Source: https://casetext.com/case/ricci-v-chicago-mercantile-exchange-2
Timestamp: 2019-02-17 16:14:11
Document Index: 756176488

Matched Legal Cases: ['§ 15', '§ 1', '§ 26', '§ 1', '§ 1', '§ 7', '§ 13', '§ 6', '§ 0', '§ 0', '§ 7', '§ 1', '§ 1', '§ 4', '§ 15', '§ 78', '§ 19', '§ 78', '§ 13', '§ 1', '§ 1', '§ 0', '§ 13']

Ricci v. Chicago Mercantile Exchange, 447 F.2d 713 | Casetext
447 F.2d 713 (7th Cir. 1971)
Ricciv.Chicago Mercantile Exchange
Affirmed by U.S. in 1973Ricci v. Chicago Mercantile Exchange409 U.S. 289 (1973)
United States Court of Appeals, Seventh CircuitJun 17, 1971
…Pp. 298-308. 447 F.2d 713, affirmed. WHITE, J., delivered the opinion of the Court, in which BURGER, C.J.,…
…Though the Supreme Court did not mention primary jurisdiction by name in the Ricci decision, the Seventh…
Plaintiff Ricci brought this action under sections 4 and 16 of the Clayton Act, Title 15, U.S.C.A. §§ 15 and 26, seeking injunctive relief and treble damages. The complaint charged defendants Chicago Mercantile Exchange, its president, Everette B. Harris, its vice-president, William Phelan, its board chairman, Leo Melamed, and Siegel Trading Company and its president, Joseph Siegel with violations of section 1 of the Sherman Act, Title 15, U.S.C.A. § 1 and tortious interference with commercial relationships. Siegel Trading Company and Siegel moved to dismiss the complaint for failure to state a claim upon which relief could be granted and for want of jurisdiction. In a separate motion to dismiss, the Exchange defendants argued the complaint failed to state a cause of action under section 1 of the Sherman Act. From an order granting defendants' motions to dismiss, plaintiff appeals.
Title 15, U.S.C.A. § 26 provides, inter alia:
Title 15, U.S.C.A. § 1 provides, inter alia:
Count I of appellant's six-count complaint alleged, in substance, that he purchased a membership in the Chicago Mercantile Exchange and became duly qualified to trade in commodities and commodity futures pursuant to the rules of the Exchange and the Commodities Exchange Authority. On February 11, 1969, Siegel induced the Exchange and its officers to transfer appellant's membership to James F. Reich, without hearing or notice, utilizing a previously revoked blank authorization to transfer membership. Such action was allegedly in violation of the rules and regulations of the Exchange and the Commodity Exchange Act and was done in pursuance of an unlawful conspiracy with the intent and for the purpose of restraining appellant from conducting his lawful business. As a result of such transfer, appellant was excluded from trading on the Exchange from February 11, 1969 until March 4, 1969 when he purchased another membership for $45,000.
Plaintiff also alleges that the conspirators attempted to induce a "Clearing Member" of the Exchange to issue an antedated release of its authorization of Ricci to trade to Siegel and that the Exchange knowingly failed to enforce its own rules relating to financial reporting. No specific damage is assigned to these allegations.
Since this is an appeal from an order granting Rule 12(b), Fed.R.Civ.P., motions to dismiss, we must accept appellant's foregoing allegations of fact as true. Walker Process Equipment, Inc. v. Food Machinery Chemical Corp., 382 U.S. 172, 174-175, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); Duzynski v. Nosal, 7 Cir., 324 F.2d 924 (1963).
Appellant has alleged his exclusion from the Chicago Mercantile Exchange, a monopolistic market, was in violation of its own rules and regulations. Such exclusion is alleged to be a part of a conspiracy to intentionally injure his business. In Gamco, Inc. v. Providence Fruit Produce Bldg., 1 Cir., 194 F.2d 484 (1952), cert. denied, 344 U.S. 817, 73 S.Ct. 11, 97 L.Ed. 636 (1952), the court was confronted with the exclusion of a trader from a produce building where the sales of fresh fruits and vegetables occurred. The board that managed the building refused to renew the trader's lease after its expiration. The court in finding violations of sections 1 and 2 of the Sherman Act said:
Finally, this is not a case, as appellees contend, where appellant has used traditional antitrust language to transform an essentially state cause of action into a federal antitrust claim. Compare, Norville v. Globe Oil Refining Co., 7 Cir., 303 F.2d 281 (1962); Parmelee Transportation Company v. Keeshin, 7 Cir., 292 F.2d 794 (1961).
The Chicago Mercantile Exchange is a "contract market" designated by the Secretary of Agriculture to conduct future trading in commodities pursuant to the Commodity Exchange Act, as amended, Title 7, U.S.C.A. § 1, et seq. As a condition of such designation, it must fulfill certain statutory requirements including the enactment and enforcement of bylaws, rules and regulations which relate to "trading requirements" and which provide "minimum financial standards and related reporting requirements" for members of such markets.
Title 7, U.S.C.A. § 7a provides, inter alia:
Failure to enforce these bylaws, rules and regulations may result in suspension or revocation of the contract market designation as well as cease and desist proceedings with attendant misdemeanor penalties for failure to comply. Anyone who acts singly or in concert with another to bring about a violation of rules and regulations issued pursuant to the Act is liable as a principal for such violations and may be subjected to loss of trading privileges on contract markets, as well as cease and desist proceedings with attendant penalties.
Title 7, U.S.C.A. § 13a provides, inter alia:
The facts alleged by appellant to support his antitrust charge are either violations or induced violations of Exchange rules, promulgated pursuant to the Act, which relate to "trading requirements" and financial reporting requirements. As such, they could have been examined by the Commodity Exchange Commission or the Secretary of Agriculture.
Membership in a contract market is a prerequisite to lawful trading in commodities futures. Title 7, U.S.C.A. § 6. Therefore, Rule 307, allegedly violated in the transfer of appellant's membership, and Rule 322, allegedly violated in the attempt to cancel appellant's authorization to trade, both relate to "trading requirements." The other alleged violation was the failure to enforce financial reporting rules.
The Commission has jurisdiction over alleged violations by the Exchange and its officers. It is composed of the Secretary of Agriculture, the Secretary of Commerce and the Attorney General or their respective designees. The Secretary of Agriculture may decide to exclude members of contract markets from trading.
Applying these criteria to the instant case, we think it appropriate for the invocation of the doctrine of primary jurisdiction. There exists no express or implied exemption in the Commodity Exchange Act that would prevent the Secretary of Agriculture or the Commodity Exchange Commission from taking into account antitrust principles in their deliberations pursuant to the Act. Judge Leventhal, concurring in Cities of Statesville v. AEC, D.C. Cir., 441 F.2d 962 (Slip opinion No. 21,706, Dec. 5, 1969) ( en banc), observed:
"It is a fair synthesis of the cases [of the Supreme Court and of the D.C. Circuit over the last 25 years] that a statute providing for licensing or other regulation is presumed to permit consideration of antitrust principles, with the harmonizing approach [applied to conflicts between antitrust policies and the agency's other regulatory objectives] * * * unless a contrary intent appears expressly or by necessary implication." (Quotation appears in Hale v. F.C.C., 138 U.S. App.D.C. 125, 425 F.2d 556, 561 (1970) (concurring opinion)).
Appellant could have applied for the institution of proceedings against the defendants before the Commission and/or the Secretary of Agriculture on the facts alleged in this case. He could have thereafter petitioned for intervention in any proceedings initiated pursuant to his application. If indeed the allegedly anticompetitive transfer of membership were in violation of Exchange rules, the Commission could have prevented it.
Title 17, C.F.R. §§ 0.3 and 0.53 provide that "any interested person having any information of any violation of the act" may file an application requesting the institution of proceedings before the Secretary or the Commission, respectively.
Title 17, C.F.R. §§ 0.8, 0.58.
Moreover, the questions here involved are precisely the ones that the Commission and the Secretary are to resolve in fulfilling their watchdog function over the Exchange and its members. The allowance of a private treble damage antitrust suit in this case prior to the attempted institution of actions before the Commission or the Secretary would discourage "interested persons" from helping the agency fulfill its regulatory function of insuring that contract markets enforce their own rules and bylaws.
Although the overall regulatory scheme in the instant case is less pervasive than the scheme in Pan American, the specific allegations relate directly to the Commission's and the Secretary's power to designate contract markets and allow the trading in futures by individuals. Such power is no less basic to the regulatory scheme than it was in Pan American. Also, compare Far East Conference v. United States, 342 U.S. 570, 72 S.Ct. 492, 96 L.Ed. 576 (1952); United States Nav. Co. v. Cunard S.S. Co., 284 U.S. 474, 52 S.Ct. 247, 76 L.Ed. 408 (1932) with California v. F.P.C., 369 U.S. 482, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962); United States v. Borden Co., 308 U.S. 188, 60 S.Ct. 182, 84 L.Ed. 181 (1939), for ample illustration of Chief Judge Swygert's observation in Thill, supra 433 F.2d at 277, that cases on primary jurisdiction provide no clear resolution to the issue.
Additionally, there is a potential repugnance between a decision of the Commodity Exchange Commission and the award of treble damages in an antitrust action. The 1968 amendments to the Commodity Exchange Act provide the Commission and the Secretary of Agriculture with the discretion to refuse to report "minor violations" of the Act for prosecution "whenever it appears that the public interest does not require such action." The award of damages that are essentially punitive in nature could conflict with a decision by the Commission in the "public interest" that the punitive steps allowable under the Act should not be taken.
We express no opinion on any antitrust immunity that might result from action or inaction taken by the Commission or the Secretary of Agriculture in this case. The complicated issues of reconciliation of the Commodities Exchange Act and the Sherman Act that would be presented will require the benefit of brief and argument before any determination could be attempted.
We hold, therefore, that before a private treble damage action for antitrust violations may be brought against these defendants charging violation of the rules promulgated as a condition to a contract market designation, the Commodity Exchange Commission and/or the Secretary of Agriculture must have the first opportunity to secure the fulfillment of the statutory duties imposed upon exchanges and their members. The correct remedy in such a case where there is the possibility of a judicial remedy that cannot be granted by the administrative agency is to remand the case to the district court with directions to stay the proceedings until the agency has acted.
Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 222-223, 86 S.Ct. 781, 15 L.Ed.2d 709 (1966); Pan American World Airways, Inc. v. United States, supra 371 U.S. at 313, n. 19, 83 S.Ct. 476.
It may be that Ricci could have proceeded before the Commission. However, it does not follow that Ricci must proceed before the Commission. The doctrine of primary jurisdiction does not require courts to stay their hand in all controversies which involve factual disputes arguably within the jurisdiction of an administrative agency. Rather, the doctrine holds "that in cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over." Far East Conference v. United States, 342 U.S. 570, 574, 72 S.Ct. 492, 494, 96 L.Ed. 576 (1952). The underlying factual questions in the case at bar involve neither unconventional facts nor administrative discretion. Whether Ricci executed a valid authorization binding on him at the time of transfer is a question which a district court is as competent to assess as a commission composed of the Secretary of Agriculture, the Secretary of Commerce and the Attorney General. And, since Congress has made the enforcement of contract market rules mandatory ( 7 U.S.C. § 7a(9)), no question of administrative discretion could arise.
The Commission does have discretion to refrain from reporting minor violations of its cease and desist orders for prosecution. See discussion infra.
In Thill, a licensed securities dealer brought a class action against the New York Stock Exchange charging an unreasonable restraint of trade and an unlawful monopoly of the securities market in violation of the Sherman Antitrust Act and the Clayton Act. The suit was founded on the Exchange's "antirebate rule" which prohibits a member from sharing a commission with a non-member even though the non-member originally received the customer's order. The Exchange contended that the "antirebate rule" was within the scope of its authorized self-regulatory powers and that the Securities and Exchange Commission was exercising its statutory power of review which explicitly includes the fixing of reasonable rates of commission. Surely, primary jurisdiction was a more appropriate disposition in Thill than it is here. Thill was (1) a direct antitrust attack on an Exchange rule (2) which involved unconventional facts and (3) statutorily declared administrative discretion.
Sherman Antitrust Act §§ 1-2, 15 U.S.C. § 1-2 (1964).
Clayton Act § 4, 15 U.S.C. § 15 (1964).
15 U.S.C. § 78s(b)(9).
In addition, Judge Pell noted in his separate opinion "that the very matter in issue is now under consideration by the S.E.C. which on May 28, 1968, announced investigation and public hearings on rate structure matters including economic access to the Exchange market by non-member broker-dealers." ( Supra, at 278.) Despite this aspect, Judge Pell would have remanded to the district court those antitrust questions which related to the alleged Exchange practice of favoring certain non-members. ( Supra, at 278.) While Judge Pell dissented from that part of the majority opinion in Thill which remanded plaintiff's direct challenge of the "anti-rebate rule" to the district court, he did not do so on the basis of primary jurisdiction. Rather, he felt that "the `fixing or reasonable rates of commission * * * and other charges' as provided for by § 19(b)(9) of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78s(b)(9)) necessarily includes as an ancillary power the prohibition of rebates." ( Supra, at 277.) This is a decision on the merits of the "anti-rebate rule" and, therefore, not relevant to the question of where litigants must seek their remedy. Hence, neither Judge Campbell nor Judge Pell, a majority of the panel in Thill, reached a result consistent with the result reached by the majority today. In fact, the opinions of Judges Pell and Campbell appear to be clear authority against the majority's disposition of the case at bar.
Evidently, Judge Pell believed the New York Stock Exchange is exempt from suits which are direct challenges to its rules. Since Judge Pell concurred in that part of Judge Campbell's opinion which remanded the remaining issues to the district court, he must have concluded that primary jurisdiction was inappropriate.
I assume the majority opinion intends the Commission (Secretaries of Agriculture and Commerce and the Attorney General) to fully decide the issues in this case. Perhaps the very incongruence of these officials deciding difficult antitrust questions is enough to suggest that Congress did not legislate such a result. However, the resolution of this question need not rest on such grounds. Congress has strictly limited the jurisdiction of the Secretary of Agriculture and the Commission to violations "of the provisions of this chapter." (See e.g., Title 7, U.S.C. § 13a.) This chapter means the "Commodity Exchange Act" (Title 7, U.S.C. § 1) and not the "Sherman Act," which is found at 15 U.S.C. § 1.
I merely observe that antitrust law is not within the peculiar province of the Secretaries of Agriculture and Commerce. Of course, quite the opposite is true of the Attorney General who is the chief enforcement officer of the antitrust laws and who could possibly be placed in an inconsistent position in having to judge those suits.
Furthermore, there is no provision in the Commodity Exchange Act which suggests that the Commission should regulate these types of competitive factors in contract markets. This is in contrast with SEC statutory authority to review "reasonable rates of commission" which arguably includes such factors. Yet Judge Swygert did not believe that this statutorily granted power of review in the SEC meant, ipso facto, that the SEC had the power to consider these factors. Instead, Judge Swygert suggested that the district court consider the question. This careful approach by Judge Swygert is not adopted by the majority although Commission authority to consider antitrust law is, at the least, arguable.
"Cases concerning primary jurisdiction of other administrative agencies to consider antitrust matters do not provide clear guidance for resolution of this question. Compare, Pan American World Airlines, Inc v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963); California v. F.P.C., 369 U.S. 482, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962)." (Concurring opinion of Chief Judge Swygert at p. 277.)
It is reasonably clear that appellant could have applied for the institution of proceedings before the Commission and/or the Secretary of Agriculture and thereafter petitioned for intervention. By regulation, intervention is permitted upon a showing of (a) the petitioner's relationship to the matters involved in the proceeding; (b) the nature of the material he intends to present in evidence; (c) the nature of the argument he intends to make; and (d) any other reason he should be allowed to intervene.
These factors indicate that both the Commission and the Secretary of Agriculture possess the power to exclude claimants based on the nature of their claims. Since institution of proceedings is permitted only when there is reason to believe there has been a violation, Ricci might be prevented from asserting his antitrust action before the Commission. Ricci would then return to the district court on his antitrust claim, needlessly multiplying the number of tribunals involved in these proceedings. Of course, this question could be answered, as it was in Thill, by a remand to the district court for the taking of evidence.
Title 17, C.F.R. §§ 0.3, 0.53. Thus, Ricci may be limited to proof of a Rules violation.
(3) The extent that SEC expertise would be useful in resolving the question of whether the antirebate rule was necessary to make the Securities Exchange Act work.
This assumes that the Secretary and/or the Commission have the power to consider antitrust claims. Since the question of primary jurisdiction was neither briefed nor argued orally, we are somewhat inhibited in our analysis.
Seemingly, the relevance of this factor is extremely limited in this case. Ricci has alleged and must prove facts which show an unlawful conspiracy between the Exchange and Siegel Trading Company. A good faith but erroneous decision by the Exchange would not be a violation of the Sherman Act. The power to decide membership requirements implies the power to make good faith but erroneous decisions. Such power is needed to make the Exchange Act work. Silver v. N.Y.S.E., 373 U.S. 341, 357, 83 S.Ct. 1246. Since Ricci did not allege that a good faith decision by the Exchange to transfer his membership was a violation of the antitrust laws, the question under (3) is whether it is necessary to make the Act work for the Exchange to possess power to determine its membership if these determinations are motivated by otherwise unlawful intent. This is traditional "rule of reason" inquiry which the Court in Silver described as "flexible enough to permit the Exchange sufficient breathing space * * *." Supra at 360, 83 S.Ct. at 1259.) Whether the Exchange should be insulated from this type of antitrust liability will be considered in the following section. All that remains to be mentioned here is that a district court would have greater expertise and experience in this regard than the Commission. Judge Campbell so held in Thill:
It is in this area of public protection that the SEC claim their expertise. On the other hand, it should be remembered that the courts of the United States have over the years become the repository of antitrust expertise. ( 433 F.2d at 273.)
I would think that the aims of the Sherman Act could only be achieved by enforcing that Act against Exchanges which make unlawful transfers of membership for anticompetitive reasons. Perhaps the nature of the action in Thill presents a more difficult question; however, I am able to think of no legitimate public policy goals which are advanced by insulating this Exchange from antitrust liability given the conduct alleged in the complaint. The majority opinion indicates none. Yet, the opinion intimates that because of a "potential repugnance between a decision of the Commodity Exchange Commission and the award of treble damages in an antitrust action" ( infra at p. 11), the aims of the Sherman Act should be subordinated to the aims of the Commodity Exchange Act. This "potential repugnance" stems from Commission discretion to refuse to report minor violations of its cease and desist orders. Apparently the majority would permit the Commission, which does not have jurisdiction to consider the question of damages, to foreclose private suits if such foreclosure were deemed in the public interest.
7 U.S.C. § 13(b).