedential inbreeding.” U.S. Ind
142, 150 (3d Cir. 1976).
This was quoted from the dissent in
647 (1963) and was in turn a quote fron
man should have recognized that the tor
since it specifically relied on the dissent i
find an actionable tort in a violation of t
subpoenas was rejected. Mr. Justice Bre
violation of a federal statute could still g
of action” (373 U.S. at 657) despite E
ruling. By relying on the dissent in
chose a rationale which had already be
‘As Judge Mansfield wrote in his dis
“Goodman . . . is significant not be
it is the case on which all of the la
cause of action summarily relied.”
Thus, Goodman was decided in 1967; F
Goodman, 283 F.Supp. at 437; Ander
Goodman, 291 F.Supp. at 710; Booth, |
man, 430 F.2d at 133; United Egg, 197(
311 F.Supp. at 1384; Johnson, 1972, ist
Booth, and Hecht, 341 F.Supp. at 766
(Footnote continued
Nw
mn
The eleven cases relied on by th
did not “settle” anything relevant
list omits persuasive decisions de
private rights; the pre-1974 cases
imous”’ as the majority opinion p
with the issue at all. Four contz
None advanced a rationale which
face of Wheeldin and Amtrak. N
statement by this Court. Only one
was reversed because the court w
had no initial jurisdiction. An ea
had denied the existence of an im
gle one of these cases attempte
Congress or to apply the tests lai
decisions. To the extent a rational!
is the long-repudiated test of the
Sections 4a, 4b and 9(b) were e
if the state of the law in 1974 we
of 1936 enactments, the pre-1974
way provide a “settled” judicial i
of action existed under Section 4:
tomers of brokers whose interest
tors. Not a single case had so he
G. Even If The Actions Of 1
Relevant To The Ascertainm
Congress In Enacting Sectioi
(Footnote continued from previous |
man, Booth and Hecht, 345 F.Supp
upon Goodman, Anderson, and Boc
1973, is based upon Goodman, And
McCurnin, 377 F.Supp. at 65; Deak
Anderson, Booth, United Egg, Johns
and Seligson, 1974, is based solely u
84.
Erred In Holding T
Decided That A Settl
nized Implied Rights
Sections And Intended
Even if the pre-1974 ca
sufficient in numbers, suffi
ly reasoned to support a cl
law, the next steps in th
Congress (1) knew about
definite and conclusive int
them as upholding rights |
present cases, and (4) acti
speculations, and are all r
No clear evidenc
Congress believe
causes of action
erroneous pre-19
and consciously
those erroneous (
In support of its asserti
1974] Congress knew the
action and did nothing to ¢
ion cites a small number
private actions, See Judge
assert that these opiniotr
Congress to assume that s
particularly that they spe
and 9(b) in favor of such
ligence of Congress.
But, if true, this means |
the pre-1974 interpretat
predicated on the already
presumption in which the
2
presumed to have been a
Amtrak and to have kno
the majority opinion we
‘settled’ the issue.
2. Congress must
Securities Acts
damages were i
sions in those A
The majority opinion ¢
in assuming” that the dec
private rights of action '
CEA” (p. 4050). The mi
the fact that from the |
spread, indeed almost gx
action for ‘damages un
Exchange Act” (p. 4047
Actually Congress hac
of the Securities Acts cas
is J. 1. Case Co. v. Borak,
ty opinion tells us, “domi
“It appears clear thi
to bring suil for vio
specifically grants t
tion over ‘all suits in
force any liability o
at 430-31),
Borak thus regarded Sec
tent to provide private ri
created under the Act.’
provision in the CEA is,
intent on the part of Co
under the CEA.” Th
Nevertheless, the argur
the Securities Acts and the
ty opinion (pp. 4053, 4094
Court, in holding
statute there at is:
tional language
. contains no ge
Moreover, in 77a,
that the omission
with an intent on
action for damag:
any general grant
That the
private «
ments W
The 1974 Cong
redress of private
the broker-petitic
Congress provide
obtaining reparat
tion of any provi:
provision is persui
such persons alrea
action did exist, t
necessary and me
Furthermore, tl
existence of impl
CEA provides a t
under the Act, If
ty would be shai
which would var’
Mayer & Co. v. 1
implied private ca
requirement that
“before any form
requirement e)
CFTC may rev
in private actio
law as part of ¢
futures trading
4. Thel
which
dama
In 1974, Ce
enact, a bill wh
to recover Sil
Damages” S.2
Court wrote th
ed a private
Congress did n
field's dissent 3
This Court bh
tant protection a
tion. Blue Chip
30
CONCLUSION
These cases raise important questions of the scope and con-
struction of an important federal statute. The numerous decisions
of the lower courts are in serious conflict; the issues raised should
be resolved by this Court at this time. The joint petition for a writ
of certiorari should be granted.”
Respectfully submitted,
LAWRENCE H. Hunt Jr.
Of Counsel: One First National Plaza
STUART S. BALL Chicago, Illinois 60603
MICHAEL W. Davis (312) 329-5400
Josep H. HARRISON, JR. Counsel for Petitioners
Sip_ey & AUSTIN
One First National Plaza
Chicago, Illinois 60603
Counsel for Petitioner Heinold Commodities, Inc.
DONALD G. MCCABE
Epwarp J. BOYLE
BARBARA A. MENTZ
HAti, MCNICOL, HAMILTON, CLARK & MURRAY
330 Madison Avenue
New York, New York 10017
Counsel for Petitioner Thomson & McKinnon
Auchincloss Kohlmeyer Inc.
“Although the judgment which petitioners request this Court to
review is nonfinal (the Court of Appeals having reversed an order grant-
ing petitioners’ motions for summary judgment), this fact should not in-
terfere with the granting of certiorari in view of the importance of the
questions presented in this Petition and the Petition in Curran. This Peti-
tion raises important issues of law which are fundamental to the further
conduct of these cases. This Court has granted certiorari in other cases
under similar circumstances where those cases raised issues of equal im-
portance. E.g., Transamerica, supra; Redington, supra; Blue Chip
Stamps, supra, Cf. United Housing Foundation, Inc, v. Forman, 421
U.S. 837 (1975).
APPENDIX
la
OPINION OF THE U. S. COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
—
Nos. 402, 403, 404—September Term, 1979
(Argued January 16, 1980 Decided July 8, 1980)
Docket Nos. 79-7402, 79-7464, 79-7482
a oe
NEIL LEIST, PHILIP SMITH and INCOMCO,
Plaintiffs-Appellants,
_—V—
JOHN RICHARD SIMPLOT, J.R. SimpLot & Co., SIMPLOT
Propucts Co., INc., SIMPLOT INDUSTRIES, INC., SIMTAG
FARMS, INC., PETER J. TAGGARES, P. J. TAGGARES &
Co., HENRY A. POLLACK, HARVEY B. POLLACK,
HARVEY B. POLLACK COMPANY, GERALD RAFFERTY,
PRESSNER TRADING CoRP., BENJAMIN PRESSNER,
STEPHEN SUNDHEIMER, JULES NORDLIGHT, EDELSTEIN
& Co., INc., CHARLES EDELSTEIN, ROBERT EDELSTEIN,
MURIAL EDELSTEIN, MEIERFELD & COMPANY, INC.,
GILBERT MEIERFELD, DAVID MEIERFELD, ROBERT REAR
DON, F.J. REARDON, INC., HAROLD COLLINS, CASPAR
MAYERSON, LYNNEWOOD EXPORTING COMPANY, ALEX
SINCLAIR, MANNING STOLLER, HORNBLOWER & WEEKS:
HEMPHILL, Noyes Inc., MFX Commopitigs, INC.
DONALD SILVER, DUANE SOUTH, KENNETH RAMM, A &
B FARMING INC., HUGH GLENN, GEARHEART FARMING
Inc., EDWARD McKay, “JOHN” HUMPHREYS, FRAN#
FULLMER,
Defendants
2a
CLAYTON BROKERAGE Co. oF St. Louis, INc., H
COMMODITIES, INC., THOMPSON & MCKINNON, 4
CLOSS, KOHLMEYER, INC., NEW YORK MER(
EXCHANGE, RICHARD B. LEVINE, HOWARD G
ALFRED PENNISI,
Defendants-Apj
——EE > -- —_
INCOMCO,
Plaintiff-App
WAYNE COUNTY PRODUCE Co., and HAROLD Col
Defen
New YORK MERCANTILE EXCHANGE,
Defendant-Ap
— ae
NATIONAL SUPER Spups, INC., WILLIAM R. BUSTE
WILLARD C. CHINER, EUGENE P. WEISMEN, R
WELTS, RAYMOND ROTHBERG, ARTHUR S. ARMS
THEODORE BRINEK, CAPGAIN HOLDINGS, INC., an
ROMMINGER, individually and on behalf of all p
similarly situated,
Plaintiffs-Appe
New YORK MERCANTILE EXCHANGE, CLAYTON BRO!
Co. oF St. Louis, INc., PRESSNER TRADING
4018
3a
JACK RICHARD SIMPLOT, J.R. SimpLot Co.,
INDUSTRIES, INC., PETER J. TAGGARES, P.J. T,
Co., C.L. Orrer, SIMTAG FARMS, KENNETH KR
& B Farms, INc., HUGH V. GLENN, GE,
FARMING, INC. and Ep McKay,
Defi
HEINOLD COMMODITIES, INC., THOMPSON & McK
AUCHINCLOSS, KOHLMEYER, INC.,
Defendants-A}
Before:
FRIENDLY, MANSFIELD and KEARSE,
Circuit
————_---~<> -—- ——
Appeal from an order of the District Court
Southern District of New York, Lloyd F. Ma
Judge, 470 F.Supp. 1256 (1979), granting
summary judgment to the New York M
Exchange and three futures commission me
defendants in three consolidated actions
plaintiffs claimed damages arising out of the de
sellers of the May 1976 Maine potato futures c
on the ground that there is no private cause <
for damages under the Commodity Exchange
U.S.C. §$§ 1-19.
Reversed.
4019
4a
LEONARD TOBOROFF, Esq., Net
(Robson & Toboroff, New
for Plaintiffs-Appellants
Philip Smith and Income:
POMERANTZ, LEVY, HAUDEK &
York, N.Y. and
HOLLINSHEAD and MENDELSON
Pa., for Class Plaintiffs-A
WILLIAM E. HEGARTY, Esq., Ne
(Cahill Gordon & Reinde
N.Y., Charles Platto, Es
Leight, Esq., Of Counsel)
REIN, MounD & CoTTon, New
(Maurice Mound, Esq., Of
Defendants-Appellees Neu
cantile Exchange, Richan
Howard Gabler and Alfre
LAWRENCE H. HUNT, Esq.,
(Sidley & Austin, Chicago
DEWEY, BALLANTINE, BUSHBY
Woop, New York, N.Y. fi
Appellee Heinold Commoa
W. STANLEY WALCH, Esq., St
souri (Thompson & Mitch
Missouri, Gerard K. Sand\
Kenton E. Knickmeyer, E
sel) for Defendant-Appe
Brokerage Co. of St. Loui
HALL, MCNICHOL, HAMILTON, C
RAY, New York, N.Y. fo
Appellee Thomson McKir
closs Kohlmeyer Inc.
4020
in
va
MarK D. YOouNG, Esq., Wi
(John G. Gaine, General
Nicolette, Deputy Gener
Gregory C. Glynn, Asi
Counsel, Washington, D.
for Amicus Curiae Com
Trading Commission.
—_-—_——-__-<> —E
FRIENDLY, Circuit Judge:
Plaintiffs in three consolidated action:
Court for the Southern District of Ne
from an order of Judge, now Chief Jud
470 F.Supp. 1256 (1979), granting ap]
for partial summary judgment. The cor
the complaints all claims based on |
Exchange Act, (CEA), 7 U.S.C. §§ 1-19,
1974, as distinguished from other cl:
antitrust laws. The actions were to r
allegedly suffered by the plaintiffs as ¢
Judge MacMahon characterized as
the much publicized default in May
potato futures contracts, when the :
1,000 contracts failed to deliver
50,000,000 pounds of potatoes, r
largest default in the history «
futures trading in this country.
1258 (footnote omitted).
The basis for the court’s order was
cause of action exists for breach of the
important issue has divided the
including those within our circuit, we
4021
6a
to discuss it in some detail.' We
did the district court, to begin w:
the nature of the commodity fut
I. COMMODITY FUTURE
A commodity futures contract
executory agreement for the pur
particular commodity. The sell
commits himself to deliver the c
date in the future, while the bu
then to accept delivery and pay
Bromberg & Lowenfels, Securitie:
ties Fraud § 4.6 (4211979); H. R.
Cong., 2d Sess. 130 (1974). Every
contract is standardized except pr
contract involved in this case, t!
potato futures contract, is for 50,
grown potatoes of a specified qual
specified points in cars of the |
Railroad, between May 7 and May
is the only variable, negotiations
and the agreed prices can be spec
1 The length of our treatment, particu
nature of the Commodities Futures Mar!
of congressional regulation in Part III, i
that when the case was argued and for :
opinion was prepared, no court of appeal
and we anticipated being the first to
decided May 12, 1980, a divided panel
the Sixth Circuit reached the issue sua
and succinct opinion, held, as we do, on
that there is an implied private right
Curran v. Merrill Lynch, Pierce, Fenn
1300, SRLR (BNA) G-1 (May 12, 1980)
dissent, Curran involved a suit by a cu
court did not limit its reasoning to thi
4022
other traders. Standardization al
fungible. Original sellers and
offset their positions by acquir!
either paying or gaining any p!
Rep. No. 93-975, supra, at 130.
The person who has sold a
someone committed to deliver
future, is said to be in a “short
someone committed to accept de
rare case, however, in which acti
pursuant to a futures contract
instances, the short and the lon
positions prior to the close of tr
futures contract. Although the 1
done is routinely referred to as f
contracts are not “traded” in thi
word. Rather they are formed ;
Genealogy and Genetics of “C
Commodity for Future Deliver
Exchange Act, 27 Emory L. J.
person seeking to liquidate his
“ See H. R. Rep. No. 93-975, supra
futures contracts culminate in delive:
of Futures Trading 41 (1977) (less tha
investor nor the person using the fut
position in the market for the actua
delivery. H. R. Rep. N. 93-975, supra,
Inc. v. Freeman, 311 F.2d 52, 55:
Delivery Requirement: An Illusory B
tion in Commodity Exchanges 73 Ya
In occasional instances, however, pt
an alternative market for the physic:
93-975, supra, at 132. Delivery is ma
by transfer of warehouse receipts or ri
then transported according to the
Cargill, Inc. v. Hardin, 452 F.2d 11
denied, 406 U.S. 932 (1972)
4023
form an opposite contra
that his obligations unde:
each other. Thus, a short '
the commodity must purc
contracts; a long must si
contracts. Money is nm
differential between the
offsetting transaction. If
declined, usually because
cating a drop in the pric
will realize a profit; if th
long will realize a profit
452 F.2d 1154, 1157 (8
U.S. 932 (1972). Futures
Since money is made |
contract prices, and ever
short, every gain can be }
loss. See Melamed, The
Futures Exchange: A Cr
Transaction Process, 6 H¢
(1977).
The mechanics of the cx
the roles of the various 5
by tracing a typical trans
to invest in the futures
commission merchant” (F
Commodity Exchange Ac!
“engaged in soliciting or
purchase or sale of any «
... On... any contra
U.S.C. § 2, and they are r
Futures Trading Commi
demand a “margin” paym
is simply a security depo:
adverse price movements
based upon the amount
a day or two; when the
will call the customer
margin is generally only
of the contract. See Me!
at 167 & n.41. FCM’s :
customer’s business.
The FCM relays its |
“floor brokers” trading
stands on the outside of
are gathered other p
contract. Some of the
behalf of customers, w!
account. Contracts are
broker with an order wil
by shouting and gestici
signals. Someone willing
across the pit in similar
Observers on raised pul)
transaction and feed the
tions system, publicizin;
event, had an opportuni
the pit. The broker rela’
the FCM, who informs
When two traders ha
floor of the exchange,
comes into play. The c
futures trading system
buyers and the buyer f!
the interchangeability «
ling of positions. H. R.
S. Rep. No. 93-1131, !
Cargill, Inc. v. Hardin, :
FCM’s are clearinghous
must deal through |
FCM’s as princip
demands margin p
house requires FC)
close of every tradi
the FCM has sust
trading is computec
accordingly. Melam
68.
Generally speakin
commodity futures
facts of the instar
between them are o
trader with an int
commodity, who de:
of transferring risks
R. Rep. No. 93-975.
the complicated d
transactions and po
17 C.F.R. § 1.3(z). T
against declining p
short futures contra
to be able to sell, ¢
hedge against incre
month when he will
by a decline in price
case or an advance i
in the futures tran:
No. 93-975, supra,
supra, 452 F.2d at |
at 171-73. The bene
immediate participa
hedging of price ri
merchant to reduc
business, he is at
with consequent
Rep. No. 93-975,
93-1131, supra,
Regulation of ti
Harv. J. Legis. ‘
The system w
hedgers sold ani
tracts.’ While he
it is actually qui
faced by those de
for the actual co:
similarly situate:
shifted to other:
Trading: Specula
Rev. 27, 32 (197
F.2d at 1158.
underlying intere
take on the risks
critical role of tl
length in the Ho
The principa
is to take thi
accept. The
speculator w
of speculato!
futures mar.
3 Johnston, Unde
Bus. Law. 705, '
market to be br«
extremely large o
and commercial
volume of tradin;
there to be a via
offers
broade
execut
larger
numbe
price |
price |
Witho
frater1
marke
would
of spe
larger
unfille
an equ
same }
93-975
As comme
recognized
referred tc
makes the
Bromberg
Indeed,
hedgers al
merely bal
market but
or selling 1
expectatior
The Need ,
Geo. L. J.
J. Legis. a
become inv
the plainti
13a
Il. THE ALLEGED FACTS AND THE PROCEEDINGS
BELOW
The facts alleged in the three complaints here before
us are broadly as follows:‘
John Richard Simplot is an Idaho potato entrepre-
neur who controls J. R. Simplot and Co., Simplot
Products Co., Inc., and Simplot Industries, Inc. These
corporations are responsible for the processing of
approximately 50% of all Idaho potato products
processed and sold in the United States. Peter J.
Taggeres is a Washington potato entrepreneur. He and
his company, P. J. Taggares Co., process approximately
30% of all the Washington potatoes processed and sold
in this country. Simplot and Taggares are equal
partners in the ownership of Simtag Farms, a large
farm in the State of Washington for the growing and
warehousing of potatoes. Together Simplot, Taggares,
and the companies they control are the largest
purchasers of potatoes throughout the western potato
region of Washington, Idaho and Oregon.
According to the complaints, Simplot, Taggares, and
the companies controlled by them, together with
numerous co-conspirators, embarked in the spring of
1976 on a conspiracy to depress the price of the May
1976 Maine potato futures contract traded on the floor
of the New York Mercantile Exchange (the “short
conspiracy”). As stated by one of the complaints, “(bly
virtue of their position in the potato processing field
and the quantity of potatoes purchased by them, [the
4 We say here once and for all that our statement, in large measure,
is simply what the plaintiffs contend to be the facts and is not to be
read as one of facts found. Accordingly we will generally dispense
with use of words such as “allegedly”, “asserted” and “claimed”.
4029
l4a
conspirators] would be in a position to control the
prices paid for potatoes but for the existence of the
Exchange and the activity . . . in buying and selling
potato futures contracts.” Simplot had encountered
difficulties in the course of his customary negotiations
with the Idaho Potato Growers Association, because the
IPGA believed that the price of potatoes, including
Maine potatoes, would be much higher than what
Simplot was offering. Futures prices supported this
view. A report issued on April 13, 1976 by the United
States Department of Agriculture indicated that total
potato stocks were down 11%, and that Maine stocks
totalled only 7.4 million cwt. compared with 13.0
million cwt. on hand the previous year. An earlier
report issued in August 1975 estimated that national
potato acreage would be down 8% from the previous
year with an even greater drop in Maine. The effect of
this latter report, and other generally available
information, was to drive the price of the May 1976
Maine contract from $9.75 per cwt. to a record high of
$19.15 per cwt. by October 3, 1975. The activities of
the short conspirators were designed to counteract the
impact of these reports and other market information
and rumors tending to raise the price of Maine futures.
A decline in the price of potato futures would suggest
to those dealing in the cash market, such as the IPGA,
that supplies of Maine potatoes would be greater than
earlier anticipated, and that prices in spot transactions
or negotiations for all potatoes should correspondingly
recede.
The primary means by which the short conspirators
sought to depress the futures price was the accumula-
tion of a large net short position in the May contract.
The conspirators allegedly agreed to sell a large number
4030
of contracts short and to refuse to liquidate these
shorts at a price higher than that agreed among
themselves and, if necessary, to default on the
obligation to make delivery on all unliquidated
contracts. Such short purchases would give the
impression of the existence of a large supply of
deliverable Maine potatoes and drive down the price of
the contract.
Simplot made $1 million available to Simtag Farms,
which Simtag used to open a credit balance on March
29, 1976, with Pressner Trading Corp., a member of
the New York Mercantile Exchange (the Exchange or
NYME), for the purpose of buying and maintaining
short positions in the May contract. At the same time,
Simplot, Taggares and their other companies also began
to accumulate a large number of short contracts. The
brokers through which the conspirators acquired their
positions included Clayton Brokerage Co. of St. Louis,
Inc. (Clayton), Heinold Commodities, Inc. (Heinold), and
Thompson & McKinnon, Auchincloss, Kohlmeyer, Inc.
(Thompson). These three brokerage firms were, like
Pressner Trading, clearing members of the Exchange
and appropriately registered with the CFTC. The firms
allegedly knew, or should have known, that thei
customers neither intended to nor would be able t
cover the large number of short positions the broker:
acquired for them.
On May 4, 1976, Simplot and Taggares were warnec
by the CFTC that it was aware of their large shor
position and that price manipulation was a violation o}
the Commodity Exchange Act. The telegram concludec
that although this “is not an allegation of pric
manipulation, if prices of the May 1976 potato futur
. . Should become artificial during liquidation due t
4031
l6a
your action or inaction, we will consider wheth
and your firm should be charged with price mar
tion under the Commodity Exchange Act.” In th
of this warning, and the impending close of trad)
May 7, the conspirators not only failed to take st
liquidate their large shor’ position but a
increased it, again with the help and support |
named brokerage firms. On the last day of tradin
consolidated all the short positions they control
the hands of Pressner. Clayton, Thompson and H
knowingly acquiesced in this consolidation desig!
concentrate the force of the manipulation.
In addition to the accumulation of a large net
position which they refused to liquidate at highe
an agreed price, the conspirators also all
manipulated the futures price by shipping
quantities of unsold Idaho potatoes to the
markets for immediate sale at the going price. T
of such so-called “roller cars”, railroad cars of pc
shipped although there is no pre-determined
tends to depress the market price, and thus
futures prices.
Simplot and Taggares were not the only
manipulating the price of the May future. A |
group of eastern conspirators thought they coul
the western producers at their own game. |
Collins and Casper Mayrsohn are Maine
merchants and traders in Maine futures. MFX
modities, Inc., with Donald Silver as its presider
foreign corporation engaged in business as a FCN
group learned of the conspiracy of Simplo
Taggares and conspired to squeeze them. Pursu
this conspiracy (the “long conspiracy”), the “long”
purchased as many contracts as it could, and t
4032
17a
the same time maneuvered to tie up the cash
market so that the shorts could not make delive
longs reasoned that if the shorts had no ac
deliverable potatoes, the longs would be able to
the price the shorts would have to pay to liquida’
contracts. The main way in which the longs tied
cash markets was by tying up all of the rail cars
Bangor & Aroostook Railroad, which alone
deliver potatoes to satisfy May futures contract
was done by using the cars for phony export shi
and leaving them loaded or only partially w
when they reached appropriate destinations.
Neither the longs nor the shorts would give in
other. The shorts refused to liquidate their posi
buying offsetting long contracts at higher th
price agreed among them; the longs refused t
down to the unreasonably low price demanded
shorts. At the end of trading on May 7, th
conspirators controlled 1893 open short positio
long conspirators controlled 911 open long po
There are usually only approximately 20(
contracts at the end of trading on the May
future.
The plaintiffs were caught in the middle |
these two competing conspiracies. Neil Leist is
licensed member of the Exchange engaged
business of trading commodities and futures
own account. Incomco, a partnership, is a duly |
FCM. Philip Smith is Incomco’s managing partr
class action plaintiffs are traders and dealers re;
ing all persons “who held a net long posi
Contracts and who liquidated their long position
contract between April 13, 1976 and the <
trading on the Exchange on May 7, 1976.”
4033
18a
On the basis of the same sort of inf
motivated Simplot and Taggares to con
the price of the contract, plaintiffs bel
an investment opportunity on the lo
contract. If there was going to be
deliverable Maine round whites, thos
deliver potatoes at a set price might, we!
to be under what the potatoes were we
would then have to sustain a loss, eithe
potatoes in the cash market for the h
delivering them for the lower futures c<
by purchasing an offsetting long positi
the long position should have gone
shortage, so that the shorts would lose
in liquidating. The shorts’ loss would be
and it is this gain which the plaintiffs s
by their investment.
All the plaintiffs invested heavily on
the May contract. In addition, Incom
position in the cash market. It had acct
pounds of Maine potatoes delivered to
the March futures contract, and plann
potatoes to those short the May contri
supplies to satisfy their delivery obligat
ing a cash market shortage, Incomco ex]
potatoes at a handsome premium.
Because of the conspiracies, howeve
only did not realize the gains they cli
have had in an unmanipulated mark
losses. The short conspirators continue
short positions when they should have
liquidate by purchasing long contracts
and refused to liquidate above a set pric
the unnaturally falling price, the plaint
4034
19a
out of the market at a loss. Bec:
conspirators had successfully tied up all
of the Bangor & Aroostook, Incomco
deliver its warehoused potatoes to p
delivery to fulfill short contracts. As the
set in, the 1,500,000 pounds of potatoes
and Incomco’s total investment was los
The Exchange allegedly figured in this
from the start. In March, Richard Levir
the Exchange, told plaintiff Leist that
was investigating the large number of 0}
the May contract. On April 28, two n
CFTC eastern region office, Howard Bi
Marshall Horn, met with Levine and fF
vice-president of the Exchange, to expres
over the problems developing with the
Levine recognized the problem and exp1
that Simplot might be trying to create
the contract. A second meeting took |
later, at which Bodenhamer told Le
Commissioners felt that “the Exchang
more action than less to bring about «
tions of the maturing futures.”
Levine did not report these meetings
to the Exchange’s Board of Governors
close of trading on the May contract.
Exchange knew, or should have know
short and the long conspiracies, it too
prevent manipulation of the market.
failed to declare an emergency situation
rules to facilitate orderly liquidation, an
had closed, failed to take appropriate
permitting delivery by truck or buyi
cover the default of the shorts.
4035
20a
The complaint in Leist v. Sim,
District Court for the Southern Di
September 30, 1976. Count I, dire
conspirators and their brokers
activities of the group constituted
§§ 1-13 and, more specifically, thi
employed manipulative devices
violation of 7 U.S.C. § 13, which
felony, and of rules promulgat
addition to naming the brokers as
specifically alleged that they “fa
enter liquidating orders” for th
prior to the close of trading “ev
that such short positions could no
there would be a default if the acc
out”, permitted the short sale
cooperated in making such short
knew or should have known the
intend to and would be unable
positions.” Count II of the comp
violations of the Sherman Anti
§§ 1, 2, which are not subject t
Count III was directed against t
describing the facts outlined abo
such conduct violated 7 U.S.C. §
directed against the Exchange a!
repeating the earlier general al
short conspirators, the complain
defendants “negligently failed to
market for trading in Maine Futu
duties imposed upon them under
Act.” The Exchange was also ch
report the various violations alle
4036
2la
and with failing to direct the
orders for the account of men
positions prior to the close of tr:
Exchange officials knew or shoul
sellers would not and could not
positions remained open.
The complaint in Jncomco v.
Exchange was filed in the Di
Southern District of New York o
complaint was directed at the lon
Exchange, “acting separately and
the long conspirators, for “block
railroad cars, thereby creatin
manipulative railroad car shorta;
Commodity Exchange Act, and
for failing to follow its own regu
buy in the cash market for the
sellers so that outstanding oblige
As in Leist v. Simplot, plaint
antitrust charge.
The complaint in National Sup
Mercantile Exchange was filed in
the Southern District of New Y
After consolidation with other ac
this class action complaint charge
the short sellers described above
ble provisions of the Commodit:
manipulative force which artific
of the Contract.” Count II cha
with exceeding position and tra
CFTC in 17 C.F.R. § 150.10. C
against the brokers for the short
4037
22:
with violating Exchange |
have liquidating orders pl
should have known that
deliver potatoes, permittin
position and trading limit
failing to report these and
regulations, and Exchange
which they knew or sho
generally charged that the
intent of short Sellers t
Contract acquiesced and/o!
Short Sellers.” Count VI w
charging that it failed a
concealed violations of the
rules; failed and neglecte
orders be entered with re:
Exchange knew or should
generally failed and neglec'
&
5 This reads as follows:
44.02-FINAL DAY OF TR
(a) On the final day of tri
the responsibility of each «
position to fulfill his con
contract by prescribed not
order entered on the Exch:
before the time established
month. All such orders si
prior to the expiration of
(b) On the final day of ti
no time limit or contingen
will not be expected to ass
orders placed later than 15
(c) Cancellations that rea
hour prior to the time tra
day of trading in an expir
problems and hence will |
customer.
contract market; and fail
due care to halt manip
actions, all claiming e
punitive damages, were ¢
After answers had been
had been had, one phasi
attention of this court, |
New York Mercantile Ex
1979), three brokers, Cla:
and the Exchange and Ex
different actions for judg
Fed. R. Civ. P. 12(c) or,
summary judgment unde
he believed that all the
material outside the plead
motions under Rule 5i
dispositive reasons so far
the Commodity Exchange
raised by the Exchange,
Thompson, seem to have |
could have been raised as
been filed two years ear
issued on May 29, 1975
MacMahon held that th
action for damages und
Act, and granted summa
moving defendants on tl
under that Act.* Partial
under Fed. R. Civ. P. 5
defendants, and the plair
For a precise statement o
470 F.Supp. at 1257 n.1, 1
ll. THE HI
COMMOI
Although our ir
modity Exchange .
useful at this po
Congressional reg.
The first effort
Trading Act, 42 S
basic pattern of a!
trading on central
and control of thi
levied a tax on all
a designated col
Agriculture was ;
trade as a “contrac
“provides for the 5
§ 5(d), 42 Stat.
virtually unchang:
the provisions up
private right of a
also empowered
Secretary of Agri
the Attorney Ge
designation of any
the conditions of
and to preclude
attempting to m
designated contr
Failure to pay th
records made the '
a fine of up to $1
one year. § 10, 4%
The Future 17
unconstitutional
Wallace, 259
immediately and
Stat. 998 (192%
deleted, and Co.
power, simply m
in futures contri
§ 4, 42 Stat. 99!
of the 1921 act \
penalties now ac
the failure to p
added, § 3, 42S
over virtually u
U.S.C. § 5. The
exercise of the
Olsen, 262 U.S.
established the
designated exch
controlling desig
markets. The |
violations was a
Major addition
by the Commodi
Coverage was
commodities suc
4a was added,
Secretary of Agi
Attorney Genersg
tive trading.’ H
This provision
(1) Excessi.
sale of such c
knowledge «
violated limi
C.F.R. § 150
Stat. 1493,
the ruk
fluctuat
commoc
commer
elimina(
from til
by orde
which n
under c
or subje
finds a
burden.
limits, t
or indir
position
limits u
and tra
express:
the pos
person
(2) Tl
(not to
which, |
shall x
(A) d
under ¢
subject
the ord
busines
day by
commo
(B) d
short p
to the:
fixed b
Provide
acquire
27a
present form." New section 4d required the registration
of FCM’s and section 4e of floor brokers, while section
4g provided for the suspension or revocation of these
registrations for violation of the Act or rules adopted
thereunder. Section 5a added new duties of reporting
for contract markets aud some substantive obligations
as well. Fines and imprisonment sanctions were
extended to cover violations of the newly enacted
provisions as well as old § 4, and were also applied to
& ‘This provision currently reads as follows:
It shall be unlawful (1) for any member of a contract market, or
for any correspondent, agent, or employee of any member, in or in
connection with any order to make, or the making of any contract
of sale of any commodity in interstate commerce, made, or to be
made, on or subject to the rules of any contract market, for or on
behalf of any other person, or (2) for any person, in or in
connection with any order to make, or the making of, any
contract of sale of any commodity for future delivery, made, or to
be made, on or subject to the rules of any contract market, for or
on behalf of any other person if such contract for future delivery
is or may be used for (a) hedging any transaction in interstate
commerce in such commodity or the products or byproducts
thereof, or (b) determining the price basis of any transaction in
interstate commerce in such commodity sold, shipped, or received
in interstate commerce for the fulfillment thereof—
(A) to cheat or defraud or attempt to cheat or defraud such
other person,
(B) willfully to make or cause to be made to such other person
any false report or statement thereof, or willfully to enter or
cause to be entered for such person any false record thereof;
(C) willfully to deceive or attempt to deceive such other person
by any means whatsoever in regard to any such order or contract
or the disposition or exchange of any such order or contract, or in
regard to any act of agency performed with respect to such order
or contract for such person; or
(D) to bucket such order, or to fill such order by offset against
the order or orders of any other person, or willfully and
knowingly and without the prior consent of such person to
become the buyer in respect to any selling order of such person, or
become the seller in respect to any buying order of such person.
4043
28a
anyone attempting to manipulate or manipulating the
price of any commodity. 49 Stat. 1501.
By 1936, then, the major provisions which assertedly
form the bases of the implied right of action against the
FCM’s, the trading limit, antifraud, and antimanipula-
tion provisions, were already in place. One of the two
additional provisions allegedly affording the basis for
an action against the Exchange, § 5(d), had been law
since 1921 and the other, § 5a(8), would be added in
1968.
The 1968 amendments, 82 Stat. 26, extended
regulation to new commodities such as live cattle and
pork bellies. The amendments added § 5a(8), as noted
above, requiring a contract market to enforce all of its
rules not disapproved by the Secretary of Agriculture.’
Corresponding § 8a(7) was added empowering the
Secretary to disapprove rules which violate or will
violate the act or regulations. The penalty provision
was altered somewhat, making FCM embezzlement and
price manipulation felonies instead of misdemeanors,
with a maximum prison term of five years instead of
one, 82 Stat. 33-34. Section 6b was added, granting the
Secretary the power to issue cease and desist orders
against a contract market not enforcing its rules or
violating the act. 82 Stat. 31-32.
® This provision currently reads as follows
(8) enforce all bylaws, rules, regulations, and resolutions, made
or issued by it or by the governing board thereof or any
committee, which relate to terms and conditions in contracts of
sale to be executed on or subject to the rules of such contract
market or relate to other trading requirements, and which have
been approved by the Commission pursuant to paragraph (12) of
section 5a of this Act; and revoke and not enforce any such bylaw,
rule, regulation, or resolution, made, issued, or proposed by it or
by the governing board thereof or any committee, which has been
disapproved by the Commission
4044
29a
In contrast to the limited scope of the 196
amendments, the 1974 amendments, 88 Stat. 138!
(1974), constituted a complete overhaul of the Act
They broadened its coverage from the agricultura
commodities with which it had historically bee
concerned to include “all other goods and articles .
and al! services, rights, and interests in which contract
for future delivery are presently or in the future deal
in”, subject to certain exceptions designed primarily t:
exclude securities. Consistently with this expansion i)
coverage, enforcement was transferred from th
Department of Agricu!ture to a newly constitute
Commodity Futures Trading Commission (CFTC). How
ever, the amendments did not substantially alter any o
the provisions which assertedly form the bases of a)
implied right of action. The antifraud and tradin,
limits sections were basically unchanged. Maximun
fines were increased from $10,000 to $100,000 in th
penalty section.’ Section 5(d), requiring a contrac
10 ~=s- This provision currently reads as follows:
It shall be a felony punishable by a fine of not more tha
$500,000 or imprisonment for not more than five years, or bot!
together, with the costs of prosecution, for any person t
manipulate or attempt to manipulate the price of any commodit
in interstate commerce, or for future delivery on or subject to th
rules of any contract market, or to corner or to attempt to corne
any such commodity, or knowingly to deliver or cause to b
delivered for tranamission through the mails or in interstat
commerce by telegraph, telephone, wireless, or other means o
communication false or misleading or knowingly inaccurat
reports concerning crop or market information or conditions tha
affect or tend to affect the price of any commodity in interstat
commerce or knowingly to violate the provisions of section 4
section 4b, section 4c(b) through section 4e(e), section 4h, sectio
40(1), or section 19 of this Act, or knowingly to make any false ¢
misleading statement of a material fact in any registratio
application or report filed with the Commission, or knowingly t
omit in any application or report any material fact that |
4045
30a
market as a condition of designation, to |
manipulation and cornering, remained unchangi
§ 5a(8) was altered so that exchanges were requ
enforce their rules approved by the CFTC rath
those rules not disapproved by the Secretary.
The 1974 amendments required contract mar
provide arbitration procedures for settlement
tomer grievances and claims not exceeding $
§ 5a(11). The CFTC was vested with power to
exchanges to adopt additional rules, § 8a(7),
bring actions to enjoin violations of the Act and
compliance through writs of mandamus, § 6c. |
the reparations procedure in § 14 was establis
which more hereafter.
The history of congressional concern with com
futures trading has thus been one of steady ex)
in coverage and strengthening of regulation. I:
1968, and 1974 new commodities came under th
In each of these years the power of the reg
authority were augmented, and penalties were
extended, increased, or both. The question of C
sional intent with respect to private sanction:
the Act must be considered against this backgr:
increasingly strong regulation designed to ins'
existence of fair and orderly markets.
required to be stated therein. Notwithstanding the for
the case of any violation described in the foregoing sent
person who is an individual, the fine shall not be n
$100,000, together with the costs of prosecution
4046
3la
IV. PRIVATE CAUSES OF ACTION UND!
COMMODITY EXCHANGE ACT PRIOR
THE 1974 AMENDMENT
During the late 1940's, the 1950's, the 1960’
early 1970’s there was widespread, indeec
general, recognition of implied causes of ai
damages under many provisions of the §
Exchange Act, including not only the ;
provisions, §§ 10 and 15(cX1), see Kardon v.
Gypsum Co., 69 F.Supp. 512, 513-14 (E.D. P
Fischman v. Raytheon Mfg. Co., 188 F.2d 78:
Cir. 1951) (Frank, J.); Fratt v. Robinson, 203 |
631-33 (9 Cir. 1953), but many others. These
the provision, § 6(aX1), requiring securities e
to enforce compliance with the Act and any
regulation made thereunder, see Baird v. Fran
F.2d 238, 239, 240, 244-45 (2 Cir.), cert. der
U.S. 737 (1944), and provisions goverr
11 While the point is of no great importance as regards t
take issue with the statements in the dissent, page 38, t!
Realty Corp. v. Bache & Co., 358 F.2d 178 (2 Cir.), cert
U.S. 81 (1966), held that violation of a rule of the New
Exchange could not give rise to an implied cause of
conclusion was that violation of certain types of rules wo!
to an implied cause of action, especially “when the rule
explicit duty unknown to the common law”, but that viol
rule there at issue, requiring brokers to observe “just a!
principles of trade”, did not. Jd. at 182-83. We likewise d
the statement in footnote 8 that “it is now well recog
private right of action may not be implied for a violation
the New York Stock Exchange,” citing Jablon v. Dean W
614 F.2d 677 (9 Cir. 1980). Although the particular rul
Jablon, the “know your customer” rule, Rule 405 of thi
Stock Exchange, seems analogous to the rule at issue
Reality and we thus have no quarrel with the result,
necessarily accept the broad language of the Jablon opin
of our conclusion that plaintiffs have alleged vioclatio
sections of the Act which give rise to private cl
4047
32a
solicitation of proxies, see J. J. Case Co.
U.S. 426, 431-35 (1964). The Baird cas
importance since the claim was of failu
York Stock Exchange to perform its d
paralleling that asserted here against N
in 1961, Professor Loss remarked wi
violations of the antifraud provisions
exception “not a single judge has expres
the contrary.” 3 Securities Regulation 17
Bromberg & Lowenfels, supra, § 2.2 (4
1946-1974 as the “expansion era” in im
action under the securities laws). When «
for violation of § 10(b) and Rule 10b-
Supreme Court, the existence of an im
action was not deemed worthy of exten
Superintendent of Insurance v. Bar
Casualty Co., 404 U.S. 6 (1971); Affiliate
v. United States, 406 U.S. 128 (1972)."* |
unnecessary for us now to decide whether such
for violation of NYME Rule § 44.02
So far as concerns the dissent’s citation of O7
F.2d 764 (2 Cir. 1964), as a case denying a privi
the securities area, that decision rested on the
and in no way challenged the proposition that
action would lie if the facts came within the |
12 Indeed, at the time Congress considered ar
amendments to the CEA, the Supreme Court !
request to imply a cause of action under the fe
Pitt, Standing to Sue Under the Williams Act 4
Bus. Law. 117, 121 (1978)
The suggestion in the dissent that the Superin
case was a grudging acquiescence in 25 ye
decisions, although finding some support in a
404 US. at 13 n9, ignores the language
Superintendent of Insurance and the climate
Supreme Court there reversed a decision of tl
apply § 10(b) under circumstances which pres
absolute limit. The Court quoted not simply in a
4048
33a
causes of action under other statutes
the SEC were also widely recogn
Goldstein v. Groesbeck, 142 F.2d 422,
cert. denied, 323 U.S. 737 (1944)
Holding Company Act); Cogan v.
F.Supp. 907 (S.D.N.Y. 1958); Schwartz
F.Supp. 361 (S.D.N.Y. 1957), appea
holding on this point approved, Schwa)
F.2d 195, 197-98 & n.5 (2 Cir. 1959); B
194 F.Supp. 207, 220-21 (S.D.N.!
appellant conceding this point, 294 F
Cir. 1961XInvestment Company Act);"
v. Marine Midland Grace Trust Co., 4
n.5 (2 Cir. 1971\dictum), aff'd 406 U.!
(1972\Trust Indenture Act). These stat
strong approval the statement in Shell v. He
827 (5 Cir. 1970)
When a person who is dealing with a cor]
transaction denies the corporation's direct
information known to him, the corporat
availing itself of an informed judgment on
regarding the merits of the transaction
private right of action recognized under Ru
a remedy for the corporate disability
And all this under a statute which expressly
actions, §§ Xe), 16(b) and 18, with respect
securities transactions that were far more
reparations procedure of the 1974 amendme:
Loss, Securities Regulation at 3689-73 (196¢
this and other reasons the Borak decision
preclude a different ruling with respect to the
cause of action under § 10(b)}~a ruling whic!
13 ~—s Indeed, in several important cases under th
Act, defendants represented by able counsel
worthwhile to question the existence of an in
action. See, e.g., Rosenfeld v. Black, 445 F.i
cert. dismissed 409 U.S. 802 (1972); Moses v
(1 Cir.), cert. denied 404 U.S, 994 (1971); Fi
F.2d 731 (2 Cir. 1975), cert. denied, 429 U
4049
34a
panoply of other remedies—enf(
suspension, civil fines, crimina
express private actions—which,
the administrative reparations re
of violator, were every bit as o
those in the CEA, but argument
negated an implied private c
regularly and firmly rejected, si
much cited opinion in Baird v.
F.2d at 244-45; Goldstein v. Groe
at 426-27; Fratt v. Robinson, su
Dann v. Studebaker-Packard Cor
09 (6 Cir. 1961). The question |
these decisions were wrong in
Court opinions of the past four
necessarily implies, but whether
not justified in assuming they wv
respect to the CEA.
Neither the generality and ne«
interpretations of statutes regul
practices, for which the CEA v
respect to futures treding,"* no
14 While there are differences bet
securities fields, what is relevant t
common legislative objective of insurir
what are important public markets,
approach to attaining this objective
fields has been repeatedly recognized
No. 93-1131, supra, at 19; H. R. Rep
1936 amendments arose from an expli
in the commodities field as strong as
lest the unscrupulous would simply |
one market to another. H. R. Rep. Nc
(1934); 78 Cong. Rec. 10446 (June 4,
Jones of the House Committee on Ag
(June 3, 1935) (same). The analogy ha
the courts, see, e.g., Silverman v. CF.
4050
other fields, e.g., Reitmeister |
691 (2 Cir. 1947\action for
statute making interception
crimeXL. Hand, J.); Fitzgerald
Airways, 229 F.2d 499 (2
damages implied from anti-dis
Civil Aeronautics Act althoug!
complaint to CAB and crimin:
novel. They rested on principle
Supreme Court decisions going
R. Co. v. Rigsby, 241 U.S. 33
the right of a switchman t
violation of the Federal Safety
the only express sanctions wer
stated:
A disregard of the comm
wrongful act, and where it
of the class for whose esy
was enacted, the right tor
party in default is impliec
of the common law expre
Action upon Statute (F),
every case, where a statu
thing for the benefit of a
1977) (quoting Moore, J., in Savagi
Cir. 1977)); P. J. Taggares Co. v
(S.D.N.Y. 1979) (Weinfeld, J.); by |
curiae at 12; and by the comme:
Meltzer, Secondary Liability Unde
27 Emory L. J. 1115 (1978); Not
Commodity Futures Investors, 55 |
Congress was not only aware of the
CEA in 1974, as shown below, bi
private right of action recognized ii
regulation.
4051
remedy upon the
enacted for his adva
a wrong done to hin
Holt, C.J., Anon., €
Following Rigsby the §
plied causes of action o1
Wyandotte Transportati
U.S. 191 (1967) (sustair
United States for dama
Act for removing ne;
express remedies of |
penalties); United State
U.S. 482 (1960) (sustair
United States for an in
Harbors Act); Tunstal
Enginemen, 323 U.S. :
cause of action by uni
discrimination among |
Board of Mediation); Si
Inc., 396 U.S. 229 (191
cause of action under 4%
Board of Elections, 39
implied private cause of
Rights Act despite 1t
regulatory scheme and
Attorney General); and,
decisions under the sec
Court itself has recogniz
early 1970’s was one
consistently found ir
University of Chicago, 4
718 (Rehnquist, J., cor
Case Co. v. Borak
federal courts, gave Co
the federal judiciary w
generally Note, Jmplyi
Regulatory Statutes, 7
Given so many cases
under a broad range of
instance of the securi
supported by a good
decisions and the re:
scarcely surprising tha
question prior to the
upheld the implicatior
under the CEA. Indeed
would have been alm
courts to have held
Although it is true, as)
v. University of Chicago
period, the Court frequen
imply causes of action fre
the same cases mentione
no doubt that particular!
statutes administered by
much taken for granted
See note 13 supra. There
itself, both before and af
v. Peavey Company Com
1970); Ames v. Mernili
F.2d 1174, 1176 (2 Cir
cause of action under thi
Dean Witter & Co., Ini
addition, several courts
precise contours of the p!
of course by the securitie
implicitly that such an a
Produce Exchange, 434 |
Texas Cattle Managemen
v. Bache & Co., Inc., 570
v. NYME, supra, 476 F
remedies were ai
claims for econ
important effort
ity futures ma)
reported case, fi
Goodman v, H. I
1967)."° The un
private right of
cases frm all of
commodity futur
& Co,, 291 F.Suy
Harris, Upham 4
1968), modified,
Egg Producers v.
1375, 1384 (S.D.
Commodity Serv
McCurnin v. Koh
(E.D. La. 1972), :
v. Barnes Broke
(N.D. Tex. 1972)
Hamill & Co., 3
16 = The dissent’s s
trading had neve
which was “the
empirical basis
Seligson v. Neu
1080, rendered i)
“led to.a string
past ten years.”
confronted with
by the SEC, did
a private cause ¢
in well-known ci
to do 80, see no
While we thin!
are exaggerated,
extended it with
regarded these di
the law
Arnold v. Bach
1973); Deaktor |
534 (7 Cir.), ret
Mercantile Exch
(per curiam); Se
378 F.Supp. 107
Miller v. New Y
Cir.), cert. deni
It is true that
a broker agair
customer's acco!
the Act, but nor
as either the ba:
did not involve
customers. The }
D. Schreiber & (
grounds sub ni
Deaktor, 414 VU.
court. Plaintiffs
various member
lated the futur
violation of CE
raising the pric
the Deaktor pla
to liquidate tl
converse of the
The Exchange
§ 5a(8), 7 U.S!
exchange to “en
resolutions”. PI;
Exchange with
futures market,
plaintiffs to se
conduct was al!
provisior
§§ 52(8)
manipuls
Sherman
denials
defendar
exercise
Exchang
primary
reached
were all
the Dea
considers
conclude
court no
language
practice
changes
forms of
the mar]
and the «
that § 9
prices, a)
the gen
enactme!
interests
therefors
Thus, in
amendm
enactme)
jurisdict,
of all fi
States h
existed
4la
broker on his customer but for manipulation as well.
The notion, strongly emphasized by the dissent, that
such a decision escaped the knowledge of those framing
the amendments, seriously underrates the expertise of
our lawmakers and their staffs in subjects of particular
concern to them.
Far from undermining the Seventh Circuit’s recogni-
tion of an implied cause of action, the Supreme Court's
reversal, 414 U.S. 113 (1973) (per curiam), on the
ground that the court should have deferred to the
primary jurisdiction of the Commission implicitly
affirmed this recognition. Noting that “ ‘Congress has
established a specialized agency that would determine
either that a ... rule of the Exchange has been
violated or that it has been followed. . .’”, the Court
emphasized that “‘Either judgment would require
determination of facts and the interpretation and
application of the Act and Exchange rules. . .’” and
that “ ‘either determination will be of great help to the
., .court. .. .’" Jd. at 115, quoting Ricci v. Chicago
Mercantile Exchange, 409 U.S. 289, 307 (1973). Thus
the Court’s reason for insisting on a determination by
the Commission “in the first instance”, 414 U.S. at 116,
was that it would assist a court in hearing plaintiff's
claims “in the second instance”. The Court did not
“decline to reach the issue” whether plaintiffs’ claims
were cognizable in federal court, as the dissent asserts
(p. 40); it simply assumed that they were, as the
Seventh Circuit had held.'”
Other cases upholding an implied cause of action
outside the broker-customer relationship were United
i6a = Mr. Justice Stewart would have affirmed and allowed the action to
proceed directly in the district court. 414 US. at 416
4057
Egg Producers v. Bauer International Corp., supra, 311
F.Supp. 1375, which recognized an implied cause of
action under § 9(b) on behalf of various egg producers
against an import-export firm, and Seligson v. New
York Produce Exchange, supra, 378 F.Supp. 1076.
Seligson arose out of the much-publicized “Salad Oil
Swindle”, and recognized an implied cause of action on
behalf of the trustee in bankruptcy of a brokerage firm
against the exchange, exchange officials, and the
clearinghouse."’
While case based on pre-1974 facts decided after the
1974 amendment, apparently under pre-1974 law, are
of less pertinence since the 1974 Congress could not
have known of the decisions,"* they deserve mention as
17 We fail to appreciate the dissent’'s attempt to distinguish these two
cases, With respect to Egg Producers, if implied private causes of
action did not exist under the Act, there would be no cause of action
for an injunction any more than there would be for damages. The
Seligson decision was rendered before Senate consideration of the
1974 amendments and House repassage in the amended form
Moreover, what the dissent fails adequately to recognize is that the
cases under the CEA, numerous and consistent as they are, cannot be
taken in isolation but must be considered along with the vast body of
law under the securities statutes which set the tone during the late
‘40's, the ‘50's, the ‘60's, and the early ‘70's, and on which the CEA
decisions relied. The efforts to whittle all this away, pages 41-43, are
unimpressive. We have already dealt, note 14 supra, with the
argument as to the cases under Rule 10b-5. The contention that the
securities legislation offered less in the way of remedies than the
CEA would surprise most students of securities law; with the single
exception of the 1974 reparations procedure for certain types of
CEA violations, whose inadequacies are described below, they
offered more. The argument that the sections of the CEA most
heavily relied upon by plaintiffs were enacted before the explosion of
the private right of action under the securities laws ignores the fact
that the 1974 amendments to the CEA were intended tc be a
complete overhaul and were effected with vivid Congressional
awareness of the decisions implying private causes of action under
the CEA as well as the related subject of the laws administered by
the SEC.
18 Congress was, however, apparently aware of the pendency of at
least one of these cases. See note 30 infra
4058
43a
indicative of the uncontradicted view of the la
prevailing when Congress acted. In Case & Co., Inc. t
Board of Trade, 523 F.2d 355 (7 Cir. 1975(Cumming:
Stevens, and Tone, JJ.), plaintiff sued the Board and it
governors for violating §§ 5a(1) and 5a(8) of the CEA i
suspending trading limits on soybean futures. The cour
began its discussion of liability by stating that “[iJt |
undisputed that a private cause of action may b
maintained under the Commodity Exchange Act. Se
Deaktor ... .” Id. at 360. In Hirk v. Agri-Researc
Council, Inc., 561 F.2d 96, 103 n.8 (7 Cir. 1977), th
same court flatly stated that “[pJrivate damage action
are allowable under the CEA. See, e.g., Deaktor. . . .
See also Bartley v. P.G. Commodities Associates, Inc
CCH Com, Fut. L. Rep. § 20,123 [1975-77 Transfe
Binder] (S.D.N.Y. 1975) (churning complaint unde
§ 4b).
We see no need to burden this opinion with detaile
examination of district court decisions concernin,
whether the 1974 amendments eliminated the privat
cause of action theretofore unanimously recognized
The courts have divided although the weight o
authority is in favor of continued implication.” A
noted, the only court of appeals to have considered th
issue has held that a private cause of action should b
implied. Curran v. Merrill Lynch, note 1 supra.
19 = Cases finding an implied cause of action: Milani v. ContiComme
ity Serv., Inc., 462 F Supp. 405 (N.D. Cal. 1976); Shearson Hayde
Stone v. Lumber Merchants, Inc,., 423 F Supp. 559 (S.D. Fla. 1976
Bache Halsey Stuart, Inc. v. French, 425 F.Supp. 1231 (D.D.(
1977), Kelley v. Carr, 442 F.Supp. 346 (W.D. Mich. 1977), rev'd o
other grounds, Nos. 78-1091, 1092, 5542, 5460 (6 Cir, May 1\
1980); Hofmayer v. Dean Witter & Co., 459 F Supp. 733 (N.D. Ca
1978); Berenson v. Madda Trading Co., CCH Comm. Fut. L. Re;
§ 20,689 (D.D.C. 1978); Gravois vy. Fairchild, Arabatzis & Smit/
Inc., CCH Comm. Fut. L. Rep. § 20,706 (E.D. La. 1978); Rivers '
4059
44a
V. THE CONTINUED EXISTENCE OF TH
PRIVATE CAUSE OF ACTION
In decicling the issue here before us, we follo
analysis :et forth in Cort v. Ash, 422 US. 6
(1975).”°
20
Rosenthal & Co., Civ. Action File No. CV 178-186 (S.D. Ga
appeal pending, 79-1313 (5 Cir); Poplar Grove Planti
Refining Co., Inc. v. Bache Halsey Stuart Inc., 465 F.Su
(N.D. La. 1979); Jones v. B. C. Christopher & Co., 466 F Su
(D. Kansas 1979), R. J. Hereley & Son v. Stotler & Co., 466
345 (N.D. Ill. 1979); Aiken v. Lerner, Civ. Action No
(D.N.J. 1980); Navigator Group Funds v. Shearson Hayde
Inc., 77 Civ. 5350 (S.D.N.Y. 1980) (Broderick, J.); Gra
Conticommodity Services, Inc., 48 L.W. 2807 (D.D.C., 3
1980); Witzel v. Chartered Systems Corporation of New Yo
48 L.W. 2823 (D. Minn., May 27, 1980)
To the contrary, in addition to Judge MacMahon’s opinior
case, 470 F.Supp. 1256, see Arkoosh v. Dean Witter & (
F Supp. 535 (D. Neb. 1976), aff'd on other grounds, 571 F.2i
Cir. 1978); Consolo v. Hornblower & Weeks-Hemphill, Noy
436 F.Supp. 447 (N.D. Ohio 1976); Bartels v. Inter
Commodities Corp., 435 F Supp. 865 (D. Conn. 1977), Be
Bache Halsey Stuart, Shields, Inc., 467 F Supp. 311
1979); Alkan v. Rosenthal & Co., CCH Comm. Fut. L. Rep. '
(S.D. Ohio 1979); Liang v. Hunt, 477 F Supp. 891 (N.D. I
Fischer v. Rosenthal & Co., 481 F.Supp. 53 (N.D. Tex. 197%
v. Saxon and Windsor Group, Ltd, CCH Comm. Fut.
§ 31,100 (N.D. Ill. 1980). The three decisions from district «
Ohio which declined to find an implied cause of action,
Berman, and Alkan, are no longer good law in that circuit in
the Sixth Circuit’s contrary decision in Curran v. Merrili
cited in note 1 supra
This is
In determining whether a private remedy is implicit in ;
not expressly providing one, several factors are relevant
the plaintiff “one of the class for whose especial ben
statute was enacted,” Texas & Pacific R. Co. v. Rigsby, |
33, 39, 60 L. Ed. 874, 36 S. Ct. 482 (1916) (emphasis su;
that is, does the statute create a federal right in favo
plaintiff? Second, is there any indication of legislative
explicit or implicit, either to create such a remedy or to di
See, e.g., National Railroad Passenger Corp. v. National
4060
There is, however, one differentiating facto:
transcendent importance as to demand menti
outset. As shown in Part IV of this opi
decisions prior to the 1974 amendments had u
upheld the existence of a private cause of acti
the provisions of the Commodity Exchange Ac
will be shown in this part, the 1974 Congress
aware of the existing state of the law. Even
more, the question thus would not be whether |
intended to create a new private right of «
1974, but rather whether it intended sub si
alter the significance that had long been giv
provisions by making other changes in the Act
this, however, we do not need to assume, as t
stated would be “appropriate” in upholding «
cause of action in Cannon v. University of Chic
U.S. 677, 696-97 (1979), “that our elected re;
tives, like other citizens, know the law” or to “;
that they “were aware of the prior interpretat
Railroad Passengers, 414 U.S. 453, 458, 460, 38 L
94 S. Ct. 690 (1974) (Amtrak), supra; Secuntn
Protection Corp. v. Barbour, 421 U.S. 412, 423, 44 L
95 S. Ct. 1733 (1975); Calhoon v. Harvey, 379 US
Ed. 2d 190, 85 S. Ct. 292 (1964). And finally, is t
action one traditionally relegated to state law, in an ai
the concern of the States, so that it would be inap,
infer a cause of action based solely on federal law? S«
v. Wheeler, 373 U.S. 647, 652, 10 L. Ed. 2d 605, 83
(1963). cf. J. 1. Case Co. v. Borak, 377 U.S. 426, 434
2d 423, 84S. Ct. 1555 (1964); Bivens v. Six Unkn
Narcotics Agents, 403 U.S. 388, 394-395, 29 L. Ed. 2
Ct. 1999 (1971); id. at 400, 29 L. Ed. 2d 619, 91 !
(Harlan, J., concurring in judgment)
We read this in light of the later caveat in Touche Ro
Redington, 442 U.S. 560, 575 (1979) that the basic inqui
to plumb the intent of Congress, that the Cort factors
inquiries helpful in that endeavor, and that satisfactioi
more of the Cort factors will not alone carry the day
4061
46a
related statute. See Lorillard v. Pons, |
580 (1978) (“Congress is presumed to b
administrative or judicial interpretation
Here the existence of an implied right o
the Commodity Exchange Act as it stoo
repeatedly called to the attention of
approved by Congress. This alone suffic
appellees’ claim that if the 1974 Cong
create a private cause of action, it wou
have said so and that it is implausible t
“Congress absentmindedly forgot to m
tended private action.” Cannon, supra, 4
(Powell, J., dissenting). Whether rightly
light of recent Supreme Court jurisprude
had read a private cause of action into tl
as they had done with statutes of sim
related fields, and Congress knew that
so. The burden thus lies on those who
1974 amendments demonstrate an inten
prior law, or, paraphrasing the langu
Justice Powell’s Cannon dissent, supra, t
the changes that it did, Congress “a
forgot” to repeal the private cause of acti
of the 1974 Congress with respect to pri
action for violations of the CEA, on whi
leans so heavily, is no more significant tl
silence of the 1975 Congress whic
amended the Securities Exchange Act,
When a principle has become settled
decisions, there is no occasion for Con;
unless it wishes a change.”
21 We find little force in the dissent’s reliance, pi
11, on the failure of the 1968 Congress to enac
introduced by Representative Fino providing 4
4062
47a
1. Taking the first of the Cort facto
difficulty in concluding, despite appellee
contrary, that the plaintiffs were amon
whose especial benefit the statute w
phrase going back to Texas & Pacific R
supra, 241 U.S. at 39. Although Congre
tees and sponsors of the ill-fated 1
devoted most of their eloquence to inju
producers at the hands of wicked s
Senate Report on the 1922 Act recogn
action against exchanges. Quite apart from tl
relying on actions of an earlier Congress, an
failure to act, see p. 59 infra, the question of a |
was simply not considered by Congress in tl
process. The bill that became the 1968 amend
never contained a private remedy provision,
never mentioned in either congressional rep
discussed in congressional debate. The dissent’s
carefully comparing the bills and deliberate]
rejecting the provision in Rep. Fino's bili
gossamer, Since the failure to act on the provis!
the slightest significance with respect to congre
time, its bearing on the effort to discern con
years later, in 1974, is infinitesimally small
Beyond all this, when Rep Fino introduced his
right of action provision, he included with |
newspaper articles about the commodities inc
discussed the Great Salad Oil Swindle, and nots
for the receiver of Ira Haupt & Co., a broker
under in that affair, “are trying to determine
justifiably file suit against the exchange for fai
Haupt eventually did, and the court recognizec
action against the exchange, see Seligson \
Exchange, supra, 378 F Supp. 1076. If Con
consideration to Rep. Fino’s bill, it could well ha
explicit remedy provision because it considere
light of the then judicial climate, as had turned
Ira Haupt & Co. before the 1974 amendments
17 supra. This further illustrates that attempti
to the failure of Congress, and even more so of
to enact legislation is a speculative enterprise
4063
48a
Transactions in grain futur
public for speculation and |
the purpose of eliminating
practicable, the hazards in
grain and its products and b
fluctuations. Public speculat
risk for the producers, dea
wish to hedge their cash gra:
No. 871, 67th Cong., 2d Se
It is true that much of the deb:
House consisted of vituperati
“gambling” in the grain trade t
producers and the consumer. H
were generally directed at big sp
a position to manipulate the n
always the recognition trot “
acceptable and indeed benefici:
producers in § 3, the statement
Act, was due to a desire to stat
then existing notions of the c¢
than to risk invalidation by inch
Supreme Court might not thir
Wickard vy. Filburn, 317 USS.
twenty years in the future.” A
2 See, eg., 62 Cong. Rec. 9404 (,
Chairma. Tincher of the House Com:
never said that the sale of wheat for f
out but have always said, and
gamblers manipulate the grain mark
consumer but unfair to the legitimate
of Rep. Voight, a member of the Co
reported out the bill) (“The bill will re
stop it altogether without hurting b«
t
e
The Court in Hill v. Wallace, su
imposed by the 1921 Act applied to
i)
4064
49a
the importance of the specul:
functioning of the futures marke
fully recognized by Congress as
It is plain in any event that by
amendments, as was later to be
Report on the 1978 amendme
protected under federal commodi
to include speculators.” H. R. Ri
Cong., 2d Sess. 84 (1978). As «
House Report, “The fundame!
measure is to insure fair practice
the commodity exchanges and to
control over those forms of spec
too often demoralize the mark
producers and consumers and
selves.” H. R. Rep. No. 421, 74
(1935). “Fair practice and hor
course, beneficial not only to
legitimate speculators using the
expressed in the last clause of t
injury to “the exchanges themse!
passed protection for those usin
was made clear in a later passage
Board of Trade in Chicago. “Looked :
any limitation of the application of th
or to that which Congress may deem,
an obstruction to interstate commerce
the Act. 259 U.S. at 68. Congress 1
focusing on the interstate aspects of |
Rec. 9404 (June 26, 1922) (Remarks
House Committee on Agriculture) (
commerce, using the language of the {
grains and this law will not appl)
interstate transactions as defined by t!
15, 1922) (The Court “called attention
interstate commerce we could reach |
this bill is strictly following the di
Court ...”)
4065
“(The bill] simply provides
what are important publi:
the interests of the peop!
or consumers of the comr
whether they belong to th
fondness, and perhaps s
investment in commoditi
judgment concerning v:
occasiona! and moderate s
While the debates in Con
contain many attacks on
there was a _ recognitior
speculators, and the focus
manipulator, whose act
detrimental not only to |
also to those referred to
dealers.** The clearest ini
Representative Jones, Ch
Agriculture, stated that the t
on the Chicago Board of Tr
for the constant fluctuation
10446 (June 4, 1934). He k
was “to check manipulation
rig the market to the detrim
all others engaged in leg
commodities.” 79 Cong. }
Representative considered
speculators who deal in large
4, 1935) (Remarks of Rep. Gi
activities of “15 or 20 big gri
injure but will beneficially :
(Remarks of Rep. Sabath)
effect. The bill was designed
Cutten, a big grain manipul:
some detail. See 80 Cong. RB
Sen. Pope). Senator Pope s
played by the typical specul
it is the small traders—th
less than 100,000 bushels:
but who furnish the real |
4
to regulate the large-scal
the authorization of tra
The legislative histo)
continued the recognitio
speculative investors anc
manipulators rather tha
the House and Senate re
most futures trading w
Rep. No. 743, 90th Con
No. 947, 90th Cong., 2
U.S. Code Cong. & Ad
House Report noted t
carried with it “the dan
traders will attempt to
743, supra, at 2, but als
of the legitimate specul
provides a means of re
handling the actual com:
higher prices to proc
consumers.” Jd.
Finally, and most imy
the speculator as well as
in the enactment of the
Report noted the large
commodity futures ma
situations mandat{ing]
futures trading regulat
supra, at 39. The benef!
of such speculators wa
House Report, in the lai
opinion, id. at 138, but a
the main their trading
they lend a stabilizing
.
the House. Introdu
Committee on Ag
“provide a very rea
by providing liquid
1973). Representat
member of the Hou
bill, stated that:
While the spe
the point whe
system have |
word, we mu
performs an
futures marke’
who assumes |
avoid. 120 Co1
The debates revea
amendments was |
futures traders, mo
in commodities not
Cong. Rec. 4133
Chairman Poage). |
unregulated future:
cally stated that “
trading in one of
markets should 1
afforded to those
markets.” H. R. Re;
words, the old a
markets—not mere
commodity—and |
protection of tradi
fewer of the trade:
commodity.
Senate consid
reinforced the vi
Report opened v
Board of Trade t
236, 247-48 (19(
tion:
People will :
make agree
Speculation
self-adjustm:
is well know
catastrophes
periods of w
Like the House
the role of “the |
buyers and selle:
dising price mar;
House bill to pre
than one under |
the USDA’s his!
interests might
markets. See id.
to protect thos
markets, and not
120 Cong. Rec. ‘
Taft). Senator D
amendments to
desires to partici
30466, and Chai
tee on Agricultu
members of th
legislation had o
but fair regulate
businessm
(Oct. 10, |
It is true
benefit 0
regulatory
to all suct
classes are
almost sel
trading w
traders.”* I
thus beer
“speculatoi
investors,
whose est
especially |
Gravois v.
Fut. L. Rey
no implied
1974, incl
F.Supp. at
prong of t
v. Bache,
F.Supp. a
Rosenthal
plaintiff n
More. impc
effect. In
Smith, su;
grant a st
The se
regulate
benefit |
wished |
well as
55a
compel arbitration, the parties having agreed that an
implied cause of action existed under the Act, Judge
Gurfein wrote that “[wje have no doubt that the Act
itself, enacted as it was for the protection of investors,
prohibited a surrender of private remedies through an
agreement to arbitrate which was not voluntary in the
sense that the penalty for refusal was exclusion from
the market.” Jd. at 1179 (emphasis supplied).** See also
Silverman v. CFTC, 562 F.2d 432, 438 (7 Cir. 1977)
(“We must be mindful of a Congressional purpose,
clearly evidenced at least since 1933, to protect the
American investing and speculating public not only
from fraud and fraudulent practices, but from those
whose past actions indicate that they might be tempted
to engage in such practices”) (quoting Moore, J., in
Savage v. CFTC, 548 F.2d 192, 197 (7 Cir. 1977)).”
2. We turn now to the second and evidently the most
important, see Touche Ross & Co. v. Redington, supra,
442 U.S. at 575, of the Cort factors, “is there any
indication of legislative intent, explicit or implicit,
either to create such a [private] remedy or to deny one?”
422 U.S. at 78. This inquiry requires an intensive
examination of the legislative history of the 1974
26 While the dissent chooses to characterize this as a “passing
reference”, it shows the clear understanding of the writer that the
Act was enacted to protect speculators and not merely hedgers.
27 _—s- The only discordant note on the point that the CEA was intended
to protect “speculators” appears to be Liang v. Hunt, 477 F.Supp.
891 (N.D. Ill. 1979), a distinct minority view from which the dissent
liberally quotes. The commentators have joined the courts’ nearly
unanimous chorus on this point. See Bromberg & Lowenfels, supra,
§ 462(1) (concluding that “the commodity laws’ lack of emphasis on
investors is only apparent, not real”); Note, Private Rights of Action
for Commodity Futures Investors, 55 B.U. L. Rev. 804, 826 (1975)
(“the statute’s clear purpose—to increase existing protection of
commodity futures investors”).
4071
56a
amendments. We conduct this, of course, with full
awareness of the cautions in Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 204 n.24 (1976) and Piper v.
Chris-Craft Industries, Inc., 430 U.S. 1, 31-32 (1977),
against the dangers of undue reliance on “passing
references” by others than the Congressional commit-
tees or sponsors or on general statements not directly
relevant to the issue at hand.
In our view the legislative history amply demon-
strates the 1974 Congress’ awareness of the uniform
judicial recognition of private rights of action under the
Commodity Exchange Act and a desire to preserve
them. We are not, as the dissent suggests, “presuming”
that Congress was aware of these decisions; the
evidence of its awareness is overwhelming.
We begin with the House Report. This noted that
when exchange self-regulation first developed, “[V]Jery
little thought was probably given to whether the failure
to meet [stated] ideals would expose the exchanges to
legal liability. . . .” H. R. Rep. No. 93-975, supra, at
45. The report stated that this view began to change
early in the 1920’s. “Perhaps the adoption of federal
regulatory legislation spurred this total reorientation of
the relationship between exchanges and the public.
Slowly, the courts began to look upon exchange
regulation as a guarantee to the public that its
members would not violate its code of conduct.” Jd. In
1968, the report continued, amendments to the CEA
required exchanges to enforce their rules, § 5a(8). The
existence of private rights of action was thought to
have had a perverse effect on the effectiveness of this
legislation which the report explicitly noted:
In the few years this provision has been in the
present Commodity Exchange Act, there is grow-
4072
57a
ing evidence to indicate that, as opposed tc
strengthening the self-regulatory concept in
present law, such a provision, coupled with only
limited federal authority to require the exchanges
to make and issue rules appropriate to enforcement
of the Act—may have actually have worked to
weaken it. With inadequate enforcement personnel
the Committee was informed that attorneys to
several boards of trade have been advising the
boards to reduce—not expand exchange regulations
designed to insure fair trading, since there is a
growing body of opinion that failure to enforce the
exchange rules is a violation of the Act which will
support suits by private litigants. (emphasis in
original).
Later in the Report the Committee noted that one of
the specific problems “brought to [its] attention” was
the:
Growing difficulties facing exchanges in self:
regulatory actions as a result of private plaintiffs
seeking damages against the markets. As exam-
ples, exchanges are sued for actions taken in
emergency situations even when the action has
been taken at the request (or order) of the CEA. Jd.
at 48 (emphasis supplied).
Nothing in the report, however, indicated dissatisfac-
tion with the private right of action; the objective was
to deal with the attendant reduction in exchange
rulemaking. This was to be accomplished by empower:
ing the CFTC to require exchanges to adopt rules,
§ 8a(7).”*
28 The House Report also contained a letter from the Department oj
Justice to Chairman Poage of the House Committee on Agriculture
4073
58a
The existence of an implied private right of a
was also clearly revealed to Congress in the deba
what became the 1974 amendments. Introducin
bill, Chairman Poage used the language quoted a
which eventually appeared in the House Report, :
the change in the legal posture of exchange
regulation. He then remarked that “when the Com
ity Exchange Act was enacted, courts implied a pr
remedy for individual litigants in the Comm
Exchange Act.” 119 Cong. Rec. 41333 (Dec.
1973).2* He went on to note, as would the fF
report, that as “the judgment of the board of dire
of many of the exchanges in implementing deci
under self-regulatory functions is becoming increas
a justiciable issue,” attorneys were advising exch:
to prune out rules they might not be able to enfor
order to avoid the threat of liability in private act
This threat was described as providing the exch:
with a “solid reason” for retrenching on self-regul:
efforts. Id. At the outset of consideration by the \
wherein the Department representative twice cited to the
Supreme Court decision in Deaktor. supra. 414 U.S. 113. The
concerned the interrelation between exchange rules and an
law, and the author, discussing the doctrine of primary juris¢
referred to “situations where the challenged activity is alle
violate the Commodity Exchange Act as well as antitrust lav
R. Rep. No. 93-975, supra, at 26 (emphasis supplied). Deakt
cited as a case, obviously brought by a private plaintiff.
alleged violations of the CEA. Any legislator who read this
thus have been aware that private individuals could sue exc
for violations of the CEA; they had done so in Deaktor, a
Supreme Court had merely required an initial resort |
regulatory agency for its views where these would be useful
28a The dissent chooses to make a point, footnote 16, that Chi
Poage was in error since the first decision implying a private r
action under the CEA was made in 1967 rather than 1966. \
to see the significance of this.
4074
59a
House, then, the legislators were informed |
Chairman of the Committee considering the bi
private rights of action were implied under the
This was not a mere passing reference, but a |
statement of fact that was a necessary s'
explaining why new legislation was needed. Th
amendments signaled a dramatic shift from the
of exchange self-regulation to authorization |
CFTC to compel the exchanges to alter or adopt
§ 8a(7), and the proponents of the amendments \
pains to explain the need for such a shift
explanation centered on the existence of an i
private right of action. Amendments were requ!
force exchanges to adopt beneficial rules becau
threat of the judicially implied private right of
had led them to shirk this responsibility. Co
could not have understood why it was changil
underlying theory from exchange self-regulati
compulsory regulation without recognizing th:
private rights of action that had been judicially ii
under the Act demanded this change. It opted t
the problem that had developed not by abolishi:
private right of action but by empowering the Cl
require the exchanges to adopt appropriate rul
amount of labored parsing can obscure the self-e
truth that Congress knew the courts were im
private rights of action and did nothing to alter |
29 The point was repeated later by Representative Thone, a
of the Committee on Agriculture. See 120 Cong. Rec. 1074
11, 1974) (“Some observers believe that the provision of t
amendments requiring exchanges to enforce their own rules,
implicitly giving private parties the right to sue for nonenfor
has had a perverse effect. To avoid risk of litigation, e
authorities have been encouraged to reduce rather than str
rules designed to insure fair trading”).
4075
60a
matters little whether this be called r
approval.
The House hearings are replete with ref
maintenance of private causes of action u
A representative of various New Yor
exchanges informed the House Committe
ture that the Chicago Board of Trade wai
moment the target of a $200 million clas:
urged Congress to “take steps to insure
regulated exchanges are not exposed to
astronomical civil liability suits .. .”,
Review of Commodity Exchange Act and
Possible Changes Before the House C
Agriculture, 93d Cong., Ist Sess. 121 (19%
which Congress did not do. Another ex
sentative and FCM, discussing the arbi
dures to be required of contract mark
House Committee that “In addition to the
procedures, complainants of course have
courts.” Hearings on H. R. 11955 Befo
Committee on Agriculture, 93d Cong.,
(1974) (emphasis supplied). A letter sent
of the just-cited hearings from Continen
indicates that the cases cited in Part IV o
may well have been only the tip of the
cases where the private cause of action w
and was sustained in a published opinic
calls to the Committee’s attention “one
action settlement proceeding in court” w
the mailing of 339,000 legal notices an
legal fee claims of over $2,250,000. Jd.
30 The reference was apparently to Case & Co.,
Trade, supra, 523 F.2d 355, see p. 31 supra.
4076
6la
letter advocated requiring complainai
between arbitration or settlement proced
to courts “which have already held they
tion over private complaints based on vi
present law.” Id.
The existence of a private right of a
repeatedly indicated during the Senate h
four bills to amend the CEA. Hearings
2578, S. 2837, and H. R. 13113 Befa
Committee on Agriculture and Forestry,
Sess. (1974). Senator Clark and a col
expert, Professor Schotland of Georgeto'
expressed the view that private actions
under the Act, id. at 205, 737, 746. A re|
the Minneapolis Grain Exchange obj
settlement procedure contemplated
markets because the claims which excha
required to adjudicate were not limited
amount and wished these to be confined
the smallness of the claim entailed
impediment to Court litigation.” Jd. at 41
appeared in the bill as enacted, §!
President of the Kansas City Board of T;
Senators to protect exchanges “from un
costly defenses of lawsuits” brought und
at 317. He had made the same reque
House, with similar lack of success. Hea:
11955, supra, at 123.*" We shall have mo.
dl The dissent relies heavily on a chart introduced
Hearings, reproduced at footnote 14, to support |
Congress did not preserve the previously recogni
action in 1974. The chart was not prepared by Cor
Senate Committee, or even a single legislator.
committee staff. There is no suggestion that in p
the staff went beyond the explicit provisions of t
4077
62a
Congress’ awareness of the privat
its desire to preserve it when wi
provision preserving the jurisdi
However, what we have develope
alone sufficient to invoke “the we
construction that the reenactmer
porates preceding judicial in
Vranken v. Helvering, 115 F.2d ‘
(L. Hand, J.), cert. denied, 313
canon which, as shown by the Va)
limited to interpretations by the
Electric Storage Battery Co. v. S
14 (1930); Lorillard v. Pons, 4
(1978); Bennett v. Panama Canal
1282 (D.C. Cir. 1973) (Wyzan:
irrebuttable presumption which f
ment with knowledge [of the Fift
tion of “may” as permissive]’). Tt
particular force to the instant «
amendments constituted “the firs!
the Commodity Exchange Act sim
Rep. No. 93-975, supra, at 1, the
provisions were left unchanged, a
made acutely aware of the prior
that these provisions gave rise |
action.”
does not purport to deal with the b
“damages”, but only with the subject |
the chart had attempted to deal with th
it could have reached only one conclusi:
implied private right of action, since th
the courts prior to the 1974 amendm
32. The dissent argues that none of tl
exception of Deaktor, was expressly ci
4078
63a
The Supreme Court has app
numerous occasions. In Lorillard
(1978), Justice Marshall, writ
Court, said that when Congre
statute incorporating sections of
statute, “Congress is presumec
administrative or judicial inter;
and to adopt that interpretatic
statute without change”—even
above, the interpretations were |
and not by the Supreme Cou
significant that the judicial const
statute had been unanimous, id.
judicial implication of private rij
1974 in our case. In Georgia v. L
526, 532-33 (1973), the Court v
question concerning interpretatio
Act, enacted in 1965 and exte
deliberations” in 1970, with cha
areas other than the section b
Court had reached a decision on
the 1969 case of Allen v. State E
Congress’ failure to mention Deaktor
We fail to see why. As we have dew
evidence that Congress was well aw:
consistently implied private rights of
fact was brought out in the House Rep
hearings before both houses, and was (
specific aspects of the bill. In light of
specific case names or citations were ni
this was simply because no one parti
pre-1974 case confronting the question
action without limitation in the opinio:
at issue—a result foreordained by the
securities laws—and Deaktor, which i
owed by Baird v. Franklin, supra, 1
thirty years before, thus was not a ni
4079
U.S. 544 (1969). Justice |
Congress disagreed with
Allen, it had ample oppor
After extensive deliberatic
the Voting Rights Act, dw
repeatedly discussed, the
years, without any subst
411 U.S. at 533. A footno
that the “repeated <liscus:
hearings. Jd. n.5. While we
decision of the stature of
since the Court’s opinion i
not an express holding o
cause of action under the
cases, including the Seve
review in Deaktor, reache
implication, and decisions
action were called to the a
in Congressional hearing
States but in the House 1
The presumption just
rebuttable and appellees i
changes made in the CEA
up in detail, we note cert:
to those already discussec
strong showing of an int
cause of action for fraud,
by exchanges that had bh
order to justify a conclu
intent. The 1974 Congr
view that the changes \
commodity futures regula
served by abolishing the
everyone had thought to e
1974 amendments was di
to amend the Commodity;
the regulation of futures
93d Cong., 2d Sess. 1 (1
original hearings in the H
the Committee on Agri
strengthening and revisin
No. 93-975, supra, at 53:
of the House by the C
ranking minority membe1
Cong. Rec. 10736 (April
Poage) (“to strengthen
trading); id. at 10739 (Ri
inform and strengthen
Senate was the same. S«
supra at 18 (section en
Extended Regulation”).
Lynch, supra, note 1 at (
the CFTC Act. . . indic:
extend further protectio
rather than to extinguish
Yet the appellees would
course of ascribing to Co
to private sanctions com)
legislative purpose. See
Association v. Federal ‘
672, 690 (D.C. Cir. 197%
(1974) (Wright, J.) (“wh
susceptible of more thar
only consult its langua;
interpretation we provi
articulated concerns moti
generally Cox, Judge Lea
tion of Statutes, 60 Har
In support of th
that the 1974 Con
tation of the CE
reparations proce
person complainin
rule, regulation o
required to be s
Commission thin}
investigating the
Commission may,
such action, serve
hearing before ar
where the amoun
which event the (
of depositions o
reparations order
court. However,
respondent to see!
order in a court <
Quite apart fro
judicial remedies
argument that Cx
private remedy ur
for several reaso!
important reason |
remedy. It is avail
should have regi:
exchanges which,
had been held sut
amendments, wo'
liability, althoug
33. =These are FCM
§§ 4d, 4k; floor bi
pool operators, § :
repeated pleas fo
too would large u
committed the m
Simplot and Tagg
of persons whos
particular Congre
find it unimagina
to the regulation
exposure to the |;
action under the 1
and knowledge th
the same principl
have meant that
claiming to have
the extent of mi
solace of having |
enforce adminis'
dissent cannot pé
fn. 3, that such «
defendants, probs
actions. While the
in the backgroun
of the dissent’s pc
to dismiss the C
respect to regi
defendants to wh
the remedy hinge
determination, ar
34 See Hearings
Discussion of Po
Agriculture, supr
House Committee
2485, S. 2578,
Committee on Ag
plainant ha
assurance tl
available in
from instan
Comm v. 1
(Amtrak), 41
v. Redingto
operating o1
certain expr
Court applic
alterius. Wh
enforce a p1
been clearly
if it meant 1
will be seen
“judicial legi
which Cons
improvise 01
These conc
history of tl
in an appare
noted in the
protection fe
1974). This
are in additi
they are exc
emarked:
The vest
have ad
spectrur
not inte
way. It
authorit
the cow
69a
right of final determination by the courts are
expressly preserved. 120 Cong. Rec. 30459 (Sept.
9, 1974).
The first sentence strongly suggests that Congress did
not intend to repeal private rights of action by enacting
the reparations procedure, and the second sentence is
not to the contrary. If the reparations procedure was
intended to be exclusive, then it certainly would lighten
the burden on the courts, even with review of
reparations orders by the courts of appeals. But the
Senator spoke in terms of “hope” and lightening the
burden “somewhat”—as if reparations were an alterna-
tive he hoped had been made attractive enough to sway
some aggrieved traders away from the courts. The
second clause relating to judicial review simply noted
that even for those who elected reparations there could
still be court involvement. Again the House Report
describes the reparations procedures as “intended as a
separate remedy designed to supplement the informal
‘settlement’ procedures contemplated of the contract
markets and registered futures associations which are
required under other sections of the legislation. . . .”
H. R. Rep. No. 93-975, supra, at 22. These last two
types of settlement procedures, however, are expressly
made voluntary by the Act. See §§ 5a(11), 17(bX10). It
can therefore be inferred that the reparations remedy is
of the same character, and that the aggrieved trader is
in no sense compelled to resort to reparations to obtain
relief. Commentators have relied on this reasoning, and
the savings clause in § 2(aX1), in concluding that “the
victim of a CEA violation is free to ignore the
reparations procedure and file a lawsuit.” Bromberg &
Lowenfels, supra, § 461 at 82.362 (1979). The CFTC is
4085
70a
of the same view. See 41 F.R. 3994 (Jan. 27, 1976); id.
at 18472 n.5 (May 4, 1976).*°
The argument that the reparations procedure was
intended to be the exclusive private remedy is further
35
The dissent argues, despite all these contrary indications, that the
reparations procedure was designed to be the exclusive private
remedy beyond informal settlement. In support of this it quotes a
letter from Earl Butz, Secretary of Agriculture, published in the
House Report, which states that the reparations procedure “should
make possible full and equal justice for those who feel that they have
been in some way damaged in the handling of their commodity
accounts.” The dissent underscores this language, although it is not
at all clear what about it suggests that reparations were intended to
preclude private actions rather than constitute an additional remedy
for aggrieved persons to whom the burden of litigation might be
prohibitive. In any event it is irrelevant to our case. The plaintiffs
seeking relief before us are not complaining about the handling of
their accounts but rather of broad market manipulation. The dissent
further stresses a passage from the House Report where it is stated
that the Commission “will have original jurisdiction to consider all
such complaints” which have not been resolved informally. Again,
nothing in this suggests that Commission jurisdiction of reparations
proceedings was meant to preclude the jurisdiction of the courts
which had been widely recognized. The dissent also relies on the
ceiling for civil penalties against exchanges in § 6b of $100,000,
arguing that allowing private recovery for “unlimited” damages
would be inconsistent with this ceiling. Penalties and damages,
however, are quite different in nature. The former are punitive and
some limit on the regulator's discretion to impose them is necessary.
The latter are remedial and naturally limited to the loss caused by
the defendant. Further, the dissent’s argument proves too much.
There is a limit of $100,000 on the fines which can be imposed on a
FCM under § 6(b), but the FCM’s are subject to “unlimited” private
recovery in reparations. Congress obviously saw no inconsistency
between allowing recovery for actual damages and limiting fines.
Finally the dissent states that under § 6b fines against exchanges are
limited to “an amount which will not ‘materially impair the contract
markets’ avility to carry on its operations and duties.’” P. 47. Rather
the CFTC is required to consider whether a fine will have this effect;
the only ceiling in § 6b is the $100,000 maximum, which,
incidentally, is not an “overall” limitation as the dissent states but
rather a limit per violation. (For example, each day of failure to
comply with a cease and desist order is a separate violation, § 6b).
Concern for an FCM’s ability to carry on business is specifically
required to be considered in § 6(d), yet FCM’s are subject to full
damages in reparations.
4086
7la
negated and the case for the continuance of the privat
cause of action is enhanced by the jurisdictional saving
clause, § 2(a)(1).*°
As passed by the House, the exclusive jurisdictio:
provision read as follows:
Provided, that the Commission shall have exclusiv
jurisdiction of transactions dealing in, resulting ir
or relating to future delivery . . . And provide:
further, that nothing herein contained shall su
persede or limit the jurisdiction at any tim
conferred on the Securities Exchange Commissio:
or other regulatory authorities under the laws o
the United States... .
The purpose of this was to separate the functions of th
new CFTC from those of the SEC and other regulators
As explained in the House Report, “All commoditie
trading in futures will be brought within federz
regulation under the aegis of the new Commissior
however, provision is made for preservation of Secur
ties Exchange Commission jurisdiction in those area
traditionally regulated by it.” H. R. Rep. No. 93-978
supra, at 3. See generally Johnson, The Commodit
Futures Trading Commission Act: Preemption as Publi
Policy, 29 Vand. L. Rev. 1 (1976); Russo & Lyon, Th
Exclusive Jurisdiction of the Commodity Future
Trading Commission, 6 Hofstra L. Rev. 57 (1977). Th
provision was not intended to limit the jurisdiction o
36 ~=s- Plaintiffs do not seek to base their right of action on th
jurisdictional provision, but rather point to it as evidencing
congressional concern to preserve existing rights of action. Appellee
criticism, derived from Touche Ross & Co. v. Redington, supra, 44
US. at 577, that plaintiffs’ rights must be found in substantive an
not jurisdictional provisions, is therefore inapt
4087
the courts. See Jones v. B. C. Christopher & Co
466 F.Supp. at 218-19.
However, there was fear that it would do
numerous objections were raised to the House p
in the Senate hearings. Admittedly some of the
not primarily concerned with the question o
jurisdiction to hear claims in private actions ur
CEA. Chairman Rodino of the House Committe:
Judiciary was concerned that the House p
might be read as pre-empting state courts «
jurisdiction to enforce futures contracts under
commercial law and “to oust even federal c«
jurisdiction”. Testifying before the Senate Con
he suggested an amendment “to define the juris
including antitrust jurisdiction, of federal coi
commodity transactions. ./earings on S, 2485, !
S. 2837 and H. R. 13113 Before the Senate Co)
on Agriculture and Forestry, supra, at 259-60
Chairman Rodino’s remarks were focused on a
jurisdiction, they were not limited to that. He
generally that federal courts retained jurisdicti
cited antitrust jurisdiction as an example su;
this view. Other objections to the exclusive juri
provision of the House bill were explicitly addr
the preservation of private rights of action.”
Clark noted that treble damages actions, prov
bills which he and Senator McGovern had int
7 See also testimony of Deputy Assistant Attorney
Clearwater of the Antitrust Division, id. at 663, to which
Talmadge responded: “I have read your statement in its ent
I doubt that this committee, and I doubt the House hac
depriving either Federal courts or [sic] jurisdiction in
matters, or any other matter, and certainly not State cour
664 (emphasis supplied)
4088
73a
were often the most effective enforcemen
“Unfortunately, the House bill not only
authorize them but section 201 of that bill ma
all court actions. The staff of the House A;
Committee has said that this was done inad
and they hope it can be corrected in the Sena!
205. Professor Schotland did not refer direct
exclusive jurisdiction provision, but urged ra
the reparations provision, if retained at all, :
accompanied by “explicit language in the sta
Federal and State courts are still open if a cor
prefers to go to trial there.” Jd. at 737, 747
The upshot of these various objections
addition by the Senate of the “savings clause
§ 2(aX1):
nothing in this section shall supersede or
jurisdiction conferred on courts of th
States or of any State. S. Rep. No. 93-11:
at 54,
18 Defendants and the dissent suggest that the failure to
bills is evidence of legislative intent to repeal the priv
action, This suggestion is unpersuasive. None of the bill)
simple private right of action for actual damages. Rathe:
proposals, H. RK. 11195 and S. 2378, would have ey
previously judicially recognized right of action by pi
treble damages for any violation; and one bill, S. 283
treble damages for a willful violation and actual d
nonwillful violations. The dissent’s argument that it wou!
simple to change the bills so as to eliminate the provisic
damages ignores that trebling was what the propos
Simple damages were recoverable under existing law. V
“ignored” the discussion in the Amtrak case, 414 US. at
dissent charges, p. 45, where Congress failed to adopt an
that would have altered the interpretation which the !
Transportation had placed on the proposed act. It
inapposite
4089
74a
The purpose of this change was stated
clear that . . . Federal and State cour
jurisdiction.” Jd. at 6. The Conferenc:
Senate amendment, with the same sta!
Rep. No. 93-1194, 93d Cong., 2d Sess. |
Rep. No. 93-1383, 93d Cong., 2d Sess.
respective chairmen of the House and {
tees reported that “the conferees wishec
that nothing in the act would superse
jurisdiction presently conferred on court
States or any State. This act is reme
designed to correct certain abuses w
found to exist in areas that will now c
jurisdiction of the CFTC.” 120 Cong. Ri
10, 1974) (Senator Talmadge); 120 Cor
(Oct. 9, 1974) (Representative Poage). V
this with Congress’ recognition that ju
private causes of action had been held
conferred, the conclusion that Congres
continued recognition is nigh irresistibl
Appellees’ primary answer to the foreg
is that the pre-1974 cases upholding a 5
action under the CEA were wrongly dec
new trend in Supreme Court jurispruden
to implication and that, in consequen
desired to preserve such a cause of acti
clause was insufficient and nothing st
statement would do. This argument mig]
impressive if we were dealing with legisl
Congress today. But the law here before
on October 23, 1974 and “the relevant
whether Congress correctly perceived th
the law, but rather what its perception c
Brown v. G.S.A., 425 U.S. 820, 828-29
4090
with approval by the majority in Canr
of Chicago, supra, 441 U.S. at 710-1
did the 1974 Congress perceive the st
allowing implied causes of action unde:
perception was correct. As already
related area of securities regulation w
J. I. Case Co. v. Borak, supra, 377 U.S
cited with approval, subsequent to t
ments, in Cort v. Ash, supra, 422 US
distinguished but in no way disappri
Barbour, 421 U.S. 412, 423-24 (197.
course follow the most recent pronou
Supreme Court, those pronouncem
attention on the question of legislative
evaluation of congressional action . .
account its contemporary legal context.
441 US. at 698-99.
The sole decision preceding enactm
amendments to which appellees point ¢
new trend is the Amtrak case, 414 U.S
January 9, 1974. Apart from the fact |
decided when the amendments were we
enactment and there is no _ evide
concerned with the amendments were
decision would not in any event have
flag to Congress to make its approval c
of action explicit. The clear language of
and its legislative history manifested a!
suit only by the Attorney Genera
employees, and not by others such as
passenger association. The Secretary o
had voiced this interpretation during t
as Justice Stewart reasoned, “it is sure
that the members of the Committee w
4091
76a
mute if they had disagreed with |
sponsor of the bill in the Hou
both when introducing the bill ar
that private actions were availab
“most unlikely” that the legis
amendments “would have stoc
disagreed with it.”
Finally, Justice Stewart emry
private suits would be inconsist
purpose of the Amtrak Act, sinc
concerned with paring rail pass¢
and without time-consuming p1
This would have been reason ¢
private cause of action even um
432. See also SIPC v. Barbour, «
(1975) (Amtrak viewed as case v
action was inconsistent with leg
there is little dispute that the
would be effectuated by private
In light of this it is unnecessa!
far the recent triad of Ca
Transamerica may have gone i
cause of action. We do think, ho
about the death of the implied
have been circulating in the waki
attitude strongly reflected in th
ated, at least as far as previous
concerned, and that the effect of
to emphasize that the ultimate
sional intent and not judicial 1
constitute wise policy. See Zeffir
Banking and Trust Company (
(No. 79-2259) (injured debent
implied cause of action under
4092
~
~]
against indenture trustee wh
Two of the decisions themse
actions, Cannon under Title IX
§ 215 of the Investment Advise
support for the result we hav
since the majority opinion rec
on implying rights of action
courts to consider Congression:
legal context. Both Redington,
right of action under § 17(a)
Exchange Act, and Transam
implied action for damages w
Investment Advisers Act, cor
were enacted prior to the gre
recognition of implied rights. |
action in 1974 involved in thi
involved in Cannon, the congr
and 1940 under review in Redi
were not taken against a bac
judicial recognition of implied
for damages either as a genera
to the specific subject matter of
the legislative history on pris
both Redington and Transamer
442 US. at 571-72; 62 L. Ed.
the instant case. Redington in
provision, as to which there
implication of private causes o
“flanked by provisions” expri
right, and Transamerica turnec
declaration that certain acts
void, which was taken to grant
not of damages, and the corre
jurisdictional clause of the In
4093
Far from foreclosing in
action, Transamerica ex}
provide such actions “I
language or structure
circumstances of its ena
Even if we were to acc
Redington-Transamerica
if they had been rendere:
to the CEA were en:
demonstrates beyond fai:
and approved the uni
recognizing private caus
which in turn, were s
Court’s decision in Bora
now to be regarded as an
441 US. at 735-36 (Pow
supra, 442 U.S. at 576
thinking that the 1974
would be such a drastic :
Appellees also argue t!
issue cannot support a fj
they merely proscribe
duties, rather than expli:
5(d), 5a(8)). It is true thi
casts a statutory provisic
of the propriety of impli
U.S: at 590 2.13; Transa
154, but this is by no n
here, the legislative hist
[a statute’s] enactment” ¢
a private cause of action
is expressed cannot be pi
to its realization. The ca
a linguistic test for imp
securities cases are é
dichotomy. Cannon, si
Even if Congress v
significance of this di
not, there would have
that the CEA would no
The same considera
criminal provision su
private cause of acti
implied a cause of actic
Deaktor, supra, 479 |
Court had implied s'
provisions, see, e.g., Bc
for Congress in 1974
continue. In Cort v. Ai
of the 1974 amendmer
imply a private cause o
suing derivatively fron
corporations from ma
contributions. He was
“provision of a crimin
preclude implication o
damages,” and he refu
a bare criminal
sufficiently protective
give rise to a private
that group.” 422 U.S.
He rested the decision
protect corporate share
a subsidiary purpose o
factors are all either
implying a private cau
the CEA we have fo
legislative history that
commodity futur
other relevant fa
the cause of ac
characterized as
with civil remec
directly or on re
(civil fines for, in
desist orders); § (
of residents); § 5
market designati
all a case wher
implying a pri‘
legitimate fear |
sanctions to app
As previously 1
the dissent also ¢
implied because
containing explic
it. Indeed, the di
another of Con;
when it merely {
such a failure is
of an amendmen
inevitably calls ti
failed to act on
reasons other tl
point was alread:
Crystal Salt Co.
(1 Cir. 1969);
Employment Sec
(lowa 1949); ob
inertia in the wé
just plain loss in
United States v.
283 (1947), witl
enact a bill sp
relief there sou
apt—“the fact t
for the issuance
seized plants is
the House expre
authority of the
ing Co. v. FCC
(“. . . unsucces:
best guides to |
39 We find little
464 (1959), on
deliberately wit
for past unreas:
it had done w
whether a ship
in the courts, «
would require t
Commission. 1
margin, that “I!
that the sole ef
Motor Carrier
lawsuits instea
complaint and |
immediately pr
be the sole cc
although some
had given only
might be done.
been no comp
consistent judic
The only comm
in connection \
on which Cong
left in place a
line with Si
field, stretchin
that concerned
Abilene doctrir
had denied it p
is no such con
Deaktor before
Althou
warned j
Sylvania,
from Uni
which, i
Philadel;
(1963), tl
hazardou
one,” see
NYME, t
on a 197
state offi
violation:
their resi
NYME :
congressi
against e
In fact,
than und
action ag
during th
sunset p)
1391. Th
rise of
supervise
commodi'
was sevi
investors
matters
residents.
an imp
action
preser'
83a
the Commodity Exchange Act, 27 Emory L. J. 1057
(1978); Young, A Test of Federal Sunset: Congressional
Reauthorization of the CFTC, 27 Emory L. J. 853
(1978). Some had, see, e.g., Kelley v. Carr, supra, 442
F.Supp. 346 (W.D. Mich. 1977), but others were
hamstrung by perceived limitations in the parens
patriae doctrine. H. R. Rep. No. 95-1181, supra, at 14.
The addition of § 6d was designed to remove these
doubts and to enlist the prosecutorial and enforcement
tools of the states to aid the CFTC in correcting abuses
primarily off the contract markets. See id. at 15 (§ 6d
“is intended, among other things, to provide the several
states with the power .. . to protect their citizens
from persons, such as London options firms, vendors of
dealer options and merchants of so-called leverage
contracts who perpetuate fraudulent and other prac-
tices made unlawful by the Federal law”). See also Luna
v. Merrill Lynch, supra, note 1 at 6-8 n.24. Since this
concern was largely with off-market abuses, contract
markets, clearinghouses, and floor brokers were ex-
empted from the coverage of § 6d. See S. Rep. No. 95-
850, 95th Cong., 2d Sess. 25-26 (1978) (activities of
these persons “generally of the character of ‘pit trading’
rather than customer contact”); 124 Cong. Rec. $10561
(July 12, 1978) (Remarks of Sen. Bellmon).
Indeed, the legislative history indicates that the
perceived existence of an implied private cause of
action against exchanges was actually one of the
reasons for their exemption from § 6d. Explaining the
exemption, Senator Leahy of the responsible committee
noted that:
The exemption from State suits provided to
contract markets is justified due to the deterrent
effect on contract markets caused by Commission
4099
84a
regulation, institution of Commission enforcemen
proceedings, and the implied private rights o
action that may be brought against those contrac
markets that fail to discharge their duties unde
the Commodity Exchange Act. 124 Cong. Rec
$16527 (Sept. 28, 1978) (emphasis supplied).
Since Congress explicitly relied on judicially wnplie
rights of action in fashioning the exemption in § 6d
that exemption can hardly be cited as evidence of :
desire to insulate exchanges from such actions. See als
Smith v. Groover, supra, 468 F.Supp. at 117 (“We fai
to see how an apparent congressional unwillingness t
extend the liability of contract markets suggests a1
intention to abolish such liability altogether”).
This analysis is enough to answer NYME’s majo!
contention, namely, that the exemption of contrac
markets from the parens patriae actions newl)
authorized in 1978 is evidence that Congress did no
mean them to be subject to private actions of any sort
The dissent adds two broader arguments. The first i:
that the 1978 amendment offered Congress ar
40 Requiring states to proceed in federal court and to notify th
FCTC does not demonstrate that the 1978 Congress intended t
eliminate the private suit for damages which had been recognized b
its predecessors four years previously. The states were expected t
act largely in an enforcement role, much as did the FCTC; moreove:
it would be incongruous to allow a state to proceed as parens patria
in its own courts for a violation of federal law. Sufficient means t
obtain uniformity in private litigation were afforded by th
controlling effect of federal law in all CEA litigation and th
possibility of referral to the CFTC approved by the Supreme Cour
in Deaktor. Beyond this the dissent’s reliance on such a slender reec
as the inference to be drawn from the 1978 Congress’ havin;
required parens patriae suits to be brought in federal courts wit
prior notice to the CFTC is a prime example of the unreliability—
frequently noted by the Supreme Court—of relying on the thinkin;
of a later Congress as a guide to the intentions of a former one.
4100
85a
opportunity expressly to affirm the private right
action in the face of a few district court decisions th:
this no longer existed in the light of the 197
legislation and what the dissent calls “the Suprem
Court’s recent but well-publicized adoption of somewhe
stricter principles governing the implication of privat
causes of action.” There are several answers. The first |
that in 1978 Congress was concentrating on paren
patriae suits; it was not considering a general revisio
of the CEA. “The logic of defendants’ argument woul
be to require federal courts to prohibit private action
with respect to any statute amended in any way afte
the mid-1970’s if Congress did not explicitly create
private right of action.” Navigator Group Funds, suprc
at 16. The second is that while Senator Huddlesto
cited two district court decisions which had denied
private right of action under the 1974 amendment:
these were regarded as “unfortunate” and contrary t
the many others he listed that had recognized th
continued existence of such actions. 124 Cong. Rec. §
10537 (July 12, 1978). Indeed the Senator expecte
additional causes of action to be recognized under othe
provisions of the CEA in the future, a view that hardl
comports with fear of a new restrictive trend i
implication jurisprudence. The third is that the asserte
new trend in Supreme Court decisions had not ye
begun, let alone been “well-publicized”. Cort, whic
cited with approval both Rigsby and Borak, 422 U.S. a
78, merely disallowed a private cause of action in th
case sub judice. It did not indicate any new trend, an
the courts have not so regarded it. As Mr. Justic
Powell noted in his Cannon dissent of 1979, 441 U.S. a
741, “In the four years since we decided Cort, no les
than 20 decisions by the Courts of Appeals hav
4101
86a
implied private actions from federal statutes.” ,
Chris-Craft Industries, 430 U.S. 1 (1977), paid
ful attention to Borak, supra, 377 U.S. 426,
Chip Stamps v. Manor Drug Stores, 421 U.S. 7
(1975) had also done, and to Superintenc
Insurance, supra, 404 U.S. 6. The issue
adversely to the plaintiffs in these cases v
whether an implied cause of action existed g
but whether the particular plaintiffs came wit
protected class. The other cases cited are even
the point. The first indication of a changed |
that could be detected by anyone reading the
opinions without an exceedingly high powered n
ing glass, not possessed even by the courts of |
much less by the Congress, was the 1979 opi
Cannon—and there not in the decision, whi
favorable to the plaintiff, but in footnote 6
Justice Stevens’ opinion, and especially in the
ing opinion of Mr. Justice Powell.
The dissent
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