## Facts

- Tom Lachmund, an Indiana farmer, hired A/C Trading 2000 (run by James Gerlach) to advise on grain marketing and hedging.
- Gerlach arranged multiple hedge-to-arrive (HTA) contracts between Lachmund and Demeter, a grain elevator, setting crop quantities, prices, and future delivery dates.
- The HTA contracts were individually negotiated and contained detailed delivery terms, including conditions for delivery, substitute performance, regulatory compliance, lien-free status, and payment upon delivery.
- To hedge price risk on the HTA commitments, Gerlach arranged a trading account for Lachmund with ADM Investor Services, Inc. (ADMIS), through which Lachmund entered options transactions; Lachmund also entered some over-the-counter options with Demeter.
- Lachmund’s crop yields fell short of the contracted quantities. Demeter permitted him to “roll” deliveries into later periods in exchange for cash payments, though Demeter was not contractually required to do so.
- Demeter ultimately stopped allowing additional rolls and demanded delivery; when Lachmund could not deliver, Demeter debited Lachmund’s ADMIS account for more than $300,000, and his options hedges did not cover the loss.
- Lachmund sued ADMIS, Demeter, and A/C 2000, alleging the HTAs were disguised off-exchange futures used to evade Commodity Futures Trading Commission regulation, asserting claims under the Commodity Exchange Act (CEA), RICO, and state law.
- The district court dismissed under Rule 12(b)(6), concluding the HTAs were exempt cash forward contracts; Lachmund appealed.

## Issues

1. Whether the HTA contracts were regulated “futures” contracts under the CEA or exempt “cash forward” contracts for deferred shipment or delivery.
2. If the HTAs were exempt cash forwards, whether Lachmund could nonetheless state CEA, RICO, or related state-law claims based on alleged evasion of futures-market regulation.

## Decision

- The Seventh Circuit affirmed dismissal.
- The court held the HTA agreements were cash forward contracts that contemplated actual delivery of grain and therefore fell within the CEA’s cash forward exclusion.
- Because the HTAs were outside the CEA’s reach, Lachmund failed to state a CEA claim.
- The RICO claim, premised on CEA-violation predicates, also failed; related state-law theories dependent on the asserted regulatory mischaracterization likewise could not proceed.

## Legal Principles

- The CEA generally reaches contracts of sale of a commodity for future delivery traded on or subject to the rules of a board of trade, but excludes sales of cash commodities for deferred shipment or delivery (cash forward contracts).
- In distinguishing futures from cash forwards, courts examine whether the arrangement is standardized and market-traded versus individually negotiated, and whether the parties’ predominant expectation is actual delivery rather than financial settlement based on price movements.
- Individually negotiated grain HTA agreements with detailed delivery terms tied to a producer’s operations, and structured around physical delivery obligations, are properly treated as exempt cash forward contracts even if the parties sometimes renegotiate timing (e.g., “roll” deliveries) in response to commercial circumstances.
- When the underlying transactions are exempt cash forwards, CEA-based theories—and RICO theories dependent on alleged CEA violations as predicate acts—must be dismissed.

## Conclusion

The Seventh Circuit concluded that Lachmund’s HTA grain agreements were commercial, delivery-oriented cash forward contracts excluded from the Commodity Exchange Act, which foreclosed his CEA claims and any RICO or related claims dependent on showing a CEA regulatory violation.


Lachmund v. ADM Inv. Servs., Inc., 191 F.3d 777 (7th Cir. 1999)