Opposition Brief — Simplot v. Strobl

Supreme Court, om

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cor gi 198

No. 85-571 oct

mere. SPANIO

JUS CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

>

JOHN R. SIMPLOT, J.R. SIMPLOT COMPANY, SIMPLOT

INDUSTRIES, INC., PJ. TAGGARES, P.J. TAGGARES

COMPANY and SIMTAG FARMS,

Petitioners,

ae

JOSEPH STROBL,

Respondent.

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

CHRISTOPHER LOVELL

120 Broadway

New York, New York 10005

(212) 608-1900

Counsel for Respondent

Joseph Strobl

LOVELL & STEWART

VICTOR E. STEWART

Of Counsel

October 31, 1985

BEST AVAILABLE COPY &

QUESTION PRESENTED

The question raised by the petition does not present any

conflict between circuit courts, was correctly decided by the

Court below, and was originally raised as only an afterthought

argument. It is as follows:

1. Does a vicious price-fixing conspiracy carried out in

both the cash and futures contract portions of the potato

market, by supposed competitors in the purchase of

potatoes, and culminating in the largest default in the

history of futures trading, somehow win immunity from

the antitrust laws because it ‘vas so large that it also

violated portions of the Commodity Exchange Act, where

(a) Congress recognized the extreme danger of price-fixing

conspiracies utilizing commodity futures markets by

broadening in 1890 the scope of the Sherman Act in order

to be sure to prohibit such conspiracies, (b) Congress

again recognized such dangers in 1973-74 in the Commod-

ity Exchange Act, wherein it expressly sought to retain

such Sherman and Clayton Act prohibitions and court

jurisdiction, and (c) no claim is or could be made that the

classic price-fixing conspiracy was governmentally com-

pelled.

ii

TABLE OF CONTENTS

QUESTION PRES R Es << cp canccpesvantersicanss

TABLE OF AUTH lites cr cchccceheerhuavasesss

OPINIONS BELOW, JURISDICTION AND STAT-

UTES SUVA EES «065 nran na bean cdund hee eat

STATEMENT OF THE. CARS <x cst uics Hidin wera seas

PETITIONERS’ SOLE ARGUMENT HERE WAS

AN AFTERTHOUGHT IN THE COURTS BELOW,

WHICH THE DEFENDANTS NOW ATTEMPT TO

SUPPORT BY RE-WRITING THE FACTS........

Underayits FOGt8 6: siicicccecn enews eeaiuasese *

Lower Court PrOceeiines ..in5 6.653 24 Sek ean

ARGUMENT ..4 003 is0csbus tee eews eoees ieee

Summary of Argument and Reasons For Denying

COTROID nc 5 cc cc oncecks sake ee dee

POINT I

THE DECISION BELOW IS CORRECT BE-

CAUSE COMMON SENSE, CONGRESS, AND

THE COURTS ALL DISAGREE WITH DE-

FENDANTS’ PROPOSITION THAT THERE IS

NO DIFFERENCE FOR COMMODITY PRICE-

FIXING PURPOSES BETWEEN THE COM-

MODITY FUTURES AND _- SECURITIES

MAREETS ....s sss akserus seen eae hee

ili

POINT Il

THE DECISION BELOW WAS CORRECT IN

PERMITTING THE PRICE-FIXING CLAIM

HERE, AND SUCH WAS CONSISTENT WITH

THE LEGISLATIVE HISTORY OF THE 1973-74

AMENDMENTS TO THE COMMODITY EX-

EN os 04 5 ss 89 655 Soe whew eo s'5 oe

POINT Ill

THERE ARE NO CONFLICTS BETWEEN CIR-

CUIT COURTS; THERE ARE NO MEANING-

FUL CONFLICTS ON THE FACTS UNDER

THE CITED CASE; THE DISTRICT COURT

DECISION ASSERTED TO CAUSE CON-

FLICTS IS INFIRM AND IGNORED CON-

TROLLING LAW IN ITS OWN CIRCUIT;

AND, EVEN IF THERE WERE CONFLICTS,

THE STATUTE HAS BEEN AMENDED IN MaA-

pg Og) Ss eer

A. There Are No Conflicts Between Circuit

I a Ea. oe Gia ds heb evceecées

B. There Is No Meaningful Conflict and No Con-

ee cea ba ca Wakecidkawed ts

C. Smith v. Groover is Infirm and Ignores Con-

trolling Law In Its own Circuit.............

D. Even if a Conflict Did Exist, The Statute Has

ERECT ETT ee Parr eee eee

POINT IV

DEFENDANTS’ LAST ARGUMENT FOR CER-

THORARI IS INSUBSTANTIAL...............

A re i reer ee

PAGE

a

iv

TABLE OF AUTHORITIES

Cases

Apex Oil Co. v. Joseph Di Mauro, 82 Civ. 1796

(B.24.Y. Sele BR; TR io onic cccie nas EAD Epa Sage

Berger v. United States, 170 F.Supp. 795 (S.D.N.Y.

California v. Federal Power Comm’n, 369 U.S. 482

CEE ib wk bareuhes we hie bak Re ee bea

Cargill, Inc. v. Board of Trade, 164 F.2d 820 (7th Cir.),

cert. denied, 333 U.S. 880 (1948)... wc cece eccees

Carnation Co. v. Pacific Westbound Conference, 383

Se Se re a CaS ea ee hie s be Rasen

Chicago Board of Trade v. Olsen, 262 U.S. 1 (1923)...

Community Services, Inc. v. United States, 342 U.S. 932

to REE Hip a ee Se BE Neg

Goldschmidt v. Hunt, 556 F.Supp. 123 (N.D. Tex. 1983)

Gordon v. New York Stock Exchange, 422 U.S. 659

Pe hb 0c ae LES b0s RSS ARK ROE AT EO RES AREAS 6

Ix ve Ira Haupt & Co., 398 F.2d 607 (2d Cir. 1968) ....

Klebanow v. New York Produce Exchange, 344 F.2d 294

CD Se IR: i i v0 ein where en 0 seed dee Sate cs 6s

Layne and Bowler Corp. v. Western Well Works, Inc.,

p RE Re 2. eer ee en: er. eee

MCI Communications v. American Tel. & Tel. Co., 708

F.2d 1081 (7th Cir. 1983), cert. denied, — U.S. —, 104

ek Es ea a ha on Cee as ede RA OR ewes

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,

Pe BG Se EE ah cw vne de bed bade ee dpeeeers

PAGE

20

PAGE

Miller v. New York Produce Exch., 550 F.2d 762 (2d

Cir.), cert. denied, 434 U.S. 823 (1977)............. y

National Gerimedical Hosp. and Gerontology Center v.

Bie Cross, 432°U.S. TTR, FRO CUPRA) ow vv svcacccass 13

New York Coffee and Sugar Exchange, 3 CCH Trade

Reg. Rep. Paragraph 25,364 (F.T.C. 1955).......... 10

Otter Tail Power v. United States, 410 U.S. 366 (1973) 13

Pan American World Airways v. United States, 371 U.S.

ee RE 6 ocd ae 55k co aes es be ene hehe 13

Peto v. Howell, 101 F.2d 353 (7th Cir. 1938).......... 10, 19

Pollock vy. Citrus Assoc., 512 F.Supp. 711 (S.D.N.Y.

SNR 6g 5.54449 ke hen Cad Re RS ee es 18

Schaefer v. First National Bank of Lincolnwood, 326

F.Supp. 1186 (N.D.IIl? 1970), aff’d in part and rev’d

in part, 509 F.2d 1287 (7th Cir. 1975), cert. denied, 425

Ds ee EG A's tak dv ks nod ck neeun Ge tk eee an 18

Schaefer v. First National Bank of Lincolnwood, 509

F.2d 1287 (7th Cir. 1975), cert. denied, 425 U.S. 943

CET 00h eV Ed ae Awake eke ES EOE ees sae 18

Shapiro v. United States, 335 U.S. 1 (1948)........... 20

Smith v. Groover, 468 F.Supp. 105 (N.D. Ill. 1979) ....18, 19

Sokol Bros. v. Commissioner. 340 U.S. 952 (1951)..... 21

Strax v. Commodity Exch., Inc., 524 F.Supp. 936

Ceaeaces: ROE: 54 kak Okada deed abienes Venues 18

Swift & Co. v. United States, 196 U.S. 375 (1905)..... 9

Terminal Warehouse Co. v. Penn R. Co., 297 U.S. 500

fo rere ere ry ye Tee ee ere ey eee 13, 21

United States v. Abrams, 344 U.S. 855 (1952)......... 21

United States v. Beal, 340 U.S. 852 (1950)............ 21

vi

United States v. Borden Co., 308 U.S. 188 (1939) .....

United States v. Hoffman, 335 U.S. 77 (1948) ........

United States v. Patten, 226 U.S. 525 (1913)..........

United States v. Philadelphia Nat’! Bank, 374 U.S. 321

CRE: 6.0 os 04 nee nen Gc a0 us 40 Came ae eee te Ap eee

United States v. Radio Corp. of America, 358 U.S. 334

1 Sap earene nara orth Riri mate arte Caer ee Sysy

United States v. South-Eastern Underwriters Ass’n, 322

i) ths ee CG hc as Peake Coa eee eka Eek ee oe

United States v. Sugar Inst., 15 F.Supp. 817, (S.D.N-Y.

1934), mod. on other grounds, 297 U.S. 553 (1936)..

United States v. Trans-Missouri Freight Ass’n, 166 U.S.

Sea Tn Ai A ORES CR ASE RS

United States v. Wilkinson, 355 U.S. 839 (1957). ......

Statutes

CRG FR. ES Writes OB Ua wks X00as sk ck wees ees

Commodity Exchange Act, amended by the Futures

Trading Commission Act of 1974, Pub. L. No. 93-

463, 88 Stat. 1389, codified at 7 U.S.C. §§ 1 et. seq.

Futures Trading Act of 1978, 92 Stat. 865 (1978) ......

Futures Trading Act of 1982, 96 Siat. 2294 (1983) .....

Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et.

MEER E SECTORS EEE TEE Ce re ere PE Tel

mr: Fae. US Sa. Bc « woe 0 c8 Liad ch beecxeee

14

Vii

Legislative Materials

Hearings on H.R. 11955 before the House Committee

on Agriculture, 93rd Cong., 2d Sess. 249 (1974).....

Hearings on Review of Commodity Exchange Act and

Discussion of Possible Changes Before the House

Committee on Agriculture, 93rd Cong., Ist Sess.,

M7 | RPT eee ony eer rere ey eee rc

Hearings on S. 2485, S. 2578, S 2837 and H.R. 13113

Before the United States Senate Committee on Agri-

culture and Forestry, 93rd Cong., 2nd Sess. 259.....

Statement on Antitrust Jurisdiction, 120 Cong. Rec.

ek, RR eee oe ree we

Statement of Keith Clearwaters, Deputy Assistant Attor-

ney General, Department of Justice, Senate Hearings

SE. Wik on REN ohn BE ewer es 4a omen sn dk 05 8 o40

Statement of James T. Halverson, Director, Bureau of

Competition, Federal Trade Commission, 93rd Cong.,

ee PE POET, i ci babes cna nds kasabiotedss

Statement of Senator Ingalls, 21 Cong. Rec. 2462-63,

Be: Se ee I ooo iG a ndk cx ee een eee

Statement of Glenn Willet Clark, Professor of Law,

Drake University Law School, Des Moines, lowa,

93rd Cong., Senate Hearings at 683 ...............

Other References

16 J.O. Von Kalinowski, Business Organizations Anti-

trust Laws and Trade Regulations, Sec. 2.02[4] (1984)

Federal Trade Commission, Economic Report of the

Investigation of Coffee Prices (1954). ...........44.

PAGE

14

14

14

17

16

16

16

Vili

Federal Trade Commission, Report of Economic Effects

of Grain Exchange Actions Affecting Futures Trading

During the First Six Months of 1946 (1947).........

Report of the Federal Trade Commission on the Grain

Trade, Volumes 1-7 (1922-1926) .............0200e-

The Coffee Exchange Debacle: Highlighting The Need

for Further Regulation of Futures Trading Through

the Sherman Act and The Commodity Exchange Act,

Oe a i I oo ee eat banadhas ee kee ee's

PAGE

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-571

>

JOHN R. SIMPLOT, J.R. SIMPLOT COMPANY, SIMPLOT

INDUSTRIES, INC., PJ. TAGGARES, PJ. TAGGARES

COMPANY and SIMTAG FARMS,

Petitioners,

Vv.

JOSEPH STROBL,

Respondent.

>

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Respondent Joseph Strobl requests that a writ of certiorari

not be issued to review the judgment and opinion of the United

States Court of Appeals for the Second Circuit, which

affirmed a final judgment of the United States District Court

for the Southern District of New York which, in turn, upheld a

jury verdict in its entirety. See Appendix.

Petitioners J.R. Simplot, P. J. Taggares ef a/. (sometimes

hereinafter referred to as “defendants” or “petitioners”) seek

review of the Second Circuit’s decision that their vicious

price-fixing conspiracy which was so broad that it also violated

various provisions of the Commodity Exchange Act (the

“CEA”) did not thereby become so large as to somehow win

immunity from the prohibitions of the federal antitrust laws.

OPINIONS BELOW, JURISDICTION AND

STATUTES INVOLVED

We accept petitioners’ statements here except to note that

Section 2(a)(1) of the CEA, 7 U.S.C. § 2 is also at issue; that

the judgment was for $1,263,500.00 not $1,380,000 (compare,

Appendix (“A”) p. 53 with Petitioners’ Brief (“PB”) p. 2.); and

that respondent disputes that this Court should grant the writ.

STATEMENT OF THE CASE

PETITIONERS’ SOLE ARGUMENT HERE WAS AN

AFTERTHOUGHT IN THE COURTS BELOW, WHICH

THE DEFENDANTS NOW ATTEMPT TO SUPPORT BY

RE-WRITING THE FACTS

1. Underlying Facts. Defendants belatedly raised an anti-

trust argument below (see 2 infra). They have now re-cast the

facts at issue in order to serve this afterthought argument-and

delay justice by the amount of time inherent in the certiorari

process. Contrary to defendants’ new version of the facts,

however, this is not merely a “futures” market case; rather, it is

a potato price-fixing conspiracy carried out in both the futures

contract and cash portions of the potato market.

For example, the defendants were, and are, large supposed

competitors in the purchase and processing of cash market

potatoes. Their potato purchasing season is largely from

March to May, the alleged conspiracy period here. During this

time in 1976—and while defendants were purchasing over a

billion pounds of potatoes—the supposed competitors had

repeated intercommunications about potato prices and under-

took numerous joint and individual actions in the cash and

futures markets that were per se unlawful or highly unusual

and which each had the effect of creating the appearance of a

glut or oversupply of potatoes. See A. p. 26.

3

Such actions included, but were not limited to, the follow-

ing: sending “roller cars” of unsold potatoes to eastern cash

markets; selling contracts on futures markets to deliver (and

representing to the potato markets the existence of) millions of

pounds of Maine potatoes which defendants did not own;

refusing to buy back those contracts on the futures market;

and refusing to buy Maine potatoes on the cash markets in

order to deliver in satisfaction of their futures contracts. By the

latter step, for which defendants indemnified their brokers in

order to gain their support, the supposed competitors perpe-

trated the largest default in the history of commodity futures

trading in this country; it was highly publicized and destroyed

the contract requirement on which futures depend for the

theoretical vitality and validity of their trading prices: the

delivery of the actual commodity. See A. pp. 27-30.

Thus, the conspiracy of the supposed competitors greatly

profited their respective businesses (a) by fixing and depressing

the prices they paid for potatoes that year and thereafter (e.z.,

A. pp. 3-57), and (b) by discrediting and destroying the utility

of the Maine potato futures contract as a beacon for fair prices

in the cash potato markets (as defendants knew from their

earlier default experience with Idaho potato futures, defaults

destroy futures contracts).

Lower Court Proceedings. Plaintiff sued to recover, and

was awarded, a sum equalling the difference between what he

sold his Maine futures contracts for and what he would have

sold them for in a fair market absent defendants’ price-fixing.

Prior to trial, the antitrust argument here was never raised,

although defendants’ excellent counsel made numerous un-

successful motions, e.g.:

(a) to suppress mention of: (i) prior felony convictions of

Simplot and Simplot Co. regarding false tax returns

(denied), (ii) previous consent orders of Simplot and

Taggares relating to May 1971, 1974, and 1976 potato

futures contracts (granted in part, and denied in part),

4

and (iii) deposition testimony of a witness to the effect

that Taggares encouraged him to join the conspiracy

(denied) (the prior felony convictions and the admissions

were NOT used by plaintiff at trial, but the deposition

was used);

(b) to obtain partial summary judgment against proof of

non-futures market damages on the antitrust claim of a

plaintiff in a consolidated case (denied);

(c) to dismiss the Commodity Exchange Act claim (de-

nied); and

(d) to preclude or permit use of miscellaneous other

evidence, including an administrative decision in a pro-

ceeding in which Simplot had asserted his Fifth Amend-

ment privilege against self-inciimination due to a pending

criminal antitrust grand jury investigation, and Simplot

and Taggares had accepted substantial penalties, including

six and four year trading suspensions (denied).

Thus, despite years of preparation and despite making all

these other unsuccessful motions prior to trial, defendants’

excellent counsel apparently did not see their present antitrust

jurisdiction issue as worthy of mention. Rather, the first time it

was mentioned was after plaintiff had rested his case. And,

again on the appeal, this belated argument was raised only as

the third point in defendants’ brief. It is now the sole ground

on which defendants seek certiorari.

ARGUMENT

“Summary of A-sument and Reasons For

Denying Certiorari”

The writ should be denied for the following reasons.

There is no conflict between circuit courts. See Point III A

infra.

There is no meaningful conflict between any court; and no

conflict on the facts between the circuit court below and the

cited district court opinion; moreover, the lone district court

opinion which creates the meaningless conflict on the law not

only has been repeatedly rejected by the decisions since but was

based on obvious infirmities and an apparent failure to follow

controiling law in its own circuit. See Point III B infra.

The statute at issue was later amended in material aspects

not considered by the Court below. See Point III C infra.

Petitioners’ rea! argument for certiorari is the asserted erro-

neousness of the decision below. However, the decision below

was correctly decided; analyzing, point-by-point, the four

points which petitioners asserted to be errors therein, serves

only to demonstrate thoroughly that there was no error, see

Points I-IV, and that defendants’ pe’ ‘ion here is, in view of

their vicious price-fixing conspiracy and purposeful destruction

of a market, an affront to the certiorari process.

POINT I

THE DECISION BELOW IS CORRECT BECAUSE COM-

MON SENSE, CONGRESS, AND THE COURTS ALL

DISAGREE WITH DEFENDANTS’ PROPOSITION

THAT THERE IS NO DIFFERENCE FOR COMMODITY

PRICE-FIXING PURPOSES BETWEEN THE COMMOD-

ITY FUTURES AND SECURITIES MARKETS

Defendants argue that the decision below was incorrect, that

certiorari should be granted, and that their gargantuan price-

fixing conspiracy here should be immunized from prosecution,

under the Sherman Act, 15 U.S.C. § 1, for the following

reason: supposedly there “is no reason why the federal anti-

trust laws should apply in one case [commodity futures

markets] while not in the other [securities markets].” PB.

Point III, p. 15 (as all concede, fixing prices of securities is

not, of itself, remediable under the Sherman Act). This would

be a very weak point for certiorari, if even it were true.

However, it is false. And one need not be a farmer in order

to understand that there are many reasons why the decision

below was correct that commodity futures are different from

securities insofar as commodity price fixing is concerned.

First, the most basic common sense indicates that the sup-

posed competitors in the purchase of potatoes here could not

have implemented, and need not have abused, the securities

markets as an essential step in their potato price-fixing con-

spiracy to profit their processing operations; that the stock and

options markets do not serve, while commodity futures

markets do serve, as a price beacon for processors, producers,

farmers, and users of commodities; and that securities are

solely pieces of paper while commodity futures are contracts

contemplating the delivery of, and becoming the actual com-

modity (unless a default occurs).

7

Taking only one snippet of testimony from the trial below is

also instructive on this commodity price-discovery difference

between securities and commodity futures:

Q. You made reference in your last answer, Mr. deMer-

chant, to action on the Mercantile Exchange relating to

trading the cash market. Does the Mercantile Exchange

reported prices affect the cash market?

A. Yes, they do. They lead the market up, and if it is in

reverse, it leads the market or it will floor the market real

fast.

Our market moved quite fast with the Mercantile.

Q. Are the Mercantile Exchange Maine potato futures

contract prices reported in the state of Maine?

A. In every potato business office, in every farm ma-

chinery office, in every fertilizer company office, anybody

that’s got anything to sell to the farmer, there was a ticker

tape or there was a bulletin board or something. It was

kept in front of everybody. Compare, A. pp 26-27.

The prices of securities were not and are not so reported.

Thus, besides all the other differences between securities and

commodity futures, there is one characteristic possessed by the

latter but not by the former which of itself, merits different

antitrust treatment: commodity futurcs have the power to set

and affect, and do daily set and affect, cash commodity prices,

but securities do not have this power. The “roller cars” and all

the other cash market actions undertaken by defendants in

their conspiracy at bar were effective for the defendants and

damaging to fair prices and appearances; but the most effec-

tive and damaging of all was the futures market price-fixing

because those polluted prices were instantaneously reported

and read throughout the United States, and drove down potato

prices all over: as the lower potato prices were reported in the

terminal and shipping markets, they drove down prices, etc.

Moreover, Congress, in creating the Sherman Act in 1890,

recognized these basic, common-sense commodity price-fixing

8

differences between our securities and commodities futures

markets, and recognized that nowhere is a price-fixing con-

spiracy so dangerous as when it operates on a commodity

futures market whose prices are nationally reported. For exam-

ple, there is no mention of the securities markets made in the

legislative deliberations culminating in the passage of the

Sherman Act (despite the then-long existence of the securities

markets). However, despite their relatively recent inception,

commodity futures markets figured prominently in such delib-

erations.

Indeed, during the debates preceding the passage of the

Sherman Act in 1890, Senator Ingalls of Kansas actually

introduced an amendment to the Sherman Act that would have

taxed out of existence those dealing in commodities futures

contracts, in their entirety! 21 Cong. Rec. 2462-63 and 2648

(1890). See also United States v. South-Eastern Underwriters

Ass’n, 322 U.S. 533, 544 n. 40 (1944). Senator Sherman

himself spoke in favor of the amendment, finding that it went

to the very purpose of his proposed act! 21 Cong. Rec. 2652

(1890).

However, after four days of debate, the bill was sent to the

Senate Committee on the Judiciary, of which Senator Ingalls

was a member. That Committee then redrafted the bill to insert

the broad and sweeping language which it contains today, and

to delete the Ingalls amendment, with various members of the

Committee drafting different sections; Senator Ingalls is re-

puted to have redrafted Section 8. 16 J.0. VON KALIN-

OWSKI, BUSINESS ORGANIZATIONS: ANTITRUST

LAWS AND TRADE REGULATIONS Sec. 2.02[4] at 2-33 to

2-34 n. 116 (1984). The bill in its new, sweeping form was then

submitted to a vote, fully supported by Senator Ingalls and the

other proponents of the Ingalls amendment, and passed 52 to

1. 21 Cong. Rec. 3152-53 (1890).

Confirming that the language of Section 1 was broadened

expressly in order to be sure to cover, inter alia, futures

contracts, when the movement to tax futures out of existence

9

again gathered steam in 1892, Senator Hoar, a member of the

Senate Judiciary Committee which rewrote the Sherman Act,

confirmed that to the extent such futures and options activities

were immoral or reprehensible, they were already actionable

under the antitrust laws:

MR. HOAR: I was about to say that my question relates

to immoral contracts, contracts either in restraint of trade

or establishing monopolies mingling with the honest com-

mercial transactions some taint of immorality or

wrongdoing or fraud . . . If it does come within that class

it will be prohibited by the authority of the court as an

obstruction against commerce.”

24 Cong. Rec. 32 (1893).

From that time onwards, the Supreme Court regularly ap-

plied the antitrust laws to a wide variety of commodities

markets. See, e.g., Swift & Co. v. United States, 196 U.S. 375,

394-400 (1905) (combination of fresh meat dealers fixing and

rigging prices to induce cattlemen to send their livestock to the

Chicago markets is within ambit of antitrust laws); United

States v. Patten, 226 U.S. 525, 541-43 (1913) (conspiracy to

run corner solely on New York Cotton Exchange was of itself

an unreasonable restraint of trade and commerce among the

States and would, therefore, inflict upon the public injuries

which the Sherman Act was designed to prevent); Chicago Bd.

of Trade v. Olsen., 262 U.S. 1, 39-40 (1923) (while holding the

Grain Futures Act constitutional, Court states that manipula-

tions of futures which unduly depress prices of grain in

interstate commerce fall under ambit of Patten and the anti-

trust laws, and that the Sherman Act’s passage by itself

appeared to have reduced or to be reducing dangerous tenden-

cies in commodity futures).

Consistent with this solid Supreme Court precedent, federal

courts have repeatedly applied federal antitrust laws to com-

modity futures transactions prior to the 1974 amendments to

the CEA. See, e.g., Miller v. New York Produce Exch., 550

F.2d 762, 766-68 (2d Cir.), cert. denied, 434 U.S. 823 (1977)

10

(claims under CEA and Sherman Act entertained simulta-

neously but jury correct to dismiss charges for lack of evi-

dence); In re Jra Haupt & Co., 398 F.2d 607, 610 (2d Cir.

1968)(antitrust treble damages action against various commod-

ities exchanges and brokers by brokerage firm in bankruptcy);

Klebanow v. New York Produce Exch., 344 F.2d 294, 299-300

(2d Cir. 1965) (complaint against New York Produce Exchange

and brokers under antitrust laws dismissed for lack of specific-

ity with leave to file an amended complaint); Cargill, Inc. v.

Board of Trade, 164 F.2d 820, 823 (7th Cir.), cert. denied, 333

U.S. 880 (1948) (deciding whether certain actions of the Ex-

change constituted price-fixing or illegal restraint of commerce

under the antitrust laws); Peto v. Howell, 101 F.2d 353, 360

(7th Cir. 1938) (evidence showing that trader purchased corn

futures in order to fix or increase prices, was substantial proof

of price-fixing and a private suit for treble damages antitrust

violation was permitted); United States v. Sugar Inst., 15 F.

Supp. 817, 896 (S.D.N.Y. 1934), mod. on other grounds, 297

U.S. 553 (1936) (market where members tacitly agree to main-

tain “public” prices on prior agreement, is violative of Section

1 of the Sherman Act).

Indeed, it could be said that the decision below was con-

trolled by United States v. Patten, supra, and Peto v. Howell,

supra. At the very least, these decisions show that there is no

lack of harmony between the decision below and those of the

Seventh Circuit or this Court.

Further, the United States Department of Justice and the

Federal Trade Commission have long investigated commodity

futures price disorders as being violative of the Sherman Act.

See New York Coffee and Sugar Exchange, 3 CCH Trade Reg.

Rep. Paragraph 25,364 (F.T.C. 1955); Federal Trade Commis-

sion, Economic Report of the Investigation of Coffee Prices

(1954); Federal Trade Commission, Report of Economic Ef-

fects of Grain Exchange Actions Affecting Futures Trading

During the First Six Months of 1946 (1947); and Report of the

1]

Federal Trade Commission on the Grain Trade, Volumes 1-7

(1922-1926), see particularly Volume 7, Effects of Futures

Trading (1926).

Finally, legal scholarship has asserted that due to the price

discovery and price-setting function of commodity futures,

restraints of trade therein (such as the dangerous one at bar)

are so deleterious that not only Sherman Act prosecution for

retrospective award of damages, but also Commodity Ex-

change Act regulation for injunctive cessation thereof and

rules prospectively to prevent same, are required. See The

Coffee Exchange Debacle: Highlighting The Need for Further

Regulation of Futures Trading Through The Sherman Act And

The Commodity Exchange Act, 64 Yale L.J. 906, 915 (1955).

In sum, defendants are incorrect, the decision below was

very correct and there are many good reasons why commodity

futures are different from securities for purposes of Sherman

Act commodity price-fixing conspiracies. Such reasons range

from common sense, to the legislative history of the Sherman

Act, to the treatment by the courts, government attorneys, and

legal scholars. And they clearly demonstrate that the decision

below is very correct; that defendants’ glib suggestion of equal

treatment of securities and commodity futures is clearly incor-

rect in this context; and that at the very least, this asserted

reason clearly is no basis upon which certiorari should be

granted.

12

POINT Il

THE DECISION BELOW WAS CORRECT IN PERMIT-

TING THE PRICE-FIXING CLAIM HERE, AND SUCH

WAS CONSISTENT WITH THE LEGISLATIVE HIS-

TORY OF THE 1973-74 AMENDMENTS TO THE COM-

MODITY EXCHANGE ACT

With the underlying facts and historical and legal treatment

thus, placed in their proper perspective, we turn now to

defendants main, or at least first, point for certiorari: the

decision below is supposedly in conflict with (the legislative

history of) the 1973-74 amendments to the Commodity Ex-

change Act wherein Congress (supposedly) repealed the anti-

trust laws with regard to price-fixing conspiracies as large as

the one here. Again, however, the decision below was clee7ly

correct and there is no conflict between it and the Commodity

Exchange Act.

Defendants concede that Section 1 of the Sherman Act, by

its terms, clearly prohibits their gargantuan price-fixing con-

spiracy with its tentacles in both the cash and futures portions

of the potato markets. And the most basic common sense

indicates that immunizing this classic price-fixing conspiracy

from Sherman Act prosecution would be ludicrous.

But defendants say this Court should adopt this ludicrous

result because three bills were introduced but never enacted in

Congress in 1973-74 that would have provided treble damages

for every violation of every section of the Commodity Ex-

change Act. The failure to enact these bills repealed the

antitrust laws, defendants say, by evidencing a Congressional

intention to eliminate a treble damages remedy for every

antitrust violation that might also be argued to be also a

Commodity Exchange Act violation, i.e., a price-fixing con-

spiracy so large and vicious that it also violates the CEA, wins

immunity from treble damages. P.B. pages 8-14.

13

However, the failure to enact these introduced bills, which

were apparently never discussed in Congress, is not necessarily

or reasonably suggestive of an intent to extirpate the antitrust

laws. See A. p. 12. At most, it is suggestive of a Congressional

intent neither to expand nor to contract any treble damage

remedies. Therefore, defendants offer grossly insufficient evi-

dence of legislative intent to obtain what they seek: the ludi-

crous immunization of a price-fixing conspiracy which was

neither compelled nor permitted by the Commodity Exchange

Act, and which is clearly prohibited by the Sherman Act.

The fundamental and important national policies embodied

in the antitrust laws have been vindicated in this Court’s

repeated emphasis that repeals of the antitrust laws by implica-

tion from a regulatory statute are strongly disfavored and not

to be casually inferred. Gordon v. New York Stock Exch., 422

U.S. 659, 682 (1975); Carnation Co. v. Pacific Westbound

Conference, 383 U.S. 213, 217-18 (1966); United States v.

Philadelphia Nat’! Bank, 374 U.S. 321, 350 (1963); Pan Ameri-

can World Airways v. United States, 371 U.S. 296, 304-05

(1963); California v. Federal Power Comm’n, 369 U.S. 482,

485 (1962); United States v. Borden Co., 308 U.S. 188, 197-206

(1939); United States v. Trans-Missouri Freight Ass’n, 166

U.S. 290, 314-15 (1897); MCI Communications v. American

Tel. & Tel. Co., 708 F.2d 1081, 1102 (7th Cir. 1983), cert.

denied, — U.S. —, 104 S.Ct. 234 (1984); especially where the

conduct giving rise to the claimed exemption is the result of a

business decision (such as defendants’ decision here to conspire

to drive down potato futures prices and destroy the futures

contract by defaulting, all in order to profit their businesses)

and is not the product of regulatory coercion. National Geri-

medical Hosp. and Gerontology Center v. Blue Cross, 452

U.S. 378, 390 (1981); Otter Tail Power v. United States, 410

U.S. 366, 374 (1973); United States v. Radio Corp. of

America, 358 U.S. 334, 339 and 346 (1959).

Indeed, this distinction between governmentally-compelled

action and voluntary, reprehensible price-fixing is even made in

defendants’ own case, Terminal Warehouse Co. v. Penn R.

14

Co., 297 U.S. 500 (1936). There the Court took pains to point

out that insufficient facts existed to indicate any price-fixing or

other conspiracy; that, had such facts been present, such

violations would have been remediable under the Sherman Act

and the Clayton Act, 15 U.S.C. § 15; and that, thus, the

Court’s true holding was that the fact record conclusively

established that the discriminatory practice, “far from being a

symptom of a large combination, was the product of a mistake

of law which was shared for many years by the regulatory

commission”. Jd. at 515-16.

Thus, this Court may well ask itself, where is defendants’

claim of government compulsion? Or are they glibly proposing

a ludicrous rule of statutory construction that would emascu-

late the antitrust laws in our regulated society by leaping from

statute to statute and repealing the antitrust laws and immuniz-

ing classic price-fixing conspiracies wherever single damages

could be argued to be available under a regulatory statute. Not

only is the portion of the legislative history of the 1973-74

amendments of the Commodity Exchange Act which defend-

ants point to an insufficient evidence of legislative intent, but

other portions thereof conclusively demonsirate the Congress

expressly retained (and did not reject) Sherman Act jurisdic-

tion.

Thus, and first, during the process of enacting the 1974

amendments, the United States House of Representatives

(“House”) Agriculture Committee rebuffed intense efforts,

and unanimously struck from the original draft of the 1974

amendments an exemption for commodity futures transactions

from coverage under the antitrust laws. See Hearings on

S.2485, S.2578, S2837 and H.R. 13113 before the United

States Senate Committee on Agriculture and Forestry, 93rd

Cong., 2nd Sess., at page 259 (hereinafter “Senate Hearings at

____”); Hearings on H.R. 11955 Before the House Committee

on Agriculture, 93rd Cong., 2d Sess., at page 249 (1974);

Hearings on Review of Commodity Exchange Act and Discus-

sion of Possible Changes Before the House Committee on

Agriculture, 93rd Cong., 1s¢ Sess., at page 121 (1973). Con-

15

gress never again even considered an antitrust exemption provi-

sion.

Second, in creating Section 201(b) (Section 2 of the CEA

today) of the bill it reported out (H.R. 13113), the House

Agriculture Committee granted certain jurisdiction in favor of

the proposed CFTC. The wording of this grant did not suggest

to Agriculture Committee members arguments about an im-

plied repeal because such members knew they had just unani-

mously eliminated all antitrust exemptions. The House’s legal

experts in the Judiciary Committee later became concerned,

however, about implied repeal or preclusion of remedy argu-

ments being wrongly implied from the wording as then

phrased. Thus, and third, in order to set the matter straight, on

May 14, 1974, Congressman Peter W. Rodino, Jr., Chairman

of the House Judiciary Committee, took time away from the

historic Watergate matters then consuming his committee and

all of Congress, to submit his testimony before the United

States Senate Committee on Agriculture and Forestry; the sole

reason for his concern, and that of the House Judiciary

Committee, was the retention of antitrust jurisdiction over

price-fixing in futures after passage of the new legislation.

Congressman Rodino decried recent anticompetitive (price-fix-

ing) practices in wheat, soybeans, and corn futures contracts

apparently similar to (though not necessarily involving direct

competitors in the use of the product) the alleged price fixing

conspiracy here. A. p.13.

Furthermore, he extolled the importance, indeed the

“urgency”, of preserving the jurisdiction of antitrust laws over

such anticompetitive practices in the commodity futures

markets. Moreover, in page after page of analysis, he quoted

various government studies similarly extolling the “urgency” of

such jurisdiction. Finally, he urged that a specific proviso be

inserted in the CEA so that “unequivocal” antitrust jurisdic-

tion would be applied “unequivocally” to anticompetitive prac-

tices in commodity futures contracts, and so that any

possibility of preclusion or implied repeal agreements would be

16

eliminated. Congressman Rodino successfully urged that a

specific savings clause be inserted into the 1974 amendments to

the CEA so as to insure that the antitrust laws applied

unequivocally to commodity futures contract trading. A. pp.

12-14.

In a similar vein, Senator Herman Talmadge, Chairman of

the Senate Agriculture Committee, later explicitly confirmed,

and further evidenced, the specific Congressional intent to

develop a provision preserving antitrust jurisdiction over the

transactions here and to eliminate any possibility of preclusion

or implied repeal arguments. In response to a Justice Depart-

ment official’s criticisms and suggestions similar to those of

Congressman Rodino, Senator Talmadge emphasized that in

his view neither his committee nor the House had any intention

of depriving either state or federal courts from antitrust juris-

diction. Senate Hearings at 664.

The legislative history to the 1974 amendments is also replete

with other evidence, from figures equal to and lesser than these

Committee Chairmen, that Congress specifically intended to

preserve antitrust jurisdiction and prevent preclusion or im-

plied repeals. See, e.g., Statement of Keith Clearwaters, Dep-

uty Assistant Attorney General, Department of Justice

(antitrust laws should continue to apply to commodity ex-

changes), Senate Hearings at 663; Statement of James T.

Halverson, Director, Bureau of Competition, Federal Trade

Commission (conduct which may have the approval of the

CFTC should not be immune from scrutiny by the antitrust

enforcement agencies), Senate Hearings at 667-68; Statement

of Glenn Willet Clark, Professor of Law, Drake University

Law School, Des Moines, lowa (federal courts should retain

antitrust jurisdiction over conduct regulated by the CFTC),

Senate Hearings at 683-84.

Thus, Congress laid to rest any doubts about the “unequivo-

cal” application of the antitrust laws over anticompetitive

practices in commodity futures contracts upon the conclusion

of the 1974 hearings, by inserting and enacting the antitrust

nd

17

preservation proviso recommended by Congressman Rodino to

preserve antitrust jurisdiction over anticompetitive practices in

corn futures contracts, soybean futures contracts, wheat fu-

tures contracts, and—we respectfully submit—over the potato

futures contracts at bar. It reads as follows: “Nothing in this

Section shall supersede or limit the jurisdiction conferred on

Courts of the United <tates or any State.” Section 2(a)(1) of

the CEA, 7 U.S.C. Section 2. As the legislative history quoted

at length above has shown, by this specific proviso, Congress

specifically intended to preserve, and did preserve, Sherman

and Clayton Act antitrust jurisdiction over the classic price-fix-

ing conspiracy here. This proviso and the clear Congressional

intent behind it clearly mandate that certiorari be denied and

that defendants be liable for their antitrust violations here. See

120 Cong. Rec. 30,459, 34,997 (1974).

POINT Ill

THERE ARE NO CONFLICTS BETWEEN CIRCUIT

COURTS; THERE ARE NO MEANINGFUL CONFLICTS

ON THE FACTS UNDER THE CITED CASE; THE DIS-

TRICT COURT DECISION ASSERTED TO CAUSE

CONFLICTS IS INFIRM AND IGNORED CONTROL-

LING LAW IN ITS OWN CIRCUIT; AND, EVEN IF

THERE WERE CONFLICTS, THE STATUTE HAS BEEN

AMENDED IN MATERIAL RESPECTS

A. There Are No Conflicts Between Circuit Courts

Defendants’ next reason for certiorari is that “a conflict

exists between the Second and Seventh Circuits on the issue of

treble” damages and on “the appropriate approach to statu-

tory construction and application.” P.B. Point II. Defendants

are as wrong here as they are on the other points.

First, defendants’ own argument reveals that a// decisions in

all Circuits reject treble damages in the securities manipulation

context (no conflicts here) and that only one district court

decision has rejected the antitrust laws in the commodity

18

futures context (see infra). Therefore, no conflicts exist be-

tween circuit courts.

B. There Is No Meaningful Conflict and No Conflict On the

Facts

Second, the courts which have considered any price-fixing

conspiracy or facts similar to the facts proved here, have

agreed with the courts below that no antitrust immunity exists.

See Pollock v. Citrus Assoc., 512 F.Supp. 711, 716 (S.D.N.Y.

1981) Strax v. Commodity Exch., Inc., 524 F.Supp. 936 940

(S.D.N.Y. 1981); Goldschmidt v. Hunt, 556 F. Supp. 123 (N.D.

Tex. 1983); Apex Oil Co. v. Joseph DiMauro, 82 Civ. 1796

(S.D.N.Y. July 29, 1983), (unreported memo decision). There-

fore, no conflict exists.

Further, defendants’ asserted conflict is net meaningful.

This asserted conflict arises from one lone district court deci-

sion, Smith v. Groover, 468 F.Supp. 105 (N.D. Ill. 1979).

Smith primarily involved bucketing of orders, not price-fixing,

and held over six years ago that the antitrust laws were

precluded. Thus, it is different on the facts. Today, Smith v.

Groover stands by itself: the first decision written on this

subject, albeit on different facts, and the only one to find the

antitrust laws precluded. The decisions written sine .hen have

explicitly rejected the reasoning of Smith v. Groover. There-

fore, Smith v. Groover simply cannot serve to suggest a

conflict warranting certiorari here. See Layne and Bowler

Corp. v. Western Well Works, Inc., 261 U.S. 387, 392-3 (1923).

C. Smith v. Groover is Infirm and Ignores Controlling Law

In Its own Circuit.

Apart from its rejection by all other courts, Smith vy.

Groover suffers from an internal infirmity: it relies on and

attempts to import wholesale into an analysis of the Commod-

ity Exchange Act, the analysis of the securities laws by the

decisions in Schaefer v. First National Bank of Lincolnwood,

19

326 F. Supp. 1186 (N.D. Ill. 1970) and 509 F.2d 1287 (7th Cir.

1975), cert. denied, 425 U.S. 943 (1976). First, nowhere in all

the law could an analogy to an entirely different statutory

scheme be more meaningless than in the area of finding an

implied repeal of the antitrust laws, where each statute must be

analyzed on its merits. See Point II supra

Second, in the passage of the Securities Exchange Act of

1934 (the “1934 Act”), Congress expressly intended to define

and limit the right of action for stock manipulation, see 15

U.S.C. Section 78i(e), Section 9Ya(e) of the 1934 Act (express

action and attorneys’ fees permitted) but Congress included

NO such limitations or express actions in the CEA it passed in

1974 and that was analyzed by the Court below. Similarly, in

passing the 1934 Act, Congress intended courts to have “exclu-

Sive jurisdiction” of stock manipulation under the 1934 Act,

and to limit to “actual damages” all recoveries in private

actions involving stock manipulation. See 15 U.S.C. Section

78aa and 15 U.S.C. Section 78bb, Sections 27 and 28 of the

1934 Act. Again, nothing similar existed in the CEA. Finally,

no cases predating the 1934 Act had applied the antitrust laws

to securities markets—again, precisely the opposite of the

Situation regarding the CEA. All of these considerations were

expressly relied on as part of the rationale for the Schaefer

court decisions, see 326 F.Supp. at 1192 and 509 F.2d at

1300-01.

Finally, as we have already seen, Congress did expressly

intend to reach commodity futures in passing the Sherman Act

(Point I supra), and did expressly intend to preserve this

jurisdiction in passing the CEA (see Point II supra). Similarly,

the Seventh Circuit had previously recognized antitrust private

treble damage suits against futures market manipulations, see

Peto v. Howell, supra, but the Smith court apparently ignored

even this controlling law in its own circuit.

Comparing these infirmities and all the other distinctions of

Smith v. Groover to the decision and situation here, we see

that there is no meaningful conflict, particularly under defen-

20

dants’ cited case, Shapiro v. United States, 335 U.S. 1 (1948).

Shapiro accompanied an appeal (not certiorari) which the

Court took for review in United States v. Hoffman 335 U.S. 77

(1948); unfortunately, defendants do not reveal or deal with

this in their brief, although they do cite to a page in the

Hoffman opinion without even mentioning that it was a

separate case and decision. Moreover, again totally unlike the

Situation at bar, the Court was there faced with two contem-

poraneous, directly conflicting lower court decisions. Finally,

and again totally unlike the situation at bar, the Court still felt

compelled to emphasize that the compulsory testimony statute

there at issue was essentially incorporated into twenty-seven

(counsel’s count) individually enumerated federal statutes and

that the conflict there at issue could be expected to be occur-

ring often. Shapiro, supra, 335 U.S. at 6-7 fn. 4. Thus, the

certiorari circumstances of United States v. Hoffman are far

different from those here such that the absence here of the

important factors there would seem to compel denial of cer-

tiorari.

Therefore, no erroneousness exists in the decision below; no

conflict exists in the circuits courts; and no meaningful conflict

exists between any courts under even defendants’ cited cases.

D. Even if a Conflict Did Exist, The Statute Has Been

Amended.

Even if a conflict did exist, the CEA was amended by the

Futures Trading Act of 1978, 92 Stat. 865 (1978), and the

Futures Trading Act of 1982, 96 Stat. 2294 (1983). The Court

below took pains to emphasize that those amendments were

not at issue because the price-fixing conspiracy occurred in

1976. See A.7. fn. 1. Therefore, the statutes are different;

moreover, they are materially different. The latter amendments

were adopted in response to futures industry lobbying after

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456

U.S. 353 (1982) had upheld implied private rights of action

under the CEA. Futures brokers sought, and obtained, express

rights of action, with recovery limited to only the actual

oh os ek eras ne a Aa en

21

damages suffered, and new elements imposed in order to

establish liability. Various other alterations in the statutory

scheme were made which expressly excluded or otherwise

affected other remedies and jurisdiction. Therefore, certiorari

should obviously be denied. Compare United States v.

Abrams, 344 U.S. 855 (1952); Community Services, Inc. v.

United States, 342 U.S. 932 (1952); Sokol Bros. Co. v. Com-

missiorer, 340 U.S. 952 (1951); United States v. Beal, 340 U.S.

852 (1950); United States v. Wilkinson, 355 U.S. 839 (1957); as

described in Berger v. United States, 170 F.Supp. 795

(S.D.N.Y. 1959).

POINT IV

DEFENDANTS’ LAST ARGUMENT FOR

CERTIORARI IS INSUBSTANTIAL

Defendants’ last argument for certiorari is that the decision

below will open the courts to numerous decisions which are

incorrect in unspecified ways. This argument requires no re-

sponse because, as has already been demonstrated, the decision

below was correct regarding the facts, the legislative history to

the Sherman Act, the numerous previous applications by

courts of the Sherman Act to the commodity futures markets,

and the 1973-74 amendments to the Commodity Exchange Act

which serve to preserve that jurisdiction.

Contrary to defendants’ ludicrous assertion (P.B. p.5), nu-

merous courts have previously recognized a general principle

upholding antitrust claims where the conspiracy involved was

so large that it also violated a regulatory statute. See, e.g.,

Terminal Warehouse Co. v. Penn. R. Co., supra; MCI Com-

munications v. American Tel. & Tel. Co., supra; see also cases

cited in Point II generaily. And, of all the different commercial

contexts and different conceivable combinations of regulatory

statute and antitrust considerations, nowhere could this general

principle possess a more just, economically sound, and socially

wise application than to the vicious price fixing conspiracy

22

perpetrated by the petitioners at bar in order to depress prices

and destroy a market via the largest default in history of the

commodity markets. Nowhere could this principle find a more

legally sound basis than in the instance of the 1973-74 amend-

ments to the Commodity Exchange Act which expressly sought

to retain “unequivocaliy” court jurisdiction over Sherman Act

violations, which themselves were enlarged expressly in order

to be sure to outlaw the vicious conspiracy here.

CONCLUSION

The decision below is very sound and very just; there are no

conflicts between the circuits and no meaningful conflicts

between any courts whatsoever; the petition is an affront to the

process; and certiorari should be denied in all respects.

Dated: New York, New York

October 31, 1985

Respectfully submitted,

CHRISTOPHER LOVELL

120 Broadway

New York, New York 10005

(212) 608-1900

Counsel for Respondent

Joseph Strobl

LOVELL & STEWART

VICTOR E. STEWART

Of Counsel