Frey v. Commodity Exchange Authority, 74-1775

• Decision Date: 14 December 1976
• Docket Number: No. 74-1775,74-1775
• Citation: 547 F.2d 46
• Parties: George F. FREY, Jr., Plaintiff-Appellee, and Edward A. Cox, Jr., Intervenor-Plaintiff-Appellee, v. The COMMODITY EXCHANGE AUTHORITY et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 46

547 F.2d 46

George F. FREY, Jr., Plaintiff-Appellee and Edward A. Cox, Jr., Intervenor-Plaintiff-Appellee, v. The COMMODITY EXCHANGE AUTHORITY et al., Defendants-Appellants.

No. 74-1775.

United States Court of Appeals Seventh Circuit.

Argued April 1, 1975.

Decided Dec. 14, 1976. ^*

Rehearing and Rehearing En Banc Denied Jan. 11, 1977.

Carla A. Hills, Asst. Atty. Gen., New York City, Ronald R. Glancz, Atty., Dept. of Justice, Civ. Div., Appellate Section, Washington, D.C., Samuel K. Skinner, U.S. Atty., Chicago, Ill., for defendants-appellants.

Lee A. Freeman, Jr., Robert P. Howington, Jr., Chicago, Ill., for plaintiff-appellee.

Before FAIRCHILD, Chief Judge, McALLISTER, Senior Circuit Judge, ^** and SWYGERT, Circuit Judge.

FAIRCHILD, Chief Judge.

We are asked in this appeal to decide whether a respondent, charged in an administrative proceeding with "manipulating the price of a commodity for future delivery" in violation of the Commodity Exchange Act, 7 U.S.C. §§ 9, 13, and 13(b), is entitled as a matter of right to pre-hearing discovery. The district court has held that the Commodity Exchange Act, 7 U.S.C. § 15, grants the plaintiffs-appellees in this case the right to pre-hearing discovery by means of subpoenas duces tecum and depositions. The judge enjoined the disciplinary proceedings which were being held before the Administrative Law Judge "until plaintiffs have the opportunity to pursue and complete pre-hearing discovery with respect to all facts which are relevant and material to the issues raised by the complaint . . .." We conclude, however, that this decision prematurely interrupts the administrative process.

I

Appellees, George F. Frey, Jr. and Edward A. Cox, Jr., ¹ are registered floor brokers and members of the Chicago Board of Trade. A complaint was filed before the Secretary of Agriculture on July 6, 1972 by the Commodity Exchange Authority (CEA), charging the appellees with manipulating or attempting to manipulate the price of May 1971 wheat futures contracts on the Chicago Board of Trade. Following a pre-hearing conference on April 25, 1973, the CEA supplied the appellees with copies of exhibits which it intended to introduce and a list of witnesses which it intended to call at the hearing. Appellees subsequently filed statements of discovery requirements and applications for subpoenas duces tecum and depositions. They argued that, in order to prepare an adequate defense, they would need to determine how much wheat had been available for delivery in May 1971, who controlled the wheat available for delivery, and the location of this wheat. Therefore, they requested the issuance of subpoenas to secure the records and testimony of certain traders. The CEA opposed the discovery applications on the grounds that the Commodity Exchange Act did not provide for pre-hearing discovery. The Administrative Law Judge denied the applications, concluding that the Commodity Exchange Act, the applicable Rules of Practice, and the Administrative Procedure Act do not provide for discovery as a matter of right, and that parties to quasi-judicial proceedings are not entitled to discovery as a matter of constitutional right.

There were further conferences and applications for the purpose of pre-hearing discovery. CEA took the further position that reports of traders, sought to be discovered were confidential.

On April 25, 1974, the Administrative Law Judge set the matter for hearing in June, and again denied pre-hearing discovery. In his ruling, he specified that:

. . . (I)f the evidence presented by Complainant at the hearing discloses the relevancy and materiality of the requested documents and reports they may be produced at hearing in response to subpoenas duces tecum in accordance with Section 0.13(b) of the Rules of Practice. In the event of a dispute concerning the relevancy or materiality of any specific document or report, considered to be confidential by the CEA or the Chicago Board of Trade, such document or report will be received by the Administrative Law Judge in camera for his determination and disposition. Where required, the Administrative Law Judge will issue a protective order to insure the continued confidential treatment of any such document or report.

The Administrative Law Judge has advised the parties that he believes that most of the information in the documents and reports requested by Respondents can be summarized and is susceptible of stipulation by the parties in a form which will preserve the confidentiality of the information contained in them.

Thereafter, and before the date set for hearing, plaintiff Frey filed his complaint in the district court seeking declaratory and injunctive relief. He averred that reports in the possession of CEA and others would refute CEA's claim of a short supply of deliverable wheat; that the refusal of appellants to produce the information prior to hearing violates due process of law; that Frey would be irreparably harmed if forced to defend himself without being given access to the information; and that he has a clear right to pre-hearing discovery under the Commodity Exchange Act, and applicable rules.

The district court concluded, in part:

2. That the relevant provisions of the Commodity Exchange Act, 7 U.S.C. § 15, and the administrative regulations promulgated thereunder, 17 C.F.R. §§ 0.7, 0.12 and 0.13, confer upon plaintiffs the right to prehearing discovery by subpoenas duces tecum and depositions of witnesses.

4. That the Administrative Law Judge erred in his decision that statutory law makes no provision for discovery in disciplinary proceedings brought by the Department of Agriculture.

5. That the arbitrary denial of prehearing discovery in CEA Docket No. 192 deprives plaintiffs of due process of law and prevents plaintiffs from securing information that is essential to the preparation of a defense.

6. That the trading reports filed pursuant to Section 18.00 of the Regulations under the Commodity Exchange Act with respect to the May 1971 wheat futures contract must be produced in CEA Docket No. 192 and may not be withheld as private or confidential.

Accordingly, the district court enjoined the administrative proceedings until appellees have the opportunity to complete pre-hearing discovery with respect to all relevant facts.

Plaintiffs had predicated jurisdiction upon 5 U.S.C. §§ 702, 706 and 28 U.S.C. §§ 1331, 1337, and 1361. The district court concluded it had jurisdiction under 28 U.S.C. § 1361, and "general equity jurisdiction to enjoin administrative proceedings that violate due process of law."

II

The appellants argue that the district court's order was premature because of the "long settled rule of judicial administration that no one is entitled to judicial relief, for a supposed or threatened injury, until the prescribed administrative remedy has been exhausted." Myers v. Bethlehem Corp., 303 U.S. 41, 51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938). This doctrine has retained its vitality, and apart from narrow exceptions, Leedom v. Kyne, 358 U.S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958) and McKart v. U. S., 395 U.S. 185, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969), the federal courts continue to apply it in order to avoid the untimely interruption of the administrative process. Borden, Inc. v. F.T.C., 495 F.2d 785, 787 (7th Cir. 1974). Nor-Am Agricultural Products, Inc. v. Hardin, 435 F.2d 1151, 1160 (7th Cir. 1970), cert. dismissed, 402 U.S. 935, 91 S.Ct. 1399, 28 L.Ed.2d 870 (1971).

The premature nature of the district court action is evident in the perspective of the provisions of the Commodity Exchange Act, 7 U.S.C. § 1 et seq. The Secretary of Agriculture is authorized under the Act, 7 U.S.C. § 9, to serve a complaint upon any person who he has reason to believe has ". . . manipulated or is attempting to manipulate the market price of any commodity, in interstate commerce . . .." After a hearing, the referee must submit his findings to the Secretary, who may then issue an order prohibiting the party from trading on any contract market, and if the party is registered as futures commission merchant or as a floor broker, the Secretary may suspend or revoke the registration for "a period not to exceed six months." Following the issuance of such an order, the party may obtain review of the Secretary's action by filing in the United States Court of Appeals in the circuit in which he is doing business. The court has the jurisdiction "to affirm, to set aside, or modify the order of the Secretary," except that the findings of fact made by the Secretary are conclusive, if supported by the weight of evidence. 7 U.S.C. § 9.

Obviously the administrative proceeding here had not progressed to a hearing. Who knows whether the Administrative Law Judge will find the evidence sufficient to sustain the charges, or whether the Secretary will agree with him if he does? If the final order were favorable to appellees, the present contentions...