634 F.2d 774 (5th Cir. 1980), 79-1313, Rivers v. Rosenthal & Co.

Docket Nº79-1313.
Citation634 F.2d 774
Party NameJohn RIVERS and Tom Lamb (Dan P. Rivers, as Executor of the Will of John Rivers, substituted in place and stead of John Rivers, Deceased), Plaintiffs- Appellees, v. ROSENTHAL & COMPANY, Defendant-Appellant.
Case DateDecember 16, 1980
CourtUnited States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 774

634 F.2d 774 (5th Cir. 1980)

John RIVERS and Tom Lamb (Dan P. Rivers, as Executor of the

Will of John Rivers, substituted in place and

stead of John Rivers, Deceased),

Plaintiffs- Appellees,

v.

ROSENTHAL & COMPANY, Defendant-Appellant.

No. 79-1313.

United States Court of Appeals, Fifth Circuit

December 16, 1980

Page 775

[Copyrighted Material Omitted]

Page 776

Sidney O. Smith, Jr., James S. Stokes, IV, Peter Q. Bassett, Atlanta, Ga., Wyck A. Knox, Jr., Augusta, Ga., Louis Clinton Burr, Chicago, Ill., for defendant-appellant.

Robert E. Goodfriend, Dallas, Tex., for Drexel, Burnham Lambert, Inc., amicus curiae.

Albert H. Dallas, Thomson, Ga., Jerry L. Sims, Atlanta, Ga., for plaintiffs-appellees.

Mark D. Young, Atty., Commodity Futures Trading Com'n, Washington, D.C., amicus curiae.

Appeal from the United States District Court for the Southern District of Georgia.

Before KRAVITCH, HENDERSON and REAVLEY, Circuit Judges.

REAVLEY, Circuit Judge:

This appeal presents a single legal question: whether there exists an implied private right of action under the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 1-24, as revised in 1974, to redress commodity futures customers for damages sustained from their brokers' violations of the antifraud provisions and broker registration requirements of that Act, 7 U.S.C. §§ 6b, 1 6k, 2

Page 777

and the corresponding regulations, 17 C.F.R. §§ 32.3, 32.9 (1979). 3 Relying upon such an implied right of action, as well as fraud and fiduciary violation grounds with which we are not here concerned, John Rivers and Tom Lamb brought suit below against Rosenthal & Company and an agent 4 in its Memphis, Tennessee office, Carl M. Tipton. Rivers and Lamb allege that in 1976 and 1977 they suffered substantial losses in commodity futures transactions conceived and carried out in their behalf by Tipton in violation of the antifraud and registration provisions noted above.

Arguing that no such private right of action exists, Rosenthal moved to dismiss under Fed.R.Civ.P. 12(b)(6), those counts of the complaint based on the alleged violations of the CEA. The district court determined that an implied right of action was available to Rivers and Lamb and denied the motion to dismiss. Upon the appropriate recommendation of the district court that the denial of this motion entailed a controlling and controversial question of law the immediate resolution of which would materially advance the ultimate termination of litigation, this court accepted the interlocutory appeal pursuant to 28 U.S.C. § 1292(b). We now reverse, holding that no implied private right of action is available to plaintiffs-appellees, Rivers and Lamb. 5

I. BACKGROUND

The question we face here has already received considerable judicial attention since the 1974 amendments to the CEA. Within the past half year the Second and Sixth Circuits have ruled that an implied private right of action does exist under the CEA, but both decisions were rendered by split panels over very forceful dissents. Leist v. Simplot, 638 F.2d 283 (2d Cir. 1980), petition for cert. filed sub nom. New York Mercantile Exchange v. Liest, 49 U.S.L.W. 3388 (U.S. Nov. 12, 1980) (No. 80-757) (per Friendly, J., finding right of action for contraventions of various sections, such as 7 U.S.C. §§ 6b, 7(d), 7a(8), 13(b), proscribing market manipulation, fraud, and dilatory behavior by exchanges; Mansfield, J., dissenting); Curran v. Merrill Lynch, Pierce,

Page 778

Fenner & Smith, 622 F.2d 216 (6th Cir. 1980), petition for cert. filed, 49 U.S.L.W. 3053 (U.S. Aug. 9, 1980) (No. 80-203) (private action for violation of antifraud provisions such as § 6b). 6 Since 1974 numerous district courts also have faced the issue, with a slight majority of these courts finding that a cause of action is available under various provisions. 7

  1. Prior to 1974

    The present federal statutory scheme for regulating the trading of commodity futures traces its lineage back to The Futures Trading Act, ch. 86, 42 Stat. 187 (1921), and its successor, The Grain Futures Act, ch. 369, 42 Stat. 998 (1922). These acts, limited to grain futures, inaugurated the pattern of restricting futures trading to designated "contract markets," i. e., central exchanges subject to government supervision and charged with adopting measures to prevent price manipulation. 8 Although these acts empowered the government to take some steps against individual price manipulations, in practice almost total reliance for the regulation of such activities rested with the individual exchanges.

    In 1936, Congress significantly expanded the scope of federal regulation of the futures trading industry and retitled the legislation the "Commodity Exchange Act," ch. 545, 49 Stat. 1491 (1936). Under this Act, regulatory coverage went beyond grain futures to include other specified agricultural commodities. Additional substantive regulatory provisions were enacted, including an antifraud provision, § 4b, 49 Stat. 1493, in essentially the same form as that in the present codification, 7 U.S.C. § 6b, which forms one of the bases of this action. Greater direct government control of market abuses by individual traders also was established by the addition of criminal sanctions for violation of the proscription against price manipulation as well as fines and penalties for the transgressions of other provisions and by the vesting of broader

    Page 779

    powers of direct supervision and enforcement in the Department of Agriculture.

    Notwithstanding this beefing up of the federal regulatory scheme, the principal emphasis and essential philosophy of the legislation remained one of industry self-regulation through the contract markets. Curran v. Merrill Lynch, 622 F.2d at 231; Stone v. Saxon & Windsor Group Ltd., 485 F.Supp. at 1214. Despite similar, though less expansive, amendments in 1968 that increased the sanctions and penalties under the CEA and added several new substantive requirements not pertinent here, Pub.L. 90-258, 82 Stat. 26 (1968), the basic approach of industry self-regulation continued until the drastic revision of the CEA in 1974.

    Significantly for our purposes, the relatively limited role expressly legislated for the federal government to play in the active enforcement of this expanding regulatory scheme during the period 1922-1974 consisted of punitive or coercive mechanisms such as fines, removal of licenses, or criminal penalties-all sanctions against transgressors. Congress did not expressly provide for any federal judicial or administrative forum or remedy through which those injured due to fraud or other violations of the acts or regulations could seek redress from those transgressors.

    By at least 1967 with the decision in Goodman v. H. Hentz & Co., 265 F.Supp. 440, 447 (N.D.Ill.1967), however, the courts began to fill that void by finding an implied private right of action under the CEA. See Leist v. Simplot, 638 F.2d at 309 (intimating that private actions may have been maintained prior to and in greater number than is indicated by only the published decisions). In fact, all courts that decided the issue held unanimously that such a private cause of action was available under the CEA as constituted prior to 1974. See, e. g., Deaktor v. L. D. Schreiber & Co., 479 F.2d 529, 534 (7th Cir. 1973), rev'd on other grounds sub nom. Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113, 94 S.Ct. 466, 38 L.Ed.2d 344 (1973) (cause of action under 7 U.S.C. § 13b); Booth v. Peavey Co. Community Services, 430 F.2d 132, 133 (8th Cir. 1970) (§ 6(d)); Arnold v. Bache & Co., Inc., 377 F.Supp. 61, 65 (M.D.Pa.1973) (§ 6b); McCurnin v. Kohlmeyer & Co., 340 F.Supp. 1338, 1343 (E.D.La.1972), aff'd per curiam, 477 F.2d 113 (5th Cir. 1973). But see Chipser v. Kohlmeyer & Co., 600 F.2d 1061, 1067 & n.14 (5th Cir. 1979) (suggesting existence of pre-1974 cause of action an open question upon remand); Moody v. Bache & Co., 570 F.2d 523, 528-29 (5th Cir. 1978). Moreover-although the correctness of these decisions is dubious when measured against the present wisdom for determining the existence of implied rights of action, see e. g., Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) ("TAMA") and Part II, infra-this course of allowing the victims of violations to take the initiative and hail their trespassing tormentors before the courts was basically consistent with that era's fundamental approach of relying principally upon the self-policing of the futures trade by those involved in it.

  2. 1974 Amendments

    By the early 1970's, however, the vastly increased volume, scope and complexity of futures trading and the apparent inability of the individual exchanges to cope coherently and satisfactorily with these geometrically expanding problems compelled a reevaluation of that basic self-regulatory approach. S.Rep.No. 850, 95th Cong., 2d Sess. 8-10, reprinted in (1978) U.S.Code Cong. & Ad.News, pp. 2087, 2096-98; S.Rep.No. 1131, 93d Cong., 2d Sess., reprinted in (1974) U.S.Code Cong. & Ad.News, pp. 5843, 5858-59. The product of this re-evaluation was the Commodity Futures Trading Commission Act of 1974, Pub.L. 93-463, 88 Stat. 1389 ("CFTCA"). Different in character from even the significant amendments of 1936 and 1968, the CFTCA "signalled a dramatic shift from the theory of exchange self-regulation," upon which federal futures trading legislation had been premised up to that point, Leist v. Simplot, 638 F.2d at 309, and proposed in its place "a comprehensive regulatory structure" creating a coherent uniform system of federal control over the entirety of the national futures

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    trading industry. H.R.Rep.No. 975, 93d Cong., 2d Sess. 1. Consequently, rather than comprising mere patchwork additions as had all prior amendatory schemes, the CFTCA actually constituted "the first complete overhaul of the Commodity Exchange Act since its...

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  • 565 F.Supp. 1330 (N.D.Ga. 1983), C78-555, Westlake v. Abrams
    • United States
    • Federal Cases United States District Courts 11th Circuit Northern District of Georgia
    • May 27, 1983
    ...complaint are 7 U.S.C. §§ 6b and 6k and 17 C.F.R. §§ 32.3, 32.5, and 32.9. Basing its decision on Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir. 1980), the Court found no implied cause of action to exist under the provisions relied on by the plaintiff. However, in light of the recent......
  • 641 S.W.2d 675 (Tex.App. - Fort Worth 1982), 2-81-035, Nattrass v. Rosenthal and Co.
    • United States
    • Texas Court of Appeals of Texas
    • October 7, 1982
    ...conferred on courts of the United States or any State." Rosenthal & Company cites us to Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir.1980), where that court held the quoted language to mean that, rather than saving a private cause of action under the Commodity Exchange Act,......
  • 7 F.Supp.2d 1234 (M.D.Ala. 1998), Civ. A. 96-D-1875, Sandoval v. Hagan
    • United States
    • Federal Cases United States District Courts 11th Circuit Middle District of Alabama
    • June 3, 1998
    ...558 (11th Cir.1984); see also Florida Commercial Banks v. Culverhouse, 772 F.2d 1513, 1517 (11th Cir.1985); Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir.1980), vacated on other grounds, 456 U.S. 968, 102 S.Ct. 2228, 72 L.Ed.2d 841 (1982). A regulation promulgated by an administrativ......
  • 456 U.S. 353 (1982), 80-203, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran
    • United States
    • Federal Cases United States Supreme Court
    • May 3, 1982
    ...1978) (assuming that a private right of action exists). [4] Leist v. Simplot, 638 F.2d 283 (1980). [5] Rivers v. Rosenthal & Co., 634 F.2d 774 (1980), cert. pending, No. [6] Our understanding of the futures trading business and of the facts is gleaned primarily from the congressional Re......
  • Request a trial to view additional results
20 cases
  • 565 F.Supp. 1330 (N.D.Ga. 1983), C78-555, Westlake v. Abrams
    • United States
    • Federal Cases United States District Courts 11th Circuit Northern District of Georgia
    • May 27, 1983
    ...complaint are 7 U.S.C. §§ 6b and 6k and 17 C.F.R. §§ 32.3, 32.5, and 32.9. Basing its decision on Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir. 1980), the Court found no implied cause of action to exist under the provisions relied on by the plaintiff. However, in light of the recent......
  • 641 S.W.2d 675 (Tex.App. - Fort Worth 1982), 2-81-035, Nattrass v. Rosenthal and Co.
    • United States
    • Texas Court of Appeals of Texas
    • October 7, 1982
    ...conferred on courts of the United States or any State." Rosenthal & Company cites us to Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir.1980), where that court held the quoted language to mean that, rather than saving a private cause of action under the Commodity Exchange Act,......
  • 7 F.Supp.2d 1234 (M.D.Ala. 1998), Civ. A. 96-D-1875, Sandoval v. Hagan
    • United States
    • Federal Cases United States District Courts 11th Circuit Middle District of Alabama
    • June 3, 1998
    ...558 (11th Cir.1984); see also Florida Commercial Banks v. Culverhouse, 772 F.2d 1513, 1517 (11th Cir.1985); Rivers v. Rosenthal & Co., 634 F.2d 774 (5th Cir.1980), vacated on other grounds, 456 U.S. 968, 102 S.Ct. 2228, 72 L.Ed.2d 841 (1982). A regulation promulgated by an administrativ......
  • 456 U.S. 353 (1982), 80-203, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran
    • United States
    • Federal Cases United States Supreme Court
    • May 3, 1982
    ...1978) (assuming that a private right of action exists). [4] Leist v. Simplot, 638 F.2d 283 (1980). [5] Rivers v. Rosenthal & Co., 634 F.2d 774 (1980), cert. pending, No. [6] Our understanding of the futures trading business and of the facts is gleaned primarily from the congressional Re......
  • Request a trial to view additional results