Commodity Futures Trading Commission v. Schor

PETITIONER: Commodity Futures Trading Commission
RESPONDENT: Schor
LOCATION: Hardwick's Apartment

DOCKET NO.: 85-621
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 478 US 833 (1986)
ARGUED: Apr 29, 1986
DECIDED: Jul 07, 1986

ADVOCATES:
Leslie J. Carson, Jr. - on behalf of the respondents
Lawrence G. Wallace - on behalf of the petitioner in No. 85-621
Robert L. Byman - on behalf of the petitioner in No. 85-642

Facts of the case

Question

Media for Commodity Futures Trading Commission v. Schor

Audio Transcription for Oral Argument - April 29, 1986 in Commodity Futures Trading Commission v. Schor

Warren E. Burger:

We will hear arguments next in Commodity Futures Trading Commission against Schor and the consolidated case.

Mr. Wallace, I think you may proceed whenever you are ready.

Lawrence G. Wallace:

Mr. Chief Justice, and may it please the Court, this is a case in which the respondent is claiming a right to an Article III adjudication in a situation where he was afforded that right by the governing statute, but elected instead to use an administrative remedy provided by Congress as a convenient alternative.

In other words, it amounts to something of a claim that the Constitution should protect him against himself and against the election of remedies that he exercised.

The 1974 amendments to the Commodities Exchange Act created the Commodities Futures Trading Commission and directed it to establish a reparations procedure for administrative adjudication of disputes between brokers and their customers, and as we have shown in our brief, more than 8,000 such disputes which otherwise might have been brought in the federal courts have been disposed of through this administrative remedy since it went into effect.

From the outset, the implementing regulations provided that counterclaims arising out of the same transaction could be asserted in the course of the administrative remedy.

The counterclaim regulation was pursuant to the very broad grant of authority in the statute for the Commission to adopt regulations not only to effectuate the provisions of the Act but also to accomplish any of the Act's purposes, and as we have detailed in our brief, the Act itself referred to counterclaims.

The enforcement provision of the Act obviously contemplated that counterclaims would be heard by the Commission since it gave a right of enforcement either to the complainant or to any person for whose benefit the Commission's order was made.

The House report initially referred to counterclaims and anticipated that they would be entertained, and Congress has subsequently revisited the issue in amending the Act, and has quite explicitly ratified the counterclaim practice that the commission had developed.

All of that is set forth in our brief.

In many respects the present case is a model case demonstrating the reasons for the administrative reparations procedure and for the Commission's counterclaim rule.

The respondent here, owing a sizable debit balance to his broker, brought a fraud claim before the CFTC against the broker and one of its employees.

As is typical in such cases, the fraud claim essentially required the Commission to use its expertise in evaluating a complex set of facts rather than to resolve any purely legal issues, and perhaps the outstanding utility of the reparations procedure is that it allows the facts to be evaluated by this expert agency that understands the operation of the commodities markets and these transactions.

The counterclaim arose in the following way.

Before the broker had noticed that the reparations complaint had been filed, it had filed a diversity action in the federal court to recover the debit balance owing on its account, and the respondent, the customer filed a counterclaim repeating its fraud charges to that action, but also filed a motion to dismiss or stay the court action, claiming that it was essentially duplicative of the administrative remedy that it had asserted before the Commission, and the motion that was filed, there was a later one as well, but the more telling part of it is in the joint appendix on Page 13 in the initial motion.

We at least find this page of the joint appendix, Page 13, the most telling page in the joint appendix, and the Court will note that respondents' motion, recited in Paragraph 3, pursuant to the rules of the CFTC, the plaintiff in the federal court case could get its claim decided by filing a counterclaim before the Commission, and in Paragraph 4, that the reparations proceedings pending before the Commission will fully and completely resolve all of the rights between the parties with respect to the transactions; Number 5, that therefore the federal court suit is merely duplicative of the administrative proceeding that the respondent has filed; and Number 6, which is our Exhibit A and B, the reasons why the counterclaim rule is needed.

Respondent alleged two reasons why the court suit would undermine the viability of the administrative remedy.

One was that under the Federal Rules of Civil Procedure, it was required to assert the same claims it was asserting before the Commission as a counterclaim to the court suit, because it arose out of the same transaction, therefore the whole case would be removed into the federal court if the federal court suit went ahead, and the other one was that in any event it would be required at great cost and inconvenience to litigate the issues before two different forums, and then the final sentence of Paragraph 6, which reads like a sentence out of the brief we have filed,

"The effect therefore would be to emasculate if not destroy the purposes of the Commodity Exchange Act to provide an efficient and relatively inexpensive forum for the resolution of disputes in futures trading. "

Now, as is also typical in these cases, the counterclaim involved no additional factual issue other than the question whether the fraud alleged in the administrative complaint had occurred.

The arithmetic of the debit balance on the account was undisputed, and the counterclaim involved no disputed legal issue.

It was simply a way fully to resolve the dispute over the contested transactions in a single proceeding.

William H. Rehnquist:

Of course, there is no question that the counterclaim could have involved a disputed legal issue, and it still would have been before the CFTC.

Lawrence G. Wallace:

That is correct, Mr. Justice.

It is a rare occurrence for there to be a disputed issue of state law.

If there is one, of course, the Commission will resolve it, and the Commission's orders are subject to de novo review on a state legal issue in the Federal Court of Appeals, which is, of course, an Article III court.

William H. Rehnquist:

But, of course, a state issue involving Utah law... what Court of Appeals would that come before on review of the CFTC?

Lawrence G. Wallace:

Well, it would be the appropriate Court of Appeals, and I am not sure that I can answer the question without reference back to the statute.

This particular one wound up in the District of Columbia Circuit Court for--

William H. Rehnquist:

It wouldn't necessarily be the Court of Appeals where some judges from that state might be sitting?