# Appendix — Rivers v. Rosenthal & Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1982
- **Citation:** 456 U.S. 968

## Text

A-1

APPENDIX

No.
UNITED STATES

79-1313
COURT OF APPEALS

FOR THE FIFTH CIRCUIT

JOHN RIVERS and
TOM LAMB
(Dan P. Rivers, as
Executor of the Will of
John Rivers, substituted
in place and stead of
John Rivers, deceased),
Plaintif fs-Appellees,

>

APPEAL from the
United States District
- Court for the Southern
District of Georgia

v.
ROSENTHAL &
COMPANY,

Defendant-A ppellant

J

Before KRAVITCH, HENDERSON and REAV-
LEY, Circuit Judges.

REAVLEY, Circuit Judge:

[1] This appeal presents a single legal question:
whether there exists an implied private right of ac-
tion under the Commodity Exchange Act (“CEA”),
7 U.S.C. §§ 1-24, as revised in 1974, to redress com-
modity futures customers for damages sustained
from their brokers’ violations of the antifraud pro-
visions and broker registration requirements of that

A-2
Act, 7 U.S.C. §§ 6b,! 6k,?2 and the corresponding

17 U.S.C. § 6b provides, in pertinent part: It shall be un-
lawful (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 con-
tract 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 com-
merce in such commodity or the products or by-products
thereof, or (b) determining the price basis of any transac-
tion in interstate commerce in such commodity, or (c) de-
livering any 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 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 execution 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;
a” a ot * # ”

*7 U.S.C. § 6k provides, in pertinent part:
(1) It shall be unlawful for any person to be associated
with any futures commission merchant or with any agent
of a futures commission merchant as a partner, officer,
or employee (or any person occupying a similar status or
performing similar functions), in any capacity which

A-3

regulations, 17 C.F.R. §§ 32.3, 32.9 (1979).3 Rely-
ing upon such an implied right of action, as well as
fraud and fiduciary violation grounds with which we
are not here concerned, John Rivers and Tom Lamb
brought suit below against Rosenthal & Company
and an agent? in its Memphis, Tennessee office, Car]
M. Tipton. Rivers and Lamb allege that in 1976 and
1977 they suffered substantial losses in commodity
futures transactions conceived and carried out in
their behalf by Tipton in violation of the antifraud
and registration provisions noted above.

involves (i) the solicitation or acceptance of customers’
orders (other than in a clerical capacity) or (ii) the
supervision of any person or persons so engaged, unless
such person shall have registered, under this chapter,
with the Commission and such registration shall not have
expired nor been suspended (and the period of suspension
has not expired) or revoked, and it shall be unlawful for
any futures commission merchant or any agent of a
futures commission merchant to permit such a person to
become or remain associated with him in any such capaci-
ty if such futures commission merchant or agent knew or
should have known that such person was not so regis-
tered or that such registration had expired, been sus-
pended (and the period of suspension has not expired)
or revoked: Provided, That any individual who is regis-
tered as a floor broker or futures commission merchant
(and such registration is not suspended or revoked) need

not also register under these provisions.
* * * * + ”

8 See also 7 U.S.C. $§ 6b, 12a(5) (providing authority for
promulgation of regulations and proscribing their contra-
vention).

*7 U.S.C. § 4 imposes upon principals such as Rosenthal
the responsibility for the acts and omissions of their agents.

A-4

Arguing that no such private right of action
exists, Rosenthal moved to dismiss under Fed.R.Civ.
P. 12(b) (6), those counts of the complaint based on
the alleged violations of the CEA. The district court
determined that an implied right of action was avail-
able to Rivers and Lamb and denied the motion to
dismiss. Upon the appropriate recommendation of
the district court that the denial of this motion en-
tailed a controlling and controversial question of law
the immediate resolution of which would materially
advance the ultimate termination of litigation, this
court accepted the interlocutory appeal pursuant to
28 U.S.C. § 1292(b). We now reverse, holding that
no implied private right of action is available to
plaintiffs-appellees, Rivers and Lamb.5

I. BACKGROUND

The question we face here has already received
considerable judicial attention since the 1974 amend-
ments to the CEA. Within the past half year the
Second and Sixth Circuits have ruled that an implied
private right of action does exist under the CEA,
but both decisions were rendered by split. panels over
very forceful dissents. Leist v. Simplot, — F.2d —
(2d Cir. [slip op. nos. 79-7402, -7464, -7482, July
8,] 1980) (per Friendly, J., finding right of action
for contraventions of various sections, such as 7
U.S.C. §§ 6b, 7(d), 7a(8), 13(b), proscribing mar-

5 The named parties are joined on this appeal by the Com-
modity Futures Trading Commission (“CFTC”) and Drexel
Burnham, Lambert, Inc., as amici curiae. The CFTC ap-
pears in favor of the implied right, Drexel in opposition.
The court is indebted to them for their scholarly contribu-
tions.

A-5

ket manipulation, fraud, and dilatory behavior by
exchanges; Mansfield, J., dissenting); Curran v.
Merrill Lynch, Pierce, Fenner & Smith, 622 F.2d 216
(6th Cir. 1980), petition for cert. filed, 49 U.S. L.W.
3053 (U.S. Aug. 9, 1980) (No. 80-203) (private ac-
tion for violation of antifraud provisions such as §
6b).6 Since 1974 numerous district courts also have
faced the issue, with a slight majority of these courts
finding that a cause of action is available under var-
ious provisions.”

° As of this writing, these are the only other two circuits
to have engaged in a reasoned analysis of the existence of
an implied private right of action under the CEA as con-
stituted following the 1974 revision. But see Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Goldman, 598 F.2d 129, 188
n.7 (8th Cir.), cert. denied, 444 U.S, 888, 100 S.Ct. 76, 62
L.Ed.2d 50 (1979) (noting summarily in dictum that
“[s]luch actions are well recognized.”); Hirk v. Agri-
Research Council, Inc., 561 F.2d 96, 1038 & n.& (7th Cir.
1977) (similar perfunctory assertion). This court has not
faced the issue heretofore, although twice since 1974 it has
expressly reserved decision on the existence of a cause of
action under the Act as constituted prior to the 1974 amend-
ments. Chisper v. Kohlmeyer & Co., 600 F.2d 1061, 1067 &
n.14 (5th Cir. 1979) ; Moody v. Bache & Co., Inc., 570 F.2d
523, 528-29 (5th Cir. 1978).

7 Compare, e.g., Grayson v. ContiCommodity Serv. Ine., 2
Comm.Fut.L.Rep. (CCH) 21,088 (D.D.C. May 23, 1980)
(action pursuant to 7 U.S.C. § 6b) ; Navigator Group Funds
v. Shearson Hayden Stone, Inc., 487 F.Supp. 416 (S.D.N.Y.
1980) (§ 6b); Alken v. Lerner, 485 F.Supp. 871 (D.NJ.
1980) (§ 6b) ; Smith v. Groover, 468 F.Supp. 105 (N.D TL
1979) (§$ 6b, 13a, 18b) ; Poplar Grove Planting & Refining
Co. v. Bache Halsey Stuart, Inc., 465 F.Supp. 585, 589-90
(M.D.La. 1979) ($§ 6b, 6d), all finding implied private
rights of action, with, e. g., Stone v. Saxon & Windsor Group

A-6

A. Prior to 1974

The present federal statutory scheme for regulat-
ing the trading of commodity futures traces its line-
age back to The Futures Trading Act, ch. 86, 42
Stat. 187 (1921), and its successor, The Grain Fu-
tures Act, ch. 369, 42 Stat. 998 (1922). These acts,
limited to grain futures, inaugurated the pattern of
restricting futures trading to designated “contract
markets,” i.e., central exchanges subject to govern-
ment supervision and charged with adopting meas-
ures to prevent price manipulation.’ Although these

Ltd., 485 F.Supp. 1212 (N.D.IIl, 1980) (construing §§ 6c
(b), (c)) ; Sunnyside Eggs, Inc. v. Urner Barry Publ, Inc.,
No. 78-1661A (N.D.Ga. Mar. 28, 1980) (§ 18b) ; Fischer v.
Rosenthal & Co., 481 F.Supp. 538 (N.D.Tex. 1979) (§ 6b) ;
Bartels v. International Commodities Corp., 435 F.Supp. 865
(D.Conn. 1977) (§ 6b), all ruling that no private cause of
action exists under the CEA as amended in 1974, See also
Hofmayer v. Dean Witter & Co., Inc., 459 F.Supp. 733 (N.D.
Cal. 1978) (finding right of action under fraud provisions,
§$ 6b and 60, but not for violation of registration provisions,
§§ 6k and 6n (as alleged here), or for violation of exchange
rules).

*The mechanism through which the 1921 Act was to ac-
complish its systemization of the national futures trade—
i. e., by the levying of a tax on all grain futures contracts
traded other than on licensed contract markets—soon was
declared an unconstitutional exercise of the taxing power.
Hill v. Wallace, 259 U.S. 44, 42 S.Ct. 453, 66 L.Ed. 822
(1922). Almost immediately, however, Congress redrafted
the substantive provisions, substituted for the offending tax
section a simple proscription of all futures dealings other
than on licensed contract markets, and reenacted the whole
pursuant to its power to regulate interstate commerce as
The Grain Futures Act. The Supreme Court upheld the new
Act as constitutional in Board of Trade v. Olsen, 262 U.S.
1, 48 S.Ct, 470, 67 L.Ed. 839 (1923).

A-7

acts empowered the government to take some steps
against individual price manipulations, in practice
almost total reliance for the regulation of such ac-
tivities rested with the individual exchanges.

In 1936, Congress significantly expanded the
scope of federal regulation of the futures trading
industry and retitled the legislation the “Commodity
Exchange Act,” ch. 545, 49 Stat. 1491 (1936). Un-
der this Act, regulator coverage went beyond grain
futures to include other specified agricultural com-
modities. Additional substantive regulatory pro-
visions were enacted, including an antifraud pro-
vision, § 4b, 49 Stat. 1493, in essentially the same
form as that in the present codification, 7 U.S.C. §
6b, which forms one of the bases of this action.
Greater direct government control of market abuses
by individual traders also was established by the
addition of criminal sanctions for violation of the
proscription against price manipulation as well as
fines and penalties for the transgressions of other
provisions and by the vesting of broader powers of
direct supervision and enforcement in the Depart-
ment of Agriculture.

Notwithstanding this beefing up of the federal
regulatory scheme, the principal emphasis and es-
sential philosophy of the legislation remained one of
industry self-regulation through the contract
markets. Curran v. Merrill Lynch, 622 F.2d at
231; Stone v. Saxon & Windsor Group Ltd., 485 F.
Supp. at 1214. Despite similar, though less expan-
sive, amendments in 1968 that increased the sanc-
tions and penalties under the CEA and added sev-
eral new substantive requirements not pertinent
here, Pub.L. 90-258, 82 Stat. 26 (1968), the basic

A-8

approach of industry self-regulation continued until
the drastic revision of the CEA in 1974,

Significantly for our purposes, the relatively lim-
ited role expressly legislated for the federal govern-
ment to play in the active enforcement of this ex-
panding regulatory scheme during the period 1922-
1974 consisted of punitive or coercive mechanisms
such as fines, removal of licenses, or criminal penal-
ties—all sanctions against transgressors. Congress
did not expressly provide for any federal judicial or
administrative forum or remedy through which those
injured due to fraud or other violations of the acts or
regulations could seek redress from those transgres-
sors.

By at least 1967 with the decision in Goodman v.
H. Hentz & Co., 265 F.Supp. 440, 447 (N.D.III.
1967), however, the courts began to fill that void by
finding an implied private right of action under the
CEA. See Leist v. Simplot, — F.2d at —, [slip op.
at 4076] (intimating that private actions may have
been maintained prior to and in greater number than
is indicated by only the published decisions). In fact,
all courts that decided the issue held unanimously
that such a private cause of action was available
under the CEA as constituted prior to 1974. See, e.g.,
Deaktor v. L. D. Schreiber & Co., 479 F.2d 529, 534
(7th Cir. 1978), rev’d on other grounds sub nom.
Chicago Mercantile Exchange v. Deaktor, 414 U.S.
118, 94 S.Ct. 466, 38 L.Ed.2d 344 (1978) (cause of
action under 7 U.S.C. § 18b); Booth v. Peavey Co.
Community Services, 430 F.2d 182, 183 (8th Cir.
1970) ($ 6(d)); Arnold v. Bache & Co., Inc., 377
F.Supp. 61, 65 (M.D.Pa.1978) (§ 6b); McCurnin v.

A-9

Kohlmeyer & Co., 340 F.Supp. 1338, 1343 (E.D.La.
1972), aff'd per curiam, 477 F.2d 113 (5th Cir.
1973). But see Chipser v. Kohlmeyer & Co., 600 F.2d
1061, 1067 & n. 14 (5th Cir. 1979) (suggesting
existence of pre-1974 cause of action an open ques-
tion upon remand) ; Moody v. Bache & Co., 570 F.2d
523, 528-29 (5th Cir. 1978). Moreover — although
the correctness of these decisions is dubious when
measured against the present wisdom for determin-
ing the existence of implied rights of action, see e.g.,
Transamerica Mortgage Advisors, Inc. v. Lewis, 444
U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979)
(“TAMA”) and Part II, infra — this course of al-
lowing the victims of violations to take the initiative
and hail their trespassing tormentors before the
courts was basically consistent with that era’s fund-
amental approach of relying principally upon the
self-policing of the futures trade by those involved
in it.

B. 1974 Amendments

By the early 1970’s, however, the vastly increased
volume, scope and complexity of futures trading and
the apparent inability of the individual exchanges
to cope coherently and satisfactorily with these geo-
metrically expanding problems compelled a reevalua-
tion of that basic self-regulatory approach. S.Rep.
No. 850, 95th Cong., 2d Sess. 8-10, reprinted in
[1978] U.S. Code Cong. & Ad.News, pp. 2087, 2096-
98; S.Rep.No. 1131, 93d Cong., 2d Sess., reprinted in
[1974] U.S. Code Cong. & Ad.News, pp. 5843, 5858-
59. The product of this re-evaluation was the Com-
modity Futures Trading Commission Act of 1974,
Pub.L. 93-463, 88 Stat. 1389 (“CFTCA”’’). Different

A-10

in character from even the significant amendments
of 1936 and 1968, the CFTCA “signalled a dramatic
shift from the theory of exchange self-regulation,”
upon which federal futures trading legislation had
been premised up to that point, Leist v. Simplot, —
F.2d at —, [slip op. at 4075], and proposed in its
place “a comprehensive regulatory structure” creat-
ing a coherent uniform system of federal control
over the entirety of the national futures trading in-
dustry. H.R.Rep.No. 975, 93d Cong., 2d Sess. 1. Con-
sequently, rather than comprising mere patchwork
additions as had all prior amendatory schemes, the
CFTCA actually constituted “the first complete
overhaul of the Commodity Exchange Act since its
inception.” 7d. (emphasis added).

The CFTCA dramatically expanded federal regu-
latory coverage beyond agricultural products to en-
compass futures trading in several categories of
goods and services not previously regulated. See 7
U.S.C. §§ 2, 6c(a) & (b). The most significant
changes pertinent to our consideration here, how-
ever, came in the total revamping of the regulatory
oversight and enforcement systems designed to ef-
fectuate the shift in policy to a uniform, compre-
hensive federal control over the industry.

The focal point of this shift was the creation of
the Commodity Futures Trading Commission
(“CFTC”), a strong regulatory body, vested with
exclusive jurisdiction over futures trading, 7 U.S.C.
§ 2, that was to be the keystone of the new compre-
hensive federal regulatory structure. Federal over-
sight responsibility over the daily functioning of the
industry was greatly expanded through the CFTC.
For example, the Commission was empowered to

A-11

designate and to prescribe certain terms of operation
for licensed contract markets, as well as to review all
regulations and bylaws of these markets and to dis-
approve, alter or supplement those rules insofar as it
deemed necessary. See, e. y., 7 U.S.C. § 12a(7). Fur-
ther, the activities of certain classes of individual
traders were for the first time brought under the
federal eye by the requirement that they register
periodically with the CFTC. See, e. g., 7 U.S.C. § 6k
(one of the provisions forming the basis of plain-
tiffs’ complaint here, requiring registration of as-
sociates of futures commission merchants).

Central to our concern are those provisions elab-
orately overhauling the comparatively limited en-
forcement scheme extant under the old law in order
to assure compliance with the new oversight provi-
sions above, and the many substantive standards of
conduct that had been carried forward into the new
statutory framework virtually unchanged (such as
the antifraud provision, § 6b, involved here). Con-
sistent with the shift in philosophy toward affirma-
tive federal responsibility, this renovated enforce-
ment system was greatly strengthened relative to
prior law both by the enhancement of some old tools
and by the addition of several potent new ones. See
S.Rep.No. 850, supra at 11-12, 1978 U.S.Code Cong.
& Ad.News at 2099-2100. For example, maximum
civil penalties and fines assessable against individu-
al violators and against contract markets that failed
to enforce their rules were drastically increased from
$10,000 to $100,000 per episode. See, e. g., 7 U.S.C.
§§ 13a, 13b. The Commission also was newly em-
powered, for instance, to sue in federal court for in-
junctive relief whenever it appeared that an individ-

A-12

ual or contract market had engaged, was engaging,
or was about to engage in conduct violating the Act
or regulations, 7 U.S.C. § 13a-1, as well as to conduct
disciplinary proceedings against exchange members,
7 U.S.C. § 12c, and revoke or suspend the registra-
tion or trading privileges of any such individual, 7
U.S.C. §§ 6n(6), 9, or contract market, 7 U.S.C.
§ 7b.

Most importantly, the 1974 Act for the first time
expressly provided the means for persons injured by
violations of the Act to seek redress from those re-
sponsible. First, each designated contract market
was required to provide an arbitration or other in-
formal procedure for the settlement of customers’
claims and grievances involving less than $15,000.°
7 U.S.C. § 7a(11). Second, the Act established an
administrative reparations procedure pursuant to
which complaints might be filed with the CFTC
against virtually any futures trading professional
required to be registered under the Act. 7 U.S.C. §
18. The CFTC is obliged to investigate such com-
plaints and, if warranted in the Commission’s opin-
ion, to allow the complainant to proceed against the
alleged culprit before an administrative law judge
either by hearing or by depositions or certified state-
ments of facts, depending upon the size of the claim.

® As indicated by this provision, the role of the individual
exchanges, particularly in the enforcement vein, was not
totally extinguished despite the shift in policy toward a
more uniform, government-controlled regulatory system.
See also 7 U.S.C. § 21 (enabling provision for the creation
of registered futures associations formed to engage in broad
industry self-regulation).

A-13

7 U.S.C. § 18(b). The administrative law judge in
turn is authorized to rule upon the merits of the
claim and to order payment of damages necessary to
compensate the injured individual. See, e. g., Gordon
v. Shearson Hayden Stone, Inc., 2 Comm.Fut.L.Rep.
(CCH) { 21,016 (April 10, 1980). An order of
payment is enforceable in federal district court, and
the Commission’s ruling on the merits of a claim may
be appealed by either party to the court of appeals
in the designated circuit. 7 U.S.C. § 18(f), (g).™

The question we face is whether an implied judi-
cial private right of action also was meant to be in-
cluded among the panoply of express enforcement
tools in this “comprehensive regulatory structure”
erected by the 1974 revision. We conclude that it was
not.

II. DEFINING THE INQUIRY

As indicated by our recent opinions in United
States v. Capeletti Bros., Inc., 621 F.2d 1309, 1313

10The CEA was significantly amended again in 1978. Fu-
tures Trading Act of 1978, Pub.L. 95-405, 92 Stat. 865.
These alterations took the form primarily of adjustments
to the framework erected in 1974. The most significant
changes for our purposes were the modification of the repa-
rations procedure to allow full-fledged hearings only for
claims greater than $5,000 (as opposed to $2,500 in the
original enactment), 7 U.S.C. § 18(b) & (c), and the addi-
tion of a new provision expressly allowing the attorneys
general of the various states to lodge damage actions in
federal courts on behalf of their residents against alleged
violators of the Act, 7 U.S.C. § 13a-2. These amendments
and their legislative history will be discussed more fully as
they appear pertinent to the analysis below.

A-14

(5th Cir. 1980) and Rogers v. Frito-Lay, Inc., 611
F.24 1074, 1078 (5th Cir.), petition for cert. filed,
48 U.S. L.W. 3769 (no. 79-1810, May 14, 1980),
this court continues to employ the factors articulated
in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.
2d 26 (1975), as a guide to determining whether a
cause of action should be inferred from any particu-
lar statutory scheme. In Cort the Supreme Court
identified four factors it considered particularly
relevant to this inquiry:

“First, is the plaintiff “one of the class for whose
especial benefit the statute was enacted... that
is, does the statute create a federal right in favor
of the plaintiff? Second, is there any indication of
legislative intent, explicit or implicit, either to
create such a remedy or to deny one... ? Third, is
it consistent with the underlying purposes of the
legislative scheme to imply such a remedy for the
plaintiff... ? And finally, is the cause of action
one traditionally relegated to state law, in an area
basically the concern of the States, so that it would
be inappropriate to infer a cause of action based
solely on federal law?”

422 U.S. at 78, 95 S.Ct. at 2087 (citations omitted,
emphasis in original).

[2-6] In its more recent pronouncements in
Transamerica Mortgage Advisors, Inc. v. Lewis, 444
U.S. 11, 15, 23, 100 S.Ct. 242, 245, 249, 62 L.Ed.2d
146 (1979) (“TAMA”) and Touche Ross & Co. v.
Redington, 442 U.S. 560, 568, 576, 99 S.Ct. 2479,
2485, 2489, 61 L.Ed.2d 82 (1979), however, the Su-
preme Court has made clear that the dispositive in-

A-15

quiry in evaluating claims upon implied rights of
action is the divining of whether Congress intended
such a cause of action to be born,"! the second of the
Cort criteria. Thus the Cort factors, rather than be-
ing utilized as some sort of self-contained litmus test,
are useful only insofar as they help to elucidate that

1! This conclusive reliance upon congressional intent in the
evaluation of claims of implied rights of action is not simply
an expedient tool or canon of construction, but is rooted in
the limitations of the functional role allotted the judiciary
by the Constitution. United States v. Capeletti Bros., 621
F.2d at 1312; Rogers v. Frito-Lay, 611 F.2d at 1078. See
also Cannon v. University of Chicago, 441 U.S. 677, 742, 99
S.Ct. 1946, 1981-85, 60 L.Ed.2d 560 (1979) (Powell, J., dis-
senting). Although we may breathe practical life into them,
the federal judiciary—endowed with no legislative or policy
making authority—has no power to “imply” or otherwise
to create private causes of action supplementary to express
statutory schemes. Rather, we may only recognize or infer
rights of action affirmatively created by the Legislative
Branch, whether that affirmative legislative intent is mani-
fested expressly in statutory language or by implication in
statutory structure, context, or legislative history. That
this approach may justifiably be characterized as a re-
trenchment from that applied in the recent past, when
causes of action might have been judicially “implied” mere-
ly upon a court’s policy determination that such a cause
would be useful or “necessary” to statutory goals, is a
lamentable indictment of our past failure to recognize or
confine ourselves to our constitutionally assigned role and
our concomitant willingness to countenance Congress’ ab-
dication to the courts of its constitutionally assigned policy
making responsibility. See Cannon v. University of Chicago,
441 U.S. at 742-749, 99 S.Ct. at 1981-85 (Powell, J., dis-
senting). See also, TAMA, 444 U.S. at 23, 100 S.Ct. at 249
(Powell, J., concurring and indicating that the approach
deployed there was consistent with his Cannon dissent).

A-16

legislative intent.!2 Indeed, as the opinions in both
TAMA and Touche Ross demonstrate, should the
issue of intent be settled by, for example, the legis-
lative history and the language or structure of the
statute, the inquiry has reached its end and no pur-
pose is served by the further ritualistic application
of the remainder of the Cort litany.83 TAMA, 444

12 Since the primary indicators of legislative intent are the
language and overall structure of a statute as well as its
legislative history and the context of its enactment, the first
and third of the Cort factors are useful guideposts to intent,
although not as directly to the point as the inquiry directed
by the second criterion. Touche Ross, 442 U.S. at 576, 99
S.Ct. at 2489; Rogers v. Frito-Lay, 611 F.2d at 1078-79 n.4.

13 Qur path is smoothed somewhat in that respect here by
appellant Rosenthal’s decision not to dispute two of the four
Cort criteria. Appellant first has conceded, as it must, that
regulation of the commodity futures trade plainly is not an
area traditionally relegated to state law. Therefore, this
fourth factor, to the extent that it carries any weight, bal-
ances in favor of the plaintiffs and will not be discussed
further. Appellant further conceded in its Reply Brief that
the first Cort factor—-that plaintiffs are members “of a
class for whose especial benefit to the statute was enacted”
—should similarly be resolved in plaintiffs’ favor. We are
less certain of the correctness or advisability of this con-
cession, particularly in light of this court’s rigorous analysis
of this factor in United States v. Capeletti Bros., 621 F.2d
at 1313-14. Also, compare TAMA, 444 U.S. at 23, 100 S.Ct.
at 249 (observing that § 206 of the Investment Advisors
Act, 15 U.S.C. § 806-6 (an anti-fraud statute strikingly
similar to that in issue here), “concededly was intended to
protect the victims cf the fraudulent practices it prohibit-
ed”) with Cannon v. University of Chicago, 441 U.S. 677,
690 n.13, 99 S.Ct. 1946, 1955 n.13 (1979) (intimating in
dictum that rule 10b-5 under the Securities Exchange Act
of 1934 merely “create[s] duties on the part of persons for

A-17

U.S. at 23, 100 S.Ct. at 249; Touche Ross, 442 U.S.
at 576, 99 S.Ct. at 2489.

As indicated above and as unquestioningly recog-
nized by every court to entertain the issue, the focus
of our inquiry is properly directed to the 1974 re-
vision of the CEA. While many of the individual

the benefit of the public at large” rather than a right in
specific persons). See also Leist v. Simplot, __ F.2d at —,
— [slip op. at 4063-71, dissent at 4133-42] (majority and
dissent differ with regard to “especial benefit” factor when
CEA applied to futures “speculators’”). In fact, concession
of this factor might have seriously skewed our analysis of
the case under the puzzling assertion by the Supreme Court
in Cannon that where “it is clear that federal law has
granted a class of persons certain rights, it is not necessary
to show an intention to create a cause of action, although an
explicit purpose to deny such a cause of action would be
controlling.” 441 U.S. at 693, 99 S.Ct. at 1956, quoting Cort
v. Ash, 422 U.S. at 82, 95 S.Ct. at 2089 (dictum) (emphasis
in original).

The Supreme Court has more recently observed in TAMA,
however, that “the mere fact that the statute was designed
to protect advisers’ clients does not require the implication
of a private cause of action for damages on their behalf.
[citations omitted]. The dispositive question remains wheth-
er Congress intended to create any such remedy.” 444 U.S.
at 24, 100 S.Ct. at 249. We can only assume that this state-
ment serves to repudiate the curious allusion in the Cannon
statement to a drastically more liberal approach to “intent”
where the first Cort criterion is satisfied. At the least, in-
sistence upon the strict standard would seem reasonable in
situations where (as opposed to Cannon) any “rights” of
the class, at least potentially, may be adequately secured by
the statute’s express remedies. Consequently, we shall as-
sume, arguendo, the correctness of appellants’ concession
and analyze this factor no further as well, directing our
attention only toward the second and third Cort criteria.

A-18

concepts and provisions originated in prior enact-
ments, including § 6b (the anti-fraud provision),
the overall “regulatory scheme as it exists today is
a product of the 1974 amendments” and the drastic
shift in regulatory philosophy that they represent.
Navigator Group Funds v. Shearson Hayden Stone,
Inc., 487 F.Supp. 416, 420 & n. 6 (S.D.N.Y. 1980).
Thus it is the intent of that Congress and the legis-
lative history of that enactment that will form the
basis of our decision here.

This focus on what is basically revisionary legisla-
tion, as opposed to an altogether new and original
enactment, requires some adjustment or at least
some reevaluation of the conventional analytical ap-
proach, however. In particular and most important-
ly, the fact that a private cause of action had pre-
viously been inferred under the old statutory scheme
in connection with certain express provisions (such
as § 6b), which were incorporated or carried forward
into the present structure, raises questions concern-
ing the type of congressional intent we are bound to
search for and where the axe should fall in the ab-
sence of any definitive evidence of intent.

As indicated in footnote 11, swpra, an implied
private right of action ordinarily may be recognized
only upon clear evidence that Congress affirmatively
intended to provide such a remedy. See Touche Ross,
442 U.S. at 568, 99 S.Ct. at 2485. Customarily,
“those who contend a statute has endowed them with
a cause of action must establish their proposition,”
and their failure to demonstrate Congress’ intent to
provide a cause of action compels the denial of such
actions. Rogers v. Frito-Lay, 611 F.2d at 1085.

A-19

[7] Plaintiffs, along with the CFTC as amicus
curiae,'4 contend here, however, that because courts
had uniformly recognized private rights of action
under the CEA prior to 1974, it is the rejection of a
private right that would constitute a change in the
status quo. Moreover, they suggest, Congress was or
must have been aware of this judicial stance. There-
fore, they argue, the onus here should be upon the
defendants to prove a congressional intent tu alter
this status quo by abrogating this previously exist-
ing cause of action in the course of the 1974 revision.
This argument has some appeal and has been accep-
ted and deployed by several courts, all of whom even-
tually upheld the existence of an implied private
right. See, e.g., Leist, — F.2d at — [slip op. at
4061]; Curran v. Merrill Lynch, 622 F.2d at 234;

Alken v. Lerner, 485 F.Supp. 871, 877 (D.N.J.
1980).

[8,9] While we agree that some account must be
taken of the pre-1974 judicial decisions inferring a
cause of action and any congressional awareness of

1 Through its appearance here and in other litigation, along
with its official pronouncements on the subject, see 41 Fed.
Reg. 3994 (1976), the CFTC has made clear its belief that
an implied right of action is available to private litigants.
Ordinarily the interpretation of a statute by the agency
charged with its administration would be entitled to great
deference. See United States v. Consumer Life Ins. Co., 480
U.S. 725, 752, 97 S.Ct. 1440, 1454, 52 L.Ed.2d 4 (1977).
The Supreme Court made clear in Piper v. Chris-Craft In-
dustries, Inc., 480 U.S. 1, 41 n.27, 97 S.Ct, 926, 949 n.27, 51
L.Ed.2d 124 (1977), however, that such deference was not
to be accorded on the narrow issue, “reserved for judicial
resolution,” of whether an implied right of action should
be recognized under the statute.

A-20

those decisions, we do not believe plaintiffs’ suggest-
ed mode of analysis is appropriate to this case. As is
recognized by the courts employing this approach,
see, e.g., Leist, — F.2d at— [slip op. at 4061-62,
4077-80], the thesis has its foundation in the tradi-
tional canon of construction that, absent express in-
dications to the contrary, the reenactment of statutes
in substantially the same form or their wholesale
adoption into other statutory schemes are presumed
to perpetuate and incorporate the judicial baggage
that has accumulated in relation to those provisions.
See, e.g., Lorillard v. Pons, 434 U.S. 575, 580-81, 98
S.Ct. 866, 869-70, 55 L.Ed.2d 40 (1978); Alabama
Association of Insurance Agents v. Board of Gover-
nors, 583 F.2d 224, 245 (5th Cir. 1976), cert. denied,
435 U.S. 904, 98 S.Ct. 1448, 55 L.Ed.2d 494 (1978).
We believe, contrary to Judge Friendly’s assertions
in Leist, — F.2d at — [slip op. at 4077-78], that the
1974 revision of the CEA simply does not fall within
this paradigm.

The CFTCA was not a mere reenactment, but the
“first complete overhaul” of the CEA. H.R.Rep. 975,
supra, at 1. While it is true as noted earlier that
many of the substantive measures, such as the anti-
fraud provision, 7 U.S.C. § 6b, were left untouched
or were carried forward virtually unchanged into
the new regulatory structure, the immediate context
of those provisions was drastically changed. Most
significantly, as delineated in Part I.B., supra, the
enforcement scheme — which an implied right pre-
sumably had been thought necessary to supplement
—was dramatically altered and expanded. So signif-
icant a transfiguration of the extant statutory
framework is, itself, a wholesale obliteration of the

A-21

prior status quo and sufficient reason for declining
to adopt plaintiffs’ analytical approach, grounded as
it is in the reenactment doctrine described above.
Stone v. Saxon & Windsor Group Ltd., 485 F.Supp.
at 1221; Smith v. Groover, 468 F.Supp. 105, 112-113
(N.D.IIl. 1979) (rejecting the identical approach
urged here by plaintiffs and CFTC as amicus
curiae)."§ Our decision to continue to require proof
of affirmative congressional intent to provide a pri-
vate right of action is further grounded in a related
reason, however, calling into play still another canon
that guides inquiries into the existence of implied
causes of action.

As outlined in Part I.B., supra, Congress greatly
expanded the federal regulatory enforcement arsenal
in the 1974 Act by expressly enacting several potent
new judicial and administrative tools and strength-
ening many of those previously contained in the
CEA. Most significantly, for the first time it expres-
sly provided for remedial mechanisms — the admin-
istrative reparations procedure, 7 U.S.C. § 18, and
the requirement that exchanges provide the means
for arbitration of small claims, 7 U.S.C. § 7a(11) —
through which those injured by violations of the Act
could seek compensation from the infractors.

“(I]t is an elemental canon of statutory construc-

‘Cf. Georgia v. United States, 411 U.S. 526, 532-83, 93
S.Ct. 1702, 1706-07, 36 L.Ed.2d 472 (1973) (applying the
reenactment doctrine to uphold perpetuation of Supreme
Court interpretation of the provision reenacted, with some
changes in context, where, unlike here, that prior interpre-
tation had been the subject of “extensive deliberations” at
least in hearings, and Congress had thereafter done nothing
to alter or foreclose that interpretation).

A-22

tion that where a statute expressly provides a par-
ticular remedy or remedies, a court must be chary of
reading others into it.” TAMA, 444 U.S. at 19, 100
S.Ct. at 247. Thus Congress’ express provision in
1974 of the numerous judicial and administrative
means for enforcing compliance with the antifraud
and other provisions of the CEA — and most par-
ticularly the remedial mechanisms of arbitration
and reparations procedures — in effect creates a
presumption against the implication of yet another
unexpressed judicial means of enforcement and rem-
edy.'® This “presumption” against finding an im-
plied right of action may be overcome, but only upon
“clear contrary evidence of legislative intent” af-
firmatively to provide such an implied right in addi-
tion to the express remedies. National Railroad Pas-
senger Corp. v. National Association of Railroad
Passengers, 414 U.S. 458, 458, 94 S.Ct. 690, 693, 38
L.Ed.2d 646 (1974) (“Amtrak”). Accord, e.g.,
TAMA, 444 U.S. at 19, 100 S.Ct. at 247; Securities
Investor Protection Corp. v. Barbour, 421 U.S. 412,
419, 95 S.Ct. 1738, 1738, 44 L.Ed.2d 263 (1975).

16 Indeed, the presumption is much more appropriately
suited to this case than to the TAMA decision from which
the formulation of the rule quoted in text was drawn.
Navigator Group Funds v. Shearson Hayden Stone, Inc.,
487 F.Supp. at 420. There the Supreme Court declined to
infer a private cause of action for damages largely on the
basis of express enforcement provisions merely aimed at
sanctioning violators of the substantive provisions. As the
court in Navigator Group Funds observed, the express pro-
visions of the CF TCA include compensatory remedial mech-
anisms which are more truly functional alternatives to the
implied judicial forum sought by injured customers. 487
F.Supp. at 420.

A-23

Therefore, following the pattern of TAMA, we con-
clude that the onus remains upon plaintiffs to dem-
onstrate “a clear and affirmative congressional in-
tent to approve a private right of action.”!” Leist, —
F.2d at -— [slip op. dissent at 4147] (Mansfield, J.,
dissenting). Accord, Stone v. Saxon & Windsor
Group Ltd., 485 F.Supp. at 1218, 1220.

[10,11] The history of judicial recognition of a
private cause of action under the CEA prior to 1974
justified some adjustment to and tailoring of the tra-
ditional formulation of the precise nature of congres-
sional intent that must be shown. Rather than re-
quiring establishment of a legislative intent to create
a cause of action, we will require proponents of the
implied right here to show, first, simply that Cong-
ress was actually aware in 1974 of this prior judicial
recognition of an implied right of action, and second,
that it approved these holdings and affirmatively in-
tended to adopt or incorporate this extant, judicially
articulated, right of action into the comprehensive
express legislative enforcement scheme erected by

17 We adopt this approach and embark on our analysis fully
cognizant that application of plaintiffs’ suggested approach,
as in Leist and Alken, very well might—indeed, probably
would—produce a different final result.

18 Given such proof, the actual correctness or incorrectness
of these earlier judicial decisions would be largely imma-
terial. “For the relevant inquiry is not whether Congress
correctly perceived the then state of the law, but rather
what its perception of the state of the law was.” Brown v.
General Services Administration, 425 U.S. 820, 828, 96 S.Ct.
1961, 1965, 48 L.Ed.2d 402 (1976). Thus, if Congress em-
braced such a cause of action and intended its perpetuation
in the revised regulatory system, this affirmative intent

A-24

the 1974 Act.!8 It is to this precise inquiry, in addi-
tion to the arguments and evidence put forth by
plaintiffs, along with our sister courts’ attempt to
satisfy this inquiry, that we now turn our attention.

III. CONGRESSIONAL INTENT
A. Content of Act and Legislative History

The direct sources from which plaintiffs might
demonstrate the requisite congressional intent to
provide, or to continue to provide, a private right of
action are the legislative history, language and
structure of the 1974 Act. Our study of these sources,
however, guided by the plaintiffs’ arguments, fails
to yield any such “clear . . . evidence of legislative
intent” to adopt such a private right.

Plaintiffs rely first on several passages of legis-
lative history which, they argue, plainly demonstrate
that Congress was aware in 1974, during its deliber-
ations on the CFTCA, of the consistent judicial rec-
ognition of implied private rights under the CEA
prior to that time. They point initially to two state-
ments in H.R.Rep.No. 975, supra, at 46, 48, refer-
ring to the growth of private suits against contract
markets for the failure to enforce their own rules as
well as for actions taken in emergency situations.
Representative Poage, the sponsor of H.R.11955 (the
version of the legislation that later passed the House
as H.R.13113, 938d Cong., 2d Sess. (1974) U.S.Code
Cong. & Ad.News, p. 5843), also made essentially the

renders completely irrelevant to our purposes the question
of the propriety, under whatever standards, of the decisions
originally giving birth to the cause of action. Accord, Can-
non v. University of Chicago, 441 U.S. at 709, 99 S.Ct. at
1964.

A-25

same observation on the House floor. 119 Cong.Rec.
41333 (1974). Plaintiffs also point to several men-
tions of the existence of a private right of action by
witnesses before the House and Senate Committees
conducting hearings on the commodity futures legis-
lation. Hearings before the Senate Committee on
Agriculture and Forestry on 8.2485, 8.2578, S.2837,
and H.R.13113, 98d Cong., 2d Sess. 415, U.S.Code
Cong. & Ad.News, p. 5843 (1974) (hereinafter “Sen-
ate Hearings’”’) (statement of Alvin Donahoo, Min-
neapolis Grain Exchange, noting court litigation as
extant alternative to proposed arbitration proce-
dures) ; Hearings before the Comm. on Agriculture
on H.R.11955, 93d Cong., 2d Sess. 249, 321 (1974)
(hereinafter “House Hearings’) (statements of rep-
resentatives of international commodity exchanges
and the Continental Grain Company, respectively, ob-
serving that in addition to the proposed reparations
and exchange arbitration procedures “complainants
of course have access to the courts,” p. 249, and that
“courts ... have already held they have jurisdiction
over private complaints,” p. 321). See also Senate
Hearings, supra, at 737, 746 (statement of Professor
Ray Schotland, arguing for an express private right
of action and assurance “that Federal and State
courts are still open” (emphasis added) ).

Stated charitably, we are less certain than are
the plaintiffs and several of our sister courts! that
these few fleeting references—sometimes cryptic

1° EB. g., Leist v. Simplot, __ F.2d __ at _— [slip op. at 4074-
78]; Curran v. Merrill Lynch, 622 F.2d at 234; Alken v.
Lerner, 485 F.Supp. at 877; Smith v. Groover, 468 F.Supp.
at 113.

A-26

and all comparatively isolated among the hundreds
of pages of testimony and debate that comprise the
legislative history of the 1974 Act—are sufficient to
establish that the entire Congress was even aware
of and duly considered the existence of any pre-
viously inferred cause of action in its deliberations
and vote upon the CFTCA. See SEC v. Sloan, 436
U.S. 103, 119-123, 98 S.Ct. 1702, 1712-14, 56 L.Ed.2d
148 (1978) ;29 Tennessee Valley Authority v. Hill,
437 U.S. 153, 191-194, 98 S.Ct. 2279, 2300-01, 57 L.
Ed.2d 117 (1978). Plainly, the consideration of the
prior judicial interpretations here involved much
less attention, even among the legislators and wit-
nesses noted above, than the “extensive [legislative]
deliberations” (albeit in hearings) of the Supreme
Court’s prior interpretation of a provision of the Vot-
ing Rights Act from which, in Georgia v. United
States, 411 U.S. 525, 532-33, 93 S.Ct. 1702, 1707, 36
L.Ed.2d 472 (1973), the Court presumed general
congressional awareness and acceptance of that in-
terpretation in the reenactment of the provision. See
note 15, supra.

[12] Nonetheless, even assuming that these re-

*°In Sloan, the Supreme Court rejected the SEC’s conten-
tion that its longstanding interpretation of a particular
section of the Securities Exchange Act of 1934 had been
essentially incorporated into that section by Congress’ re-
enactment of the provision in substantially the same form.
In doing so, even though the Senate committee overseeing
the reenactment had not only acknowledged but expressly
approved of the SEC’s construction in its official report,
the Court declined “to presume general congressional
awareness of the Commission’s construction based only up-
on a few isolated statements in the thousands of pages of
legislative documents.” 436 U.S. at 121, 98 S.Ct. at 1713.

A-27

marks demonstrate Congress’ awareness of the prior
judicial recognition of an implied right under the
CEA?! and that the first prong of our inquiry (de-
lineated in Part II, supra) is satisfied, these pas-
sages unquestionably give no indication that Con-
gress approved of and intended to perpetuate such
actions as a part of the elaborate express enforce-
ment scheme that it was in the process of fashion-
ing.22 Proof of such approval is, of course, the vital
element of congressional intent which plaintiff must
establish.”3

*1 In the context of a similar situation, the Supreme Court
stated in Cannon that “[i]t is always appropriate to assume
our elected officials, like other citizens, know the law’—
referring to the prior judicial construction of a statute upon
which the one under the Court’s consideration had been pat-
terned. 441 U.S. at 696, 99 S.Ct. at 1957-58 (dictum). This
suggests that awareness of the prior judicial constructions
recognizing an implied right of action under the CEA ap-
parently may merely be ascribed to Congress. However, the
wisdom of imputing to Congress the knowledge upon which
we then, in turn, assume that legislation is predicated, seems
dubious. See SEC v. Sloan, 436 U.S. at 118-24, 98 S.Ct. at
1712-14, and note 20 supra.

*2 The polarity between the analytical approaches and con-
cepts of burden of persuasion employed by this court and
the Second Circuit in Leist is epitomized by Judge Friend-
ly’s observation, respecting the passages of legislative his-
tory just examined, that “[i]t matters little whether this be
called recognition or approval [of prior implied rights].”
—. F.2d at __ [slip op. at 4075-76].

*3 Indeed, the passages in the H.R.Rep.975 as well as Repre-
sentative Poage’s remarks evince a disparagement of such
actions, at least insofar as they had presented an impedi-
ment to effective exchange self-regulation—quite likely
a factor in the exclusion of exchanges from the ranks of

A-28

[13, 14] For their demonstration of congressional
approval and adoption of the judicially created
right of action, then, plaintiffs rely almost totally
on the jurisdictional savings proviso of 7 U.S.C. § 2.
Set amid the ascription of exclusive jurisdiction over
futures trading to the CFTC, this proviso states
that “[n]Jothing in this section”! shall supersede or
limit the jurisdiction conferred on courts of the
United States....” This, plaintiffs contend, affirma-
tively demonstrates the intent of Congress to retain
the power of the courts to entertain private actions
under the CEA. See A. Bromberg & R. Lowenfels,
Securities Fraud & Commodities Fraud § 461 at
82.362-.363 (1979).

The language of the proviso does not clearly evince
an intent to approve of implied private actions, how-
ever,® and the legislative history relevant to this

those suable by states under 7 U.S.C. § 13a-2 and those sus-
ceptible to the administrative reparations procedure of 7
U.S.C. § 18.

24Even though the proviso explicitly provides only that
nothing “in this section” was meant to supersede extant
court jurisdiction, the legislative history illustrates that
Congress’ intention was that nothing in the Act was to be
taken to diminish that jurisdiction. S.Rep. No. 1131, 93d
Cong., 2d Sess. 23, reprinted in [1974] U.S.Code Cong. &
Ad.News, pp. 5848, 5863; 120 Cong.Rec. 34737, 34997
(1974).

25 If we may indulge in so simplistic an observation: it is
quite a different matter to remove the jurisdiction of courts
over even a limited subject area like futures trading, than
to eliminate a cause of action within that subject area. By
the same token, a provision such as that in § 2, which ex-
plicitly directs the retention of jurisdiction, need not also
denote the retention of an individual cause of action.

A-29

specific proviso indicates that it probably was in-
tended to serve another purpose entirely. The House,
Senate and Conference reports all are mute as to
the purpose behind the proviso, which was added to
H.R.13113 in the Senate. Allusions to the provision
during debates on the floor are similarly unen-
lightening.

Only recourse to the attenuated source of hearing
testimony gives any hope of insight. Plaintiffs ar-
gue, therefore, that the proviso was enacted in re-
sponse to the admonitions of Senator Dick Clark
and Professor Roy Schotland that some sort of ex-
press assurance should be given complainants that
the courts were still open to them under the new
Act. Senate Hearings, supra, at 205, 737 & 746.76

Rosenthal contends, on the other hand, that the
more likely stimulus for the proviso was the state-
ment of the Chairman of the House Judiciary Com-

26 Senator Clark testified that,
“Often the most effective enforcement tool is a private
suit where the plaintiff can recover three times his actual
damages. The McGovern bill also authorizes them. Un-
fortunately, the House bill not only does not authorize
them, but section 201 of the bill [now 7 U.S.C. § 2] may
prohibit all court actions. The staff of the House Agri-
culture Committee has said that this was done inadver-
tently and they hope it can be corrected in the Senate.”
Senate Hearings supra, at 205.
Professor Schotland, while addressing the proposed repara-
tions procedure, observed more generally that “[i]f you do
choose to retain [the reparations mechanism] . . . there
should be explicit language in the statute that federal and
state courts are still open if a complainant prefers to go
to trial there.” Jd. at 737, 746.

A-30

mittee, Representative Peter Rodino, Senate Hear-
ings, supra, at 257-60, and the testimony of Deputy
Assistant Attorney General Keith Clearwaters di-
rectly attacking the exclusive jurisdiction provision
of § 2 to which the proviso was eventually added, id.
at 663-64. The concern of both these witnesses was
that the all-encompassing language of § 2, allocating
to the CFTC exclusive jurisdiction over the futures
trade, was so broad that it even “could be interpreted
to deprive Federal courts of their jurisdiction under
the antitrust laws and to deprive Federal and State
courts of jurisdiction to enforce contract and com-
mercial law rights” in the futures area. Jd. at 663.
Because the statements, as opposed to those relied
upon by plaintiff, are derived from extensive and
pointed attacks on the very section that the proviso
later served to amend and because they, like the
proviso itself, are directed to the question of juris-
diction as opposed to a single cause of action, see
note 25, supra, the Rodino-Clearwaters’ statements
do appear to be the somewhat more likely source for
the proviso.

Unfortunately, we may only speculate since, as
stated above, Congress gave us no indication of
which, if either, of these sets of comments spurred
it to add the proviso of § 2. We are likewise unable
to deduce the answer with any certainty solely on
the basis of the nature of the comments. Even this
statement and the sheer speculativeness of the true
answer, however, effectively blunt plaintiffs’ reli-
ance on the § 2 proviso as a “clear and affirmative”
indication of congressional intent to approve or adopt
an implied cause of action.

Plaintiffs find little support elsewhere in the legis-

A-31]

lative history of the 1974 Act.27 On the other hand,
appellant Rosenthal seeks to solidify its case fur-
ther by arguing that at least one aspect of that
legislative history indicates an intent to deny the

*7 Some additional purported inferences of congressional
awareness and approval of an implied cause of action have
been noted by other courts. We find none of them persua-
sive. For example, both the Leist and Curran majorities
presume, from various statements throughout the legis-
lative history to the effect that the purpose of the
CFTCA was “to strengthen” regulation, e. g., H.R.Rep.
975, supra, at 53-54, that any existing enforcement
mechanisms were meant to be maintained. Leist, —_
F.2d at __ [slip op. at 4080-81], Curran v. Merrill Lynch,
622 F.2d at 232. It is just as reasonable to infer, however,
that this “strengthening” of the extant regulatory struc-
ture was to be accomplished by the centralization in the
federal government of a much-enlarged express enforcement
structure, and that the “strengthening” need not include
private actions—especially in light of the reparations pro-
cedure.

A second example is the reliance in Leist, __ F.2d at __ [slip
op. at 4084-85], for instance, on the observation of Senator
Talmadge that “[i]t is hoped that giving the Commission
this [reparations] authority will somewhat lighten the bur-
den upon the courts....” 120 Cong. Rec. 30459 (1974). The
argument raised from this is that if the reparations pro-
cedure had been intended fully to displace rather than sup-
plement implied judicial actions, the Senator would have
known rather than “hoped” that the burden on the courts
would be significantly lightened. Aside from the fact that
the Senator’s statement conciudes by noting, however, that
the entire appeal and enforcement process remains in the
courts, this particular statement was made with respect to
a bill in which the right of appeal from a reparations pro-
ceeding lay initially to district court. H.R.13113, supra,
§ 106. Thus while one might hope for a reduction in judicial
time commitments, there was little reason to expect a de-
creased docket of cases.

A-32
existence of a private cause of action.

In the process of enacting the CFTCA, Congress
considered, but failed to adopt, no fewer than three
bills containing express private rights of action. H.R.
11195, 93d Cong., 1st Sess. § 17(3) (1973) ; S.2837,
93d Cong., 1st Sess. § 505 (1973); S.2578, 93d
Cong., lst Sess. § 203(3) (1973). The weight to be
given to a failure to enact such a provision — not an
outright rejection by vote of either house — is un-
clear. Compare Amtrak, 414 U.S. at 460-61, 94 S.Ct.
at 694. (“Committee’s deliberate failure to adopt
that proposal .. . cannot but give weight” to the com-
mittee’s disapproval of the principle contained in the
proposal) with Red Lion Broadcasting Co. v. FCC,
395 U.S. 367, 381-82 n. 11, 89 S.Ct. 1794, 1802 n. 11,
23 L.Ed.2d 371 (1969) (“unsuccessful attempts at
legislation are not the best guides to legislative in-
tent”). Whatever clear inference might ordinarily
be drawn from such an occurrence is largely under-
cut here by the fact that each of the bills provided for
treble damages, at least for willful violations of the
Act. Congress’ refusal to adopt these bills might just
as reasonably be presumed to have derived from an
opposition to treble damages as from an opposition to
the damage remedy itself. Alken v. Lerner, 485 F.
Supp. at 877. Consequently, this indicator of Cong-
ress’ purported intent to deny private rights of ac-
tion is hardly less equivocal than those relied upon
by plaintiffs to show the opposite intent.28

*8 Each party seeks to embellish the basic analysis above, to
some extent. Plaintiffs contend, supported by some district
courts, that Congress’ failure to enact these express provi-
sions actually provides evidence that Congress recognized

A-33

Having failed to distill any tangible evidence of
affirmative congressional intent from the legislative
history, language or structure of the 1974 Act, plain-
tiffs next argue that a congressional purpose to pro-
vide a cause of action may be inferred simply from
the context or zeitgeist in which the legislation was
enacted. They rely for this assertion on the discus-
sion in Cannon v. University of Chicago, 441 U.S.
677, 698, 99 St.Ct. 1946, 1958, 60 L.Ed.2d 560
(1979), to the effect that statutes, such as the
CFTCA, enacted during a period when the courts
were much more liberal in their approach to implied
rights of action, see, e. g., J. 1. Case v. Borak, 377
U.S. 426, 433, 84 S.Ct. 1555, 1560, 12 L.Ed.2d 423
(1964), must be judged in light of that “contempor-

and approved the existing implied right and saw no need
to supplement or expand it. See Navigator Group Funds,
487 F.Supp. at 423, quoting Smith v. Groover, 468 F.Supp.
113; Alken v. Lerner, 485 F.Supp. at 877. This is a very
attenuated inference, however, and we join in the statement
of the Supreme Court in 7.1.M.E., Inc. v. United States, 359
U.S. 464, 478, 79 S.Ct. 904, 912, 3 L.Ed.2d 952 (1959):
“we do not think that from the failure of Congress to grant
a new authority any reliable inference can permissibly be
drawn to the effect that any authority previously claimed
was recognized and confirmed.”

Rosenthal, on the other hand points out that the reparations
procedure that was eventually enacted first made its ap-
pearance in H.R.11955, immediately after the failure and
withdrawal of the express judicial cause of action in H.R.
11195. See Fischer v. Rosenthal & Co., 481 F.Supp. at 56.
While this very well could be mere coincidence, one might
infer from the chain of events that the reparations pro-
cedure was indeed viewed by Congress as displacing any
judicial forum. The legislative history contains no express
discussion elucidating any relationship between the two.

A-34

ary legal context.’’2® From this, they contend that it
must be presumed, in the absence of contrary evi-
dence, that Congress expected the judiciary to supply
any cause of action consistent with the prevalent
pattern of interpretation of that time. Accord, Navi-
gator Group Funds v. Shearson Hayden Stone, 487
F.Supp. at 421 (applying the Cannon thesis to
CFTCA); Alken v. Lerner, 485 F.Supp. at 876-77
(same).

[15] We agree that the liberal judicial climate in
which the CFTCA was born requires us to be more
solicitous and sensitive to indications of Congress’
desire to create a cause of action. Indeed, any indica-
tion that Congress actually intended merely to leave
the question to the judiciary to be resolved according
to its contemporary rules of construction, while
clearly inadequate under current standards, would
likely be sufficient to carry the day here.

The prior judicial activism and our present duty
of solicitousness because of that, however, cannot
alter the constitutional requirement, see note 11,
supra, that a cause of action be created only by Cong-
ress. There must be some expression of affirmative
congressional intent either to provide a case of ac-
tion or at least to rely on the context of judicial ac-
tivism contemporary to the enactment (though the

2° The Amtrak case was handed down during congressional
deliberations on the CFTCA. However, the restrictive trend
toward implied rights of action initiated there and carried
forward with increasing intensity through later cases such
as Barbour, Cort, and others up to TAMA and Touche Ross,
could not have been evident to or anticipated by Congress
at the time it enacted the CFTCA.

A-35

latter is somewhat unrealistic). In Cannon, for ex-
ample, the Court observed that Congress “explicitly
assumed that [the statute in question] would be in-
terpreted and applied as” had the statute upon which
it was patterned, including the judicial recognition
or creation of an implied cause of action thereunder.
441 U.S. at 693-696, 99 S.Ct. at 1956-57 (emphasis
added). We have received no such message from the
enactors of the CFTCA.

Finally, plaintiffs contend that the legislative his-
tory of the 1978 amendments — specifically certain
remarks of Senators Huddleston and Leahy during
debate on the Senate floor — demonstrate Congress’
assumption and understanding that implied private
actions are available under the Act. Initially, we
note that the views of subsequent Congresses (and
particularly the isolated remarks of individual leg-
islators )hardly provide the most persuasive evi-
dence of the intent of the enacting Congress. Con-
sumer Product Safety Commission v. GTE Sylvania,
Inc., — U.S. —, —, 100 S.Ct. 2051, 2060-61, 64 L.
E.2d 766 (1980); Rogers v. Frito-Lay, 611 F.2d at
1080-81. However, virtually every court to consider
the issue before us since 1978 has taken into account,
with varying degrees of deference, the legislative
history of the 1978 amendments. Moreover, we are
reminded by other Supreme Court opinions that
“while the views of subsequent Congresses cannot
override the unmistakable intent of the enacting
one, ... such views are entitled to significant weight,
... and particularly so when the intent of the enact-
ing Congress is obscure.” Seatrain Shipbuilding
Corp. v. Shell Oil Co., 444 U.S. 572, 596, 100 S.Ct.
800, 814, 63 L.Ed.2d 36 (1980) (citations omitted).

A-36

Accord, Cannon v. University of Chicago, 441 U.S.
at 686 n. 7, 99 S.Ct. at 1952 n. 7 (subsequent legis-
lative history not as pertinent as contemporary his-
tory, but helpful to some extent). Therefore, we shall
attempt to glean what we can from this field of leg-
islative material.

The remarks in question of Senators Huddleston
and Leahy, reproduced in the margin, do indicate

39 While introducing the amendment raising from $2,500 to

$5,000 the amount necessary to secure a full-fledged hearing

in the reparations procedure, 7 U.S.C. § 18(b), Senator

Huddleston discussed the backlog problem that the amend-

ment was designed to help alleviate:
“Compounding the undue stress placed on the reparation
program, certain Federal district courts have taken the
unfortunate position that Congress intended reparations
to be the exclusive forum for adjudicating commodity cus-
tomer claims. [citations omitted.] In order to alleviate
the burden on the Commission’s reparation program, the
committee adopted an amendment that provides—for rep-
aration complaints where the amount ciaimed as damages
does not exceed $5,000—that a hearing be held only on
the novel or basic issues that are determinative of the
case. Thus, an aggrieved commodity customer will be able
to obtain more expeditious treatment of his claim should
the customer elect to pursue a claim in reparations rather
than to proceed to arbitration or pursue in court the
private right of action which has been judicially implied
for violations of certain provisions of the Commodity Ex-
change Act, or which in the future courts may recognize
for other provisions of the act.”

124 Cong.Rec. 10537 (1978).

Senator Leahy, in discussing the new provision expressly

allowing states to pursue parens patriae actions for damages

on behalf of their residents, observed :
“The exemption from State suits provided to contract
markets is justified due to the deterrent effect on contract

A-37

a clear assumption on the part of these two legisla-
tors that an implied private right of action was
available under the CEA even after the 1974 revis-
ion. There is no indication elsewhere, however, that
this assumption was shared by the remainder of
Congress. In fact, certain other aspects of the 1978
legislative history imply the absence of such an as-
sumption on the part of Congress as a whole.

For example, the Senate report on the bill, S.Rep.
No. 850, 95th Cong., 2d Sess., reprinted in [1978]
U.S.Code Cong. & Ad.News, p. 2087, twice catalogs
the means by which “customers are afforded protec-
tion” under the CEA, and each time conspicuously
omits to mention an implied private right of action.
Id. at 12-13, 32, U.S. Code Cong. & Ad.News at 2100-
2101, 2120 (the latter passage states, in reference to
a provision not included in the bill as enacted, that
“Talggrieved customers ... would have the choice of
seeking resolution of their claims through associa-
tion arbitration or reparations proceedings or a
Commission reparations proceeding” ). See also H.R.

markets caused by Commission regulation, institution of
Commission enforcement proceedings, and the implied
private rights of action that may be brought against
those contract markets that fail to discharge their duties
under the Commodity Exchange Act. In those actions
brought by a State under this bill, a customer who makes
an informed, voluntary election to have his State sue on
his behalf to recover monetary damages for a particular
violation would thereby extinguish that person’s other
alternatives for redress: arbitration reparations, or ju-
dicially implied private rights of civil action under the
Act.”
124 Cong.Rec. 8.16527 (daily ed. Sept. 28, 1978).

A-38

Rep. No. 975, supra, at 22 (similarly noting that the
reparations procedure was “designed to supplement
the informal ‘settlement procedures’ contemplated of
the contract markets . . . which are required under
other sections of the legislation,” omitting any refer-
ence to such a procedure being supplementary to any
judicial forum).

[16] A second indicator that the assumption ex-
pressed by Senators Huddleston and Leahy was not
one shared by the remainder of Congress is found in
the 1978 amendment expressly providing a cause of
action to the states, 7 U.S.C. § 13a-2.5! Section 13a-
2(2) provides exclusive jurisdiction to the federal
courts for suits based on violations of the CEA and
brought by states under this section. No such provis-
ion exists with respect to the Act generally. The
rationale behind this reservation of exclusive juris-
diction is two-fold: (1) to draw upon the extensive
experience developed exclusively in federal courts in
similar cases under the Securities Exchange Act of

51 Tt has been suggested that the passage of the express
cause of action for states in § 13a-2 demonstrates that
“when Congress wished to provide a private damage reme-
dy, it knew how to do so and did so expressly,” Touche Ross,
442 U.S. at 571, 99 S.Ct. at 2487, and it obviously, there-
fore, did not intend to provide a cause of action for indi-
viduals under the CEA. See, e. g., Stone v. Saxon & Windsor
Group Ltd., 485 F.Supp. at 1220-21. While we are not in-
sensitive to the logic of this position, the legislative history
of § 13a-2 indicates that a primary motivator in making
explicit the right of states to sue may have been the need
to overcome various common law prerequisites and restric-
tions on such parens patriae suits. See S.Rep.No.850, supra,
at 25. Accord, Leist v. Simplot, __ F.2d at — [slip op. at
4098-99].

A-39

1934 under which they similarly hold exclusive juris-
diction, 15 U.S.C. § 78aa, and (2) by means of re-
course to this experience, to evolve a unified “coher-
ent body of [decisional] law” under the CEA. S.Rep.
No. 850, supra, at 25, 1978 U.S. Code Cong. & Ad.
News at 2113. In view of these goals, it would be
anomalous indeed for Congress to require exclusive
jurisdiction only of these relatively infrequent suits
by states while continuing to countenance an implied
cause of action, without such a restriction, for any
individual who cares to sue. The natural inference
is, therefore, that no such individual suits were con-
templated.

B. Consistency With Statutory Goals

[17] Our final inquiry is that directed by the
third Cort criterion. Like our excursion into more
direct indicators of legislative intent, this foray also
yields only conflicting or equivocal results. It is, of
course, true that the recognition of an implied pri-
vate right of action for damages would provide
another, perhaps useful, enforcement tool in harmo-
ny with the aim of the CEA to protect futures cus-
tomers from fraud and market manipulation. Cur-
ran v. Merrill Lynch, 692 F.2d at 234-35.%

As noted earlier, however, a second goal of the
1974 legislation was to create a “uniform regulatory
structure” evolving a coherent body of law coordinat-
ed by the CFTC. S.Rep. No. 850, supra, at 10, 25,

82 In light of the reparations procedure it is not true, how-
ever, that such private actions are “necessary” to effectuate
the purposes of the statute, as has sometimes been required.
See United States v. Capelleti, 621 F.2d at 1317.

A-40

1978 U.S. Code Cong. & Ad.News at 2098, 2113; H.R.
Rep. No. 975, supra, at 1. In order to effectuate this
purpose, “[t]o assure that the body of decisional
laws developed under [the CEA] would be coherent
and consistent with national policy,” the Senate ver-
sion of the 1978 amendments initially required states
to receive approval from the CFTC before they could
bring an action under § 13a-2. S.Rep. No. 850, supra,
at 26, 1978 U.S. Code Cong. & Ad.News at 2114. Al-
though this provision was not incorporated into the
bill as finally enacted, the same function was to be
served by the provision in the Act as passed, § 13a-
2(3), requiring states to notify the Commission of
their intent to file suit and guaranteeing the Com-
mission’s right to intervene in any such suit.

From these restrictions and the remarks in the
Senate report, it is apparent that Congress perceived
even infrequent uncontrolled suits for damages even
by the state governments as a threat to the goal of
developing a coherent and consistent body of law.
Yet, as was the case with respect to the similar con-
cern over the exclusivity of federal jurisdiction,
above, no such restraints or safeguards would be
placed by the statute as presently constituted on the
potentially much more numerous and diverse suits
that would be lodged pursuant to an implied private
cause of action. In this situation we are counselled
by the Supreme Court’s admonition in Santa Clara
Pueblo v. Martinez, 436 U.S. 49, 64, 98 S.Ct. 1670,
1680, 56 L.Ed.2d 106 (1978): “[w]here Congress
seeks to promote dual objectives in a single statute,
courts must be more than usually hesitant to infer
from its silence a cause of action that, while serving
one legislative purpose, will disserve the other.”

A-41
IV. CONCLUSION

The foregoing analysis of the language, structure
and legislative history of the 1974 version of the
CEA and its 1978 amendments obviously has yielded
a result that might be described as emphatically
equivocal. Although some individual passages or as-
pects of the Act appear to give some insight, these
inferences frequently conflict with those from other
passages or, upon closer examination, their apparent
persuasiveness dims or vanishes. Chief Justice
Marshall once observed that “[w]here the mind
labours to discover the design of the legislature, it
seizes everything from which aid can be derived. . . .”
United States v. Fisher, 2 Cranch. 358, 386, 2 L.Ed.
304 (1805), quoted in, Brown v. General Services
Administration, 425 U.S. 820, 825, 96 S.Ct. 1961,
1964, 48 L.Ed.2d 402 (1976). After our analysis of
the legislative material and decisions of other courts
on this question, we might add that in this metaphys-
ical pursuit of prescience the mind often snatches at
shadows and mirages in its attempt to discern evi-
dence of such congressional design — a singularly
inappropriate base upon which to predicate an im-
plied private cause of action.

[18] The net result of our study and delibera-
tions in this case is the determination that the lan-
guage and legislative history of the CEA and
CFTCA, dissected by all of the varied and even con-
flicting canons of construction, simply do not provide
any clear indication of congressional intent either to
approve or deny an implied right of action. In such a
case, as explained in Part II, supra — given the
absence of clear evidence of the requisite affirmative

A-42

congressional intent to create or provide such a cause
of action — we are bound to refuse plaintiffs’ suit.

Accordingly, the order of the district court deny-
ing appellants’ motion to dismiss plaintiffs’ claims
under the CEA is REVERSED and the case RE-
MANDED.

[Dated and entered Dec. 16, 1980]

A-43

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

October Term, 19
No. 79-1313
D. C. Docket No. CA 178-186

JOHN RIVERS and TOM LAMB, (Dan P. Rivers,
as Executor of the will of John Rivers, substituted
in place and stead of John Rivers, deceased)

Plaintif fs-Appellees,
versus
ROSENTHAL & COMPANY,
Defendant-A ppellant.

Appeal from the United States District Court for
the Southern District of Georgia
Before KRAVITCH, HENDERSON and
REAVLEY, Circuit Judges.

JUDGMENT

This cause came on to be heard on the transcript
of the record from the United Staves District Court
for the Southern District of Georgia, and was argued
by counsel;

ON CONSIDERATION WHEREOF, It is now
here ordered and adjudged by this Court that the
order of the District Court appealed from, in this
cause be, and the same is hereby, reversed and that
this cause be and the same is hereby remanded to
the said District Court in accordance with the opin-
ion of this Court;

IT IS FURTHER ORDERED that plaintiffs-
appellees pay to defendant-appellant, the costs on
appeal to be taxed by the Clerk of this Court.

DECEMBER 16, 1980
ISSUED AS MANDATE: Jan. 7, 1981

A-44

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA

AUGUSTA DIVISION
JOHN RIVERS and '
TOM LAMB, Civil Action File
Plaintiffs No. CV178-186
- VS -
ROSENTHAL & j ORDER
COMPANY
and CARL M. TIPTON,
Defendants

The reply brief of Defendant, Rosentha! & Com-
pany having been filed on December 22, 1978, the
order of this Court dated December 21, 1978, is
vacated; however, after consideration of said reply
brief, Defendants’ motions to dismiss are denied.

Further the Court is of the opinion that this order
involves a controlling question of law as to which
there is substantial ground for difference of opinion
and that an immediate appeal from this order may
materially advance the ultimate termination of the
litigation; and that the interests of justice and ju-
dicial economy would best be served by staying the
proceedings in this Court until the final disposition
of this matter by the Court of Appeals; therefore,
all proceedings, including pleadings and discovery,
shall be stayed until the Court of Appeals shall
either decline to hear an interlocutory appeal or un-
til final disposition of this matter by the Court of
Appeals. Such stay shall expire, with respect to
pleadings 30 days and, with respect to discovery, 45

A-45
days after the occurrence of either of such events.

SO ORDERED. This 28th day of December, 1978.

ANTHONY A. ALAIMO
Chief Judge, United States District
Court, Southern District of Georgia

[Filed Dec. 28, 1978]

A-46

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 79-8011

ROSENTHAL & COMPANY,
Petitioner,

versus

J OHN RIVERS and TOM LAMB,
Respondents.

On Application for Leave to Appeal from an
Interlocutory Order

Before AINSWORTH, GODBOLD and VANCE,
Circuit Judges.

BY THE COURT:

IT IS ORDERED that leave to appeal from the
interlocutory order of the United States District
Court for the Southern District of Georgia entered
on December 28, 1978, is GRANTED.

[Filed Feb. 2, 1979]

A-47

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA

AUGUSTA DIVISION
JOHN RIVERS and
TOM LAMB,
Plaintiffs,
ROSENTHAL & F :
COMPANY and CV178-186
CARL M. TIPTON,
Defendants. |
COMPLAINT
Jurisdiction and Venue
1

This action is brought pursuant to the Commodity
Exchange Act as amended (7 U.S.C. $1 et seq.) and
the rules and regulations of the Commodity Futures
Trading Commission promulgated thereunder.

2.

The Defendants utilized the instrumentalities of
interstate commerce, including (but not limited to)
telephone facilities and the United States mails, in
connection with the purchase and sale of commodity
option contracts. All of the material acts and omis-
sions complained of occurred in the Southern Dis-
trict of Georgia.

3.
Plaintiffs JOHN RIVERS (“Rivers”) and TOM
LAMB (“Lamb”) reside in Wrens, in the Southern

A-48
District of Georgia.

4,

Defendant, ROSENTHAL & COMPANY (“Ros-
enthal”), is an Illinois Limited Partnership with its
principal office and place of business located in Chi-
cago, Illinois. Rosenthal is a commodity merchant
which deals in commodity option contracts. Rosen-
thal, at all times material hereto, promoted and sold
commodity options to Plaintiffs through its author-
ized agents and employees. Rosenthal was a fiduci-
ary of Plaintiffs and was obligated to observe the
strictest fairness and good faith in its dealings with
Plaintiffs.

5.

Defendant, CARL M. TIPTON (“Tipton”), resides
in Memphis, Tennessee. Tipton was a commodity
broker with Resenthal and, as its authorized agent
and employee, was a principal participant in the
promotion and sale of commodity options to Plain-
tiffs as set forth below. Tipton was a fiduciary of
Plaintiffs and was obligated to observe the strictest
fairness and good faith in his dealings with Plain-
tiffs.

6.

The Defendants are subject to the jurisdiction of
this Court and venue is proper within this judicial
district. Jurisdiction and venue are based on the
Commodity Exchange Act, the Commodity Futures
Trading Commission Act and the doctrine of pen-
dant jurisdiction.

A-49

PLAINTIFFS WERE FRAUDULENTLY
INDUCED TO INVEST IN COMMODITY
OPTIONS.

7.

Plaintiffs were initially contacted by Tipton in a
long distance, “cold canvass” telephone call in June,
1976. Tipton represented himself to be a commodity
options broker with Rosenthal’s Memphis, Tennes-
see, office.

8.

At the time the Plaintiffs were first contacted by
Tipton, they were both inexperienced and unsophis-
ticated as to London commodity option transactions.
Neither of the Plaintiffs were aware of the risks
involved in trading London commodity options, and
neither had access to information as to the day to
day fluctuations in the options market.

9.

Plaintiffs received repeated unsolicited telephone
calls from Tipton in which he falsely and fraudulent-
ly represented to the Plaintiffs, among other things,
the following:

(a) That the Plaintiffs should purchase specified
commodity options immediately in order to take ad-
vantage of favorable market prices for those options;

(b) That there was no way to lose money on the
options being offered and that profits were guaran-
teed ;

(c) That investments in the options being offered

A-50

would result in a doubling or tripling of the invest-
ment within a short period of time; and

(d) That Tipton was one of the top commodity
options brokers in the country and that he had never
had a customer who lost.

10.
In addition, Tipton failed to disclose the following
material information:

(a) That investment in commodity options in-
volves a high degree of risk and that, in fact, a loss
of the entire investment is highly likely;

(b) That there was, in fact, no reasonable factual
basis for the profits which he promised;

(c) That the purchase price (or premium) for
the options being offered was substantially higher
than the actual price paid by Rosenthal when acquir-
ing the options on the London market;

(d) That the “foreign service fee” charged by
Rosenthal in connection with purchases of the op-
tions was, in fact, a commission; and

(e) That a substantial rise in the price of the
commodity was necessary before the “break even”
point on the investment was reached.

11.

In addition, the Plaintiffs were contacted by other
agents and employees of Rosenthal who made similar
false and fraudulent representations and who simil-
arly failed to disclose material information.

A-51

12.

In reliance on the aforesaid misrepresentations
and omissions, Lamb invested in sugar, rubber and
cocoa options and lost $52,592.61 of his investment
and Rivers invested in rubber and sugar options and
lost $12,215.79 of his investment.

13.

In reliance on the same misrepresentations and
omissions, the Plaintiffs each lost a portion of their
investment in coffee options. Specifically, Lamb’s
out-of-pocket loss on his thirteen coffee options in
question was $42,393.79 and Rivers’ out-of-pocket
loss on his thirteen coffee options was $537.05.

PLAINTIFFS WERE FRAUDULENTLY
INDUCED NOT TO SELL THEIR COFFEE
OPTIONS.

14,

In early April, 1977, Plaintiffs were informed by
Tipton that the value of Lamb’s thirteen coffee op-
tion contracts was approximately $198,000.00. Sim-
ilarly, the Plaintiffs were informed that the value of
Rivers’ thirteen coffee option contracts was approxi-
mately $196,000.00. Tipton’s statement as to those
values was substantially accurate.

15. |

Upon being so advised, the Plaintiffs informed
Tipton that they were satisfied with their gain.
Tipton then falsely and fraudulently represented to
Plaintiffs that the value of their coffee options was
“locked in” or “scotched” so that the coffee options
could not lose any of the value they had. When the
Plaintiffs inquired as to whether they should sell
the options, Tipton insisted that they should not be

A-52

sold and falsely and fraudulently reiterated that
their value was “locked in” or “‘scotched”’.

16.

In reliance on the aforesaid false and fraudulent
representations, the Plaintiffs exercised only a rela-
tively small portion of their coffee options. Because
the coffee options had not been “locked in” or
“scotched” as represented, the value of the coffee
options not sold was lost.

17.

As a direct and proximate result of the aforesaid
false and fraudulent representations, Lamb suffered
damages of $173,502.70 and Rivers suffered dam-
ages in the amount of $139,562.30.

FIRST CAUSE OF ACTION

18.

By virtue of the facts herein set forth, Defendants
violated §4 of the Commodity Exchange Act (7
U.S.C. §6) and the rules and regulations promulgat-
ed thereunder, including §30.01 of the rules and reg-
ulations of the Commodity Futures Trading Com-
mission (17 C.F.R. §30.01) in that Defendants:

(a) Cheated and defrauded Plaintiffs;
(b) Made false statements to Plaintiffs; and
(c) Deceived Plaintiffs;

in connection with an offer to enter into, the entry
into and the confirmation of the execution of com-
modity option transactions.

A-53

17. [sic]

As a direct and proximate result of the Defend-
ants’ violations of the Commodity Exchange Act,
Lamb sustained damages of $226,095.31 and Rivers
sustained damages of $151,778.09 and the Defend-
ants are liable therefor.

SECOND CAUSE OF ACTION

18. [sic]

By virtue of the facts herein set forth, Defendants
deliberately and willfully defrauded Plaintiffs by
inducing Plaintiffs to invest in commodity option
contracts and by inducing the Plaintiffs to forego a
sale of profitable commodity option contracts by
making false and fraudulent representations and by
failing to disclose material facts unknown to Plain-
tiffs.

19.

The conduct of Defendants herein set forth, in-
cluding without limitation, the deliberate and inten-
tional misrepresentations and omissions made in fur-
therance of the scheme, device and conspiracy among
the Defendants, constitutes fraud under Georgia
Law (specifically Ga. Code Ann. §105-301, et seq.).

20.

Asa direct and proximate result of the Defendants
fraud, Lamb sustained damages of $226,095.31 and
Rivers sustained damages of $151,778.09, and De-
fendants are liable therefor.

THIRD CAUSE OF ACTION

21.
Beginning in early 1977, the rules and regulations

A-54

adopted pursuant to the Commodity Exchange Act
(7 U.S.C. $1 et seq) required that persons engaged
in the selling of commodity options be registered
with the Commodity Futures Trading Commission
as “associated persons’. Although Defendant Tip-
ton’s application to be registered as an associated
person was denied, and Tipton could not legally act
as an associated person after March 18, 1978, and
although this was well known to Rosenthal, Tipton
continued to solicit orders from Plaintiffs and to ad-
vise them with respect to their commodity option ac-
counts with Rosenthal in willful and knowing viola-
tion of the law. By reason thereof, the Defendants
are liable to the Plaintiffs for the damages suffered
by them in reliance upon the representations, advice
and counsel of Tipton after March 18, 1977.

22.

After March 18, 1977, as a result of the dealings
with Tipton, Rivers suffered damages in the amount
of at least $208,106.51 and Lamb suffered damages
of $151,778.09 and Defendants are liable therefor.

FOURTH CAUSE OF ACTION

23.

By virtue of the facts set forth herein, the De-
fendants were wilfully and wantonly negligent in the
performance of their professional and fiduciary
duties to Plaintiffs. Moreover, Rosenthal was wii-
fully and wantonly negligent in allowing Tipton to
solicit sales of commodity options despite its aware-
ness of his past criminal record and bankruptcy.

24.
As a direct and proximate result of the Defend-

A-55

ants’ negligence, Lamb suffered damages of
$226,095.31 and Rivers suffered damages of $151,-
778.09, and Defendants are liable therefor.

EXEMPLARY DAMAGES AND ATTORNEYS’
FEES

25.

The actions of Defendants herein set forth were
wilful, wanton, reckless and made without regard to
their consequences, such that the Plaintiffs are en-
titled to exemplary damages under Ga. Code Ann.
§$105-2002 so as to deter such action by Defendants
in the future.

26.

The actions of Defendants herein set forth were
made in bad faith and caused the Plaintiff unneces-
sary trouble and expense, thereby entitling Plaintiff
to recover expenses of this litigation, including rea-
sonable attorney’s fees under Ga. Code Ann. §20-
1404.

27.

By reason of the facts set forth herein, each of the
Plaintiffs is entitled to exemplary damages of
$150,000.00 plus all expenses of this litigation, in-
cluding reasonable attorney fees in an amount not
less than $25,000.00

WHEREFORE, Plaintiffs demand:

(a) That judgment be rendered in favor of Lamb
against the Defendants, jointly and severally, in the
amount of $226,095.31 plus interest at the legal
rate;

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(b) That judgment be rendered in favor of Rivers
against the Defendants, jointly and severally, in the
amount of $151,778.09 plus interest as [sic] the
legal rate;

(c) That judgment be rendered in favor of Lamb
against the Defendants, jointly and severally, in the
amount of $150,000.00 for exemplary damages and
$25,000.00 for attorney’s fees;

(d) That judgment be rendered in favor of Riv-
ers against the Defendants, jointly and severally, in
the amount of $150,000.00 for exemplary damages
and $25,000.00 for attorney’s fees;

(e) That Defendants be required to pay all costs
of this action; and

(f) That the Court grant such other and further
relief as it deems just and proper.

ALBERT H. DALLAS

304 Black Street, S. E.
Thomson, Georgia 30824
(404) 595-7170

JERRY L. SIMS

Kaler, Lefkoff, Pike & Fox, P.C.
Suite 2101

100 Colony Square

Atlanta, Georgia 30361

(404) 892-3300

A-57

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA

AUGUSTA DIVISION
JOHN RIVERS and ;
TOM LAMB,
Plaintiffs,
v. CIVIL ACTION
ROSENTHAL & ’ FILE NO. CV178-186
COMPANY
and CARL TIPTON,
Defendants. |} -

PLAINTIFFS’ AMENDED COMPLAINT

The Plaintiffs hereby amend their Complaint as
follows:

1.

The following sentence is added to the allegations
of Paragraph 6 of the Complaint:

“Jurisdiction is based on 28 U.S.C. §1332 since

there is complete diversity of citizenship be-

tween Plaintiffs and Defendants and the amount

in controversy exceeds the sum of $10,000.00,

exclusive of interest and costs.

2.
Paragraph 21 of the Complaint is amended to
correct a typographical error in line 6 where the
date “March 18, 1978” should be “March 18, 1977.”

KALER, LEFKOFF, PIKE & FOX, P.C.
BY:

Jerry L. Sims

Attorneys for Plaintiffs

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2101-100 Colony Square
1175 Peachtree Street, N.E.
Atlanta, GA 30361

(404) 892-3300

Albert H. Dallas
Attorney for Plaintiffs

P. O. Box 1150
Thomson, GA 30824
(404) 595-7170

A-59

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA

AUGUSTA DIVISION
JOHN RIVERS and
TOM LAMB,
Plaintiffs
v. CIVIL ACTION
ROSENTHAL & | FILE NO. CV178-186
COMPANY
and CARL M. TIPTON,
Defendants |
DEFENDANT ROSENTHAL & COMPANY’S
MOTION TO DISMISS

COMES NOW Defendant ROSENTHAL & COM-
PANY (hereinafter “Rosenthal”) and, pursuant to
Rule 12(b) F.R.C.P. and principles of federal law,
moves the Court to dismiss the above-styled action
against Rosenthal without prejudice for lack of
jurisdiction over the subject matter and for failure
to state a claim upon which relief can be granted, as
more particularly delineated in the Brief attached
hereto.

WHEREFORE, Rosenthal respectfully requests
that its Motion to Dismiss be granted.
This 13th day of November, 1978.

WYCK A. KNOX, JR.

Of Counsel:

KNOX AND ZACKS
P. O. Box 2043
Augusta, Georgia 30903
(404) 724-2622

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JAMES 8. STOKES, IV

PETER Q. BASSETT

Of Counsel:

Alston, Miller & Gaines

1200 C&S National Bank Bldg.
35 Broad Street

Atlanta, Georgia 30303

_ (404) 586-1500

CLINTON BURR

Counsei for Defendant
ROSENTHAL & COMPANY

Rosenthal & Company
141 West Jackson Boulevard
Suite 1025
Chicago, Illinois 60604
(312) 786-0900

A-61

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA

AUGUSTA DIVISION

JOHN RIVERS and
TOM LAMB,
Plaintiffs,

vs. | CIVIL ACTION

ROSENTHAL & File No. CV178-186

COMPANY and

CARL M. TIPTON,
Defendants.

MOTION OF DEFENDANT CARL M. TIPTON
TO DISMISS OR, IN THE ALTERNATIVE
TO STAY THIS ACTION

COMES NOW Defendant CARL M. TIPTON
(hereinafter “Tipton”) and, pursuant to Rule 12(b)
F.R.C.P. and principles of federal law, moves the
Court to dismiss the above-styled action against
Rosenthal without prejudice or, in the alternative,
to stay this action pending Plaintiffs’ compliance
with the Commodity Exchange Act reparations pro-
cedures (7 U.S.C. $18), all for reasons more par-
ticularly delineated in the Brief attached hereto.

WHEREFORE, TIPTON respectfully requests
that his Motion to Dismiss or, in the Alternative, to
Stay this Action, be granted.

Dated this 9th day of November, 1978.

WILLIAM M. PHELAN,
Attorney for Carl M. Tipton
William M. Phelan Ltd.
111 West Washington Street
Chicago, Illinois 60602
(312) 782-5600

A-62

COMMODITY EXCHANGE ACT
SECTION 4b, 7 U.S.C. §6b

§6b. Contracts designed to defraud or mislead;
bucketing orders; buying and selling orders for cot-
ton

It shall be unlawful (1) for any member of a contract
market, or for any correspondent, agent, or em-
ployee 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 mar-
ket, for or on behalf of any other person if such con-
tract for future delivery is or may be used for (a)
hedging any transaction in interstate commerce in
such commodity or the products or byproducts there-
of, or (b) determining the price basis of any trans-
action in interstate commerce in such commodity, or
(c) delivering any such commodity sold, shipped, or
received in interstate commerce for the fulfillment
thereof—

(A) to cheat or defraud or attempt to cheat or de-
fraud 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

A-63

other person by any means whatsoever in regard
to any such order or contract or the disposition
or execution of any such order or contract, or in
regard to any act of agency performed with re-
spect 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 per-
son, 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.

Nothing in this section or in any other section of this
Act [7 USC §$§ 1 et seq.] shall be construed to pre-
vent a futures commission merchant or floor broker
who shall have in hand, simultaneously, buying and
selling orders at the market for different principals
for a like quantity of a commodity for future de-
livery in the same month, from executing such buy-
ing and selling orders at the market price: Provided,
That any such execution shall take place on the floor
of the exchange where such orders are to be executed
at public outery across the ring and shall be duly re-
ported, recorded, and cleared in the same manner as
other orders executed on such exchange. And pro-
vided, further, That such transactions shall be made
in accordance with such rules and regulations as the
Commission may promulgate regarding the manner
of the execution of such transactions.

(Sept. 21, 1922, e. 369, § 4b, as added June 15, 1936,
c. 545, §5, 49 Stat. 1493; Feb. 19, 1968, P. L. 90-258,
$5, 82 Stat. 27; Oct. 23, 1974, P. L. 93-463, Title IV,
$405, 88 Stat. 1413.)

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COMMODITY EXCHANGE ACT
SECTION 4c(b), 7 U.S.C. §6c(b)

§6c. Wash sales; cross trades; fictitious sales; priv-
ileges; offers; puts; calls; guaranties.

(b) No person shall offer to enter into, enter into,
or confirm the execution of, any transaction subject
to the provisions of subsection (a) of this section
involving any commodity regulated under this Act
[7 USC §$§ 1 et seq.], but not specifically set forth
in section 2(a) of this Act [7 USC §2], prior to the
enactment of the Commodity Futures Trading Com-
mission Act of 1974 [enacted Oct. 23, 1974], which
is of the character of, or is commonly known to the
trade as, an “option”, “privilege”, “indemnity”,
“bid”, “offer”, “put”, “call”, “advance guaranty”, or
“decline guaranty”, contrary to any rule, regulation,
or order of the Commission prohibiting any such
transaction or allowing any such transaction under
such terms and conditions as the Commission shall
prescribe within one year after the effective date of
the Commodity Futures Trading Commission Act of
1974 unless the Commission determines and notifies
the Senate Committee on Agriculture and Forestry
and the House Committee on Agriculture that it is
unable to prescribe such terms and conditions within
such period of time: Provided, That any such order,
rule, or regulation may be made only after notice and
opportunity for hearing: And provided further, That
the Commission may set different terms and condi-
tions for different markets. (Sept. 21, 1922, c. 369, §
4c, as added June 15, 1936, c. 545, § 5, 49 Stat. 1494;
as added June 15, 1936, c. 545, § 5, 49 Stat. 1494;
Oct. 23, 1974, P. L. 93-463, Title I, § 108(a), Title
IV, § 402, 88 Stat. 1392, 1412.)

A-65

COMMODITY EXCHANGE ACT
SECTION 4k, 7 U.S.C. §6k

§6k. Registration of associates of futures commis-
sion merchants

(1) It shall be unlawful for any person to be associ-
ated with any futures commission merchant or with
any agent of a futures commission merchant as a
partner, officer, or employee (or any person occupy-
ing a similar status or performing similar func-
tions), in any capacity which involves (i) the solici-
tation or acceptance of customers’ orders (other
than in a clerical capacity) or (ii) the supervision
of any person or persons so engaged, unless such
person shall have registered, under this Act [7 USC
§3 1 et seq.], with the Commission and such registra-
tion shall not have expired nor been suspended (and
the period of suspension has not expired) or revoked,
and it shall be unlawful for any futures commission
merchant or any agent of a futures commission mer-
chant to permit such a person to become or remain
associated with him in any such capacity if such fu-
tures commission merchant or agent knew or should
have known that such person was not so registered or
that such registration had expired, been suspended
(and the period of suspension has not expired) or
revoked: Provided, That any individual who is regis-
tered as a floor broker or futures commission mer-
chant (and such registration is not suspended or re-
voked) need not also register under these provisions.

(2) Any such person desiring to be registered shall
make application to the Commission in the form and
manner prescribed by the Commission, giving such

A-66

information and facts as the Commission may deem
necessary concerning the applicant. Such person,
when registered hereunder, shall likewise continue to
report and furnish to the Commission such informa-
tion as the Commission may require. Such registra-
tion shall expire two years after the effective date
thereof, and shall be renewed upon application there-
for unless the registration has been suspended (and
the period of such suspension has not expired) or re-
voked after notice and hearing as prescribed in sec-
tion 6(b) of this Act [7 USC §9]: Provided, That
upon initial registration, the effective period of such
registration shall be set by the Commission, not to
exceed two years from the effective date thereof and
not to be less than one year from the effective date
thereof.

(Sept. 21, 1966, c. 369, § 4k, as added Oct. 23, 1974,
P. L. 93-463, Title II, § 204(a), 88 Stat. 1396.)

COMMODITY FUTURES TRADING
COMMISSION

Reg. §32.3(b), 17 C.F.R. §32.3(b) (1978)
32.3 Unlawful Commodity option transaction.

(b) On and after January 27, 1977, it shall be un-
lawful for —

(1) any person to solicit or accept orders (other
than in a clerical capacity) for the purchase or sale
of any commodity option, or to supervise any person
or persons so engaged, unless such person is

(i) registered as a futures commission merchant
under the Act, or

(ii) if such person is an individual, registered as

A-67

an associated person of a specified futures commis-
sion merchant under the Act;
and such registration shall not have expired, been
suspended (and the period of suspension has not
expired) or revoked; and

(2) any futures commission merchant to permit
an individual to become or remain associated with
such futures commission merchant as a partner, of-
ficer or employee (or in any similar status or posi-
tion 6(b) of this Act [7 USC § 9]: Provided, That
volving such solicitation, acceptance or supervision
if such futures commission merchant knew or should
have known that such individual was not registered
as an associated person or that such registration has
expired, been suspended (and the period of suspen-
sion has not expired) or revoked;

COMMODITY FUTURES TRADING
COMMISSION

Reg. §32.9, 17 C.F.R. §32.9 (1978)

§32.9 Fraud in connection with commodity option
transactions

It shall be unlawful for any person directly or in-
directly—

(a) to cheat or defraud or attempt to cheat or de-
fraud any other person;

(b) to make or cause to be made to any other per-
son any false report or statement thereof or cause to
be entered for any person any false record thereof;

(c) to deceive or attempt to deceive any other per-
son by any means whatsoever ;
in or in connection with an offer to enter into, the
entry into, or the confirmation of the execution of,
any commodity option transaction.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1976%3A2. Public record. Not legal advice.