United States District Court, N.D. Illinois, Eastern Division
U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
IGOR B. OYSTACHER and 3 RED TRADING LLC, Defendants.
CORRECTED MEMORANDUM OPINION AND ORDER
ST. EVE United States District Court Judge.
Igor Oystacher and 3Red Trading, LLC (collectively,
“Defendants”) move for a judgment on the
pleadings pursuant to Federal Rule of Civil Procedure 12(c).
For the foregoing reasons, the Court denies Defendants'
CFTC asserts that from December 2011 through at least
February 2016, Defendants “intentionally and repeatedly
engaged in a manipulative and deceptive spoofing scheme while
placing orders for and trading futures contracts on multiple
registered entities.” (R. 1, Complaint, at ¶ 2.)
Specifically, the CFTC alleges that Defendants'
“scheme created the appearance of false market depth
that Defendants exploited to benefit their own interests,
while harming other . . . participants” across a number
of markets in violation of Sections 4c(a)(5)(C) and 6(c)(1)
of the Commodities Exchange Act (the “CEA”), 7
U.S.C. §§ 6c(a)(5)(C) & 9(1) (2012) (the
“Spoofing Statute”), and CFTC Regulation 180.1,
17 C.F.R. §180.1 (2014). (Id. at ¶¶
2010, Section 747 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, Pub. L. No. 111-203, 124
Stat. 1376 (2010) amended Section 4c(a)(5)(C) of the CEA,
entitled “Disruptive Practices, ” to add the
Spoofing Statute. The Spoofing Statute provides, in relevant
part, as follows:
(5) It shall be unlawful for any person to engage in any
trading, practice, or conduct on or subject to the rules of a
registered entity that -
(C) Is, is of the character of, or is commonly known to the
trade as, “spoofing” (bidding or offering with
the intent to cancel the bid or offer before the execution).
7 U.S.C. § 6c(a)(5)(C).
on July 14, 2011, the CFTC adopted CFTC Regulation
180.1(a)(1) pursuant to the CFTC's expanded anti-fraud
and anti-manipulation authority under Section 753 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010). CFTC
Regulation 180.1(a)(1) provides, in relevant part, as
(a) It shall be unlawful for any person, directly or
indirectly, in connection with any swap, or contract of sale
of any commodity in interstate commerce, or contract for
future delivery on or subject to the rules of any registered
entity, to intentionally or recklessly:
(1) Use or employ, or attempt to use or employ, any
manipulative device, scheme, or artifice to defraud[.]
17 C.F.R. § 180.1(a)(1); see also CFTC v. Kraft
Foods Grp., Inc., 153 F.Supp.3d 996, 1007 (N.D. Ill.
2015) (“In publishing Regulation 180.1, the CFTC
explained that ‘Final Rule 180.1 prohibits fraud and
fraud-based manipulations.'”) (citing Final
Rule, 76 Fed. Reg. at 41, 400; 17 C.F.R. § 180.1).
November 9, 2016, the CFTC moved for a preliminary
injunction, prohibiting Defendants from trading in the
Copper, Crude Oil, Natural Gas, S&P 500 E-mini
(“ES”), Volatility Index (“VIX”), and
Ten Year T-note Treasury Futures (“ZN”) markets.
(R. 20, 72.) The Court, thereafter, held a lengthy
preliminary injunction hearing. On July 12, 2016, the Court
denied the CFTC's motion for preliminary injunction, but
added various restrictions and obligations on Defendants. (R.
now move for a judgment on the pleadings pursuant to Federal
Rule of Civil Procedure 12(c). Defendants essentially assert
three arguments: 1) the Spoofing Statute is
unconstitutionally vague, 2) CFTC Regulation 180.1 is
unconstitutionally vague, and 3) the Spoofing Statute
constitutes an unconstitutional delegation by Congress. The
Court disagrees with all three.
Federal Rule of Civil Procedure 12(c), a party may move for
judgment on the pleadings after the pleadings are closed but
early enough not to delay trial. See Fed. R. Civ. P.
12(c). “A motion for judgment on the pleadings under
Federal Rule of Civil Procedure 12(c) ‘is designed to
provide a means of disposing of cases when the material facts
are not in dispute and a judgment on the merits can be
achieved by focusing on the content of the pleadings and any
facts of which the court may take judicial
notice.'” Archer Daniels Midland Co. v.
Burlington Ins. Grp., No. 10-CV-1533, 2011 WL 1196894,
at *2 (N.D. Ill. Mar. 29, 2011) (quoting Cincinnati Ins.
Co. v. Contemporary Distrib., Inc., No. 09-CV-2250, 2010
WL 338943, at *2 (N.D. Ill. Jan. 26, 2010)).
motion for judgment on the pleadings under rule 12(c) of the
Federal Rules of Civil Procedure is governed by the same
standards as a motion to dismiss for failure to state a claim
under Rule 12(b)(6).” BBL, Inc. v. City of
Angola, 809 F.3d 317, 325 (7th Cir. 2015) (quoting
Adams v. City of Indianapolis, 742 F.3d 720, 727-28
(7th Cir. 2014)). As such, “the question at this stage
is simply whether the complaint includes factual allegations
that state a plausible claim for relief.” Id.
(citing Fortres Grand Corp. v. Warner Bros. Entm't.
Inc., 763 F.3d 696, 700 (7th Cir. 2014) (applying Rule
12(b)(6)). “A plaintiff's ‘[f]actual
allegations must be enough to raise a right to relief above
the speculative level.'” Yeadon Fabric Domes,
LLC v. Roberts Environmental Control Corp., No. 15 CV
6679, 2016 WL 3940098, *1 (N.D. Ill. July 21, 2016) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007)). Put differently, “a ‘complaint must
contain sufficient factual matter, accepted as true, to state
a claim to relief that is plausible on its face.'”
Id. (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)) (citation and quotation marks omitted).
“All reasonable inferences are drawn in favor of the
non-movant.” Id. (citing Lodholtz v. York
Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir.
2015)). Ultimately, a court will grant a motion for judgment
on the pleadings only if “no genuine issues of material
fact remain to be resolved and . . . the [moving party] is
entitled to judgment as a matter of law.” Alexander
v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 2012);
see also Hartford Fire Ins. Co. v. Thermos LLC, 146
F.Supp.3d 1005, 1012 (N.D. Ill. 2015) (citing
Alexander, 994 F.2d at 336).
move for a judgment on the pleadings pursuant to Federal Rule
of Civil Procedure 12(c). Defendants claims that 1) the
Spoofing Statute is unconstitutionally vague, 2) CFTC
Regulation 180.1 is unconstitutionally vague, and 3) the
Spoofing Statute constitutes an unconstitutional delegation
by Congress. The Court addresses each in turn.
Spoofing Statute is Not Unconstitutionally Vague
first claim that “the Spoofing Statute is
unconstitutionally vague, and the CFTC's claims fail as a
matter of law.” (R. 164-1 at 22.) Specifically,
Defendants argue that the “‘is spoofing'
prong of the Spoofing Statute is vague, because it fails [to]
give notice of what type of trading conduct constitutes
‘spoofing' as opposed to legitimate trading.”
(Id.) “And if it is unclear what facts must be
proved to make out a claim, ” Defendants assert,
“then there is certainly no basis to conclude that Mr.
Oystacher received adequate notice of what conduct was
forbidden under the Spoofing Statute.” (Id.)
The Court disagrees. The Spoofing Statute's “is
spoofing” prong, as applied to Defendant Oystacher, is
not unconstitutionally vague.
fundamental principle in our legal system is that laws which
regulate persons or entities must give fair notice of conduct
that is forbidden or required.” United States v.
Brown, No. 14 CR 674, 2015 WL 6152224, at *3 (N.D. Ill.
Oct. 19, 2015) (citing FCC v. Fox Television Stations,
Inc., 132 S.Ct. 2307, 2317, 183 L.Ed.2d 234 (2012)).
“A statute is unconstitutionally vague if it
‘fails to give ordinary people fair notice of the
conduct it punishes, or [is] so standardless that it invites
arbitrary enforcement.'” United States v.
Morris, 821 F.3d 877, 879 (7th Cir. 2016) (quoting
Johnson v. United States, 135 S.Ct. 2551, 2556, 192
L.Ed.2d 569 (2015)). In other words, “[a] challenge to
a statute's vagueness ‘rest[s] on the lack of
notice, and hence may be overcome in any specific case where
reasonable persons would know that their conduct is at
risk.'” United States v. Lim, 444 F.3d
910, 915 (7th Cir. 2006) (citing Maynard v.
Cartwright, 486 U.S. 356, 361, 108 S.Ct. 1853, 100
L.Ed.2d 372 (1988)). Under the Constitution, Congress is not
permitted to “set a net large enough to catch all
possible offenders, and leave it to the courts to step inside
and say who could be rightfully detained, and should be set
at large.” City of Chicago v. Morales, 527
U.S. 41, 60, 119 S.Ct. 1849, 144 L.Ed.2d 67 (1999) (citing
United States v. Reese, 92 U.S. 214, 221, 23 L.Ed.
563 (1875)). “[F]ew words, ” however,
“possess the precision of mathematical
symbols[.]” Boyce Motor Lines v. United
States, 342 U.S. 337, 340, 72 S.Ct. 329, 96 L.Ed. 367
(1952) (citing Nash v. United States, 229 U.S. 373,
377, 33 S.Ct. 780, 781, 57 L.Ed. 1232 (1913)); see also
Lim, 444 F.3d at 915 (citing Boyce Motor Lines,
342 U.S. at 340)). Rather, “most statutes must deal
with untold and unforeseen variations in factual situations,
and the practical necessities of discharging the business of
government inevitably limit the specificity with which
legislators can spell out prohibitions. Consequently, no more
than a reasonable degree of certainty can be demanded.”
Id. (citations omitted). Indeed, “the fact
that Congress could have employed ‘[c]learer and more
precise language' equally capable of achieving the end
which it sought does not mean that the statute which it in
fact drafted' was unconstitutionally vague.”
Lim, 444 F.3d at 916 (quoting United States v.
Powell, 423 U.S. 87, 93, 96 S.Ct. 316, 320, 46 L.Ed.2d
228 (1975)). Ultimately, courts must, if possible,
“construe, not condemn, Congress'
enactments.” Skilling v. United States, 561
U.S. 358, 403, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010) (citing
Civil Serv. Comm'n v. Letter Carriers, 413 U.S.
548, 571, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973); United
States v. Nat'l. Dairy Prods., Corp., 327 U.S. 29,
32, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963)).
degree of vagueness that the Constitution tolerates . . .
depends in part on the nature of the enactment.”
Independents Gas & Serv. Stations Ass'ns., Inc.
v. City of Chicago, 112 F.Supp.3d 749, 754 (N.D. Ill.
2015) (quoting Karlin v. Foust, 188 F.3d 446, 458
(7th Cir. 1999)). Importantly, “[v]agueness challenges
to statutes that do not involve First Amendment interests are
examined in light of the facts of the case at hand.”
Id. (citing Maynard, 486 U.S. at 361);
see also United States v. Calimlim, 538 F.3d 706,
710 (7th Cir. 2008) (“A vagueness challenge not
premised on the First Amendment is evaluated as-applied,
rather than facially.”) (citing Chapman v. United
States, 500 U.S. 453, 467, 111 S.Ct. 1919, 114 L.Ed.2d
524 (1991)). This case does not involve a First Amendment
issue. Instead, Defendants' vagueness challenge targets
economic legislation. Economic regulations are subject to a
“less stringent” void for vagueness standard.
See Brockert v. Skornica, 711 F.2d 1376, 1391 (7th
Cir. 1983); see, e.g.,Cruz v. Town of
Cicero, No. 99 C 3286, 2000 WL 369666, at *3 (N.D. Ill.
Apr. 6, 2000). As the Seventh Circuit explains,
“[e]conomic regulation usually deals with a narrower
subject and ...