[Federal Register: October 19, 1998 (Volume 63, Number 201)]
[Rules and Regulations]
[Page 55784-55796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc98-4]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 10
Rules of Practice; Final Rules
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commodity Futures Trading Commission ("Commission") is
adopting final regulations amending its Rules of Practice, which govern
most adjudicatory proceedings brought under the Commodity Exchange Act,
as amended ("Act"), other than reparations proceedings. In order to
improve the overall fairness and efficiency of the administrative
process, the Commission published for comment a notice of proposed
amendments to the existing rules. Following consideration of the
comments received, this notice sets forth each amended rule in its
final form.
Most of the substantive amendments adopted by the Commission serve
one of two purposes. Some are intended to foster a greater exchange of
information between the Commission's Division of Enforcement
("Division") and the respondents before a hearing takes place and to
clarify the production obligations of each party. Others will
facilitate use of the authority granted to the Commission by the
Futures Trading Practices Act of 1992 to require the
[[Page 55785]]
payment of restitution by respondents in administrative enforcement
proceedings. The remaining amendments are largely technical in nature.
EFFECTIVE DATE: The effective date of these rules November 18, 1998.
The amended Rules of Practice shall apply only to proceedings initiated
on or after the effective date. All proceedings initiated before the
effective date shall be conducted under the former Rules of Practice.
FOR FURTHER INFORMATION CONTACT: Stephen Mihans, Office of Chief
Counsel, Division of Enforcement, at (202) 418-5399, or David Merrill,
Office of the General Counsel, at (202) 418-5120, Commodity Futures
Trading Commission, Three Lafayette Center, 1155 21st Street, N.W.,
Washington, D.C. 20581.
SUPPLEMENTARY INFORMATION: On April 3, 1998, the Commission published a
notice in the Federal Register announcing proposed amendments to the
agency's Rules of Practice.\1\ Although the Commission's proposals were
not intended to be sweeping or groundbreaking, they did represent the
first major revision of the Rules of Practice in more than 20 years.
The notice identified fourteen existing rules that the Commission
proposed to amend. These provisions, and the subject areas that they
cover, included Rule 10.1 (scope and applicability of rules of
practice); Rule 10.12 (service and filing of documents; form and
execution); Rule 10.21 (commencement of the proceeding); Rule 10.22
(complaint and notice of hearing); Rule 10.24 (amendments and
supplemental pleadings); Rule 10.26 (motions and other papers); Rule
10.41 (prehearing conferences; procedural matters); Rule 10.42
(discovery); Rule 10.66 (conduct of the hearing); Rule 10.68
(subpoenas); Rule 10.84 (initial decision); Rule 10.101 (interlocutory
appeals); Rule 10.102 (review of initial decision); and Rule 10.106
(reconsideration). In addition, the Commission proposed adding to its
Rules of Practice a new subpart (proposed Subpart I) addressing the
administration of restitution orders issued pursuant to 7 U.S.C. 9
(1994) and a statement of policy relating to the acceptance of
settlements in administrative and civil proceedings instituted by the
Commission.
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\1\ See 63 FR 16453 (April 3, 1998).
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In its Federal Register notice, the Commission welcomed public
comment on the proposed changes to its Rules of Practice and invited
other suggestions to improve or expedite the adjudicatory process.\2\
Two comment letters were received, one from the Law and Compliance
Division of the Futures Industry Association ("FIA") and the other
from the Committee on Commodities and Futures Law of the New York State
Bar Association ("NYSBA"). Both letters were supportive of the
Commission's efforts to improve the overall fairness and efficiency of
the administrative process. Neither letter included specific comments
on the proposed amendments to Rules 10.1, 10.12, 10.21, 10.22, 10.26,
10.41 and 10.66, all of which are being adopted as presented in the
Federal Register notice of April 3, 1998.
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\2\Although the comment period was originally scheduled to end
on June 2, 1998, it was extended by the Commission for an additional
30 days. See 63 FR 30675 (June 5, 1998).
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However, both the FIA and the NYSBA raised issues relating to the
remaining seven rules that the Commission proposed amending. While most
of their comments focused on issues related to discovery and
restitution, both groups asked that the Commission either modify or
clarify other proposed revisions to the Rules of Practice. A discussion
of their comments, as well as the changes that the Commission has
determined to make in the wording of the proposed amendments, follows.
I. Rule Changes Related to Discovery
A. Prehearing Materials
As proposed by the Commission, new Rule 10.42(a) expands the
information required to be included in each party's prehearing
memorandum to include the identity, and the city and state of
residence, of each witness (other than an expert) who is expected to
testify on the party's behalf, along with a brief summary of the
matters to be covered by the witness's expected testimony. In addition,
each party will be required to furnish a list of documents that he or
she will introduce as evidence at the hearing and copies of any
documents that the other parties do not already have in their
possession or to which they do not have reasonably ready access. With
respect to expert witnesses, each party will be required to furnish the
other parties with a statement providing relevant information about the
witness, as well as a statement setting forth the opinions to be
expressed by the witness and the bases or reasons for those opinions.
In commenting on new Rule 10.42(a), the FIA expressed concern that,
since a respondent would not have had an opportunity to develop a
defense strategy before the complaint was filed, he or she may need
additional time to decide whether to seek the testimony of an expert
witness. As a consequence, it suggested that the Commission explicitly
require its administrative law judges ("ALJs") to consider the amount
of time a respondent has had to prepare when issuing an order directing
him or her to submit materials under the new rule.
This suggestion is similar to other comments in both letters,
requesting that the amended Rules of Practice include detailed
guidelines for the Commission's ALJs to follow in scheduling
proceedings. The Commission generally avoids interfering with the
discretion of an ALJ to control his or her docket. Moreover, in new
Rule 10.42(d), the Commission specifically authorizes its ALJs to
modify any requirement of new Rules 10.42(a), 10.42(b) or 10.42(c) that
a party can show is unduly burdensome or inappropriate under all the
circumstances. The Commission is not inclined to attempt to draft a
code of all the various factors an ALJ may take into account in
establishing a schedule for the production of prehearing materials
under new Rule 10.42(a) or for other prehearing procedures. The
Commission is confident that, in issuing scheduling orders, its ALJs
will take all relevant factors into consideration so as to ensure both
fairness and efficiency. Accordingly, the Commission has determined to
adopt new Rule 10.42(a) as proposed, without making any further
changes.\3\
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\3\ For the sake of accuracy, the heading of new Rule 10.42(a)
has been changed from "Pretrial materials" to "Prehearing
materials."
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B. Investigatory Materials
As proposed by the Commission, new Rule 10.42(b) obligates the
Division of Enforcement to make available for inspection and copying by
the respondents a broad range of documents obtained during the
investigation that preceded the filing of the complaint against them.
These include all documents that were subpoenaed or otherwise obtained
by the Division from persons not employed by the Commission and all
transcripts of investigative testimony taken by the Division, together
with all exhibits to those transcripts. As proposed, the Division would
not have to produce, however, any documents that reveal (1) the
identity of confidential sources, (2) confidential investigatory
techniques or procedures or (3) the business transactions and positions
of persons other than the respondents unless they are relevant to the
resolution of the
[[Page 55786]]
proceeding. In addition, nothing in the new rule limits the Division's
ability to withhold documents or other information on the grounds of
privilege or the work product doctrine.\4\
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\4\ In the final version of new Rule 10.42(b), this provision
has been revised to make clear that the rule is not intended to
require the production of documents containing information that is
protected from disclosure by applicable law.
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In commenting on new Rule 10.42(b), both the FIA and the NYSBA
expressed concern about a number of specific provisions and asked the
Commission to consider alternative approaches. As a result of these
comments and the Commission's own review of the original proposal,
several changes have been made in the wording of new Rule 10.42(b). A
discussion of the comments and changes follows.\5\
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\5\ The FIA suggested that a separate provision be added to new
Rule 10.42 clarifying that, notwithstanding the Division's right to
withhold documents on claims of privilege or the work product
doctrine, the Division is nonetheless obligated to turn over all
exculpatory materials required to be produced under Brady v.
Maryland, 373 U.S. 83, 87 (1963). In the notice announcing the
proposed amendments, the Commission expressly stated that the scope
of the Division's obligations to produce material exculpatory
information under In re First National Monetary Corp., [1982-1984
Transfer Binder] Comm. Fut. L. Rep. CCH) para. 21,853 at 27,581
(CFTC Nov. 13, 1981) and its progeny is not addressed by these rule
changes. 63 FR 16455 n.3. The issues potentially raised by
consideration of the appropriate interpretation and application of
an obligation to produce material exculpatory information are broad
and complex. They have been addressed to date only to a very limited
extent in Commission adjudicatory decisions. For these reasons, the
Commission is adhering to its decision not to address those issues
in these rule amendments.
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As an initial matter, based on its own further consideration of new
Rule 10.42(b), the Commission has made several substantive changes in
the final rule that are designed to clarify the limitations of the
Division's disclosure obligations. First, the final rule makes clear
that, if the Commission or another governmental entity has a continuing
investigative interest in another matter or another person, the
Division does not have to turn over information that relates to the
other matter or person simply because it happens to have been obtained
as part of the investigation that led to the pending proceeding. Only
if the information is also relevant to the resolution of the proceeding
would it have to be made available to the respondents under new Rule
10.42(b).
Second, and in a similar vein, the final rule clarifies that, if a
proceeding has resulted from a broad investigation into a general
subject matter or a general kind of conduct, the Division's disclosure
obligation under new Rule 10.42(b) only attaches to that portion of the
investigation relating to the particular transactions, conduct or
persons involved in the pending proceeding. At times, the Division will
undertake an investigation into a general subject matter area, like the
one that recently occurred in connection with so-called hedge to arrive
contracts in the grain industry. Such an investigation may spawn a
number of separate inquiries and result in the initiation of a number
of separate proceedings. When a proceeding is initiated as a result of
this kind of broad investigation, the Division is not required to
produce all of the documents that it has obtained in the larger
investigation. Instead, as paragraph (3) of new Rule 10.42(b) now
indicates, it will only be obligated to produce those materials that
relate to the particular matters at issue in the pending proceeding.
Third, a provision has been added to new Rule 10.42(b) that allows
the Division to withhold information obtained from domestic or foreign
governmental entities or from a foreign futures authority, as defined
in 7 U.S.C. 1a(10), that either (1) is not relevant to the resolution
of the proceeding or (2) was provided on condition that it not be
disclosed or only be disclosed by the Commission, or a representative
of the Commission, as evidence in an enforcement or other proceeding.
To carry out its statutory duties effectively, the Commission must be
in a position to receive information from other governmental entities
and from foreign futures authorities under circumstances that allow
them to be as forthcoming as possible. Thus, the Commission must be
able to protect the confidentiality of information that is irrelevant
to the pending proceeding or was furnished to the Commission upon
condition that its disclosure be restricted. The language that the
Commission has added to new Rule 10.42(b) strikes a balance between the
appropriate disclosure of information to the respondents in a
proceeding and the Commission's need to encourage cooperative
information-sharing with other governmental entities here and abroad
and with foreign futures authorities.\6\
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\6\ Of course, like all of the documents that new Rule 10.42(b)
allows the Division to withhold from inspection and copying by the
respondents, these materials may have to be produced under other
provisions in the rules, for example, if the Division intends to
introduce them into evidence at the hearing, if they were relied
upon by an expert witness testifying on the Division's behalf or if
they were appended as exhibits to a witness statement or to
investigate testimony taken by the Division.
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Turning to other concerns about new Rule 10.42(b), the FIA comment
letter proposed that the Division's disclosure obligations be widened
to include all subpoenas and written requests for information issued by
the Division, as well as all relevant final examination and inspection
reports prepared by the Commission's Division of Trading and Markets
and Division of Economic Analysis. The Commission agrees that making
available for inspection and copying by respondents those portions of
subpoenas and written requests for information that resulted in the
production of investigative materials may assist the respondents in
understanding the produced materials. Accordingly, language has been
added to the new rule requiring the Division to provide respondents
with access not only to all documents that were produced pursuant to
subpoenas issued by the Division or otherwise obtained from persons not
employed by the Commission, but also to any portion of a subpoena or
written request that resulted in the furnishing of such documents to
the Division. However, respondents need not be given access to
subpoenas and written requests (or any portion of a subpoena or written
request) that did not result in the production of investigatory
materials being made available to the respondents. The Commission is
also of the view that the FIA's request for all relevant final
examination and inspection reports is too vague.
Further commenting on new Rule 10.42(b), the FIA also requested
that the Division be required to make investigatory materials available
to a respondent within 14 days after he or she files an answer to the
complaint. This proposal, however, invites the kind of micromanaging of
the prehearing scheduling process in which the Commission is not
prepared to engage.
The NYSBA's comment letter raised separate concerns regarding new
Rule 10.42(b). First, it noted that, by making investigative materials
available at the Commission office where they are ordinarily
maintained, the new rule potentially works a hardship on respondents,
particularly where the investigation leading to the complaint was
conducted by Division staff at the Commission's headquarters in
Washington, D.C. Also, the letter suggested that, in the event the
Division chooses to withhold documents from production under new Rule
10.42(b), it automatically should be required to compile an index of
such documents, as is now the case under the Federal Rules of Civil
Procedure.
Both points are well taken. Accordingly, new Rule 10.42(b) has been
revised to require that, upon written request, a respondent will be
given access to prehearing materials at
[[Page 55787]]
the Commission office nearest to the location where the respondent or
his or her counsel resides or works. In addition, the Division will be
obligated to furnish the respondents with an index of all documents
being withheld when it makes prehearing materials available for
inspection and copying under new Rule 10.42(b). The new rule explicitly
states that the index of withheld documents should provide sufficient
information to enable the respondents to assess the privilege or
protection being claimed by the Division, consistent with the asserted
privilege or protection against disclosure.\7\
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\7\ In like fashion, paragraph (3) of new Rule 10.42(c) is being
revised to require that each party to a proceeding make and keep a
similar log of all documents withheld under that provision and turn
it over to the other parties when producing witness statements. The
FIA comment letter also proposed explicit recognition in the rules
of an ALJ's authority to conduct in camera review of materials being
withheld. While ALJs have exercised such authority without
Commission objection, the Commission does not wish at this time to
open up questions concerning the nature and scope of any such
authority by addressing it through rulemaking.
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New Rule 10.42(b) does not require the Division to identify on its
index of withheld documents any materials containing information
obtained from a governmental agency in the United States or abroad or
from a foreign futures authority that was provided on condition that it
not be disclosed or that it only be disclosed by the Commission or a
representative of the Commission as evidence in an enforcement or other
proceeding. In the Commission's view, no point would be served by
listing such materials on the Division's index, since they would be
properly withheld on the basis of the condition alone. However, if the
Division has received these kinds of materials from a governmental
agency or foreign futures authority, it will be required to inform the
respondents of that fact, without having to index or describe further
any of the documents at issue or their source.
Both the FIA and NYSBA objected to the provision in new Rule
10.42(b) that deals with any failure by the Division to make
investigative materials available to the respondents. As proposed, the
new rule requires that, in the event of such a failure, no rehearing or
reconsideration of a matter already heard or decided shall be required,
unless the respondent demonstrates resulting prejudice. Each comment
letter argued that the burden should be on the Division to show that
any failure to make documents available did not prejudice the
respondents. This argument overlooks, however, a substantial body of
federal case law holding that, even in criminal cases, it is the
defendant's burden to show prejudice from the loss or wrongful
withholding of evidence by the government. United States v. Walsh, 75
F.3d 1, 8 (1st Cir. 1995) (noncompliance with the Jencks Act does not
justify overturning a criminal conviction in the absence of "some
showing of prejudice* * *beyond mere assertions that the defendant
would have conducted cross-examination differently"). As a general
rule, the burden is on the party claiming prejudice to show prejudice
and for good reason, since among other considerations, the obligation
to prove a negative--in this case, the lack of prejudice--often can be
impossible one. Accordingly, the final wording of paragraph (6) of new
Rule 10.42(b) is unchanged.\8\
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\8\ The Commission likewise has determined not to change the
burden relating to the showing of prejudice in paragraph (4) of new
Rule 10.42(c), which deals with failure of a party to produce
witness statements.
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C. Witness Statements
As proposed by the Commission, new Rule 10.42(c) requires that each
party to a proceeding make available to all of the other parties any
statement made by any person whom the party calls, or expects to call,
as a witness that relates to his or her anticipated testimony. These
statements include transcripts of investigative or trial testimony
given by the witness, written statements signed by witness and
substantially verbatim notes of interviews with the witness, as well as
the exhibits to such transcripts, statements or notes. For purposes of
the new rule, substantially verbatim notes mean notes that fairly
record the witness's exact words, subject to minor inconsequential
deviations.
New Rule 10.42(c) generally accords with Rule 26.2 of the Federal
Rules of Criminal Procedures, which places in the Federal Rules the
substance of the Jencks Act, 18 U.S.C. 3500. It differs from the former
Rules of Practice, inter alia, by requiring all parties, and not just
the Division of Enforcement, to produce witness statements. In
commenting on the new rule, the FIA and NYSBA argued that it
disadvantages respondents unfairly. In their view, by having to
produce, in advance of the hearing, statements of potentials witnesses
who may or may not testify and the scope of whose testimony may still
be uncertain, respondents are being forced to disclose their strategy
and evidence prematurely. Also, in their view, since the Division has
had an opportunity to prepare its case before the compliant was filed,
it is not similarly disadvantaged.
In response to this concern, the language of new Rule 10.42(c) has
been revised to require that a respondent will not have to make witness
statements available until the close of the Division's case-in-chief at
the hearing. By then, the respondent will reasonably know whom he or
she will call as witnesses for the defense, as well as the testimony
that those witnesses can be expected to give. The final rule also
provides that, if additional time is needed for the Division to review
and analyze a respondent's witness statements before cross-examining
his or her witnesses, the ALJ should grant the Division the necessary
continuance.
The NYSBA also suggested that the Commission require the production
of any summaries that have been made of investigative testimony or
witness statements. In the Federal Register notice announcing the
proposed amendments, however, the Commission specifically noted that it
does not intend to require the production of notes prepared by persons
other than the witness himself or herself, including attorney's notes.
The Commission created a narrow exception for notes that in effect
constitute transcriptions of a witness's statement. The NYSBA proposal
would substantially widen that narrow exception, opening the door to
endless disputes over what constitutes a summary and putting at risk
properly privileged material. Accordingly, the Commission has not
adopted the NYSBA proposal.
D. Objections to Authenticity or Admissibility of Documents
New Rule 10.42(f) governs prehearing objections to the authenticity
or admissibility of documents. As proposed, it provides that, upon
order by the ALJ presiding over a proceeding, each party serve on the
other parties a list of documents that it intends to introduce at the
hearing. Upon receipt of the list, the other parties have 20 days to
file a response, disclosing any objections that they wish to preserve
as to the authenticity or admissibility of the documents thus
identified. Where any other objects to the authenticity or
admissibility of any of the listed documents, the ALK may treat the
list of documents as a motion in limine. After affording the parties an
opportunity to brief the motion to the degree necessary for a decision,
the ALJ may rule on the advance of the hearing to the extent
appropriate.
New Rule 10.42(f) is modeled on Rule 26(a)(3)(C) of the Federal
Rules of Civil Procedure. As the NYSBA comment
[[Page 55788]]
letter correctly noted, Rule 26(a)(3)(C) reserves for trial a party's
right to object to the admissibility of a document on grounds of
relevance, undue prejudice, confusion of issues, needles presentation
of cumulative evidence or waste of time. By contrast, under new Rule
10.42(f) as proposed, all objections not raised by a party may be
deemed waived. To make the new rule more compatible with the Federal
Rules on which it was modeled, the Commission has modified the final
rule to permit all objections not raised by a party to be deemed
waived, except fro relevance, needless presentation of cumulative
evidence or waste of time. Because the evidence and argument in an
administrative proceeding is heard by an ALJ rather than a jury, there
is no compelling need to preserve objections based on undue prejudice
or confusion of the issues.\9\
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\9\ In discussing new Rule 10.26(f), the NYSBA comment letter
also questioned whether 20 days is sufficient time for a party to
identify all of the objections that he or she may have to the
substantial number of trading records and other documents typically
involved in a complex trade-practice case. To allay this concern,
the language of the final rule has been revised to require the
filing of a party's response within 20 days or such other time as
may be designated by the ALJ. Again, the Commission is confident
that its ALJs will consider all relevant circumstances in trying to
set as expeditious a schedule as practicable, consistent with
fairness to all parties.
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E. Subpoenas
Under the former rules, documents subpoenaed by a party to an
administrative proceeding could only be produced at the time of the
hearing itself. New Rule 10.68 allows the parties to a proceeding to
apply for the issuance of a subpoena by the ALJ requiring the
production of documents at any designated time and place. Although both
comment letters were generally supportive of the new rule, the FIA
suggested it be modified (1) to permit the filing of a motion to quash
by the owner, creator or subject of a subpoenaed document (rather than
just the recipient of the subpoena) and (2) to enlarge the time within
such a motion could be filed from seven days to 15 days. In addition,
the FIA asked the Commission to clarify the standards under which a
protective order can be obtained from the ALJ.
In the Commission's views, new Rule 10.68 should not be an attempt
to resolve issues of standing with regard to motions to quash or modify
subpoenas. Such issues are more appropriately addressed through
adjudication.\10\ Also, the Commission has determined to set the time
for filing such motions at 10 days after the subpoena has been served,
which is the amount of time that Rule 10.26 allows generally for
responses to motions. Accordingly, paragraph (c) of new Rule 10.68 has
been revised to provide simply that, within 10 days after service of a
subpoena or at any time prior to the return date thereof, whichever is
earlier, a motion to quash or modify the subpoena may be filed with the
ALJ who issued it, without reference to who would have standing to file
such a motion.\11\
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\10\ See generally Fed. R. Civ. P. 45(c)(3).
\11\ The ALJ, of course, may extend the deadline for filing a
motion to quash or modify a subpoena, just as he or she may extend
other deadlines in the Rules of Practice, for good cause shown.
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To clarify the standards under which protective orders may be
authorized, the Commission has added language to new Rule 10.68(c)(2)
explicitly providing that protective orders may be issued upon a
showing of good cause and that, in considering whether to issue a
protective order, ALJs shall weight the harm resulting from disclosure
against the benefits of disclosure. Cf. Fed. R. Civ. P. 26(c) advisory
committee's note (observing that, in deciding whether to give trade
secrets immunity against disclosure, federal courts routinely weigh the
moving party's claim to privacy against the need for disclosure).
In promulgating new Rule 10.68(c)(2), the Commission notes that the
burden of justifying any protective order remains on the person who
seeks it. Federal Trade Comm'n v. Standard Financial Management, 830
F.2d 404, 411 (1st Cir. 1987) (unsealing defendant's financial
documents as germane to district court's approval of negotiated
settlement with agency). Good cause can be established only upon a
showing that the person seeking the protective order will suffer a
clearly defined and serious injury if the requested order is not
issued. Id. at 412 ("[a] finding of good cause [to impound documents]
must be based on a particular factual demonstration of potential harm,
not on conclusory statements"). Any such injury must be balanced
against the public's recognized right of access to judicial records.
Id. at 410. All of these considerations, which are reflected in new
Rule 10.68(c)(2), are particularly pertinent in the context of
enforcement proceedings initiated by the Commission, since such
proceedings are "patently matters of significant public concern." Id.
at 412.
In connection with these revisions to new Rule 1068(c)(2), the
Commission has deleted language found in paragraph (7) of new Rule
10.42(c) that dealt with the issuance of protective orders covering
confidential information contained in prehearing materials produced by
the Division of Enforcement. In considering requests for protective
orders sought under any section of the rules, ALJs henceforth shall
rely on the standards set forth in paragraph (2) of new Rule 10.68(c)
\12\
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\12\ Consistent with the former Rules of Practice, new Rule
10.68(c)(2) provides that no protective order shall be granted that
will tend to impair either the Division's or a respondent's ability
to present its case.
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II. Rule Changes Related to Restitution
Since 1992, Section 6(c) of the Act, 7 U.S.C. 9 (1994), has
authorized the Commission to require restitution in administrative
proceedings to customers of damages proximately caused by violations
committed by the respondents. To facilitate this process, the
Commission prosed amending Rule 10.84 of the Rules of Practice to
include a new provisions specifically to address restitution and adding
a new Subpart I, which would address the administration of restitution
orders.
Commentting on this proposal, the NYSBA suggested that, because the
other provisions of Rule 10.84 deal only with procedural matters, it
would be preferable to move all of the regulatory provisions on
restitution to the new Subpart I. In promulgating final rules, the
Commission has made the suggested revision.
As thus revised, the final Subpart I provides that, in any
proceeding where an order requiring restitution may be entered, the ALJ
shall determine, as part of his or her Initial Decision, whether
restitution is an appropriate remedy. In making this decision, the ALJ
can consider the degree of complexity likely to be involved in
establishing individual claims; the likehood that such claimants can
obtain compensation through their own efforts; the respondent's ability
to pay claimants damages that his or her violations have caused; the
availability of resources to administer restitution; and any other
matters that justice may require. See In re Staryk, [Current Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 27,206 at 45,812 (CFTC Dec. 18,
1997). In the event that restitution is deemed to be appropriate, the
ALJ's Initial Decision shall include an order of restitution. In it,
the ALJ will specify (1) the violations that form the basis for
restitution, (2) the particular persons, or class or classes of
persons, who have suffered damages proximately caused by such
violations, (3) the method of calculating the amount of damages that
will be paid as restitution, and (4) if then determinable, the amount
of restitution to be paid.
Under new Subpart I, the ALJ's Initial Decision need not address
how or when restitution will be paid. Instead, after an
[[Page 55789]]
order requiring restitution becomes effective (i.e., becomes final or
is not stayed), the Division of Enforcement will be required to
recommend to the Commission or, at the Commission's discretion, to the
ALJ, a procedure for implementing the payment of restitution. Each
respondent will be required to pay restitution shall be afforded notice
of the Division's recommendations and an opportunity to be heard.
Based on the Division's recommendations and any response from the
respondents, the Commission or the ALJ shall establish a procedure for
identifying and notifying individual claimants who may be entitled to
restitution; receiving and evaluating claims; obtaining funds to be
paid as restitution from the respondents; and distributing such funds
to qualified claimants. If appropriate, the Commission or the ALJ may
appoint any person, including a Commission employee, to administer, or
assist in administering, restitution. If the administrator is a
Commission employee, no fees shall be charged for his or her services
or for services performed by other Commission employees working under
his or her direction.\13\
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\13\ Under new Subpart I, the ALJ will be permitted to combine
the procedures for adopting and administering a plan of restitution
with the hearing on liability, when the ALJ concludes that
presentation, consideration and resolution of the issues relating to
restitution will not materially delay the conclusion of the hearing
or the issuance of an initial decision.
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Commenting on the new rules facilitating restitution, both the FIA
and the NYSBA argued that, in order to be consistent with provisions of
the Act governing reparations proceedings and private rights of action,
the Commission should impose a two-year state of limitations on claims
for restitution in administrative enforcement proceedings. This
argument ignores that, in amending Section 6(c) to add restitution as a
remedy available to the Commission in administrative proceedings,
Congress did not limit restitution to violations occurring less than
two years before the filing of a complaint. Similarly, despite concerns
raised by the FIA, the Commission does not believe it would be
appropriate to revise new Subpart I to preclude persons who have sued a
respondent in other forums from receiving restitution in an
administrative enforcement proceeding. The Commission expects that, as
part of the process of administering a restitution order, all
appropriate equitable considerations can and will be taken into account
to avoid double recovery or an undue windfall to any person.
Finally, new Subpart I provides that, unless otherwise ordered by
the Commission, all costs incurred in administering an order of
restitution shall be paid from the restitution funds obtained from the
respondent who was so sanctioned. In response to this provision, the
NYSBA asked that the Commission clarify that all costs incurred in
administering restitution will come from the restitution fund itself
and not from the funds of the respondent. The Commission recognizes
that, in federal court practice, receivership costs and other expenses
arising from the administration of restitution ordinarily are paid out
of the restitution funds themselves. See generally Gaskill v. Gordon,
27 F.3d 248,251 (7th Cir. 1994) "[a]s a general rule, the expenses and
fees of a receivership are a charge upon the property administered").
Nevertheless, it would be within the discretion of the Commission to
require a respondent to pay some or all of the costs incurred in
administering an order of restitution. Id. at 250 ("[r]eceivership is
an equitable remedy, and the district court may, in its discretion,
determine who shall be charged with the costs of receivership").
III. Other Rule Changes
In addition to addressing the proposed amendments relating to
discovery and restitution, the FIA and the NYSBA commented on other
changes and proposed additional revisions to the Rules of Practice. A
review of those comments and proposals follows.
A. Separation of Functions and Ex Parte Contacts
Although the Commission did not announce any proposal to amend Rule
10.9, which deals with the separation of functions in enforcement
proceedings, the FIA comment letter pointed out that, as currently
written, the rule does not fully track the wording of 5 U.S.C. 554(d),
the section of the Administrative Procedure Act ("APA") on which it
is based. The separation-of-functions requirement presently set forth
in Rule 10.9 only references Initial Decisions issued by the
Commission's ALJs. By contrast, 5 U.S.C. 554(d) requires that:
An employee or agent engaged in the performance of investigative
or prosecuting functions for an agency in a case may not, in that or
a factually related case, participate or advise in the decision,
recommended decision, or agency review pursuant to section 557 of
this title, except as witness or counsel in public proceedings.
The Commission and its staff, of course, abide by their obligations
under the law, and so the more narrow wording of Rule 10.9 is of no
substantive consequence. However, to avoid any possible
misunderstanding or confusion, the Commission has amended existing Rule
10.9 to follow the language of the APA more closely.
Although the FIA comment letter suggested otherwise, the Commission
sees no need to revise existing Rule 10.10, which prohibits interested
persons outside the Commission from making ex parte communications
relevant to the merits of a proceeding to any Commissioner, ALJ or
Commission decisional employee. The language of Rule 10.10 fully
accords with 5 U.S.C. 557(d)(1) and, like that provision of the APA, is
not intended to address communications between the Commission and its
staff. While the Commission recognizes that some agencies have extended
the ex parte communications rule to cover persons inside the agency,
the Commission does not view that extension as either necessary or well
advised. In the Commission's view, 5 U.S.C. 554(d) and the revised Rule
10.9 address the relevant concern. Accordingly, the expansion of the ex
parte communication rule suggested in the FIA comment letter is not
being adopted.
B. Amendments and Supplemental Pleadings
New Rule 10.24 clarifies the authority retained by the Commission
to amend the complaint in an administrative enforcement proceeding
after the proceeding has been initiated. In addition, it permits the
Division of Enforcement, upon motion to the ALJ and with notice to all
of the other parties and the Commission, to amend a complaint for the
limited purpose of correcting typographical or clerical errors or
making similar, non-substantive revisions.
In its comment letter, the NYSBA objected to new Rule 10.24 as
disadvantaging respondents unfairly. According to the comment letter,
the Commission should be able to amend a complaint only after the
respondent has had an opportunity to argue against amendment. The
NYSBA's objections notwithstanding, new Rule 10.24 simply recognizes
the plenary authority retained by the Commission over complaints that
it issues in administrative enforcement proceedings. In order to ensure
that respondents are not unfairly disadvantaged when the Commission
amends a complaint, a suggestion made
[[Page 55790]]
by both comment letters has been incorporated into the final version of
new Rule 10.24. As a result, the new rule will provide that, if the
Commission amends the complaint in an administrative proceeding, the
ALJ shall adjust the scheduling of the proceeding so as to avoid any
prejudice to any of the parties to the proceeding.
C. Interlocutory Appeals
Like its predecessor, new Rule 10.101 governs the filing of
interlocutory appeals from specified rulings of an ALJ. To correct an
ambiguity in the proposed rule that was pointed out in one of the
comment letters, the second sentence in paragraph (b)(1) of the rule
has been revised to clarify that, if a request for certification has
been filed with the ALJ, an application for interlocutory review under
any of the five paragraphs in Sec. 10.101(a) may be filed with the
Commission within five days after notification of the ALJ's ruling on
the request for certification.
D. Review of Initial Decisions
Like its predecessor, new Rule 10.102 governs the appeal of Initial
Decisions to the Commission. Unlike the former rule, however, the new
rule allows cross appeals and provides for the filing of reply briefs
by appellants. Under new rule 10.102, if a timely notice of appeal has
been filed by one party, any other party may file a notice of cross
appeal within 15 days after service of the notice of appeal or within
15 days after service of the Initial Decision, whichever is later. If
such a notice of cross appeal is filed, the Commission will, to the
extent practicable, adjust both the briefing schedule and any otherwise
applicable page limitations in order to allow for consolidated briefing
by all appealing parties.
In its comment letter, the NYSBA objected to cross appeals,
asserting that they raise due process issues. According to the comment
letter, by setting up the risk of a cross appeal by the Division of
Enforcement when an appeal otherwise would not have been filed, the new
rule creates a disincentive for the respondents to appeal Initial
Decisions. This argument ignores the fact that cross appeals have long
been permitted under the Federal Rules of Appellate Procedure, with no
apparent abridgement of any party's right to due process. See F.R. App.
P. 4(a)(3). The Commission continues to believe that the provision of
cross appeals will facilitate the appellate process and so has retained
the provision as proposed in the final rules.
The NYSBA comment letter also noted that, because existing Rule
10.12(a)(2) already does so, there is no need for new Rule 10.102 to
extend by three days the time within which a notice of appeal must be
filed if service of the Initial Decision or other order terminating the
proceeding has been effected by mail or commercial carrier. However,
since an ALJ is not a party to a proceeding and an Initial Decision is
not a document to which any response can be filed, it is unclear that
Rule 10.12(a)(2) governs the time within which a notice of appeal can
be filed. By amending the language regarding the deadline for filing a
notice of appeal, new Rule 10.102 removes any ambiguity.
E. Reconsideration; Stay Pending Appeal
Unlike its predecessor, which addressed motions for reconsideration
of Commission opinions and orders, new Rule 10.106 sets forth the
standards on which the Commission relies in granting applications by
respondents to stay sanctions in administrative enforcement proceedings
pending reconsideration by the Commission or judicial appeal. In order
to obtain such relief, the applicant must show (1) that he or she is
likely to succeed on the merits of the appeal, (2) that denial of the
requested stay would cause irreparable harm to the applicant and (3)
that neither the public interest nor the interest of any other party
will be adversely affected if the stay is granted.
Also, as proposed, new Rule 10.106 provides that, as long as
neither the public interest nor the interest of any other party is
adversely affected, the Commission shall grant any application to stay
the effect of a civil monetary penalty once the applicant has filed an
appropriate surety bond with the Commission's Proceedings Clerk. In
commenting on the new rule, both the FIA and the NYSBA appeared to
question whether a surety bond must be filed along with the stay
application itself or afterwards, i.e., once the Commission has
determined to grant the stay application.
The final version of new Rule 10.106 has been revised to clarify
that, if a respondent seeks to stay the imposition of a civil monetary
penalty, he or she must file an appropriate surety bond at the time he
or she applies for relief and demonstrate that neither the public
interest nor the interest of any other party will be harmed by the
stay. As the revision also makes clear, if a respondent chooses not to
post a surety bond, then he or she will have to meet all of the
criteria necessary to stay the effectiveness of other sanctions or the
Commission will not stay the imposition of his or her civil monetary
penalty.
In addition, the final rule has been revised to allow a respondent
to use the same surety bond procedure in seeking to stay the
effectiveness of an order requiring him or her to pay a specific sum as
restitution. The Commission added this provision because the rationale
justifying a stay of civil penalties after filing a bond is equally
applicable to orders of restitution where the amount of restitution to
be paid by the respondent has been determined. This provision would not
apply, however, to any restitution order of the Commission in which the
specific amount of restitution is not set.\14\
---------------------------------------------------------------------------
\14\ As revised, new Rule 10.106 also makes clear that, in the
event the Commission denies a motion to stay the effectiveness of an
order imposing a civil monetary penalty or directing the respondents
to pay a fixed amount as restitution, any surety bond that was filed
by the applicant will be returned to him or her by the Processings
Clerk.
---------------------------------------------------------------------------
F. Commission Policy Relating to the Acceptance of Settlements
As part of the proposed amendments to the Rules of Practice, the
Commission included a statement setting forth its policy not to accept
any offer of settlement in an administrative or civil proceeding if the
respondent or defendant wished to continue to deny the allegations of
the Commission's complaint (although they may state that they neither
admit nor deny the allegations). The FIA comment letter suggested that
the policy statement--which is being incorporated into the rules as new
Appendix A--be modified to reflect the fact that the Commission's
position is grounded in public policy.
The Commission believes that the public-policy considerations
underlying Appendix A are clearly reflected in the document itself. In
accepting a settlement and entering an order finding violations of the
Act or the regulations, the Commission makes uncontested findings of
fact and conclusions of law. The Commission does not believe that it
would be appropriate for the agency to be making such uncontested
findings of violations if the party against whom the uncontested
findings are to be entered is continuing to deny the alleged
misconduct. Since these considerations are clearly articulated in
Appendix A, the Commission sees no need to alter the wording of its
policy statement at this time.
IV. Related Matters
The Regulatory Flexibility Act ("RFA"), 5 U.S.C. 601 et seq.
(1988), requires that, in adopting final rules, agencies consider the
impact of those
[[Page 55791]]
rules on small businesses. In its preamble to the proposed amendments,
the Commission determined that the Part 10 rules are not subject to the
provisions of the RFA because they relate solely to agency
organization, procedure and practice. Nevertheless, because the rules
do not impose regulatory obligations on commodity professionals and
small commodity firms and because the amendments adopted by the
Commission will expedite and impose the administrative process, the
Chairperson certifies, on behalf of the Commission, that the amended
rules will not have a significant economic impact on a substantial
number of small business entities.
List of Subjects in 17 CFR Part 10
Administrative practice and procedure, Commodity futures.
In consideration of the foregoing, the Commission amends Chapter I
of Title 17 of the Code of Federal Regulations as follows:
PART 10--RULES OF PRACTICE
1. The authority citation for part 10 continues to read as follows:
Authority: Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391; 7
U.S.C. 4a(j), unless otherwise noted.
2. Section 10.1 is amended by deleting the third "and" from
paragraph (d), redesignating paragraphs (e), (f), (g) and (h) as
paragraphs (f), (g), (h) and (i), respectively, and adding a new
paragraph (e), to read as follows.
Sec. 10.1 Scope and applicability of rules of practice.
* * * * *
(e) The issuance of restitution orders pursuant to section 6(c) of
the Act, 7 U.S.C. 9; and
* * * * *
3. Section 10.9 is amended by revising paragraph (b) to read as
follows:
Sec. 10.9 Separation of functions.
* * * * *
(b) No officer, employee or agent of the Commission who is engaged
in the performance of investigative or prosecuting functions in
connection with any proceeding shall, in that proceeding or any
factually related proceeding, participate or advise in the decision of
the Administrative Law Judge or the Commission except as witness or
counsel in the proceeding, without the express written consent of the
respondents in the proceeding. This provision shall not apply to the
members of the Commission.
* * * * *
4. Section 10.1 is amended by revising paragraph (a)(2) to read as
follows:
Sec. 10.12 Service and filing of documents; form and execution.
(a) * * *
(2) How service is made. Service shall be made by personal service,
delivering the documents by first-class United States mail or a similar
commercial package delivery service, or transmitting the documents via
facsimile machine. Service shall be complete at the time of personal
service or upon deposit in the mails or with a similar commercial
package delivery service of a properly addressed document for which all
postage or fees have been paid to the mail or delivery service. Where a
party effects service by mail or similar package delivery service, the
time within which the party being served may respond shall be extended
by three days. Service by facsimile machine shall be permitted only if
all parties to the proceeding have agreed to such an arrangement in
writing and a copy of the written agreement, signed by each party, has
been filed with the Proceedings Clerk. The agreement must specify the
facsimile machine telephone numbers to be used, the hours during which
the facsimile machine is in operation and when service will be deemed
complete.
* * * * *
5. Section 10.21 is revised to read as follows:
Sec. 10.21 Commencement of the proceeding.
An adjudicatory proceeding is commenced when a complaint and notice
of hearings is filed with the Office of Proceedings.
6. Section 10.22 is amended by adding a new sentence at the end of
the introductory text in paragraph (b) and adding new paragraphs (b)(1)
and (b)(2) to read as follows:
Sec. 10.22 Complaint and notice of hearing:
* * * * *
(b) Service. * * * If a respondent is not found at his last known
business or residence address and no forwarding address is available,
additional service may be made, at the discretion of the Commission, as
follows:
(1) By publishing a notice of the filing of the proceeding and a
summary of the complaint, approved by the Commission or the
Administrative Law Judge, once a week for three consecutive weeks in
one or more newspapers having a general circulation where the
respondent's last known business or residence address was located and,
if ascertainable, where the respondent is believed to reside or be
doing business currently; and
(2) By continuously displaying the complaint on the Commission's
Internet web site during the period referred to in paragraph (b)(1) of
this section.
7. Section 10.4 is amended by revising paragraphs (a), (b) and (c)
to read as follows.
Sec. 10.24 Amendments and supplemental pleadings.
(a) Complaint and notice of hearing. The Commission may, at any
time, amend the complaint and notice of hearing in any proceeding. If
the Commission so amends the complaint and notice of hearing, the
Administrative Law Judge shall adjust the scheduling of the proceeding
to the extent necessary to avoid any prejudice to any of the parties to
the proceeding. Upon motion to the Administrative Law Judge and with
notice to all other parties and the Commission, the Division of
Enforcement may amend a complaint to correct typographical and clerical
errors or to make other technical, non-substantive revisions within the
scope of the original complaint.
(b) Other pleadings. Except for the complaint and notice of
hearing, a party may amend any pleading once as a matter of course at
any time before a responsive pleading is served or, if the pleading is
one to which no responsive pleading is permitted, he may amend it
within 20 days after it is served. Otherwise a party may amend a
pleading only by leave of the Administrative Law Judge, which shall be
freely given when justice so requires.
(c) Response to amended pleadings. Any party may file a response to
any amendment to any pleading, including the complaint, within ten days
after the date of service upon him of the amendment or within the time
provided to respond to the original pleading, whichever is later.
* * * * *
8. Section 10.26 is amended by revising the last sentence in
paragraph (b) to read as follows:
Sec. 10.26 Motions and other papers.
* * * * *
(b) Answers to motions. * * * The absence of a response to a motion
may be considered by the Administrative Law Judge or the Commission in
deciding whether to grant the requested relief.
* * * * *
9. Section 10.41 is amended by redesignating paragraphs (f) and (g)
as paragraphs (g) and (h), respectively, and
[[Page 55792]]
by adding a new paragraph (f) to read as follows.
Sec. 10.41 Prehearing conferences; procedural matters.
* * * * *
(f) Considering objections to the introduction of documentary
evidence and the testimony of witnesses identified in prehearing
materials filed or otherwise furnished by the parties pursuant to
Sec. 10.42;
* * * * *
10. Section 10.42 is amended by revising paragraph (a); by
redesignating paragraphs (b) and (c) as paragraphs (c) and (e),
respectively; by revising newly redesignated paragraphs (c) and (e)(1);
and by adding a new paragraph (b), a new paragraph (d) and a new
paragraph (f), to read as follows.
Sec. 10.42 Discovery.
(a) Prehearing Materials--(1) In general. Unless otherwise ordered
by an Administrative Law Judge, the parties to a proceeding shall
furnish to all other parties to the proceeding on or before a date set
by the Administrative Law Judge in the form of a prehearing memorandum
or otherwise:
(i) An outline of its case or defense;
(ii) The legal theories upon which it will rely;
(iii) The identify, and the city and state of residence, of each
witness, other than an expert witness, who is expected to testify on
its behalf, along with a brief summary of the matters to be covered by
the witness's expected testimony;
(iv) A list of documents which it intends to introduce at the
hearing, along with copies of any such documents which the other
parties do not already have in their possession and to which they do
not have reasonably ready access.
(2) Expert witnesses. Unless otherwise ordered by the
Administrative Law Judge, in addition to the information described in
paragraph (a)(1) of this section, any party who intends to call an
expert witness shall also furnish to all other parties to the
proceeding on or before a date set by the Administrative Law Judge:
(i) A statement identifying the witness and setting forth his or
her qualifications;
(ii) A list of any publications authored by the witness within the
preceding ten years;
(iii) A list of all cases in which the witness has testified as an
expert, at trial or in deposition, within the preceding four years;
(iv) A complete statement of all opinions to be expressed by the
witness and the basis or reasons for those opinions; and
(v) A list of any documents, data or other written information
which were considered by the witness in forming his or her opinions,
along with copies of any such documents, data or information which the
other parties do not already have in their possession and to which they
do not have reasonably ready access.
(3) The foregoing procedures shall not be deemed applicable to
rebuttal evidence submitted by any party at the hearing.
(4) In any action where a party fails to comply with the
requirements of this paragraph (a), the Administrative Law Judge may
make such orders in regard to the failure as are just, taking into
account all of the relevant facts and circumstances of the failure to
comply.
(b) Investigatory materials--(1) In general. Unless otherwise
ordered by the Commission or the Administrative Law Judge, the Division
of Enforcement shall make available for inspection and copying by the
respondents, prior to the scheduled hearing date, any of the following
documents that were obtained by the Division prior to the institution
of proceedings in connection with the investigation that led to the
complaint and notice of hearing:
(i) All documents that were produced pursuant to subpoenas issued
by the Division or otherwise obtained from persons not employed by the
Commission, together with each subpoena or written request, or relevant
portion thereof, that resulted in the furnishing of such documents to
the Division; and
(ii) All transcripts of investigative testimony and all exhibits to
those transcripts.
(2) Documents that may be withheld. The Division of Enforcement may
withhold any document that would disclose:
(i) The identify of a confidential source;
(ii) Confidential investigatory techniques or procedures;
(iii) Separately the market positions, business transactions, trade
secrets or names of customers of any persons other than the
respondents, unless such information is relevant to the resolution of
the proceeding;
(iv) Information relating to, or obtained with regard to, another
matter of continuing investigatory interest to the Commission or
another domestic or foreign governmental entity, unless such
information is relevant to the resolution of the proceeding; or
(v) Information obtained from a domestic or foreign governmental
entity or from a foreign futures authority that either is not relevant
to the resolution of the proceeding or was provided on condition that
the information not be disclosed or that it only be disclosed by the
Commission or a representative of the Commission as evidence in an
enforcement or other proceeding.
(3) Nothing in paragraphs (b)(1) and (b)(2) of this section shall
limit the ability of the Division of Enforcement to withhold documents
or other information on the grounds of privilege, the work product
doctrine or other protection from disclosure under applicable law. When
the investigation by the Division of Enforcement that led to the
pending proceeding encompasses transactions, conduct or persons other
than those involved in the proceeding, the requirements of (b)(1) of
this section shall apply only to the particular transaction, conduct
and persons involved in the proceeding.
(4) Index of withheld documents. When documents are made available
for inspection and copying pursuant to paragraph (b)(1) of this
section, the Division of Enforcement shall furnish the respondents with
an index of all documents that are withheld pursuant to paragraphs
(b)(2) or (b)(3) of this section, except for any documents that are
being withheld because they disclose information obtained from a
domestic or foreign governmental entity or from a foreign futures
authority on condition that the information not be disclosed or that it
only be disclosed by the Commission or a representative of the
Commission as evidence in an enforcement or other proceeding, in which
case the Division shall inform the other parties of the fact that such
documents are being withheld at the time it furnishes its index under
this paragraph, but no further disclosures regarding those documents
shall be required. This index shall describe the nature of the withheld
documents in a manner that, to the extent practicable without revealing
any information that itself is privileged or protected from disclosure
by law or these rules, will enable the other parties to assess the
applicability of the privilege or protection claimed.
(5) Arrangements for inspection and copying. Upon request by the
respondents, all documents subject to inspection and copying pursuant
to this paragraph (b) shall be made available to the respondents at the
Commission office nearest the location where the respondents or their
counsel live or work. Otherwise, the documents shall be made available
at the Commission office where they are ordinarily maintained or at any
other location agreed upon by the parties in writing. Upon payment of
the appropriate fees
[[Page 55793]]
set forth in appendix B to part 145 of this chapter, any respondent may
obtain a photocopy of any document made available for inspection.
Without the prior written consent of the Division of Enforcement, no
respondent shall have the right to take custody of any documents that
are made available for inspection and copying, or to remove them from
Commission premises.
(6) Failure to make documents available. In the event that the
Division of Enforcement fails to make available documents subject to
inspection and copying pursuant to this paragraph (b), no rehearing or
reconsideration of a matter already heard or decided shall be required,
unless the respondent demonstrates prejudice caused by the failure to
make the documents available.
(7) Requests for confidential treatment; protective orders. If a
person has requested confidential treatment of information submitted by
him or her, either pursuant to rules adopted by the Commission under
the Freedom of Information Act (part 145 of this chapter) or under the
Commission's Rules Relating To Investigations (part 11 of this
chapter), the Division of Enforcement shall notify him or her, if
possible, that the information is to be disclosed to parties to
proceeding and he or she may apply to the Administrative Law Judge for
an order protecting the information from disclosure, consideration of
which shall be governed by Sec. 10.68(c)(2).
(c) Witness statements--(1) In general. Each party to an
adjudicatory proceeding shall make available to the other parties any
statement of any person whom the party calls, or expects to call, as a
witness that relates to the anticipated testimony of the witness and is
in the party's possession. Such statements shall include the following:
(i) Transcripts of investigative, deposition, trial or similar
testimony given by the witness,
(ii) Written statements signed by the witness, and
(iii) Substantially verbatim notes of interviews with the witness,
and all exhibits to such transcripts, statements and notes. For
purposes of this paragraph (c), "substantially verbatim notes" means
that fairly record the exact words of the witness, subject to minor,
inconsequential deviations. Such statements shall include memoranda and
other writings authored by the witness that contain information
relating to his anticipated testimony. The Division of Enforcement
shall produce witness statements pursuant to this paragraph prior to
the scheduled hearing date, at a time to be designated by the
Administrative Law Judge. Respondents shall produce witness statements
pursuant to this paragraph at the close of the Division's case in chief
during the hearing. If necessary, the Administrative Law Judge shall,
upon request, grant the Division a continuance of the hearing in order
to review and analyze any witness statements produced by the
respondents.
(2) Nothing in paragraph (c)(1) of this section shall limit the
ability of a party to withhold documents or other information on the
grounds of privilege, the work product doctrine or other protection
from disclosure under applicable law.
(3) Index of withheld documents. When a party makes witness
statements available pursuant to paragraph (c)(1) of this section, he
or she shall furnish each of the other parties with an index of all
documents that the party is withholding on the grounds of privilege or
work product. This index shall describe the nature of the withheld
documents in a manner that, to the extent practicable without revealing
information that itself is privileged or protected from disclosure by
law or these rules, will enable the other parties to assess the
applicability of the privilege or protection claimed.
(4) Failure to produce witness statements. In the event that a
party fails to make available witness statements subject to production
pursuant to this section, no rehearing or reconsideration of a matter
already heard or decided shall be required, unless another party
demonstrates prejudice caused by the failure to make the witness
statements available.
(d) Modification of production requirements. The Administrative Law
Judge shall modify any of the requirements of paragraphs (a) through
(c) of this section that any party can show is unduly burdensome or is
otherwise inappropriate under all the circumstances.
(e) Admissions--(1) Request for admissions. Any party may serve
upon any other party, with a copy to the Proceedings Clerk, a written
request for admission of the truth of any facts relevant to the pending
proceeding set forth in the request. Each matter of which an admission
is requested shall be separately set forth. Unless prior written
approval is obtained from the Administrative Law Judge, the number of
requests shall not exceed 50 in number including all discrete parts and
subparts.
* * * * *
(f) Objections to authenticity or admissibility of documents--(1)
Identification of documents. The Administrative Law Judge, acting on
his or her own initiative or upon motion by any party, may direct each
party to serve upon the other parties, with a copy to the Proceedings
Clerk, a list identifying the documents that it intends to introduce at
the hearing and requesting the other parties to file and serve a
response disclosing any objection, together with the factual or legal
grounds therefor, to the authenticity or admissibility of each document
identified on the list. A copy of each document identified on the list
shall be served with the request, unless the party being served already
has the document in his possession or has reasonably ready access to
it.
(2) Objections to authenticity or admissibility. Within 20 days
after service or at such other time as may be designated by the
Administrative Law Judge, each party upon whom the list described in
paragraph (f)(1) of this section was served shall file a response
disclosing any objection, together with the factual or legal grounds
therefor, to the authenticity or admissibility of each document
identified on the list. Except for relevance, waste of time or needless
presentation of cumulative evidence, all objections not raised may be
deemed waived.
(3) Rulings on objections. In his or her discretion, the
Administrative Law Judge may treat as a motion in limine any list
served by a party pursuant to paragraph (f)(1) of this section, where
any other party has filed a response objecting to the authenticity or
the admissibility on any item listed. In that event, after affording
the parties an opportunity to file briefs containing arguments on the
motion to the degree necessary for a decision, the ALJ may rule on any
objection to the authenticity or admissibility of any document
identified on the list in advance of trial, to the extent appropriate.
11. Section 10.66 is amended by revising paragraph (b) to read as
follows:
Sec. 10.66 Conduct of the hearing.
* * * * *
(b) Rights of parties. Every party shall be entitled to due notice
of hearings, the right to be represented by counsel, and the right to
cross-examine witnesses, present oral and documentary evidence, submit
rebuttal evidence, raise objections, make arguments and move for
appropriate relief. Nothing in this paragraph limits the authority of
the Commission or the Administrative Law Judge to exercise authority
under other provision of the Commission's rules, to enforce the
requirements that evidence presented be relevant to the proceeding
[[Page 55794]]
or to limit cross-examination to the subject matter of the direct
examination and matters affecting the credibility of the witness.
* * * * *
12. Section 10.68 is amended by revising paragraphs (a)(1), (a)(2),
(b)(3) and (c)(1), by revising the heading of paragraph (c), by adding
four new sentences to the end of paragraph (c)(2), by revising the
second sentence in paragraph (e)(1) and by adding a new sentence to the
end of paragraph (f), to read as follows.
Sec. 10.68 Subpoenas.
(a) Application for and issuance of subpoenas--(1) Application for
and issuance of subpoena ad testificandum. Any party may apply to the
Administrative Law Judge for the issuance of a subpoena requiring a
person to appear and testify (subpoena ad testificandum) at the
hearing. All requests for the issuance of a subpoena ad testificandum
shall be submitted in duplicate and in writing and shall be served upon
all other parties to the proceeding, unless the request is made on the
record at the hearing or the requesting party can demonstrate why, in
the interest of fairness or justice, the requirement of a written
submission or service on one or more of the other parties is not
appropriate. A subpoena ad testificandum shall be issued upon a showing
by the requesting party of the general relevance of the testimony being
sought and the tender of an original and two copies of the subpoena
being requested, except in those situations described in paragraph (b)
of this section, where additional requirements are set forth.
(2) Application for subpoena duces tecum. An application for a
subpoena requiring a person to produce specified documentary or
tangible evidence (subpoena duces tecum) at any designated time or
place may be made by any party to the Administrative Law Judge. All
requests for the issuance of a subpoena ad testificandum shall be
submitted in duplicate and in writing and shall be served upon all
other parties to the proceeding, unless the request is made on the
record at the hearing or the requesting party can demonstrate why, in
the interest of fairness or justice, the requirement of a written
submission or service on one or more of the other parties is not
appropriate. Except in those situations described in paragraph (b) of
this section, where additional requirements are set forth, each
application for the issuance of a subpoena duces tecum shall contain a
statement or showing of general relevance and reasonable scope of the
evidence being sought and be accompanied by an original and two copies
of the subpoena being requested, which shall describe the documentary
or tangible evidence to be subpoenaed with as much particularity as is
feasible.
* * * * *
(b) * * *
(3) Rulings. The motion shall be decided by the Administrative Law
Judge and shall provide such terms or conditions for the production of
the material, the disclosure of the information or the appearance of
the witness as may appear necessary and appropriate for the protection
of the public interest.
* * * * *
(c) Motions to quash subpoenas; protective orders--(1) Application.
Within 10 days after a subpoena has been served or at any time prior to
the return date thereof, a motion to quash or modify the subpoena or
for a protective order limiting the use or disclosure of any
information, documents or testimony covered by the subpoena may be
filed with the Administrative Law Judge who issued it. At the same
time, a copy of the motion shall be served on the party who requested
the subpoena and all other parties to the proceeding. The motion shall
include a brief statement setting forth the basis for the requested
relief. If the Administrative Law Judge to whom the motion has been
directed has not acted upon the motion by the return date, the subpoena
shall be stayed pending his or her final action.
(2) Diposition. * * * The Administrative Law Judge may issue a
protective order sought under paragraph (c)(1) of this section or under
any other section of these rules upon a showing of good cause. In
considering whether good cause exists to issue a protective order, the
Administrative Law Judge shall weigh the harm resulting from disclosure
against the benefits of disclosure. Good cause shall only be
established upon a showing that the person seeking the protective order
will suffer a clearly defined and serious injury if the offer is not
issued, provided, however, that any such injury shall be balanced
against the public's right of access to judicial records. No protective
order shall be granted that will prevent the Division of Enforcement or
any respondent from adequate presenting its case.
* * * * *
(e) Service of subpoenas--(1) How effected. * * * Service of a
subpoena upon any other person shall be made by delivering a copy of
the subpoena to him as provided in paragraphs (e)(2) or (e)(3) of this
section, as applicable, and by tendering to him or her the fees for one
day's attendance and mileage as specified in paragraph (d) of this
section. * * *
(f) Enforcement of subpoenas. * * * When instituting an action to
enforce a subpoena requested by the Division of Enforcement, the
Commission, in its discretion, may delegate to the Director of the
Division or any commission employee designated by the Director and
acting under his or her direction, or to any other employee of the
Commission, authority to serve as the Commission's counsel in such
subpoena enforcement action.
13. Section 10.84 is amended by revising paragraph (b) to read as
follows:
Sec. 10.84 Initial decision
* * * * *
(b) Filing of initial decision. After the parties have been
afforded an opportunity to file their proposed findings of fact,
proposed conclusions of law and supporting briefs pursuant to
Sec. 10.82, the Administrative Law Judge shall prepare upon the basis
of the record in the proceeding and shall file with the Proceedings
Clerk his or her decision, a copy of which shall be served by the
Proceedings Clerk upon each of the parties.
* * * * *
14. Section 10.101 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 10.101 Interlocutory appeals.
* * * * *
(b) Procedure to obtain interlocutory review--(1) In general. An
application for interlocutory review may be filed within five days
after notice of the Administrative Law Judge's ruling on a matter
described in paragraphs (a)(1), (a)(2), (a)(3) or (a)(4) of this
section, except if a request for certification under paragraph (a)(5)
of this section has been filed with the Administrative Law Judge within
five days after notice of the Administrative Law Judge's ruling on the
matter. If a request for certification has been filed, an Application
for interlocutory review under paragraphs (a)(1) through (a)(5) of this
section may be filed within five days after notification of the
Administrative Law Judge's ruling on such request.
15. Section 10.102 is amended by revising paragraphs (a) and (d)(2)
and the first sentence of (e)(2); by redesignating paragraph (b)(3) as
paragraph (b)(4) and revising it; by adding a new sentence between the
third and fourth sentences of paragraph (e)(1); and by adding a new
paragraph (b)(3) and a new paragraph (b)(5), to
[[Page 55795]]
read as follows. (The undesignated paragraph after (b)(3) and before
paragraph(c) should appear after new (b)(5) and before paragraph (c).)
Sec. 10.102 Review of initial decision.
(a) Notice of appeal--(1) In general. Any party to a proceeding may
appeal to the Commission an initial decision or a dismissal or other
final disposition of the proceeding by the Administrative Law Judge as
to any party. The appeal should be initiated by serving and filing with
the Proceedings Clerk a notice of appeal within 15 days after service
of the initial decision or other order terminating the proceeding;
where service of the initial decision or other order terminating the
proceeding is effected by mail or commercial carrier, the time within
which the party served may file a notice of appeal shall be increased
by three days.
(2) Cross appeals. If a timely notice of appeal is filed by one
party, any other party may file a notice of appeal within 15 days after
service of the first notice of within 15 days after service of the
initial decision or other order terminating the proceeding, whichever
is later.
(3) Confirmation of filing. The Proceedings Clerk shall confirm the
filing of a notice of appeal by mailing a copy thereof to each other
party.
(b) * * *
(3) Reply brief. With 14 days after service of an answering brief,
the party that filed the first brief may file a reply brief.
(4) No further briefs shall be permitted, unless so ordered by the
Commission on its own motion.
(5) Cross appeals. In the event that any party files a notice of
cross appeal pursuant to paragraph (a)(2) of this section, the
Commission shall, to the extent practicable, adjust the briefing
schedule and any page limitations otherwise applicable under this
section so as to accommodate consolidated briefing by the parties.
* * * * *
(d) * * *
(2) The answering brief generally shall follow the same style as
prescribed for the appeal brief but may omit a statement of the issues
or of the case if the party does not dispute the issues and statement
of the case contained in the appeal brief. Any reply brief shall be
confined to matters raised in the answering brief and shall be limited
to 15 pages in length.
* * * * *
(3) Appendix to briefs--(1) Designation of contents of appendix. *
* * Any reply brief filed by the appellant may, if necessary,
supplement the appellant's previous designation. * * *
(2) Preparation of the appendix. Within 15 days after the last
answering brief or reply brief of a party was due to be filed, the
Office of Proceedings shall prepare an appendix to the briefs which
will contain a list of the relevant docket entries filed in the
proceedings before the Administrative Law Judge, the initial decision
and order of the Administrative Law Judge, the pleadings filed on
behalf of the parties who are participating in the appeal and such
other parts of the record designated by the parties to the appeal in
accordance with the procedures set forth in paragraph (e)(1) of this
section. * * *
* * * * *
16. Section 10.106 is amended by revising the section heading; by
designating the existing text as paragraph (a) and adding a paragraph
heading to it; and by adding a new paragraph (b) and a new paragraph
(c) to read as follows.
Sec. 10.106 Reconsideration; stay pending judicial review.
(a) Reconsideration. * * *
(b) Stay pending judicial appeal--(1) Application for stay. Within
15 days after service of a Commission opinion and order imposing upon
any party any of the sanctions listed in Secs. 10.1(a) through 10.1(e),
that party may file an application with the Commission requesting that
the effective date of the order be stayed pending judicial review. The
application shall state the reasons why a stay is warranted and the
facts relied upon in support of the stay. Any averments contained in
the application must be supported by affidavits or other sworn
statements or verified statements made under penalty of perjury in
accordance with the provisions of 28 U.S.C. 1746.
(2) Standards for issuance of stay. The Commission may grant an
application for a stay pending judicial appeal upon a showing that:
(i) The applicant is likely to succeed on the merits of his appeal;
(ii) Denial of the stay would cause irreparable harm to the
applicant; and
(iii) Neither the public interest nor the interest of any other
party will be adversely affected if the stay is granted.
(3) Civil monetary penalties and restitution. Nothwithstanding the
requirements set forth in paragraph (b)(2) of this section, the
Commission shall grant any application to stay the imposition of a
civil monetary penalty or an order to pay a specific sum as restitution
if the applicant has filed with the Proceedings Clerk a surety bond
guaranteeing full payment of the penalty or restitution plus interest
in the event that the Commission's opinion and order is sustained or
the applicant's appeal is not perfected or is dismissed for any reason
and the Commission has determined that neither the public interest nor
the interest of any other party will be affected by granting the
application. The required surety bond shall be in the form of an
undertaking by a surety company on the approved list of sureties issued
by the Treasury Department of the United States, and the amount of
interest shall be calculated in accordance with 28 U.S.C. 1961(a) and
(b), beginning on the date 30 days after the Commission's opinion and
order was served on the applicant. In the event the Commission denies
applicant's motion for a stay, the Proceedings Clerk shall return the
surety bond to the applicant.
(c) Response. Unless otherwise requested by Commission, no response
to a petition for reconsideration pursuant to paragraph (a) of this
section or an application for a stay pursuant to paragraph (b) of this
section shall be filed. The Commission shall set the time for filing
any response at the time it asks for a response. the Commission shall
not grant any such petition or application without providing other
parties to the proceeding with an opportunity to respond.
17. A new Subpart 1 is added to Part 10, to read as follows.
Subpart 1--Restitution Orders
Sec.
10.110 Basis for issuance of restitution orders.
10.111 Recommendation of procedure for implementing restitution.
10.112 Administraton of restitution.
10.113 Right to challenge distribution of funds to customers.
Subpart 1--Restitution Orders
Sec. 10.110 Basis for issuance of restitution orders.
(a) Appropriateness of restitution as a remedy. In any proceeding
in which an order requiring restitution may be entered, the
Administrative Law Judge shall, as part of his or her initial decision,
determine whether restitution is appropriate. In deciding whether
restitution is appropriate, the Administrative Law Judge, in his or her
discretion, may consider the degree of complexity likely to be involved
in establishing claims, the likelihood that claimants can obtain
compensation through their own efforts, the ability of the respondent
to pay claimants damages that his or her violations have
[[Page 55796]]
caused, the availability of resources to administer restitution and any
other matters that justice may require.
(b) Restitution order. If the Administrative Law Judge determines
that restitution is an appropriate remedy in a proceeding, he or she
shall issue an order specifying the following:
(1) All violations that form the basis for restitution;
(2) The particular persons, or class or classes of persons, who
suffered damages proximately caused by each such violation;
(3) The method of calculating the amount of damages to be paid as
restitution; and
(4) If then determinable, the amount of restitution the respondent
shall be required to pay.
Sec. 10.111 Recommendation of proceeding for implementing restitution.
Except as provided by Sec. 10.114, after such time as any order
requiring restitution becomes effective (i.e., becomes final and is not
stayed), the Division of Enforcement shall petition the Commission for
an order directing the Division to recommend to the Commission or, in
the Commission's discretion, the Administrative Law Judge a procedure
for implementing restitution. Each party that has been ordered to pay
restitution shall be afforded an opportunity to review the Division of
Enforcement's recommendations and be heard.
Sec. 10.112 Administration of restitution.
Based on the recommendations submitted pursuant to Sec. 10.111, the
Commission or the Administrative Law Judge, as applicable, shall
establish in writing a procedure for identifying and notifying
individual persons who may be entitled to restitution, receiving and
evaluating claims, obtaining funds to be paid as restitution from the
party and distributing such funds to qualified claimants. As necessary
or appropriate, the Commission or the Administrative Law Judge may
appoint any person, including an employee of the Commission, to
administer, or assist in administering, such restitution procedure.
Unless otherwise ordered by the Commission, all costs incurred in
administering an order of restitution shall be paid from the
restitution funds obtained from the party who was so sanctioned;
provided, however, that if the administrator is a Commission employee,
no fee shall be charged for his or her services or for services
performed by any other Commission employee working under his or her
direction.
Sec. 10.113 Right to challenge distribution of funds to customers.
Any order of an Administrative Law Judge directing or authorizing
the distribution of funds paid as restitution to individual customers
shall be considered a final order for appeal purposes to be subject to
Commission review pursuant to Sec. 10.102.
Sec. 10.114 Acceleration of establishment of restitution procedure.
The procedures provided for by Secs. 10.111 through 10.113 may be
initiated prior to the issuance of the initial decision of the
Administrative Law Judge and may be combined with the hearing in the
proceeding, either upon motion by the Division of Enforcement or if the
Administrative Law Judge, acting on his own initiative or upon motion
by a respondent, concludes that the presentation, consideration and
resolution of the issues relating to the restitution procedure will not
materially delay the conclusion of the hearing or the issuance of the
initial decision.
18. A new appendix A is added to part 10, to read as follows.
Appendix A to Part 10--Commission Policy Relating to the Acceptance
of Settlements in Administrative and Civil Proceedings
It is the policy of the Commission not to accept any offer of
settlement submitted by any respondent or defendant in any
administrative or civil proceedings, if the settling respondent or
defendant wishes to continue to deny the allegations of the
complaint. In accepting a settlement and entering an order finding
violations of the Act and/or regulations promulgated under the Act,
the Commission makes uncontested findings of fact and conclusions of
law. The Commission does not believe it would be appropriate for it
to be making such uncontested findings of violations if the party
against whom the findings and conclusions are to be entered is
continuing to deny the alleged misconduct.
The refusal of a settling respondent or defendant to admit the
allegations in a Commission-Instituted complaint shall be treated as
a denial, unless the party states that he or she neither admits nor
denies the allegations. In that event, the proposed offer of
settlement, consent or consent order must include a provision
stating that, by neither admitting nor denying the allegations, the
settling respondent or dependent agrees that neither he or she nor
any of his or her agents or employees under his authority or control
shall take any action or make any public statement denying, directly
or indirectly, any allegation in the complaint or creating, or
tending to create, the impression that the complaints is without a
factual basis; provided, however, that nothing in this provision
shall affect the settling respondent's or defendant's testimonial
obligation, or right to take legal positions, in other proceedings
to which the Commission is not a party.
Issued in Washington, DC, on October 8, 1998, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-27983 Filed 10-15-98; 10:43 am]
BILLING CODE 6351-01-M
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