Melton v. Pasqua ( 2003 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DANNY K. MELTON; NELLIE H. 
MELTON,
Petitioners,
v.
KEITH PASQUA; CARL ROBERT  No. 02-2116
SAATHOFF; UNIVERSAL COMMODITY
CORPORATION; COMMODITY FUTURES
TRADING COMMISSION,
Respondents.

On Petition for Review of an Order
of the Commodity Futures Trading Commission.
(99-61-R, 99-62-R)
Argued: May 7, 2003
Decided: August 7, 2003
Before WIDENER, MICHAEL, and GREGORY, Circuit Judges.
Petition denied by published opinion. Judge Gregory wrote the opin-
ion, in which Judge Widener and Judge Michael joined.
COUNSEL
ARGUED: John Francis Bloss, Sr., CLARK, BLOSS & WALL,
P.L.L.C., Greensboro, North Carolina, for Petitioners. Laura M. Rich-
ards, Assistant General Counsel, Office of the General Counsel,
COMMODITY FUTURES TRADING COMMISSION, Washington,
2 MELTON v. PASQUA
D.C.; Robert Buford Christie, HENDERSON & LYMAN, Chicago,
Illinois, for Respondents. ON BRIEF: Patrick J. McCarty, General
Counsel, Kirk Manhardt, Deputy General Counsel, Office of the Gen-
eral Counsel, COMMODITY FUTURES TRADING COMMISSION,
Washington, D.C., for Respondent Commission; Jeffry M. Hender-
son, HENDERSON & LYMAN, Chicago, Illinois, for Respondents
Pasqua, Saathoff, and Universal.
OPINION
GREGORY, Circuit Judge:
Danny Melton and his mother, Nellie Melton (collectively, the
"Meltons") filed two separate reparations actions with the Commodity
Futures Trading Commission ("CFTC") against Universal Commod-
ity Corporation ("UCC"), Keith Pasqua, and Carl Robert Saathoff
(collectively, "Respondents"). The parties reached a pretrial settle-
ment agreement and, in accordance with the terms of the agreement,
submitted a Stipulation of Voluntary Dismissal to an Administrative
Law Judge ("ALJ"), who issued an Order of Dismissal. After entry of
the Order of Dismissal, Danny raised a factual dispute that challenged
the validity of the settlement agreement. Subsequently, the ALJ con-
vened a telephone conference call to determine the validity of the
agreement. After he determined that the parties had not reached a
valid settlement, the ALJ vacated his Order of Dismissal, held a hear-
ing on the merits, and issued an Initial Decision awarding the Meltons
$40,715.32 in damages. Respondents appealed to the CFTC, which
vacated the Initial Decision issued by the ALJ. The Meltons then filed
this petition for review. For the reasons that follow, we deny the peti-
tion.
I.
Danny Melton opened a commodity futures trading account with
UCC in November 1996, which was managed by Keith Pasqua.
Danny opened a second jointly held commodity futures trading
account with his mother, Nellie Melton, in January 1997. After sus-
taining monetary losses, Danny closed the individual account in Feb-
MELTON v. PASQUA 3
ruary 1997, and the joint account in June 1997. His combined losses
were $40,715.32.
In January 1999, the Meltons commenced two separate reparations
actions against Respondents, alleging misrepresentation, nondisclo-
sure, and churning, all in violation of 7 U.S.C.A. § 18 (West 1999).
Preliminary settlement talks among the parties began no later than
mid-August 1999. On October 20, 1999, after two failed settlement
attempts, Respondents sent a letter to the Meltons confirming their
acceptance of his third settlement offer. Under the terms of the offer,
UCC would pay the Meltons $10,000 and Pasqua would provide a
written apology1 in return for a release of claims. The next day, UCC
mailed a draft settlement agreement and stipulation to the Meltons.
Danny refused to sign the agreement, stating that he would not agree
to the settlement unless it contained an admission of guilt by Pasqua.
UCC, in hopes that it might reach a preliminary settlement agreement
with the Meltons, requested and received postponement of a hearing
that had been scheduled for October 25, 1999.
The parties continued settlement negotiations and, on October 24,
1999, reached a final settlement agreement. Under the terms of the
agreement, the Meltons agreed to dismiss all claims against the
Respondents in consideration for an aggregate amount of $10,000.2
The agreement contained no provision concerning an apology or an
admission of guilt by Pasqua. The Meltons signed and returned a Set-
tlement and Release Agreement and a Stipulation of Voluntary Dis-
missal to UCC that same day. The Stipulation was subsequently filed
with the CFTC, and on October 26, 1999, the ALJ dismissed the pro-
ceedings with prejudice, pursuant to 17 C.F.R. § 12.21 (2003) ("Rule
12.21").
On October 27, 1999, Danny left a voice mail message with the
ALJ stating that he would be rejecting the settlement agreement
because Respondents had violated the terms of the agreement. The
1
It appears that Danny sought an apology because Pasqua called him
"stingy."
2
UCC was to send Melton a $5,000 check and pay $5,000 into a man-
aged account in Danny’s name to be traded by an independent commod-
ity trading advisor approved by Danny.
4 MELTON v. PASQUA
ALJ subsequently held a conference call with the parties to determine
the validity of the agreement. Finding that no valid agreement had
been reached, the ALJ vacated his order of dismissal and rescheduled
the previously postponed hearing. UCC contested the ALJ’s ruling,
arguing that the initial dismissal terminated the ALJ’s jurisdiction
over the complaints. The ALJ rejected this argument. UCC then
sought interlocutory review by the CFTC, which denied review for
failure to demonstrate the requisite extraordinary circumstances.
After conducting a hearing at which Respondents were not present,
the ALJ issued an Initial Decision finding Respondents liable to the
Meltons and awarding the Meltons $40,715.32 in out-of-pocket losses
plus interest. UCC appealed to the CFTC, which vacated the ALJ’s
Initial Decision. The CFTC found that the settlement agreement was
valid and therefore the proceedings should have been dismissed as
settled. The Meltons timely filed this petition for review.
II.
When reviewing the final order of an administrative tribunal, we
undertake a de novo review of either legal questions or the application
of law to the facts when resolution of those issues is regularly
undertaken by courts of general jurisdiction. See Burgin v. Office of
Personnel Mgmt., 120 F.3d 494, 497 (4th Cir. 1997); Vercillo v.
CFTC, 147 F.3d 548, 552 (7th Cir. 1998); Cox v. CFTC, 138 F.3d
268, 271 (11th Cir. 1998); JCC, Inc. v. CFTC, 63 F.3d 1557, 1564
(11th Cir. 1995); Morris v. CFTC, 980 F.2d 1289, 1292 (9th Cir.
1992). Because the CFTC’s ruling was based on its determination
regarding the validity of the settlement agreement, an issue regularly
undertaken by courts of general jurisdiction, we apply a de novo stan-
dard of review. Factual findings made by the CFTC are held to be
conclusive so long as they are supported by the weight of the evi-
dence. Crothers v. CFTC, 33 F.3d 405, 409 (4th Cir. 1994) (citing 7
U.S.C. § 9 (1999)).
III.
In rendering its opinion, the CFTC reviewed the validity of the
Meltons’ signed assent to the settlement agreement. The CFTC rea-
soned that when there is a dispute over whether the parties to a repa-
MELTON v. PASQUA 5
rations proceeding have reached a pre-trial settlement, there must be
an assessment of written evidence and/or of witness testimony to
resolve the dispute. Melton v. Pasqua, Docket No. 99-R061, 99-R062,
2002 WL 31008126, *9 (CFTC Sept. 9, 2002). In resolving this case,
we address two issues. First, we undertake a de novo review to deter-
mine whether it was appropriate for the ALJ to undertake an evidenti-
ary review to resolve the factual dispute regarding the validity of the
settlement agreement.3 Second, if the evidentiary review was appro-
priate, we consider whether the CFTC’s factual findings are supported
by the weight of the evidence. We address each of these issues in
turn.
A.
Under Rule 12.21, any party to a reparations proceeding may
obtain dismissal of a complaint or proceeding "by filing a stipulation
of dismissal, duly executed by all of the complainants and each
respondent against whom the complaint has been forwarded." 17
C.F.R. § 12.21(a) (2003). Once a written stipulation of dismissal has
been received, "the official before whom the matter or proceeding is
pending shall issue an order of dismissal, and serve a copy thereof
upon each of the parties." 17 C.F.R. § 12.21(c) (2003). The dismissal
is to be entered with prejudice. 17 C.F.R. § 12.21(b) (2003). The
CFTC’s interpretation of the rule makes clear that Rule 12.21 is pro-
cedural and has no effect on the validity of any agreements between
the parties, including settlement agreements. See Burkhart v. Zeff,
Docket No. 84-R169, 1987 WL 107153, *1 at n.1 (CFTC May 28,
1987).
UCC reads the CFTC decisional authority to support its position
that Rule 12.21 is purely procedural and, as such, the ALJ had no
authority to review the validity of the settlement agreement. We
decline to adopt this interpretation. A decision-making official is not
required to review the validity of a settlement agreement prior to
entering an order of dismissal pursuant to Rule 12.21. See Shenkle v.
3
We normally give some deference to the CFTC’s interpretation of
Rule 12.21 to determine the appropriateness of the evidentiary review.
However, because the CFTC has not addressed this issue, we apply a de
novo standard of review.
6 MELTON v. PASQUA
Chilmark Commodities Corp., Docket No. 88-R10, 1989 CFTC
LEXIS 540, *3 (CFTC Sept. 14, 1989) ("Because the rule does not
require the parties to disclose the substance of either the negotiations
that proceeded the agreement or the specific terms underlying the set-
tlement, it eliminates the need for factual determinations by the
decision-making official."). The ALJ is not, however, precluded from
reviewing the validity of a settlement agreement if it becomes neces-
sary to do so after the dismissal is entered. In fact, this Court encour-
ages evidentiary review of settlement agreements when their validity
is at issue. See Wood v. Virginia Hauling Co., 528 F.2d 423, 425 (4th
Cir. 1975) (stating that a reviewing court is to conduct an evidentiary
hearing to discern the terms of the settlement agreement or to deter-
mine that there was no such agreement when there is a factual dispute
over the terms of a settlement agreement).
After the order of dismissal had been entered, Danny contacted the
ALJ and complained that UCC failed to comply with the terms of the
agreement. Danny’s testimony suggests that he expected an aggregate
amount of $10,000, an admission of guilt and an apology in consider-
ation for signing the voluntary stipulation of dismissal. The written
agreement, however, did not provide for an admission of guilt or an
apology. Danny’s call to the ALJ therefore raised the question of
whether he mistakenly signed the settlement agreement, believing that
it contained the terms he sought to have included (the admission and
apology) when, in fact, it did not. Because the call raised a factual dis-
pute regarding the validity of the agreement, it was appropriate for the
ALJ to conduct an evidentiary hearing solely to resolve that dispute.
B.
Having found that the evidentiary hearing regarding the validity of
the agreement was appropriate, we turn now to the CFTC’s findings
of fact. The CFTC concluded that the written evidence "strongly sup-
ports an inference that [the Meltons] intended to assent to the terms
of settlement as written." Melton, 2002 WL at *9. The CFTC further
concluded that the written evidence supports a finding that the volun-
tary stipulation of dismissal was submitted pursuant to a valid settle-
ment agreement. Id. In making its factual findings, the CFTC relied
both on Melton’s testimony and the written evidence in the record.
Our review of the record indicates that the factual findings are sup-
MELTON v. PASQUA 7
ported by the weight of the evidence. We find that the CFTC’s factual
findings are conclusive and hold that the Stipulation of Voluntary
Dismissal was submitted pursuant to the terms of a valid settlement
agreement. Accordingly, the Meltons are bound by the terms of the
settlement agreement into which they entered.
IV.
For the foregoing reasons we find that the dismissal of the case
pursuant to Rule 12.21 was appropriate. The petition for review is
DENIED.