Court Opinion

ID: 8903962
Source: CourtListenerOpinion
Date Created: 2022-11-27 01:34:17.887813+00
Date Added: 2024-06-11T17:08:02.615252
License: Public Domain

SWYGERT, Circuit Judge,
dissenting.
I respectfully dissent. The crucial issue in this case is whether Tamari should be compelled to comply with the agreement to arbitrate disputes which was part of the contracts it signed upon opening two accounts with Bache. The contracts, one of which is reproduced below and on page 1205 of this opinion, were printed form documents which were obviously used by Bache for every account opened by a customer. The arbitration clause, which is paragraph 14 of the contract, was not the result of arm’s length bargaining between Tamari and Bache. Rather, it is apparent that the arbitration clause was a mandatory feature of Bache’s standard customer agreement, and that a customer could not purchase commodities futures through Bache unless he agreed to it.1
The issue of whether to enforce a contract of adhesion between parties of unequal bargaining power is a difficult one. See, e. g., Williams v. Walker-Thomas Furniture Co., 121 U.S.App.D.C. 315, 350 F.2d 445 (1965). I am convinced, however, that under the circumstances of this case the agreement to arbitrate should not be enforced.
The gravamen of Tamari’s complaint is that Bache committed fraudulent acts which violated the Commodity Exchange Act. The antifraud provisions of the Act, 7 U.S.C. §§ 6b, 6o, are designed to protect individual investors in a complex area of the financial world where they easily can be cheated by sophisticated insiders. The legislative history of the most recent amendments to the Act makes clear that one of the Act’s primary purposes is to protect the public:

*1205

The present Commodity Exchange Act is predicated upon findings and conclusions of the Congress that (1) transactions in commodity futures are carried on in large volume by the public, as well as by persons engaged in the business of buying and selling agricultural commodities in interstate commerce, and (2) such transactions and prices are susceptible to speculation, manipulation and control, and sudden and unreasonable price fluctuations, and such fluctuations are a burden upon interstate commerce and make regulation essential in the public interest. A fundamental purpose of the Commodity Exchange Act is to insure fair practice and honest dealing on the commodity exchanges and to provide a measure of control over those forms of speculative activity which too often demoralize the markets to the injury of producers and consumers and the exchanges themselves. S.Rep. No. 93-1131, 93d Cong., 2d Sess., 1974 U.S.Code Cong. & Admin.News 5843, 5856.
Given the congressional mandate to protect the individual commodities investor, the courts should not permit the dismissal of complaints alleging fraud by a commodities broker on the basis of an adhesion contract drafted by that broker. We can be confident that, if the commodities brokers as a class can compel the arbitration of antifraud claims rather than litigating them in court, they will do so. The arbitrators before whom the complaints would be filed would also be insiders in the commodities industry, and would tend to be more tolerant of questionable practices by brokers than would a judge who is an outsider to the field. But the individual investor is entitled to have his claim decided by an outsider. It contravenes the spirit of the Act and undermines its remedial purposes to remand the investor who contends a broker has committed fraud to a committee *1206composed of other brokers on the basis of an arbitration clause in an adhesion contract.
It was precisely this problem which motivated the Supreme Court’s decision in Wil-ko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The majority distinguishes Wilko because there is no analogue in the Commodity Exchange Act to section 14 of the Securities Act of 1933. But it is clear from the opinion in Wilko that a major underpinning of the Court’s holding was also the vulnerability of an individual investor to being manipulated by insiders in the securities industry. 346 U.S. at 435, 74 S.Ct. 182.
Moreover, this court has recently extended the broad policy of investor protection contained in Wilko to a case in which section 14 of the Securities Act was not implicated. In Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 558 F.2d 831 (7th Cir. 1977), the issue was whether plaintiffs’ claim that defendant violated Rule 10b-5 promulgated under the Securities Exchange Act of 1934 had to be dismissed because an agreement to arbitrate all disputes was contained in the adhesion contract which plaintiffs signed upon opening their account with defendant. We noted that Wilko was distinguishable because the private right of action under Rule 10b-5 was judicially created, while the private right of action under section 12(a) of the Securities Act is explicitly provided for by the statute. Therefore, the Securities Exchange Act lacks the “special right” which the Wilko Court held existed under the Securities Act and could not be waived un- j der section 14 of that Act. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 513-14, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974).2 None theless, we refused to enforce the arbitration clause because it was not the product of actual bargaining between the parties and enforcement would undermine the policy contained in the Securities Exchange Act of protecting the individual investor who “is most vulnerable to securities swindles.” 558 F.2d at 835.
Our conclusion in Weissbuch was previously reached by other courts which have considered the identical issue. Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 538 F.2d 532, 536 (3d Cir.), cert. denied, 429 U.S. 1010, 97 S.Ct. 542, 50 L.Ed.2d 619 (1976); Macchiavelli v. Shearson, Hammill & Co., 384 F.Supp. 21, 27-28 (E.D.Cal.1974). In addition, Wilko has been extended to the antitrust area, in which no analogue to section 14 exists. Power Replacements, Inc. v. Air Preheater Co., 426 F.2d 980 (9th Cir. 1970).
In my judgment Weissbuch ought to control the case at bar. There is no logical way to distinguish the plight of the individual securities investor and the individual commodities investor. Both are vulnerable to fraudulent schemes perpetrated by industry insiders. Congressional concern for the individual investor is no greater in the Securities Exchange Act than it is in the Commodity Exchange Act. Finally, the danger that arbitration will frustrate the intent of Congress is no greater in the securities industry than it is in the commodities industry. I therefore agree with the court in Milani v. ContiCommodity Services, Inc., [1976] Commodity Futures L.Rep. (CCH) ¶ 20,227 (N.D.Cal.1976), that enforcement of arbitration agreements such as the one in the case at bar would undermine the scheme of investor protection which Congress has enacted in the Commodity Exchange Act.
*1207The Commodities Futures Trading Commission has recognized the unfairness of allowing brokers to utilize adhesion contracts to provide for compulsory arbitration of customer grievances. As early as 1975, the Commission issued an interpretative statement which discussed proposed amendments to the rules which the Commission is authorized to promulgate under the Act, and stated:
As already noted, one factor leading to passage of the CFTC Act was allegations made in court cases and newspaper articles that the arbitration procedures of contract markets had been unfairly applied. The Commission believes that the procedural protections contained in the amended proposed rules will prevent the possibility of abuses such as those alleged in the congressional hearings. The voluntary nature of procedures established by contract markets is a central part of this protection. A contract of adhesion, or an uninformed waiver of rights, is not a voluntary agreement, as customers may not be fully cognizant of the effects of an agreement to arbitrate until the claim or grievance arises. The amended proposed rule, therefore, provides that the parties’ agreement to submit the claim or grievance to the procedure must have been made after the claim or grievance arose. [1976] Commodity Futures L.Rep. (CCH) 120,111, at 20,805 (emphasis added).
The Commission has now established a rule which generally prohibits the arbitration of grievances unless the customer agrees to arbitrate after the time the grievance has arisen. 17 C.F.R. § 180.3(a).3 The *1208rule permits compulsory arbitration to be provided for in the initial contract between the broker and the customer only if: (1) agreeing to compulsory arbitration is not a prerequisite to using the broker’s services; (2) the customer separately endorses the compulsory arbitration clause; (3) the contract contains boldface type warning the customer that he need not agree to compulsory arbitration of disputes in order to use the broker’s services. 17 C.F.R. § 180.3(b).
If this rule were applicable to the case at bar, the district court’s judgment would have to be reversed, because the compulsory arbitration clause contained in the contracts between Tamari and Bache does not satisfy the requirements of 17 C.F.R. § 180.3(b). Admittedly, the rule is inapplicable because, as finally amended, it did not become effective until January 18, 1977. But it strikes me as unfair to penalize Tamari simply because the rule was not yet in effect at the time Tamari entered its relationship with Bache. The principle underlying the rule is that it is always unfair for a broker to coerce a customer into agreeing to the compulsory arbitration of grievances through the use of adhesion contracts. That principle was as valid in 1972, when the contracts were signed, as it is now. It would in no way defeat Bache’s legitimate expectations to refuse to enforce the arbitration clause. What the rule makes clear is that Bache never had a legitimate right to coerce its customers into agreeing to compulsory arbitration.
In my opinion, we should use our equitable powers to bridge the remedial gap which now exists for commodities transactions entered into before January 18, 1977. As I have already noted, I would refuse to enforce the compulsory arbitration clause even in the absence of a CFTC rule. Given the existence of the rule, I believe that the majority’s disposition of this case also contravenes the well-established policy that we should defer to the expertise of the administrative agency to which Congress has entrusted the regulation of a particular field.
I therefore would reverse the district court’s order dismissing this action. Unless Tamari agreed to arbitration after the time its dispute with Bache arose, it should be permitted to present its claims to the district court. As the majority correctly points out, however, whether Tamari did so is a disputed issue of fact which should not be decided on a motion to dismiss.

. Even if the assumption that these were adhe-' sion contracts were open to serious question, which I doubt, we must assume that the set of facts most favorable to Tamari is true because this case was decided on a motion to dismiss.

. The majority asserts that Scherk mandates enforcement of an arbitration agreement whenever “international concerns” are involved. This reading stretches Scherk well beyond the range of cases to which the Supreme Court intended it to apply. The holding of Scherk was that in a truly international contract, one “touching two or more countries, each with its own substantive laws and conflict-of-laws rules,” the failure to enforce an arbitration agreement would unfairly exalt American law over those of other countries. 417 U.S. at 516, 94 S.Ct. at 2455. This case does not pose the problem of a conflict between American law and foreign law. The contract negotiated by Tamari and Bache involved purely American business dealings, and it is clear that the parties intended American law to govern any disagreement.

. 17 C.F.R. § 180.3 provides, in relevant part: Voluntary Procedure and Compulsory Payments.
(a) The use by customers of the dispute settlement procedures established by contract markets pursuant to the Act or this Part or of the arbitration or other dispute settlement procedures specified in an agreement under paragraph (b)(3) of this section shall be voluntary. The procedures so established shall prohibit any agreement or understanding pursuant to which customers of members of the contract market agree to submit claims or grievances for settlement under said procedures prior to the time when the claim or grievance arose, except in accordance with paragraph (b) of this section.
(b) No futures commission merchant, floor broker or associated person shall enter into any agreement or understanding with a customer in which the customer agrees, prior to the time the claim or grievance arises, to submit such claim or grievance to any settlement procedure except as follows:
(1) Signing the agreement must not be made a condition for the customer to utilize the services offered by the futures commission merchant, floor broker or associated person;
(2) If the agreement is contained as a clause or clauses of a broader agreement, the customer must separately endorse the clause or clauses containing the cautionary language and other provisions specified in this section;
(3) The agreement may not require the customer to waive the right to seek reparations under Section 14 of the Act and Part 12 of these regulations. Accordingly, the customer must be advised in writing that he or she may seek reparations under Section 14 of the Act by an election made within 45 days after the futures commission merchant, floor broker or associated person notifies the customer that arbitration will be demanded under the agreement. This notice must be given at the time when the futures commission merchant, floor broker or associated person notifies the customer of an intention to arbitrate. The customer must also be advised that if he or she seeks reparations under Section 14 of the Act and the Commission declines to institute reparation proceedings, the claim or grievance will be subject to the preexisting arbitration agreement and must also be advised that aspects of the claims or grievances that are not subject to the reparations procedure (i. e. do not constitute a violation of the Act or rules thereunder) may be required to be submitted to the arbitration or other dispute settlement procedure set forth in the preexisting arbitration agreement.
(4) The customer agreement must contain cautionary language, printed in large boldface type, to the following effect:
WHILE THE COMMODITY FUTURES TRADING COMMISSION (CFTC) RECOGNIZES THE BENEFITS OF SETTLING DISPUTES BY ARBITRATION, IT REQUIRES THAT YOUR CONSENT TO SUCH AN AGREEMENT BE VOLUNTARY. YOU NEED NOT SIGN THIS AGREEMENT TO OPEN AN ACCOUNT WITH [name]. See 17 CFR 180.1-180.6.
BY SIGNING THIS AGREEMENT, YOU MAY BE WAIVING YOUR RIGHT TO SUE IN A COURT OF LAW, BUT YOU ARE NOT WAIVING YOUR RIGHT TO ELECT AT A *1208LATER DATE TO PROCEED PURSUANT TO SECTION 14 OF THE COMMODITY EXCHANGE ACT TO SEEK DAMAGES SUSTAINED AS A RESULT OF A VIOLATION OF THE ACT. IN THE EVENT A DISPUTE ARISES, YOU WILL BE NOTIFIED IF [name] INTENDS TO SUBMIT THE DISPUTE TO ARBITRATION. IF YOU BELIEVE A VIOLATION OF THE COMMODI-' TY EXCHANGE ACT IS INVOLVED AND IF YOU PREFER TO REQUEST A SECTION 14 “REPARATIONS” PROCEEDING BEFORE THE CFTC, YOU WILL STILL HAVE 45 DAYS IN WHICH TO MAKE THAT ELECTION.
(5) If the agreement specifies a forum for settlement other than a procedure established pursuant to Section 5a(ll) of the Act or this Part, the procedures of such forum must comply with the requirements of § 180.5 of this Part.