The opinion of the court was delivered by: WERKER
Plaintiff American Board of Trade, Inc. (ABT), has brought an action against the Chairman of the Commodity Futures Trading Commission (CFTC), several of its employees and the United States Department of Agriculture by complaint filed on August 26, 1975. The complaint prays for (1) an order enjoining the defendants from interfering with his (sic) business and dealing with him (sic) in an arbitrary and capricious manner and taking his (sic) property without due process of law, (2) the designation of the plaintiff as a contract market for transactions in commodity futures, and (3) compensatory and punitive damages aggregating $1,000,000.00. (The use of the male gender is presumably a reference to Arthur W. Economou, the president of ABT.)
The preliminary injunction hearing was held on September 16, 1975. The plaintiff called two witnesses, Thomas Anthony Russo, Deputy General Counsel, Trading and Markets, Commodity Futures Trading Commission; and Howard Bodenhamer, Acting Deputy Regional Administrator of the Eastern Regional Office. Arthur N. Economou, the president and chief operating officer, was in court at the time of the hearing but was not called as a witness. An affidavit of Mr. Economou was submitted to the court after the hearing. It is not considered upon the motion for a preliminary injunction for the reason that plaintiff had an opportunity to call Mr. Economou as a witness at the time of the hearing and failed to do so. It is basic to our notions of justice that the defendants should have the right to subject him to cross examination. The fact that they could have called Mr. Economou as a witness is not controlling here. ABT has the burden upon a motion for a preliminary injunction.
The statute creating the CFTC was signed into law on October 23, 1974 (Commodity Futures Trading Commission Act (CFTC Act) Pub.L. No. 93-463) and became effective April 21, 1975. It amended the Commodity Exchange Act, 7 U.S.C. § 1 et seq., created the Commission as an independent regulatory agency and assigned broad responsibility to the Commission for the regulation of transactions involving the sale of commodities for future delivery (commodity futures).
Section 4 of the Act, 7 U.S.C. § 6 makes it unlawful for any person to engage in transactions in any futures contract except through members of a "board of trade" that has been designated by the Commission as a "contract market." A "board of trade" is defined by Section 2(a)(1), 7 U.S.C. § 2 "to include and mean any exchange or association . . . of persons who shall be engaged in the business of buying or selling [any] commodity."
The Commission was authorized and directed under Section 5 of the Act, 7 U.S.C. § 7, to grant designation "when, and only when," a board of trade has met the conditions and requirements specified in the Act. The application for contract market designation must be accompanied by a showing that the board of trade complies with the requirements set forth in Sections 5 and 5a and "with a sufficient assurance that it will continue to comply." Section 6, 7 U.S.C. § 8. The CFTC Act broadened the definition of commodity to include not only those previously enumerated but also "all other goods and articles, except onions . . . and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." Section 2, 7 U.S.C. § 2.
Although the Act became effective April 21, 1975 a majority of the Commission was not appointed and confirmed until April 10, 1975. Consequently Congress determined that there would not be sufficient time for the Commission to review applications for designation before April 21, 1975 and permitted the Commission to provisionally designate boards of trade for a period not to exceed 90 days after April 21, 1975. Pub.L. No. 94-16.
At the first official meeting of the Commission held on April 15, 1975 the Commission considered a regulation for provisional designation of boards of trade as contract markets.
Mr. Economou, president of ABT, along with other applicants, was notified by letter dated April 16, 1975 that the Commission was adopting a provisional designation rule which required that the applicant demonstrate to the Commission's satisfaction that it was a board of trade within the meaning of the Act and that it actually was operating as a contract market on April 15, 1975. The object of the provisional designation rule was to prevent a disruption of the business of exchanges that were already in operation.
Applicants were instructed to file their applications by April 18, 1975, and also to file a list of their memberships, boards of directors and officers and copies of their bylaws, rules, regulations and resolutions under which they operated. April 18 was the last business day before April 21, the effective date of the CFTC Act.
ABT submitted its application on April 18. The Commission considered the application on April 18 and 19 and denied provisional designation to ABT on April 19 because of the Commission's inability to determine from the information supplied whether ABT was a board of trade under the Act and the regulations.
The denial was made without prejudice to filing additional information and the decision was conveyed by telephone and telegram to Mr. Economou. ABT did not seek judicial review of that decision.
The Commission's concern was based in part on the fact that ABT did not have an exchange floor, on the uniqueness of some of the practices described in ABT's application and the uncertain impact of those practices and on the fact that the board of trade appeared to be nothing more than Mr. Economou, his wife and companies controlled by him. Seven members were listed in the application, ...