Dirk L. Witter v. Commodity Futures Trading Commission

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-3535
DIRK L. WITTER ,
Petitioner,
v.
C OMMODITY F UTURES T RADING C OMMISSION ,
Respondent.
____________________
Petition for Review of an Order of the
Commodity Futures Trading Commission.
No. 08-R045.
____________________
S UBMITTED JULY 22, 2016 *— DECIDED A UGUST 10, 2016
____________________
Before WOOD, Chief Judge, and R OVNER and HAMILTON ,
Circuit Judges.
WOOD, Chief Judge. This is a tale of miscommunication.
Our task is to decide where the resulting loss must fall. It in-
* After examining the briefs and the record, we have concluded that
oral argument is unnecessary. The petition for review is thus submitted
on the briefs and the record. See FED . R. A PP. P. 34(a)(2)(C).

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2 No. 15-3535
volves some futures transactions that Dirk Witter, whose bro-
ker was TransAct Futures, was trying to stop. Witter contends
that he telephoned Robert Skelton, an employee of TransAct,
with instructions to cancel several standing orders. What is
clear is that Skelton did not do so, and Witter lost $23,000 on
the resulting market position. What is unclear is why Skelton
did not act: Witter says that Skelton disregarded his instruc-
tions, but Skelton says that Witter never told him to cancel all
seven of the working orders at issue. Witter filed a complaint
against TransAct and Skelton with the Commodity Futures
Trading Commission, see 7 U.S.C. § 18(a), but it found that
neither one had violated the Commodity Exchange Act. See
id. § 6(b). Witter has filed a petition for review from that deci-
sion, but we conclude that the Commission’s decision was
supported by the evidence, and thus we deny the petition.
The events that preceded the disputed phone call began in
the summer of 2007. Witter started using TransAct that sum-
mer to broker trades in the commodity-futures market. He
usually placed his trades online, but he often had problems
with his trading software, requiring him to call TransAct for
help. On the night of August 16, 2007, his trading software
stopped working. At the time, Witter had one open position
(meaning that he was obligated to comply with the terms of a
contract) in E-Mini S&P futures contracts. He also had seven
working orders (standing instructions to enter into a contract
if the market price reached a specified value), which he previ-
ously had set up using the trading software, for additional po-
sitions. After calls to the software company went unan-
swered, he phoned TransAct and spoke with Skelton, a cus-
tomer support representative.

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No. 15-3535 3
The parties recall this conversation differently. According
to Witter, he gave Skelton two instructions: (1) place a stop-
loss order (an instruction to limit his loss) on the open posi-
tion in the E-Mini S&P, and (2) cancel all seven working or-
ders. Skelton disputes the second instruction. According to
Skelton, Witter told him to cancel only three of his seven
working orders—those for Treasury and Dow Index futures
contracts. Witter, he recalls, told him not to cancel the four
working orders for E-Mini S&P contracts. TransAct says that
it did not record this call.
A problem came to light the following morning. Witter
was still unable to log into his trading software, and so he
called TransAct to check on the status of his last trade. He
spoke with another customer service representative, Tom Su-
rico. When he asked Surico to “tell me what my current posi-
tion is in the mini S&P’s,” Surico responded that he was “flat”
and that he did not see a position. TransAct recorded this call.
When Witter logged into his online account later that day, he
noticed that its overall value had decreased by over $23,000.
Believing this was an error, Witter called TransAct. An agent
told him that the values were correct because he had lost
money on a new trade that morning. Witter responded that
he had not made any trades that morning and wondered if
TransAct had failed to cancel all of his working orders. The
agent replied that TransAct had not received instructions to
that effect. Witter ordered TransAct to “check the tapes!” of
his phone call, which, he said, would prove that he had asked
TransAct to cancel the seven working orders. Witter later
learned that TransAct had not recorded the critical call.
In his complaint to the Commission, Witter claimed that
TransAct and Skelton violated the Commodity Exchange Act.

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4 No. 15-3535
See 7 U.S.C. § 6b(a). He focused on their alleged failure to fol-
low his instructions to cancel all working orders. As he put it,
“I believe TransAct is lying. I believe that Rob [Skelton] made
a mistake and cancelled 3 orders but failed to cancel the other
4.” He continued, “I believe that TransAct is lying [about not
recording his phone call to Skelton]. They have the recording
of that conversation. The problem is that it verifies my story
and proves them wrong.”
The case proceeded in stages. First, Witter invoked the
Commission’s summary procedure, see 17 C.F.R.
§§ 12.200–12.210, under which a judgment officer decides the
case based on the parties’ verified written submissions,
id. § 12.208, and, if necessary, a hearing, id. § 12.208–09. The
judgment officer conducted a telephone hearing, at which
both Witter and Skelton testified. After considering the evi-
dence, the judgment officer dismissed the complaint, finding
that Witter had failed to prove his allegations by a preponder-
ance of that evidence. Both Witter and Skelton, he explained,
testified sincerely—if “leavened with a bit of self-interest”—
but overall he found that Skelton’s version was more plausible
and Witter had a “propensity to confuse trading terms” like
“position” and “order.” The judgment officer refused to draw
an adverse inference based on TransAct’s failure to produce a
recording of the “one crucial conversation” because TransAct
was not required to record the call. Finally, he added, even if
Surico had not reminded Witter about his working orders, Su-
rico did not violate the Commodity Exchange Act; the phone
recording reflected that Witter had asked Surico to focus only
on the position that TransAct had closed the night before.
Witter appealed that adverse judgment to the Commis-
sion, see 17 C.F.R. § 12.210(e), which remanded the case for

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No. 15-3535 5
further discovery on whether TransAct had recorded the call
between Witter and Skelton. A recording of that call, the Com-
mission thought, would be the best evidence of whether Wit-
ter had instructed Skelton to cancel all his working orders. It
noted, however, that if discovery about the recording proved
fruitless, the Commission would find no clear error on the
current record and defer to the judgment officer’s credibility
analysis.
On remand, Witter submitted evidence that TransAct’s
phones were capable of recording multiple calls simultane-
ously on a single handset. TransAct conceded that its phones
had this capability and that it often records calls for training
purposes. But, it explained, its system was configured to redi-
rect some of its incoming calls from a handset already in use
to a handset not in use, and redirected calls did not get rec-
orded. When Witter called, Skelton “was currently on another
line helping another account holder,” and the phone system
redirected Witter’s call to a nonrecording line. Considering
the new evidence, the judgment officer concluded that Witter
had not shown by a preponderance of evidence that TransAct
recorded the call. Skelton, the judgment officer found, was on
his recorded line with another customer when Witter’s call
came in, and Witter’s call was redirected to another handset
that did not record the call. The judgment officer therefore de-
clined to draw an adverse inference from TransAct’s inability
to produce a recording of the call. Relying on his original
credibility assessment, he dismissed the complaint. The Com-
mission, seeing no error in the judgment officer’s findings, af-
firmed.

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6 No. 15-3535
In considering Witter’s petition for review, see 7 U.S.C.
§ 18(e), we begin with a comment on the standard for review-
ing the factual findings. The Commodity Exchange Act once
required the courts of appeals to treat the Commission’s find-
ings as conclusive if supported by the “weight of [the] evi-
dence.” 7 U.S.C. § 9 (2009); see id. § 18(e) (referring to § 9 to
determine procedure for judicial review); Hlavinka v. Commod-
ity Futures Trading Comm’n, 867 F.2d 1029, 1032–33 (7th Cir.
1989). But when Congress amended the Act in 2010 it re-
moved that language. See 7 U.S.C. § 9 (2016); Chu v. Commod-
ity Futures Trading Comm’n, No. 13-73294, 2016 WL 3006934,
at *2–4 (9th Cir. May 25, 2016). In Chu, the Ninth Circuit con-
cluded that the removal of the standard was “purposeful, not
accidental.” 2016 WL 3006934, at *3. That court thus turned to
the Administrative Procedure Act, 5 U.S.C. § 706, for the new
standard and applied the “substantial evidence” standard
from § 706(2)(E). Id. at *4. The Commission concedes that the
APA now governs the standard of review, but it argues that in
this case “arbitrary [and] capricious” is the standard, 5 U.S.C.
§ 706(2)(A), not “substantial evidence.” We agree with the
Ninth Circuit that it is proper to turn to the APA for the stand-
ard. As for which standard to use, putting to one side the fact
that the difference between “substantial evidence” and “arbi-
trary and capricious” brings to mind angels dancing on the
head of a pin, see, e.g., Aman v. F.A.A., 856 F.2d 946, 950 n.3
(7th Cir. 1988), we do not need to take a position in this case.
The Commission’s findings are supportable either way.
Witter’s first argument has both legal and factual aspects.
He contends that the judgment officer should have drawn an
adverse inference from TransAct’s inability to produce a re-
cording of the call between him and Skelton. TransAct, he
says, had a duty under both federal regulation, see 17 C.F.R.

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No. 15-3535 7
§ 166.2, and its customer agreement to record the call. And, he
continues, the evidence about TransAct’s phone system re-
quired a finding that, because Skelton’s telephone was capa-
ble of recording multiple calls on a single handset, Witter’s
call to Skelton must have been recorded. Witter adds that if
(or to the extent that) TransAct configured its phones to redi-
rect some incoming calls to unrecorded lines, that action was
a reckless violation of federal regulation and the customer
agreement.
Witter’s legal and factual contentions are both wrong.
TransAct had no duty to record the call between Witter and
Skelton. Federal regulations require that, before buying or
selling a commodity, a merchant such as TransAct must re-
ceive either “specific authorization” (the “precise commodity
interest to be purchased or sold” and the “exact amount” of
that interest) or “authorization in writing.” 17 C.F.R. § 166.2.
No regulation requires the merchant to record phone calls to
cancel previously authorized orders to buy or sell. Nor did
TransAct’s customer agreement include any such require-
ment. The agreement says only that the customer gives Trans-
Act permission to record calls, not that the company must do
so. Moreover, although evidence showed that TransAct was
capable of recording—and sometimes did record—multiple
calls directed to a single handset, that evidence did not re-
quire a finding that Witter’s call to Skelton was recorded. The
judgment officer could reasonably rely on the evidence that
TransAct redirected some calls from one handset to another,
non-recording line, to conclude that Witter’s was one of those
calls. The judgment officer thus did not err in declining to
draw an adverse inference from the missing recording.

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8 No. 15-3535
Witter next challenges the judgment officer’s credibility
assessment, accepting Skelton’s recollection of the circum-
stances and content of the phone call over Witter’s. In credit-
ing Skelton’s version, the judgment officer explained that Wit-
ter tended to confuse trading terms. Witter responds that his
familiarity with trading vocabulary is irrelevant to his sincer-
ity. He adds that the officer ignored inconsistences between
Skelton’s oral testimony and his affidavit, and between Skel-
ton’s and Witter’s accounts of how the phones were config-
ured.
We give great deference to an agency’s credibility determi-
nation, overturning it only in extraordinary circumstances.
See Staffing Network Holdings, LLC v. N.L.R.B., 815 F.3d 296,
304 (7th Cir. 2016); Vercillo v. Commodity Futures Trading
Comm’n, 147 F.3d 548, 555 (7th Cir. 1998). The record amply
supports the credibility ruling. Mixing up terms may not
make Witter insincere, but it does bear on what Skelton un-
derstood Witter to be asking of him. The terms that Witter re-
peatedly conflated at the hearing—terms like “order” and
“trade”—were directly related to the disputed call. Moreover,
the judgment officer knew that Skelton’s affidavit and his oral
testimony revealed minor inconsistencies. The officer reason-
ably gave more weight to Skelton’s affidavit because Skelton
wrote it shortly after the disputed call. Lastly, in accepting
Skelton’s testimony over Witter’s about the configuration of
TransAct’s telephones, the judgment officer reasonably took
into account Skelton’s greater familiarity with the system.
Witter’s last argument is about Surico. He contends that
when he spoke to Surico the morning after Witter and Skelton
had talked, Surico wrongfully misled him about the status of

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No. 15-3535 9
his working orders. But the judgment officer reasonably con-
cluded from the phone recording that Surico understood Wit-
ter to be asking only about the position that closed the previ-
ous night, and not about his other working orders. Witter re-
plies that TransAct tampered with the recording. But he never
raised this contention to the Commission, and he did not
prove tampering. Thus the record does not require holding
TransAct liable for Surico’s statements. See 7 U.S.C. § 6b(a).
We DENY the petition for review.

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