Strobl v. New York Mercantile Exchange
| Decision Date | 05 July 1985 |
| Docket Number | Nos. 648,781,D,s. 648 |
| Citation | 768 F.2d 22 |
| Parties | , 1985-2 Trade Cases 66,692 Joseph STROBL, Plaintiff-Appellee Cross-Appellant, 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 Sundheimer, Charles Edelstein, James Landry a/k/a Jim Landry and Jerry Rafferty, jointly and severally, Defendants, John R. Simplot, J.R. Simplot Co., Simplot Industries, Inc., P.J. Taggares, P.J. Taggares Company and SimTag Farms, Defendants-Appellants Cross Appellees. ockets 84-7328, 84-7770. |
| Court | U.S. Court of Appeals — Second Circuit |
Peter Fleming, Jr., New York City (Scott J. McKay Wolas, Peter K. Vigeland, Michael T. Zimmerman, Curtis, Mallet-Prevost, Colt & Mosle, New York City, of counsel), for defendants-appellants cross-appellees.
Christopher Lovell, New York City (Victor E. Stewart, George F. Brammer, Jr., Lovell & Stewart, New York City, of counsel), for plaintiff-appellee cross-appellant.
Before FEINBERG, Chief Judge, and TIMBERS and CARDAMONE, Circuit Judges.
This appeal represents the latest chapter in a long history of litigation generated by the highly publicized May 1976 default of Maine potato futures contracts that occurred when the sellers of 1000 contracts failed to deliver approximately 50 million pounds of potatoes. The sellers' refusal to deliver brought about the largest default in the history of commodities futures trading. Throughout an 11-day trial before the United States District Court for the Southern District of New York (MacMahon, J.), plaintiff Joseph Strobl contended that defendants J.R. Simplot, P.J. Taggares and their potato processing companies acting in concert as sellers brought about this default. Strobl claimed that these defendants engaged in a conspiracy to drive down potato prices and default on Maine potato futures contracts and that they profited by reducing the prices they paid for potatoes in 1976 and thereafter. Strobl had invested in 1976 Maine potato futures; the damages he claimed were the difference between what he received from the sale of those futures and what he would have received in a fair market.
In his complaint Strobl asserted both a private right of action for damages under Sec. 9 of the Commodity Exchange Act as amended, 7 U.S.C. Sec. 13, and antitrust claims under Secs. 1-3 of the Sherman Act, 15 U.S.C. Secs. 1-3, and Sec. 2 of the Clayton Act, 15 U.S.C. Sec. 13. The jury found for Strobl both on his private right of action under the Commodity Exchange Act and on his antitrust claims under the Sherman and Clayton Acts. The district court awarded him treble damages amounting to $1,386,000 on the antitrust claims and, in the alternative, single damages of $460,000 on the Commodity Exchange Act claim.
On appeal, defendants attack the sufficiency of the evidence to show a conspiracy prior to the time when Strobl liquidated his commodities futures position, and also the We reject defendants' arguments substantially for the reasons stated in Judge MacMahon's thorough opinions on defendants' motion for a judgment N.O.V. and for a new trial. Both of these opinions, published in separate volumes of the Federal Supplement, are entitled Strobl v. New York Mercantile Exchange, 582 F.Supp. 770 (S.D.N.Y.1984) and 590 F.Supp. 875 (S.D.N.Y.1984). Moreover, we agree with the reasons given by the district court when it denied plaintiff prejudgment interest on the Sherman Act damages, 590 F.Supp. at 882-83.
sufficiency of evidence to show, prior to that time, the existence of an artificial futures price. Defendants further claim that the damage award was irrational and should be reduced. They also contend that the district court committed reversible error when it refused to admit into evidence a decision in an administrative proceeding that arose from these same facts, and when it failed to order a new trial after the same administrative law judge rendered a second decision. Strobl cross-appeals from the district court's order that denied him prejudgment interest on the Sherman Act damages.
Thus, the only issue necessary to address is defendants' argument that antitrust causes of action are not properly raised by plaintiff because conduct specifically prohibited by the Commodity Exchange Act cannot be the basis for a treble damage award under the antitrust laws. To date no other circuit court has decided this specific issue. Because we find defendants' contention unpersuasive, we affirm the judgment appealed from.
The complex factual background and procedural history of this case is described thoroughly in the following decisions: National Super Spuds, Inc. v. New York Mercantile Exchange, 470 F.Supp. 1256 (S.D.N.Y.1979), rev'd sub nom. Leist v. Simplot, 638 F.2d 283 (2d Cir.1980), 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). These cases also provide a detailed background of the structure and regulation of the commodities futures trading market. We summarize here only the factual background needed to understand this appeal.
This case involves commodities futures contracts for Maine potatoes. A commodities futures contract is an executory contract for the sale of a commodity executed at a specific point in time with delivery of the commodity postponed to a future date. Every commodities futures contract has a seller and a buyer. The seller, called a "short," agrees for a price, fixed at the time of contract, to deliver a specified quantity and grade of an identified commodity at a date in the future. The buyer, or "long," agrees to accept delivery at that future date at the price fixed in the contract. It is the rare case when buyers and sellers settle their obligations under futures contracts by actually delivering the commodity. Rather, they routinely take a short or long position in order to speculate on the future price of the commodity. Then, sometime before delivery is due, they offset or liquidate their positions by entering the market again and purchasing an equal number of opposite contracts, i.e., a short buys long, a long buys short. In this way their obligations under the original liquidating contracts offset each other. The difference in price between the original contract and the offsetting contract determines the amount of money made or lost.
In September and October of 1975 plaintiff invested in the long or buying side of May 1976 Maine potato futures contracts, that is he agreed to buy potatoes at an agreed price on a future date. Strobl's average cost was approximately $18.30 per hundredweight (cwt). By May 4, 1976 Strobl had liquidated all of his long contracts at an average price of between $9.12 and $9.76 per cwt. According to proof at trial, the defendants Simplot and Taggares, two of the largest competitors in the purchase and processing of potatoes, conspired to manipulate the futures prices in Maine potatoes. Maine potato futures prices
were unusually high in 1976. This was because of record demand for and low supply of Maine potatoes. This high futures price tended to drive up cash potato prices. Yet, due to their need to purchase large quantities of potatoes, the defendants had an interest in lower potato prices. By its verdict the jury found that these defendants conspired to reduce the price of the 1976 Maine potatoes futures contracts. Defendants accomplished this by purchasing vast amounts of the "short" side of futures contracts and becoming obligated to deliver millions of pounds of Maine potatoes that they did not have. By purchasing so heavily on the short side, the conspirators artificially inflated the perceived supply of Maine potatoes, thereby driving down both the futures prices and cash prices. Defendants did not attempt to obtain the potatoes that they were obligated to deliver. Nor did they offset, which they could have done by purchasing long positions in an amount sufficient to equalize their extensive short position. Instead, defendants simply defaulted on their delivery obligations. With so many selling positions not offset by buying positions, there was a surplus of sellers, which effectively caused the price of Maine potato commodities contracts to plummet. By May 4, 1976 Strobl had sold his long futures on Maine potatoes at a significant loss. The jury found that this conspiracy existed before May 4 and that it depressed the futures price on May 1976 Maine potatoes prior to that date.
To answer defendants' claim that the treble damage award cannot stand, we begin with an explanation of the Commodity Exchange Act. The history of commodities regulation and the Act has been exhaustively discussed by this Court in an earlier opinion on another aspect of this case, Leist v. Simplot, 638 F.2d at 293-96, and in the Supreme Court's affirmance, Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. at 357-67, 102 S.Ct. at 1828-34. Thus, it is out-lined only briefly here. The first federal regulation of commodities futures trading came in 1921 with enactment of the Futures Trading Act, 42 Stat. 187 (1921). When that Act was declared an unconstitutional exercise of the taxing power, Hill v. Wallace, 259 U.S. 44, 42 S.Ct. 453, 66 L.Ed. 822 (1922), it was redrafted and enacted as the Grain Futures Act, ...
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