GH Miller & Company v. United States

• Decision Date: 23 September 1958
• Docket Number: No. 11959.,11959.
• Citation: 260 F.2d 286
• Parties: G. H. MILLER & COMPANY et al., Petitioners, v. UNITED STATES of America and Ezra Taft Benson, Secretary of Agriculture of the United States, Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

260 F.2d 286 (1958)

G. H. MILLER & COMPANY et al., Petitioners, v. UNITED STATES of America and Ezra Taft Benson, Secretary of Agriculture of the United States, Respondents.

No. 11959.

United States Court of Appeals Seventh Circuit.

January 7, 1958.

On Rehearing February 26, 1958.

Rehearing Granted May 16, 1958.

On Rehearing September 23, 1958.

Lee A. Freeman, Chicago, Ill., Hobart Newton, Stuart, Iowa, Joe B. Tye, Marshalltown, Iowa, K. K. Smith, Jr., Fort Worth, Tex., for petitioners.

Neil Brooks, Asst. General Counsel, Donald A. Campbell, Benjamin M. Holstein, Attorneys, U. S. Department of Agriculture, Office of General Counsel, Washington, D. C., J. Stephen Doyle, Jr., U. S. Department of Justice, Washington, D. C., for respondent.

Before MAJOR, SCHNACKENBERG and PARKINSON, Circuit Judges.

Rehearing En Banc Granted May 16, 1958.

On Rehearing En Banc September 23, 1958.

PARKINSON, Circuit Judge.

The petitioners have filed a petition in this court to review and set aside an order of the Secretary of Agriculture entered by the Judicial Officer acting pursuant to the authority delegated thereby in a disciplinary proceeding under section 6(b) of the Commodity Exchange Act, 7 U.S.C.A. § 9, revoking the registration of the petitioner G. H. Miller and Company as a futures commission merchant and the registration of the petitioner Gilbert H. Miller as a floor broker, and denying all trading privileges of the other petitioners for periods ranging from sixty days to one year.

The cause involves egg transactions on the Chicago Mercantile Exchange during the month of December 1952. To those familiar with the operation of the Exchange eggs are referred to as cash eggs which are either fresh eggs, if they have not been in cold storage or if placed in cold storage have not been there for more than 29 days, or refrigerators, if they have been in cold storage for more than 29 days. A carlot consists of 480 cases with 30 dozen eggs in each case.

Deliverable eggs are cash eggs that may be delivered in satisfaction of futures contracts. Futures contracts or futures are contracts under which the seller agrees to sell and deliver cash eggs in a specified month and the buyer agrees to accept and pay for the eggs when delivered at the contract price. The buyer is a long and the seller is a short and the month designated for delivery is the delivery month or contract month.

The complaint charged in substance that the ten petitioners acted collectively and in a uniform manner pursuant to an understanding or agreement to corner and manipulate the egg market. It specifically charged purchases of December 1952 egg futures on December 17, 18 and 19; withholding such futures from sale during those three days; selling futures during December 22 and 23, the last two days of trading, at maximum prices; requiring and receiving delivery of December futures with knowledge by petitioners of an insufficient supply of deliverable eggs and the further knowledge that the major portion of such deliverable eggs were in their possession; withholding cash eggs from sale during the period of trading in December futures, and refusing to sell such eggs after the close of December futures trading except at a premium over prevailing prices for cash refrigerator eggs and thereby attempted to corner and did in fact corner and attempted to and did in fact manipulate the price of a commodity in interstate commerce and for future delivery on or subject to the rules of the Board of Trade in violation of the Commodity Exchange Act.

Hearings were held before a referee. Evidence was presented by the government but none was offered by the petitioners. The Referee issued his report which contained recommended findings and conclusions to which the petitioners filed exceptions.

Arguments were then presented to the Judicial Officer. He made findings of fact and stated conclusions of law thereon and entered the decision and order herein sought to be set aside by the petitioners.

Section 6(b) of the Commodity Exchange Act, Title 7 U.S.C.A. § 9, provides that "the findings of the Secretary of Agriculture as to the facts, if supported by the weight of evidence, shall * * * be conclusive." This court has heretofore held that to mean the preponderance or greater weight of the evidence. General Foods Corporation v. Brannan, 7 Cir., 1948, 170 F.2d 220. However, in this case the petitioners offered no evidence and if a plaintiff establishes a prima facie case and the defendant offers no evidence in defense the plaintiff has discharged the burden of proof by a preponderance or greater weight of the evidence. Lilienthal's Tobacco v. U. S., 1878, 97 U.S. 237, 267, 24 L.Ed. 901. Accordingly if the evidence in the record now before us established a prima facie case on behalf of the government the findings are supported by the weight of the evidence and are conclusive.

The petitioners concede that the "findings of actual facts consisting largely of market and trading statistics are not disputed". The evidence is that on December 16, 1952 the petitioners held 46 long December egg futures contracts, or 13.98% of the total, increasing their position to 216 long December futures on December 19, or 77.98% of the total, and at the close of trading on December 22 the petitioners held 200 long futures which was 100% of the total and on December 23 they held 66 long futures which was also 100% of the total on that date. The petitioners also owned 19.5% of the deliverable refrigerator eggs in Chicago on December 16 and their holdings were increased to 72.1% on December 23 and to 98.7% on December 31. On December 17 the holders of 19 short futures could not liquidate their contracts without resorting to the petitioners, to fresh eggs or to out-of-town storage eggs, and at the close of trading on the three days prior to the last day of trading, December 18, 19 and 22, (the 20th and 21st fell on Saturday and Sunday) the number of short futures which could not be otherwise liquidated was 98, 134 and 128, respectively. On the last day of trading, December 23, the holders of 106 short futures liquidated their positions by purchasing futures contracts from the petitioners and at the close of trading 66 December contracts were open on the Exchange and 33 thereof could not be liquidated without resorting to petitioners, to fresh eggs or to out-of-town storage eggs. An almost prohibitive time element was here involved in acquiring fresh eggs and, even if procurable, the price thereof would have been no less than a short would have to pay in resorting to petitioners; that refrigerator eggs stored in out-of-town warehouses had to be tendered prior to 7 A.M. on December 24 and even if available were so negligible that the petitioners still had control over the cash egg supply.

There was also evidence that the maximum rise in futures price permitted by the Exchange was two cents per day and on December 18, 19 and 22 the futures price rose to the maximum allowable amount each day, and as the result of the manipulation of the petitioners an artificially high price was created producing a profit to the petitioners in the sum of $162,695.15; that the petitioners cornered the December 1952 egg futures market on the Chicago Mercantile Exchange and manipulated the prices of December 1952 egg futures contracts and refrigerator eggs in Chicago.

There was also positive testimony that the shorts were "squeezed" by the petitioners and we believe the following conversation in evidence between one of the shorts and the petitioner Gilbert H. Miller is most significant:

"Q. Tell us about your negotiations with Mr. Miller, concerning that purchase on the 30th. A. Well, I called Gil, and I said, `Gil, you know I am short two cars of eggs, and I understand you are the only one who has the eggs for delivery. I would like to purchase.\' So, he says, `Are you in this deal?\' He said, `Gee, I\'m sorry you happen to be in it.\' So we started to talk. I said, `Well, you want to sell me two cars of eggs?\' `Yes, I will sell you two cars of eggs.\' I said, `What do you want for them?\' He said, `I want a cent over the closing option.\'

"Q. What was that? A. 48 and a half cents.

"Q. The closing option was 47 and a half? A. Yes, I said, `48 and a half cents for storage eggs?\' I said, `That is ridiculous.\' He said, `How much do you think these eggs are worth?\' I said, `They are worth about 35, 36 cents, at the most 38 cents.\' But inasmuch as I did not want to default, I bought two cars of eggs, which I feel I overpaid at least 12 cents a dozen for delivery on the Exchange."

To us this is indicative of the fact that the petitioners had a corner; that they knew it and had the shorts on their knees and at their mercy.

The Judicial Officer found that the concentrated long position of the petitioners constituted a large, dominant and controlling interest which was the result of concerted action by the petitioners and that the petitioners manipulated prices of both December 1952 egg futures on the Chicago Mercantile Exchange and deliverable cash refrigerator eggs in Chicago and cornered the market in violation of the Commodity Exchange Act.

We believe that our decision in Great Western Food Distributors v. Brannan, 7 Cir., 1953, 201 F.2d 476 is determinative of this case. Basically the facts are quite similar, moreover, in Great Western the petitioners testified in their own defense and offered evidence to controvert that introduced by the government while here the petitioners sat silently by and offered no evidence on their behalf whatsoever.

The petitioners contend that they did not need to because the government failed to sustain the burden of proof by a preponderance of the evidence. However, a careful reading of this record will disclose that the findings of the Judicial Officer and his conclusions that the petitioners cornered the egg market on the Chicago Mercantile Exchange in December 1952 and...