General Foods Corporation v. Brannan

• Decision Date: 19 October 1948
• Docket Number: No. 9367,9428,9441.,9368,9367
• Citation: 170 F.2d 220
• Parties: GENERAL FOODS CORPORATION v. BRANNAN, Secretary of Agriculture, and three other cases.
• Court: U.S. Court of Appeals — Seventh Circuit

170 F.2d 220 (1948)

GENERAL FOODS CORPORATION v. BRANNAN, Secretary of Agriculture, and three other cases.

Nos. 9367, 9368, 9428, 9441.

United States Court of Appeals Seventh Circuit.

October 19, 1948.

Edward R. Adams, Sidney S. Gorham, Jr., William Simon and Robert W. Wales, all of Chicago, Ill., for General Foods Corporation.

Albert E. Jenner, Jr., and Edward H. Hatton, both of Chicago, Ill., for Charles W. Metcalf.

Edwin L. Weisl, of New York City, Irvin Rooks, Lee A. Freeman and J. Gordon Henry, all of Chicago, Ill. (Rooks and Freeman, of Chicago, Ill., and Simpson, Thacher & Bartlett, of New York City, of counsel), for Daniel F. Rice & Co., a partnership and Daniel F. Rice, individually, joint and several petitioners.

Howard W. Vesey, Wm. A. Clineburg and Vesey, Prince & Clineburg, all of Washington, D. C., for petitioner, Philip R. O'Brien.

James A. Doyle, Associate Sol., U. S. Dept. of Agriculture, Office of the Sol., of Washington, D. C., J. Stephen Doyle, Jr., Sp. Asst. to the Atty. Gen., U. S. Dept. of Justice, Lewis A. Sigler, of Office of the Sol., U. S. Dept. of Agriculture, of Washington, D. C., and Otto Kerner, Jr., U. S. Atty., of Chicago, Ill., for respondents.

Before MAJOR and MINTON, Circuit Judges, and BRIGGLE, District Judge.

MAJOR, Circuit Judge.

These petitions are to review a final order, findings of fact and conclusions entered by Thomas J. Flavin, Judicial Officer, for and on behalf of the Secretary of Agriculture, dated April 28, 1947,¹ under Sec. 6b, of the Commodity Exchange Act, 7 U.S. C.A. § 9. The order imposes certain sanctions as authorized by this section, which we think need not be described for the reason that the nature of the sanctions is not involved. The issues raised here are predicated upon the contention that the activities and conduct of the petitioners were not proscribed by the Act — in other words, that the decision and order of the Judicial Officer was not authorized by the facts and law of the case.

General Foods in No. 9367 and Metcalf in No. 9368 have filed separate petitions for review, which were consolidated for hearing here, and a single brief has been filed in their behalf. Daniel F. Rice & Company and Daniel F. Rice individually have joined in a petition for review in No. 9428 and a single brief has been filed in their behalf. Philip R. O'Brien has petitioned for review in No. 9441, and a brief has been filed on his behalf. In view of the conclusions of the Judicial Officer, as subsequently disclosed, the petition of General Foods and Metcalf is, in fact must be, treated differently form that of the other petitioners and could well form the basis for a separate opinion. However, all the parties before us were joined in one proceeding and the issues determined in a single hearing. Furthermore, so many of the facts and issues presented are common to all petitioners that we have concluded that all of the petitions may appropriately be disposed of in a single opinion.

The complaint, issued May 26, 1945, charged that petitioners (below designated as respondents and sometimes here referred to as such)² "individually and collectively with each other and others" did attempt to and did corner actual rye and rye futures in Chicago, and did attempt to and did manipulate prices of such actual rye and rye futures from December, 1942, through May, 1944. Acts and conduct of the petitioners were alleged as follows: that commencing in December, 1942, General Foods purchased Chicago rye futures and took delivery of actual rye in satisfaction of such future contracts so that by December 31, 1943, it held 7,230,000 bushels of actual rye in Chicago; that this action caused a tight situation in the Chicago rye market, with a resulting inflated and manipulated price, which in turn attracted Canadian rye to Chicago; that on November 29, 1943, the Business Conduct Committee of the Board of Trade held a meeting with Metcalf, vice-president of General Foods, and informed him that his holdings and the company's holdings might tend to create a corner and dominate rye price movements, and that the company and Metcalf were not to make further purchases of December, 1943, rye futures or actual rye without prior consultation with and the consent of the committee. The complaint alleged that following this prohibition against further purchases by General Foods, the remaining petitioners engaged in a heavy purchasing program of May futures, in order to continue the futures end of the market when General Foods could not do so itself, while in May, 1944, General Foods purchased 2,000,000 bushels of actual rye from the other petitioners to carry out its part of the plan of maintaining the actual rye part of the market.

With respect to the Rice petitioners, it was further alleged that Rice & Company was engaged to merchandise the General Foods rye holdings during the winter of 1943-1944, but sold no rye since the merchandising was conducted under an arrangement that rye offerings were to be restricted to buyers who would move the rye into consumptive channels. Rice, it was averred, definitely influenced the trading of certain customers listed in a Schedule A attached to the complaint, and during the period involved, he and the other petitioners sought to prevent the increase of deliverable rye in Chicago by purchasing Winnipeg May futures and taking delivery of approximately 2,000,000 bushels of Winnipeg rye in May. The complaint alleged in much detail the holdings of the respective parties during the relevant period, both in actual rye and in May, 1944, futures, evidently for the purpose of showing their commanding position in the market, particularly when contrasted with the amount of rye available for immediate delivery. It was further alleged that the petitioners by their trading in and holding of actual rye and rye futures, as set forth in the complaint, were all speculative and caused an abnormal accumulation of rye in Chicago, which congested the transportation and storage facilities at a time when such facilities were needed for other grain crops for which there was an important demand.

All the petitioners filed answers denying individual or collective participation in a plan to corner or manipulate, and denying that any such corner or manipulation occurred.

Hearings were conducted before a Referee appointed by the Secretary. The record consists almost entirely of exhibits introduced by the government, the bulk of which are in the form of statistical tabulations. Other than witnesses who identified such exhibits, the government relied upon the following witnesses, namely, William Buster, chief investigator for the Compliance and Investigation Branch of the Commodity Exchange Authority, Fred Clutton, Secretary of the Chicago Board of Trade, Roland McHenry, chairman of the Business Conduct Committee of the Chicago Board of Trade, and Clarence Francis, chairman of the Board of General Foods Corporation. In its case the government offered no expert testimony evaluating the data which had been presented, and consequently there is no expert testimony respecting the normalcy or abnormalcy of rye prices and of market activities. Neither was any testimony offered in proof of, and it is not contended that any short in the Chicago rye market during the relevant period was in need of actual rye for delivery or other purposes or was pressured, coerced or injured by any action taken or contemplated by any of the petitioners.

Petitioners, taking the view that the government had not proven its case, offered no testimony. The Referee's report, issued September 10, 1946, proposed findings and conclusions substantially similar to those submitted by government counsel. On petitioners' exceptions to the Referee's report, a hearing was had before the Judicial Officer who entered the order under review.

The decision and order of the Judicial Officer rejects the theory of the government as stated in the complaint in numerous important respects, including:

1. The government failed to prove that rye prices in Chicago during the period of the complaint were manipulated or artificially enhanced. This conclusion was reached notwithstanding the Judicial Officer recognized it as "perhaps the main issue in the entire proceeding."

2. No planned or collective action existed between General Foods and the other respondents during the period of the complaint preceding May, 1944.

3. The Judicial Officer was "unable to find or conclude that a corner in violation of the Act was achieved."

4. The activities of respondents during 1944 had no effect upon the prices of Chicago rye futures or actual rye. "No enhancement of the price level occurred during 1944 and we cannot find that respondents maintained a manipulated price level during 1944 up to the market decline in May."

Thus, all respondents were exonerated of cornering the price of rye at any time relevant to the instant action, and all respondents were exonerated of manipulating the price of rye prior to the time of the 2,000,000 bushel transaction. Furthermore, General Foods and Metcalf were completely disassociated with all activities of the other respondents prior to the 2,000,000 bushel transaction. The Judicial Officer did find and conclude, however, that from some time about the beginning of 1944 and continuing into May, 1944, Daniel F. Rice, Rice & Company, O'Brien and Ryan "collaborated to manipulate the price of rye futures and actual rye * * * and to corner the rye market," and that all the respondents by reason of the 2,000,000 bushel transaction "collaborated to manipulate and did manipulate the price of rye futures and actual rye."

It is these conclusions, also designated by the Judicial Officer as findings, which are here for review. In the beginning certain observations common to all respondents may be noted. Of considerable importance is the unique statutory provision as to the formula to be employed in reviewing the instant...