Klein & Co. Futures Inc. v. Board of Trade City of New York
Issues
Do futures commission merchants, who guarantee their customers' trades on the commodities market, engage in the type of "transactions" required to sue a commodities board of trade under the Commodity Exchange Act?
Klein & Co. Futures, Inc. was a futures commission merchant ("FCM"), serving as a middleman in futures trading. Norman Eisler, the Chairman of the New York Futures Exchange, a subsidiary of the Board of Trade of the City of New York, allegedly engaged in a price fixing scheme that caused Klein & Co. to go out of business. Klein & Co. argues that it should have standing to sue the Board of Trade under 7 U.S.C §25(b)(1) for damages resulting from the Board's initial failure to take action against Eisler. The Board of Trade successfully argued in the District Court for the Southern District of New York and the Court of Appeals for the Second Circuit that Klein & Co. should not have standing because Congress intended standing under the statute to be limited to buyers and sellers of commodities. This case will have an important impact on the $1.1 billion futures industry because FCMs provide the financial backing for all investors in the commodities market. If FCMs are denied the right to sue, the risk of lending will increase and board members will remain insulated from civil law suits.
Questions as Framed for the Court by the Parties
The Commodity Exchange Act provides an express private right of action for actual losses to a person who "engaged in any transaction on" or "subject to the rules of" a commodity board of trade against that board of trade if the board, in bad faith, engaged in illegal conduct that caused the person to suffer the actual losses, 7 U.S.C. § 25(b)(1).
Whether the court of appeals erred in concluding that futures commission merchants lack statutory standing to invoke that right of action because, in the court's view, they do not engage in such transactions, despite the statutory requirement that the merchants enter into and execute their transactions on, and subject to the rules of, a board of trade and the fact of the merchants' financial liability for the transactions.
An Explanation of Futures Trading
The following explanation is taken from the