Surprise!  In a rare occurrence, recently a CFTC Judgment Officer awarded a broker its attorneys’ fees for “frivolous and vexatious” litigation brought in “bad faith” by a customer in a Reparations proceeding. Azubueze Jiagbogu v. TradeStation Securities, Inc., [Current Transfer Binder] COMM. FUT. L. REP. (CCH) ¶ 33,430 (CFTC Mar. 9, 2015). The customer’s conduct was egregious, failing to comply with discovery even when a rule to show cause issued and failing “to substantiate his thin complaint.”

For those who do not know, there is a customer-dispute forum at the CFTC created by the Commodity Exchange Act and subsidized by taxpayers that is unlike any forum available at any other federal administrative agency or self-regulatory organization. With a click of a mouse, and as little as $50, a customer can file a pro se complaint for money damages against his broker by completing a form on (CFTC Division of Enforcement reviews these complaints to supplement its own surveillance activities.)  As a government program, it is presumably subject to due process requirements; but, its name, “Reparations,” reveals the true bias: its purpose is to give money back to customers.

In Reparations, the CFTC has adopted the “American Rule” as to awards of attorneys’ fees.  In theory, fees will be awarded evenly against a customer or a broker if the account agreement provides for it or if a party filed or litigated a Reparations complaint in bad faith. In practice, however, awards of attorneys’ fees to brokers are rare for three reasons. First, not surprisingly, Judgment Officers rarely find customers engaged in bad faith litigation, unlike in Jiagbogu. Second, when they do, the Commission often reverses the order on appeal. Third, except in connection with a counterclaim to collect a debit, the CFTC will not enforce an attorneys’ fees provision in an account agreement even though Reparations Rule 12.19 allows brokers to file any counterclaim that “arises out of the transaction or occurrence or series of transactions or occurrences set forth in the complaint.”

Through its decisions, the CFTC has narrowed this broad counterclaim rule so that the only counterclaim cognizeable in Reparations is to collect a debit.  Absent misbehavior by the customer, therefore, the only time brokers are awarded attorneys’ fees is when they defeat the customer’s claim, prevail on the debit counterclaim, and the account agreement provides for an award of attorney’s fees. A former ALJ at the CFTC fairly summarized the situation as follows: “[W]hile a mere favorable outcome is sufficient to award attorney’s fees to a prevailing [customer], neither a finding of bad faith nor a finding that there is an enforceable fee-shifting provision is sufficient to award attorney’s fees to a prevailing [broker].” Connolly v. Cotter, [2011-12 Transfer Binder] COMM. FUT. L. REP. (CCH) ¶ 31,980 (Levine, ALJ Jun., 23, 2011).

As to attorneys’ fees, the Reparations program is not at all a level playing field.  At the heart of the problem is the CFTC’s decision in Bianco v. Cytrade Financial, LLC, [2007-09 Transfer Binder] COMM. FUT. L. REP. ¶ 30,933 (CFTC Sept. 30, 2008), in which the CFTC held it would not enforce a fee-shifting provision in an account agreement except in connection with an award on a debit.  Besides not being even-handed, the Bianco decision is contrary to Congressional intent and Supreme Court law.  See CFTC v. Shore, 478 U.S. 833 (1986).  The time has come for the CFTC to overrule Bianco and level the playing field.