Commodity Futures Trading Commission v. Board of Trade of City of Chicago

• Decision Date: 17 August 1981
• Docket Number: No. 80-2431,80-2439,80-2431
• Citation: 657 F.2d 124
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. BOARD OF TRADE OF the CITY OF CHICAGO, Defendant-Appellee. COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. CHICAGO MERCANTILE EXCHANGE, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 124

657 F.2d 124

COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. BOARD OF TRADE OF the CITY OF CHICAGO, Defendant-Appellee.

COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. CHICAGO MERCANTILE EXCHANGE, INC., Defendant-Appellee.

No. 80-2431, 80-2439.

United States Court of Appeals Seventh Circuit.

Argued Feb. 23, 1981.

Decided Aug. 17, 1981.

Gregory C. Glynn, Assoc. Gen. Counsel, Commodity Futures Trading Commission, Washington, D. C., for plaintiff-appellant.

Donald J. Duffy, Jerrold E. Salzman, Chicago, Ill., for defendant-appellee.

Before FAIRCHILD and PELL, Circuit Judges, and CRABB, Chief District Judge. ^*

PELL, Circuit Judge.

The Commodity Futures Trading Commission (CFTC or Commission), sought preliminary injunctive relief against the Board of Trade of the City of Chicago (CBOT), appellee in No. 80-2431, and the Chicago Mercantile Exchange (CME), appellee in No. 80-2439, for allegedly violating section 5a(12) of the Commodity Exchange Act, 7 U.S.C. § 7a(12), and Commission Rule 1.41, 17 C.F.R. § 1.41 (1980). An emergency judge granted the Commission's motions for temporary restraining orders effective July 15, 1980, but these were vacated two days later by Judge Perry. After accelerated discovery, Judge Perry heard the cases simultaneously to consider the plaintiff's request for preliminary injunctive relief. The court denied the Commission's request for preliminary injunctions and granted judgment on the merits in favor of each defendant.

Because a review of all the contentions raised and evidence adduced below is unnecessary at this juncture, we present only an abbreviated summation of the controversy. On August 2, 1977, the CFTC approved CBOT's application for designation as a contract market in long term Treasury bond futures. CBOT commenced trading contracts with delivery months of September, December, March and June (the September cycle), and subsequently listed new months in the September cycle as the existing ones expired. ¹ On July 2, 1980, however, CBOT expanded its contract delivery months to include August, November, February, and May (the August cycle) without first seeking Commission approval.

The Commission designated the International Monetary Market, predecessor to CME, as a contract market in 13-week Treasury bills on November 26, 1975. Until July 2, 1980, CME traded Treasury bill contracts for delivery in December, March, June and September (the December cycle). CME began trading a January cycle (January, April, July and October), however, on July 2, 1980, without prior CFTC approval.

The Commission alleges that both exchanges violated 7 U.S.C. § 7a(12) which, in relevant part, requires contract markets to submit to the Commission for its approval all bylaws, rules, regulations, and resolutions made or issued by such contract market, or by the governing board thereof or any committee thereof which relate to terms and conditions in contracts of sale to be executed on or subject to the rules of such contract market or relate to other trading requirements except those relating to the setting of levels of margin. ²

The appellees contend that provisions in their original applications for designation as contract markets allowed the addition of new contract months without prior Commission approval. CBOT Regulation 1805.01 provided that "(t) rading in long term U.S. Treasury bonds may be conducted in the current month and any subsequent months as determined by the Financial Instruments Committee or the Board (of the CBOT)." Similarly, CME Rule 3202A stipulated that "(f) utures contracts shall be scheduled for trading during such hours and delivery in such months as may be determined by the Board of Governors (of the CME)." Although the Commission has since effected amendments to both exchange rules to require prior submission of additional contract month listings to the CFTC, those amendments are prospective only and limited to trading in the respective contract markets for Treasury bonds and bills. Rules 7.100, 7.200, 45 Fed.Reg. 51520, 51527 (August 1, 1980).

The appellees presented evidence tending to show that the purpose of the amendments may well have been to eliminate existing discretion of the exchanges to add delivery months without prior Commission approval. Although CBOT asserted that the Commission had never previously required it to submit additional listings, CME apparently had submitted additional listings to the Commission on a few occasions. The CFTC essentially argued that while it may not have demanded submission for the routine addition of months within existing cycles, the expansion of months into different new cycles did require prior Commission approval. The exchanges countered by citing some examples of other commodities in which the addition of months in new delivery cycles was apparently accomplished without prior Commission approval.

The district court commenced a hearing "on the motion(s) for a preliminary injunction." No suggestion of consolidation occurred until after all parties had rested their cases when CME asked the court to consider consolidation. The following day, the court accordingly rendered a final judgment on the merits.

Although Fed.R.Civ.P. 65(a)(2) does permit a court to order consolidation of trial on the merits with a preliminary injunction hearing, consolidation should not deprive the parties of a full opportunity to discover and present all of their evidence. Consequently,

the parties should normally receive clear and unambiguous notice ... either before the hearing commences or at a time which will still afford the parties a full opportunity to present their respective cases. A litigant applying for a preliminary injunction should seldom be required either to forego discovery in order to seek emergency relief, or to forego a prompt application for an injunction in order to prepare adequately for trial. Different standards of proof and of preparation may apply to the emergency hearing as opposed to the full trial.

Pughsley v. 3750 Lake Shore Drive Cooperative Building, 463 F.2d 1055, 1057 (7th Cir. 1972). In Pughsley, after a two-day preliminary injunction hearing, and only eleven days after the complaint was filed, the district court dismissed the case. Consolidation was never explicitly ordered. ³ On appeal this court reversed and remanded the district court's decision granting judgment on the merits. Because the plaintiff's claim was not frivolous and sufficient notice of consolidation was not afforded, the court determined that the plaintiff should be given an opportunity to present whatever additional evidence discovery might uncover. Id. at 1056.

In the case at bar, the final decision was rendered approximately three weeks after the complaints were filed. Discovery lasted only one week and was explicitly limited by the court to those witnesses and issues relevant to the preliminary injunction hearing. No notice of consolidation was afforded until after all parties had rested their cases when CME requested consolidation. Although the Commission protested ⁴ that (1) the limited discovery was insufficient to allow presentation of the case on the merits, and (2) it had been unaware that consolidation was contemplated, the court granted final judgment the following day.

Notice of consolidation is particularly important where, as the plaintiff here alleges, the case may not be fully developed by the time of the preliminary hearing. Pughsley v. 3750 Lake Shore Drive Cooperative Building, 463 F.2d 1055, 1056 (7th Cir. 1972); Gellman v. Maryland, 538 F.2d 603, 605 (4th Cir. 1976). Evidence adduced at the preliminary injunction hearing may be incomplete because "(a) plaintiff putting on his case for temporary relief may hold back evidence, or, indeed, his case may not be fully developed. Thus it is important for him to know that when he puts on his evidence he is having his final 'day in court.' " 7 Moore's Federal Practice P 65.04(4...