Bache Halsey Stuart, Inc. v. Hunsucker

• Decision Date: 07 November 1978
• Docket Number: No. 7726SC916,7726SC916
• Citation: 248 S.E.2d 567,38 N.C.App. 414
• Court: North Carolina Court of Appeals
• Parties: BACHE HALSEY STUART, INC. v. George E. HUNSUCKER, Jr.

Page 567

248 S.E.2d 567

38 N.C.App. 414

BACHE HALSEY STUART, INC. v. George E. HUNSUCKER, Jr.

No. 7726SC916.

Court of Appeals of North Carolina.

Nov. 7, 1978.

Fleming, Robinson & Bradshaw by C. Richard Rayburn, Jr., Charlotte, for plaintiff-appellee.

Grier, Parker, Poe, Thompson, Bernstein, Gage & Preston, by Gaston H. Gage, Charlotte, for defendant-appellant.

MORRIS, Judge.

The question defendant has presented to this Court is whether his second and third counterclaims allege a cause of action sufficient to withstand the plaintiff's motion to dismiss. G.S. 1A-1, Rule 12(b)(6). Defendant argues that plaintiff's unauthorized sale of futures contracts, unauthorized purchases of contracts to close out defendant's position, and subsequent liquidation of his cash and margin accounts constituted violations of the North Carolina unfair trade practices statute, G.S. 75-1.1, entitling him to treble damages and attorney's fees under G.S. 75-16 and G.S. 75-16.1. Plaintiff argues that the commodities brokerage business is not in "trade or commerce" as our Supreme Court has interpreted the coverage of the statute; and even if it is within the statute, it is not a violation of the standards imposed by that statute. Both plaintiff and defendant rely on the recent decision in Edmisten, Attorney General v. Penney Co., 292 N.C. 311, 233 S.E.2d 895 (1977). For reasons discussed below, we find that decision not dispositive of this case.

The parties in their briefs point out that the commercial activity surrounding the commodities futures exchanges is a field highly regulated by federal statutes and administrative regulations under the Commodity Exchange Act, 7 U.S.C.A. § 1, Et seq. Pursuant to the Commodity Futures Trading Commission Act of 1974, Pub.L. No. 93-463, 88 Stat. 1389, Et seq., which amended the Commodity Exchange Act, a regulatory commission was established and entrusted with enforcing the requirements and proscriptions of that Act. The jurisdiction of the Commission established by that Act is set out in 7 U.S.C.A. § 2 (Supp.1978).

" * * * Provided, That the Commission shall have exclusive jurisdiction with respect to accounts, agreements (including any transaction which is of the character of, or is commonly known to the trade as, an 'option', 'privilege', 'indemnity', 'bid,' 'offer', 'put', 'call', 'advance guaranty', or 'decline guaranty'), and transactions involving contracts of sale of a commodity for future delivery, traded or executed on a contract market designated pursuant to section 7 of this title or any other board of trade, exchange, or market, and transactions subject to regulation by the Commission pursuant to section 15a of this title: And provided further, That, except as hereinabove provided, nothing contained in this section shall (i) supersede or limit the jurisdiction at any time conferred on the Securities and Exchange Commission or other regulatory authorities under the laws of the United States or of any State, or (ii) restrict the Securities and Exchange Commission and such other authorities from carrying out their duties and responsibilities in accordance with such laws. Nothing in this section shall supersede or limit the jurisdiction conferred on courts of the United States or any State. * * * "

The Act governs the conduct of parties involved in the commodities markets. It makes it unlawful for the employee of any member of a board of trade or commodity exchange "to cheat or defraud or attempt to cheat or defraud" a customer. 7 U.S.C.A. § 6b (Supp.1978). The federal courts, in applying the Act, have held "(t)here is now no doubt that it is a violation of the Commodity Exchange Act for an account executive in the commodity brokerage business intentionally to carry on trading transactions not authorized by his customer." Haltmier v. Commodity Futures Trading Commission, 554 F.2d 556, 560 (2d Cir. 1977). See e. g., Silverman v. Commodity Futures Trading Commission, 549 F.2d 28 (7th Cir. 1977). It has also been held by an administrative agency that deliberate, wilful, and unauthorized trading by a commodities broker for the account of his customer violates 7 U.S.C.A. § 6b. We also note that the statute provides not only for suspension of brokers for violations of the Act, 7 U.S.C.A. § 9 (Supp.1978), it also provides a complete administrative procedure for hearing customer complaints and provides for the award of monetary damages. 7 U.S.C.A. § 18 (Supp.1978). There is full right of review to the appropriate United States Court of Appeals. Id. The exclusive nature of that procedure for redress against market members for damages resulting from a violation of the Act is apparent from the cases dismissing actions for failure to exhaust administrative remedies. Bartels v. International Commodities Corp., 435 F.Supp. 865 (D.C.Conn.1977); Consolo v. Hornblower & Weeks-Hemphill, Noyes, 436 F.Supp. 447 (N.D.Ohio 1976).

In a very recent case the Supreme Court of Arkansas addressed the question, on demurrer, whether that State's securities commissioner could maintain a suit against a commodities broker to enjoin certain activity alleged to violate state securities laws. International Trading, Ltd. v. Bell, Ark., 556 S.W.2d 420 (1977), Cert. denied, 556 S.W.2d 420 (1978). The Arkansas Court held that the state regulation of commodities brokers was pre-empted by the Commodity Exchange Act as amended by the Commodity Futures Trading Act as found in 7 U.S.C.A. § 2, and that the state court had no jurisdiction to issue an injunction based on the state securities act. The United States Supreme Court denied certiorari.

The International Trading, Ltd. case arose under a state securities statute. The provisions of that statute sought to be enforced against the appellant were intended to prevent fraud or deceit upon purchasers and investors in commodities futures. Ark.Stat.Anno., § 67-1236(a) (Repl.1966). The remedy sought was an injunction to prevent appellant's continued "boiler room" like sales campaign tactics. The complaint alleged schemes to defraud and untrue statements of material fact. The Arkansas Court found that the Arkansas securities commissioner and the trial court were without authority to regulate conduct in the field of commodities futures in the face of a pervasive federal regulatory scheme and clear congressional intent to vest in the federal regulatory commission exclusive jurisdiction.

International Trading, Ltd. is instructive on the delicate balance which must be struck between the traditional exercise of state police powers and the regulation on the national level of activity in interstate commerce. That Court found that although the enforcement of state regulatory acts would be precluded, traditional private causes of action such as fraud would be less likely to interfere with the federal scheme and thus would not necessarily be pre-empted. This observation is supported by and indicates the purpose of this language in 7 U.S.C.A. § 2: "Nothing in this section shall supersede or limit the jurisdiction conferred on courts of the United States or any State." Other courts have also suggested that if a customer's claim arises out of a violation of the common law he may take his claim to state court. Arkoosh v. Dean Witter & Co., Inc., 415 F.Supp. 535 (D.Neb.1976); E. F. Hutton Co., Inc. v. Lewis, 410 F.Supp. 416 (E.D.Mich.1976).

We consider International Trading, Ltd. to be persuasive authority in our construction of the scope of G.S. 75-1.1. Although the case Sub judice is a private action under an unfair trade practices act, the present relief sought and the implications of a finding that plaintiff's conduct constitutes an unfair act or practice could result in state regulation no less intrusive on the federal scheme than that struck down in Arkansas. A finding that plaintiff's conduct violated G.S. 75-1.1 would expose it to a host of legislatively created...