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(CITE AS: 487 F.SUPP. 416)

NAVIGATOR GROUP FUNDS, Eileen Kirkwood, Paul Singer, Maria 
Saumberger and Livingston H. Domas, 
			Plaintiffs,
 				v.
SHEARSON HAYDEN STONE INC., Joseph Szoecs and Joel Margolies, 
			Defendants.
No. 77 Civ. 5350 (VLB).
United States District Court, S. D. New York.
March 20, 1980.

JOHN C. KLOTZ, New York City, for plaintiffs.
Willkie, Farr & Gallagher, New York City, for defendants.

MEMORANDUM ORDER

VINCENT L. BRODERICK, District Judge.

I.

The amended complaint in this action ("complaint") charges viola
tions of the Commodity Exchange Act of 1936 as amended by the 
Commodity Futures Trading Commission Act of 1974 (collectively 
"the commodities acts"), 7 U.S.C. s 1 et seq. It also purports to 
charge violations of the securities acts, and charges violations 
of fiduciary obligations under the laws of New York State. The 
plaintiffs are Navigator Group Funds ("Navigator"), a limited 
partnership engaged in pooled commodities investment, and four of 
its limited partners. Defendants are Shearson Hayden Stone Inc. 
("Shearson"), a corporation with principal place of business in 
New York, and Joel Margolies and Joseph I. Szoecs, two employees 
of Shearson.

Defendants have moved to dismiss the complaint. For the reasons 
which follow, the motion is denied as to the claims on behalf of 
Navigator; it is granted on the basis set forth in Section IV, 
infra, with respect to the securities claims on behalf of Naviga
tor's limited partners.[FN1]

II.

The factual allegations of the complaint are accepted as true for 
purposes of considering defendants' motions. The facts as dis
tilled from the complaint follow.

In 1976 Shearson "embarked on a course of conduct designed to 
increase its corporate profits" by generating large amounts of 
commission income "through the purchase and sale of investments 
in commodity futures contracts." Thus it encouraged the estab
lishment of pooled investment accounts with Shearson.

To induce Navigator to open a limited discretionary account at 
Shearson, Shearson and its employees made various misrepresenta
tions. Thus they represented that at least 40% of Navigator's 
account would be kept in reserve at all times, that no more than 
20% of the account would be committed to a single investment 
position, and that the Navigator account would be reviewed daily 
by a Shearson officer. On July 7, 1976 Navigator opened a pooled 
account for investment in commodities with Shearson, and Szoecs 
began to function as broker for Navigator under the supervision 
of Margolies. With the full knowledge, consent, advice and en
couragement of Shearson, monies were solicited from Navigator's 
limited partners to be invested in the pooled account maintained 
by Navigator at Shearson. In or about April, 1977 Shearson held 
for the account of Navigator the sum of $404,000, and it accepted 
an additional $95,000 capital investment in the pool in or about 
May, 1977.

Defendants failed to hold the stated percentages of Navigator's 
account in reserve; they invested an excessive percentage of the 
account in single commodity contracts; they failed to place stop 
orders on futures contracts; and they refused to follow Naviga
tor's specific directions as to investments in commodity futures. 
$464,000 of the total of $499,000 invested through Navigator in 
the account at Shearson was dissipated and lost.

III.

Commodities Acts Claim

The first count of the complaint alleges, on behalf of Navigator, 
violations by the defendants of the antifraud provisions of the 
commodities acts applicable to members of contract markets, 7 
U.S.C. s 6b.[FN2] The gist of the first cause of action is that 
Shearson and its employees induced Navigator to open a limited 
discretionary account at Shearson by various misrepresentations. 
The defendants' motion to dismiss the first count is predicated 
on the ground that there is no implied private right of action 
under the commodities acts. On the basis of the analysis which 
follows, I hold that there is such a right of action.

Analysis of this issue must begin with the Supreme Court deci
sions in Touche Ross v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 
61 L.Ed.2d 82 (1979), and Transamerica Mortgage Advisors, Inc. v. 
Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979).[FN3] 
The goal of the analysis, according to these cases, is to deter
mine what Congress actually intended.

In determining intent, the court may look to two sources: the 
language of the statute and the legislative history. If those 
sources indicate an intent not to create a right of action, the 
court's inquiry is at an end. Other factors for the court's 
consideration, enumerated in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 
2080, 45 L.Ed.2d 26 (1975),[FN4] need not be reached if the 
language of the statute and its history clearly indicate that 
creation of a private right of action was not intended.

The statute itself does not explicitly provide for a private 
right of action for violation of its antifraud (or any other) 
provisions, nor does it explicitly confer jurisdiction on the 
courts over private actions brought under it. It does provide a 
number of other remedies for violation of the commodities acts, 
including a reparations procedure to be administered by the 
Commodities Futures Trading Commission ("CFTC") and open to any 
injured investor, 7 U.S.C. s 18; disciplinary proceedings to be 
conducted by the CFTC with respect to members of commodities 
exchanges found violating the Act, 7 U.S.C. s 12c; authority in 
the CFTC to sue in federal court for injunctions against unlawful 
commodities futures practices, 7 U.S.C. s 13a-1; and authority in 
the CFTC to issue cease and desist orders, 7 U.S.C. s 13b. It 
also provides criminal penalties for knowing violation of various 
sections of the commodities acts, 7 U.S.C. s 13.

If the statute itself were the only source, the availability of 
these remedies would, under Transamerica, be dispositive of the 
question of legislative intent. In Transamerica the Court refused 
to imply a private right of action for violation of the anti-
fraud section of the Investment Advisers Act, suggesting that the 
postulation of specific remedies by Congress inhibited the impli
cation of others:

Unlike s 215, s 206 simply proscribes certain conduct, and does 
not in terms create or alter any civil liabilities. If monetary 
liability to a private plaintiff is to be found, it (sic the 
court?) must read it into the Act. Yet it is an elemental canon 
of statutory construction that where a statute expressly provides 
a particular remedy or remedies, a court must be chary of reading 
others into it. When a statute limits a thing to be done in a 
particular mode, it includes the negative of any other mode. 
(citations omitted) Congress expressly provided both judicial and 
administrative means for enforcing compliance with s 206. First, 
under s 217 willful violations of the Act are criminal offenses, 
punishable by fine or imprisonment, or both. Second, s 209 au
thorizes the Commission to bring civil actions in federal courts 
to enjoin compliance with the Act, including, of course, s 206. 
Third, the Commission is authorized by s 203 to impose various 
administrative sanctions on persons who violate the Act, includ
ing s 206. In view of these express provisions for enforcing the 
duties imposed by s 206, it is highly improbable that "Congress 
absentmindedly forgot to mention an intended private action." 
Cannon v. University of Chicago, 441 U.S. (677) at 742, (99 S.Ct. 
1946 at 1981, 60 L.Ed.2d 560) (Powell, J., dissenting). Id. 444 
at 20, 100 S.Ct. at 247.

The anti-fraud provisions of the commodities acts are similar to 
those contained in the Investment Advisers Act at issue in Trans
america, and the commodities acts contain counterparts to various 
of the remedies available under the Investment Advisers Act.

The administrative reparations procedure which is available to 
injured investors under the commodities acts has no counterpart 
under the Investment Advisers Act. So far as the individual 
investor is concerned, this procedure is a more adequate substi
tute for a private right of action than those remedies which in 
Transamerica were found to negate any legislative intent to 
permit the implication of a private right of action; unlike the 
remedies in the Investment Advisers Act it serves not only to 
deter the conduct prohibited, but it also provides the injured 
investor with a means of being compensated for his loss. [FN5]

The inquiry under Transamerica, however, does not end here. "Even 
settled rules of statutory construction could yield, of course, 
to persuasive evidence of a contrary legislative intent." Id. at 
20, 100 S.Ct. at 247. Accordingly, examination of the legislative 
history of the commodities acts is indicated, to determine wheth
er it yields "persuasive evidence" of contrary legislative int
ent.

While the original Commodity Exchange Act ("CEA") was enacted in 
1936, the regulatory scheme as it exists today is a product of 
the 1974 amendments. Those amendments, passed as the Commodities 
Futures Trading Commission Act ("CFTCA"), vested in an independ
ent commission, the CFTC, "exclusive" jurisdiction over the 
trading of commodities futures. It is therefore the legislative 
history of the 1974 amendments which is relevant to the instant 
inquiry.[FN6]

Prior to 1974, a number of courts had implied a private right of 
action under various provisions of the CEA, including its anti
fraud provisions, e. g. Deaktor v. L.D. Schreiber & Co., 479 F.2d 
529 (7th Cir.), rev'd on other grounds sub nom. Chicago Mercan
tile Exchange v. Deaktor, 414 U.S. 113, 94 S.Ct. 466, 38 L.Ed.2d 
344 (1973); Goodman v. H. Hentz & Co., 265 F.Supp. 440 
(N.D.Ill.1967); Booth v. Peavey Co. Commod. Services, 430 F.2d 
132 (8th Cir. 1970); Johnson v. Arthur, Espey, Shearson, Hammill 
& Co., 341 F.Supp. 764 (S.D.N.Y.1972). The legislative history of 
the CFTCA indicates that Congress was aware of these cases at the 
time that it passed the 1974 amendments, e. g., 120 Cong.Rec. 
4133, 92nd Cong., 1st Session, Remarks of Rep. Poage (Chairman of 
House Committee on Agriculture); Hearings on H.R.11955, House 
Committee on Agriculture, 93d Cong., 2d Session ("House Hearings 
1974"), 249, 32; Hearings on S.2485, S.2578, S.2837, H.R.13113, 
Senate Committee on Agriculture and Forestry, 93d Cong., 2d 
Session ("Senate Hearings 1974"), Pt. 3 at 737, 746.

In determining what if any conclusions can be drawn from that 
knowledge, the Supreme Court's decision in Cannon v. University 
of Chicago, 441 U.S. 677, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979), 
provides some guidance. In Cannon, the Court implied a right of 
action under Title IX of the Education Act Amendments of 1972 in 
spite of the statute's silence on that issue and its explicit 
provision of another remedy for violation of the Act. The Court 
regarded it as significant that Title IX was patterned on Title 
VI of the Civil Rights Act of 1964, under which one circuit court 
and a number of district courts had implied private rights of 
action. From this the Court reasoned that Congress, presumably 
aware of case law developments, intended that Title IX share the 
same judicial gloss. The Court found it possible to draw this 
inference only because in 1972, when Title IX was passed, Con
gress knew it could count on the courts to imply statutory rights 
of action quite liberally. The reasoning of Cannon is complemen
tary to, rather than inconsistent with, that of Touche Ross, 
decided only one month later, and Transamerica, decided only six 
months later. All three indicate that search should be made for 
the actual intent of Congress. Cannon recognizes that the inquiry 
into legislative intent requires, at least with respect to legis
lation passed during a more permissive era of judicial implica
tion of private rights of action, consideration of congressional 
awareness of and response to judicial developments. Touche Ross 
and Transamerica were concerned with statutes enacted before the 
era of liberal implication of private rights of action, and thus 
the likelihood of congressional awareness of this judicial liber
ality did not have to be factored into the analyses in those 
cases.

This case presents what is in many ways a more appropriate con
text for the Cannon reasoning than did Cannon itself. Here it is 
not necessary to look to a different statute for a background of 
court-implied remedies; private rights of action had been implied 
with respect to the CEA itself, which the 1974 legislation amend
ed and revamped. Nor is it necessary to impute knowledge of the 
case law to the legislators who enacted the CFTCA; the legisla
tive history contains ample evidence that they possessed that 
knowledge. As in 1972 when Title IX was passed, Congress in 1974 
had every reason to believe that its omission expressly to pro
vide for private rights of action would not preclude the courts 
from implying them. The judicial trend toward a more restrictive 
approach to implied private rights of action was not established 
until the Supreme Court issued a series of decisions in 1974 and 
1975, e. g. National Railroad Passenger Corp. v. National Assoc. 
of R.R. Passengers, 414 U.S. 453, 94 S.Ct. 690, 38 L.Ed.2d 646 
(1974); Securities Investor Protection Corp. v. Barbour, 421 U.S. 
412, 95 S.Ct. 1733, 44 L.Ed.2d 263 (1975); Cort v. Ash, 422 U.S. 
66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975).[FN7] Congress in early 
1974 cannot be expected to have read the handwriting on the 
wall.[FN8] I find it consistent with the legislative history to 
imply a private right of action for violation of the antifraud 
provisions of the commodities acts.

To whatever extent it has significance, the legislative history 
of the 1978 amendments to the commodities acts supports this 
conclusion. "While subsequent legislation can disclose little or 
nothing of the intent of Congress in enacting earlier laws," 
Transamerica supra, at n. 13, the interpretation placed on the 
earlier legislation by congressmen amending it only four years 
later is surely entitled to some weight. Two items in the legis
lative history of the 1978 amendments are worthy of note. One is 
the description of the administrative reparations procedure as an 
alternative forum for customer claims; the other is a rationale 
offered for exempting contract markets from law suits by states. 
Senator Huddleston, a member of the Senate committee responsible 
for the amendments, described the administrative reparations 
procedure as follows: 

In 1974, Congress directed the Commission to establish a repara
tion procedure for adjudicating customer complaints against 
commodity professionals and firms inexpensively and quickly. 
During the past 3 years, an unexpected number of reparation cases 
have been filed with the Commission, resulting in a substantial 
backlog in the processing of these customer claims. Compounding 
the undue stress placed on the reparation program, certain Feder
al district courts have taken the unfortunate position that 
Congress intended reparations to be the exclusive forum for 
adjudicating commodity customer claims. (citations omitted) In 
order to alleviate the burden on the Commission's reparation 
program, the committee adopted an amendment that provides for 
reparation complaints where the amount claimed as damages does 
not exceed $5,000 that a hearing be held only on the novel or 
basic issues that are determinative of the case. Thus, an ag
grieved commodity customer will be able to obtain more expedi
tious treatment of his claim should the customer elect to pursue 
a claim in reparations rather than proceed to arbitration or 
pursue in court the private right of action which has been judi
cially implied for violations of certain provisions of the Com
modity Exchange Act, or which in the future courts may recognize 
for other provisions of the act.
124 Cong.Rec. 10537, 95th Cong., 2d Sess. (1978) (Remarks of Sen. 
Huddleston).

Senator Huddleston's remarks strongly suggest that the repara
tions procedure was designed to provide an attractive alternative 
to, rather than a replacement for, litigation.[FN9] They also 
suggest that even as late as 1978, Congress was still inclined to 
let the courts decide which statutory provisions would give rise 
to an implied private right of action, even though the courts 
were showing an increasing reluctance to shoulder that burden.

One of the changes effected by the 1978 amendments was the addi
tion of a statutory cause of action by a state as "parens pa
triae" for injunctive relief and damages. The provision specifi
cally exempts suits against contract markets from its coverage. 
Senator Leahy of the Senate Committee responsible for the bill, 
the Committee on Forestry and Agriculture, explained that a part 
of the justification for exempting contract markets from law 
suits by states was the subsisting deterrent effect upon such 
contract markets of implied private rights of action that might 
be invoked against them:

The exemption from State suits provided to contract markets is 
justified due to the deterrent effect on contract markets caused 
by Commission regulation, institution of Commission enforcement 
proceedings, and the implied private rights of action that may be 
brought against those contract markets that fail to discharge 
their duties under the Commodity Exchange Act. In those actions 
brought by a State under this bill, a customer who makes an 
informed, voluntary election to have his State sue on his behalf 
to recover monetary damages for a particular violation would 
thereby extinguish that person's other alternatives for redress: 
arbitration, reparations, or judicially implied private rights of 
civil action under the Act. 124 Cong.Rec. 10527, 95th Cong., 2d 
Sess (1978), Remarks of Sen. Leahy.

In light of Congress' express reliance on judicially implied 
private rights of action in fashioning an exemption from one of 
its enforcement provisions, failure to fulfill that expectation 
could distort the intended regulatory scheme.

Defendants have pointed to other aspects of the legislative 
history which, they suggest, indicate that Congress did not 
intend that a private right of action be implied. Thus they note 
that prior to the passage of the 1974 Act, three bills were 
introduced and died in committee which would expressly have 
provided for private rights of action. With regard to these 
bills, I find persuasive the reasoning of the court in Smith v. 
Groover, 468 F.Supp. 105, 113 (N.D.Ill.1979):

The bills to which defendants refer all provided for the recovery 
of treble damages, a remedy previously unavailable to plaintiffs 
suing on an implied right of action. The defeat of these bills, 
therefore, demonstrates nothing more than a congressional deci
sion not to expand recovery under the existing private right.

Nor is it useful to speculate on the significance of bills which 
were never debated on the floor of Congress or made the subject 
of committee reports. Defendants also note the failure of the 
Senate Report on the 1978 Amendments to catalog private rights of 
action among the protections and remedies provided under the 
commodities acts:

The Commodity Exchange Act provides many customer protections and 
remedies. The Act directs the Commission to promulgate and admin
ister a regulatory program that includes registration of commodi
ty professionals, segregation of customers' funds by futures 
commission merchants, establishment of dual trading guidelines, 
creation of a procedure for the adjudication of reparation 
claims, monitoring exchange arbitration procedures and discipli
nary actions, and licensing of industry self-regulatory futures 
associations. Moreover, customers are afforded protection through 
the Commission's power to sue directly for injunctive relief and 
to invoke a full range of administrative remedies where appro
priate to curb unlawful behavior.

The Commodity Futures Trading Commission was created in order to 
assure that a single expert agency would have the responsibility 
for developing a coherent regulatory program encompassing futures 
trading and related activities. Therefore, Congress has vested in 
the Commission exclusive jurisdiction to build upon the founda
tion provided by the Commodity Exchange Act in erecting a sound 
and strong Federal regulatory policy governing futures trading. 
S.Rep. No. 95-850, 95th Cong., 2d Sess. (1978), reprinted in 
(1978) U.S.Code Cong. & Admin.News, pp. 2087, 2100-2101.

The defendants contend that had Congress intended to allow a 
private right of action, it would have listed that remedy along 
with all the others.

Nothing in the quoted portion suggests that Congress intended to 
preclude the courts from implying remedies. The Senate Report 
simply describes those remedies which are to be specifically 
provided by the commodities acts. Other aspects of the 1978 
legislative history, explicated above, indicate that Congress 
intended to rely on the courts to "provide" certain judicial 
remedies. Defendants further contend that since Congress amended 
the commodities acts in 1978, its failure explicitly to provide 
for private rights of action is a clear reflection of their 
intent to preclude such rights. In support of that contention 
they note that Congress was aware in 1978 that certain courts had 
declined to imply private rights of action in the wake of the 
1974 amendments, see Remarks of Senator Huddleston, quoted supra 
at 11-12, and they assert that by 1978 the trend toward a more 
restrictive judicial approach to such implied private rights had 
become quite clear.[FN10]

Had Congress set out in 1978 to rewrite the law of commodities 
futures regulation as thoroughly as it did in 1974, the defend
ants' argument would be more persuasive. While the 1978 amend
ments made some substantial changes in and additions to the 
commodities acts, they did not alter the fundamental regulatory 
framework. The logic of defendants' argument would be to require 
federal courts to prohibit private actions with respect to any 
statute amended in any way after the mid-1970's, if Congress did 
not explicitly create a private right of action. There is no 
support in the recent Supreme Court decisions for such a require
ment. Absent some indication that Congress' attention was focused 
on the need to overrule the district court decisions disapprov
ingly cited by Senator Huddleston, I decline to conclude that the 
failure to enact legislation overruling those decisions consti
tuted an implied endorsement of their holdings.

Since the legislative history supports the implication of a 
private right of action, the analysis may proceed to the other, 
now less important factors enumerated by Cort v. Ash, 422 U.S. at 
78, 95 S.Ct. at 2088: [FN11]

1) is "the plaintiff 'one of the class for whose especial benefit 
the statute was enacted'?" (emphasis in original). 2) "is it 
consistent with the underlying purpose of the legislative scheme 
to imply such a remedy for the plaintiff"? 3) "is the cause of 
action one traditionally relegated to state law, in an area 
basically the concern of the States, so that it would be inappro
priate to infer a cause of action based solely on federal law"? 
[FN12]

1) Class to be benefitted by statute. The commodities acts were 
certainly designed to protect investors in commodities futures, 
among others. The congressional reports on the bill which became 
the CFTCA cite fraudulent treatment of customer accounts as among 
the many evils which prompted the amendments, e. g. H.Rep. No. 
93-975, 93d Cong., 2d Sess., 34, 38.


2) Consistency with statutory scheme. Defendants urge that imply
ing a remedy in this case would be inconsistent with the statu
tory scheme. They contend that by vesting plenary jurisdiction in 
the CFTC and providing a detailed scheme of administrative re
lief, Congress created a completely comprehensive regulatory 
structure, the purpose of which would be controverted by allowing 
injured customers access to the courts.

The CFTC itself does not agree; its position is that providing 
such access for injured customers is entirely appropriate. State
ment of the CFTC Concerning Referral of Private Litigation under 
the Doctrine of Primary Jurisdiction, 41 Fed.Reg. 18471 (May 5, 
1976). I agree with the defendants that the CFTC's position is 
not entitled to any particular deference on the issue of legisla
tive intent. It is, however, entitled to considerable deference 
on the issue of consistency with the legislative scheme as the 
opinion of the regulatory body to whom enforcement under the 
scheme is entrusted. The legislative history of the 1978 amend
ments reveals Congress' concern with the backlog of reparation 
cases burdening the CFTC, and its concomitant eagerness to pro
vide additional enforcement by streamlining the reparations 
procedure and by creating causes of action on behalf of the 
states. See 24 Cong.Rec. 10537, 93d Cong., 1st Sess. (1978) 
(Remarks of Sen. Huddleston); S.Rep. No. 95-850, 93d Cong., 1st 
Sess. (1978), 26. Both the CFTC and Congress appear to have 
recognized that the more enforcement assistance is provided from 
other quarters, the more effectively the regulatory provisions of 
the commodities acts will be carried out.

3) Appropriateness of implying cause of action based on federal 
law. While fraudulent conduct by commodities brokers might give 
rise to state tort liability, commodities futures activity im
pacts upon national markets. It is, and historically has been, an 
area of primary federal concern. Smith v. Groover, 468 F.Supp. 
105, 115 (N.D.Ill.1979).[FN13]

IV.

Securities Acts Claims

The second count of the complaint is apparently intended to 
allege, on behalf of the individual limited partners, violations 
of the registration provisions of the Securities Act of 1933, 15 
U.S.C. ss 77e, and violations of the Securities Exchange Act of 
1934, 15 U.S.C. s 78a et seq. The defendants move to dismiss on 
two grounds: 1) that the partnership interests of the individual 
plaintiffs were not subject to the Securities Act registration 
requirements since they were "accounts . . . and transactions 
involving contracts of sale of a commodity for future delivery," 
7 U.S.C. s 2, and therefore subject to the exclusive regulatory 
jurisdiction of the CFTC; and 2) that the complaint does not 
allege conduct amounting to a violation of the registration 
exemption.

In an earlier decision in this case (filed April 18, 1979), I 
dismissed an earlier complaint insofar as it alleged claims on 
behalf of Navigator for securities acts violations in connection 
with the commodities trading account which Shearson had induced 
Navigator to open. The basis for that decision was my finding 
that the commodities acts oust the federal courts of jurisdiction 
over actions alleging fraud in connection with commodities 
futures contract transactions. As I made clear in a subsequent 
memorandum order (filed May 1, 1979), my decision on that issue 
did not address the applicability of the securities acts to the 
limited partners' partnership interests in Navigator; only alle
gations involving Navigator's account with Shearson were subject 
to that holding.

The issue left open in the April 18 decision would presumably now 
be before me if the allegations under the securities laws on 
behalf of the individual partner plaintiffs were articulated with 
sufficient clarity to notify me (and the defendants) of the 
actions allegedly taken by the defendants in violation of the 
securities acts.[FN14] They are not so articulated, and I do not 
know what the plaintiffs claim. I do not intend to speculate 
myself, and I shall not require defendants to speculate. Count 2 
of the complaint is dismissed without prejudice to the service 
and filing within ten (10) days of an application to file a 
proposed amended complaint [FN15] which sets forth with precision 
and with particularity the specific conduct by each of the de
fendants which is complained of, and which designates the specif
ic provisions of the securities acts and the regulations thereun
der which plaintiffs allege were violated by that conduct. If 
such an application, with proposed amended complaint, is not 
served and filed within ten (10) days, an order will be entered 
without further notice making it clear that this dismissal of 
Count 2 of the complaint is with prejudice.

SO ORDERED.

FOOTNOTES

FN1. The defendants have moved to dismiss the first and third 
counts of the complaint on the grounds that these claims, brought 
in the name of Navigator Group Funds, a limited partnership, 
constitute a derivative action by the limited partners. Under New 
York law, the complaint in a limited partners' derivative suit 
must allege demand on and refusal by the general partners to 
institute the suit. N.Y.Part. Law s 115-a. There is no such 
allegation in this complaint. Section 115-a applies only to 
limited partners' derivative suits. On its face the complaint, to 
the extent that it alleges claims in the name of the partnership, 
appears to have been brought by the partnership itself, not by 
the limited partners suing derivatively. Section 1025 of the CPLR 
authorizes such suits in the partnership name. The defendants 
have not offered any evidence that Navigator's general partner 
failed to authorize this suit. The joinder of some of the limited 
partners as plaintiffs does not establish that they alone have 
authorized and directed the entire law suit. Whatever other 
disabilities affect their claims (see Section IV, infra ), their 
claims are distinct from those of the partnership, although they 
apparently arise out of the same series of events. Nor have the 
defendants cited any authority for the proposition that proper 
authorization for the bringing of the action by the partnership 
must be alleged in the complaint. Accordingly, I deny the motion 
to dismiss the claims against Navigator on this ground without 
prejudice to renewal if the defendants produce evidence that the 
suit was not properly brought on behalf of the partnership.

FN2. While the complaint does not specify, the plaintiffs' memo
randum indicates that the action is brought for violation of s 4b 
of the Act, 7 U.S.C. s 6b, which is the only anti-fraud provision 
applicable to members of contract markets: It shall be unlawful 
for any member of a contract market, or for any correspondent, 
agent, or employee of any member, in or in connection with any 
order to make, or the making of (1) any contract of sale of any 
commodity in interstate commerce, or (2) any contract of sale of 
any commodity for future delivery made, or to be made, on or 
subject to the rules of any contract market for or on behalf of 
any person if such contract for future delivery is or may be used 
for (a) hedging any transaction in interstate commerce in such 
commodity or the products or by-products thereof, or (b) deter
mining the price basis of any transaction in interstate commerce 
in such commodity, or (c) delivering any such commodity sold, 
shipped, or received in interstate commerce for the fulfillment 
thereof (A) to cheat or defraud or attempt to cheat or defraud 
such person; (B) willfully to make or cause to be made to such 
person any false report or statement thereof, or willfully to 
enter or cause to be entered for such person any false record 
thereof; (C) willfully to deceive or attempt to deceive such 
person by any means whatsoever in regard to any such order or 
contract or the disposition or execution of any such order or 
contract, or in regard to any act of agency performed with re
spect to such order or contract for such person; or

FN3. In a decision dated August 24, 1978, I denied the defend
ants' motion to dismiss an earlier complaint on the same grounds. 
That decision relied to some extent on the reasoning of Goodman 
v. Hentz, 265 F.Supp. 440 (N.D.Ill.1967). The reasoning of that 
case and, indeed, that of a substantial number of cases decided 
before last year has been cast in doubt by the Supreme Court's 
recent decisions. I therefore find it necessary to take a new 
look at the issue in light of those decisions. The 1978 amend
ments to the commodities acts, passed very shortly after my 
August decision, also prompt a fresh consideration.

FN4. Those factors are: First, is the plaintiff "one of the class 
for whose especial benefit the statute was enacted," (emphasis in 
original; citation omitted) that is, does the statute create a 
federal right in favor of the plaintiff? Second, is there any 
indication of legislative intent, explicit or implicit, either to 
create such a remedy or to deny one? (citation omitted) Third, is 
it consistent with the underlying purposes of the legislative 
scheme to imply such a remedy for the plaintiff? (citations 
omitted) And finally, is the cause of action one traditionally 
relegated to state law, in an area basically the concern of the 
States, so that it would be inappropriate to infer a cause of 
action based solely on federal law? (citations omitted). Cort v. 
Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2088, 45 L.Ed.2d 26 (1975).

FN5. The defendants have also relied on the statute's grant (7 
U.S.C. s 2) of "exclusive jurisdiction" over commodities trading 
to the CFTC. The legislative history, however, indicates that 
this provision was primarily designed to insure that there would 
be no interference by other government agencies in the area 
committed to the plenary control of the CFTC. Conf.Rep. No. 93-
1383, 93d Cong., 2d Sess. at 23. Indeed, Congress explicitly 
provided that: Nothing in this section shall supersede or limit 
the jurisdiction conferred on courts of the United States or any 
State. 7 U.S.C. s 2. While the legislative history reveals that 
Congress was particularly concerned, when it drafted that provi
so, that there be no interference with the jurisdiction of the 
courts over antitrust and ordinary commercial cases, Hearings on 
S.2485, S.2578, S.2837, and H.R.13113, Senate Committee on Agri
culture and Forestry, 93d Cong., 2d Sess. ("Senate Hearings 
1974"), Pt. 3 at 663-664, its presence renders the impact on the 
federal courts of the "exclusive jurisdiction" language ambiguous 
at best.

FN6. The CEA contained an antifraud provision which was not 
substantially changed in 1974. The statutory scheme in the con
text of which the provision appears, however, was radically 
changed in 1974.

FN7. Defendants do not seriously dispute that the restrictive 
trend was not well established, if at all, in 1974. They cite no 
cases earlier than these as evidence of that trend.

FN8. The Senate Agriculture and Forestry Committee was warned by 
one witness that the suggested reparations procedure might be 
construed by the courts to preclude the right of recourse to the 
courts. Senate Hearings 1974, Pt. 3, 737. He suggested that 
Congress amend the bill to make it clear that the reparations 
procedure was only an alternative remedy. Without any indication 
of the credence or importance accorded to this testimony, it can 
hardly be regarded as evidence that Congress was on notice of the 
construction that might be given this new provision. In addition, 
it is quite possible that the Committee assumed that by adding 
the proviso quoted above at fn. 5, it was taking care of this 
potential problem as well as of the problems of jurisdiction over 
ordinary commercial and antitrust litigation.

FN9. The Conference Report indicates that the reparations proce
dure was intended to provide a faster, less expensive alternative 
to litigation. In an attempt to bring about inexpensive and 
expeditious adjudication of customer claims, Congress authorized 
the creation of two extra-judicial forums for resolution of 
customer complaints. First, each contract market was required to 
provide a fair and equitable procedure for the voluntary settle
ment by arbitration or otherwise of customers' claims and 
grievances not in excess of $15,000. Second, the Commission was 
directed to establish a reparations procedure for adjudicating 
customer complaints brought against commodity professionals and 
firms. Additional customer protection was contemplated by the 
provisions of the 1974 amendments that (1) authorized the Commis
sion to determine whether and on what terms dual trading practic
es of floor brokers and futures commission merchants should be 
permitted, and (2) broadly proscribed fraudulent and deceptive 
practices by commodity trading advisors and pool operators. 1978 
U.S.Code Cong. & Admin.News, pp. 2087, 2099.

FN10. The defendants also suggest that Congress could have re
sponded to the backlog of reparations claims described by Senator 
Huddleston in one of two ways: by streamlining the reparations 
procedure or by expressly conferring jurisdiction on the courts. 
By taking the former course, they suggest, Congress implicitly 
rejected the latter. It is not at all clear, however, that the 
provisions in the 1978 legislation, with respect to reparations 
procedures, shed any light on Congress' attitude towards judi
cially implied rights. Given the enormous backlog, those provi
sions would probably have been necessary regardless of the avail
ability of a judicial forum; Senator Huddleston's comments sug
gest that the refusal of a few district courts to imply private 
rights of action had only somewhat aggravated a pre-existing 
condition. It could just as easily be surmised that Congress 
undertook to streamline the procedures in order to preserve their 
character as an attractive alternative to litigation.

FN11. See fn. 4, supra.

FN12. Touche Ross and Transamerica hold that these factors need 
not be considered if the statute and its history clearly reveal a 
negative intent. Presumably, they would also be irrelevant if 
Congress had quite clearly expressed a positive intent by, for 
example, providing for attorney's fees, or by so stating in a 
committee report. In cases like this one, however, where intent 
must be established by inference from the legislative history, it 
probably remains appropriate to examine the additional Cort 
factors.

FN13. In holding that implied rights of action under the commodi
ties acts survive both the 1974 and the 1978 amendments, I join a 
number of other district judges who have reached the same conclu
sion. Hofmayer v. Dean Witter & Co., 459 F.Supp. 733 
(N.D.Cal.1978); Smith v. Groover, supra ; R. J. Hereley Son Co. 
v. Stotler & Co., 466 F.Supp. 345 (N.D.Ill.1979); Jones v. B. C. 
Christopher & Co., 466 F.Supp. 213 (D.Kan.1979). But see National 
Super Spuds Inc. v. New York Mercantile Exchange, 470 F.Supp. 
1256 (S.D.N.Y.1979); Beeman v. Bache, Halsey, Stuart, Shields 
Inc., Commod. Fut. L.Rep. (CCH) P 20,796 (S.D.Ohio 1979); Alkan 
v. Rosenthal & Co., Commod.Fut.L.Rep. (CCH) P 20,797 (S.D.Ohio 
1979).

FN14. While it is apparently the Securities and Exchange Commis
sion exemption which plaintiffs allege to have been violated, 
plaintiffs do not allege in what respects defendants violated it. 
Moreover, without explication, plaintiffs allege jurisdiction 
under, inter alia, "The Exchange Act s 10(b), 15 U.S.C. s 78j(b) 
and Rule 10b-5, 17 C.F.R. s 240.10b-5."

FN15. The complaints in this and an earlier identical action 
which was voluntarily dismissed have been amended, to date, seven 
times. I trust that this memorandum order makes it clear to 
plaintiffs' counsel that this is the final amendment. The federal 
courts have moved to the practice of notice pleading, but plead
ings which are filed must give reasonable notice, with reasonable 
precision, of what is claimed. If the plaintiffs are claiming 
fraud, the specific activities alleged to constitute the fraud, 
and the specific provisions of the law and regulations which 
plaintiffs claim have been violated, must be set forth so that 
the defendants may know, and if possible meet, the charges, and 
so that the judge may have a basis for intelligent adjudication. 

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