Zimmerman v. Chicago Bd. of Trade

• Decision Date: 09 February 2004
• Docket Number: No. 02-3844.,No. 02-3997.,02-3844.,02-3997.
• Parties: Raymond ZIMMERMAN, Individually and on behalf of a Class of Similarly Situated Soybean Farmers, et al., Plaintiffs-Appellants, Cross-Appellees, v. CHICAGO BOARD OF TRADE, Patrick H. Arbor, Thomas R. Donovan, et al., Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

360 F.3d 612

Raymond ZIMMERMAN, Individually and on behalf of a Class of Similarly Situated Soybean Farmers, et al., Plaintiffs-Appellants, Cross-Appellees, v. CHICAGO BOARD OF TRADE, Patrick H. Arbor, Thomas R. Donovan, et al., Defendants-Appellees, Cross-Appellants.

No. 02-3844.

No. 02-3997.

United States Court of Appeals, Seventh Circuit.

Argued September 25, 2003.

Decided February 9, 2004.

Terrance G. Reed (argued), Alexandria, VA, Thomas E. Johnson, Johnson, Jones, Snelling, Gilbert & Davis, Chicago, IL, for Plaintiffs-Appellants.

Garrett B. Johnson (argued), Jeffrey L. Willian, Kirkland & Ellis, Chicago, IL, for Defendants-Appellees.

Before CUDAHY, RIPPLE and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

This appeal represents what may be the last chapter in a story that began more than ten years ago, when the Chicago Board of Trade (CBOT) issued an Emergency Resolution (the Resolution), which, according to the plaintiffs, depressed the price of soybeans sold in the July 1989 cash market. Only four months later world history took a turn as the Berlin Wall fell. The cold war was over but the "soy war" had just begun.

The plaintiffs in this action are a class of soybean farmers who sold their soybeans during the period of allegedly depressed prices in July 1989. The plaintiffs argue that the CBOT violated antitrust laws by adopting the Resolution, not for proper regulatory purposes but instead out of self-interest and to protect a politically powerful member of the CBOT. After twelve days of jury trial, the district court granted the CBOT's Rule 50(a) motion for judgment as a matter of law, finding that the plaintiffs failed to present a legally sufficient evidentiary basis for a reasonable jury to find that the CBOT's dominant motive for issuing the Resolution was held in bad faith. This appeal followed. After reviewing the record, we find ourselves in agreement with the district court, and we therefore affirm.

I. BACKGROUND

Because our task is to determine whether there is sufficient evidence in the record for a jury to find for the plaintiffs, we must review the evidence in the record which might support such a finding. Therefore, although not exhaustive, our recitation of the facts is necessarily lengthy.

1. Introduction

On July 11, 1989, the CBOT publicly issued an Emergency Resolution requiring all holders of positions in the July 1989 soybeans futures contract to reduce their positions to three million bushels as of the close of trading on July 18, 1989, and to further reduce their positions to one million bushels as of the expiration of trading in the July contract on July 20. App. at 897.¹ According to the plaintiffs' expert, this public liquidation of the July 1989 soybeans contracts disrupted the market, contributing to a 39.5-cent drop in the price of the July 1989 soybean futures contract on July 12, and correspondingly causing a 25-cent drop in the cash price of a bushel of soybeans through the rest of July 1989. App. at 372, 385-88, 507-08.

This lawsuit has been before us on two previous occasions. In 1992, we found that the defendants did not have antitrust immunity because the Commodities Futures Trading Commission (CFTC or the Commission) never formally approved the Resolution. See American Agric. Movement v. Board of Trade, 977 F.2d 1147, 1167 (7th Cir.1992) (AAM). In 1995, we found that the plaintiffs' complaint should not have been dismissed for lack of antitrust standing. See Sanner v. Board of Trade, 62 F.3d 918, 930 (7th Cir.1995). Since that time, the case was certified as a class action, the district court denied the defendants' summary judgment motion and a jury trial commenced on September 18, 2002, before the Honorable Wayne R. Andersen. After the plaintiffs rested their case on September 30, the defendants moved for judgment as a matter of law pursuant to Fed.R.Civ.P. 50(a). The district court did not then rule on the motion and allowed the defendants to proceed with their case.

On October 10, the trial court granted the defendants' Rule 50(a) motion from the bench, holding that there was insufficient evidence for a reasonable jury to return a verdict that the defendants' dominant motive was held in bad faith. App. at 793-815. At that time, the seven defendants were: the CBOT; five members of the CBOT's Board of Directors (Chairman Karsten Mahlmann, Vice Chair Patrick Arbor, President Thomas Donovan and Directors Hal Hansen, and Glen Hollander); and the Chairman of the CBOT's Business Conduct Committee (Wallace Weisenborn).

2. The Market For Soybeans

The following facts were elicited at trial. Every year, American farmers plant soybeans in the spring and harvest them in the fall. Soybeans are often stored and sold during the period between crop harvests. The plaintiff farmers are those who harvested their soybeans in the fall of 1988 and held onto the beans for sale in the summer of 1989, when prices were predicted to be higher.² App. at 336. Almost the entire annual American soybean crop is ultimately purchased by a handful of commercial firms, including Cargill and Archer Daniels Midland, generally known as "commercials." App. at 312-14. Commercial firms acquire soybeans to process them into oils or meal, or for purposes of export. App. at 307, 312-13.

In addition to commerce in soybeans themselves, which is known as the cash market, there is also commerce in contracts for the future purchase and sale of soybeans (the futures market). Under the terms of CBOT soybean futures contracts, one party, commonly known as a "short," agrees to make delivery of soybeans during a specified delivery month, while the other party, commonly known as a "long," agrees to pay for the beans and take delivery of them during the delivery month. If the futures price declines, the short benefits financially while the long suffers a commensurate loss. App. at 191-92. Every day, CBOT member firms known as "clearing firms" mark contract holders' positions to market, such that fluctuations in futures prices are credited to or debited from customers' accounts daily. App. at 192, 309-10. Clearing firms also serve as guarantors of contract performance because they must perform if their customers cannot. App. at 310-11.

In 1989, more than 90% of all soybean futures contracts were traded on the CBOT.App. at 308-09. The CBOT is a futures exchange, authorized as a "contract market" and regulated by the CFTC pursuant to the Commodities Exchange Act (CEA). App. at 617. The CEA imposes on CBOT regulatory responsibility for the markets conducted under its auspices, subject to CFTC oversight. App. at 615-16. The CBOT is governed by its Board of Directors and also has a Business Conduct Committee (BCC), which is responsible for monitoring exchange members' financial compliance, for maintaining liquid markets and for ensuring orderly liquidation of expiring contracts. App. at 225-27, 556.

CBOT soybean futures contracts are traded with respect to seven separate delivery months during the year, including the last months of the old crop in May, July, August and September, followed by November contracts representing the new crop. App. at 320. The futures contracts expire during the delivery month. Prior to a contract's expiration, it can be canceled by purchases of offsetting contracts, but futures contracts held at a contract's expiration require delivery for performance.³

A CFTC requirement limits a firm's soybean futures position to three million bushels, but the CFTC is authorized to exempt individual commercial firms from this requirement as to any one month's contract because commercial firms have large needs for physical soybeans for processing and export. App. at 317-18. These exemptions or "anticipatory hedges" are issued by the CFTC and require holders of such positions to substantially liquidate their positions five days prior to the contract's expiration. App. at 319, 523. The purpose of this federal regulatory requirement is to promote orderly liquidation by making sure that holders of anticipatory hedges do not hold all their contracts until the expiration date. App. at 670-72.

The rule is also aimed at preventing a corner on the market. A corner occurs when a trader secretly acquires a long futures position, very large relative to the physical supply that is available to be delivered, and simultaneously acquires the means, by ownership or otherwise, to prevent delivery at reasonable prices of the physical commodity, thereby "squeezing" the shorts that must make delivery.⁴ App. at 519-20.

3. Cargill and Ferruzzi

Cargill, a large privately held corporation and member of the CBOT, began acquiring a short position in the expiring May 1989 soybean contract during the first week of May 1989. App. at 357. Cargill lost money on this position and may have blamed its losses upon an Italian competitor, Ferruzzi Finanziaria, S.p.A. (Ferruzzi). In 1988, Ferruzzi had bought the American soybean processor Central Soya, and thus had begun competing directly with Cargill for American soybeans. App. at 314-15, 783. Ferruzzi was a large holder of May 1989 long soybean contracts, holding in mid-May more than 80% of the May long contracts still open (the "open interest") through expiration of the May contract on May 19, 1989. App. at 347-48.

In 1988, the CFTC became interested in Ferruzzi because it had not submitted the reports required to allow it to hold futures positions in excess of the CFTC-set limits and because it had not answered all of the CFTC's questions. App. at 619-23, 733, 1011-12, 1012-14. The CFTC became concerned with Ferruzzi's pattern of maintaining large long soybean futures positions late in the delivery month and taking delivery of large quantities of soybeans under the futures contracts. App. at 623. Both the CFTC and CBOT monitored Ferruzzi's futures and cash positions in late 1988 and into the spring of 1989. Id.; App. at 694-96, 736-41. The CFTC and CBOT also gathered...