UNITED STATES OF AMERICA
DAVID M. and REBECCA J. HUTCHENS
RB&H FINANCIAL SERVICES, L.P. AND TRADELINE BEROKERAGE SERVICES LLC
Pursuant to Rule 12.403(b), 17 C.F.R. § 12.403(b) (1998), we hereby take sua sponte review of the May 1, 1998 decision of the Administrative Law Judge ("ALJ") in order to redress the manifest injustice visited upon complainants arising from the erroneous manner in which this case was conducted. The ALJ conducted this case according to Commission rules that govern voluntary decisional procedures. As explained below, it should have been conducted as a formal decisional procedure. Accordingly, we vacate the ALJ's decision disposing of the parties' claims and remand this matter to be heard as a formal decisional procedure.
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Complainants David M. and Rebecca J. Hutchens filed a pro se reparations complaint in which they elected the voluntary decisional procedure and paid the required filing fee of $50. Complaint (Sept. 23, 1997, as amended Oct. 29, 1997). Respondent Jackson filed an answer in which he concurred with complainants' election of procedure. Jackson Ans. (Dec. 8, 1997). Respondents RB&H Financial Services LP ("RB&H"), a futures commission merchant, and Tradeline Brokerage Services LP ("Tradeline"), a guaranteed introducing broker of RB&H, filed a joint answer in which they denied liability and sought recovery of the debit balance in complainants' account. They did not address the procedure to be used. (Joint Ans. Dec. 15, 1997).
The following day, the Director of the Office of Proceedings sent a letter to RB&H and Tradeline identifying various deficiencies in the joint answer. As relevant here, the letter states that, "in order for the Answer to be complete," respondents needed to submit "a written statement indicating whether you concur with complainants' election of the voluntary decisional procedure. If the formal decisional procedure is elected, you must submit the appropriate filing fee." Letter from Britt Lenz to Jill Eklund of RB&H and Valerie F. Lloyd, vice president of Tradeline (Dec. 16, 1997). Respondents amended their answer, stating their request for the debit balance as a counterclaim and otherwise addressing the points raised by the Office of Proceedings. Amendment to Joint Ans. (Dec. 29, 1997). A letter accompanying the Amendment states in part that "[r]espondents do not concur with the Complainants' election of a voluntary decisional procedure. Respondents elect the formal decisional procedure." Letter from Valerie F. Lloyd to Britt Lenz (Dec. 29, 1997).
Complainants filed an answer denying the allegations of the counterclaim (Feb. 5, 1998). The Proceedings Clerk then served notice on all parties that, pursuant to Rule 12.26(c), 17 C.F.R. § 12.26(c) (1998), the case was to be assigned to an administrative law judge for a formal decisional proceeding. Notice and Order (Feb. 5, 1998). The Notice and Order also instituted the discovery period and advised the parties of applicable discovery deadlines.
Four days later, the vice president of Tradeline wrote the director of the Office of Proceedings, stating in part that "in order to facilitate this proceeding we are withdrawing our request for a formal decisional procedure. We now concur with the Complainants and elect the voluntary decisional procedure." Letter from Valerie F. Lloyd to R. Britt Lenz (Feb. 9, 1998). The following day, the administrative law judge assigned to hear the case issued an Order Instituting Voluntary Decisional Procedure (Feb. 10, 1998). The order stated that "the Court institutes the voluntary decisional procedure for this proceeding," Order at 3, and advised that, "[i]f in fact complainants prefer the formal decisional procedure, they must file a notice with the Court electing that procedure on or before February 20, 1998; otherwise the more abridged and less costly voluntary decisional procedure will govern this case." Id. at 3. n.6. The ALJ subsequently issued a final decision dismissing the complaint and granting the counterclaim.
The Commission's Rules governing reparations cases are codified at 17 C.F.R. Part 12 (1998). Subpart E of Part 12 pertains to formal decisional proceedings. Rule 12.300, the first rule in Subpart E, provides in pertinent part that:
Parties to a proceeding forwarded pursuant to § 12.26(c) may, by written agreement filed at any time prior to the issuance of an initial decision, or of any other order disposing of all issues in the proceeding, elect to have all issues in the proceeding decided pursuant to the voluntary decisional procedure. Upon receiving a timely filed stipulation signed by all parties evidencing such an election, the Administrative Law Judge shall conduct the proceeding and render a decision pursuant to Subpart C of these rules.
17 C.F.R. § 12.300 (1998) (emphasis supplied).
The ALJ lacked authority to avoid the mandate of this rule and to act on a request for the change of procedure submitted by fewer than all of the parties to this case.1 As the ALJ noted, the voluntary procedure is simpler and less expensive and is generally encouraged by Commission rules. Order Instituting Voluntary Decisional Procedure at 3 n.6 (citing illustrative rules). However, these benefits are purchased at a significant cost. The right of review is not available, no findings of fact need be set forth in the presiding officer's decision, prejudgment interest and costs (other than the filing fee) may not be awarded, and no oral hearing is held. See Rule 12.100(b), 17 C.F.R. § 12.100(b) (1998).
Because the voluntary decisional procedure severely limits the parties' procedural rights, the decision for a case to be heard in this manner must be conscious and deliberate. It also must be unanimous. The requirement that parties whose case has been forwarded to an ALJ for a formal procedure must execute a stipulation agreeing to use the voluntary procedure provides evidence of record of the parties' unanimous intent. Such evidence is absent here, and we will not assume the complainants' consent. Although complainants elected the voluntary procedure when they filed their complaint, their choice was superseded by Tradeline's election of a formal procedure. The subsequent request by Tradeline's vice president for a voluntary procedure did not reinstate complainant's original consent to such a procedure.
To avoid the manifest injustice to complainants caused by the truncation of their procedural rights, we vacate the decision of the ALJ and remand this matter for further proceedings in accordance with the Subpart E Rules, 17 C.F.R. §§ 12.300-315 (1998). See Rule 12.403(b.)2 The credibility dispute apparent on the record requires an oral hearing, and we order the ALJ to conduct one.
IT IS SO ORDERED.
By the Commission (Chairperson BORN and Commissioners TULL, HOLUM and SPEARS).
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: May 20, 1998
1 We note that respondent Jackson was not offered even the opportunity to object to the choice of procedure, However, given the outcome of this matter, the ALJ's error was harmless as to him. We note also that, despite the identity of interests between RB&H and Tradeline, RB&H itself needed to stipulate its consent to the voluntary procedure.
2 Rule 12.403(b) states as follows:
If such action is necessary to prevent manifest injustice, the Commission may, upon its own motion, review a final decision issued pursuant to § 12.106 of these rules [a decision issued in a voluntary decisional procedure] by appropriate order filed with the Proceedings Clerk within 30 days after service upon the parties of the final decision. In such event, the Commission may determine the scope of the issue on review, make provision for the filing of briefs (or, if deemed appropriate, such other means for the parties to present their views). The parties shall be duly notified thereof by the Proceedings Clerk.
17 C.F.R. § 12.403(b) (1998).