Commodity Futures Trading Commission 

CEA CASES 

NAME: GEORGE F. FREY JR. 

CITATION: Comm. Fut. L. Rep. (CCH) P24,578; [1987-1990 TRANSFER BINDER] 

DOCKET NUMBER: 75-16; 192 

DATE: JANUARY 19, 1990 

DOCUMENT TYPE: DECISION AND ORDER 

NOTE: FORMERLY CEA DOCKET # 192 

[P 24,578] In the Matter of Frey.

Commodity Futures Trading Commission. No. 75-16. January 19, 1990. 

Opinion and Order in full text. 

Equal Access to Justice Act -- Prevailing Party -- Fees -- 

Enforcement Proceedings. -- An individual applying for legal fees and 

costs under the Equal Access to Justice Act was a "prevailing party" for 

EAJA purposes, since the CFTC had previously dismissed the underlying 

enforcement complaint against the individual in its entirety. Although 

the Division of Enforcement emphasized the individual's failure to 

prevail on certain issues and argued that fees should not be recovered 

for the time spent on such issues, under settled law, however, the 

individual's degree of success may be considered only in determining the 

amount of an award, and not whether he is a prevailing party. Also, the 

underlying enforcement action was a "covered adjudication" and was 

prosecuted in part by CFTC attorneys in accordance with the applicable 

procedural rules. 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

Equal Access to Justice Act -- Fees -- Enforcement Proceedings -- 

Showing of Net Worth. -- An administrative law judge erred in not 

requiring an individual applying for legal fees and costs under the 

Equal Access to Justice Act to make a more complete showing of net 

worth, as he was empowered to do, and in failing to enter an explicit 

finding as to the individual's eligibility. The abbreviated nature of 

the individual's financial presentation raised several questions about 

the exhibit's accuracy and completeness. Among other things, the 

individual did not certify the net worth exhibit. Moreover, the figures 

provided on the exhibit appeared to be no more than rough 

approximations. The absence of any liquid cash assets and the omission 

of any open trading equity from the futures markets were "striking." 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

Equal Access to Justice Act -- Claims -- Substantial Justification. - - For purposes of an Equal Access to Justice Act claim, the government's 

position that a claimant, along with another individual, violated the 

Commodity Exchange Act by manipulating and attempting to manipulate the 

price of an expiring futures contract on its last trading day was 

"substantially justified," as revealed in the evidence adduced. The 

Supreme Court has now ruled conclusively that the issue is one of 

"reasonableness," and no more. Applying that test, an administrative 

law judge's imposition of a more stringent test was vacated. The ALJ's 

placing of exclusive reliance on the CFTC's opinion as "the dispositive 

source to evaluate whether there exists such substantial justification," 

was also reversible error. The substantial justification determination 

must be made "on the basis of the administrative record, as a whole, . . 
. in the adversary adjudication." Finally, in finding that the CFTC's 

opinion leaves no doubt that the government made a mistake in 

instituting this action, the ALJ confused the very different concepts of 

substantial evidence and substantial justification (a different and 

lesser standard). 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

Equal Access to Justice Act -- Claims -- Reasonable Government 

Conduct. -- It was reasonable for the government to issue a complaint 

against an individual in a manipulation case based upon the evidence 

known at the time: the concentrated nature of the long positions in the 

expiring contract in question; the tight supply of the cash commodity at 

or near delivery points; the steep futures price rise on the last 

trading day; the individual's stated price objectives -- all paralleling 

the circumstances of previous market congestions. These frequent 

regulatory difficulties with these contracts, coupled with the 

government's success in prior cases, suggested that the government's 

position in filing the case was reasonable. The government also acted 

reasonably in bringing the matter to trial, since it offered factual 

evidence and expert opinion testimony to support its allegations that 

the closing futures price for that specific commodity was abnormally 

high in comparison with other relevant markets. The government also 

introduced evidence to show that stocks of that deliverable commodity 

were inadequate for holders of short futures positions and that the 

individual's trading strategies contributed to a price rise on the final 

trading day, thereby exacerbating existing market congestion. In 

addition, the government presented circumstantial evidence in support of 

its theory that the respondent intended prices to rise as a result of 

his conduct. Furthermore, since the respondent also offered an 

affirmative defense, it was reasonable for the Division of Enforcement 

to question the respondent's expert and others on that defense. The 

Division was under no obligation to make a pre-trial determination that 

the respondent would prevail on this defense before it had the 

opportunity to probe the substance of that defense at hearing. The 

Division also acted reasonably in opposing the individual's appeal from 

the initial decision, since "substantial justification" would not 

require the Division to abandon its victory before an administrative law 

judge, and to forfeit its opportunity to shape the law of price 

manipulation, solely to avoid EAJA liability. 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

Equal Access to Justice Act -- Claims -- Prior Agency. -- Equitable 

considerations precluded any fee award under the Equal Access to Justice 

Act against the CFTC for actions taken in an enforcement proceeding 

prior to a certain date, when the matter was under the control of the 

Department of Agriculture. Such a finding was not prejudicial to the 

EAJA claimant, since he could have sought timely EAJA relief from the 

agency initially involved. 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

Equal Access to Justice Act -- Claims -- Amount of Award. -- An 

administrative law judge's Equal Access to Justice Act award to an 

individual for the full amount of fees and expenses sought, without any 

discussion or analysis, was erroneous. If the individual's conduct 

during a certain stage of the case unduly and unreasonably protracted 

the proceeding, then the amount of the award should have been 

substantially reduced. Alternatively, if the individual's fee 

application sought to recover for an unreasonable amount of attorney 

time, then any award should be 
proportionately reduced on that basis as well. The ALJ also erred in 

awarding the full amount of expert witness fees sought since those fees 

exceeded the EAJA ceiling. 

See P 11,645, "Liabilities -- Prohibitions" division, Volume 1. 

The Division of Enforcement ("Division") appeals from the initial 

decision of an Administrative Law Judge ("ALJ") awarding legal fees and 

costs to George F. Frey, Jr. ("Frey") under the Equal Access to Justice 

Act ("EAJA"), 5 U.S.C. § 504, and the Commission's implementing 

regulations, 17 C.F.R. Part 148. n1 For the reasons discussed below, we 

grant the Division's appeal and vacate the award of fees and costs. 

n1 On August 5, 1985, the President signed into law a permanent 

reauthorization and revision of EAJA, Pub. L. No. 99-80, 99 Stat. 

183. The revised statute governs Frey's application because the 

underlying enforcement action was pending before the Commission on 

that date. 

The Underlying Enforcement Action

On June 30, 1972, the Assistant Secretary, U.S. Department of 

Agriculture, issued a complaint charging Frey and Edward A. Cox, Jr. 

("Cox"), two registered floor brokers, with manipulating and attempting 

to manipulate the price of May 1971 wheat futures contracts on the 

Chicago Board of Trade ("CBOT"), in violation of Sections 6(b), 6(c), 

and 9 of the Commodity Exchange Act ("Act"), 7 U.S.C. 9, 13b, and 13. 

Respondents denied any violations. n2 

n2 Frey filed an answer on September 18, 1972. After obtaining 

new counsel, he filed an amended answer on November 28, 1973. 

Following a pre-hearing conference, the Commodity Exchange Authority 

("Authority") of the Department of Agriculture ("Department") provided 

the respondents with copies of the exhibits and a list of the witnesses 

in support of the complaint. Cox and Frey sought extensive discovery, 

to which the Authority objected. The Department's ALJ sustained the 

objections, and scheduled a hearing to commence on June 4, 1974. 

Respondents then filed for declaratory and injunctive relief in 

federal district court, asserting an entitlement to pre-hearing 

discovery. On June 3, 1974, the district court granted the injunction 

"until [Cox and Frey] have the opportunity to pursue and complete prehearing discovery with respect to all facts which are relevant and 

material to the issues raised by the complaint." 

The Authority appealed and, on December 16, 1976, the U.S. Court of 

Appeals for the Seventh Circuit reversed. Frey v. CEA, 547 F.2d 46. 

Among other things, the Court found it "evident" that the district court 

had "prematurely [interrupted] the administrative process." Id. at 47, 

49. It reasoned: 

Who knows whether the [ALJ] will find the evidence sufficient to 

sustain the charges, or whether the Secretary will agree with him if he 

does? If the final order were favorable to [Cox and Frey], the present 

contentions would be moot. 

Respondents sought rehearing en banc, which the Circuit denied on 

January 11, 1977. The Department then faded from the scene and this 

Commission began to play an active role in the case. n3 

n3 The CFTC did not commence operations as an independent 

regulatory agency until April 21, 1975. See Section 2(a)(2)(A) of 

the Act, 7 U.S.C. § 4a(a)(1). Section 411 of the CFTC Act of 1974, 

Pub. L. No. 93-463, provided that all pending administrative 

proceedings under the Commodity Echange Act should be transferred 
to the newly-created CFTC and "shall . . . continue to completion." 

The CFTC was not a party to the litigation before the Seventh 

Circuit. 

The matter was reassigned to an ALJ of the Commission. Shortly 

before a hearing scheduled for February 28, 1978, respondents attempted 

to disqualify the Judge. The ALJ denied their motion, but the 

Commission stayed the proceeding pending interlocutory review. 

Dissatisfied with this turn of events, the Judge then recused himself. 

Because respondents' motion was moot, the Commission directed the Chief 

ALJ to reassign the case. We also "encouraged" the newly-assigned ALJ 

"to reevaluate carefully his predecessor's rulings on the admissibility 

of evidence and propriety of defenses offered by the respondents . . . 

." See In re Cox and Frey, [1977-1980 Transfer Binder] COMM. FUT. L. 

REP. (CCH) P 20,635 at 22,595 (June 21, 1978). 

Eleven days of hearings were eventually held between November 1979 

and March 1980. On January 10, 1983, the ALJ issued an initial decision 

sustaining the complaint in its entirety and imposing sanctions. In re 

Cox, [1982-1984 Transfer Binder] COMM. FUT. L. REP. (CCH) P 21,767. 

Cox and Frey each appealed to the Commission and the Division replied 

in opposition. n4 On July 15, 1987, the Commission, with one member 

dissenting, granted the respondents' appeals, reversed the initial 

decision, and dismissed the complaint. In re Cox, [1986-87 Transfer 

Binder] COMM. FUT. L. REP. (CCH) P 23,786. The Commission found that the 

Division had failed to prove two of the four elements 

of the offense of completed price manipulation: that the accused had the 

ability to influence market prices; and that artificial prices existed. 

In dictum, the Commission also questioned whether the accused had caused 

the price rise at issue. The Commission did not address the remaining 

element of the offense: whether the accused specifically intended to 

influence market prices. In view of the case's age and the parties' 

failure to address attempted price manipulation in their appellate 

pleadings, the Commission expressed no view on that offense. 

n4 The Commission's only other opinion discussing the offense of 

completed price manipulation, In re Indiana Farm Bureau Cooperative 

Assn., Inc., [1982-1984 Transfer Binder] (Dec. 17, 1982), had been 

issued some three weeks before the ALJ released the Cox initial 

decision. The application of Indiana Farm Bureau to the facts of 

the Cox case was a key issue on appeal. See Section II, infra.

The Fee Application

Following this resolution of the merits, Frey filed an application 

for fees and costs under EAJA. The Division opposed an award, arguing 

that its position was substantially justified; that Frey was not a 

prevailing party on significant, discrete issues; that Frey's delay of 

the proceeding made a fee award unjust; and that Frey failed to document 

the fees and costs claimed. Frey tendered a reply and supplemental 

affidavit from his attorney broadly summarizing the services performed. 

Six days later, the ALJ granted the fee application in its entirety. 

Applying a standard "slightly more stringent . . . than one of 

reasonableness," the ALJ concluded that the Government's position was 

not substantially justified within the meaning of EAJA. In re Cox,

[Current Transfer Binder] COMM. FUT. L. REP. (CCH) P 23,947 at 34,320 

(Oct. 6, 1987). The ALJ relied exclusively upon the Commission's 

opinion as "necessarily the dispositive source to evaluate" the issue of 

substantial justification. Id. The Judge concluded that "[the] 

Government made a mistake in instituting this action" and that "the 

Commission's Opinion affords no latitude to hypothesize . . . 
otherwise." Id. The ALJ ordered the Commission to pay Frey $ 132,226. 

This appeal followed. 

I. PRELIMINARY ISSUES 

EAJA awards may only be made to eligible applicants who are 

prevailing parties in covered adjudicatory proceedings. In establishing 

such threshold matters, the fee applicant bears the burden of proof. 

Ramos v. Haig, 716 F.2d 471, 473 n.3 (7th Cir. 1983). The ALJ failed to 

discuss these issues, as required by 17 C.F.R. § 148.27. In lieu of a 

remand, we do so ourselves in the first instance. 

Because we dismissed the underlying enforcement complaint in its 

entirety, we conclude that Frey is a "prevailing party" for EAJA 

purposes. The Division emphasizes Frey's failure to prevail on certain 

issues and it argues that fees should not be recovered for the time 

spent on such issues. Under settled law, however, Frey's degree of 

success may be considered only in determining the amount of an award, 

and not whether he is a prevailing party. Hensley v. Eckerhart, 461 

U.S. 424, 433 n.7 (1983); Continental Web Press, Inc. v. NLRB, 767 F.2d 

321, 323 (7th Cir. 1985); Southern Oregon Citizens v Clark, 720 F.2d 

1475, 1481 (9th Cir. 1983). We consider the Division's arguments for 

reducing the amount of the ALJ's award in Section IV, infra.

We are also satisfied that the underlying enforcement action against 

Frey was an "adjudication" under 5 U.S.C. § 544, and that it was 

prosecuted in party by Commission attorneys in accordance with the 

procedural rules in 17 C.F.R. Part 10. Our regulations recognize that 

such Part 10 proceedings are "generally covered" by EAJA. See 17 C.F.R. 

§ 148.3(a). However, Frey has not met his burden of showing that this 

Commission conducted an adversary adjudication against him prior to 

January 11, 1977. See note 3, supra, and our further discussion in 

Section III, infra.

Frey's status as an eligible applicant also presents a close 

question. To qualify for a fee award, Frey must show that his net worth 

was less than $ 2 million when the underlying enforcement action 

commenced. See 5 U.S.C. § 504(b)(1)(B). 

A half-page exhibit attached to Frey's fee application asserts that 

his net worth at the relevant time was $ 159,000 -- an amount far below 

the $ 2 million statutory cutoff, and one which ordinarily would not 

warrant detailed examination. However, the abbreviated nature of Frey's 

financial presentation raises several questions about the exhibit's 

accuracy and completeness. 

Among other things, Frey did not certify the net worth exhibit. 

While Frey's attorney signed and verified the application, whether the 

attorney had actual knowledge of Frey's financial circumstances cannot 

be determined from the face of the application or from the accompanying 

exhibit. Moreover, the figures provided on the exhibit appear to be no 

more than rough approximations: i.e., rounded off to thousands of 

dollars. The absence of any liquid cash assets and the omission of any 

open trading equity from the futures markets are striking. The record 

in underlying enforcement case shows that Frey traded futures contracts 

at reportable levels and that he had, on several occasions, taken 

delivery of the physical commodities. We infer from this that he must 

have had liquid capital sufficient to meet margin calls. Yet none of 

these factors is addressed in the net worth exhibit. 

We therefore conclude that the ALJ erred in not requiring Frey to 

make a more complete showing of net worth, as he was empowered to do 

under 17 C.F.R. § 148.12(a), and in failing to enter an explicit finding 

as to Frey's eligibility. 

If the eligibility question were pivotal, we would remand the 

application to the ALJ with the instructions to develop the record in 
more detail. See Knights of the Ku Klux Klan v. East Baton Rouge, 679 

F.2d 64, 68-69 (5th cir. 1982); Continental Web, 767 F.2d at 323 (net 

worth should be determined with reference to generally accepted 

accounting principles); Berman v. United States, 534 F. Supp. 641, 642 

(N.D. Ohio 1982); United States v. J.H.T., Inc., 872 F.2d 373, 376 (11th 

Cir. 1989); and American Air Parcel Forwarding Co. v. United States, 697 

F. Supp. 505, 506 (CIT 1988). Because we resolve the application on 

other grounds, we decline to pursue the matter further. 

II. WHETHER THE POSITION OF THE UNITED STATES WAS SUBSTANTIALLY 

JUSTIFIED. 

In relevant part, EAJA provides for a fee award unless the 

government's position was "substantially justified." 5 U.S.C. § 

504(a)(1). The burden of demonstrating substantial justification rests 

with the government. Ramos v. Haig, 716 F.2d at 473 n.3. 

In this case, the government acted through two agencies: the 

Department of Agriculture (1972-77) and the CFTC (1977-87). It is far 

from clear that EAJA grants this Commission the power to judge whether 

the Department's conduct was substantially justified. See note 3, supra.

Nevertheless, for purposes of the substantial justification analysis, we 

will assume that such jurisdiction exists (recognizing, as we must, that 

the Department is not a party before us and that nothing herein is res 

judicata as to it). 

The government's position in this case was that Frey, along with Cox, 

violated the Act by manipulating and attempting to manipulate the price 

of an expiring futures contract on its last trading day. After reviewing 

the entire, we are satisfied that this position was substantially 

justified. 

A. Applicable Legal Standards.

The ALJ held that the test for substantial justification "is a 

slightly more stringent measure than of of reasonableness." P 23,947 at 

34,320. That test, however, has never been the standard applied in the 

Seventh Circuit, where appellate venue lies in this case. See, e.g., 

Ramos, 716 F.2d at 473 n.3 (an agency's position is substantially 

justified if it has a reasonable basis in law and fact). While the 

criterion may have been different in the District of Columbia Circuit at 

the time of the initial decision, the Supreme Court has now ruled 

conclusively that the issue is one of reasonableness, and no more. 

Pierce v. Underwood, 108 S. Ct. 2541, 2550-51 (1988) (citing Ramos with 

approval and rejecting the test used by the ALJ as "unadministerable"). 

We therefore apply that test here, and vacate the ALJ's imposition of a 

more stringent test. 

The ALJ also placed exclusive reliance on the Commission's opinion as 

"the dispositive source to evaluate whether there exists such 

substantial justification." P 23,947 at 34,320. That, too, was 

reversible error. As EAJA clearly states, the substantial justification 

determination must be made "on the basis of the administrative record, 

as a whole, . . . in the adversary adjudication." See 5 U.S.C. § 

504(a)(1); 17 C.F.R. § 148.26. 

Finally, in finding that the Commission's opinion leaves no doubt 

that the government made a mistake in instituting this action, the ALJ 

confused the very different concepts of substantial evidence and 

substantial justification. It is well settled that substantial 

justification is a different and lesser standard than substantial 

evidence. Hadden v. Bowen, 851 F.2d 1266, 1268-69 (10th Cir. 

1988)(collecting cases); cf. 21 Weekly Comp. Press. Doc. at 967 (Aug. 5, 

1985) (remarks of President Reagan). Our opinion on the merits held only 

that the allegations in the complaint had not been proven by the 

preponderance of the evidence. P 23,786 at 34,061. It did not establish 

that the Division's position, or that of the Department before it, was 
unreasonable. The decision on a fee application must be a judgment 

independent of the results on the merits. EAJA is not intended to be an 

automatic fee-shifting device in cases where the applicant prevails. 

Luciano Pisoni v. United States, 837 F.2d 465, 467 (Fed. Cir. 1988). 

B. Whether The Position of the United States Was Reasonable.

We turn now to the critical question of whether the government's 

position was reasonable. The clarity of the applicable law is an 

important factor in determining whether the government's position was 

substantially justified. Foster v. Tourtellotte, 704 F.2d 1109, 1112 

(9th Cir. 1983); Boudin v. Thomas, 732 F.2d 1107, 1116 (2d Cir. 1984); 

Porter v. Heckler, 780 F.2d 920, 923 (11th Cir. 1986). Thus, if 

precedent clearly dictates a certain result, the government should not 

persist in litigation opposing that result. Conversely, unsettled law 

militates against EAJA relief. 

The developing nature of the law of price manipulation is a 

significant factor which weighs against an EAJA award here. Price 

manipulation is not defined in the Commodity Exchange Act. In half a 

century, there have been only five appellate court opinions analyzing 

the elements of the offense. n5 As the Eighth circuit has recognized, 

"[the] methods and techniques of manipulation are limited only by the 

ingenuity of man. " Cargill, 452 F.2d at 1163. We may also consider 

whether the government has previously prevailed in similar cases. See, 

e.g., North Georgia C.O.P.S. v. Reagan, 587 F.Supp. 1506, 1509 (N.D. Ga. 

1984); Hoang Ha v. Schweiker, 707 F.2d 1104, 1106 (9th Cir. 1983); 

Underwood, 108 S.Ct. at 2552 (" . . .a string of losses can be 

indicative; and even more so a string of successes.") 

n5 See General Foods Corp. v. Brannan, 170 F.2d 220 (7th Cir. 

1948); Great Western Food Distributors, Inc. v. Brannan, 201 F.2d 

476 (7th Cir.), cert. denied, 345 U.S. 997 (1953); G.H. Miller & 

Co. v. United States, 260 F.2d 286 (7th Cir. 1958), cert. denied,

359 U.S. 907 (1959); Volkart Brothers, Inc. v. Freeman, 311 F.2d 52 

(5th Cir. 1962); Cargill, Inc. v. Hardin, 452 F.2d 1154 (8th Cir. 

1971), cert. denied, 406 U.S. 932 (1972). 

The justification for pressing an enforcement action against Frey 

must be reviewed in its historical context. As explained in our 

underlying opinion, the month of May represents a transitional period in 

the cash wheat market because the old crop wheat supply is nearly 

depleted. P 23,786 at 34,059. Allegations of price manipulation in the 

May wheat contract have been a source of concern to Congress and to 

regulators since the 1920's: 

. . . the same thing happens year after year at almost exactly the 

same time, becoming so familiar that the "May squeeze" is marked on 

Chicago's calendar as methodically as Easter or Decoration Day . . . n6 

n6 From the Northwestern Miller as quoted in Grain Futures 

Hearings on H.R. 11843 before the Senate Committee on Agriculture 

and Forestry, 69th Cong., 2d Sess. 37 (1922). 

In the mid-1960's, the Department's Cargill complaint alleged that a 

dominant long had manipulated the May 1963 wheat futures contract. 

Cargill had been conclusively resolved in the Department's favor only 

six weeks before the complaint against Frey was issued. n7 See also In 

re Cate, 18 Agric. Dec. 884 (18 A.D. 884) (1959) (settling charges of a 

long-side manipulation in the CBOT's March and May 1959 wheat futures 

contracts). These frequent regulatory difficulties with the May wheat 

contract, coupled with the government's success in Cargill and Cate,
also suggest that the government's position in filing this case was 

reasonable. 

n7 Cargill's petition for certiorari was denied by the Supreme 

court on May 15, 1972. 

In our view, Frey confuses the issue by seeking to distinguish 

the facts of Cargill from the facts of his own case. However, it 

is the legal analysis in Cargill that is important: Cargill

discusses the sort of evidence that will sustain a price 

manipulation complaint and questions the Fifth Circuit's analysis 

in Volkart.

Against this backdrop, the evidence known to the Department from 1971 

-- including the concentrated nature of the long positions in the 

expiring wheat contract, the tight supply of cash wheat at or near 

delivery points, the steep futures price rise on the last trading day, 

and Cox's and Frey's stated price objectives -- paralleled the 

circumstances of previous May wheat market congestions. Thus, it was 

reasonable to issue the complaint. 

We must next consider whether the government acted reasonably in 

bringing the matter to trial. When Frey's case was heard, the 

government offered factual evidence and expert opinion testimony to 

support its allegations that the closing futures price for May wheat was 

abnormally high in comparison with other relevant markets. The 

government also introduced evidence to show that stocks of deliverable 

wheat in Chicago were inadequate for holders of short futures positions, 

n8 and that's Frey's and Cox's trading strategies contributed to a price 

rise on the final trading day, thereby exacerbating existing market 

congestion. Finally, the government presented circumstantial evidence 

in support of its theory that the respondents intended prices to rise as 

a result of their conduct. 

n8 As an illustration, an important issue before us on the 

merits was whether to exclude from the calculation of deliverable 

supply: (1) premium grades of wheat stored at out-of-town locations 

and (2) barge-loaded wheat controlled by the dominant short. Frey 

urged us to define the relevant wheat supply broadly. The Division 

urged us to define it narrowly. 

On the facts presented, we accepted Frey's arguments. § 23,786 

at 34,061-64. Nevertheless, the Division's position was 

reasonable. Indeed, in the "closely related" field of antitrust 

law, see Cargill, 452 F.2d at 1166, the Supreme Court has often 

recognized the difficulty of such fact-intensive inquiries. See 

United States v. Philadelphia National Bank, 374 U.S. 321, 360 n. 

37 (1963) (an element of "fuzziness would seem inherent in any 

attempt to delineate the relevant geographical market"); United 

States v. Pabst Brewing Co., 384 U.S. 546, 549 (1966) (the 

government is not required to define geographic markets by "metes 

and bounds"). 

Although the essential facts were largely undisputed, the inferences 

to be drawn from these facts were not. n9 This situation is not 

uncommon in manipulation cases. For as the Seventh Circuit has 

recognized, price manipulation is the type of offense where it is 

reasonable to proceed with a hearing: 

. . . it is almost impossible to prove by direct evidence that the 

acts and transactions of the [accused] were undertaken pursuant to an 

understanding or agreement to act collectively and in a uniform manner. 

Proof of such concerted action and the intent to so act must generally 
be circumstantial unless one or more of the participants would so admit. 

Miller, 260 F.2d at 290. 

. . . [The] intent of the parties during their trading is a 

determinative element of a punishable corner. . . . Consequently, the 

demeanor of the witnesses, as they expound the reasons behind their 

operations, is of substantial significance . . . In addition, the 

technical and complex nature of the charges . . . [necessitates] 

recourse to extensive use of expert testimony . . . for the evidence is 

largely of a dual nature: statistical and parol interpretation of the 

statistics [As] the several experts testify, [the ALJ] is able to 

ascertain their grasp and knowledge, their perspective and understanding 

of the materials presented to them for interpretation. Their conduct on 

the stand may enhance or belie their status as experts. Great Western,

201 F.2d at 479. 

n9 When the outcome turns on the proper inferences to be drawn 

from undisputed facts, the government's position is reasonable in 

fact. Donovan v. DialAmerica, Inc., 757 F.2d 1376, 1389 (3d Cir. 

1985). 

See also In re Abrams, [Current Transfer Binder] COMM. FUT. L. REP. 

(CCH) P 24,577 at 36,493 (CFTC Oct. 13, 1989). 

The need to make inferences and to evaluate the parties' expert 

witnesses was not the only reason for conducting a hearing in this case. 

Since Frey also offered an affirmative defense -- that the dominant 

short was the sole cause of the price rise at issue on the last trading 

day -- it was reasonable for the Division to question Frey's expert and 

others on that defense. The Division was under no obligation to make a 

pretrial determination that Frey would prevail on this defense before it 

had the opportunity to probe the substance of that defense at hearing. 

Accord, First National Monetary Corp. v. CFTC, 860 F.2d 654, 660 (6th 

cir. 1988) ("FNMC")(cross-examination of adverse witnesses is 

"particularly appropriate" when the Division is attempting to disprove a 

defense). 

We again take note of the case's historical context. As this matter 

went to trial in 1979-1980, two more disruptions occurred in the wheat 

futures market. n10 Taking these disruptions into account and the 

previous factors just described, we conclude that the Division acted 

reasonably in pursuing this case through a hearing. n11 

n10 In early 1979, concerns about the threat of a long-side 

manipulation led the Commission to declare a market emergency, to 

suspend trading, and to liquidate an expiring March wheat contract 

(the delivery month immediately preceding the May contract). See 

Board of Trade of City of Chicago v. CFTC, 605 F.2d 1016, 1018 (7th 

Cir. 1979), cert. denied, 446 U.S. 928 (1980). See also In re 

Polonyi, CFTC Docket No. 82-38 (April 26, 1983) (settling charges 

that respondent manipulated May 1980 wheat futures prices on the 

Kansas Board of Trade). 

n11 The fact that the Division prevailed before the ALJ is not 

conclusive evidence that its position was reasonable, but it is 

another factor that must be weighed in the Division's favor. 

Sigmon Fuel Co. v. TVA, 754 F.2d 162, 167 (6th Cir. 1985); Battles 

Farm Co. v. Pierce, 806 F.2d 1098, 1104 (D.C. Cir. 1986). 

Finally, we must consider whether the Division acted reasonably in 

opposing Frey's appeal from the initial decision. The application of 

our just-issued Indiana Farm Bureau opinion to the present facts was 

certainly a legitimate matter for the Division to pursue in its 

answering brief. See generally Abrams, P 24,577 at 36,494 n.3. The 

three opinions in Indiana Farm Bureau reflected broadly divergent 

majority and minority viewpoints within the Commission on key issues. 
n12 Thus, it was reasonable for the Division to argue that Indiana Farm 

Bureau should be refined and sharpended in a manner favorable to it. 

When the Division filed its answer to Frey's appeal brief in October 

1983, three of the five members who had participated in Indiana Farm 

Bureau were no longer on the Commission. n13 Thus, the Division was 

also presenting its arguments to a differently constituted Commission. 

In these circumstances, even though the Division has an ongoing 

obligation to ascertain whether its case remains reasonable, 

"substantial justification" would not require the Division to abandon 

its victory before the ALJ, and to forfeit its opportunity to shape the 

law of price manipulation, solely to avoid EAJA liability. Accord, 

FNMC, at 660. 

n12 Under settled EAJA principles, the justification for the 

government's position must be measured against the law as it 

existed when the Division was litigating the underlying case, and 

not against any "new law" that may have been enunciated as a result 

of Frey's appeal. See, e.g., Westerman v. NLRB, 749 F.2d 14, 16-17 

(6th Cir. 1984); Kay Mfg. Co. United States, 699 F.2d 1376, 1379 

(Fed. Cir. 1983); Donovan v. Dillingham, 668 F.2d 1196, 1199 (11th 

Cir. 1982), rev'd on other grounds, 688 F.2d 1367 (11th Cir. 1982). 

The ALJ rejected the Division's argument that the evolving 

character of manipulation law ought to be considered in weighing 

the reasonableness of its position. He reasoned as follows (P 

23,947 at 34,320): 

. . . [The] asserted departures [from prior decisions] are not 

specifically recognized by the Commission . . . . [The] Commission 

did not state that it was establishing new law, amending the CEAct, 

or otherwise departing from the applicable and dispositive 

principles . . . . 

The ALJ's inability to discern any evolution in the law of price 

manipulation is curious. See, e.g., Indiana Farm Bureau, P 21,796 

at 27,290-92 (Johnson, concurring)(". . . . the factors cited by 

the majority . . . . are broader than those recognized in the 

judicial precedents . . . . The majority adopts a position similar 

to the broadest reading of the Volkart case."); Id. at 27,297 

(Stone, concurring)("One can only hope that the sharp division of 

the Commission will be duly noted by the Enforcement Division and 

future Commissions. . . . The majority's pronouncements with 

respect to . . . artificial price and intent . . . represent a 

departure from a tradition and a body of case law . . ."); Cox, P 

23,786 at 34,070 (West, dissenting)("the majority opinion appears 

to step far beyond the Commission's reasoning in Indiana Farm 

Bureau . . ."). We agree with the Division on this point. 

n13 Chairman Johnson, and Commissioners Gartner and Stone. 

Although we ultimately granted Frey's appeal on the merits, our vote 

was not unanimous. The Division persuaded one member of the Commission 

to sustain the complaint and to author a separate dissent. While a 

dissent is not conclusive proof of substantial justification, the fact 

that reasonable minds differed on the merits is further evidence that 

the Division's position was reasonable. Underwood, 108 S. Ct. at 2552; 

Wyandotte Savings Bank v. NLRB, 682 F.2d 119, 120 (6th Cir. 1982); and 

League of Women Voters of California v. FCC, 798 F.2d 1255, 1260 (9th 

Cir. 1986). 

Viewing the entire record in its historical context, we conclude that 

the government's position was substantially justified throughout the 

underlying proceeding. 
III. WHETHER SPECIAL CIRCUMSTANCES MAKE AN AWARD AGAINST THE COMMISSION 

UNJUST PRIOR TO JANUARY 1977. 

EAJA provides that an agency should not be liable for a fee award 

where "special circumstances make an award unjust." 5 U.S.C. § 

504(a)(1). The relevant legislative history emphasizes that an agency 

has "discretion to deny awards where equitable considerations dictate an 

award should not be made." S. Rep. No. 96-253, 96th Cong. 2nd Sess., at 

7; H.R. Rep. No. 96-1418, 96th Cong. 2nd Sess., at 11. See Taylor v. 

United States, 815 F.2d 249, 252 (3rd Cir. 1987), and Devine v. 

Sutermeister, 733 F.2d 892, 896 (Fed. Cir. 1984). In our judgment, such 

equitable considerations preclude any fee award against the commission 

for actions taken in this proceeding prior to January 1977, when the 

matter was under the control of the Department of Agriculture. n14 

n14 The ALJ ordered the Commission to pay Frey's entire award, 

which includes $ 25,334 for the period before January 11, 1977. He 

failed to explain why he was holding the Commission responsible for 

this phase of the case. See generally Nash v. Chandler, 848 F.2d 

567, 573 (5th Cir. 1988) (discussing apportionment of fee awards 

when there are several responsible parties). 

The complaint against Frey was issued by the Assistant Secretary of 

Agriculture in 1972 and bore Commodity Exchange Authority Docket No. 

192. For the next four and one-half years, the matter was prosecuted by 

Department attorneys, under Department rules of practice, before a 

Department ALJ. By the time the CFTC was created as an independent 

regulatory agency in 1975, Frey had already obtained an order enjoining 

the Department from conducting a hearing. Moreover, the Department's 

appeal from the injunction had already been briefed and argued before 

the Seventh Circuit. It was not until January 1977, when the Seventh 

Circuit denied Frey's petition for rehearing, that this Commission began 

to move forward with the case. As all litigation before then was 

controlled by the Department, this Commission cannot be considered to 

have "conducted an adversary adjudication" against Frey for that period. 

See 5 U.S.C. § 504(a)(1). 

Our conclusion that these are special circumstances making an EAJA 

award against the Commission unjust for fees incurred prior to January 

11, 1977 does not prejudice Frey. If Frey believes that the 

Department's position from June 1972 to January 1977 was not 

substantially justified, he could have sought timely EAJA relief from 

that agency. See 7 C.F.R. §§ 1.180-1.203. This is not a case, like the 

one envisioned in 17 C.F.R. § 148.8, where the Department "participated" 

as a party "before the Commission." Frey has cited no authority -- and 

our own research has found none -- to suggest that this Commission has 

the jurisdiction to render an EAJA award against the Department for the 

period the underlying action was on that agency's docket. Nor would it 

be equitable, within the meaning of the special circumstances clause, 

for this Commission to enter an EAJA award against itself for a time 

when it did not control the underlying case. We therefore reverse the 

initial decision to extent that it held otherwise. n15 

n15 The Division argues that the fee application should be 

denied for the period June 1974 - January 1977, when Frey pursued 

injunctive relief on an issue the Seventh Circuit characterized as 

premature and moot. Its theory is that Frey unreasonably 

protracted the proceeding for two and one-half years and, 

alternatively, that this discovery-related litigation was a 

discrete aspect of the case, as to which Frey did not prevail. Our 

"special circumstances" holding makes it unnecessary to consider 

this argument. 

 
IV. ASSUMING AN AWARD WERE WARRANTED, WHETHER THE AMOUNT AWARDED IS 

SUPPORTED BY THE APPLICATION. 

The ALJ awarded Frey the full amount of fees and expenses sought, 

without any discussion or analysis. Our review of the record persuades 

us that this was error. n16 

n16 Once the questions of substantial justification and special 

circumstances have been resolved against an applicant, there would 

ordinarily be no need to review the validity of specific line 

entries in the application. Because we have not had occasion to 

address the matter previously, we do so here to provide guidance 

for our ALJs in the future. 

The ALJ granted Frey $ 36,106 in fees connected with appealing the 

initial decision to the Commission. n17 To be sure, Frey's appeal on 

the merits was ultimately successful. However, if Frey's conduct during 

this state of the case unduly and unreasonably protracted the 

proceeding, then the amount of the award should have been substantially 

reduced. See 5 U.S.C. § 504(a)(3) and 17 C.F.R. § 148.5(b). 

Alternatively, if Frey's fee application seeks to recover for an 

unreasonable amount of attorney time, then any award should be 

proportionately reduced on that basis as well. See 5 U.S.C. § 

504(b)(1)(A); 17 C.F.R. § 148.6(c), Action on Smoking and Health v. CAB,

724 F.2d 211, 220-21 (D.C. Cir. 1984). 

n17 See Fee Application, entries for Aug. 1983 and June 1984, 

seeking recovery for 481 hours of attorney time. 

After the initial decision on the merits, Frey tendered a 163-page 

brief -- more than two and one-half times the maximum length permitted 

by the Commission's Rules of Practice. See 17 C.F.R. § 10.12(e)(5). 

Only after the division moved to strike his brief did Frey seek nunc pro 

tunc relief from the page limitation. n18 The Commission struck Frey's 

pleading, finding it to be "simply excessive." In re Cox, [1982-84 

Transfer Binder] COMM. FUT. L. REP. (CCH) P 21,809 (CFTC July 20, 1983). 

Particular criticism was directed at Frey's extensive quotation from the 

hearing transcript. At the same time, the Commission recognized that 

"some relaxation of the page limitation is appropriate" and offered Frey 

more time to file an appeal brief of 100 pages or less. 

n18 Contrast Division's Motion to Strike, filed May 3, 1983, 

with Frey's Motion for Leave To File, submitted May 9, 1983. 

Frey's revised brief, 96 pages length, was filed and served on August 

19, 1983. It differed from the earlier, rejected version only in 

superficial respects: for example, the revised brief used smaller 

typeface, more characters per line, and more lines of text per page. 

Notwithstanding the Commission's admonition to cite only to transcript 

pages, quotations from the record were merely replaced with paraphrased 

material. In sum, Frey complied with the letter, but not the spirit, of 

the Commission's directive to pare down his pleading to manageable size. 

The appellate briefing process took a fully year to complete. 

Thereafter, the Commission's resolution of the merits was slowed by the 

bulk of Frey's pleadings, among other factors. n19 EAJA does not 

contemplate that applicants recover for submitting pleadings in clear 

violation of the rules of practice or for re-doing work a second time. 

Accordingly, if a fee award were appropriate for the appellate stage of 

the case, we conclude that the $ 36,106 sought should have been 

substantially reduced. The precise amount of any such reduction would 

be more properly addressed on remand. 
n19 We do not suggest that Frey alone is responsible for the 15 

year life of the underlying proceeding or the two year life of the 

fee application. Many others, inside and outside the Commission, 

rightfully share portions of the responsibility. We hold only that 

Frey's identifiable contributions to this delay should reduce the 

size of any award he may recover under EAJA. 

The ALJ also erred in awarding Frey the full amount of expert witness 

fees sought: $ 8,759, billed at the rate of $ 500 per day. We are bound 

by the ceiling of EAJA: "no expert witness shall be compensated at a 

rate in excess of the highest rate of compensation for expert witnesses 

paid by the agency involved." See 5 U.S.C. § 504(b)(1)(A)(i). Section 

12(b) of the Act, 7 U.S.C. § 16(b), and 17 C.F.R. § 148.6(b) limit such 

compensation to the maximum daily rate prescribed for GS-18 government 

employees. The present record does not allow us to measure the 

difference between the $ 500 per day awarded and the relevant fee cap. 

Moreover, because the expert witness testified for both Cox and Frey, 

the ALJ should have determined if Frey alone paid his fee. 

The ALJ further erred in failing to give careful attention to other 

aspects of the fee application. For example, Frey seeks to recover for 

district court litigation under the Freedom of Information Act in July 

1974. Based on the date and the description provided, it appears that 

Frey's FOIA complaint was actually directed against the Department, and 

not the CFTC. The application fails to state if this satellite 

litigation was successful. In any event, FOIA has since 1974 contained 

its own attorney fee provisions, see 5 U.S.C. § 552(a)(4)(E), which EAJA 

is not designed to modify or repeal. See Section 206 of EAJA, Pub. L. 

No. 96-481, 28 U.S.C. § 2412 note. n20 

n20 We recognize that Natural Resources Defense Council, Inc. v. 

EPA, 703 F.2d 700, 713 (3d Cir. 1983), interprets EAJA as 

permitting recovery of fees incurred in obtaining information 

through FOIA at the agency level, even though "that route to 

information is not conventional discovery." However, 5 U.S.C. § 

552(a)(4)(E), not EAJA, governs the recovery of fees for FOIA 

litigation at the district court level. 

These illustrations are not intended to provide an exhaustive 

analysis of Frey's application. They simply highlight the type of 

issues the ALJ should have examined once he had determined that some 

award was appropriate. Given our decision to deny the application on 

other grounds, a remand to develop the record on these and other issues 

raised by the Division is not warranted. 

* * * 

For the reasons stated in this opinion, the Division's appeal is 

granted and the initial decision of October 6, 1987 is vacated. Frey's 

application for fees and expenses is denied. 

By the Commission (Chairman GRAMM, and Commissioners HINEMAN, WEST, 

DAVIS, and ALBRECHT). 

LOAD-DATE: August 6, 2008