Commodity Futures Trading Commission v. British American Commodity Options Corp 77 96

• Decision Date: 08 August 1977
• Docket Number: No. A-86,A-86
• Citation: 434 U.S. 1316,98 S.Ct. 10,54 L.Ed.2d 28
• Parties: COMMODITY FUTURES TRADING COMMISSION et al., Applicants, v. BRITISH AMERICAN COMMODITY OPTIONS CORP. et al. (77-96)
• Court: U.S. Supreme Court

434 U.S. 1316

98 S.Ct. 10

54 L.Ed.2d 28

COMMODITY FUTURES TRADING COMMISSION et al., Applicants,

v BRITISH AMERICAN COMMODITY OPTIONS CORP. et al.

No. A-86 (77-96).

Aug. 8, 1977.

Mr. Justice MARSHALL, Circuit Justice.

The Solicitor General, on behalf of the Commodity Futures Trading Commission and its members, has applied to me as Circuit Justice to vacate stays of mandate entered by the United States Court of Appeals for the Second Circuit pending applications for certiorari by the respondents herein. The stays have the consequence, for their limited duration, of preventing a Commission regulation that has yet to be enforced, Rule 32.6, 17 CFR § 32.6 (1977), from going into effect. The regulation, promulgated under the Commodity Futures Trading Commission Act of 1974 (CFTA), 88 Stat. 1389, 7 U.S.C. §§ 1-22 (1970 ed. and Supp. V), would require commodity options dealers to segregate in special bank accounts 90% of the payments made by each of their customers until such time as the customer's rights under his options are exercised or expire. Having examined the written submissions of the Solicitor General and the responses thereto, I have concluded that this case does not present the exceptional circumstances required to justify vacation of the stays.

I

Prior to the enactment of CFTA, trading in options on certain agricultural commodities was prohibited under § 4c of the Commodity Exchange Act, 49 Stat. 1494, 7 U.S.C. § 6c, but options transactions in other commodities were wholly unregulated. Unsound and fraudulent business practices developed with respect to the unregulated options, and at least one major dealer went bankrupt, causing substantial losses to investors. In order to prevent such abuses in the future, CFTA created the Commission as an independent regulatory body and gave it the power to prohibit or regulate options transactions in the previously unregulated commodities. See 7 U.S.C. § 6c(a) (1970 ed., Supp. V).

Pursuant to this authority, the Commission immediately adopted an antifraud rule, and on November 24, 1976, after informal rulemaking proceedings, the Commission promulgated a comprehensive set of regulations that included the segregation requirement at issue in this application. The latter set of regulations also included provisions requiring options dealers (1) to be registered with the Commission; (2) to maintain certain minimum amounts of working capital; and (3) to provide customers with disclosure statements setting forth information about commissions and fees and explaining the circumstances under which customers would be able to make a profit. The segregation requirement was to go into effect on December 27, 1976; the other regulations were to take effect variously on December 9, 1976, and January 17, 1977.

Respondents, the National Association of Commodity Options Dealers (NASCOD) and a number of its members, brought suit in the United States District Court for the Southern District of New York, seeking pre-enforcement review of the November 24 regulations. The Commission defended the segregation requirement as a reasonable means of protecting investors in the event that a dealer holding

options on their behalf becomes insolvent or otherwise unable to execute the options; presumably, the investors could at least recoup most of their initial outlay from the segregated fund. But respondents argued that the rule would drive them out of business;

announced on April 4, 1977, and rehearing was denied on June 6, 1977. Respondents then moved the Court of Appeals, under 28 U.S.C. § 2101(f) and Fed.Rule App.Proc. 41(b), to stay its mandate pending applications to this Court for certiorari. On June 14, 1977, the members of the panel that had decided the case granted stays to respondents NASCOD, British American Commodity Options Corp. (British American), and Lloyd, Carr & Co. (Lloyd, Carr), conditional in the cases of British American and Lloyd, Carr on the posting of bonds in the amounts suggested in their motion $250,000 for British American and $100,000 for Lloyd, Carr. On June 15, the Commission moved the Court of Appeals, to reconsider the amounts of the bonds set in the June 14 order, but this motion was denied by the panel on June 24. On July 8 the panel granted stays of mandate to four additional NASCOD members, again conditional on posting of security, and this time the court ordered amounts greater than had been suggested with respect to three of the four firms. The instant application to vacate the stays entered on June 14 and July 8 was filed on July 25.

II

There is no question as to the power of a Circuit Justice to dissolve a stay entered by a court of appeals. See, e. g., New York v. Kleppe, 429 U.S. 1307, 1310, 97 S.Ct. 4, 5, 50 L.Ed.2d 38 (1976) (Marshall, J., in chambers); Holtzman v. Schlesinger, 414 U.S. 1304, 1308, 94 S.Ct. 1, 4, 38 L.Ed.2d 18 (1973) (Marshall, J., in chambers); Meredith v. Fair, 83 S.Ct. 10, 9 L.Ed.2d 43 (1962) (Black, J., in chambers). "But at the same time the cases make clear that this power should be exercised with the greatest of caution and should be reserved for exceptional circumstances." Holtzman v. Schlesinger, supra, at 1308, 94 S.Ct., at 4. Since the Court of Appeals was quite familiar with this case, having rendered a thorough decision on the merits, its determination that stays were warranted is deserving of great weight, and should be overturned only if the court can be said to have abused its discretion. See, e. g., 414 U.S., at 1305, 94 S.Ct., at 2; Magnum Import Co. v. Coty, 262 U.S. 159, 163-164, 43 S.Ct. 531, 532-533, 67 L.Ed. 922 (1923).

It is well established that the principal factors to be considered in evaluating the propriety of a stay pending application for certiorari and, correspondingly, whether to vacate such a stay granted by a court of appeals, are the "balance of equities" between the opposing parties, and the probability that this Court will grant certiorari. See, e. g., Beame v. Friends of Earth, 434 U.S. 1310, 98 S.Ct. 4, 54 L.Ed.2d 23 (1977) (Marshall, J., in chambers); Holtzman v. Schlesinger, supra, 414 U.S. at 1308-1311, 94 S.Ct., at 4-5; Meredith v. Fair, supra. The relative weight of these factors will, of course, vary according to the facts and circumstances of each case.

As to the equities here, it is important to note that the stays entered by the Court of Appeals merely preserve the regulatory status quo pending final action by this Court. Options dealers were never in the past required to segregate...