Deaktor v. LD Schreiber & Co.
Decision Date | 21 May 1973 |
Docket Number | 71-1893.,No. 71-1890,71-1892,71-1890 |
Citation | 479 F.2d 529 |
Parties | Darryl B. DEAKTOR, Plaintiff-Appellee, v. L. D. SCHREIBER & CO. et al., Defendants-Appellants. Al PHILLIPS, Jr., et al., Plaintiffs-Appellees, v. The CHICAGO MERCANTILE EXCHANGE et al., Defendants-Appellants. |
Court | U.S. Court of Appeals — Seventh Circuit |
Thomas R. Mulroy, John L. Conlon, Lee A. Freeman, Jerrold E. Salzman, Chicago, Ill., for defendants-appellants.
Aaron M. Fine, Philadelphia, Pa., Jack Joseph, Bruce P. Bickner, Chicago, Ill., for plaintiffs-appellees.
Before CASTLE, Senior Circuit Judge, and PELL and SPRECHER, Circuit Judges.
Rehearing and Rehearing En Banc Denied June 29, 1973.
These interlocutory appeals are from orders of the district court denying motions by defendant Chicago Mercantile Exchange and various other defendants to stay action in the district court pending the exercise of primary jurisdiction by the Commodity Exchange Commission.
Darryl B. Deaktor, plaintiff in Nos. 71-1890 and 71-1893, brought a class action against the Chicago Mercantile Exchange and various members of the Exchange alleging that the defendant members manipulated and cornered the July, 1970 frozen pork bellies futures contracts market, forcing up the price of those contracts and injuring traders, such as the plaintiff, who sold short and had not liquidated their positions prior to the defendants' manipulation and thus were required to cover their positions by the purchase of contracts at inflated prices. This conduct was alleged to be in violation of 7 U.S.C. § 1 et seq. of the Commodity Exchange Act. The Exchange was sued on the ground of failing to exercise reasonable care in compliance with 7 U.S.C. § 7a(8), and thus failing to be aware of and to promptly halt the unlawful activities of the defendants. Various member defendants and the Chicago Mercantile Exchange moved for a stay of proceedings on the ground that plaintiff should first be required to seek relief from the Commodity Exchange Commission. The district judge denied these motions on August 23, 1971. On October 14, 1971, he certified this order for interlocutory appeal under 28 U.S.C. § 1292(b).
The plaintiffs in No. 71-1892, Al Phillips, Jr., et al., are twenty-four traders who sued the Chicago Mercantile Exchange, certain of its officers and members of its Business Conduct Committee, charging the defendants with monopolizing trading in March, 1970 fresh eggs, causing the price to fall and forcing sales at artificially depressed market prices. This conduct was alleged to violate the notice and hearing provisions in Rule 217(D) of the Rules of the Chicago Mercantile Exchange, 7 U.S.C. §§ 7a(8) and 13(b) of the Commodity Exchange Act, and sections 1 and 2 of the Sherman Act. Defendants' motion for a stay in proceedings was denied by the district court on September 17, 1971. This Court accepted interlocutory appeals in these cases and consolidated them.
The sole issue in these appeals is whether the district court could take jurisdiction of these actions or whether the Commodity Exchange Commission properly has primary jurisdiction over these proceedings. The defendants-appellants contend that the issue is decided, in their favor, by Ricci v. Chicago mercantile Exchange, 409 U.S. 289, 93 S.Ct. 573, 34 L.Ed.2d 525 (1973). We have concluded that Ricci does not control these cases and that the district court was correct in refusing to stay proceedings to allow the exercise of primary jurisdiction by the Commodity Exchange Commission.
Pursuant to this requirement, the Chicago Mercantile Exchange Rule 217(C) provided that the Business Conduct Committee be charged with the duty and authority to prevent manipulation of prices and the cornering of any commodity. Rule 217(D) gives the Business Conduct Committee authority to investigate the transactions and financial condition of members, to examine their books, to prescribe capital requirements, and to issue cease and desist orders, after notice and hearing, to members found to be engaging in conduct which is "unfair or unjust."
Provision is also made for the Commission to enter cease and desist orders against any contract market, director, officer, agent or employee who violates any provision of the Act or rules thereunder. Failure to obey the order is declared to be a misdemeanor. 7 U.S.C. § 13a. The Secretary of Agriculture is authorized to disapprove any bylaw, rule, regulation or resolution issued or proposed by a contract market which relates to terms and conditions in contracts of sale if he finds that it will violate any of the provisions of the Act or rules thereunder. 7 U.S.C. § 12a(7).
The Supreme Court considered this statutory scheme in the context of an antitrust suit alleging a conspiracy to restrain trade in the transfer of an Exchange membership in Ricci v. Chicago Mercantile Exchange, supra. The Court decided that in the circumstances there presented, the Commodity Exchange Commission should be given an opportunity to exercise jurisdiction prior to continuing the proceeding in the antitrust court. Although recognizing that the Commission could decide to refuse jurisdiction,1 the majority of the Ricci Court felt that the combination of three factors present in that case outweighed this uncertainty. Those factors were (1) that it would be "essential for the Antitrust Court to determine whether the Commodity Exchange Act or any of its provisions are `incompatible with the maintenance of an antitrust action,' . . . ; (2) that some facets of the dispute between Ricci and the Exchange were within the statutory jurisdiction of the Commodity Exchange Commission; and (3) that adjudication of that dispute by the Commission promised to be of material aid in resolving the immunity question." 409 U.S. at 301, 93 S.Ct. at 580.
Regarding the first factor, the Court noted that although repeal of the antitrust laws was not to be lightly assumed the Commodity Exchange Act clearly contemplated a membership organization and standards for the acquisition, retention and loss of membership. The Court reasoned that if the petitioner had lost his membership pursuant to a valid rule, the first question which the antitrust court would have to decide was whether the rule itself was immune from antitrust attack. But, the Court continued, if petitioner Ricci lost his membership in contravention of Exchange rules, "the antitrust action should very likely take its normal course, absent more compelling indications of congressional intent than are present here that the jurisdictional and remedial powers of the Commodity Exchange Commission are exclusive." Id. at 303, 93 S.Ct. at 581.
Looking at the second factor underlying its decision, the Court, while expressly declining finally to decide the jurisdictional question, noted that the Court of Appeals had found that the membership rules of the Exchange were related to "trading requirements" and "were thus among those rules which the Exchange could not ignore without violating the Act and bringing itself within the jurisdiction of the Commission" to remedy any violation of the statute and underlying rules. Id.
The Court also decided that a prior determination by the Commodity Exchange Commission would be of material aid in resolving the immunity question because the issue turned in the first instance on whether the loss of Ricci's membership violated the Exchange rules, which in turn involved issues of fact and questions concerning the scope and significance of the rules. These were matters which the Court thought could best be dealt with by those especially familiar with the customs and practices of the industry. The Court concluded that with the aid of...
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