Cardoza v. COM. FUTURES TRADING COM'N, 83 C 3671.

Citation588 F. Supp. 621
Decision Date26 March 1984
Docket NumberNo. 83 C 3671.,83 C 3671.
PartiesKaren E. CARDOZA, Plaintiff, v. COMMODITY FUTURES TRADING COMMISSION and Board of Trade of the City of Chicago, Defendants.
CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)

Matthias A. Lydon, John A. Dienner, III, Pierce, Lydon, Griffin & Montana, Chicago, Ill., for plaintiff.

David R. Merrill, CFTC, Washington, D.C., James A. McGurk, CFTC, Chicago, Ill., for defendants.


ASPEN, District Judge:

Plaintiff Karen E. Cardoza ("Cardoza") has sued the Commodity Futures Trading Commission ("CFTC") and the Board of Trade of the City of Chicago ("the Board of Trade"). Presently before the Court are the CFTC's motion to dismiss or for summary judgment and the Board of Trade's motion to dismiss. For reasons set forth below, the CFTC's motion for summary judgment is granted; the Board of Trade's motion to dismiss is also granted.

Cardoza held a floor activity permit with the Board of Trade, which enabled her to trade commercial paper contracts. She began trading on June 27, 1978, both in person and through other brokers. To encourage use of floor activity permits, Board of Trade rules provide that permit holders may exercise an option to purchase an Associate Membership at a reduced price if they trade at least one commercial paper contract on 125 different days for each of the three years of the permit's duration. Shortly after she began trading, the Board of Trade informed her that only trades personally executed by the permit holder complied with its Rule 225.00. Cardoza did not personally trade one contract a day for 125 days during 1978.

Cardoza tried to exercise her option to purchase an Associate Membership in 1981, but the Board of Trade refused to grant her the membership. Cardoza appealed the Board's decision to the CFTC. On July 28, 1982, the CFTC declined to review the Board of Trade's action. Cardoza claims that the Board of Trade's actions violated contract rights established by the Board's rules, and that the CFTC acted arbitrarily and capriciously by refusing to review and reverse the Board of Trade's decision. She invokes 28 U.S.C. § 1331 and the Administrative Procedure Act, 5 U.S.C. § 701 et seq., and would have this Court review the CFTC's decision not to review the Board of Trade's actions. She also requests us to enjoin the CFTC to hear her appeal of the Board's conduct,1 as well as enjoin the Board to allow her to exercise her option to purchase an Associate Membership and to grant her a one year extension of her floor activity permit. Finally, Cardoza presents a pendent claim for breach of contract against the Board of Trade.

Certain well established principles govern our consideration of these motions. Parties seeking summary judgment must demonstrate the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-61, 90 S.Ct. 1598, 1609-10, 26 L.Ed.2d 142 (1970); Patterson v. General Motors Corp., 631 F.2d 476, 482 (7th Cir.1980), cert. denied, 451 U.S. 914, 101 S.Ct. 1988, 68 L.Ed.2d 304 (1980). Courts are to view evidence submitted by the movant in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). In considering motions to dismiss, we take as true all material allegations of fact contained in Cardoza's complaint. A complaint should not be dismissed, moreover, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

Cardoza's Claim Against the CFTC

Cardoza requests that we order the CFTC to review the Board's decision not to allow her to purchase an Associate Membership. She thus complains of a "disciplinary action" by the Board of Trade, for regulations promulgated by the CFTC define "disciplinary action" to include any action which denies an individual access to an exchange. 17 C.F.R. § 9.2(a) (1983).2 The CFTC suggests that its decision not to review disciplinary actions by an exchange is not subject to judicial review. Such a decision, according to the CFTC, constitutes "agency action committed to agency discretion by law" under 5 U.S.C. § 701(a)(2). According to 7 U.S.C. § 12c(2), the CFTC may

in its discretion and in accordance with such standards and procedures as it deems appropriate, review any decision by an exchange whereby a person is suspended, expelled, otherwise disciplined or denied access to the exchange. In addition, the Commission may, in its discretion and upon application of any person who is adversely affected by any other exchange action, review such action.

Review of agency action will not be cut off unless there is a persuasive reason to believe that Congress intended such a result. Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681 (1967). We must consider whether Congress expressly or impliedly precluded judicial review. Barlow v. Collins, 397 U.S. 159, 165, 90 S.Ct. 832, 837, 25 L.Ed.2d 192 (1970). Only upon a showing of clear and convincing evidence of contrary legislative intent should access to judicial review be restricted. Abbott Laboratories, 387 U.S. at 141, 87 S.Ct. at 1511; Board of Trade v. Commodity Futures Trading Commission, 605 F.2d 1016, 1022 (7th Cir.1979), cert. denied, 446 U.S. 928, 100 S.Ct. 1866, 64 L.Ed.2d 281 (1980).

In the instant case, there is an absence of clear legislative intent to limit judicial review of CFCT decisions not to review exchange disciplinary actions. The CFTC offers no clear and convincing legislative history to support its position that decisions to deny review are not judicially reviewable. Secretary of Labor v. Farino, 490 F.2d 885, 888 (7th Cir.1973).3 Thus, this case distinguishable from Board of Trade v. Commodity Futures Trading Commission, 605 F.2d 1016 (7th Cir.1979), cert. denied, 446 U.S. 928, 100 S.Ct. 1866, 64 L.Ed.2d 281 (1980), where the Seventh Circuit held, based upon statutory language, the structure of the enforcement provisions of the Act, the Act's legislative history and the nature of the Commission's determination, that emergency determinations pursuant to 7 U.S.C. § 12a(9) were precluded from judicial review by 5 U.S.C. § 701(a)(2). We therefore hold that the CFTC's decision not to review disciplinary action by an exchange is subject to judicial review.

Next we must determine the scope of judicial review. If such review is appropriate, as we have decided, the CFTC and Cardoza agree upon the scope of such judicial review to be applied by this Court in judging the CFTC's denial of review of the Board of Trade's disciplinary action against Cardoza. Discretionary agency action shall be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). This type of review is quite narrow. We are to consider whether the CFTC's decision is within the range of its authority and discretion, and whether there has been a clear error of judgment. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415-16, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971); Secretary of Labor v. Farino, 490 F.2d 885, 889-90 (7th Cir. 1973).

Section 8c of the Commodity Exchange Act, 7 U.S.C. § 12c, grants the CFTC broad authority to review disciplinary actions by exchanges or to decline to review such actions.4 See also Commodity Futures Trading Commission v. Polonyi, 531 F.Supp. 18, 19 (W.D.Mo.1981). Pursuant to this section, the CFTC has promulgated rules for the review of exchange actions:

the determination to review any exchange disciplinary or other adverse action is a matter committed to the Commission's discretion. In determining whether to grant or deny review of any exchange disciplinary or other adverse action, the Commission may consider such factors as:
(a) Whether the issues presented involve an important policy under the Act;
(b) The extent to which a review proceeding would interfere with the efficient disposition of other Commission business;
(c) The precedential value of a Commission decision on the issues presented;
(d) Whether there is substantial divergence among the exchanges in their treatment of similar matters;
(e) Whether it appears from the application or other information available to the Commission that the exchange action may not have been taken in accordance with any of the standards contained in § 9.37(b); or
(f) Any other factors which the Commission deems relevant.

17 C.F.R. § 9.30 (1982). Section 9.37(b) provides that:

the standards for Commission review of the disciplinary action or other adverse action shall be:
(1) Whether the exchange disciplinary action or other adverse action was taken in accordance with the rules of the exchange;
(2) Whether fundamental fairness was observed in the conduct of the disciplinary proceeding or the proceeding resulting in other adverse action;
(3) Whether there is substantial evidence in the record to support a finding that there has been a violation of the rules of the exchange or that the exchange was otherwise justified in taking the disciplinary or other adverse action;
(4) Whether the disciplinary or other adverse action taken by the exchange was reasonable in light of all circumstances; and
(5) Whether the disciplinary action or other adverse action otherwise accords with the policies of the Act.

17 C.F.R. § 9.37(b). Cardoza asserts that if any of the standards set forth in § 9.37(b) are met, then the CFTC must address the merits of a petition for review. She adds that her petition for review put in issue several of the § 9.37(b) factors.

The CFTC declined to review the Board of Trade's disciplinary action against Cardoza. In a letter to Cardoza's attorney, the CFTC explained its reasoning as follows:


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