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October 4, 1985


The opinion of the court was delivered by: MCLAUGHLIN


McLAUGHLIN, District Judge

 This is an action for damages brought by the Galvins on behalf of themselves and all other New York residents who, at any time between May 1981 and July 1982, invested through agents or representatives of defendant First National Monetary Corporation ("FNMC") in "cash forward" contracts offered by FNMC. Plaintiffs allege violations of the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 6(b) and (h), (Count I); violations of 7 U.S.C. § 6(h) and Reg. § 30.03, (Count II); common law fraud (Count III); and violations of the Uniform Commercial Code ("UCC") 2-302 (Count IV). Defendant moves to dismiss Counts I, II and IV for failure to state a claim. Fed. R. Civ. P. 12(b)(6). For the reasons set forth below, defendant's motion is granted in part, and denied in part.


 Defendant FNMC is a Michigan corporation engaged in the trading of gold, silver and other precious metals pursuant to standardized contracts denominated as "cash forward" contracts. At all times relevant to this action, FNMC was a registered commodity trading advisor with the United States Commodity Futures Trading Commission ("CFTC").

 The Galvins purchased precious metals through FNMC's "cash forward" program, and ultimately lost in excess of $40,000. In this action, they allege that (1) the FNMC "cash forward" program constitutes an illegal futures contract since it was not traded on a designated contract market or through contract market makers as required by the CEA, 7 U.S.C. §§ 6 and 6h (Count I); (2) FNMC's conduct in soliciting such accounts and in dealing with plaintiffs (and other class members) constituted fraudulent, misleading and deceitful conduct within the meaning of the CEA and the CFTC's anti-fraud regulations (Count II); (3) FNMC committed common law fraud by using high-pressure and misleading sales techniques to lure persons unfamiliar with the precious metals market to trade in such contracts under a contractual agreement that was "unfair and burdensome" to these consumers (Count III); and (4) the contracts were so one-sided, unfair, misleading and burdensome as to be unconscionable and unenforceable, thus entitling plaintiffs to rescissionary relief under UCC 2-302 (Count IV).

 Defendant FNMC moves to dismiss Counts I, II and IV, claiming that (1) its "cash forward" program is a leverage transaction, rather than a futures contract, and thus, is not subject to the regulations regarding futures; (2) even if this Court were to determine that the "cash forward" program is not a leverage transaction, no private right of action exists under 7 U.S.C. § 6(h) and Reg. § 30.02; and (3) while U.C.C. § 2-302 creates a defense, it does give a right of action. In the alternative, defendant urges that this action be stayed pending a final decision on the leverage issue by the CFTC.


 1. Leverage v. Futures Contracts

 The problem of differentiating between a futures contract and a leverage agreement has plagued both Congress and the CFTC for years. See generally Breyer v. First National Monetary Corp., 548 F. Supp. 955, 963-64 (D.N.J. 1982). Indeed, Philip McB. Johnson, Chairman of the Commodity Futures Trading Commission, (the administrative body to which Congress has delegated the task of resolving the problem) has noted that "differing opinions exist over the nature of leverage contracts and their distinction, if any, from futures contracts even though they are off-exchange instruments." See H.R.Rep.No. 565, 97th Cong., 2d Sess., reprinted in [1982] U.S. Code Cong. & Ad. News 3957, 3963 ("H.P.Rep.No. 565"). Nonetheless, this Court is called upon to decide whether the FNMC "cash forward" contract is a leverage contract that may be legally traded off a designated contract market, or a futures contract that may not.

 A futures contract is, in its seminal sense, a contract of sale of a commodity for future delivery. One Court describes a futures contract as follows:

 Among the distinguishing characteristics of a futures contract is its standardized form as to quantity and other terms. The standardization, set by the designated contract market, facilitates trading of the contracts. Although many of the traders never intend to take delivery of the underlying commodity, the contacts provide for uniform delivery points and delivery dates. Trading must take place on a licensed exchange designated by the CFTC as a "contract market" and prices are established by the competitive trading on the exchange.

 Breyer v. First National Monetary Corp., supra, 548 F. Supp. at 963.

 A leverage contract, on the other hand, is defined by Congress, ...

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