Dirk L. Witter, Petitioner
Commodity Futures Trading Commission, Respondent.
Submitted July 22, 2016 [*]
for Review of an Order of the Commodity Futures Trading
Commission. No. 08-R045.
Wood, Chief Judge, and Rovner and Hamilton, Circuit Judges.
a tale of miscommunication. Our task is to decide where the
resulting loss must fall. It involves some futures
transactions that Dirk Witter, whose broker was TransAct
Futures, was trying to stop. Witter contends that he
telephoned Robert Skelton, an employee of TransAct, with
instructions to cancel several standing orders. What is clear
is that Skelton did not do so, and Witter lost $23, 000 on
the resulting market position. What is unclear is why Skelton
did not act: Witter says that Skelton disregarded his
instructions, but Skelton says that Witter never told him to
cancel all seven of the working orders at issue. Witter filed
a complaint against TransAct and Skelton with the Commodity
Futures Trading Commission, see 7 U.S.C. § 18(a), but it
found that neither one had violated the Commodity Exchange
Act. See id. § 6(b). Witter has filed a
petition for review from that decision, but we conclude that
the Commission's decision was supported by the evidence,
and thus we deny the petition.
events that preceded the disputed phone call began in the
summer of 2007. Witter started using TransAct that summer to
broker trades in the commodity-futures market. He usually
placed his trades online, but he often had problems with his
trading software, requiring him to call TransAct for help. On
the night of August 16, 2007, his trading software stopped
working. At the time, Witter had one open position (meaning
that he was obligated to comply with the terms of a contract)
in E-Mini S&P futures contracts. He also had seven
working orders (standing instructions to enter into a
contract if the market price reached a specified value),
which he previously had set up using the trading software,
for additional positions. After calls to the software company
went unanswered, he phoned TransAct and spoke with Skelton, a
customer support representative.
parties recall this conversation differently. According to
Witter, he gave Skelton two instructions: (1) place a
stop-loss order (an instruction to limit his loss) on the
open position in the E-Mini S&P, and (2) cancel all seven
working orders. Skelton disputes the second instruction.
According to Skelton, Witter told him to cancel only three of
his seven working orders-those for Treasury and Dow Index
futures contracts. Witter, he recalls, told him not
to cancel the four working orders for E-Mini S&P
contracts. TransAct says that it did not record this call.
problem came to light the following morning. Witter was still
unable to log into his trading software, and so he called
TransAct to check on the status of his last trade. He spoke
with another customer service representative, Tom Su-rico.
When he asked Surico to "tell me what my current
position is in the mini S&P's, " Surico
responded that he was "flat" and that he did not
see a position. TransAct recorded this call. When Witter
logged into his online account later that day, he noticed
that its overall value had decreased by over $23, 000.
Believing this was an error, Witter called TransAct. An agent
told him that the values were correct because he had lost
money on a new trade that morning. Witter responded that he
had not made any trades that morning and wondered if TransAct
had failed to cancel all of his working orders. The agent
replied that TransAct had not received instructions to that
effect. Witter ordered TransAct to "check the
tapes!" of his phone call, which, he said, would prove
that he had asked TransAct to cancel the seven working
orders. Witter later learned that TransAct had not recorded
the critical call.
complaint to the Commission, Witter claimed that TransAct and
Skelton violated the Commodity Exchange Act. See 7 U.S.C.
§ 6b(a). He focused on their alleged failure to follow
his instructions to cancel all working orders. As he put it,
"I believe TransAct is lying. I believe that Rob
[Skelton] made a mistake and cancelled 3 orders but failed to
cancel the other 4." He continued, "I believe that
TransAct is lying [about not recording his phone call to
Skelton]. They have the recording of that conversation. The
problem is that it verifies my story and proves them
case proceeded in stages. First, Witter invoked the
Commission's summary procedure, see 17 C.F.R.
§§ 12.200-12.210, under which a judgment officer
decides the case based on the parties' verified written
submissions, id. § 12.208, and, if necessary, a
hearing, id. § 12.208-09. The judgment officer
conducted a telephone hearing, at which both Witter and
Skelton testified. After considering the evidence, the
judgment officer dismissed the complaint, finding that Witter
had failed to prove his allegations by a preponderance of
that evidence. Both Witter and Skelton, he explained,
testified sincerely-if "leavened with a bit of
self-interest" - but overall he found that Skelton's
version was more plausible and Witter had a "propensity
to confuse trading terms" like "position" and
"order." The judgment officer refused to draw an
adverse inference based on TransAct's failure to produce
a recording of the "one crucial conversation"
because TransAct was not required to record the call.
Finally, he added, even if Surico had not reminded Witter
about his working orders, Su-rico did not violate the
Commodity Exchange Act; the phone recording reflected that
Witter had asked Surico to focus only on the position that
TransAct had closed the night before.
appealed that adverse judgment to the Commission, see 17
C.F.R. § 12.210(e), which remanded the case for further
discovery on whether TransAct had recorded the call between
Witter and Skelton. A recording of that call, the Commission
thought, would be the best evidence of whether Witter had
instructed Skelton to cancel all his working orders. It
noted, however, that if discovery about the recording proved
fruitless, the Commission would find no clear error on the
current record and defer to the judgment officer's
remand, Witter submitted evidence that TransAct's phones
were capable of recording multiple calls simultaneously on a
single handset. TransAct conceded that its phones had this
capability and that it often records calls for training
purposes. But, it explained, its system was configured to
redirect some of its incoming calls from a handset already in
use to a handset not in use, and redirected calls did not get
recorded. When Witter called, Skelton "was currently on
another line helping another account holder, " and the
phone system redirected Witter's call to a nonrecording
line. Considering the new evidence, the judgment officer
concluded that Witter had not shown by a preponderance of
evidence that TransAct recorded the call. Skelton, the
judgment officer found, was on his recorded line with another
customer when Witter's call came in, and Witter's
call was redirected to another handset that did not record
the call. The judgment officer therefore declined to draw an
adverse inference from TransAct's inability to produce a
recording of the call. Relying on his original credibility
assessment, he dismissed the complaint. The Commission,
seeing no error in the judgment officer's findings,
considering Witter's petition for review, see 7 U.S.C.
§ 18(e), we begin with a comment on the standard for
reviewing the factual findings. The Commodity Exchange Act
once required the courts of appeals to treat the
Commission's findings as conclusive if supported by the
"weight of [the] evidence." 7 U.S.C. § 9
(2009); see id. § 18(e) (referring to § 9
to determine procedure for judicial review); Hlavinka v.
Commodity Futures Trading Comm'n, 867 F.2d 1029,
1032-33 (7th Cir. 1989). But when Congress amended the Act in
2010 it removed that language. See 7 U.S.C. § 9 (2016);
Chu v. Commodity Futures Trading Comm'n, No.
13-73294, 2016 WL 3006934, at *2-4 (9th Cir. May 25, 2016).
In Chu, the Ninth Circuit concluded that the removal
of the standard was "purposeful, not accidental."
2016 WL 3006934, at *3. That court thus turned to the
Administrative Procedure Act, 5 U.S.C. § 706, for the
new standard and applied the "substantial evidence"
standard from § 706(2)(E). Id. at
""4. The Commission concedes that the APA now
governs the standard of review, but it argues that in this
case "arbitrary [and] capricious" is the standard,
5 U.S.C. § 706(2)(A), not "substantial
evidence." We agree with the Ninth Circuit that it is
proper to turn to the APA for the standard. As for which
standard to use, putting to one side the fact that the
difference between "substantial evidence" and
"arbitrary and capricious" brings to mind angels
dancing on the head of a pin, see, e.g., Aman v.
F.A.A., 856 F.2d 946, 950 n.3 (7th Cir. 1988), we do not
need to take a position in this case. The Commission's
findings are supportable either way.
first argument has both legal and factual aspects. He
contends that the judgment officer should have drawn an
adverse inference from TransAct's inability to produce a
recording of the call between him and Skelton. TransAct, he
says, had a duty under both federal regulation, see 17 C.F.R.
§ 166.2, and its customer agreement to record the call.
And, he continues, the evidence about TransAct's phone
system required a finding that, because Skelton's
telephone was capable of recording multiple calls on a single
handset, Witter's call to Skelton must have been
recorded. Witter adds that if (or to the extent that)
TransAct configured its phones to redirect some incoming
calls to unrecorded lines, that action was a reckless
violation of federal regulation and the customer agreement.
legal and factual contentions are both wrong. TransAct had no
duty to record the call between Witter and Skelton. Federal
regulations require that, before buying or selling a
commodity, a merchant such as TransAct must receive either
"specific authorization" (the "precise
commodity interest to be purchased or sold" and the
"exact amount" of that interest) or
"authorization in writing." 17 C.F.R. § 166.2.
No regulation requires the merchant to record phone calls to
cancel previously authorized orders to buy or sell.
Nor did TransAct's customer agreement include any such
requirement. The agreement says only that the customer gives
TransAct permission to record calls, not that the company
must do so. Moreover, although evidence showed that TransAct
was capable of recording-and sometimes did record-multiple
calls directed to a single handset, that evidence did not
require a finding that Witter's call to Skelton was
recorded. The judgment officer could reasonably rely on the
evidence that ...