Reply Brief — New York Stock Exchange, Inc. v. MFS Securities Corp.

Supreme Coeuat, US. t

————

(Y FILED

| MAY 28 2002

No. 01-1602 :

| OMICE OF TAB OLBRK

IN THE

Supreme Court of the United States

NEW YORK STOCK EXCHANGE, INC.,

Petitioner,

v.

MFS SECURITIES CORPORATION

and MARCO SAVARESE,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES Court OF APPEALS FOR THE SECOND CIRCUIT

REPLY BRIEF

Jay N. Fastow

Counsel of Record

ApaM P. STROCHAK

ELIZABETH M. AVERY

WEIL, GoTSHAL & Mances LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

~ Counsel for Petitioner

May 28, 2002

174191 g

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

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STATEMENT PURSUANT TO RULE 29.6

Petitioner’s corporate disclosure statement was set forth

at page ii of its Petition for a Writ of Certiorari, and there

are no amendments to that statement.

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TABLE OF CONTENTS

Statement Pursuant to Rule2%*% ...............

Talbte of CORRS oc os Ca ro ae ea 6k ans

ee ee re

I. Ween ee cadens

II. Respondents Do Not Deny That The Court

Of Appeals’ Referral To The SEC Conflicts

With Northwest Wholesale Stationers And

Served J00 PWG coc chvseeeesan cess

Ill. Respondents Cannot Controvert That This

Court’s Decisions Preclude Application Of

The Per Se Rule To This Case. ...........

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Page

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TABLE OF CITED AUTHORITIES

Page

FEDERAL CASES

Amalgamated Meat Cutters & Butcher Workmen

v. Jewel Tea Co.,

381 U.S. 676 (1965) .......... cece cree eeces 3

Broadcast Music, Inc. v. Columbia Broadcasting

System, Inc.,

BAL U.S. 1 EIGTS) 2... ence ccc cccccsccens io

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

429 U.S. 477 (1977) ........06:: etetewewes 2

FTC v. Indiana Fed. of Dentists,

476 U.S. 447 (1986) ...... 2... c ccc ccececeees 1,5

Jacobi v. Bache & Co.,

520 F.2d 1231 (2d Cir. 1975), cert. denied,

423 U.S. 1053 C1976) .... 2. ccccccecscceces 4

Jefferson Parish Hospital District No. 2 v. Hyde,

id Ee, | a ee eee 5

Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co.,

Pyy R08. My 7 T(\ .) Ee ie Se

NYNEX v. Discon, Inc.,

$25 U.S. 128 (1998) ....... cc ccc eccciececes 5

Ricci v. Chicago Mercantile Exchange,

409 U.S. 289 (1973) ........ cece cee ecees 3

Silver v. New York Stock Exchange,

pyc Rok Bk" i). \) Seon La

iv

Cited Authorities

Page

FEDERALSTATUTES

Section 1 of the Sherman Act (15 U.S.C. §1)..... 2

Securities and Exchange Act of 1934,

Sr ne Oe Pe OE a see ben aon eee ks 1,2,4

ARGUMENT

I. INTRODUCTION.

Respondents do not deny that this Court’s decision in

Northwest Wholesale Stationers, Inc. v. Pacific Stationery &

Printing Co., 472 U.S. 284 (1985), establishes that the

presence or absence of procedural safeguards does not affect

the applicability of the per se rule to a group boycott claim

under Section 1 of the Sherman Act. They consequently

cannot controvert that the Court of Appeals erred by deferring

to the SEC, since SEC review of whether NYSE complied

with procedural requirements of the Exchange Act cannot

inform the issue of whether the per se rule or the rule of

reason should govern Respondents’ antitrust claims.

Respondents also do not deny that the Complaint

alleges no facts showing that the claimed conduct of NYSE

harmed competition or had any anticompetitive purpose.

They maintain that their antitrust claims nevertheless should

be treated under the per se rule, because MFS Securities

allegedly was terminated as a member organization of NYSE

and “destroyed financially.” Such a result would conflict

with both this Court’s pronouncement in Silver v. New York

Stock Exchange, 373 U.S. 341 (1963), that conduct by a self-

regulatory organization under the Exchange Act is governed

by the rule of reason, and its declaration in Northwest

Wholesale Stationers that conduct is subject to the per se

rule only if, after “considerable experience,” the courts place

it in the exceptional category of agreements that are “always

or almost always” anticompetitive. FTC v. Indiana Fed. of

Dentists, 476 U.S. 447, 458 (1986); Broadcast Music, Inc. v.

Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20

(1979). Conduct that, as here, allegedly hurt one firm, but

had no adverse impact on price, output or any other facet of

competition, does not violate the antitrust laws at all, much

2

less fall within this standard for invocation of the per se rule.

See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

429 U.S. 477, 488 (1977) (goal of antitrust laws is to protect

competition, not competitors).

Il. RESPONDENTS DO NOT DENY THAT THE

COURT OF APPEALS’ REFERRAL TO THE SEC

CONFLICTS WITH NORTHWEST WHOLESALE

STATIONERS AND SERVES NO PURPOSE.

NYSE’s Petition showed that the Court of Appeals erred

in refusing to decide whether the Complaint has stated facts

showing the injury to competition necessary to plead a claim

under Section 1 of the Sherman Act, and instead in sua sponte

deferring to the SEC for review of the procedural propriety

of NYSE’s alleged conduct under the Exchange Act. Petition

at 17-19.' Such SEC review can have no effect on the issue

of whether to apply the per se rule or the rule of reason to

this case. As the Court explained in Northwest Wholesale

Stationers:

[T]}he absence of procedural safeguards can in no

sense determine the antitrust analysis. If the

challenged concerted activity of Northwest’s

members would amount to a per se violation of

§ 1 of the Sherman Act, no amount of procedural

protection would save it. If the challenged action

would not amount to a violation of § 1, no lack of

procedural protections would convert it into a per

se violation. .. .

472 US. at 293.

1. Respondents mischaracterize the Court of Appeals’ decision

when they assert that, in invoking the doctrine of primary jurisdiction,

“the Second Circuit rejected all four of Petitioner’s arguments.”

Respondents’ Brief in Opposition to Petition for Writ of Certiorari,

dated May 15, 2002 (“Opp.”) at 5.

3

Respondents do not even try to oppose this point.

They merely suggest, without explanation, that such SEC

procedural review of the issue could “materially assist”

the District Court “in accordance with this Court’s prior

decision in Ricci v. Chicago Mercantile Exchange, 409 U.S.

289, 299 (1973).” Opp. at 9. As noted in the Petition (at 19),

however, Ricci was an implied repeal case. It has no bearing

on whether to apply the per se rule or ihe rule of reason.

The Court of Appeals’ invocation of the doctrine of

primary jurisdiction thus was futile and contrary to decisions

of this Court. See Amalgamated Meat Cutters & Butcher

Workmen v. Jewel Tea Co., 381 U.S. 676, 686 (1965) (doctrine

of primary jurisdiction is “not a doctrine of futility” requiring

“resort to a merely expensive and delaying administrative

proceeding”).

III. RESPONDENTS CANNOT CONTROVERT THAT

THIS COURT’S DECISIONS PRECLUDE

APPLICATION OF THE PER SE RULE TO THIS

CASE.

Respondents likewise provide no cogent response to

NYSE’s showing that the Court of Appeals’ decision conflicts

with this Court’s opinions with regard to the applicability of

the rule of reason.

First, Respondents misconstrue Silver. The Silver Court

recognized that it could not appropriately subject the self-

regulatory actions of an exchange to the per se rule under

the antitrust laws, since:

The entire public policy of self-regulation,

beginning with the idea that the Exchange may

set up barriers to membership, contemplates that

4

the Exchange will engage in restraints of trade

which might well be unreasonable absent sanction

by the Securities Exchange Act.

373 US. at 360.

For this reason, the Court held that the rule of reason

analysis applies in such circumstances in order “to permit

the Exchange sufficient breathing space within which to carry

out the mandate of the Securities Exchange Act.” 373 U.S.

at 360. Not only do Respondents ignore this analysis, they

also fail to address the explanation of Silver in Jacobi v.

Bache & Co.:

Within the area of supervised self-regulation

contemplated by the Securities Exchange Act, per

se concepts are generally displaced and the courts

are to examine whether the particular restraint,

even though it would be a per se violation if

performed by others, was reasonable.

520 F.2d 1231, 1237-38 (2d Cir. 1975), cert. denied,

423 U.S. 1053 (1976). (Cited in Petition at 14.)

As the District Court held (see Petition, App. B, 20a),

this doctrine requires rule of reason treatment here and (since

the Complaint alleges no facts showing anticompetitive

purpose or effect) dismissal of this case.

Second, the more general law with respect to group

boycott claims has evolved significantly since Silver.

The Court has declared that per se prohibition should apply

only in the exceptional situation where the courts’ prior

experience enables them to know, without examining

the particular facts of the case, that the type of restraint

at issue is “always or almost always” anticompetitive.

5

See, e.g., FTC v. Indiana Fed. of Dentists, 476 U.S. at 458

(per se rule “is not to be expanded indiscriminately,”

and should be applied only where the economic impact of

the challenged conduct is “immediately obvious”); BMI, 441

U.S. at 19-20, and discussion in Petition at 11-12, 15-16.

On this basis, the Court in Northwest Wholesale Stationers

declined to apply the per se rule to the expulsion of a member

of a purchasing co-operative. 472 U.S. at 296-297 (expulsion

did not necessarily indicate “anticompetitive animus” and

therefore a “probability of anticompetitive effect”).

Conceding that there are about 500 floor brokers on the

NYSE (Petition, App. D at 28a-29a), Respondents state no

facts showing that NYSE’s alleged conduct had any adverse

impact on price, output or any other aspect of competition.

They allege that NYSE’s conduct was unique in the history

of the Exchange, and done for reasons wholly unrelated to

competitive concerns. See, e.g., Opp. at 3 (the alleged conduct

was assertedly “motivated by an effort by the NYSE to curry

favor with” federal enforcement agencies); id. at 4 (stating

“this is the first time in the history of the NYSE” that the

alleged conduct occurred).

Respondents nonetheless argue that the circumstances

here warrant per se treatment, because MFS Securities

assertedly was “destroyed financially” (Opp. at 8). The Court

repeatedly has made clear, however, that the exclusion of

one firm does not show injury to competition at all, much

less the plainly anticompetitive effects that give rise to the

exceptional case warranting invocation of the per se rule.

See, e.g., NYNEX v. Discon, Inc., 525 U.S. 128, 139 (1998)

(claiming one firm is harmed “does not automatically show

injury to competition”); Jefferson Parish Hosp. Dist. No. 2

v. Hyde, 466 U.S. 2, 31 (1984) (adverse effect on competition

not proved by exclusion of one anesthesiologist).

6

In declining to affirm the District Court’s dismissal of

the case, the opinion of the Court of Appeals thus conflicts

with this Court’s decisions for this reason as well.

CONCLUSION

The Court should grant the Petition for a Writ of

Certiorari.

Respectfully submitted,

Jay N. Fastow

Counsel of Record

ApaAM P. STROCHAK

ELIZABETH M. AVERY

WEIL, GOTSHAL & MANGES LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Counsel for Petitioner

May 28, 2002