Wigod v. Chicago Mercantile Exchange

• Decision Date: 14 December 1992
• Docket Number: 91-1334,Nos. 89-2716,s. 89-2716
• Citation: 981 F.2d 1510
• Parties: 1992-2 Trade Cases P 70,067, 24 Fed.R.Serv.3d 1319 Lee I. WIGOD, Plaintiff-Appellant, v. CHICAGO MERCANTILE EXCHANGE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1510

981 F.2d 1510

1992-2 Trade Cases P 70,067, 24 Fed.R.Serv.3d 1319

Lee I. WIGOD, Plaintiff-Appellant, v. CHICAGO MERCANTILE EXCHANGE, Defendant-Appellee.

Nos. 89-2716, 91-1334.

United States Court of Appeals Seventh Circuit.

Argued Sept. 11, 1992.

Decided Dec. 14, 1992.

Scott A. Brainerd (argued), Chicago, IL and John L. Gubbins, Monfort, WI, for plaintiff-appellant.

Jerrold E. Salzman (argued), Phillip L. Stern, Albert F. Ettinger and Glynna W. Freeman, Freeman, Freeman & Salzman, Chicago, IL, for defendant-appellee.

Before BAUER, Chief Judge, MANION, Circuit Judge, and MOODY, District Judge. ¹

BAUER, Chief Judge.

The plaintiff, Lee Wigod, sued the defendant, Chicago Mercantile Exchange, for alleged violations of federal commodities and antitrust statutes. Both parties filed motions for summary judgment, with Wigod moving for only partial summary judgment. The district court granted the defendant's motion, and following that decision the defendant successfully moved for sanctions against Wigod's attorney, Scott Brainerd. Wigod appeals the grant of defendant's summary judgment motion, the denial of his motion for partial summary judgment, and his attorney appeals the sanction award. We affirm in part and remand for a recalculation of the sanctions award.

I.

Lee Wigod was a member of the Chicago Mercantile Exchange ("Merc" or "Exchange"). The Merc is a board of trade and a designated contract market pursuant to, and governed by, the Commodities Exchange Act ("CEA"). 7 U.S.C. § 7. The CEA was originally passed in 1922, and has been amended from time to time, most recently by the Futures Trading Act of 1982 ("FTA"). In 1984, another Exchange member, Robert Alpert, claimed that he purchased twenty Standard & Poors 500 ("S & P 500") stock index futures contracts based on Wigod's oral order to buy these contracts. This is a transaction that Wigod refused to acknowledge, much less honor. Because Wigod did not buy the futures contracts, Alpert sold them to another buyer at a $33,000 loss. On the basis of this disputed trade, Wigod's clearing firm, Keystone Trading Corporation ("Keystone"), suspended his trading privileges and froze the assets in his trading account. As Wigod's clearing firm, Keystone acted as the custodian of Wigod's trading account, guarantor for any trades Wigod did not honor, and lessor of Wigod's Merc membership. See e.g. Bernstein v. Lind-Waldock & Co., 738 F.2d 179 (7th Cir.1984) (describing the clearing firm role in contract market trading).

Alpert did not provide any of the trade-verifying documents he was required to file according to Exchange regulations. These regulations are called "audit-trail" rules and provide the Merc with evidence to enforce trades in the event they are disavowed. Despite the lack of audit-trail evidence, Alpert requested a Merc arbitration proceeding in an attempt to collect on the transaction. Wigod refused to participate in the proceeding on the grounds that arbitration was not mandatory and because he claims the Merc violated its own rules when it did not provide him with documents necessary to present his case. The hearing occurred as scheduled, and the arbitrator ruled to enforce the trade. Wigod was assessed the full cost of Alpert's loss, and that ruling was later reduced to judgment in the state circuit court. When Wigod refused to pay, Keystone settled up with Alpert and debited Wigod's trading account to cover the payment. Wigod's account balance was $20,101, and Keystone took it all to offset the payment. Wigod challenged the judgment in the Illinois Appellate Court. The appellate court ruled in his favor, stating that the Merc arbitration demand was not mandatory and therefore the arbitrator's decision was unenforceable because Wigod refused to participate. Wigod v. Chicago Mercantile Exchange, 141 Ill.App.3d 129, 95 Ill.Dec. 566, 490 N.E.2d 39 (1st Dist.1986). Despite the unenforceability of the trade-dispute arbitration, the appellate court deemed enforceable an Exchange regulation subjecting Wigod to disciplinary action for choosing not to arbitrate. Id. Keystone never reimbursed Wigod for the money deducted from his trading account.

On the heels of the appellate court decision, the Merc scheduled a disciplinary hearing to review Wigod's behavior associated with the arbitration proceeding. Several weeks before the hearing, the Exchange requested approval from the Commodity Futures Trading Commission ("CFTC") to double the possible fine for major offenses of Exchange rules. Perhaps not so coincidentally, the Exchange requested that the penalty be effective the day before Wigod's disciplinary hearing was to be held. Wigod requested several continuances and eventually refused to participate in the disciplinary hearing. In addition, he refused to meet with Merc officials to discuss his allegations that illegal trading was occurring in the S & P 500 pit. Wigod's disciplinary action proceeded, and a special hearing committee ("committee") of the Merc's Board of Governors ("Board") ruled against him. The committee found Wigod guilty of refusing to arbitrate, dishonest conduct, and conduct detrimental to the Exchange. Refusing to comply with a final arbitration award is considered a major offense pursuant to Exchange rule 600. Thus, he was subject to the Exchange's newly effective penalty limits. He was penalized by revocation of his Merc membership and a fine totaling $135,000--to be suspended until he sought membership reinstatement. Wigod appealed the penalty to the Board, arguing that the disciplinary action was unlawful. The Board upheld the committee's decision, and much later Wigod appealed the affirmance to the CFTC, the agency granted the authority to implement and review the CEA and alleged violations of the CEA. American Agriculture Movement, Inc. v. The Board of Trade of the City of Chicago, 977 F.2d 1147, 1150 (7th Cir.1992). The CFTC refused to review the proceeding because Wigod's request was not timely.

While waiting for the CFTC ruling, Wigod brought this lawsuit, alleging that the Merc violated its self-regulation procedures, the Sherman Act, and the CEA. Wigod seeks relief pursuant to these statutes and the Clayton Act. Wigod's claims survived a motion to dismiss, in which District Judge Prentice Marshall held that Wigod's allegations stated a cause of action for conspiracy to violate the antitrust laws. Case No. 87 C 3743, Order of Nov. 20, 1987, as amended Dec. 4, 1987. Judge Marshall also held that the conduct surrounding the disputed trade stated a cause of action under the FTA. Id. Wigod also brought pendant state law claims that survived the motion to dismiss along with the federal claims.

The case was later reassigned to Judge Conlon, who ruled on the parties' cross motions for summary judgment, granting summary judgment on behalf of the defendant. The district court found that Wigod did not present evidence to support his claims, and that as a matter of law, no antitrust violations occurred. The district court stated that the Merc, Keystone, and other alleged co-conspirators acted individually for legitimate business reasons. The district court also determined that the CEA offered no cause of action that would grant Wigod relief. In addition, Wigod's state-law claims for tortious interference and breach of contract failed to withstand summary judgment scrutiny. The district court denied Wigod's motion to alter or amend the judgment.

The Merc then sought sanctions against Brainerd pursuant to Federal Rule of Civil Procedure 11 and 28 U.S.C. § 1927. The Merc alleged that Brainerd failed to make a reasonable inquiry into the legal merit of Wigod's allegations before filing the complaint and the motion for partial summary judgment. The district court referred the matter to a magistrate judge, who found that Brainerd had not made a satisfactory inquiry regarding the viability of Wigod's claims before filing the complaint and that the motion for partial summary judgment was not well grounded in law. The magistrate judge recommended that sanctions be awarded, a recommendation that the district court adopted. Although the Merc sought $131,000, they were awarded $20,000 plus costs.

II.

We review summary judgment decisions de novo, determining whether a genuine issue of material fact exists and whether the moving party must prevail as a matter of law. We also consider whether any rational trier of fact could find for the non-moving party. If not, then summary judgment is appropriate. Anderson v. Liberty Lobby, 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986). Although all inferences are drawn in favor of the nonmoving party, antitrust law limits the extent to which permissible inferences from ambiguous evidence may be drawn. Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656 (7th Cir.1987). Also, in complex antitrust cases, summary judgment should be used sparingly, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962), unless the record is clear that the antitrust claims cannot succeed. If the claims cannot succeed, then judicial administration is served better by disposition prior to trial. Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 477 (7th Cir.1988); Lupia v. Stella D'Oro Biscuit Co., 586 F.2d 1163 (7th Cir.1978), cert. denied, 440 U.S. 982, 99 S.Ct. 1791, 60 L.Ed.2d 242 (1979). Wigod cites little authority along the winding path he takes to establish his claims, and though he gets lost at several turns, we guide him to the ultimate resolution of this protracted litigation.

A. The Antitrust Claims

Wigod claims that the Merc violated Sections 1 and 2 of the Sherman Antitrust Act by successfully conspiring with Keystone and Alpert to terminate Wigod's privileges as a floor broker, by imposing the ten-year suspension and large fines during the disciplinary proceedings, by not enforcing the audit-trail rules, and by...