# Darryl B. Deaktor v. L. D. Schreiber & Co., Al Phillips, Jr. v. The Chicago Mercantile Exchange

> Court of Appeals for the Seventh Circuit · June 29, 1973 · 479 F.2d 529

URL: https://www.frixlaw.com/law-library/cases/9459545

## Case

- **Full name:** Darryl B. DEAKTOR, Plaintiff-Appellee, v. L. D. SCHREIBER & CO. Et Al., Defendants-Appellants. Al PHILLIPS, Jr., Et Al., Plaintiffs-Appellees, v. the CHICAGO MERCANTILE EXCHANGE Et Al., Defendants-Appellants
- **Court:** Court of Appeals for the Seventh Circuit
- **Decided:** June 29, 1973
- **Citations:** 479 F.2d 529
- **Precedential status:** Published
- **Opinion:** Concurrence by Castle
- **Judges:** Castle, Pell, Sprecher
- **Cited by:** 43 later opinions in the Frix Law Library

## Citator (automated)

- **Red flag:** Reversed on other grounds by Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113 (1973).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9459545

## How later opinions describe it (automated extraction)

- finding implied private right of action to enforce antifraud provisions of the CEA

## Opinion text

CASTLE, Senior Circuit Judge
(concurring).
The issue on this appeal is whether the district court abused its discretion in refusing to defer the issues raised by the various complaints to the primary jurisdiction of the Secretary of Agriculture or the Commodities Exchange Commission. I find no abuse of discretion, but I believe that the resolution of this issue is more difficult than the majority opinion indicates.
My understanding of the majority opinion is that deference is not warranted when the plaintiff alleges only that the defendants have violated provisions of the Commodities Exchange Act (the Act) or regulations whose validity he does not challenge. Respectfully, I believe that this approach is too mechanical for guidance beyond these cases, 1 and perhaps not sufficiently appreciative of the problems raised by Ricci v. Chicago Mercantile Exchange, 409 U.S. 289 , 93 S.Ct. 573 , 34 L.Ed.2d 525 (1973). For *536 the appellants have argued that the question of whether they have violated the Act and/or valid exchange regulations is precisely one for administrative determination. Since all three eases are intricately related to the issue of market manipulation, appellants urge that the determinations of relevant market conditions, the existence of price fluctuations, and the advisability and legality of their activity require the exercise of administrative expertise. Only after deferring to the administrative expertise of the Secretary or the Commission, appellants contend, can a court adequately determine whether there has indeed been a violation of the Act or the regulations promulgated pursuant to it.
Appellants’ argument certainly finds support in past cases which have commanded deference in order to allow administrative agencies to make preliminary comprehensive investigations and analyses of the facts involved and to apply them to a statutory scheme. Port of Boston Marine Terminal Assn. v. Rederiaktiebolaget Transatlantic, 400 U.S. 62, 68 , 91 S.Ct. 203 , 27 L.Ed.2d 203 (1970), Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 498 , 78 S.Ct. 851 , 2 L. Ed.2d 926 (1958), United States v. Western Pacific Ry., 352 U.S. 59, 64 , 77 S.Ct. 161 , 1 L.Ed.2d 126 (1956). The same rationale has been applied to the Commodities Exchange Commission’s fact-finding function in Ricci v. Chicago Mercantile Exchange, 409 U.S. 289 , 93 S.Ct. 573 , 34 L.Ed.2d 525 (1973), where the court required deference to the administrative judgment of the Commodities Exchange Commission. In that case plaintiff Ricci, like the plaintiffs-appel-lees in the instant eases, alleged only that the Act and exchange rules had been violated. 409 U.S. at 289 , 93 S.Ct. at 574 . Despite the uncertainty of whether Ricci could obtain administrative adjudication of his complaint, the Court held that the Commission must make the first determination of whether valid regulations had been violated:
That issue [of whether the transfer of Ricci’s membership was in violation of the Act for failure to follow exchange rules] in turn appears to pose issues of fact, and questions about the scope, meaning and significance of exchange membership rules. These are matters that should be dealt with in the first instance by those especially familiar with the customs and practices of the industry and the unique marketplace involved in this ease. They are matters typically lying at the heart of an administrative agency’s task and here they appear to be matters which Congress has placed within the jurisdiction of the Commodities Exchange Commission.
409 U.S. at 304 , 93 S.Ct. at 582 (footnote and citations omitted). Appellants have argued that this language mandates deference of the issues in these cases to the Commission also. 2
In Ricci , however, the trial judge had no occasion to pass upon the question of whether the issues involved required deference to the Commission. But both the Court of Appeals and Supreme Court *537 opinions recognized that the very nature of the Commodities Act required that each exchange have a membership organization and criteria for the acquisition, transfer and loss of membership. 409 U.S. at 308 , 93 S.Ct. at 581 . Even though the factual issues of the case were quite simple and could have been easily disposed of in a civil proceeding, 3 International Brotherhood of Boilermakers v. Hardeman, 401 U.S. 233, 238-239 , 91 S.Ct. 609 , 28 L.Ed.2d 10 (1971), these opinions recognized that the Commission could articulate the ways in which an exchange could validly exercise its inherent power over membership, 4 and that this articulation would hopefully dispose of a preliminary issue in the task of reconciling the antitrust laws with the Commodities Exchange - Act. Since the Exchange Act does not in any way give a commodities exchange or the Commission power to sanction price manipulation, and since, for reasons to be discussed below, deference to administrative expertise is not vital for defining the scope of the regulations governing the issues raised by the complaints, I do not believe that Ricci compels deference to administrative primary jurisdiction in these cases.
Courts have usually invoked the doctrine of primary jurisdiction where they have determined that the issues raised are within the unique expertise of administrative agencies, where the issues involve administrative discretion, and where the desire for uniformity would be frustrated by many courts reaching inconsistent decisions. United States v. Philadelphia National Bank, 374 U.S. 321, 353 , 83 S.Ct. 1715 , 10 L.Ed.2d 915 (1963). Accordingly, a trial court asked to defer action on a matter arguably within administrative jurisdiction should consider these factors and examine the particular issues raised by the pleadings, the contribution that an administrative adjudication can make, and the effect that deferring the litigation will have upon the litigants involved. Ricci v. Chicago Mercantile Exchange, 409 U.S. at 308 , 93 S.Ct. at 584 (Marshall, J., dissenting).
The complaint in Deaktor v. L. D. Schreiber & Co. et al., a class action on behalf of all traders allegedly harmed because of artificially inflated prices, alleges that the defendants exceeded daily trading limits, held or controlled net “long” positions in excess of position limits, and were responsible for manipulation of the prices of pork belly futures for July, 1970. The complaint further alleges that the Chicago Mercantile Exchange was or should have been aware of the manipulative activities and that it failed to act promptly to halt these violations of Exchange rules. All defendants’ answers denied these allegations. From the complaints and arguments on appeal, it appears that the essential issues which must be adjudicated are whether the Commission had set quantitative limits for trading pork belly futures, whether the defendants exceeded these limits, whether the defendants’ conduct caused unreasonable price fluctuations, and whether the exchange knew or should have known about the conduct of the defendants and should have acted to stop it. I do not think *538 that the district court abused its discretion in determining that these issues do not require the application of administrative expertise, for they involve factual determinations within the traditional competence of juries.
The complaint in Phillips v. Chicago Mercantile Exchange, a class action brought on behalf of all traders who lost money on fresh eggs futures contracts allegedly because of the defendants’ conduct, alleges that defendants violated both the antitrust laws and the Commodities Exchange Act by artificially depressing the price of egg futures for their own advantage. The complaint alleges that the defendants, acting through the Business Conduct Committee of the Chicago Mercantile Exchange, ordered parties holding contracts to buy fresh eggs to liquidate 50% of these contracts without giving these parties a hearing and without giving the liquidation order proper dissemination. As a consequence, the price of eggs was driven downward to enable the defendants to purchase sufficient egg contracts to extricate themselves from the economically undesirable position they were in before their illegal activity. The complaint further alleges that the defendants’ activity was in violation of rules of the Chicago exchange relating to hearings and emergency action, constituted manipulation and the circulation of false information as prohibited by the Act, and was an illegal conspiracy in restraint of trade. The defendants have denied all these allegations. Thus, the key issues are whether the defendants had the conspiratorial purpose alleged, whether they acted in the way alleged, and whether the harmful effects flowed from their action. Once again, I do not believe that the trial judge abused his discretion in finding these issues within the competence of his court. 5
Given the unobtrusive nature of the facts at issue in these cases, I doubt whether deference to the Commission would add substantially to their resolution. These facts do not involve a pervasive regulatory scheme, United States v. Radio Corporation of America, 358 U.S. 334, 350 , 79 S.Ct. 457 , 3 L.Ed.2d 354 (1959), or matters within administrative discretion, Great Northern Ry. v. Merchants’ Elevator Co., 259 U.S. 285, 294 , 42 S.Ct. 477 , 66 L.Ed. 943 (1922), but rather a unique set of facts concerning situations which may never be repeated. The main issue common to all these appeals- — i. e., whether a manipulation of prices occurred — is one which the judiciary has considered itself just as competent as the Commodities Exchange Commission to pass upon. Since the term “manipulation” is undefined in the Act, courts of appeal have given it meaning in the cases taken on direct appeal from Commission determinations. Volkart Brothers Inc. v. Freeman, 311 F.2d 52, 58 (5th Cir. 1962), General Foods Corp. v. Brannan, 170 F.2d 220, 223-224 (7th Cir. 1948). Although commentators have argued that the judicial interpretation of “manipulation” has varied from circuit to circuit, Congress has declined to substitute a statutory definition of that term for the sake of uniformity. Vogelson, Tightened Regulation for Commodity Exchanges, 55 A.B.A.J. 858, 860 (1969). 6 In short, it *539 is doubtful that deference can add much to the work of a court and jury in resolving the issues concerning manipulation in the instant cases; nor does it appear that Congress regards uniformity as a compelling consideration.
Finally, the interest of the plaintiffs in these cases should be considered. Any deference to administrative primary jurisdiction and subsequent appeals from administrative decisions before a district court adjudication of their complaints will increase costs, delay redress of any wrongs, and act to deter litigation. I also perceive several knotty problems involved in allowing an administrative agency to decide issues which are at the heart of a judicial proceeding. Assuming for the moment that a tort action for interference with one’s trade was cognizable at common law, plaintiffs are entitled to a trial of their actions by a jury in the district court. See, Fleitmann v. Welsbach Street Lighting Co., 240 U.S. 27 , 36 S.Ct. 233 , 60 L. Ed. 505 (1916), 5 Moore’s Federal Practice ¶ 38.19 (2d Ed. 1971). I seriously question whether a prior administrative determination of matters at the heart of a lawsuit could subsequently bind a court, for then the administrative proceeding would amount to a deprivation of plaintiff’s Seventh Amendment rights. If the administrative adjudication were not binding, I doubt whether it could be brought to the attention of the jury in the subsequent court proceeding, for it may be inadmissible as infringing upon the province of the jury. Refusal to defer, of course, would avoid these problems.
I find that the trial judge did not abuse his discretion in refusing to defer to the Commission in these cases, given the facts at issue and the particular regulations involved. I concur in the result.
. There is support for the view that deference to administrative primary jurisdiction is not necessary when the only issues are whether a party has violated a valid statute or regulation and whether his activity is consequently clearly unlawful. Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 222 , 86 S.Ct. 781 , 15 L.Ed.2d 709 (1966), Pennsylvania R.R. v. Puritan Coal Mining Co., 237 U.S. 121, 131-132 , 35 S.Ct. 484 , 59 L.Ed. 867 (1915), McCleneghan v. Union Stock Yards Co., 298 F.2d 659 , 668 (8th Cir. 1962). As was noted in Crain v. Blue Grass Stockyards Co., 399 F.2d 868, 874 (6th Cir. 1968): . .it does not require administrative expertise to detei-mine whether plaintiff violated rules and regulations and whether-, because of such violation, defendants had the right to and did exclude plaintiff. . . . ”
. A statutory argument supporting deference can also be made. The Commodities Exchange Act currently contains three means of punishing price manipulation and other violations : suspension of a commodities exchange or member from trading ( 7 U.S.C. §§ 8 and 9), the issuance of cease and desist orders (§§ 13a and 13b), and the imposition of criminal penalties (§ 13; but see also § 13e(b)). Each statutory penalty requires some determination by the Secretary that a violation of the Act has been committed before court action to enforce the penalty is allowed. Hearings are guaranteed before suspensions or the issuance of cease and desist orders; and the Secretary can refuse to refer any suspected violation for criminal prosecution if criminal sanctions would not be in the public interest. Here, however, plaintiffs are trying to impose a fourth penalty — monetary damages— which will not be subject to prior determination by the Secretary that a violation has occurred or that the imposition of a penalty would serve the public interest.
. Some of the factual issues which the Court identified for deference to the Commission were the questions whether Ricci’s membership had been transferred to another before Ricci had revoked a transfer authorization; whether the transfer authorization was valid; whether the party who ordered the transfer had the power to do so; and whether the party ordering the transfer was indebted to Ricci. All these issues appear to be simple questions of fact. 409 U.S. at 305 n. 15, 93 S.Ct. at 582 n. 15.
. An examination of the exchange rules which the Court of Appeals found relevant indicates that they had little relevance to the factual questions involved. My suspicion is that the Court believed deference would allow the Commission to determine whether any unwritten rules sanctioned or prohibited the membership transfer, 409 U.S. at 299 n. 11, 93 S.Ct. at 579 n. 11.
. It is also questionable whether the Commodities Exchange Commission could even take jurisdiction over the issues pertaining to whether the defendants violated the rules governing hearings and emergency action. Congress, in giving the Commission power to force exchanges to police violations of their own rules, plainly indicated that this power would not extend to the enforcement of rules and regulations “such as those governing the organization and government of the exchange. . . .” S.Rep. No. 947, 90th Cong., 2d Sess., U.S.Code Cong. & Admin. News, pp. 1673, 1681 (1968).
. It should be noted also that a court of appeals reviewing any administrative determinations under the Commodities Act can set them aside if they are unsupported by the weight of the evidence. 7 U.S.C. §§ 8 , 9, 13a, and 13b. This stand *539 ard of review has been likened to a de novo determination, with proper regard to the credibility determinations of the trier of fact. Great Western Food Distributors v. Brannan, 201 F.2d 476, 479 (7th Cir. 1953). Surely if Congress were interested in promoting uniformity under the Act, it would have provided for a more stringent standard of review.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9459545. Public record. Not legal advice.