Commodity Futures Trading Commission v. Hunt

Decision Date15 February 1979
Docket Number77-2086 and 77-2087,Nos. 77-1672,s. 77-1672
Citation591 F.2d 1211
PartiesCOMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, Cross-Appellee, v. Nelson Bunker HUNT et al., Defendants-Appellees, Cross-Appellants.
CourtU.S. Court of Appeals — Seventh Circuit

Richard E. Nathan, Washington, D. C., for plaintiff-appellant, cross-appellee.

John V. Ryan, III, Chicago, Ill., for defendants-appellees, cross-appellants.

Before SWYGERT, Circuit Judge, MARKEY, Chief Judge, * and TONE, Circuit Judge.

SWYGERT, Circuit Judge.

This case presents several issues arising out of a complaint brought by the Commodity Futures Trading Commission, pursuant to the Commodity Exchange Act, against seven members of the Hunt family and an affiliated company. The complaint was instituted by the Commission on April 28, 1977 to compel the defendants to comply with limits established by the Commission on the speculative position that any individual or group may have in soybean futures contracts. See Commodity Exchange Act, § 4a(1), 7 U.S.C. § 6a(1) (Supp.1978); Rule 150.4, 17 C.F.R. § 150.4 (1977).

The Commission's complaint alleges that from at least January 17, 1977 and continuing to the commencement of the court action, two brothers, Nelson Bunker Hunt and William Herbert Hunt, five of their children, and a corporation they control, had been exceeding collectively the limit of three million bushels that had been set for soybean futures contracts. The complaint sought preliminary and permanent injunctions against future violations of these limits, the disgorgement of any profits the Hunts had obtained as a result of their unlawful conduct, and an order requiring the Hunts to liquidate all existing positions in soybean futures in excess of the speculative limits. Contemporaneous with the filing of the complaint, the Commission, pursuant to section 8a(6) of the Commodity Exchange Act, 7 U.S.C. § 12a(6) (1978), publicly disclosed the soybean trading activity and positions of the Hunts.

During the first week in May 1977 the Hunts filed an answer to the Commission's complaint in which they sought to enjoin the Commission from making any further disclosures of their soybean positions. The Hunts also asserted claims for money damages from the Commission and several of its employees for injuries incurred as a result of the Commission's publication of their trading positions. On May 17, 1977 the Hunts moved for a preliminary injunction prohibiting any further disclosure of their soybean trading activity. The district court, on May 19, 1977, enjoined the Commission from making public the Hunts' holdings, purchases, sales or positions in the futures market. The Commission appealed this order on May 20, 1977.

On September 28, 1977, the district court, after hearings on the Commission's motion for a preliminary injunction, issued a memorandum opinion accompanied by findings of fact and law, and entered a judgment order. Commodity Futures Trading Comm. v. Hunt, No. 77-C-1489 (N.D.Ill., Sept. 28, 1977). The lower court concluded that the Hunts, acting in concert, had acquired soybean futures in excess of the three million bushel limit prescribed by regulation, thereby violating Rule 150.4 and section 4a(1) of the Commodity Exchange Act. The court, however, denied the Commission's motion for an order enjoining future violations of the limits and rejected the Commission's request for disgorgement of the Hunts' illegal profits. The lower court also rejected the counterclaim and third-party claims brought by the Hunts.

The Commission appealed from the lower court's decision, arguing that both the injunction and the ancillary relief of disgorgement should have been granted. The Hunts cross-appealed, seeking to overturn the district court's declaratory judgment that the Hunts had violated the speculative limit, and challenging the validity of the regulation itself. The Hunts also challenged the dismissal of their counterclaim and third-party claims. The Commission's appeal and the Hunts' cross-appeal were consolidated in November 1977 with the Commission's earlier appeal of the lower court's injunction against publication of trading information regarding the Hunts.

I. Validity of the Speculative Limit Regulation: Rule 150.4

Section 4a(1) of the Commodity Exchange Act, 7 U.S.C. § 6a(1), authorizes the Commodity Futures Trading Commission to set commodity trading limits. Congress concluded that excessive speculation in commodity contracts for future delivery can cause adverse fluctuations in the price of a commodity, and authorized the Commission to restrict the positions held or trading done by any individual person or by certain groups of people acting in concert. 1 Pursuant to this statutory authority, the Commodity Exchange Authority, the predecessor of the Commodity Futures Trading Commission, established trading limits on a variety of commodities, including soybeans. In 1951 the Authority set the soybean speculative position limit at one million bushels, 16 Fed.Reg. 8107 (Aug. 13, 1951). The Authority raised the limit to two million bushels in 1953, 18 Fed.Reg. 7230-31 (Nov. 14, 1953), and to three million bushels in 1971, 36 Fed.Reg. 1263 (June 6, 1971). This three million bushel position limit, Regulation 150.4, 17 C.F.R. § 150.4 (1977), 2 was in effect at the time of the Hunt family soybean transactions.

The Hunts present multiple challenges to the soybean trading regulation, contending that there were procedural defects in its adoption and that it is an arbitrary and capricious exercise of administrative authority. The essence of the Hunts' attack on the validity of the regulation is their substantive contention that there is no connection between large scale speculation by individual traders and fluctuations in the soybean trading market.

The procedures used in the adoption of the speculative limits contemplated in the Commodity Exchange Act § 4a(1), 7 U.S.C. § 6a(1), must satisfy the rules of the Administrative Procedure Act regarding informal agency rulemaking. 5 U.S.C. § 553. See United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972); United States v. Florida East Coast RR, 410 U.S. 224, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973). These rules were followed by the Commodity Exchange Authority when it raised the soybean trading limit from two to three million bushels. The Authority published the proposed changes in the Federal Register, 36 Fed.Reg. 1340 (1971), and there was opportunity for written comment. In addition, the Authority held a hearing on the proposal. The agency considered the material presented and ultimately amended Regulation 150.4 by raising the limit. 3

The Hunts also claim that Regulation 150.4 is invalid and unenforceable because it represents an arbitrary and capricious decision by the Commodity Exchange Authority. They argue that the Authority failed to consider relevant factors in its decision to set the soybean trading limit at three million bushels. The substance of the Hunts' argument is that the Authority made no analysis of the relationship between the size of soybean price changes and the size of the change in the net positions of large traders. They argue that there is no direct relationship between these phenomena, and, therefore, the regulation limiting the positions and the trading of the large soybean traders is unreasonable.

The appropriate standard for reviewing agency decision-making pursuant to section 553 of the Administrative Procedure Act is described by the Supreme Court in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971):

Section 706(2)(A) requires a finding that the actual choice made was not "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A) (1964 ed., Supp. V). To make this finding the court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. . . . Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.

Id. at 416, 91 S.Ct. at 823. See also American Meat Inst. v. Environmental Protection Agency, 526 F.2d 442, 452-53 (7th Cir. 1975). In assessing whether the Commodity Exchange Authority's three million bushel limit was an arbitrary or capricious means to achieve the congressionally articulated purpose of preventing excessive speculation, it must be remembered that the fact that "some other remedial provision might be preferable is irrelevant." Mourning v. Family Publications Service, Inc., 411 U.S. 356, 371, 93 S.Ct. 1652, 1662, 36 L.Ed.2d 318 (1973). In situations in which

reasonable minds may differ as to which of several remedial measures should be chosen, courts should defer to the informed experience and judgment of the agency to whom Congress delegated appropriate authority. Northwestern Elec. Co. v. FPC, 321 U.S. 119, 124, 64 S.Ct. 451, 88 L.Ed. 596 (1944); National Broadcasting Co. v. United States, 319 U.S. 190, 224, 63 S.Ct. 997, 87 L.Ed. 1344 (1943); American Telephone & Telegraph Co. v. United States, 299 U.S. 232, 236, 57 S.Ct. 170, 81 L.Ed. 142 (1936).

Id. at 371-72, 93 S.Ct. at 1662.

The Hunts point to a variety of sources to substantiate their claim that the soybean position and trading limit is arbitrary and capricious. For the most part they allege that the Commodity Exchange Authority failed to consider the relevant factors in reaching its determination. The Hunts cite the Ham Study of 1971, the Imel Study of 1973, the testimony of their expert witness, Dr. T. A. Hieronymus, and even recent statements by a commissioner of the Commodities Futures Trading Commission questioning the three million bushel limit....

To continue reading

Request your trial
157 cases
  • Fed. Trade Comm'n v. Qualcomm Inc.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
    • 21 Mayo 2019
    ...of the likelihood of future violations." CFTC v. Yu , 2012 WL 3283430, at *4 (N.D. Cal. Aug. 10, 2012) (quoting CFTC v. Hunt , 591 F.2d 1211, 1220 (7th Cir. 1979) ). In terms of the scope of any injunction, the United States Supreme Court instructs "that a remedies decree in an antitrust ca......
  • Commodity Futures Trading Com'n v. Rosenberg, Civil Action No. 97-2927.
    • United States
    • United States State Supreme Court (New Jersey)
    • 1 Marzo 2000
    ...violation of [the CEA] or any rule, regulation, or order thereunder." 7 U.S.C. § 13a-1 (1993);36 see also Commodity Futures Trading Comm'n v. Hunt, 591 F.2d 1211, 1219 (7th Cir.1979). The District Courts also have jurisdiction to enter a permanent injunction "upon a proper showing." 7 U.S.C......
  • United States v. LOC. 560, INTERN. BRO. OF TEAMSTERS, Civ. A. No. 82-689.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • 8 Marzo 1984
    ...in irreparable harm to the membership of Local 560, its contract employers, and the public. See Commodity Futures Trading Commission v. Hunt, 591 F.2d 1211, 1220 (7th Cir. 1979); United States v. Spectro Foods Corp., 544 F.2d 1175, 1180 (3d Cir.1976); Securities and Exchange Commission v. M......
  • Martinez v. Winner
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • 30 Julio 1982
    ...(N.D.Ill.1981); see Blackmar v. Guerre, 342 U.S. 512, 514-515, 72 S.Ct. 410, 411, 96 L.Ed. 534 (1951); Commodity Futures Trading Comm'n v. Hunt, 591 F.2d 1211, 1224 (7th Cir. 1979); Sheehan v. Army and Air Force Exchange Service, 619 F.2d 1132, 1136-1137 (5th Cir. 1980); Schenker v. U. S. P......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT