the court my name is howard stein and i represent the appellants and cross affably straits financial l l c in this appeal we have a very interesting case that presents a number of issues i'd like to first focus on the mitigation issue and obviously the panel may want to reverse my focus but i think that's a clean issue and we need to get right to it to see whether how the how the court the final ruling on this issue here is and it's undisputed set of facts that the customer of a brokerage firm received multiple confirmations and statements of activity in his a after a time when he said to the broker according to the court and according to the customer no more trading in mica there's no question it got him there's no question he understood them we went through a lot of testimony that there's no point to any oh we can you're on first of all there are a lot of cases about triggering it and particular situation like this because most of these cases are actually arbitrated and you don't get a lot of rulings on this most of the cases cited are actually statements he got on didn't look at him and in fact up held the arbitrators conclusion that there was a mitigation of damages southern district court judge finding that in fact that that was sufficient that there was something the arbitrators could do yes but arbitra trip carter said stopped trading in this account shut it down which happens in the middle of march if i remember correctly yes and we accept that as a finding of fact it's not clearly erroneous and he also knows that he still has the thirty three hedge account i'll call it so the fact you know even if somebody said to him you know hey these letters are coming in from straights for you he wouldn't have any particular reason to think that that was odd because he knows he has the thirty three account with them why once he's told them to shut it down should he anticipate that there's that they've just disregarded that instruction well i would say multiple reasons one your honor for example there's not one or two of these that i can understand but there is a total i believe it was twenty three of our little bit of why does that matter i mean it seems to me we're all subjected to a plague of of mail from from these things and you know sometimes it's you know we're having a meeting or sometimes the sheer number if your argument is because there are a lot of them he should have realised that the thirty five account was actually contrary to his instructions being traded i don't know why the number tells you that the obviously the fact that he was not this is a clean case because there this is the only issue in the case is that he obviously did not open or at least that's the matter of regulation are required to send out these stadiums and they do send out the statements which clearly indicate the information that in this particular case for sure i say don't trade the statement count that if the brokerage firms cannot rely upon that information the costs in the system are going to be dramatically increased because what is appropriate from supposed to do in this i thought your managers were looking at this kick out with quite a bit of concern there's no indication from the front there was there were many accounts for many reasons there was discussion about that there's no finding by the district court that my client you know somehow was involved or knew of or sort of no there's nothing like that found by this to court and we don't have any information i know but in terms of if we're talking about who's in the better position to avoid the costs here you all are the sophisticated folks in the business right and you know what an authorized trading can look like and do that and they were the ones who hired mr perkins right that would go to the question of supervision and their point the information is even so let me see if i get this straight though to go back to your answer to judge roaders question it sounds like the answer to authority imposing a duty on a fraud victim to mitigate damages before having actual knowledge of the fraud use virtually nonexistent i would say it's also had existence the other way also you are well we have a we have pretty general principles concerning duties to mitigate and you know contributory negligence not being a defense to fraud and so on which all seem to to apply here so are you asking us innocence to say that because of the particulars of the commodity futures trading industry there are some special rules that come into play we should modify those common law principles i think the fact that this is a commodity or for have our securities trading situation clearly is the trigger for this and the reason for that is that once that information goes out to the client and it's available in clear form and that's not disputed in this case we now have an even ng of the possibility on both sides of the terminating whether or not there's a fault what's the cost the customer he opens the document that's it what's the cost the brokerage firm however t quiet hasn't gotten a document doesn't understand they know if if the statement itself is not enough to trigger responsibility on the customer but the brokerage firms now have to undertake substantial additional additional costs in the form of calling customers how do you know a customer does has an open a statement there's no way to do that without going to you've got thousands and thousands of it was have you help how often do you have how often do you have brokers and gauged in an authorised trad but you would never know that or how would you knew that happening a lot no we've never my clients never had the situation before it's the only record was there so the only case it's ever been brought against my client certainly again that might be a factor that might tip it over we're not asked we're not saying that as a matter of all the mere receipt of a statement triggers that do it i'm not saying it what i'm saying is that that it can trigger love the related account author's authorization indicates that the account we use all existing agreements maintain an existing on file with straight which was not sent to tensely per card or what about that well i think that's a different issue in the mitigation but at the end yes i would i would have to answer that i'd like to you know i'm afraid to even g and self we maintain those documents in fact the the compliance record straights testified that she actually reviewed all those statements to determine the completeness of those statements i s the business of throwing questions out of you before this is over i would like to understand why opening a totally speculative account such as the thirty five accounts didn't materially alter the  risks that mr carter bore is a guarantor it seems to me that at least has to go out the window because he thought he was guaranteeing a hedge account which is a risk reduce or not a speculative account which is a risk  say you're guaranteeing a hedge account but that's not what that's it says you're guaranteeing all i bill it's ok it's not a specifically limited to the thirty three account and therefore and that's why that language is important in the case guarantees even when they're transferable is if it turns into something significantly different it doesn't carry over by operation of law right and and in this case the and again we're talking specifically about the guarantee not about the related account agreement as it affects the customer on the specific question the guaranteed i gree that is so that's a different situation because he didn't sign beyond those specifically known at the time he signed the guarantee as broad as that is covers the additional you know if a potential loss from a different account that he executed in stein if we were talking about just a you or your clients original claim and we were debating the fine points of the documents maybe it works maybe it doesn't with the assignment with the broad language in the guarantees knowledge not in you not a contract as we did not argue but i called common law refutations to your saying that mr carter when he signed these documents was agreeing that you would have a good defense to fraud if he didn't one thing that's been truly significant in the federal courts here in chicago over the last ten years in this industry has been the sentinel bankruptcy yes half a billion dollars or more losses in that case it turned out there were lots and lots of legal protections against fraud by futures commodity merchants but they're not perfect in who your partner partner is in a contract matters character matters and that's why i'm very troubled by the assignments and the the failure of the straits financial to document its relationship with mr carter and his company directly you know you're  relying on guarantees given to somebody else who knows you know how reliable this new partner is going with it as the testimony was during the trial court or that's a common way of dealing with things and ministry number one and number two there's a reason for it is because there is sick when brokers brokers change firms all the time that's just a fact of the matter and when they change firms almost always they bring their customers along as most customers want to have that broker handling their account so there's already a relation chip established with the underlying broker and therefore the documentation that was entered into this case for example it took weeks before the documents went back and forth mr carter you know he's got a whole half the time now to get back there it could be weeks if you want to enter trade can't do it until there's an account agreement that that's what happened here they did that of the testimony was it's you know it's not universal but it's certainly not uncommon it happened in fact some of these documents not from mr corner were actually from two firms before because mr carr had actually gone to r j o from so we have a situation here and you know walk would do could this be a situation where you know had mr carter just one time opened the document and looked at it no question that triggers if there's a situation where no determination whatsoever that straits was participatory in any manner in that frock so when we get down to that other than his rhetoric strict liability we're liable only because did it was transferring the count with now mention whatsoever of the agreement yes so of course i'm wondering why shouldn't the failure to mention the agreement in not notice to ten accounts on file is specific enough to have put him on notice that there what does that mean if there's not another account agree on file you're signing a doc and doesn't mean that we the court or the court can very clear that you're not going to interpret a document to be don't understand how you can assign an account in the abstract without assigning the undermining agreement there are all sorts of things in account agreements such as you know what the charges will be and how much margin needs to be rounded is i t your position that tensely been carter just thought they had this sort of disembodied account floating around with no contractual terms related to anybody no that's not our position but keep in mind so what's the agreement that well there is no requirement that there be a written agreement under the commodities exchange act regulations and why don't i remit did he think he had i mean apparently there were some favorable aspects of the r g o agreement that straights continued because it was  and heritage agreement well i think quite simply the egremont that he thought he had was that you will follow my instructions when i tell you to trade my account you trade i want to tell you to stop trading my account you stop trading it for what sorry for what fever whatever the posted  it's there's been no evidence that the fees that are geo and straits were the same so i don't know because that wasn't explored at trial but there is no requirement that there be a written account agreement and so the fact that the the related account authorisation is potentially rendered meaningless if it doesn't incorporate the straits agreement is irrelevant and really it's on them because they're the ones who control the document drafting and well i'm not so sure i mean days they send a negative consent letter it gets moved perkins is still the broker sad to say and there's so so you're portraying this is kind of an agreement free world along the free world that somehow it's possible to divorce the account from the underlying agreement and i'm not saying that i can do that i'm not saying that all your honor because that's the basic agreement between a firm and the customer is that you will follow my instructions so how do we know what kind of an account it is you know if after the transfer is perkins who decided to handle the thirty three count as just kind of fund money how do we know that that would have been in any way beyond the scope of any agreement by the paperwork at that was filled out which indicated that it was a hedge account well so you're saying that the our g a o paperwork did transfer over that well visit i mean which part of it because actually there's a lot in the r j o agreement that doesn't help your client such as the ability to offset rights you know right now we are we are very definitely saying that the physical document was not badly assigned these are the the thirty five account which is what the district court so in other words anything in that r j agreement that protected mr carter is also out the window because if there's no agreement there's no agreement account had transferred over that probably would have been a valid assignment why why does that make sense because they're always worrying about is whether the underlying agreement is also part of the assignment process because the mere transfer of the account from one features commission merchant to another one didn't materially increase tensely risk if that's all that happened was that the thirty three account moved from one from to the other and the the initial assignment is not invalid just because of the fact that tensely didn't get notice and that's not what our argument is and i and i understand it i'm just saying that accounts aren't like you know portraits or something you know if you assign the ownership of an account it really is a creature of agreement you know it's purpose it's the amount of money the duties and it's not just sort of some things that hangs out there march in june that's correct is there any evidence that they discussed the thirty five count was hit harder practice to conduct business with perkins by the that's true they did conduct all their business by phone mr carter doesn't use e mail he doesn't tax he's not a computer literate person so they mr carter's only point of contact with strai residence ring could have seen the notices that were sent by straight know the evidence was that most of the time mr carter was out of town but most of the times what judge rover's asking is that like a that is true he was home at certain times yes but i've i'm trying to quantify certain time and day to day only the testimony was that he was consumed with the work with his cattle herds and that we didn't develop in the records specific dates and times when he was home but if you look at the phone records it can show you  of roughly where cars movements were during that time period so i would like you to address two things with respect to into all of this one of them is the date after which the duty to mitigate or rose to district judge says he some of this is on him and then as far as i can tell the district judge took a dart threw it at the wall and it wound up on june tenth and i can't find an explanation for that i feel as though perhaps factual development on that issue was necessary because i think the judge is correct that some of this is on mr carter i find it troublesome that he never open mail and i also find it let's just say notable that the minute he finds out that there's a problem around june twentieth all of a sudden people are sitting in his lawyers office who presumably is a person who is sophisticated enough to figure out that something's amiss so you know so where does june tenth come from why shouldn't we at least have a factual exploration of perhaps the days when he was at home when did his duty to exercise some diligence on his own part actually arise well the jury the duty of rose on june twentieth when he actually discovered the problem and that's it but he may have but see here's the point of this whole system under the commodities futures trading system things don't always go the way they should so in the middle of march he says shut down the thirty five account he gives that instruction but the system has a failsafe in it which is that the broker is supposed to the f c m is supposed to send these notices and so for those slippage is which occurred which clearly seems to have happened here he could have found out very promptly that his clear instruction was being disregarded by perkins and all you did do was pick up his phone and call somebody call straits tell perkins you know whatever and say i told you to shut this down you're not doing it and more could have happened well that argument is saying that carter had a duty to exercise due care and due care i because he has this commodities account he has i mean you know if if i just took my bank statements and regularly threw them in the wastebasket then it would behoove me very cordially to complain that the bank never told me i was overdrawn if the bank was in fact trying to tell me i was overdrawn i mean i am troubled by his his choice not to look at these statements well from his perspective the account was shut down and it was the furthest thing from his mind because he was preoccupied with the work that needed to be done on the ranch but i want to get to the case of the talk about this obligation on the part of a futures commission merchant to notify the customers about their duty to report a problems with the account and this is reflected in a number of cases cited by so both sides the sherwood v case and what those cases say that the burden to inform the customer of their duty to complain is on the firm and that warning must be clear and unequivocal and the only warning that is in evidence here is what set forth in the r j over email well but somehow you're saying that straights can't comply with that obligation by just mailing him a letter obviously you can't email him either because he doesn't use email or text in the could have called him so who they could have called him i mean perkins was calling him right but let's not forget the else was supposed to come straight to compliance department streets risk manager they've got an account that is not only a hedge account for trading cattle futures and instead what it has in it is wildly speculative trading in very large make it positions of u s treasury treasury bond fields where is that i mean i recall that something someplace there was an indication that those thirty five account was a second account where where do i find that it's i can't recall the exhibit number off off the top of my head your honor i can i can file something supplemental to that but it is in the record there are e mails  i remembered reading that  but somehow the evidence is that carter thinks it's me there something's weird about this right because the three hundred thousand dollars in the middle of march gets handled very much off the books gets handled with you know a check being sent to right half of the payment going back right perkins you know it's not a hedge account that's not the way he's handled his hedge accounts well that's true but he also doesn't know that what perkins is doing even at that point is  illegal i don't know that i've ever seen a fraud case where it was not possible to criticize the victim for having failed to take some measure that might have prevented fraud along the way that there are a number of different checks and balances in place here than a question ok right and just to get back to my point that straights had you know more information at hand than mr carter did the only information mr carter had were these daily statements which were even called trade confirmations are called daily statements but he doesn't know what's in the envelope i take it that the record shows that had he opened one of these and floats he would have seen that it was the thirty five account and it was being traded that there was a transaction that day and then there's a there are a couple of monthly statements come along too and i mean you can tell me if you disagree with that but i thought that what i was being told was that had he opened it he would have understood he he did say that but the context i think is important he didn't truly understand the statements were showing him in hindsight he now understands that oh i should have caught that but he did say that on the record i will concede that but  understands is a fairly typical assignment of an account from one s c m to another and the broker has moved in so people do that there are these negative consent letters i understand you think none of that is adequate but that that's how it got there and you seem to have agreed that there's somehow some kind of an agreement i still can't quite figure out how that there's something something that says you'll work for me how should straights ha notified him that trading was going on in the thirty five account and that he was getting huge margin calls on that account they should've called him and he was told about the margin calls by perkins but he was told that they were for the other account but he didn't think there were going to be margin calls i thought i think he was i thought for the hedge account he did that's right he didn't think there would be hedging margin calls for the thirty five account or the thirty s no no he did know that there would be had there been margin calls for the thirty three account so that raised no alarms for him at all so when stories in the volume you know are the no no and the reason for that is because during his time period cattle prices were kind of volatile  but that's so as far as how straight should have notified him to call him up that's what most firms do when they see trading that's outside the parameters that they have in their files this is supposed to be a cattle hedge and you count mr carter why are you failed to do and their failure to do that meant that the phone call that you're talking about never happened well we dismissed that that's what i'm saying did you but the evidence is still relevant to our consumer fraud claim and also to this issue the you know whose burden is it who's who's the fault here and to hold mr carter to a negligence standard which i think is improper under the law in the cases that we cite it should work both ways didn't straights have a duty to mitigate when it had all this information available to it that it's just completely disregarded and while just kind of watched the values in the county plot until it was finally negative almost two million dollars never pick up the phone to call the customers say is this really what your intentions were this generation we're being told that if we agree with you we're going to be undermining commodities trading because the poor merchants will be vulnerable to sophisticated clients who withhold we don't react to losing trades until the until it's clear that they have turned out to be losing trades coco serious should legal seriously should we take that risk well these are always back specific cases and if you're dealing sophisticated trader you know that's going to factor into the analysis but as we note in our briefs it's never going to be to the customer's advantage to know about and i'm not their eyes trade that is losing money into sit there and continue to watch it as it losing money hoping that it turns out for the best that's not in the customer's best interest and that would not be rational behavior it's very unclear to me how you kind of at what point street should have done something different if all of these things had happened and our j o had been the broker would you be here well with all due respect i don't think this would have happened at r j oh well i mean but you never know they're never that apple's ever never know i've been a bad apple i think we would still be here we would so in other words the transfer doesn't mean anything well because with r j oh the original account agreement was there mr carter signed it well it's a difficult hypothetical because it there's a lot of assumptions that would have to be made what assumptions you know i i'm just trying to trying to figure out how important the nature of the underlying agreement is to you and how important the subsequent behavior of the young authorized trades is so if we hypothesize that we just pull out this one step it never moves from r j zero to straights it just stays at r j zero but it's perkins and perkins convinces him to open the second account and perkins ignores his instruction to stop trading it cetera that you know all the rest of things stay the same what difference in your view well it's again it's hard to imagine that scenario because there would presumably be that one would hope that the lack supervision in this case would be the exception and that well but i'm asking you because as a matter of law i'm trying to figure out how important  case there the court said well you know what your conference is in good enough to put the customer on notice of their duty to complain because it's inconsistent with your account agreement because they can't agree even said call our compliance department if you have an unauthorized trade in your dream it just says call our firm immediately if you have a problem and the court said that creates an ambiguity that relieve the client of the obligation to timely complaint and in that case they the customer actually prevailed in that case except for with respect to certain trades that occurred after the customer started talking to firm management and the broker was out of the picture you know i have been wondering about this quarter's have access to a  i'm just wondering how you know it never happened however well because the testimony was that mr perkins well based on the testimony and the records and evidence there's no evidence that mr chapman was involved in any respect and he wasn't i want to just one of the point that you raised as far as whether we need to remember this case for a hearing on when the duty to mitigate arose you know our position that it arose on june twentieth but to the extent the court disagrees with that there's no need to remand the case for that hearing because the district court already made a determination well i know the district court said it was june tenth right but i was looking for a reason you know like what happened on june tenth or what you know how did it s up to creating a duty to mitigate at that point why not june ninth you know why not june first well i think i can understand reasons that might push back into march i could understand a theory that might say you know he was simply not at home and hypothetically we did and we understand your position that we should push it to june twentieth but but for the sake of discussion you know if we think there is some earlier date so the last record trades june fourth so how do we get to t from there well at the last unauthorised trade was on june fourth and if you figure that it takes about a week for the mail to get from chicago to tensely wyoming perhaps that was what it was in the district court's point we don't know but we also know that the district court heard evidence and was urged by straights to consider and accept several other alternative dates and the district court rejected those dates they urged the court to say april fifth was the day because that was the day that the last  osition was put on the lead to the losses and the district court heard that evidence for the argument rejected it straight's urged the court to adopt may tenth is the date because of you look at the phone records evidently mr carter was in or near his home on that date heard evidence heard argument rejected that but doesn't really tell us why not and why june tenth was better well there's there's no streets is not every point of the court to anything in the record that would be a better day other than the dates of the court's already considered and rejected and it just gets to the fundamental problem here was that the district court found that the date to mitigate a rose before the date that carter actually had knowledge of the world looks like a rough compromise may or may not stand up but  found but in fact in this particular circumstance if the choice is between do you allow this to happen which has an impact on the industry by virtue of the fact that they are straight is going to about the problem problem is we have to choose at least as you frame it between the principal who hired the fraudster and the victim fraudster in a normal situation that would be true but again the information now has been brought to about whole playing field we're not talking about an initial hiring of this person we have a web all playing field that both sides now mr corner has the same information all in essence neither neither side is opening