Opinion ID: 7016474
Heading Depth: 2
Heading Rank: 1

Heading: Implied Repeal of the Antitrust Laws

Text: “It is a cardinal principle of construction that repeals by implication are not favored.” United States v. Borden Co., 308 U.S. 188, 198, 60 S.Ct. 182, 84 L.Ed. 181 (1939). The basic framework for analysis of whether federal securities laws impliedly repeal § 1 of the Sherman Act with respect to particular conduct, i.e., whether a defendant is entitled to immunity from liability under the antitrust laws for that conduct, has been set out by the Supreme Court in Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), Gordon v. New York Stock Exchange, Inc., 422 U.S. 659, 95 S.Ct. 2598, 45 L.Ed.2d 463 (1975) (“Gordon ”), and United States v. National Association of Securities Dealers, Inc., 422 U.S. 694, 95 S.Ct. 2427, 45 L.Ed.2d 486 (1975) (“NASD ”). In Silver, the Court established the baseline principle that repeal of the antitrust laws by the Exchange Act is to be “implied only if necessary to make th[at] Act work, and even then only to the minimum extent necessary.” 373 U.S. at 357, 83 S.Ct. 1246. Silver involved an antitrust challenge to an order, issued by NYSE pursuant to its Constitution and existing rules, requiring its members to remove any private direct telephone connections they had with offices of nonmember firms. The Court concluded that the Exchange Act did not impliedly repeal the antitrust laws with respect to that NYSE order because, although the Exchange Act gave the SEC the power to request exchanges to make changes in their rules, § 19(b), 15 U.S.C. § 78s(b), and impliedly, therefore, to disapprove any rules adopted by an exchange, see also § 6(a)(4), 15 U.S.C. § 78f(a)(4), it d[id] not give the Commission jurisdiction to review particular instances of enforcement of exchange rules. Silver, 373 U.S. at 357, 83 S.Ct. 1246. Because the SEC lacked the authority to regulate the conduct challenged in the complaint, the Court concluded that there was no potential for the antitrust laws to overlap or conflict with the regulatory power of the SEC. See id. at 358, 83 S.Ct. 1246. Further, given the absence of SEC authority, there was a need for applicability of the antitrust laws, for if those laws were deemed inapplicable the challenged conduct would be unreviewable. See id. at 358-59, 83 S.Ct. 1246. The Court stated that [a]pplicability of the antitrust laws ... rests on the need for vindication of their positive aim of insuring competitive freedom. Denial of their applicability would defeat the congressional policy reflected in the antitrust laws without serving the policy of the Securities Exchange Act. Should review of exchange self-regulation be provided through a vehicle other than the antitrust laws, a different case as to antitrust exemption would be presented. Id. at 360, 83 S.Ct. 1246 (emphases added). Such a “ ‘different case’ ” was presented in Gordon, see 422 U.S. at 685, 95 S.Ct. 2598. The conduct challenged there was the practice of securities exchanges and their members of using fixed rates of commission; and unlike the conduct at issue in Silver, the fixing of commission rates was subject to ample SEC regulatory authority. The Supreme Court in Gordon reiterated the principle enunciated in Silver that repeal of the antitrust laws by the Exchange Act is to be “implied only if necessary to make the Securities Exchange Act work, and even then only to the minimum extent necessary,” 422 U.S. at 683, 95 S.Ct. 2598 (internal quotation marks omitted), and proceeded to explore the history of the rate agreements, the statutory authority conferred on the SEC to regulate commission-rate practices, and the agency’s exercise of that authority. The Court noted that the commission rate practices of the exchanges have been subjected to the scrutiny and approval of the SEC. If antitrust courts were to impose different standards or requirements, the exchanges might find themselves unable to proceed without violation of the mandate of the courts or of the SEC. Such different standards are likely to result be cause the sole aim of antitrust legislation is to protect competition, whereas the SEC must consider, in addition, the economic health of the investors, the exchanges, and the securities industry. Given the expertise of the SEC, the confidence the Congress has placed in the agency, and the active roles the SEC and the Congress have taken, permitting courts throughout the country to conduct their own antitrust proceedings would conflict with the regulatory scheme authorized by Congress rather than supplement that scheme. .... Although SEC action in the early years appears to have been minimal, it is clear that since 1959 the SEC has been engaged in deep and serious study of the commission rate practices of the exchanges and of their members, and has required major changes in those practices. The ultimate result of this long-term study has been a regulatory decree requiring abolition of the practice of fixed rates of commission as of May 1, 1975, and the institution of full and complete competition. Gordon, 422 U.S. at 689-90, 95 S.Ct. 2598 (footnotes omitted) (emphases added). The Gordon Court also noted that although Congress had subsequently enacted a statutory section adopting the SEC regulatory provision banning fixed rates, Congress also explicitly provided that the SEC, under certain circumstances and upon the making of specified findings, was empowered to allow the resumption of fixed rates. See id. at 691, 95 S.Ct. 2598. The Court concluded that with respect to commission-rates agreements, the Exchange Act impliedly repealed the Sherman Act: In sum, the statutory provision authorizing regulation, § 19(b)(9), the long regulatory practice, and the continued congressional approval illustrated by the new legislation, point to' one, and only one, conclusion. The Securities Exchange Act was intended by the Congress to leave the supervision of the fixing of reasonable rates of commission to the SEC. Interposition of the antitrust laws, which would bar fixed commission rates as per se violations of the Sherman Act, in the face of positive SEC action, would preclude and prevent the operation of the Exchange Act as intended by Congress and as effectuated through SEC regulatory activity. Implied repeal of the antitrust laws is, in fact, necessary to make the Exchange Act work as it was intended; failure to imply repeal would render nugatory the legislative provision for regulatory agency supervision of exchange commission rates. Gordon, 422 U.S. at 691, 95 S.Ct. 2598. In NASD, the Court was confronted with a Sherman Act suit by the government alleging, inter alia, that the National Association of Securities Dealers, along with certain mutual funds, fund underwriters, and broker-dealers, had agreed to restrict the sale, and to fix the resale prices, of mutual fund shares in the secondary market. See 422 U.S. at 700, 95 S.Ct. 2427. The NASD Court, while rejecting the defendants’ contention that their conduct was authorized by the language of § 22(f) of the Investment Company Act of 1940 (“1940 Act”), 15 U.S.C. § 80a-22(f), concluded that the “pervasive regulatory scheme,” 422 U.S. at 735, 95 S.Ct. 2427, established by the 1940 Act and the 1938 Maloney Act amendments to the Exchange Act, see 15 U.S.C. § 78o-3, gave the SEC authority to regulate such conduct and that the implied repeal of the Sherman Act with respect to that conduct was necessary in order to preserve the Commission’s flexibility to perform its authorized function: There can be little question that the broad regulatory authority conferred upon the SEC by the Maloney and Investment Company Acts enables it to monitor the activities questioned in Count I, and the history of Commission regulations suggests no laxity in the exercise of this authority. To the extent that any of appellees’ ancillary activities frustrate the SEC’s regulatory objectives it has ample authority to eliminate them. Here implied repeal of the antitrust laws is “necessary to make the [regulatory scheme] work.” Silver v. New York Stock Exchange, 373 U.S., at 357, 83 S.Ct. 1246. In generally similar situations, we have implied immunity in particular and discrete instances to assure that the federal agency entrusted with regulation in the public interest could carry out that responsibility free from the disruption of conflicting judgments that might be voiced by courts exercising jurisdiction under the antitrust laws.... In this instance, maintenance of an antitrust action for activities so directly related to the SEC’s responsibilities poses a substantial danger that appellees would be subjected to duplica-tive and inconsistent standards. This is hardly a result that Congress would have mandated. We therefore hold that with respect to the activities challenged in Count I of the complaint, the Sherman Act has been displaced by the pervasive regulatory scheme established by the Maloney and Investment Company Acts. NASD, 422 U.S. at 734-35, 95 S.Ct. 2427 (footnotes omitted) (emphasis added); see also id. at 722, 95 S.Ct. 2427 (finding “no way to reconcile the Commission’s power to authorize these restrictions with the competing mandate of the antitrust laws”). In light of the Supreme Court’s decisions in Silver, Gordon, and NASD, this Court has summarized the implied repeal doctrine as operating in “two narrowly-defined situations,” to wit, “first, when an agency, acting pursuant to a specific Congressional directive, actively regulates the particular conduct challenged, ... and second, when the regulatory scheme is so pervasive that Congress must be assumed to have forsworn the paradigm of competition.” Northeastern Telephone Co. v. AT & T, 651 F.2d 76, 82 (2d Cir.1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982); see id. at 83-84 (finding no implied repeal of the antitrust laws where the Federal Communications Act of 1934, 47 U.S.C. §§ 151-609, did not expressly authorize the Federal Communications Commission to approve protective coupler designs that unreasonably restricted competition, and application of the Sherman Act would not frustrate that agency’s ability to regulate the telecommunication industry); see also Finnegan v. Campean Corp., 915 F.2d 824, 828 (2d Cir.1990) (holding that, with respect to disclosures of price information in the context of a tender offer, the Sherman Act was impliedly repealed by the Williams Act, 15 U.S.C. §§ 78m(d)-(e) and 78n(d)-ffi). These principles have most recently been applied by this Court in Friedman v. Salomon/Smith Barney, Inc., 313 F.3d 796 (2d Cir.2002), in which we considered allegations that underwriters and brokerage firms participated in a price-fixing scheme, designed to stabilize the market price of securities sold in initial public offerings, by prohibiting the immediate resale of such securities. We noted that implied immunity exists where allowing an antitrust lawsuit to proceed would conflict with Congress’s implicit determination that the SEC should regulate the alleged anti-competitive conduct.... The source of the conflict may, but need not, involve affirmative SEC action. Conflict also can exist where the SEC has jurisdiction over the challenged activity and deliberately has chosen not to regulate it. 313 F.3d 796, 801. We reviewed the history of the regulation of price stabilization practices in both the distribution and aftermarket phases of public offerings. See id. at 801. We noted that the Exchange Act gave the SEC authority to regulate such conduct, that the SEC had repeatedly acknowledged its awareness of such conduct, and that it had exercised its regulatory authority over such conduct even though it had never elected to prohibit it, and that the Exchange Act “allows price stabilization practices that the SEC does not prohibit,” id. at 802. We concluded that, given the conflict between the statutory scheme and the antitrust laws, “implied immunity bars plaintiffs’ [antitrust] challenge to price stabilization practices in the aftermarket.” Id. To be sure, antitrust immunity is not to be presumed from the mere existence of overlapping authority; rather the analysis must focus on the “potential” for “conflicts between the antitrust laws and a[n authorized] regulatory scheme,” Strobl v. New York Mercantile Exchange, 768 F.2d 22, 27 (2d Cir.) (“Strobl”) (emphasis in original), cert. denied, 474 U.S. 1006, 106 S.Ct. 527, 88 L.Ed.2d 459 (1985). This Court and the Supreme Court have used the term “plain repugnancy” to describe the tension between statutes that justifies implied repeal. See Gordon, 422 U.S. at 682, 95 S.Ct. 2598; Strobl, 768 F.2d at 27. In Strobl, we noted that the “antitrust laws may not apply when such laws would prohibit an action that a regulatory scheme might allow,” id.; but we saw no potential for regulatory permission of the conduct at issue there, to wit, manipulation of commodity prices, because the Commodities Exchange Act itself specifically forbade price manipulation, see id. at 27-28. In the present case, we agree with the district court’s conclusion that the Exchange Act impliedly repeals § 1 of the Sherman Act with respect to the listing and trading of equity options, because the implied repeal is necessary to preserve the authority of the SEC to regulate that conduct. The history of the Commission’s extensive study and regulation of such matters is set out in Part I.A. above and in the district court’s February 14 Opinion, 2001 WL 128325, at l-. The Exchange Act itself does not prohibit agreements for exclusivity in options listing, and, as described, the Commission has taken varied positions with respect to the appropriateness of multiplicity, in part because under the Exchange Act it is concerned with more than just the protection of competition, which is “the sole aim of antitrust legislation,” Gordon, 422 U.S. at 689, 95 S.Ct. 2598. “[T]he SEC must consider, in addition, the economic health of the investors, the exchanges, and the securities industry.” Id. Thus, in evaluating the wisdom under the Exchange Act of requiring or prohibiting multiple listings, the Commission has perforce balanced the interest of promoting competition, on the one hand, against undesirable potential effects, on the other hand, such as market fragmentation, see SEC Mar. 26, 1980 Release, 1980 SEC LEXIS 1784, at , financial injury to regional exchanges, see id. at  n. 47, and “deleterious structural changes in the markets,” SEC Release No. 17577, 1981 SEC LEXIS 1976, at  (Feb. 26, 1981), in order to carry out its statutory duty to enhance “the ‘economically efficient execution of securities transactions,’ ” SEC Release No. 34-24613, 1987 SEC LEXIS 4394, at - (June 18, 1987) (quoting 15 U.S.C. § 78k-l(a)(l)(C)(i)). Although plaintiffs contend that an implied repeal is not needed to avoid conflicts here because exclusivity agreements are now prohibited by both the antitrust laws and the SEC, that contention misper-ceives the proper analytical focus. The appropriateness of an implied repeal does not turn on whether the antitrust laws conflict with the current view of the regulatory agency; rather it turns on whether the antitrust laws conflict with an overall regulatory scheme that empowers the agency to allow conduct that the antitrust laws would prohibit. Accord Friedman v. Salomon/Smith, Barney, Inc., 318 F.3d 796, 2002 WL 31844676, at . In Gordon, for example, the SEC had “requir[ed] abolition of the practice of fixed rates of commission as of May 1, 1975, and [required] the institution of full and complete competition.” Gordon, 422 U.S. at 690, 95 S.Ct. 2598. Thus, when the case reached the Supreme Court, the fixing of commission rates was prohibited by both the antitrust laws and the SEC. Yet, the Court did not suggest that an implied repeal had become inappropriate because of that convergence. Rather, noting the potential for a change in the Commission’s view, see id. at 691, 95 S.Ct. 2598, the Court stated that “permitting courts throughout the country to conduct their own antitrust proceedings would conflict with the regulatory scheme authorized by Congress,” id. at 690, 95 S.Ct. 2598 (emphasis added), and that the “[implied repeal of the antitrust laws is, in fact, necessary to” avoid “rendering] nugatory the legislative provision for regulatory agency supervision,” id. at 691, 95 S.Ct. 2598 (emphases added). Thus, the proper focus is not on the Commission’s current regulatory position but rather on the Commission’s authority to permit conduct that the antitrust laws would prohibit. See, e.g., NASD, 422 U.S. at 721-22, 95 S.Ct. 2427 (“necessarily” concluding that the challenged agreements were “immune from liability under the Sherman Act” where the Court could “see no way to reconcile” that Act with “the Commission’s power to authorize these restrictions” (emphasis added)). Plaintiffs also contend, relying on Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), that the district court was required to defer to the SEC and DOJ views, submitted to it as amici curiae, that there is no need for an implied repeal here. We disagree, Chevron dealt with the deference that is due when an agency interprets a statute that it is responsible for enforcing. See 467 U.S. at 844, 104 S.Ct. 2778 (“a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency” to which interpretive authority has been delegated). Although some deference may be accorded to an agency’s view on a matter within its particular expertise, the decision as to whether, in a given set of circumstances, one statutory scheme supersedes the other is, “in the end,” to be made by the courts. Gordon, 422 U.S. at 686, 95 S.Ct. 2598 (“[T]he determination of whether implied repeal of the antitrust laws is necessary to make the Exchange Act provisions work is a matter for the courts.”); see also Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 306-08, 93 S.Ct. 573, 34 L.Ed.2d 525 (1973). In the present case, the district court plainly took into account the proffered views of the SEC as to questions within that agency’s expertise, to wit, its authority under the Exchange Act to regulate the listing and trading of equity options and the permissibility of the challenged practices under that statute. The court was not required to accept the views expressed to it by the SEC and the DOJ that the implied repeal of the antitrust laws by the Exchange Act with respect to these practices was not needed. We also note, although it is not necessary to our decision, that, in the wake of the district court’s ruling of implied repeal, the SEC, unlike the DOJ, has not urged reversal. In sum, the SEC has ample statutory authority, which it has repeatedly exercised, to regulate the listing and trading of equity options. It has at times encouraged multiple listing and at times disapproved of that practice. The DOJ has taken the position that the challenged conduct “as alleged contravenes ... the Sherman Act.” (DOJ amicus curiae brief to the district court, dated June 1, 2000, at 12.) Although the SEC’s present stance is that agreements for exclusive listing are forbidden, the Commission has the power to alter that position if it concludes that other concerns within its domain outweigh the need to protect competition. We see no way to reconcile that SEC authority, which may be exercised to permit agreements for exclusive listing of equity options, with the antitrust laws. Accordingly, we affirm the district court’s ruling that, with respect to the challenged conduct, the Exchange Act impliedly immunizes defendants against liability under § 1 of the Sherman Act.