Strobl v. New York Mercantile Exchange

• Decision Date: 11 July 1984
• Docket Number: No. 79 Civ. 1834 (LFM).,79 Civ. 1834 (LFM).
• Citation: 590 F. Supp. 875
• Parties: Joseph STROBL, Plaintiff, v. NEW YORK MERCANTILE EXCHANGE, Clayton Brokerage Co. of St. Louis, Inc., Heinold Commodities, Inc., Thomson and McKinnon, Auchincloss, Kohlmeyer, Inc., Ben Pressner, Pressner Trading Corp., John Richard Simplot a/k/a Jack Richard Simplot a/k/a J.R. Simplot, J.R. Simplot Company, Simplot Industries, Inc., Simplot Products Company, Inc., Peter J. Tagares a/k/a Peter J. Taggares, P.J. Taggares Company, C.L. Otter, Simtag Farms, Kenneth Ramm, A & B Farms, Inc., Hugh D. Glenn, Gearheart Farming, Inc., Ed McKay, Harvey Pollak, Henry Pollak, Henry Pollak, Inc., Henry A. Pollak & Company, Inc., Robert Reardon a/k/a Bobby Reardon, F.J. Reardon, Inc., Alex Sinclair, Sinclair & Company, Stephen Sondheimer, Charles Edelstein, James Landry a/k/a Jim Landry and Jerry Rafferty, jointly and severally, Defendants.
• Court: U.S. District Court — Southern District of New York

590 F. Supp. 875

Joseph STROBL, Plaintiff, v. NEW YORK MERCANTILE EXCHANGE, Clayton Brokerage Co. of St. Louis, Inc., Heinold Commodities, Inc., Thomson and McKinnon, Auchincloss, Kohlmeyer, Inc., Ben Pressner, Pressner Trading Corp., John Richard Simplot a/k/a Jack Richard Simplot a/k/a J.R. Simplot, J.R. Simplot Company, Simplot Industries, Inc., Simplot Products Company, Inc., Peter J. Tagares a/k/a Peter J. Taggares, P.J. Taggares Company, C.L. Otter, Simtag Farms, Kenneth Ramm, A & B Farms, Inc., Hugh D. Glenn, Gearheart Farming, Inc., Ed McKay, Harvey Pollak, Henry Pollak, Henry Pollak, Inc., Henry A. Pollak & Company, Inc., Robert Reardon a/k/a Bobby Reardon, F.J. Reardon, Inc., Alex Sinclair, Sinclair & Company, Stephen Sondheimer, Charles Edelstein, James Landry a/k/a Jim Landry and Jerry Rafferty, jointly and severally, Defendants.

No. 79 Civ. 1834 (LFM).

United States District Court, S.D. New York.

July 11, 1984.

COPYRIGHT MATERIAL OMITTED

Lovell & Westlow by Christopher Lovell and George F. Brammer, Jr., New York City, for plaintiff.

Curtis, Mallet-Prevost, Colt & Mosle by Peter Fleming Jr. and Scott J. McKay Wolas, New York City, for defendants John R. Simplot, J.R. Simplot Co., Simplot Industries, Inc., Peter J. Taggares, P.J. Taggares Co. and SimTag Farms.

OPINION

MacMAHON, District Judge.

This case arose from the massive default in 1976 by short position holders in the market for May 1976 Maine potato futures contracts. See Leist v. Simplot, 638 F.2d 283, 285 (2d Cir.), aff'd sub nom. Merrill Lynch, Pierce Fenner & Smith v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). In November 1983, following an 11-day jury trial, a verdict was returned against defendants. On March 20, 1984, we denied defendants' motion for judgment notwithstanding the verdict or for a new trial. Stroble v. New York Mercantile Exchange, 582 F.Supp. 770 (S.D.N.Y.1984).

In yet another round of post-trial motions, defendants now move for (1) a new trial based on newly discovered evidence, Fed.R.Civ.P. 59, 60(b); (2) reargument of their prior post-trial motions for judgment notwithstanding the verdict or for a new trial, Local Rule 3(j); and (3) reduction of plaintiff's award by the amount of his settlement payments. Additionally, plaintiff moves for prejudgment interest.

Newly Discovered Evidence

Defendants contend that the "factual findings" contained in an "Initial Decision on Default" by an Administrative Law Judge ("ALJ"), In re Collins, 2 Comm.Fut. L.Rep. (CCH) ¶ 21,960 (Commodity Futures Trading Commission 1984), constitute newly discovered evidence warranting the grant of a new trial. We find defendants' argument seriously flawed.

Both Rule 59(a) and 60(b)(2), Fed.R. Civ.P., provide in effect that the court may grant a new trial on the ground of "newly discovered evidence which by due diligence could not have been discovered" at the time of the trial.¹ It is beyond peradventure that "newly discovered evidence" refers to evidence in existence at the time of the trial...." Campbell v. American Foreign S.S. Corp., 116 F.2d 926 (2d Cir.), cert. denied, 313 U.S. 573, 61 S.Ct. 959, 85 L.Ed. 1530 (1941). Similarly, in Ryan v. United States Lines Co., 303 F.2d 430 (2d Cir. 1962), the court stated: "Rule 60(b)(2), pertaining to newly discovered evidence, permits reopening a judgment only on the discovery of evidence in existence and hidden at the time of the judgment...." Id. at 434. See also Prostrollo v. University of South Dakota, 63 F.R.D. 9, 11 (D.S.D. 1974) (no relief "for evidence which has only come into existence after the trial is over"); In re Boeing Airplane Co., 2 F.R. Serv.2d 927 (D.D.C.1959); 11 Wright & Miller, Federal Practice and Procedure § 2808 at 55 & n. 94 (1973 & Supp.1983); 6A Moore's Federal Practice ¶ 59.083 at 59-100 (rev. 2d ed. 1982).

The proffered evidence upon which defendants rely is the "factual findings contained in the Collins decision and not ... hearing testimony underlying those findings." Defendants' Reply Memorandum of May 11, 1984, at 3 (emphasis in original). But, as defendants correctly note, "The Collins decision was issued and published after the conclusion of the trial." Id. (emphasis supplied). Thus, defendants' evidence — the ALJ's findings — was not in existence at the time of the trial. Consequently, these "findings" are not "newly discovered evidence." Ryan, supra; Campbell, supra.

Moreover, the proffered evidence must be admissible to qualify as newly discovered evidence. E.g., 6A Moore's Federal Practice ¶ 59.083 at 59-102 (rev. 2d ed. 1982). The evidence proffered here is hearsay because the ALJ's "findings" are out of court statements offered for the truth of the matter asserted. Fed.R.Evid. 801(c).

Defendants, relying on Fed.R.Evid. 803(8)(C), argue that the findings fall within an exception to the hearsay rule as "factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness."

This exception must be applied "in a commonsense manner," especially "in determining whether the hearsay document ... has sufficient indicia of reliability to justify its admission." City of New York v. Pullman Inc., 662 F.2d 910, 914 (2d Cir.), cert. denied sub nom. Rockwell Int'l Corp. v. City of New York, 454 U.S. 1164, 102 S.Ct. 1038, 71 L.Ed.2d 320 (1981). Considering the source of the information and the circumstances under which that information was transformed into "findings of fact," we conclude that the evidence lacks sufficient indicia of trustworthiness to qualify for admission under 803(8)(C). See City of New York v. Pullman Inc., supra, 662 F.2d at 914-15; Zenith Radio Corp. v. Matsushita Electric Industrial Co., 505 F.Supp. 1125, 1146-49, 1180-81 (E.D.Pa. 1980); Notes of Advisory Committee, Fed. R.Evid. 803(8)(C), 28 U.S.C.A. at 590 (West 1975); 4 Weinstein's Evidence ¶ 803(8)03 at 803-206 (1981).

The ALJ's decision, by its own terms, is simply an "Initial Decision on Default." In re Collins, supra, ¶ 21,960 at 28,134. The administrative proceeding was commenced by the Commodity Futures Trading Commission's Division of Enforcement. The complaint, in essence, alleged that respondents attempted to manipulate upward the price of May 1976 Maine potato futures contracts and exceeded maximum net short positions for potato futures contracts established by the Commission. Id. at 28,134 to 135. Although the respondents in the proceeding filed answers to the complaint,² the ALJ specifically noted that:

At no time during the course of the hearing in this matter did respondents appear at the hearing, nor did any of these respondents comply with § 10.62(b) of the Rules of Practice ... by filing notices of appearance indicating an intention to continue participating in the proceeding. Neither have these respondents filed any proposed findings of fact, conclusions of law or briefs subsequent to the hearing in this proceeding.

In re Collins, supra, at 28,135 (footnote omitted).³

The Division of Enforcement then moved for a default order and entry of findings and conclusions based on the allegations of its complaint, pursuant to § 10.93 of the Commission's rules. 17 C.F.R. § 10.93 (1983). That section provides that when a respondent in a Commodity Futures Trading Commission hearing before an ALJ fails to appear or file a notice of appearance, the ALJ may "enter findings and conclusions and a default order against that respondent based upon the matters set forth in the complaint, which shall be deemed to be true for the purposes of this determination." Id.

Accordingly, the ALJ entered a default order against respondents and simply adopted the allegations of the complaint as his findings of fact: "Therefore, findings of fact, conclusions of law, and a default order shall be entered against the ... respondents ... taking the matters set forth in the complaint to be true for the purposes of determining the issues against them." In re Collins, supra, at 28,135.

The findings here are similar to those in Zenith Radio Corp. v. Matsushita Electric Industrial Co., supra. There, an administrative agency's findings were deemed untrustworthy because they were simply "copied verbatim without review" from the "accusatory document" filed by the agency's Enforcement Division staff. Id. at 1180.

Moreover, because the findings there were based solely upon an agency investigation proceeding—the agency's formal fact finding hearing — the court held that the purported findings were "simply too preliminary to be trustworthy within the meaning of Fed.R.Evid. 803(8)(C)." Id. Similarly, in City of New York v. Pullman, Inc., supra, 662 F.2d at 914, an interim report subject to revision and review did "not satisfy the express requirement of the rule that the proffered evidence must constitute the `findings' of an agency or official."

Here, as we have seen, the ALJ, pursuant to 17 C.F.R. § 10.93, essentially rubber stamped the allegations of the Enforcement Division's complaint as his findings of fact for the limited purpose of entering an initial decision on default. Thus, the proffered "findings" are "findings" in name only. They do not constitute a reasoned result based on an impartial weighing of evidence and the operation of a disinterested mind. Cf. United States v. El Paso Gas Co., 376 U.S. 651, 656-57, 84 S.Ct. 1044, 1046-47, 12 L.Ed.2d 12 (1964). In short, they are not the result of a review on the merits by the agency fact finder, as contemplated by Fed.R.Evid. 803(8)(C).

The proffered findings are further suspect because there is no evidentiary support whatever for determining the source or reliability of the allegations made in the Enforcement Division's complaint. These allegations were adopted mechanically without the exercise of any judgment whatever by the ALJ. The findings are, therefore, subject to the same deficiency, in terms of assessing...