Hirschberg v. Commodity Futures Trading Commission

• Decision Date: 05 July 2005
• Docket Number: No. 04-2573.,04-2573.
• Citation: 414 F.3d 679
• Parties: Judd B. HIRSCHBERG, Petitioner, v. COMMODITY FUTURES TRADING COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

414 F.3d 679

Judd B. HIRSCHBERG, Petitioner, v. COMMODITY FUTURES TRADING COMMISSION, Respondent.

No. 04-2573.

United States Court of Appeals, Seventh Circuit.

Argued February 11, 2005.

Decided July 5, 2005.

Brent D. Stratton (argued), McGuirewoods, Chicago, IL, for Petitioner.

Glynn L. Mays, Martin B. White (argued), Commodity Futures Trading Commission, Office of the General Counsel, Washington, DC, for Respondent.

Michael J. Daley, Nisen & Elliott, Chicago, IL, for Party-in-Interest.

Before BAUER, POSNER, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Judd Hirschberg's floor broker registration was revoked after he was convicted of mail fraud in 1991. In 2000, he received a presidential pardon for that conviction, but the Commodity Futures Trading Commission ("CFTC") nevertheless denied his post-pardon application for floor broker registration. Because a pardon does not eliminate the legal determination that Hirschberg was guilty of the crime of which he was convicted, and the crime was properly considered in the CFTC's application process, we affirm the decision of the CFTC and deny Hirschberg's petition for review.

I. History

Hirschberg became a registered floor broker in 1985. According to the Commodities Exchange Act, 1 U.S.C. § 1a(16), floor brokers buy and sell futures contracts for others on an exchange floor such as that of the Chicago Mercantile Exchange ("CME"), where Hirschberg worked. Floor brokers commonly act as fiduciaries in conducting transactions. They are required to register with the CFTC, which has delegated most of the registration process to the National Futures Association ("NFA"). See 7 U.S.C. §§ 6(e), 21(o). The CFTC also has the power to revoke registration from floor brokers who violate CFTC or NFA rules.

The CFTC initiated revocation proceedings against Hirschberg in 1991, alleging disqualification under Sections 8(a)(2) (conviction of a felony involving fraud) and 8(a)(3) (for good cause) of the Commodities Exchange Act. 7 U.S.C. §§ 12a(2)(D), 12a(3)(M). Hirschberg had indeed been convicted in federal court on four felony counts of mail fraud and two felony counts of tampering with vehicle identification numbers. These 1991 convictions stemmed from an insurance fraud scheme that took place in 1984, when Hirschberg reported that his car had been stolen and then collected $43,300 from his insurance company. Several years later, evidence was discovered suggesting that Hirschberg had voluntarily transferred the car to a friend and altered its vehicle identification number to hide the crime. On appeal, this court found insufficient evidence to uphold the conviction for identification number tampering, but affirmed the conviction for mail fraud. Hirschberg was ordered to serve three years of probation and pay $40,000 in restitution.

The CFTC proceedings ultimately led to revocation of Hirschberg's registration in 1994. The Administrative Law Judge ("ALJ") presiding over the hearing did not find sufficient evidence of mitigation or rehabilitation to justify Hirschberg keeping his registration. Weighing against Hirschberg was evidence of disciplinary proceedings brought against him by the CME—several years after the 1984 insurance fraud, Hirschberg was disciplined for engaging in pre-arranged trading in violation of CME rules. Hirschberg has made his living since 1994 (earning substantially less than he did as a floor broker) by consulting for trading houses and training young traders.

In 1998, Hirschberg applied for a presidential pardon of his mail fraud conviction, which was granted by President Clinton in 2000. Pardon in hand, he applied to the NFA for registration as a floor broker in July 2001. After a designated subcommittee conducted a hearing, the NFA denied Hirschberg's application. The subcommittee found that Hirschberg's conviction and subsequent revocation of registration subjected him to a Section 8a(2)(A) disqualification based on his prior revocation. See 7 U.S.C. § 12a(2)(A). Although this merely created a rebuttable presumption that he was unfit for registration, the subcommittee did not find that Hirschberg presented enough mitigating evidence to rebut the presumption of unfitness. The CFTC affirmed the denial of registration in 2004. Hirschberg appeals the denial on the grounds that the CFTC's decision violates the Pardon Clause, due process, and his statutory rights under the Commodities Exchange Act.

II. Analysis

We review the CFTC's decision by addressing each of Hirschberg's arguments in turn. To summarize: the legal effect of a presidential pardon is to preclude further punishment for the crime, but not to wipe out the fact of conviction. The CFTC did not violate the pardon clause by considering the conduct underlying Hirschberg's conviction in determining whether he was qualified to do business as a floor trader, because its decision was grounded in protection of the public rather than in punishing Hirschberg as a convicted felon. Hirschberg's due process and statutory rights arguments also do not justify reversal of the decision to deny his application for registration.

A. Pardon Clause

The CFTC denied Hirschberg's 2001 application for registration based on Section 8a(2)(A) of the Commodities Exchange Act, which is codified at 7 U.S.C. § 12a(2)(A) and allows the CFTC to revoke or deny registration of any person "if a prior registration of such person in any capacity has been suspended ... or has been revoked[.]" The revocation underlying this statutory disqualification was, of course, based on Hirschberg's 1991 conviction for mail fraud. Hirschberg asserts that, because he received a full and unconditional pardon for that conviction, the CFTC's denial unconstitutionally interferes with the presidential pardon power. This is a legal question which we review de novo. See LaCrosse v. CFTC, 137 F.3d 925, 929 (7th Cir.1998) (reviewing constitutional double jeopardy issue de novo).

The Constitution gives the President "Power to grant Reprieves and Pardons for Offences against the United States, except in cases of impeachment." U.S. Const. art. II § 2. Hirschberg relies on a Civil War era case to support his position that a presidential pardon shields him from suffering any further direct or indirect consequences of his conviction. In Ex Parte Garland, the Supreme Court held that depriving an attorney of the right to practice law based on a pardoned conviction for treason (stemming from service in the Confederate legislature) violated the pardon clause. 4 Wall. 333, 71 U.S. 333, 380-81, 18 L.Ed. 366 (1866). "A pardon reaches both the punishment prescribed for the offence and the guilt of the offender[,]" the Court said. Id. at 380. "[I]t releases the punishment and blots out of existence the guilt, so that in the eye of the law the offender is as innocent as if he had never committed the offence." Id.

But modern caselaw emphasizes (and indeed Hirschberg admits) that this historical language was dicta and is inconsistent with current law. See In re North, 62 F.3d 1434, 1437 (D.C.Cir.1994). A pardon in no way reverses the legal conclusion of the courts; it "does not blot out guilt or expunge a judgment of conviction." North, 62 F.3d at 1437; see also Nixon v. United States, 506 U.S. 224, 232, 113 S.Ct. 732, 122 L.Ed.2d 1 (1993) ("a pardon is in no sense an overturning of a judgment of conviction by some other tribunal"); Burdick v. United States, 236 U.S. 79, 94, 35 S.Ct. 267, 59 L.Ed. 476 (1915) (a pardon "carries an imputation of guilt"). The effect of a pardon is not to prohibit all consequences of a pardoned conviction, but rather to preclude future punishment for the conviction. See Nixon, 506 U.S. at 232, 113 S.Ct. 732; Bjerkan v. United States, 529 F.2d 125, 127-28 (7th Cir.1975). The question we must answer, then, is whether the CFTC's denial of Hirschberg's registration is impermissible punitive action or simply a consequence of the conduct underlying the conviction that the pardon could not erase.

The answer turns on whether the conduct for which Hirschberg was convicted has any bearing on his ability to work as a floor broker. Government licensing agencies may consider conduct underlying a pardoned conviction—without improperly "punishing" the pardoned individual—so long as that conduct is relevant to an individual's qualifications for the licensed position. Grossgold v. Supreme Court of Illinois, 557 F.2d 122, 125-26 (7th Cir.1977); Bjerkan, 529 F.2d at 128 n. 2. In Grossgold, for example, an attorney was suspended from practice for three years based on a conviction for mail fraud. 557 F.2d at 123. Fraudulent activity was grounds for discipline under Illinois law—honesty and integrity are deemed important traits in the practice of law—and a conviction for a crime involving fraud was conclusive evidence of fraudulent activity. In re Grossgold, 58 Ill.2d 9, 317 N.E.2d 45, 46-47 (1974). A presidential pardon did not invalidate the suspension, because it "did not wipe out the moral turpitude inherent in the factual predicate supporting plaintiff's mail fraud conviction." Grossgold, 557 F.2d at 125. In cases where governmental action has been held to violate the pardon clause, on the other hand, the pardoned individual is stripped of his rights based not on the conduct underlying the conviction, but on the fact of conviction alone. See Bjerkan, 529 F.2d at 128 (holding that a state's deprivation of a pardoned individual's civil rights based on fact of a conviction alone violated pardon clause).

The statutory disqualification scheme under which Hirschberg's registration was revoked in 1994 and then denied in 2004 was enacted with the Futures Trading Act of 1982, P.L. 97-444 § 224. It was designed to "streamline and simplify the [former] registration procedures to enable the [CFTC] to register fit persons more expeditiously and to remove unfit persons from the industry more promptly." H.R.Rep. No. 97-565, pt. 1, at 50 (1982). Given the...