UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
In the Matter of
CFTC Docket No. 97-5
|ADM INVESTOR SERVICES, INC.||ORDER|
Archer-Daniels-Midland ("ADM") petitions for Commission consent to its submission of applications for registration as an introducing broker ("IB") on behalf of two wholly owned subsidiaries.1 ADM had these subsidiaries withdraw their IB registrations in 1997 as part of the settlement of a Commission registration action against a third wholly owned subsidiary that was registered as a futures commission merchant ("FCM").2 Under the terms of that settlement, ADM's IB subsidiaries must remain unregistered until May 16, 2001. Given this context, ADM's petition essentially seeks to amend the Commission's May 1997 Settlement Order so that its IB subsidiaries may seek registration about nine months earlier than otherwise permissible.
The Division of Enforcement ("Division") opposes this request, arguing that the reasons that ADM offers in support of its petition are insufficient to meet the "grievous wrong" standard that the Commission has used to evaluate requests for post judgment relief. See, e.g., In re Dickstein, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,412 at 42,838 (May 30, 1995). It urges us to conclude that ADM has not made the type of showing that justifies revision of the bargain it struck with the Commission in 1997.
As explained more fully below, we hold
that application of the "grievous wrong" standard to
petitions for post judgment relief is no longer appropriate.
Nevertheless, we conclude that ADM's showing is insufficient even
under a more flexible standard focusing on the equity of continuing to
give the sanctions imposed in a Commission decision prospective
application. Consequently, we deny ADM's petition for
As noted above, the May 1997 Settlement Order imposed restrictions on the registration of one of ADM's FCM subsidiaries.3 For the most part, the restrictions: (1) prohibited anyone involved with ADM's wrongdoing from serving as an employee, officer, or director of the FCM subsidiary; (2) prohibited the employment of anyone also employed by ADM; (3) required special supervisory safeguards relating to futures and options trades by ADM, and (4) required that certain types of notice be provided to all officers and department heads. The Order stated that all but the first restriction "shall remain in effect until four years after the date" the Commissioned issued it.
Note three to the Settlement Order
included a representation by ADM's FCM subsidiary that:
[B]y no later than thirty days following the date of [the Settlement Order], ADM/Growmark River Systems, Inc. ("Growmark"), and Tabor Grain Co. ("Tabor") shall each withdraw from registration with the Commission as [IBs]. ADMIS further represents and agrees that, pending such withdrawal of registration, neither Growmark nor Tabor shall conduct any futures or options trading, or carry any futures or options accounts, for, or on behalf of, ADM. In the event that Growmark or Tabor fails to withdraw from registration, ADMIS agrees and understands that the Commission, in its sole discretion, may [commence a statutory disqualification proceeding] against Growmark or Tabor, respectively, . . . based, in whole or in part, on the allegations and issues raised in this matter.
Settlement Order at 2, n.3.4
In April 2000, ADM sent a letter to the Commission's Chairman requesting the Commission's consent to its submission of applications for IB registration on behalf of the IB subsidiaries. Noting the terms of the May 1997 Settlement Order, ADM explained that: (1) the IB subsidiaries had withdrawn from registration in 1997; (2) the IB subsidiaries were in an excellent position to assist farmers in understanding, developing, and implementing risk management strategies; (3) ADM's Compliance agreement with the Department of Agriculture relating to the conduct underlying its felonies had expired; (4) ADM and its subsidiaries had fully complied with both the terms of the Settlement Order and its Compliance agreement; and (5) the conduct that precipitated the Settlement Order did not involve either the futures markets or the IB subsidiaries. The Chairman referred ADM's letter to the General Counsel for response.
The General Counsel's response advised ADM that he interpreted its letter as a request to amend the terms of the May 1997 Settlement Order. Consequently, he advised ADM to file a petition for relief addressing the "grievous wrong" standard that we had applied in In re Eggum, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,359 (CFTC July 9, 1998) reconsidered 1998 WL 904815 (CFTC Dec. 21, 1998). ADM replied by letter dated May 9, 2000 stating that it was resubmitting its letter to the Chairman as its "petition for relief in this matter."
On May 25, 2000, the Division filed its opposition. Aside from arguing that ADM had not established the type of circumstances that warrant relief under the "grievous wrong" standard, the Division noted that granting the requested relief would undermine the restrictions imposed on ADM's FCM subsidiary in the May 1997 Settlement Order.
Prior to considering ADM's showing in support of its petition, we must determine the proper standard for evaluating that showing. As noted above, since 1995 we have applied the "grievous wrong" standard drawn from U.S. v. Swift & Co., 286 U.S. 106, 119 (1932) ("Swift"). The recent trend in the United States Courts of Appeals discussing the Swift standard, however, has been to limit its use to an ever-narrowing class of cases. See, e.g., Building and Constr. Trades v. N.L.R.B., 64 F.3d 880 (3rd Cir. 1995) ("Building Trades"); Patterson v. Newspaper & Mail Deliverers' Union, 13 F.3d 33 (2nd Cir. 1993); In re Hendrix, 986 F.2d 195 (7th Cir. 1993). Given this trend, we believe it is appropriate to adjust our approach to petitions for post judgment relief so that the standard we apply is more comparable to that a United States Court of Appeals would apply to a similar petition.
In our experience, most of the petitions for post judgment relief that we have entertained involve some type of forward-looking sanction such as a limitation on registration or trading on markets regulated by the Commission.5 Consequently, the portion of Rule 60(b) of the Federal Rules of Civil Procedure dealing with forward-looking sanctions such as injunctions provides an apt standard to evaluate a petitioner's showing.
Rule 60(b)(5) focuses on whether the petition shows "that it is no longer equitable that the judgment should have prospective application." Courts emphasize that the relevant inquiry cannot be reduced to a simple formula. A decisionmaker must "evaluate a number of potentially competing considerations." Building Trades, 64 F.3d at 888. Moreover, "[d]ifferent considerations may have greater or lesser prominence in different cases, . . . because equity demands a flexible response to the unique conditions of each case." Id. While maintaining this focus on the particular facts and circumstances, the Third Circuit has indicated that several factors are generally relevant to determining
whether a forward-looking sanction should be eliminated.6 That circuit has also noted that the interest in finality of judgments:
[M]ay assume greater or lesser prominence according to the nature of the case and the private and public interests implicated, but should not be either deprecated or ignored.
Under this flexible approach, the focus of our analysis turns largely on the type of forward-looking sanction at issue. In the registration context, we generally impose restrictions because a respondent has failed to rebut a presumption that continued registration on an unrestricted basis will pose a substantial risk to the public.8 Consequently, if a petitioner makes a reliable showing that it no longer poses a substantial risk to the public, there is no persuasive rationale for continuing to impose a registration restriction.9 Absent such a showing, however, there are few, if any circumstances that would make it "no longer equitable" to continue to restrict a petitioner's registration. This is especially so when the petitioner has negotiated a particular term for the restrictions imposed and cannot show that an unforeseeable change in circumstances has undermined the basis for the bargain it struck in agreeing to settle with the Commission.
ADM's showing fails to meet either
the stringent "grievous wrong" standard or our new standard
focused on the equity of continuing the current registration
restrictions. Its petition does not cite any unforeseeable change in
circumstances that undermines the basis for the bargain it struck in
1997.10 Moreover, even if we
assume that ADM could establish all the factors set forth in its
petition under the weight of the evidence standard, its showing would
be inadequate to rebut the presumption that registration of its IB
subsidiaries would pose a substantial risk to the public.
Consequently, ADM has failed to make the type of showing that warrants
the relief it requests.
For the reasons noted above, we deny ADM's petition for our consent to its submission of applications for registration on behalf of its IB subsidiaries.
IT IS SO ORDERED.
By the Commission (Chairman RAINER and Commissioners HOLUM, NEWSOME and ERICKSON) (Commissioner SPEARS, dissenting).
Catherine D. Dixon
Assistant Secretary to the Commission
Commodity Futures Trading Commission
Dated: September 13, 2000
DISSENTING OPINION OF COMMISSIONER SPEARS
I agree with the majority that the Commission should apply a flexible approach in evaluating petitions for post-judgment relief. I disagree, however, with the procedures used in this decision for implementing that approach. I believe the Commission should issue a Show-Cause Order giving ADM clear notice of the legal standard the Commission intends to apply to its petition and a good faith opportunity to make the showing that is required to meet that standard.
As noted in the majority's opinion, this decision arises out of ADM's April 2000 letter to the Commission's Chairman seeking the Commission's consent to ADM's submitting applications for IB registration on behalf of its IB subsidiaries. The letter was referred to the Commission's Office of the General Counsel and ADM received a prompt one-page response from the General Counsel stating that,
"We interpret your letter as a request to amend the terms of the Commission's May 1997 settlement order. ... [and noting that] Any petition seeking this type of relief should be filed with the Commission's Office of Proceedings and served on the Commission's Division of Enforcement."
For guidance as to "the procedure for seeking such relief," the letter referred ADM to In Re Eggum, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,359 at 46,660 (CFTC July 9, 1998) reconsidered 1998 WL 904815 (CFTC Dec. 21, 1998).
This rather cursory letter from the General Counsel received an equally cursory response. ADM resubmitted its earlier letter to the Chairman as its "petition for relief in this matter."
In evaluating ADM's "petition," the majority's opinion provides extensive guidance concerning the factors that are relevant to determining whether a forward-looking sanction should be eliminated. These factors include, inter alia,
"... the likelihood that the conduct
or conditions sought to be prevented will recur absent the injunction
... [and] whether the modification is sought because changed
conditions unforeseen by the parties have made compliance
substantially more onerous or have made the decree unworkable..."
Building and Constr. Trades v. N.L.R.B., 64 F.3d 880 at 888
(3rd Cir. 1995)
The majority goes on to note that, "... if a petitioner makes a reliable showing that it no longer poses a substantial risk to the public, there is no persuasive rationale for continuing to impose a registration restriction." One crucial factor in making this showing is the ability to "show that an unforeseeable change in circumstances has undermined the basis for the bargain it struck in agreeing to settle with the Commission." According to the majority, however, ADM fails to meet this standard. "Its showing is inadequate" because ADM's "petition does not cite any unforeseeable change in circumstances that undermines the basis for the bargain it struck in 1997." More importantly, the majority concludes,
"... even if we assume that ADM
could establish all the factors set forth in its petition ...
its showing would be inadequate to rebut the presumption
that registration of its IB subsidiaries would pose a substantial risk
to the public." [emphasis supplied]
I do not disagree with the substantive standards set out by the majority. I do, however, have a significant procedural concern. The majority lists a number of specific standards that must be met in a petition for post-judgment relief and dismisses ADM's petition for failure to meet those standards, concluding that ADM's "showing would be inadequate." This would be less troubling if the factors set forth in ADM's petition were enumerated with full notice of the prerequisites for such a showing. In fact, however, ADM's "petition" was a rather cursory response to a similarly cursory letter from the General Counsel in which the sum total of the available guidance concerning the standards governing such a petition consisted of a citation to the Eggum case. I do not seek to gloss over the shortcomings of ADM's "petition." Perhaps ADM could and should have used that case citation as a jumping off point for legal research that might have helped it to divine exactly what factors the Commission now expects it to set forth and what standards the Commission now expects it to meet.
Nevertheless, it seems fundamentally unfair to penalize ADM for failing to list factors and meet standards that are only articulated after-the-fact. Now that the standards have been clearly stated, why not give ADM a good faith opportunity to make a showing as to whether they can meet those standards? Therefore, rather than the majority's outright denial of the ADM petition, I would favor a Show-Cause Order setting out the specific standards that a petition for post-judgment relief must meet and giving ADM 30 days to make a showing that they meet those standards or face dismissal of the petition.
1 The two subsidiaries are ADM/Growmark River Systems, Inc. ("Growmark") and Tabor Grain Co. ("Tabor"). This Order refers to Growmark and Tabor as the "IB subsidiaries."
2 See In re ADM Investor Services, Inc., 1997 CFTC Lexis 119 (Opinion and Order Accepting Offer of Settlement and Restricting the Registration of ADM Investor Services Inc. May 16, 1997) (the "May 1997 Settlement Order"). The Commission brought a statutory disqualification complaint against ADM Investor Services, Inc. ("ADMIS") pursuant to Section 8a(3)(N) of the Commodity Exchange Act ("Act" or "CEA") because its principal, ADM, was subject to a statutory disqualification pursuant to Section 8a(3)(D) of the Act based on its October 1996 guilty plea to two felony counts of violating the Sherman Antitrust Act. The Settlement Order imposed several restrictions on ADMIS's FCM registration. All but one of the restrictions were effective for four years. This Order refers to ADMIS as the "FCM subsidiary."
3 In a separate order, the Commission imposed similar restrictions on a second FCM subsidiary of ADM. See In re Benson-Quinn Commodities, Inc., 1997 CFTC Lexis 107 (Opinion and Order Accepting Offer of Settlement and Restricting the Registration of Benson-Quinn Commodities, Inc. May 16, 1997).
4 Because nothing in the record suggests that ADMIS had the authority to compel ADM's IB subsidiaries to withdraw their registrations, we infer that ADM, which did have that authority, was responsible for this representation.
5 Forward-looking sanctions are designed to protect against some threat to the public interest and serve no valid purpose once the threat dissipates. For example, because the Commission imposes trading prohibitions to protect against threats to market integrity, there is no basis for continuing such a prohibition if, in fact, there is no longer such a threat.
[T]he circumstances leading to entry of the injunction and the nature of the conduct sought to be prevented; the length of time since entry of the injunction; whether the party subject to its terms has complied or attempted to comply in good faith with the injunction; and the likelihood that the conduct or conditions sought to be prevented will recur absent the injunction. . . . whether the modification is sought because changed conditions unforeseen by the parties have made compliance substantially more onerous or have made the decree unworkable. . . . whether the conduct previously enjoined has become legal due to a change in law.
The Court of Appeals for the Second Circuit has
acknowledged the importance of ensuring that agreements resolving
litigation are not "lightly modified," but has noted that a
flexible approach to modifying injunctions helps provide "all
concerned with an incentive to enter into constructive
settlements." Patterson 13 F.3d at 38. In this regard, it
notes that for defendants:
[I]t is the prospect of modification as circumstances change or objectives are substantially reached that provides the incentive to settle on reasonable terms, rather than adamantly resist in protracted litigation.
Id. In a similar vein, the Court of Appeals for the Fourth Circuit has stated that the parties' agreement that an injunction should remain in effect for a particular term of years merits "significant weight" because "the parties themselves typically will be the most knowledgeable as to the reasonable length of time necessary to determine whether the decree has had its desired effect." Alexander v. Britt, 89 F.3d 194, 201 (4th Cir. 1996).
8 In re Vercillo, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,071 at 45,114 (CFTC May 30, 1997) aff'd sub nom. Vercillo v. C.F.T.C., 147 F.3d 548 (7th Cir. 1998). Such a presumption arises when the Division proves that the respondent is subject to one of the Act's statutory disqualifications from registration. Id.
Consistent with our precedent, a petitioner's showing would have to meet the "clear and convincing" standard if the statutory disqualification at issue arose under Section 8a(2) of the Act. For other types of statutory disqualification, petitioner would have to meet the "weight of the evidence" standard.
ADM's petition does suggest that there have been changes in the farm economy that heighten the public interest in the services that the IB subsidiaries could offer to farmers. While proof of this factor would be entitled to some weight, we have held that absent a persuasive showing that registration would pose no substantial risk to the public, an applicant's potential contributions to the public cannot justify a grant of registration. In re Anderson, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 23,085 (CFTC May 30, 1986).