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CARDOZA v. COM. FUTURES TRADING COM'N

United States District Court, Northern District of Illinois, E.D


March 26, 1984

KAREN E. CARDOZA, PLAINTIFF,
v.
COMMODITY FUTURES TRADING COMMISSION AND BOARD OF TRADE OF THE CITY OF CHICAGO, DEFENDANTS.

The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff Karen E. Cardoza ("Cardoza") has sued the Commodity Futures Trading Commission ("CFTC") and the Board of Trade of the City of Chicago ("the Board of Trade"). Presently before the Court are the CFTC's motion to dismiss or for summary judgment and the Board of Trade's motion to dismiss. For reasons set forth below, the CFTC's motion for summary judgment is granted; the Board of Trade's motion to dismiss is also granted.

Cardoza held a floor activity permit with the Board of Trade, which enabled her to trade commercial paper contracts. She began trading on June 27, 1978, both in person and through other brokers. To encourage use of floor activity permits, Board of Trade rules provide that permit holders may exercise an option to purchase an Associate Membership at a reduced price if they trade at least one commercial paper contract on 125 different days for each of the three years of the permit's duration. Shortly after she began trading, the Board of Trade informed her that only trades personally executed by the permit holder complied with its Rule 225.00. Cardoza did not personally trade one contract a day for 125 days during 1978.

Cardoza tried to exercise her option to purchase an Associate Membership in 1981, but the Board of Trade refused to grant her the membership. Cardoza appealed the Board's decision to the CFTC. On July 28, 1982, the CFTC declined to review the Board of Trade's action. Cardoza claims that the Board of Trade's actions violated contract rights established by the Board's rules, and that the CFTC acted arbitrarily and capriciously by refusing to review and reverse the Board of Trade's decision. She invokes 28 U.S.C. § 1331 and the Administrative Procedure Act, 5 U.S.C. § 701 et seq., and would have this Court review the CFTC's decision not to review the Board of Trade's actions. She also requests us to enjoin the CFTC to hear her appeal of the Board's conduct,*fn1 as well as enjoin the Board to allow her to exercise her option to purchase an Associate Membership and to grant her a one year extension of her floor activity permit. Finally, Cardoza presents a pendent claim for breach of contract against the Board of Trade.

Certain well established principles govern our consideration of these motions. Parties seeking summary judgment must demonstrate the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-61, 90 S.Ct. 1598, 1609-10, 26 L.Ed.2d 142 (1970); Patterson v. General Motors Corp., 631 F.2d 476, 482 (7th Cir. 1980), cert. denied, 451 U.S. 914, 101 S.Ct. 1988, 68 L.Ed.2d 304 (1980). Courts are to view evidence submitted by the movant in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). In considering motions to dismiss, we take as true all material allegations of fact contained in Cardoza's complaint. A complaint should not be dismissed, moreover, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

Cardoza's Claim Against the CFTC

Cardoza requests that we order the CFTC to review the Board's decision not to allow her to purchase an Associate Membership. She thus complains of a "disciplinary action" by the Board of Trade, for regulations promulgated by the CFTC define "disciplinary action" to include any action which denies an individual access to an exchange. 17 C.F.R. § 9.2(a) (1983).*fn2 The CFTC suggests that its decision not to review disciplinary actions by an exchange is not subject to judicial review. Such a decision, according to the CFTC, constitutes "agency action committed to agency discretion by law" under 5 U.S.C. § 701(a)(2). According to 7 U.S.C. § 12c(2), the CFTC may

  in its discretion and in accordance with such
  standards and procedures as it deems appropriate,
  review any decision by an exchange whereby a person
  is suspended, expelled, otherwise disciplined or
  denied access to the exchange. In addition, the
  Commission may, in its discretion and upon
  application of any person who is adversely affected
  by any other exchange action, review such action.

Review of agency action will not be cut off unless there is a persuasive reason to believe that Congress intended such a result. Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681 (1967). We must consider whether Congress expressly or impliedly precluded judicial review. Barlow v. Collins, 397 U.S. 159, 165, 90 S.Ct. 832, 837, 25 L.Ed.2d 192 (1970). Only upon a showing of clear and convincing evidence of contrary legislative intent should access to judicial review be restricted. Abbott Laboratories, 387 U.S. at 141, 87 S.Ct. at 1511; Board of Trade v. Commodity Futures Trading Commission, 605 F.2d 1016, 1022 (7th Cir. 1979), cert. denied, 446 U.S. 928, 100 S.Ct. 1866, 64 L.Ed.2d 281 (1980).

In the instant case, there is an absence of clear legislative intent to limit judicial review of CFCT decisions not to review exchange disciplinary actions. The CFTC offers no clear and convincing legislative history to support its position that decisions to deny review are not judicially reviewable. Secretary of Labor v. Farino, 490 F.2d 885, 888 (7th Cir. 1973).*fn3 Thus, this case distinguishable from Board of Trade v. Commodity Futures Trading Commission, 605 F.2d 1016 (7th Cir. 1979), cert. denied, 446 U.S. 928, 100 S.Ct. 1866, 64 L.Ed.2d 281 (1980), where the Seventh Circuit held, based upon statutory language, the structure of the enforcement provisions of the Act, the Act's legislative history and the nature of the Commission's determination, that emergency determinations pursuant to 7 U.S.C. § 12a(9) were precluded from judicial review by 5 U.S.C. § 701(a)(2). We therefore hold that the CFTC's decision not to review disciplinary action by an exchange is subject to judicial review.

Next we must determine the scope of judicial review. If such review is appropriate, as we have decided, the CFTC and Cardoza agree upon the scope of such judicial review to be applied by this Court in judging the CFTC's denial of review of the Board of Trade's disciplinary action against Cardoza. Discretionary agency action shall be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). This type of review is quite narrow. We are to consider whether the CFTC's decision is within the range of its authority and discretion, and whether there has been a clear error of judgment. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415-16, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971); Secretary of Labor v. Farino, 490 F.2d 885, 889-90 (7th Cir. 1973).

Section 8c of the Commodity Exchange Act, 7 U.S.C. § 12c, grants the CFTC broad authority to review disciplinary actions by exchanges or to decline to review such actions.*fn4 See also Commodity Futures Trading Commission v. Polonyi, 531 F. Supp. 18, 19 (W.D.Mo. 1981). Pursuant to this section, the CFTC has promulgated rules for the review of exchange actions:

  [t]he determination to review any exchange
  disciplinary or other adverse action is a matter
  committed to the Commission's discretion. In
  determining whether to grant or deny review of any
  exchange disciplinary or other adverse action, the
  Commission may consider such factors as:

    (a) Whether the issues presented involve an
  important policy under the Act;

    (b) The extent to which a review proceeding would
  interfere with the efficient disposition of other
  Commission business;

    (c) The precedential value of a Commission decision
  on the issues presented;

    (d) Whether there is substantial divergence among
  the exchanges in their treatment of similar matters;

(e) Whether it appears from the application or

  other information available to the Commission that
  the exchange action may not have been taken in
  accordance with any of the standards contained
  in § 9.37(b); or

    (f) Any other factors which the Commission deems
  relevant.

17 C.F.R. § 9.30 (1982). Section 9.37(b) provides that:

  [t]he standards for Commission review of the
  disciplinary action or other adverse action shall be:

    (1) Whether the exchange disciplinary action or
  other adverse action was taken in accordance with the
  rules of the exchange;

    (2) Whether fundamental fairness was observed in
  the conduct of the disciplinary

  proceeding or the proceeding resulting in other
  adverse action;

    (3) Whether there is substantial evidence in the
  record to support a finding that there has been a
  violation of the rules of the exchange or that the
  exchange was otherwise justified in taking the
  disciplinary or other adverse action;

    (4) Whether the disciplinary or other adverse
  action taken by the exchange was reasonable in light
  of all circumstances; and

    (5) Whether the disciplinary action or other
  adverse action otherwise accords with the policies of
  the Act.

17 C.F.R. § 9.37(b). Cardoza asserts that if any of the standards set forth in § 9.37(b) are met, then the CFTC must address the merits of a petition for review. She adds that her petition for review put in issue several of the § 9.37(b) factors.

The CFTC declined to review the Board of Trade's disciplinary action against Cardoza. In a letter to Cardoza's attorney, the CFTC explained its reasoning as follows:

  the Commission determined that none of the factors in
  Commission regulation 9.30 warrant the exercise of
  the Commission's discretion to review the instant
  action. The Commission perceives no issue in Ms.
  Cardoza's Application that involves an important
  policy under the Act, believes there would be little
  precedential benefit from a Commission decision on
  the issues, and has no information evidencing a
  substantial divergence among the exchanges in their
  treatment of similar matters. Moreover, the
  Commission has not found sufficient information in
  Ms. Cardoza's Application and, after a review of the
  full record of the Exchange's action, does not have
  available other information related to the action in
  question, which indicates that the Exchange action
  was not taken in accordance with the standards
  contained in Commission regulation 9.37(b).

The CFTC's decision not to review the Board of Trade's disciplinary action was within the range of its authority and discretion. Cardoza's reliance upon the standards in § 9.37(b) is misplaced. Section 9.37(b) lists standards to be applied once the CFTC has decided to review a disciplinary action by an exchange. Additionally, according to § 9.30, in deciding initially whether to review an exchange action, the CFTC may consider whether exchange action was not in accord with the standards of § 9.37(b). Cardoza's argument that review is mandatory once § 9.37(b) standards are raised finds no support in the CFTC's regulations.

Review of the CFTC's letter to Cardoza indicates that the CFTC followed its own rules in declining to review the Board of Trade's disciplinary action against her and considered the relevant factors enumerated in those rules. There is no evidence of a clear error of judgment nor an abuse of discretion. Accordingly, the CFTC's motion for summary judgment is granted.

Cardoza's Claim Against the Board of Trade

Cardoza maintains that a private right of action exists under the Commodity Exchange Act against the Board of Trade.*fn5 She claims that the Board of Trade breached Rule 225.00 by refusing to grant her an Associate Membership. Rule 225.00 provides that

  [a]t the end of three years after the first
  Commercial Paper Permit is sold, the Association
  shall issue for a period of twelve (12) months
  thereafter an Associate Membership to any Commercial
  Paper Permit holder, hereunder, who has met the
  following conditions:

    (1) The Permit holder must pay $40,000 less Permit
    fees paid in accordance with Regulation 225.04; and

    (2) Subject to Regulation 225.11, the Permit holder
    must demonstrate, by account activity statements or
    brokerage reports, that he has traded at least one
    Commercial Paper contract for himself or others on
    at least 125 business days in each of three one
    year periods, starting from the day the Permit
    holder is granted his Permit; and

    (3) The Permit holder has exercised his option to
    purchase an Associate Membership within six (6)
    months of the expiration of the Permit.

Cardoza argues that the Board of Trade's notice that only trades personally executed by her would meet the requirements of Rule 225.00(2) was an attempt to unilaterally amend the terms of the contract between the parties and violated Rule 225.00.

The Commodity Exchange Act is silent on the subject of private judicial remedies for its violation. To support her contention that an alleged violation of Rule 225.00 is actionable under the Commodity Exchange Act, Cardoza cites Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1981). In Curran, the Supreme Court held that an implied private right of action existed for violations of certain sections of the Commodity Exchange Act. The sections at issue were § 4a, 7 U.S.C. § 6a; 4b, 7 U.S.C. § 6b; 5a(8), 7 U.S.C. § 7a(8); 5(d), 7 U.S.C. § 7(d); and 9(b), 7 U.S.C. § 13(b). Section 4b prohibits fraudulent and deceptive conduct, while the other sections are designed to prevent price manipulation. Prior to the 1974 amendments to the Commodities Exchange Act, the courts recognized private rights of action under the sections at issue. Thus, an implied cause of action under these sections was part of the "contemporary legal context," and the fact that Congress left intact these portions of the statute, plus other legislative history, led the Court to conclude that Congress intended to preserve these pre-existing private rights of action when it amended the Act in 1979.

In the present case, Cardoza does not state the section of the Act under which her claim arises. Instead, she appears to contend that the Board of Trade has failed to follow its own Rule 225.00. This claim, however, would invoke § 5a(8) of the Act.*fn6 That section provides that

[e]ach contract market shall —

    (8) enforce all bylaws, rules, regulations, and
  resolutions, made or issued by it or by the governing
  board thereof or any committee, that (i) have been
  approved by the Commission pursuant to paragraph (12)
  of this section, (ii) have become effective under
  such paragraph, or (iii) must be enforced pursuant to
  any Commission rule, regulation, or order; and revoke
  and not enforce any bylaw, rule, regulation, or
  resolution, made, issued, or proposed by it or by the
  governing board thereof or any committee, that has
  been disapproved by the Commission;

7 U.S.C. § 7a(8). Curran clearly held that exchanges can be held accountable for breaching their statutory duty to enforce their own rules prohibiting price manipulation. 456 U.S. at 394, 102 S.Ct. at 1847. We believe that this reasoning extends to alleged violations of other exchange rules. Rule 225.00, at issue in the present case, does not involve price manipulation. But Curran specifically noted that Congress declined to amend the Commodity Exchange Act to abolish a cause of action for the violation of exchange rules. Id. at 382-88, 102 S.Ct. at 1841-44. Thus, 7 U.S.C. § 7a(8), and the private cause of action that has been implied from it, are integral to the self regulation concept behind federal regulation of exchanges. Id. We therefore hold that an alleged violation of Rule 225.00 states a claim under the Commodity Exchange Act.

The Board of Trade, however, claims that Cardoza's claims are time barred. To determine the limitations period for a cause of action which has been implied into a federal statute, courts are to apply that statute of limitations of the forum state governing the state law most analogous to the federal right being asserted. UAW v. Hoosier-Cardinal Corp., 383 U.S. 696, 701-04, 86 S.Ct. 1107, 1111-13, 16 L.Ed.2d 192 (1966). Cardoza maintains that because she is asserting a breach of contract claim, we should apply the five year limitation period in Ill.Rev.Stat. ch. 110 § 13-205 or the ten year period of Ill.Rev.Stat. ch. 110, § 13-206.

A cause of action occurring prior to January 11, 1983, under the Commodity Exchange Act must be brought within three years. Shelley v. Noffsinger, 511 F. Supp. 687, 690-91 (N.D.Ill. 1981); Smith v. Groover, 468 F. Supp. 105, 119-20 (N.D.Ill. 1979). We join those cases in adopting the three year limitations period set forth in the Illinois Securities Law, Ill.Rev.Stat. ch. 12 1/2, § 137.13, for claims occurring prior to January 11, 1983.*fn7 Cardoza learned that the Board of Trade's Membership Committee declined to waive its interpretation of the 125 day trading requirement in Rule 225.00 on November 15, 1979. Her claim occurred on that date. The instant case was filed on May 27, 1983, which is more than three years after her claim occurred.*fn8 We therefore hold that her claim is barred by the statute of limitations and grant the Board of Trade's motion to dismiss her federal claim.

Cardoza's pendent state claim for breach of contract against the Board of Trade is also dismissed. United Mine Workers v. Gibb, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966).

For the foregoing reasons, CFTC's motion for summary judgment is granted. The Board of Trade's motion to dismiss is granted. It is so ordered.


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