Commodity Futures Trading Com'n v. Co Petro Marketing Group, Inc.
| Decision Date | 28 June 1982 |
| Docket Number | No. 80-5370,80-5370 |
| Citation | 680 F.2d 573 |
| Parties | 10 Fed. R. Evid. Serv. 1494 COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. CO PETRO MARKETING GROUP, INC., a California corporation; Harold D. Goldstein; and Michael Bradley Krivacek, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Anthony Murray, Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, Cal., for defendants-appellants.
David R. Merrill, Washington, D. C., argued, for plaintiff-appellee; Gregory C. Glynn, Washington, D. C., on brief.
Appeal from the United States District Court for the Central District of California.
Before CANBY and NORRIS, Circuit Judges and SMITH, District Judge. *
Co Petro Marketing Group, Inc., and individual appellants, Harold Goldstein and Michael Krivacek, 1 (Co Petro) appeal from an
order of the district court, 502 F.Supp. 806, permanently enjoining them from offering, selling, or otherwise engaging in futures contracts in petroleum products, in violation of §§ 4 and 4h of the Commodity Exchange Act, as amended, (the Act), 7 U.S.C. §§ 6, 6h (1976). Co Petro contends that the contracts it sold were not subject to the Act. Co Petro also appeals from the district court's award of relief ancillary to the permanent injunction. The district court appointed a receiver, ordered Co Petro to permit the receiver access to the firm's books and records, ordered an accounting, and generally ordered the disgorgement of unlawfully obtained funds. Co Petro further assigns as error the district court's taking judicial notice of three prior proceedings against defendant Goldstein. We affirm the district court's judgment that Co Petro was offering and selling "contracts of sale of a commodity for future delivery" (futures contracts) within the meaning of section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976). We also agree with the district court that Co Petro violated sections 4 and 4h of the Act, 7 U.S.C. §§ 6, 6h (1976), by trading these contracts otherwise than by or through a member of a board of trade which has been designated by the Commodity Futures Trading Commission as a contract market. Finally we affirm the award of ancillary relief and find no error in the district court's taking judicial notice of the three prior proceedings against defendant Goldstein.
Co Petro is licensed by the State of California as a gasoline broker. It operated a chain of retail gasoline outlets and also acted as a broker of petroleum products, buying and reselling in the spot market several hundred thousand gallons of gasoline and diesel fuel monthly. While part of its business operations involved the direct sale of gasoline to industrial, commercial, and retail users of gasoline 2, Co Petro also offered and sold contracts for the future purchase of petroleum products pursuant to an "Agency Agreement for Purchase and Sale of Motor Vehicle Fuel" (Agency Agreement).
Under the Agency Agreement, the customer (1) appointed Co Petro as his agent to purchase a specified quantity and type of fuel at a fixed price for delivery at an agreed future date, and (2) paid a deposit based upon a fixed percentage of the purchase price. Co Petro, however, did not require its customer to take delivery of the fuel. Instead, at a later specified date the customer could appoint Co Petro to sell the fuel on his behalf. If the cash price had risen in the interim Co Petro was to (1) remit the difference between the original purchase price and the subsequent sale price, and (2) refund any remaining deposit. If the cash price had decreased, Co Petro was to (1) deduct from the deposit the difference between the purchase price and the subsequent sale price, and (2) remit the balance of the deposit to the customer. A liquidated damages clause provided that in no event would the customer lose more than 95% of his initial deposit.
Co Petro marketed these contracts extensively to the general public through newspaper advertisements, private seminars, commissioned telephone solicitors, and various other commissioned sales agents. The Commodity Futures Trading Commission brought this statutory injunctive action under section 6c of the Act, 7 U.S.C. § 13a-1 (1976), seeking to enjoin Co Petro's sales of petroleum products pursuant to its Agency Agreements. The Commission's complaint generally charged and the district court held that Co Petro was in violation of the Act by offering and selling contracts of sale of commodities for future delivery outside of a licensed contract market.
Co Petro contends that the Commission lacks jurisdiction over transactions pursuant to its Agency Agreements because these agreements are "cash forward" contracts The exclusion for cash forward contracts originated in the Future Trading Act, Pub.L.No.67-66, § 2, 42 Stat. 187 (1921). Congress passed the Future Trading Act as a result of excessive speculation and price manipulations occurring on the grain futures markets. S.Rep.No.212, 67th Cong., 1st Sess. 4-5 (1921). See S.Rep.No.93-1131, 93d Cong., 2d Sess. 13 (1974), reprinted in (1974) U.S.Code & Ad.News 5843, 5854-55. To curb these abuses, the Future Trading Act imposed a prohibitive tax on all futures contracts with two exceptions. Section 4(a) of the Act exempted from the tax future delivery contracts made by owners and growers of grain, owners and renters of land on which grain was grown, and associations of such persons. 42 Stat. 187. Section 4(b) of the Act exempted from the tax future delivery contracts made by or through members of boards of trade which had been designated by the Secretary of Agriculture as contract markets. Id. During hearings on the bill that became the Future Trading Act, various witnesses expressed concern that the exemption for owners and growers of grain, owners and renters of land on which grain was grown, and associations of such persons, was too narrow. By its terms, this section might not exempt from the tax a variety of legitimate commercial transactions, such as cash grain contracts between farmers and grain elevator operators for the future delivery of grain. Hearings on H.R. 5676 Before the Senate Committee on Agriculture and Forestry, 67th Cong., 1st Sess. 8-9, 213-214, 431, 462 (1921). As a result, the Senate added language to section 2 of the bill, excluding "any sale of cash grain for deferred shipment" from the term "future delivery". 4 S.Rep.No.212, 67th Cong., 1st Sess. 1 (1921). There is no indication that Congress drew this exclusion otherwise than to meet a particular need such as that of a farmer to sell part of next season's harvest at a set price to a grain elevator or miller. 5 These cash forward contracts The exclusion was carried forward without change into the Grain Futures Act, Pub.L.No.67-331, § 2, 42 Stat. 998 (1922). 7 In 1936, Congress enacted the Commodity Exchange Act, Pub.L.No.74-675, 49 Stat. 1491 (1936). This Act expanded the scope of federal regulation to include certain specified commodities in addition to grain, id., § 3, and reworded the exclusion to except "any cash commodity for deferred shipment or delivery." Id., § 2. The Commodity Exchange Act also deleted the express exemption for owners and growers of grain, owners and renters of land, and associations of such persons. Congress considered the exemption redundant since section 2 of the Act, which excluded cash commodity contracts for deferred shipment or delivery, served to protect the same interests that had been protected by the exemption for owners and growers. H.R.Rep.No.421, 74th Cong., 1st Sess. 4-5 (1935). Although the Act has been amended numerous times since 1936, the language excluding cash commodities for deferred shipment or delivery has remained the same.
expressly excluded from regulation by section 2(a)(1) of the Act, 7 U.S.C. § 2 (1976). While section 2(a)(1) provides the Commission with regulatory jurisdiction over "contracts of sale of a commodity for future delivery," 3 it further provides that the term future delivery "shall not include any sale of any cash commodity for deferred shipment or delivery." Cash commodity contracts for deferred shipment or delivery are commonly known as "cash forward" contracts, while contracts of sale of a commodity for future delivery are called "futures contracts". See H.R.Rep.No.93-975, 93d Cong., 2d Sess. 129-30 (1974). The Act, however, sets forth no further definitions of the term "future delivery" or of the phrase "cash commodity for deferred shipment or delivery." The statutory language, therefore, provides little guidance as to the distinctions between regulated futures contracts and excluded cash forward contracts and, to our knowledge, no other court has dealt with this question. Where the statute is, as here, ambiguous on its face, it is necessary to look to legislative history to ascertain the intent of Congress. See United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981). Our examination of the relevant legislative history leads us to conclude that the Co Petro's Agency Agreements are not cash forward contracts within the meaning of the Act guarantee the farmer a buyer for his crop and provide the buyer with an assured price. Most important, both parties to the contracts deal in and contemplate future delivery of the actual grain. 6
A more recent House Report on the 1974 Amendments to the Act reconfirms the narrowness of the exclusion. H.R.Rep.No.93-975, 93d Cong., 2d Sess. 129-30 (1974). The House Report describes a typical cash transaction as involving, for example, a farmer who wants to convert 5,000 bushels of wheat into cash. He seeks a buyer such as a grain elevator for whom the wheat has "inherent value." The wheat has "inherent value" for the grain elevator because the elevator "is in contact with potential buyers such as the flour miller, and has the facilities to store, condition,...
To continue reading
Request your trial
-
Commodity Futures Trading Com'n v. Rosenberg
...at a set price to be delivered at some future date. See 7 U.S.C. § 2(i) (1999); see also Commodity Futures Trading Comm'n v. Co Petro Mktg. Group, Inc., 680 F.2d 573, 579-80 (9th Cir.1982); Cargill, Inc. v. Hardin, 452 F.2d 1154, 1156 (8th Cir.1971). Options trading involves contracts under......
-
Farmers Co-Op. Elevator v. Abels
...the original seller to the original contracting buyer, rather than a contract for mere speculation, citing CFTC v. Co Petro Mktg. Group, Inc., 680 F.2d 573, 579-80 (9th Cir.1982)), cert. denied sub nom. Schulze v. Commodity Futures Trading Comm'n, ___ U.S. ___, 117 S.Ct. 64, 136 L.Ed.2d 26 ......
-
Commodity Futures Trading Commission v. Rosenberg, Civil Action No. 97-2927 (D. N.J. 3/1/2000)
...at a set price to be delivered at some future date. See 7 U.S.C. § 2(i) (1999); see also Commodity Futures Trading Comm'n v. CO Petro Mktg. Group, Inc., 680 F.2d 573, 579-80 (9th Cir. 1982); Cargill, Inc. v. Hardin, 452 F.2d 1154, 1156 (8th Cir. 1971). Options trading involves contracts und......
-
Oeltjenbrun v. Csa Investors, Inc.
...is entered and the date delivery is due — without having to take physical delivery of the commodity. CFTC v. Co Petro Mktg. Group, Inc., 680 F.2d 573, 579-80 (9th Cir.1982). A futures contract provides that a specific amount of the commodity will be "delivered" to the buyer at a specified d......