French to arbitrate his dispute and cease prosecuting his complaint at the CFTC. The case is before the Court on the motion of Bache for summary judgment and the motion of French to dismiss.
The facts essential to deciding this case, although somewhat sketchy, are not in dispute. What is in dispute is the legal consequences that flow from these facts. The determination of these consequences involves the reconciliation of two federal statutes representing, under the facts present here, two conflicting federal policies. On the one hand, there is the Arbitration Act, which provides for the judicial enforcement of arbitration agreements contained in contracts, such as the one at issue here, involving interstate commerce. This Act and its underlying policy in favor of arbitration is advanced by Bache. On the other hand, there is the Commodity Act, which provides for the administrative resolution of disputes between commodity customers and their brokerage firms. This Act and its underlying policy of creating an administrative forum for settling commodity disputes is put forward by French. For the reasons that follow, the Court is of the opinion that the policy represented in the Commodity Act affords an adequate basis for denying the relief sought under the Arbitration Act. Accordingly, the motion of Bache for summary judgment must be denied and the motion of French to dismiss must be granted.
By its terms, Section 4 of the Arbitration Act provides for the judicial enforcement of arbitration agreements so long as the "making of the agreement for arbitration" and the "failure to comply therewith" are not "in issue." 9 U.S.C. § 4 (1970). As such, Section 4 of the Arbitration Act embodies a federal policy favoring the arbitration of disputes between parties who have contractually agreed to arbitrate. This policy, however, is not without judicial exception. Where compelling the arbitration of disputes conflicts with other important federal policies, the courts have frequently refused to order arbitration. The leading case is Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953). In that case, the Supreme Court recognized "the desirability of arbitration," yet nevertheless held that an agreement to arbitrate future disputes between a customer and his securities brokerage firm was not enforceable under the Arbitration Act where arbitration interfered with a conflicting federal policy reflected in the Securities Act of 1933. Id. at 431, 98 L. Ed. at 173. That policy was to make the federal and state courts the primary forums for settling disputes involving violations of the Securities Act. Id. To the same effect is American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). There, the policy of the Arbitration Act favoring arbitration was found to be insufficient to override the policy of the federal antitrust laws favoring the judicial resolution of disputes raising antitrust claims. Id. at 826-27. As stated in American Safety, "In some situations Congress has allowed parties to obtain the advantages of arbitration if they 'are willing to accept less certainty of legally correct adjustment,' [citing Wilko ], but we do not think that this is one of them." Id. at 828.
Nor does the instant controversy present such a situation. There is no principled reason why the exceptions to the Arbitration Act carved out in Wilko and American Safety with regard to securities and antitrust laws should not apply here with regard to the Commodity Act. Like the Securities Act of 1933 (Wilko) and the antitrust laws (American Safety), the Commodity Act is a remedial measure designed to protect the integrity of the marketplace. S. Rep. No. 93-1131, reprinted in 3 U.S. Code Congressional and Administrative News, 93d Cong., 2d Sess. 5856 (1974). And like the Securities Act and antitrust laws, the Commodity Act specifies a public forum as the means best calculated for resolving private disputes in a manner that protects the marketplace. This public forum is the CFTC,
which is charged with the responsibility of entertaining and bringing its expertise to bear upon complaints seeking reparation damages for violations of the Commodity Act, CFTC rules, regulations and orders. 7 U.S.C. § 18 (Supp. V, 1975). Reparation actions under 7 U.S.C. § 18 are initiated by the filing of an administrative complaint, followed by an answer, a hearing and decision by an Administrative Law Judge, application for review by the full Commission and judicial review in a United States Court of Appeals. See 7 U.S.C. §§ 18(a-g); 17 C.F.R. § 12.1 et seq. These procedures contemplate full, expert administrative adjudications of claims under the Commodity Act in much the same way that the Securities Act (Wilko) and the antitrust laws (American Safety) contemplate full, expert judicial adjudications. It follows then that ordering private arbitration of the present dispute, involving as it does arguable claims under the Commodity Act, would be inconsistent with the Commodity Act and its underlying purpose of shifting regulation of the commodity markets to the CFTC. See Arkoosh v. Dean Witter & Co., 415 F. Supp. 535 (D. Neb. 1976) (arbitration ordered on the express finding that the dispute failed to raise claims under the Commodity Act).
This view is supported by the legislative history of the Commodity Act, which makes clear that reparations actions are "intended as a separate remedy designed to supplement the informal 'settlement procedures' contemplated of the contract markets." H.R. Rep. No. 93-975, 93d Cong., 2d Sess. 22 (1974). If reparations actions are intended to supplement the informal settlement procedures established by organizations dealing in commodities, certainly they are intended to supplement the informal settlement procedure of private arbitration. This is precisely the position taken by the CFTC when, in promulgating regulations under Section 8(a)5 of the Commodity Act, 7 U.S.C. § 12(a)5, it stated "all pre-dispute arbitration agreements that do not satisfy the conditions [applicable to the informal settlement procedures of the contract markets] will be null and void, including those heretofore signed by customers." 41 Fed. Reg. 42944 (September 29, 1976). For all that appears of record here, there is no reasoned basis for disagreeing with the position taken by the CFTC.
Separate and apart from the foregoing, there is an additional reason why the relief sought by Bache in this matter should be denied. Bache seeks an order not only directing French to arbitrate his dispute but also enjoining him from proceeding further with his currently pending reparations action. Although the relief sought is framed in terms of enjoining French's activities as an individual, it would, if granted, have the effect of enjoining the CFTC from proceeding to process French's complaint under 7 U.S.C. § 18. Viewed in this light, what Bache in effect is seeking is a stay of pending administrative action in favor of private settlement through arbitration. Such a stay is neither permitted by Section 3 of the Arbitration Act, 9 U.S.C. § 3, nor required as a matter of equity, absent some showing that Bache will suffer irreparable injury if called upon to defend the reparations action. See Shearson Hayden Stone, Inc. v. Miles, Dkt. No. 11654-76 (N.Y.S. Ct.) (August 4, 1976) (refusing to stay administrative proceedings at the CFTC as a matter of federal law).
Accordingly, it is this 14th day of January, 1977,
ORDERED that the motion of plaintiff for summary judgment is hereby denied, and it is
FURTHER ORDERED that the motion of defendant to dismiss the action is hereby granted,
PROVIDED, HOWEVER, that nothing in this order shall prevent the parties herein from having their dispute submitted to arbitration in the event that the CFTC determines that the controversy is not within its jurisdiction.
John J. Sirica / United States District Judge