97 L. Ed. 1254, 73 S. Ct. 921 (1953).
4. The federal securities laws and regulations promulgated pursuant thereto, which are relied upon by Burkholder in his defense to Hutton's claim, are inapplicable to these transactions and to Burkholder's account because a commodity futures trading account is neither a "security" nor an "investment contract" within the embrace of the Securities Act of 1934. Milnarik v. M-S Commodities, Inc., 457 F.2d 274, 275 & n. 1 (7th Cir.), cert. denied, 409 U.S. 887, 34 L. Ed. 2d 144, 93 S. Ct. 113 (1972); McCurnin v. Kohlmeyer & Co., 340 F. Supp. 1338 (E. D. La. 1972); Sinva, Inc. v. Merrill, Lynch, Pierce Fenner & Smith, Inc., 253 F. Supp. 359, 365-67 (S.D.N.Y. 1966). Those few cases which have reached a different conclusion on this question have involved discretionary commodities accounts, thus distinguishing them from the present case, where it is undisputed that Burkholder controlled his own account. See Marshall v. Lamson Bros. & Co., 368 F. Supp. 486 (S.D. Iowa 1974). Defendant's arguments that this account should be considered a discretionary account by virtue of the liquidation powers given Hutton by Paragraph 4 of the Customer Agreement signed by Burkholder (Plaintiff's Exhibit 10) is unconvincing. Further, Burkholder's reliance on Booth v. Peavey Company Commodity Services, 430 F.2d 132 (8th Cir. 1970), is misplaced. While the Court in that case held that a private right of action for churning a commodity account is permitted by the Securities Act of 1933 and the Securities Exchange Act of 1934, the Court never reached the questions of whether the commodities account in question was a discretionary account and whether a non-discretionary account could be considered a "security" for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934. Instead, the Court affirmed a directed verdict for the defendant on the basis that insufficient evidence of "churning" had been adduced to warrant submissions of the case to the jury. Significantly, the Court stated that to establish a case of churning, the plaintiff must prove, inter alia, that the dealer has control of the account. Given the element of dealer control, causes of action based on churning would necessarily be limited to discretionary accounts.
5. Regulation T of the Federal Reserve Board (12 C.F.R. § 220 et seq.), also relied upon by Burkholder in his defense to Hutton's claim, is also inapplicable to the present case. That regulation applies only to "credit that may be initially extended and subsequently maintained on any security." Securities Exchange Act of 1934, § 7(a), 15 U.S.C. § 78(g). Burkholder's account is not a "security."
6. With respect to Burkholder's contention that all disputes between a customer and his brokerage firm with respect to the customer's account must be resolved and the ministerial task of actually correcting the errors on the record must be completed before the firm may liquidate the account, the Customer Agreement signed by him contains no such requirement and the imposition of such a requirement would be unjustified since one of the purposes of liquidation is to remove the account's positions from the continued risk of the market so that the disputes may be accurately resolved.
7. Similarly, contrary to Burkholder's contention, it would be unwise to require a brokerage firm to continue to subject a customer's account to the risk of the market while the firm attempts to secure additional funds from the customer when the customer has not deposited additional funds within a reasonable period of time as determined under the circumstances of the particular situation. The Customer Agreement signed by Burkholder explicitly recognizes this by stipulating that Hutton need not make margin calls as a prerequisite to liquidation.
8. On the basis of all of the facts and circumstances known to Hutton on June 28, 1974, Hutton's decision to liquidate Burkholder's account was a proper exercise of the authority given to it by Burkholder pursuant to the terms of the Customer Agreement recited in Finding of Fact 2 hereof.
9. In view of the findings of fact recited herein, and the evidence adduced at trial, Burkholder's counterclaim for punitive damages is without basis and must be dismissed.
Oliver Gasch, Judge
Date: May 19th 1976
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