Westheimer v. Commodity Exchange, Inc.

Gerald and Valerie Westheimer (plaintiffs) were both members of the Commodity Exchange, Inc. (COMEX) (defendant), a designated contract market under the Commodity Exchange Act that operated as a self-regulatory organization. The Westheimers traded gold options on COMEX. In March 1985, the Westheimers were unable to meet margin calls on $26 million of gold-futures options that were cleared through Volume Investors Corporation. Subsequently, COMEX suspended the Westheimers’ membership and conducted an investigation into their trading activity. Ultimately, COMEX’s business-conduct committee issued a complaint against the Westheimers. COMEX’s supervisory committee scheduled a disciplinary hearing regarding the allegations, at which the Westheimers would be able to review the evidence against them, call and cross-examine witnesses, and be represented by counsel. Following that hearing, COMEX’s disciplinary hearing panel would issue a written decision, and if the Westheimers received an adverse decision, they would be able to appeal to COMEX’s board of governors, and if still necessary, to the Commodity Futures Trading Commission (CFTC). Meanwhile, the CFTC issued an administrative complaint against both COMEX and the Westheimers arising out of the same conduct. Before the CFTC hearing was held, and while the COMEX hearing was in temporary adjournment, the Westheimers filed an action in federal district court against COMEX, alleging that COMEX’s disciplinary procedures were inherently biased because of the simultaneous CFTC proceedings and that COMEX was simply using the disciplinary procedures to gain a preview of how the CFTC proceeding might unfold.