American Agriculture Movement, Inc. v. Board of Trade of City of Chicago

• Decision Date: 20 October 1992
• Docket Number: No. 91-2845,91-2845
• Citation: 977 F.2d 1147
• Parties: , 1992-2 Trade Cases P 70,003 AMERICAN AGRICULTURE MOVEMENT, INCORPORATED, H. Dean Adkins, Judy F. Adkins, et al., Plaintiffs-Appellants, v. The BOARD OF TRADE OF the CITY OF CHICAGO, Patrick H. Arbor, Donald G. Andrew, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1147

977 F.2d 1147

61 USLW 2284, 1992-2 Trade Cases P 70,003

AMERICAN AGRICULTURE MOVEMENT, INCORPORATED, H. Dean Adkins Judy F. Adkins, et al., Plaintiffs-Appellants, v. The BOARD OF TRADE OF the CITY OF CHICAGO, Patrick H. Arbor Donald G. Andrew, et al., Defendants-Appellees.

No. 91-2845.

United States Court of Appeals Seventh Circuit.

Argued April 2, 1992.

Decided Oct. 20, 1992.

Karen Pope Greenway (argued), Steve Alexander, Arens & Alexander, Fayetteville, Ark., Patrick F. Daly, Palos Heights, Ill., for plaintiffs-appellants.

Garrett B. Johnson (argued), Mark D. Young, Robert S. Steigerwald, Sara Rollins Slaughter, Kirkland & Ellis, Chicago, Ill., for defendant-appellee Bd. of Trade of the City of Chicago.

Garrett B. Johnson, Mark D. Young, Robert S. Steigerwald, Sara Rollins Slaughter, Kirkland and Ellis, Scott E. Early, Chicago, Ill., for defendants-appellees Patrick Arbor, Donald G. Andrew, John F. Benjamin, Gary K. Blelfeldt, David P. Brennan, John J. Brogan, Thomas R. Donovan, Lawrence C. Dorf, Burton J. Gutterman, Hal T. Hansen, Glen P. Hollander, Bruce H. Johnson, Dale E. Lorenzen, Karsten Mahlman, Silas Matthies, Sr., John W. Meriwether, Lester Mouscher, Jay C. Nolan, Thomas C. O'Halleran, Irwin N. Smith, Carl M. Zapffe, Charles P. Carey, J. Robert Collins and Philip G. Hubbard.

James T. Kelly, Pat G. Nicolette, David R. Merrill, Susan Nathan, Commodity Futures Trading Com'n, Joanne T. Medero (argued), Commodity Futures Trading Com'n, Office of the Gen. Counsel, Washington, D.C., for amicus curiae Commodity Futures Trading Com'n.

Robert B. Nicholson, Robert J. Wiggers, Dept. of Justice, Antitrust Div., Appellate Section, Washington, D.C., for amicus curiae U.S.

Before FLAUM and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

FLAUM, Circuit Judge.

The American Agriculture Movement, a national organization representing the interests of farmers, along with several of its soybean-farmer members (collectively "AAM"), brought this suit against the Chicago Board of Trade and 26 of its officers and employees (collectively "CBOT") under the Commodity Exchange Act (CEA), the Sherman Anti-trust Act and state common law. The district court granted the CBOT's motion to dismiss the CEA count on the ground that the AAM lacked statutory standing. American Agric. Movement, Inc. v. Board of Trade, 1990 WL 71025, 1990 U.S.Dist. LEXIS 4970 (N.D.Ill. April 23, 1990) [AAM I ]. The court subsequently granted the CBOT's motion for summary judgment on the remaining counts, reasoning that the CEA preempted the AAM's common law claims, and had impliedly repealed the Sherman Act under the circumstances of this case. American Agric. Movement, Inc. v. Board of Trade, 770 F.Supp. 407 (N.D.Ill.1991) [AAM II ]. The AAM appeals both decisions. We affirm as to the CEA and common law counts, but reverse the court's entry of summary judgment on the antitrust count, and remand for further proceedings.

I.

The CEA governs the trading of commodity futures contracts, and grants to the Commodity Futures Trading Commission (CFTC or Commission) the authority, in large measure, to implement the regulatory regime established therein. The Commission, pursuant to that authority, see CEA § 5, 7 U.S.C. § 7, has designated the CBOT as a "contract market" on which investors may trade various commodity futures contracts. See generally Chicago Mercantile Exch. v. SEC, 883 F.2d 537, 542-43 (7th Cir.1989) (discussing futures contract trading), cert. denied, 496 U.S. 936, 110 S.Ct. 3214, 110 L.Ed.2d 662 (1990); Leist v. Simplot, 638 F.2d 283, 286-87 (2d Cir.1980) (same), aff'd sub nom. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982); William F. Sharpe & Gordon J. Alexander, Investments, ch. 5, at 594-628 (4th ed. 1990) (same). The CBOT's status as a contract market imposes upon it a duty of self-regulation, subject to the Commission's oversight. As part of its duties, the CBOT must enact and enforce rules to ensure fair and orderly trading, including rules designed to prevent price manipulation, cornering and other market disturbances. CEA § 5(d), 7 U.S.C. § 7(d). In performing this particular self-regulatory function, the CBOT is required to monitor "market activity for indications of possible congestion or other market situations conducive to possible price distortion." 17 C.F.R. § 1.51(a)(1).

This case involves an emergency action taken by the CBOT in response to what it claims was the threat of such a distortion. In the summer of 1989, Ferruzzi Finanziaria, S.p.A., and others (Ferruzzi Group or Ferruzzi) attempted to execute a "squeeze" in the July 1989 soybean futures market. The CBOT's Business Conduct Committee (Committee), the body charged with monitoring the soybean futures markets, determined that the Ferruzzi Group held an unusually large, and dangerous, market position; it controlled nearly 60 percent of the long open interests in the futures market, as well as over 60 percent of the cash soybeans in deliverable locations. Moreover, Ferruzzi's futures position was more than four times larger than the deliverable soybean stocks available to other cash market participants. If Ferruzzi did not substantially liquidate its position prior to the delivery date of the July 1989 contracts, the stability of the soybean futures and cash markets could have been seriously compromised.

In late June and early July, the Committee repeatedly urged the Ferruzzi Group to reduce in an orderly manner its outstanding open futures position. Ferruzzi stonewalled and declared that it would maintain its position, and in response the Committee, on July 10, recommended that the CBOT's governing board (Board) take emergency action. The following day, the Board, by a 16 to 1 vote, issued an "Emergency Resolution" (Resolution) pursuant to its self-regulatory powers. See CEA § 5a(12), 7 U.S.C. § 7a(12). The Resolution declared a market emergency, and ordered any person or group controlling gross long or short positions in excess of three million bushels to liquidate their positions by at least 20 percent daily. In addition, it ordered that no person or group could own contracts in excess of three million bushels on July 18, or in excess of one million bushels on July 20, the last trading day for July 1989 contracts. The Board, pursuant to CBOT Rule 180.00, immediately made the Resolution public, and, pursuant to CEA § 5a(12), informed the Commission of its action.

Not surprisingly, publication of the Resolution led to a price decline in the July 1989 futures market, a decline that worked to the benefit of open shorts and the detriment of open longs. The AAM alleges that the Resolution also caused a proportionate decline in the cash market--an allegation over which there is some dispute, see Letter from Wendy L. Gramm [CFTC Chairperson] to Senator Patrick Leahy, at 28-30 (Aug. 25, 1989) (hereinafter "Gramm Letter"), but which we must accept at this juncture as true--to the detriment of farmers, who sell soybeans in that market. The AAM further alleges that the CBOT was motivated by something other than a desire to prevent distortions in the soybean futures market; it accuses the Committee and the Board of bad faith in recommending and adopting the Resolution. Although no member of either body held individual short positions in the futures market, two participating Committee members, and several Board members who voted in favor of the Resolution, were affiliated with firms that did. Moreover, according to the AAM, some of those firms needed, or had clients that needed, cash soybeans, and hence benefitted from a reduction in price in the cash market. The Resolution, the allegations continue, was the product of a conspiracy among the individual defendants, the firms with which some of the defendants were affiliated, and those firms' clients, to depress prices in both the cash and futures markets.

After receiving notice of the CBOT's adoption of the Resolution, the Commission took no formal action; it neither overturned nor approved the Resolution. Commission staff members did, however, conduct an informal investigation, and concluded that the Board acted reasonably and in good faith. Shortly thereafter, the AAM filed suit against the CBOT, five Committee members, and twenty-one Board members for recommending, adopting and publishing the Resolution, seeking redress under § 5 of the CEA, the Sherman Act, and state common law.

II.

Section 5 of the CEA, 7 U.S.C. § 7, authorizes the Commission to designate as a "contract market" any futures exchange that satisfies several enumerated conditions. The condition most relevant here requires a market's governing board to provide for "the prevention of manipulation of prices and the cornering of any commodity by the dealers or operators upon such boards." Id. § 7(d). The AAM contends that the CBOT, in adopting and publishing the Resolution, violated its duty to prevent price manipulation in the July 1989 soybean futures market, and further that § 5 grants it an implied private right of action to remedy the harm it suffered as a result of that violation. On the CBOT's motion to dismiss, the district court ruled that the AAM was foreclosed from seeking a private remedy under the CEA because it had not engaged in futures transactions on the CBOT. AAM I, slip op. at 8-9. The Commission, as amicus, urges us to affirm.

We accept for the sake of argument AAM's allegation that the CBOT violated its duty (if indeed one exists) under CEA § 5(d), and consider only the district court's ruling on the implied remedy issue. To support its position, the AAM relies upon Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982), which held that the CEA granted futures investors an implied private right of action against futures exchanges that fail, in violation of CEA § 5a(8), 7 U.S.C. § 7a(8), to enforce...