Opinion ID: 372623
Heading Depth: 2
Heading Rank: 2

Heading: Application of Interpretation to Appellant.

Text: 40 AITC was a registered futures commission merchant under the Act. As such, AITC solicited and accepted orders for the purchase and sale of commodities for future delivery and promoted a Managed Account Program whereby customers placed money under the discretionary control of AITC. It had as many as 900 customers in that program. Melvin Berman was responsible for making the trading decisions for the managed account program. He was registered with the CFTC as a person associated with a futures commission merchant under 7 U.S.C. § 6k. The CFTC affidavits establish that Savage communicated trading advice to Melvin Berman and thereby to AITC itself. Savage did not communicate directly with AITC customers, although it is undisputed that he knew AITC managed a great number of customer accounts and that his advice was acted upon by AITC in its dealings for the benefit of managed account customers. Savage, by affidavit, merely asserted that he at no time advised customers of AITC. 12 Upon review of this summary judgment, we must decide whether appellant's denial that he advised AITC customers sufficiently creates an issue of fact as to whether he furnished advice to those customers within the meaning of section 4m. 41 The affidavits submitted by the CFTC support an inference that Savage knew that Melvin Berman and AITC acted upon his advice directly in making trading decisions for the managed account program. The advice did not, however, flow through to customers in the sense of given advice being actually communicated to AITC customers for those customers to then act upon. There is no indication that AITC acted as a mere conduit for physical passage of Savage's advice. Nevertheless, AITC customers entrusted funds to AITC and gave AITC discretion to enter commodity transactions on those customers' accounts. Savage, aware of this fact, gave advice to AITC knowing that AITC, on behalf of its customers, would incorporate that advice directly into actual transactions. Savage knew his advice impinged directly upon the fortunes of these ultimate customers; it was not merely a component of an independent investment model employed by AITC. These customers, well in excess of fifteen, are subject through this arrangement to the very risks Congress sought to eliminate by requiring registration. On these facts we find that Savage furnished commodity trading advice to more than fifteen individuals. His affidavits did not create a genuine issue of material fact. 42 In holding as we do, we are influenced by the interrelationship of the Act's registration provisions. If AITC had operated a commodity trading pool, appellant's relationship to the pool would have been disclosed in the pool's registration. 7 U.S.C. § 6n(1)(A) & (B). Or, if Savage supervised persons who solicited or accepted funds from customers of AITC, he would need to register as a person associated with a futures commission merchant. 7 U.S.C. § 6k. While these provisions do not apply here, they provide related but inapplicable protections. Instead, Savage provided trading advice to a futures commission merchant under unique circumstances. He knew that his advice became the direct basis for trades made by AITC on behalf of its managed account customers. Under these circumstances the district court did not err by finding no issue of material fact existed as to whether Savage furnished trading advice to more than fifteen persons within the meaning of the Act. We, therefore, affirm as to Count IV. 43 IV. COUNTS III AND V VIOLATIONS OF SECTIONS 4b, 4c & 4o(1) OF THE ACT 44 A. Applicability of Section 4o(1) to Appellant. 45 Section 4O of the Act, 7 U.S.C. § 6O (1), in its form at the time of the alleged violation, made it unlawful for any commodity trading advisor . . . Registered under this Act . . . to employ any device, scheme or artifice to defraud any client . . . or prospective client (emphasis added). Congress has since deleted the registered under this Act language, Pub.L.No.95-405, § 10, 92 Stat. 870 (1978). The amendment makes it clear that persons engaged in activities which should require them to be registered . . . are subject to . . . Section 4O of the Act, even though those persons are not in fact registered with the Commission. H.R.Rep.No.1181, 95th Cong., 2d Sess. 20-21 (1978). Savage argues that because he was not registered at the time of this action, and because Congress had not yet changed the law, section 4O does not apply to him. The CFTC argues that section 4O applies to all those who Should have been registered under the Act, and therefore in accordance with our own conclusion in Part III, Supra, appellant is subject to the section. 46 No prior court to our knowledge has interpreted this provision. The fact that Congress deleted registered under this Act might suggest that a gap in the law existed prior to amendment. We consider the amendment to be a clarification, however. The purpose of the statute supports this interpretation of congressional intent. It would be anomalous indeed if an advisor could escape the fiduciary duties of section 4O by avoiding required registration. This would frustrate a principal purpose of the Act. 47 We also find support for this interpretation of section 4O in the history of the 1978 amendments. The CFTC consistently has taken the position in a related context that persons who engaged in conduct which should have required their registration would be liable in reparation cases even if they were not so registered. See Stucki v. American Options Corp., Comm.Fut.L.Rep. (CCH) P 20,559 (1978). See also Robley v. American Options Corp., Comm.Fut.L.Rep. (CCH) P 20,612 (1978). These actions interpreted section 14 of the Act, 7 U.S.C. § 18, which establishes an administrative procedure through which individuals can be awarded reparations. The 1978 amendments deleted a requirement identical to the one in section 4O that such reparations could be recovered from persons registered under the Act. Pub.L.No.95-405, § 21, 92 Stat. 865 (1978). The House Report expressly approved the CFTC interpretation of section 14 in Stucki. See H.R.Rep.No.1181, 95th Cong., 2d Sess. 30 (1978). See also S.Rep.No.781, 95th Cong., 2d Sess. 28 (1978). 48 Our interpretation also is consistent with interpretations of other security law provisions. Under the proxy solicitation rules, for example, the Eighth Circuit has held that a corporation at all pertinent times subject to registration and proxy solicitation requirements could not escape the latter merely because they are literally applicable only to solicitations of proxies for registered securities. Reserve Life Insurance Co. v. Provident Life Insurance Co., 499 F.2d 715 (8th Cir. 1974), Cert. denied, 419 U.S. 1107, 95 S.Ct. 778, 42 L.Ed.2d 803 (1975). Accord, Bastian v. Lakefront Realty Corp., 581 F.2d 685 (7th Cir. 1978). 49 B. Standards for Summary Judgment. 50 Section 4O of the Act is thus not rendered inapplicable because of Savage not being registered under the Act. Whether Counts III and V of the complaint stated a cause against Savage properly disposed of by summary judgment requires analysis of some familiar ground. To obtain summary judgment against Savage, CFTC had the burden of demonstrating the absence of a genuine issue as to any material fact. Rule 56, Fed.R.Civ.P. A material fact is one which may affect the outcome of the litigation. Mutual Fund Investors v. Putnam Management Co., 553 F.2d 620, 624 (9th Cir. 1977). An opposing party may not defeat summary judgment, once the movant has met his burden, in the absence of any significant probative evidence tending to support (his legal theory). First National Bank v. Cities Service Co., 391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968). 51 Savage's opposition affidavit admits that he entered into most of the alleged transactions. He contends, however, that his affidavit brings into dispute a critical element of each section of the Act that he is charged with having violated. He argues that violation of these sections requires a fraudulent intent or knowing violation the element of scienter. His affidavit denies: (1) an intent to enter into prearranged accommodation trades; (2) knowledge that he entered into trades away from the market price; and (3) an intent to serve as an intermediary to shift funds between accounts of AITC customers. If, as appellant contends, a fraudulent intent or knowing violation is necessary to run afoul of sections 4b, 4c and 4O (1) of the Act, then his intent and knowledge are material to the violation and his opposition affidavit has raised a genuine issue of material fact. 52 We say this because appellant's intent and knowledge are particularly within his personal comprehension. As this court has noted, (g)enerally, when intent is at issue, a jury should be allowed to draw its own inferences from the undisputed facts unless all reasonable inferences defeat appellants' claims. Mutual Fund Investors v. Putnam Management Co., supra, 553 F.2d at 624. We cannot say that the facts put forward in the CFTC affidavits raise inferences so reasonable as to defeat Savage's claims. If resolution of the dispute would pit appellant's word against the CFTC's affiants, the decision is one for a trier of fact. We have previously stated: 53 Doubt with respect to (appellant's) ultimate success . . . does not justify the granting of the appellees' motion for summary judgment so long as a genuine issue of material fact with respect to the matter exists. Rule 56, Fed.R.Civ.P. exists not to avoid trials, the outcome of which in the opinion of the trial judge are reasonably predictable, but to terminate litigation on claims with respect to which there exists no genuine issue of material fact. 54 Abramson v. University of Hawaii, 594 F.2d 202, 210 (9th Cir. 1979). 55 We conclude, therefore, that summary judgment was improper provided Savage is correct in his view that to violate sections 4b, 4c, and 4O (1) of the Act a fraudulent intent or knowing violation is necessary. We now turn to this issue. 56