UNITED STATES OF AMERICA
Before the
COMMODITY FUTURES TRADING COMMISSION

The Division of Enforcement ("Division") seeks interlocutory review of an order precluding one of its counsel from continuing to appear and represent its interests in this proceeding. The Division argues that the order should not only be reversed but also expunged from the record of this proceeding. Respondents Global Minerals and Metals Corp. ("Global") and R. David Campbell (the "Global respondents")¹ challenge some of the arguments that the Division offers in its application as well as its request to expunge, but neither support nor oppose the sanction imposed by the Administrative Law Judge ("ALJ").

For the reasons explained below, we grant interlocutory review in order to clarify the standards an ALJ should apply in determining whether to issue an order precluding counsel from continuing to appear and represent a party (a "debarment order") under Commission Rule 10.11(b). Applying those standards in the circumstances of this case, we find that the record does not support a finding that the conduct at issue was "contemptuous" as required by Rule 10.11(b). As a result, we vacate the debarment order.

BACKGROUND

The ALJ's debarment order has its origin in a familiar problem - a discovery issue that required more time to resolve than either the presiding ALJ or counsel for the parties anticipated.² The escalation of this discovery problem to a point at which the ALJ threatened counsel for both parties with debarment was particularly unfortunate because counsel had previously effectively cooperated to resolve discovery issues that were far more complex and significant. When counsel pushed beyond the limits of cooperation, however, they resorted to a more-traditional litigation technique - confrontation. Once initiated, the confrontation took on a life of its own and led the ALJ to commence an investigation into conduct that he regarded as incompatible with his orders regulating the course of this proceeding. By the time the investigation was completed, the ALJ had shifted his focus to allegedly deceptive statements in documents submitted by counsel for the Division. Convinced that the deception was intentional, the ALJ issued his debarment order.

The summary that follows provides a flavor of the complicated facts and circumstances that ultimately triggered the application for interlocutory review currently before us. We outline only those facts material to our application of the standards defining contemptuous conduct enunciated below. We begin with a brief review of the discovery process under Commission Rule 10.42(b).

I.

Commission Rule 10.42(b) describes one process³ a respondent may use to obtain a copy of documents that the Division acquired in connection with the investigation that led to the Complaint initiating the underlying proceeding.⁴ The rule specifically provides that the Division shall make producible documents "available for inspection and copying by the respondents . . . prior to the scheduled hearing date," but indicates that the timing of this step of the process may be altered by order of the Commission or the presiding ALJ.

The Rule 10.42 process contemplates four different steps or stages that result in the production of copies of documents selected by respondents. The first stage, identification of producible documents, is usually largely controlled by counsel for the Division. The second stage, making producible documents available, is also largely controlled by counsel for the Division. Both the third stage, inspection of producible documents, and the fourth stage, copying of documents selected by respondents, require cooperation between counsel for the Division and counsel for respondents.

The amount of time and resources necessary to complete the identification stage depends on several factors.⁵ If the investigation that led to the complaint was wide-ranging, the Division will likely obtain more documents than it obtains in a narrowly focused investigation. If the investigation relied heavily on information obtained from domestic or foreign governmental entities or foreign futures authorities, there will be more excepted documents to be reviewed and segregated. If the Division obtained a large number of documents from persons that requested confidential treatment, it must provide notice to more persons, review more motions for protective orders and participate in the resolution of those motions.⁶

Aside from the task of gathering previously identified producible documents in a place suitable for inspection, the making available stage of the process involves (1) counsel's agreement about the city where inspection will take place;⁷ (2) a request by respondents that documents be made available;⁸ and (3) Division assent to the request. Similarly, successful completion of the inspection and copying stages require cooperation between counsel for respondents and counsel for the Division.⁹ When the copying stage is completed, both parties have fulfilled their obligations under Commission Rule 10.42(b).

II.

The ALJ commenced the Rule 10.42(b) production process in this case by issuing a scheduling order in mid-November 1999.¹⁰ In re Global Minerals & Metals Corp., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,914 (ALJ Nov. 12, 1999) ("Scheduling Order"). The ALJ's order set out the prehearing procedures the parties would follow and established certain deadlines. The ALJ ordered the Division to make documents "available for inspection and copying" pursuant to Commission Rule 10.42(b)(1) on or before December 27, 1999. Scheduling Order at 48,847.¹¹ In addition, the ALJ ordered both parties to file and serve requests for admission on or before February 29, 2000.

The record does not disclose whether the ALJ consulted with the parties prior to issuing his Scheduling Order. Such consultation may have helped the ALJ recognize that the production deadline he intended to impose was impractical in light of the volume of facially producible documents that the Division had obtained during its investigation, the source of those documents, and the volume of documents obtained from persons that requested confidential treatment.¹² Both counsel apparently either failed to recognize that the Scheduling Order's production deadline was impractical or decided that the problem should not be raised at the outset of the proceeding.

A motion that the Division filed on December 21, 1999 is the first document in this record that hints at the impracticality of the Scheduling Order's production deadline. The motion informed the ALJ that affected persons would seek protective orders pursuant to Commission Rule 10.42(b)(7) and that one affected submitter "may require additional time past December 27, 1999 in which to file its motion for a protective order." On the following day, Phelps Dodge, one of the persons that requested confidential treatment when they provided documents to the Division, filed a motion seeking an extension of the applicable deadline for submitting motions for protective order and a stay of discovery.¹³

The December 27, 1999 deadline for submitting such a motion was the same as the deadline the ALJ's Scheduling Order specified for completing the making available stage of the production process. As noted above, however, the Division could not complete the identification stage of the production process until after all motions for protective order were received and the making available stage of the process could not be completed until the identification stage was completed. As a result, by December 22, 1999, the record in this proceeding indicated that the Division could not meet the deadline for completing the making available stage of production imposed in the ALJ's Scheduling Order.

While this fact is readily apparent in hindsight, it apparently escaped the notice of both the ALJ and counsel for the parties in the period immediately following December 22. For example, on December 27, 1999, the Division filed a written report on its production of Brady material. The report stated that the Division was prepared to produce directly to respondents "all materials produced by third parties to the Division, except for a limited number of documents withheld for the reasons set forth in a separately-filed index relating to the § 10.42 production." On the same day, the Division also submitted an index of documents withheld in accordance with Commission Rules 10.42(b)(4) and (c)(3).¹⁴ In regard to the Division's obligations under Commission Rule 10.42(b), the document stated "the Division has produced the transcripts of investigative testimony which are in the Commission's possession."

The record establishes that neither of these statements was correct at the time it was made. The Division was prepared to make some documents available to respondents, but as of December 27, 1999, it was clear that the Division could not make all producible documents available to respondents.¹⁵ Moreover, as of that date, the Division had only made some of the transcripts of investigative testimony available to respondents.¹⁶ The record suggests that respondents' counsel was aware that these statements were incorrect at the time in question.¹⁷ For reasons unexplained on the record, however, counsel for respondents did not either request counsel for the Division to correct these statements or notify the ALJ of the limited progress the parties had made toward completing the production process.

The record also suggests that the ALJ did not recognize that the Division had not fully complied with the Scheduling Order's production deadline. For example, on December 30, 1999, the ALJ issued an order staying its Scheduling Order "to the extent that it requires the Division to disclose any documents that were produced by" affected submitters Phelps Dodge Corp., Metro International Trade Services, Robert J, Wylde and Gollyhott Trading Inc., Merrill Lynch, and J.P. Morgan & Co. As noted above, however, the Division's deadline for completing the making available stage of the production process had already passed. Moreover, because the ALJ had not ruled on Phelps Dodge's motions to stay discovery and extend the December 27, 1999 deadline for filing a motion for a protective order, the Division had no basis for withholding its documents from respondents. Nevertheless, the ALJ's order did not address this apparent failure to comply with his instructions. Nor did it acknowledge the need to adjust the other deadlines imposed in the ALJ's Scheduling Order in light of the impact the filing of motions for protective orders would have on the completion of the Rule 10.42(b) production process.

By January 5, 2000, counsel for respondents and counsel for the Division had agreed that the inspection stage of the Rule 10.42 production process would not begin until the issues raised in motions for protective orders had been resolved.¹⁸ Within two days of this agreement, both counsel had filed documents discussing issues relevant to their progress toward completion of the Rule 10.42 production process.¹⁹ Neither document advised the ALJ that the parties had agreed to delay the inspection stage of the process until the identification stage was completed.

The result of counsel's agreement was first communicated to the ALJ by respondents' counsel in a February 15, 2000 letter seeking a second extension in the deadlines that the ALJ had imposed. Counsel's letter stated that respondents "have still not been able to begin their review of the Division's investigatory materials." Counsel for respondents, however, did not refer to counsel's agreement to delay the inspection stage of the production process as the basis for the extension he sought. Instead, counsel noted that the motions for protective orders had not been fully resolved. Counsel for the Division did not independently disclose that the parties had agreed that the inspection stage of the production process would not begin until the issues raised in motions for protective orders had been fully resolved.

The following day, the ALJ issued an order revising the deadlines imposed in the January 10 Scheduling Order. The order did not either note or comment upon respondents' counsel's admission that the inspection stage of the production process had not begun.

III

Over two months passed. During this period, counsel for the parties cooperated effectively to resolve the outstanding issues raised in motions for protective orders. The inspection stage of the process was begun on February 29 and completed on March 14. The copying stage of the process was also begun during this period. Unfortunately, the copying stage was not expeditiously completed. As a result, the period of cooperation between the parties' counsel came to a close and the stage was set for the confrontations that led to the ALJ's debarment order.

On April 19, 2000, counsel for respondents filed a letter seeking a third extension of the deadlines imposed by the ALJ. Counsel's letter sought to justify the requested extension by focusing the ALJ on an "arduously slow" copying process marked by "administrative hurdles erected by the Commission's administrative officer."²⁰ The letter did not mention two factors in respondents' control that had contributed to the delay in completing the copying stage of the production process.²¹

The ALJ did not await the Division's response before taking action. After an unrecorded telephone conversation with Division counsel Norton,²² the ALJ apparently determined that the Division had failed to comply with its discovery obligations. In light of his determination, the ALJ issued an order that directed the Division to file a written report within four days (the "April 24 Order"). The ALJ's order required the Division to (1) explain "in detail" the facts and circumstances that led to its failure to comply, and (2) show cause why its failure to seek relief from its discovery obligations "should not be regarded as contemptuous conduct."²³

Counsel for the Division filed a written report on April 28, 2000 (the "Required Report"). For the most part, Division counsel focused on rebutting respondents' allegation that administrative hurdles erected by a Commission administrative officer had delayed the completion of the copying stage of the production process. Unfortunately, the Required Report broadened the scope of counsel's confrontation by suggesting that any delay in the completion of the production process was due to respondents' counsel's unexplained delay in commencing the inspection stage of the process. In apparent furtherance of this strategy, the Required Report specifically claimed that the Division had fully complied with its obligations during the making available stage of the process:

The Division fully complied with [the Scheduling Order's] initial deadline by making all of the documents that were not then subject to a pending motion for protective order available to counsel for the [r]espondents on December 27, 1999 in full conformity with the Court's [S]cheduling Order and with Rule 10.42(b)(5).

Required Report at 2 (footnote omitted).²⁴

The Required Report responded in-kind to the confrontational tone of the ALJ's April 24 Order. Note one of the report stated that:

The Court's April 24, 2000 Order accuses the Division of the most serious misconduct, including dereliction, willful disobedience of a Court Order, attempted hijacking of the proceeding and contempt of court apparently based upon the receipt of a single letter from counsel to the [r]espondents. Even though the Order appears to presume that the Division has failed to comply with the Court's Scheduling Order and orders the Division to explain its failure, the Division asks that the Court not make factual findings or legal conclusions regarding these serious allegations before considering this response.

Required Report at n.1.

As might be expected, respondents' May 2, 2000 response to the Division's report (the "Response to the Required Report") squarely confronted the Division's claim that that any delay in the completion of the production process was due to respondents' counsel's unexplained delay in commencing the inspection stage of the process. Respondents complained that the Required Report proffered an "evasive excuse" that unfairly put respondents in a "false light." Response to the Required Report at 1. In support, respondents offered a chronology of events between November 17, 1999 and April 19, 2000 that emphasized the Division's inability to fulfill its obligations during the identification and making available stages of the process. Response to the Required Report at 2.²⁵

On the same day that respondents filed their response, the ALJ began conducting a series of four telephone conferences with counsel for the parties.²⁶ The record indicates that comments that the ALJ made during the first two conferences put both counsel for the Division and counsel for respondents on notice that the ALJ was seriously considering debarring them from further participation in this matter as a sanction for contemptuous conduct. For example, during the May 2, 2000 conference the ALJ described his conversation with Division counsel Norton on April 24, 2000 and remarked that he "knew for a fact" that note 1 of the Required Response included a "material misrepresentation." (May 2 Tr. at 5-6.) The ALJ focused on the phrase indicating that he had based the accusations in the April 24 Order on a "single letter from counsel to the respondents" and asked:

Now, Mr. O'Keefe, you knew that statement wasn't true when you wrote this report, isn't that correct?

After responding that the accusation was "absolutely false," O'Keefe requested a continuance so he could determine whether to obtain counsel to represent his interests.

Similarly, during an unrecorded conference on May 3, 2000, the ALJ apparently told counsel for respondents and Division counsel Daniel Nathan that he intended to investigate the many apparent factual inconsistencies between the Required Report and the Response to the Required Report.²⁷ The ALJ noted that the contradictory allegations were of such a nature as to provide a reason to believe that either counsel for the Division or counsel for respondents, or both, had sought to willfully mislead him. In response to an inquiry, the ALJ agreed that both counsel were at risk of debarment. Russell Memo at 1-2.

The ALJ held additional telephone conferences on both May 10 and May 18, 2000. During these conferences, attorney advisor Russell questioned both counsel for the Division and counsel for respondents on behalf of the ALJ. Attorney advisor Russell also questioned Division counsel McGonagle. ALJ Levine both offered comments and asked questions during the conferences.²⁸ Counsel who responded to questions were not placed under oath and opposing counsel was not permitted to cross-examine the "witnesses."²⁹ While the questions asked by both ALJ Levine and attorney advisor Russell involved all four stages of the Rule 10.42(b) production process, the bulk of the questions focused on the identification and making available stages of the process. More specifically, both ALJ Levine and attorney advisor Russell focused most of their questions on differences in counsel's recollection of telephone conversations conducted on December 20, 1999 and January 5, 2000.

By the time counsel offered testimony about their recollection of these conversations, both had filed written statements touching on the substance of the discussions. Moreover, because both were testifying under the threat of debarment due to contemptuous conduct, there was little room for any variation in their recollection that might be construed as an "admission" that a prior written statement was deceptive. Not unexpectedly, both counsel offered testimony consistent with the thrust of his written submission.³⁰ Nevertheless, counsel's testimony also indicated that their recollections agreed in significant respects.³¹

IV.

The ALJ issued his decision precluding counsel for the Division from further participation in this proceeding on June 7, 2000 (the "Debarment Decision"). He found that statements made in the Required Report were deceptive and that counsel for the Division had submitted these statements with an intent to deceive the ALJ. Debarment Decision at 18-19, 24-32, 34, and 34-35 n.61. In addition, the ALJ found that the Required Report was a "sham document" within the meaning of Commission Rule 10.12(f)(3)³² and that its submission amounted to contemptuous conduct because it interfered with the fair and orderly administration of justice. Debarment Decision at 37-38.

The ALJ's factual findings rested largely on his determination that respondents' counsel's version of the events at issue was more credible than Division counsel's version. Debarment Decision at 11, 20 n. 40, and 28 n. 51. The ALJ was particularly critical of testimony by Division counsel that the ALJ characterized as stating that:

[A]s of December 20, the Division would have been prepared to make available all the non-protected documents to [r]espondents on December 27, if [r]espondents had wished to stand on their rights under the [Scheduling] Order.

Debarment Decision at 19-20 citing May 10 Tr. at 28; May 18 Tr. at 39-40. ³³ Moreover, in explaining his finding that counsel for the Division had submitted the deceptive statements with intent to deceive, the ALJ emphasized what he regarded as the obvious contradiction between counsel's representation that the Division had made available "all of the documents that were not then subject to a pending motion for protective order" with counsel's knowledge that the inspection stage of the production process had not been completed until March 14, 2000. Debarment Decision at 34-35 n. 61. The ALJ also reasoned that counsel for the Division had a motive to lie so that he could conceal the fact that "the parties engaged in self-help to improperly extend discovery production beyond the deadlines contemplated by the [ALJ's] scheduling orders." Id.

V.

The Division submitted its application for interlocutory review on June 14, 2000.³⁴ The Division's arguments touched on the ALJ's factual findings, procedural rulings, and exercise of his discretion. The Division also proposed an expungement remedy should the Commission determine that the Debarment Decision should be reversed. The Global respondents submitted their response on June 26, 2000. Their arguments touched on the ALJ's factual findings and procedural rulings. They also opposed the Division's expungement request. The Division's application acknowledged that the Commission's decision in In re Arnold, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,174 (CFTC Oct. 17, 1997) is the controlling precedent in this matter but argued that it is distinguishable from the case at hand. Division Application at 16.³⁵ The Global respondents' response did not mention the Arnold decision.

DISCUSSION

In the context of an application for interlocutory review, the initial inquiry is always whether there are extraordinary circumstances that justify immediate Commission consideration of the issues raised in the application. See, e.g., In re Abrams, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,577 (CFTC Oct. 13, 1989). We have recognized that extraordinary circumstances exist when (1) the application raises issues of first impression; (2) leaving the issues unresolved would almost certainly have a material impact on other enforcement proceedings; and (3) there is substantial doubt that an appeal at the end of the proceeding would be effective in protecting the moving party's interests. In re Bilello, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,032 at 41,311 (CFTC March 25, 1994).

The record of this proceeding clearly establishes factors two and three. Arguably the application does not raise issues of first impression, however, because our decision in Arnold either expressly or implicitly considered and resolved the issues raised in the application that meet the criteria described in factors two and three. Our review of the record in this proceeding, however, convinces us that due to its brevity and narrow focus, our decision in Arnold is inadequate to guide presiding officers and parties about the standards and procedures applicable in proceedings to determine whether debarment is appropriate.³⁶ Consequently, we conclude that, as a practical matter, the Division's application raises issues of first impression that require immediate resolution.

Given these circumstances, we find that there are extraordinary circumstances that warrant immediate Commission review. We turn next to the issue of appropriate standards.

II

Determining the intent underlying Rule 10.11's debarment provision is no simple task. There is no regulatory history that explains the purpose of the provision. Nor is the language used a clear guide to the drafters' intent. We find it significant that the drafters chose the words "contemptuous conduct" to describe the level of misbehavior that can be sanctioned. We also find it significant that the only sanction the drafters authorized presiding officers to impose is debarment. The absence of authority to impose a range of sanctions suggests that the drafters intended to limit this type of proceeding to egregious conduct that warrants a severe sanction.

Imposition of a debarment order obviously affects the interests of the debarred attorney. More importantly, it also affects the right of parties to the proceeding to freely choose their counsel.³⁷ Moreover, even when a less drastic sanction is at issue, courts have cautioned decisionmakers considering whether to sanction attorneys to be "mindful of the fact that vigorous advocacy is essential to our system of justice." U.S. v. Cooper, 872 F.2d 1, 3 (1^st Cir. 1989). Indeed, as the United States Court of Appeals for the First Circuit explained in Cooper:

[A]n attorney is not free to say literally anything and everything imaginable in a courtroom under the pretext of protecting his client's rights to a fair trial and fair representation. . . . Yet no easy bright line can be drawn to measure when an attorney has gone too far, but `[t]rial courts . . . must be on guard against confusing offenses to their sensibilities with obstruction to the administration of justice.'

Id.

Given this need for balance and the rule's reference to contemptuous conduct, we will draw the standards applied in a debarment proceeding from federal court decisions interpreting 18 U.S.C. § 401,³⁸ the statute authorizing federal courts to sanction criminal contempt.³⁹ Such decisions make it clear that willfulness is an essential element of proof, and that for purposes of criminal contempt, willfulness does not exist where there is a good faith pursuit of a plausible though mistaken alternative. Waste Conversion,Inc. v. Rollins Environmental Services (NJ), Inc., 893 F.2d 605, 609 (3d Cir. 1990). Moreover, when the conduct at issue is "misbehavior" under 18 U.S.C. § 401(1), there must also be sufficient proof that the misbehavior actually obstructed the administration of justice by delaying proceedings, making more work for the judge, inducing error, or imposing costs on the parties. This requirement:

[O]bviously cannot be satisfied by proof that the contempt proceeding itself, and such ancillary events as the complaint that touched it off, imposed costs, delay, etc.

U.S. v. Oberhellmann, 946 F.2d 50, 53 (7^th Cir. 1991). See also, American Airlines, Inc. v. Allied Pilots Ass'n, 968 F.2d 523, 532 (5^th Cir. 1992).

Of course, in criminal proceedings, the government must establish the necessary elements of a contempt with proof beyond a reasonable doubt. American Airlines, Inc., 968 F.2d at 532. In a debarment proceeding, however, counsel is not subject to a level of sanction comparable to imprisonment. As a result, we conclude that debarment may be imposed when the necessary elements are established by clear and convincing evidence, the standard generally applicable in cases involving formal charges of attorney misconduct. See Rule 18, American Bar Association Model Rules for Lawyer Disciplinary Enforcement.

II.

Applying these standards to the record before us, we conclude that there is insufficient evidence to warrant imposition of debarment on counsel for the Division.⁴⁰ First, the ALJ erred in his assessment of the evidence material to the element of willfulness or "intent." The ALJ's analysis of Division counsel's intent was closely intertwined with his analysis of Division counsel's credibility. The ALJ's credibility assessment, however, was based on a significant misreading of the transcript of the testimony offered by Division counsel.

As noted above, the ALJ characterized Division counsel's testimony as stating that the Division would have been prepared to make all non-protected documents available to respondents on December 27, 1999. The ALJ used the term "non-protected documents" as a shorthand reference to documents that were not submitted by persons that had filed a motion for a protective order. The testimony cited by the ALJ in support of his characterization, however, clearly refers to documents that were not submitted by persons that had filed or were expected to file a motion for a protective order.⁴¹ The ALJ's mischaracterization of Division counsel's testimony raises serious questions about the overall quality of his credibility determination.

Moreover, the ALJ's analysis of Division counsel's intent was marred by his confusion of statements concerning the making available stage of the Rule 10.42 production process with the inspection stage of the process. The language of the rule suggests that the process of making documents available involves a request by respondents and acquiescence by the Division. The inspection process involves separate arrangements that depend largely on the schedule of counsel for respondents. There is no logical reason to presume that the date a document is "made available" must be the same as the date that the document is "inspected." Properly understood, there is no facial contradiction between a claim that documents were made available in December and knowledge that the documents were not inspected until March.

Finally, the ALJ's analysis of Division counsel's alleged motive for deception falls well short of the mark. While we do not condone counsel's joint failure to keep the ALJ better informed of their agreements regarding the discovery process, a reasonable attorney would hardly think there was a danger in informing a presiding officer that counsel had been cooperating to resolve discovery problems in a manner acceptable to all parties. We would anticipate that most presiding officers would welcome cooperation by counsel that minimized the need for intervention to resolve discovery disputes. Indeed, in inferring that counsel for the Division had a motive to hide such cooperation, the ALJ confused "offenses to [his] sensibilities with obstruction to the administration of justice" in precisely the manner that the First Circuit warned against in Cooper.

In addition, we find that there is little or no evidence that the deceptive statements cited by the ALJ had any effect on this proceeding, let alone the type of effect necessary to find an obstruction to the administration of justice. By the time the Required Report was filed, the identification, making available, and inspection stages of the production process had all been completed. The alleged deceptive statements cited by the ALJ did not relate to the ongoing copying stage of the process. Moreover, the record indicates that the delays in the completion of the production process were due to the number of documents at issue and the unusual number of motions for protective orders that were submitted. The ALJ has not specified one practical step he could have taken to speed up the production process if counsel for the parties had kept him fully aware of their negotiations from the outset.

As the United States Court of Appeals for the Seventh Circuit observed in a similar context, "[c]ausation is a complex, contextually variable concept, in law as in life." Oberhellman, 946 F.2d 53. When, as here, however, the misbehavior is not a direct cause of delay in the proceeding, additional work for the presiding officer, an error in the decision-making process, or additional costs for one of the parties, there is no appropriate basis for inferring that the administration of justice was actually obstructed. Consequently, an order of debarment cannot stand.

III.

Because the errors discussed above are a sufficient basis to reverse the ALJ's Debarment Decision, we need not consider the procedural challenges raised in the Division's application. As a matter of future guidance, should similar issues arise we will look to federal court decisions interpreting procedural requirements for criminal contempt proceedings in federal court. Such proceedings are governed by Rule 42 of the Federal Rules of Criminal Procedure.⁴² The summary contempt process described in subsection (a) of Rule 42 is quite limited, and the reliability-check on the fact-finding process is limited to the requirement that the presiding officer see or hear the misbehavior and describe the observations in his decision. The formal contempt process described in subsection (b) of Rule 42, however, has significant procedural protections, including disqualification of a judge when the charges involve disrespect or criticism of that judge.

We find it significant that Rule 10.11's debarment provision does not include any procedural protections, especially in light of Part 14's formal process for sanctioning attorneys who appear and practice before the Commission.⁴³ As a result, we hold that a presiding officer may only impose a debarment order in the circumstances that would warrant a summary contempt proceeding under Rule 42(a) of the Federal Rules of Criminal Procedure. In this regard, the following principles should guide a presiding officer's exercise of discretion:

Rule 42(a) was reserved for exceptional circumstances. The rule is to be applied when the contemnor's conduct is such an open, serious threat to orderly procedure that instant and summary punishment, as distinguished from due and deliberate procedures[,] . . . [is] necessary. Rule 42(b) is to be applied except [in] those unusual situations envisioned by Rule 42(a) where instant action is necessary to protect the judicial institution itself.

. . . . Where courtroom misconduct carries special personal insult to the trial judge, we are watchful for distortion of the judge's sound discretion.

. . . . Where the record demonstrates that the trial judge did not fully consider the relative appropriateness of summary and plenary adjudication of contempt, we must independently evaluate the need for summary procedures. At the same time, we give deference to a trial judge's explicit determination that plenary procedures are inadequate and summary procedures are necessary.

U.S. v. Engstrom, 16 F.3d 1006, 1010 (9^th Cir. 1994) (quoting In re Gustafson, 650 F.2d 1017, 1022-23 (9^th Cir. 1981)).⁴⁴

CONCLUSION

For the foregoing reasons, the Division's application for interlocutory review is granted and the ALJ's Debarment Decision is reversed. The Division's request for expungement is denied and all documents maintained under seal in accordance with our June 16, 2000 Order shall be returned to the public record of this proceeding. To the degree our Arnold decision is contrary to any of the views expressed in this decision, it shall no longer be treated as Commission precedent. This decision shall be effective on the date it is served on the parties to this proceeding.

Our ruling should not, of course, be interpreted as an endorsement of the behavior of counsel to this proceeding. Misunderstandings among counsel for parties and a presiding ALJ are unfortunate, but not unusual. None of the participants in this case, however, is without his share of responsibility for the unnecessary escalation of disagreements over a discovery problem into a contentious proceeding ending in debarment. Nevertheless, the shortcomings established on the record are not properly addressed through an order of debarment.

IT IS SO ORDERED.

By the Commission (Chairman RAINER, and Commissioners HOLUM, SPEARS, and NEWSOME, (Commissioner ERICKSON, concurring.)

Catherine D. Dixon
Assistant Secretary of the Commission
Commodity Futures Trading Commission

Dated: July 13, 2000

Concurring Opinion of Commissioner Thomas J. Erickson

I concur with the majority's opinion in reversing the ALJ's order to debar an attorney participating in the pending matter. The application for interlocutory review arises from a discovery dispute in a case involving complex issues and hundreds of thousands of pages of documentation. As can be the case in the litigation of matters of this scale, the parties to this case experienced difficulties during the phase of the hearing during which they were to exchange information with one another. Nevertheless, the parties worked cooperatively and resolved their difficulties in a professional and, for the most part, mutually agreeable manner. The ALJ, however, found the manner in which they resolved their problems to be personally unsatisfactory.

Certainly, a Commission ALJ should expect the highest level of professionalism from the attorneys that appear before him, and, in this case, he appears to have gotten it. By the same token, the Commission should expect a high degree of professionalism from its ALJs. Commission Rule 10.8(a), 17 C.F.R. § 10.8(a), entrusts ALJs with the responsibility for conducting "fair and orderly" proceedings. Although I support the majority's adoption of criminal contempt standards to guide debarment proceedings under Commission Rule 10.11(b), 17 C.F.R. § 10.11(b), I regret that this new guidance was engendered by underlying proceedings that fell short of the basic principle embodied in Rule 10.8(a). Accordingly, I am compelled to comment on some of the more disturbing irregularities in the ALJ's conduct of the underlying hearing. The majority chooses not to focus on these irregularities, finding instead that various errors in the ALJ's findings provided an adequate basis for reversing the debarment order without consideration of the procedural challenges raised in the Division of Enforcement's ("Division's") application. Majority opinion at 22. I find these irregularities extremely troublesome, however, and believe that the ALJ deserves notice of what the Commission should expect of its ALJs. Moreover, these expectations apply beyond the debarment context to the conduct of hearings in general.

First of all, it surprises me that a Commission ALJ would conduct a proceeding - particularly a debarment proceeding that could potentially affect the ability of the parties to prosecute or defend this case - with so little regard for the record he was creating. The term "proceeding" is used largely as a matter of convenience. In fact, the ALJ's debarment procedure appears to have consisted of a series of teleconferences, the informality of which causes me concern.⁴⁵ Second, I find it disturbing that the ALJ would, without any apparent reservations, engage in ex parte communications with Division staff.⁴⁶ While the Commission's rules do not specifically prohibit such contact, see Rule of Practice 10.10, 17 C.F.R. § 10.10, such conduct is generally viewed as inappropriate. See Model Code of Judicial Conduct, Canon 3B(7) ("A judge shall not initiate, permit, or consider ex parte communications, or consider other communications made to the judge outside the presence of the parties concerning a pending or impending proceeding...").

In the end, this matter is a discovery dispute and, as the majority opinion points out, everyone involved bears some responsibility. The ALJ, however, bears the ultimate responsibility for ensuring that all proceedings before him are conducted in a fair and orderly manner. As the majority suggests, this matter never should have escalated to this point. It has now consumed a disproportionate amount of Commission time and resources. In the future, I hope that the direction given in the majority opinion will enable litigants and Commission ALJs to find more appropriate and efficient vehicles to resolve such matters.

Commissioner Thomas J. Erickson

Date:  July 12, 2000

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23 The April 24 Order focused solely on the purported delay in the copying stage of the process, specifically the "administrative hurdles erected by the Commission's administrative officer" that respondents had cited as the cause of the Commission's "arduously slow" copying of documents. In this regard, the ALJ noted that both Commission rules and Section 556(c) of the Administrative Procedure Act made him responsible for regulating the course of the proceeding and emphasized that he could not:

[P]ermit the Division through dereliction or self-help to co-opt that role, nor [could he] allow [his] proceedings to be hijacked by unnamed "Commission [] administrative officer[s]."

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

Section 401 provides that:

39

40

41

42

43

44

45

46