149 F.3d 679 (7th Cir. 1998), 97-3477, Commodity Trend Service, Inc. v. Commodity Futures Trading Com'n

Docket Nº:97-3477.
Citation:149 F.3d 679
Party Name:Comm. Fut. COMMODITY TREND SERVICE, INC., Plaintiff-Appellant, v. COMMODITY FUTURES TRADING COMMISSION, Defendant-Appellee.
Case Date:July 17, 1998
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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149 F.3d 679 (7th Cir. 1998)

Comm. Fut.




No. 97-3477.

United States Court of Appeals, Seventh Circuit

July 17, 1998

Argued May 22, 1998.

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[Copyrighted Material Omitted]

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William J. Nissen (argued), Sidley & Austin, Chicago, IL, for Plaintiff-Appellant.

William S. Liebman (argued), Daniel Waldman, Commodity Futures Trading Commission, Office of the General Counsel, Washington, DC, Dennis M. Robb, Commodity Futures Trading Commission, Chicago, IL, for Defendant-Appellee.

Lee Levine, Thomas Howlett, Levine, Pierson, Sullivan & Koch, LLP, Washington, DC, for Amicus Curiae.

Before FLAUM, RIPPLE, and KANNE, Circuit Judges.

FLAUM, Circuit Judge.

Commodity trading advisors are required to register with the Commodity Futures Trading Commission ("CFTC" or "the Commission") pursuant to 7 U.S.C. § 6m(1)--a provision of the Commodity Exchange Act. This requirement probably would not have drawn objection if it was limited to purveyors of personalized, client-specific trading advice. The language of the registration requirement is not so narrow, however, and the Commission has determined that the requirement also applies to those who dispense impersonal information regarding the performance or value of a particular commodity. Commodity Trend Service, Incorporated ("CTS"), according to its amended complaint, publishes this sort of impersonal investment advice, and it attacks the registration requirement as a violation of the First Amendment. The district court dismissed this suit as unripe for judicial review without reaching the merits of CTS's challenge. We reverse the decision of the district court and remand the case for further proceedings.


Congress created the CFTC in 1974 to implement the Commodity Exchange Act's comprehensive regulation of the "volatile and esoteric futures trading complex." Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 836, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) (quotation omitted). As part of that regulatory structure, the Act prohibits any commodity trading advisor or commodity pool operator, "unless registered under this chapter, to make use of the mails or any means or instrumentality of interstate commerce in connection with his business as such commodity trading advisor or commodity pool operator." 7 U.S.C. § 6m(1). The scope of this registration requirement is determined by 7 U.S.C. § 1a(5)(A), which defines the term "commodity trading advisor" as any person who

(i) for compensation or profit, engages in the business of advising others, either directly or through publications, writings, or electronic media, as to the value of or the advisability of trading in

(I) any contract of sale of a commodity for future delivery made or to be made on or subject to the rules of a contract market;

(II) any commodity option authorized by section 6c of this title; or

(III) any leverage transaction authorized under section 23 of this title; or

(ii) for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to in clause (i).

The broad sweep of this definition is tempered somewhat by the exclusion of certain persons, see 7 U.S.C. § 1a(5)(B) (excluding, for instance, a publisher or producer of any print or electronic data), but the force of those exclusions is enervated significantly by the very next provision: "Subparagraph (B) shall apply only if the furnishing of such services by persons referred to in subparagraph (B) is solely incidental to the conduct of their business or profession." 7 U.S.C.

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§ 1a(5)(C). Violation of the registration requirement is "a felony punishable by a fine of not more than $1,000,000 (or $500,000 in the case of a person who is an individual) or imprisonment for not more than five years, or both, together with the costs of prosecution." 7 U.S.C. § 13(a); see also 7 U.S.C. § 13(a)(5).

CTS claims that the registration requirement allows the Commission unfettered power to inhibit the First Amendment freedoms of financial publishers. To avoid a criminal violation, financial publishers must first obtain and then maintain their licenses as registered commodity trading advisors. The CFTC has enormous power to refuse a publisher's request for a license and to revoke a license once issued. The Commission is authorized by 7 U.S.C. § 12a(3)(A) to refuse registration or to revoke the license of a person or entity who is found to have violated any provision of the Commodity Exchange Act (including the registration requirement). The CFTC may also refuse to register or may revoke a license if "there is other good cause," 7 U.S.C. § 12a(3)(M). The Commodity Exchange Act does not provide a definition of "good cause."

According to its amended complaint, CTS distributes a number of publications concerning the commodity futures markets. These publications come in the form of books, periodicals, updates by facsimile, voice recordings accessible by telephone, and materials that can be downloaded via the Internet. The content of CTS's publications-again, according to its amended complaint--includes "securities and commodities market charts, market commentary, and educational publications concerning markets and trading." All of these publications furnish only impersonal advice; CTS does not provide personalized financial planning services or trading advice tailored to the individual needs of any particular subscribers.

CTS and its predecessor corporation have engaged in the business of financial publishing for over twenty years. The CFTC and the registration requirement both existed during this time, but until recently there never was any attempt to regulate CTS's activities (or those of other similar publishers). In the mid-1990s, however, the CFTC announced a shift in its enforcement policy and embarked upon a new program to register financial publishers. As part of this new effort, in 1994 the CFTC requested access to CTS's records for the purpose of determining whether CTS should be required to register as a commodity trading advisor. CTS responded that it was not required to register, and the matter lay dormant for nearly two years.

In July 1996, however, the CFTC launched an investigation into CTS's activities. In the course of this investigation (so far), the CFTC has subpoenaed thousands of documents--including samples of CTS's publications and advertising--and has taken testimony from numerous employees and other persons concerning CTS's publishing activities. CTS alleges that the exercise of its First Amendment rights has been chilled by this investigation and by the statutory registration requirement itself. CTS states that it has been forced to alter "significant portions of the editorial content of its publications"; in addition, CTS has suspended its direct-mail advertising, halted the development of new publications relating to the commodity markets, and diluted the specificity of its commodity market commentary. The CFTC's investigation has caused one of CTS's columnists to cease writing for its publications based on a fear of government reprisal. CTS also alleges that the chilling effect has made its commodity-related publications less attractive to consumers, thereby causing a decline in its revenues. Aside from these past and present injuries, CTS states that it wishes to expand its publication of impersonal commodity advice in the future without registering with the CFTC but is deterred by the registration requirement.

CTS's amended complaint attacks the Commodity Exchange Act's registration requirement in two ways. The amended complaint first pleads that 7 U.S.C. § 6m(1) is unconstitutional on its face, and second, that § 6m(1) may not constitutionally be applied to CTS. The district court sua sponte requested additional briefing on the question of CTS's standing to raise these challenges. After receiving this briefing, the court dismissed

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both counts of CTS's amended complaint as unripe. CTS filed a motion to reconsider this judgment, but the district court denied that motion.


We address CTS's claims in the same order in which they are presented in the amended complaint. We proceed mindful of the Supreme Court's strong admonition that a court should adjudicate the merits of an as-applied challenge before reaching a facial challenge to the same statute. See Board of Trustees of State Univ. of New York v. Fox, 492 U.S. 469, 484-86, 109 S.Ct. 3028, 106 L.Ed.2d 388 (1989). For instance, if CTS succeeds on its as-applied challenge, the district court should not conduct further proceedings concerning the facial challenge. See infra note 5. This approach establishes the order in which the district court should assess the merits of CTS's two claims, but it does not mandate any particular order to our review of the district court's justiciability determinations. At this stage of the proceedings, we must address both of the justiciability issues on appeal--thus rendering irrelevant the order in which we address the claims--whereas, on remand, the district court should resolve the merits pursuant to the Supreme Court's prescribed methodology. We therefore address each of CTS's arguments in the order they are presented in the amended complaint.

CTS first raises a facial challenge to the Commodity Exchange Act's registration requirement. CTS claims that the requirement is unconstitutionally overbroad because it sweeps within its coverage publishers of impersonal advice. See 7 U.S.C. § 1a(5)(A)(i) & (ii) (defining a "commodity trading advisor" as any person who "for compensation or profit, engages in the business of advising others, either...

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