Appendix — Ricci v. Chicago Mercantile Exchange

Supreme Court brief1973

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INDEX

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Chronological List of Relevant Docket Entries ...... 1

Complaint, Filed J UNE 14, 1969 ee ccccseesssssseececsss, 6

Defendants’, The Siegel Trading Co., Ine., and J oseph

E. Siegel, Motion to Dismiss, Filed July 9, 1969 .. 20

Defendants’, Chicago Mercantile Exchange, Everette

B. Harris, William Phelan and Leo Melamad, Mo-

tion to Dismiss for Lack of Jurisdiction, Filed

JULY 10, 1969 on. ereeststnsrtssensniststntntesiee concen 21

Order Allowing Defendants’ Motion to Dismiss ........ 22

; Excerpts from Oral Deposition of Thomas Ricci, by

i Mr. Freeman—Direct Examination o.oo... 23

Exhibits to Defendants’ Deposition of Thomas Ricci: 28

Exhibit No. 7—Letter dated Feb. 24, 1969 ............ 28

Exhibit No. 6—Undated Arbitration Agreement

FOTM eesssssssneessessssssnetsstntsntintitiuntinserteccscc... 28

Exhibit No. 8—Letter dated Feb. 25, 1969 ............ 29

Exhibit No. 2—Letter dated Feb. 27, 1969 ......... 30

Exhibit No. 3—Letter dated Feb. 28, 1969 ............ 31

Opinion of Court of Appeals, Filed June 17, 1971 .. 32

Order of Court of Appeals Denying Petition for Re-

hearing and Petition for Rehearing en bane ............ 53

Pee eee PPS:

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3n the

Supreme Court of the United States

Octoser Tzrm, 1971

No. 71-858

THOMAS RICCI,

Petitiongr,

4 vs.

CHICAGO MERCANTILE EXCHANGE, an Illinois not-

for-profit corporation, EVERETTE B. HARRIS, WIL-

LIAM PHELAN, LEO MELAMED, THE SIEGEL

TRADING COMPANY, a corporation, and JOSEPH RE.

SIEGEL,

Respondents.

On Writ Of Certiorari To The United States Court

Of Appeals For The Seventh Circuit

CHRONOLOGICAL LIST OF

RELEVANT DOCKET ENTRIES

6/14/69 Filed Complaint

6/14/69 Filed Designation

6/14/69 Filed Affidavit rule 39

6/14/69 Issued summons and 6 copies with 6 copies

of complaint

6/ 9/69

6/17/69

7/ 9/69

7/10/69

7/11/69

—2—

Filed Notice by Defendants of Deposition of

Thomas Ricci and Anthony A. Ricej

tive attorneys, enter order extending to J uly

Mailed Notices 6/18/69

iled Appearance of Siegel Trading Co. and

Joseph Siegel

Filed Affidavit Tule 39

Filed Motion to dismiss by Siege] Trading Co,

and Joseph Siegel

iled Notice and Motion to compel answers

to questions Propounded to Thomas Ricci and

Exhibits,

Filed Motion of Chicago Mercantile Exchange,

Everette B. Harris William Phelan and Leo ©

Melamad to dismiss for lack of jurisdiction

Filed summons returned served

Filed Notice of Motion

Enter order defendants The Siegel Trading Co.

Ine. and Joseph E. Siegel given extension of

time to August 9, 1969, to file brief in support

of motion to dismiss. Plaintiff given 30 days

after August 9, 1969 to file responsive memo-

randum. Hoffman, J.

Mailed notices 7/14/69

Filed Notice and Motion to compel answers

to questions propounded to Thomas Ricci and

Exhibits A and B

Enter order motion of defendants Chicago Mer-

cantile Exchange, William Phelan and Leo

Melamed for an order requiring answers to

questions propounded to plaintiff Ricci and not

answered by him, and for an order that the

deposition of Thomas Ricci be reset for the

purpose of allowing petitioners to further in-

quire into the matters as to which said Thomas

7/14/69

7/16/69

7/17/69

7/30/69

8/11/69

8/19/69

—_

Ricci refused to answer, entered and continued

to July 16, 1969 at 10:00 a.m. before Judge

Parsons. Motion of defendants Siegel Trading

Co. Ine. and Joseph E. Siegel for an exten.

sion of time to file on or before August 9,

1969 a brief in support of motion to dismiss

entered and continued to July 16, 1969 at 10:00

a.m. before Judge Parsons-Hoffman, J. Mailed

notices 7/14/69

Filed Notice of Motion re-extension of time to

file brief in support of motion to dismiss

Filed Notice of Deposition of Thomas Ricci

Defendants motion for extension of time to

file on or before August 9, 1969 a brief in sup-

port of motion to dismiss, is allowed. Motion of

defendants for an order requiring answers to -

questions propounded to plaintiff and not an-

swered by him, is allowed. Plaintiff to answer

questions as set forth within two weeks of

filing of interrogatories setting forth additional

questions, also to be answered. Order cause

continued to September 29, 1969 for report on

status-Parsons, J. Mailed notices 7/17/69

Filed Interrogatories propounded pursuant to

order of July 16, 1969

Filed Deposition of Thomas Ricci

Filed Answer of Thomas Ricci to Interroga-

tories propounded pursuant to order of Court

entered July 16, 1969

Filed Memorandum in support of Motion to

dismiss by Chicago Mercantile Exchange,

Everette B. Harris, William Phelan and Leo

Melamad °

Filed Memorandum of Defendants Joseph E.

Siegel and The Siegel Trading Co., Ine. in

support of Motion to dismiss

Filed Notice of Motion and Motion for order

that depositions not be taken and Objection

to Notice of Deposition

ee ae

Order motion of defendants Everette B. Harris

for an order

Mailed notices 8/21/69

tipulation

Enter order on stipula

sitions of Everette B.

to September 15, and allow

6, 1969 to

e@ me-

morandum motion

to dismiss

Filed Notice of Motion for Production of Docu-

ments and Affidavit in support thereof

Plaintiff given 20 days to file answering brief

in opposition to defendants motions to dismiss.

Order cause continued to ber 27, 1969 for

notice of deposition and

documents, and for assessment of costs

and attorneys fees is entered and continued to

October 27, 1969-Parsons, J.

Mailed notices 9/30/69

Filed Brief of Plaintiff’s answer to Defendants

motion to Dismiss

Filed Reply Brief in Support of Motion to dis-

miss of defendants Joseph FE. Siegel and The

: baie ths

Filed Plaintiff's objections to Memorandum of

Opinion

11/ 3/69

10/27/69

11/12/69

11/25/69

12/17/69

12/18/69

1/16/70

1/22/70

1/20/70

1/23/70

6/17/71

10/ 5/71

—

Defendant’s motion to present Memorandum

Opinion and plaintiff’s objections thereto are

taken under advisement and ruling on Novem-

ber 12, 1969-Parsons, J. Mailed notices 11/4/69

The Court rules orally from the bench re:

motions to dismiss. Counsel to prepare and

submit within a short date findings of fact,

conclusions of law and order consistent with

the Court’s ruling-Parsons, J. Mailed notices

11/4/69

Enter order ruling on defendants motion to

present Memorandum Opinion and Plaintiff's

objections thereto is continued to November 25,

1969-Parsons, J.

Mailed notices 11/13/69

Motion of defendants to dismiss the complaint

is allowed, and it is so ordered-Parsons, J.

Mailed notices 11/12/69

Filed Notice of Appeal by Plaintiff

Mailed copy of Notice of Appeal to Lee A.

Freeman and Max and Herman Chill

Filed Bond on Appeal

Filed Deposition.of Thomas C. Ricci

Filed Continued Deposition of Thomas Ricci

Clerk’s File copy of Transcript of Proceedings

had on November 25, 1969 filed by Official Court

Report

Filed Deposition of Leo Melamed

Filed Stipulation as to Record on Appeal

Opinion and Order of the Court of Appeals

for the Seventh Circuit.

Order denying petition for rehearing and peti-

tion for rehearing en banc

—6—

IN THE DISTRICT COURT OF THE UNITED

STATES FOR THE NORTHERN DISTRICT

: OF OIS

(Civil Action No. 69-C-1030)

COMPLAINT

4 Defendant, Chicago Mercantile Exchange, is a cor-

poration incorporated under the Laws of the State of

inois and is doing business in the Northern District of

4. Defendant, Chicago Mercantile Exchange, is a cor-

poration organized and existing under the General Not-

For-Profit Corporation Act of the State of Illinois, having

a eal i at

ap en

a ae

its members in various commodities and commodity fu-

tures in interstate commerce.

5. Defendant, Everette B. Harris, is the President of

the Chicago Mercantile Exchange. The defendant, William

Phelan, is Vice President of the Chicago Mercantile Ex-

change in charge of audits and investigation and the de-

fendant, Leo Melamed, is Chairman of the Board of Di-

rectors of the Chicago Mercantile Exchange.

6. The defendant, Siegel Trading Company, is a cor-

poration and a Clearing House member of the Chicago

poration to become a member of the Exchange two of its

officers or directors must be members of the Chicago

Mercantile Exchange.

7. The defendant, Joseph E. Siegel, is the President

of the Siegel Trading Company.

8. By virtue of the foregoing, the plaintiff, “Ricci”

has until the occurrences hereinafter set forth:

(a) Freely competed in the purchase and sale

of various commodities for sale and delivery in in-

terstate commerce ;

(b) Freely competed in the purchase and sale.

of various commodities for future delivery of large

quantities of such commodities in interstate com-

merce ;

of himself and on behalf of others for a commission

large quantities of such commodities in interstate

commerce.

9. That during the times herein mentioned the Chicago

Mercantile Exchange was designatee of the Secretary of

Agriculture as a “contract market” for future trading of

—_ ae

commodities, pursuant to the provisions of the Commodity

Exchange Act, as amended, (7 U.S.C. See. 1-17 (a)).

RULE 307: SALE OF MEMBERSHIP. “Membership

in the Exchange is a personal privilege Subject to sale

and transfer only as authorized herein, When a member

of sale shall be applied to the following Purposes and in

the following order of priority:

A. First Priority. All dues, fines, contributions,

charges and other indebtedness due to the Exchange from

the member whose membership is transferred;

C. Third Priority. Sums due to

Kicrabiteale

eb cnhtalt,

ee ne ee eo

o..

bership is transferred to the extent that such sums shall

be determined by the Board to have arisen out of Ex-

change transactions and shall have been allowed by the

No Other Liens Shall Be Recognized. Liens for money

advanced for the purchase of a membership, or advance-

ments against the same, or claims growing out of non-

Exchange transactions shall not be recognized.”

RULE 313. FILING CLAIMS. “In order for a mem-

ber to establish a lien and to become entitled to his right

vious to any payment to the seller, which are allowed by

the Board, may be paid by the Board out of any surplus

remaining after all other claims described in Rule 311

have been paid in full and such claims shall be paid in

the order of filing.”

810 to engage in trading on said calls. A member may be

qualified to trade on the futures call provided he has been

authorized by a firm or corporation which is a Clearing

RULE 324. COMMODITY EXCHANGE ACT. “Mem-

bers of the Exchange are required to comply with all law-

ful provisions of the Commodity Exchange Act and the

10s

rules and regulations thereunder lawfully promulgated by

the Secretary of Agriculture and the rules of the Ex-

change shall be construed to conform thereto.”

COMMODITY EXCHANGE ACT, as amended, 7

U.S.C. 1-17a See. 5(f)(9). “The Secretary of Agriculture

is hereby authorized and directed to designate any board

of trade as a “contract market” when, and only when,

such board of trade complies with and carries out the

following conditions and requirements:

“Enforce all bylaws, rules, regulations, and resolutions

made or issued by it or by the governing board thereo

commission merchants who are members of such contract

market, and which have been approved by the Secretary

of Agriculture.”

COUNT I

11. On or about May 1, 1967, the plaintiff, “Ricci”,

change and The Commodity Exchange Authority,

13. That in order to become a member of the Chicago

Mercantile Exchange, the plaintiff, “Ricci”, was required

to purchase said membership in the Chicago Mercantile

Exchange with his own funds and that the membership

approve the plaintiff’s membership unless a statement in

writing was made that the membership was purchased

with plaintiff’s own funds.

ge ae

rt ee ae

Dat) eee

14. That from on or about May 1, 1967, to on or about

February 11, 1969, the plaintiff, “Ricci”, as a member of

the Chicago Mercantile Exchange continued to trade

therein on behalf of himself and others; thereafter the

defendant, Chicago Mercantile Exchange, wilfully, un-

lawfully, knowingly and maliciously confederated, com-

bined and conspired and agreed with Siegel Trading

Company, Joseph E. Siegel, together with Everette B.

Harris, William Phelan and Leo Melamed, defendants

herein, to prevent the plaintiff, “Ricci”, from continuing

as a member of the Chicago Mercantile Exchange and tv

trade and transact his business in interstate commerce

as hereinabove alleged.

15. That on or about February 11, 1969, when the

plaintiff, “Ricci”, as a member of the Chicago Mercantile

cantile Exchange and Everette B. Harris, President, that

the defendant, Siegel Trading Company, claimed to be

the owner of his membership in the Chicago Mercantile

informed the Chicago Mercantile Fxchange, Everette B.

Harris, William Phelan and Leo Melamed, defendants

herein, that he was the owner and holder of a membership

of the Chicago Mercantile Exchange; that the Siegel

Trading Company was indebted to him in the sum of

approximately $18,175.00 for floor brokerage fees from

May 19, 1967, thru February 11, 1969, and that there

was an offset of $15,000.00 for which the plaintiff, “Ricci”,

was indebted to the Siegel Trading Company on their

loan to him for his original acquisition of a membership ’

in the Chicago Mercantile Exchange, and that the Siegel

Trading Company did not have “any lien against his

membership, as provided for in the rules of the Chicago

Mercantile Exchange hereinabove set forth; that the de-

fendants, Chicago Mercantile Exchange, Everette B.

Harris, William Phelan and Leo Melamed, were aware

of the plaintiff’s membership as herein set forth for the

reason the defendant, William Phelan, acknowledge same

and directed the plaintiff, “Ricci”, to follow a plan as

—< 19s.

outlined in the memorandum hereto attached and made a

part hereof as Exhibit “A”,

16. It wag part of said Conspiracy that the defendant,

Joseph E. Siegel, individually and the Siegel Trading

Company, & corporation, did induce the Chicago Mer-

and regulations of the Chicago Mercantile Exchange to

deprive the Plaintiff of his membership in the Chicago

for himself and others; that the co-conspirators, Everette

Harris, William Phelan, Leo Melamed, J oseph FE.

Siegel and the Siegel Tradi Company, well knew that

the defendants, Everette B. Harris and the Chicago

Mercantile Exchange, have any authority or prerogative

determine to whom such an attempted release could

be directed to

iil ie

me oe

—13—

18. In pursuance of said conspiracy and for its pur-

pose to carry out its objects and purposes, that on or

about February 11, 1969, the co-conspirators, Everette

B. Harris, William Phelan, Leo Melamed, Joseph FE.

Siegel and the Siegel Trading Company, did in fact cause

the Chicago Mercantile Exchange to transfer the member-

ship of the plaintiff, “Ricci”, without a hearing or notice

4, 1969; that as a further part of said conspiracy by the

defendants, Chicago Mercantile Exchange, Everette B.

Harris, William Phelan, Leo Melamed, Joseph F. Siegel

remove the plaintiff, “Ricci”, as a member of the Chicago

Mercantile Exchange and to deprive him of his right to

ship in the Chicago Mercantile Exchange as of March

4, 1969, for which he paid a price of $45,000.00 therefor.

19. In furtherance of said conspiracy between the Chi-

cago Mercantile Exchange and Everette B. Harris, the

defendants, Joseph F. Siegel and the Siegel Trading

Company, induced the defendant, Chicago Mercantile Fx-

change, to accept a blank authorization to transfer mem-

bership that had previously been revoked by the plaintiff,

“Ricci”, with full knowledge that said membership he-

longed exclusively to the plaintiff, “Ricci”, for the reason

that the defendant, Siegel Trading Company, was in-

debted to the plaintiff for floor brokerage fees from May

19, 1967 thru February of 1969 in the sum of approxi-

mately $18,175.00 against which the plaintiff, “Ricci”, was

indebted to the Siegel Trading Company for the sum

of $15,000.00 which was the purchase price of plaintiff's

membership in the Chicago Mercantile Exchange; that

—14—

cantile Exchange of frandulent financial statements of the |

defendant, Siegel Trading Company, in that the financial

statements of the defendant, Siegel Trading Company, 4

do not reveal or reflect liabilities in excess of $200,000.00

that were partially due to the plaintiff, “Ricci”, and others

See Le eS

change, being a “contract market” within the meaning

the rules and regulations of the Commodity Exchange

20. All of the aforesaid acts of the defendants, as

co-conspirators, was done maliciously, wilfully, knowing-

ly, unlawfully and without just cause or provocation,

—15—

subsequent acts of Congress amendatory and supple-

mental thereto.

22. As a result of the wrongful acts of the defendants

and the co-conspirators, the plaintiff has sustained great

loss and damage which has heen inflicted upon him by

virtue of said conspiracy and the acts of said defendants

as co-conspirators done in pursuance thereof; that said

defendants and said co-conspirators intended that the

plaintiff should be damaged and put to expense and loss

of customers, trade and profits as a result of their acts.

24. That plaintiff’s business as a broker had been

destroyed as his customers have been diverted by others

1. That this Court declare the actions of the defen-

dants as aforesaid as unlawful and in violation of the

Sherman Act, and that the plaintiff has been injured

thereby in his Property within the meaning of Sec. 4 of

the Clayton Act.

2. That this Court declare that the purported depriva-

tion of the plaintiff of the membership from the Chicago

Mercantile Exchange was in violation of Sec. 1 of the

Sherman Act and is void and of no force and effect.

3. That as a result of the aforesaid, the plaintiff

has sustained damages in the amount of $100,000.00 and

is entitled to recover under the Acts of Congress of

July 2nd and October 15th of 1914, commonly known

a! an

this suit as provided by statute.

4. For such other and further relief as to this Court

may deem equitable or proper.

3. For such other or further relief as the Court may

deem equitable or proper.

COUNT III

Plaintiff complains of the defendants, Chicago Mer-

cantile Exchange, Everette B. Harris, William Phelan,

and Leo Melamed, and states as follows:

26. Plaintiff adopts and realk. ges paragraphs one thru

twenty-four of Count I of this complaint.

Wherefore, plaintiff asks:

1. That this Court declare the actions of the defen.

dants, Chicago Mercantile Exchange, Everette B, Harris,

William Phelan and Leo Melamed, as unlawful and in

violation of the Sherman Act, and that the plaintiff has

~17—

been injured thereby in his property within the meaning

of Sec, 4 of the Clayton Act.

2. That this Court declare that the purported depriva-

tion of the plaintiff of the membership from the Chicago

Mercantile Exchange was in Violation of See. 1 of the

Sherman Act and is void and of no force and effect,

3. That as a result of the aforesaid, the plaintiff has

sustained damages in the amount of $100,000.00 and is

4. For such other and further relief as to this Court

may deem equitable or proper.

COUNT IV

Plaintiff complains of the defendants, Chicago Mer-

cantile Exchange, Everette B. Harris, William Phelan

and Leo Melamed, and states as follows:

27. Plaintiff adopts and realleges paragraphs one thru

twenty-four of Count I of this complaint.

Wherefore, plaintiff asks as follows:

1. That this Court declare that the actions of the

defendants, Chicago Mercantile Exchange, Everette B.

Exchange, Everette B. Harris, William Phelan and Leo

Melamed, unlawful acts, as aforesaid, together with puni-

—_ 18 a

tive damages in an amount not less than $500,000.00 and

the costs of this suit.

3. For such other or further relief as the Court may

deem equitable or proper.

Plaintiff complains of the defendants, The Siegel

Trading Company, a corporation and Joseph FE, Siegel,

and states ag follows:

28. Plaintiffs adopts and realleges paragraphs one thru

twenty-four of Count I of this Complaint,

Wherefore, plaintiff asks:

1. That this Court declare the actions of the defen-

dants, The Siegel Trading Company, a corporation and

Joseph FE, Siegel, ag unlawful and in Violation of the

Sherman Act, and that the plaintiff has been injured

thereby in his property within the meaning of Sec, 4 of

Act.

4. For such other and further relief as to this Court

may deem equitable or proper.

COUNT Vv

Plaintiff complains of the defendants, The Siegel Trad-

ing Company, a corporation and Joseph E, Siegel, and

states as follows:

—19—

28. Plaintiff adopts and realleges paragraphs one thru

twenty-four of Count I of this Complaint.

Wherefore, plaintiff asks:

1. That this Court declare the actions of the defen-

dants, The Siegel Trading Company, a corporation and

Joseph E. Siegel, as unlawful and in violation of the

Sherman Act, and that the plaintiff has been injured

thereby in his property within the meaning of §4 of the

Clayton Act.

2. That this Court declare that the purported depriva-

tion of the plaintiff of the membership from the Chicago

Mercantile Exchange was in violation of §1 of the Sherman

Act and is void and of no force and effect.

statute.

4. For such other and further relief as to this Court

may deem equitable or proper.

COUNT VI

Plaintiff complains of the defendants, The Siegel Trad-

ing Company, a corporation and Joseph E. Siegel, and

states as follows:

29. Plaintiff adopts and realleges paragraphs one thru

twenty-four of Count I of this complaint.

Wherefore, plaintiff asks as follows:

1. That this Court declare that the actions of the

defendants, The Siegel Trading Company, a corporation

and Joseph E. Siegel, are intentional, unlawful and tor-

tious interference with advantageous commercial rela-

tionships existing between the plaintiff, his customers

— 29 —

and other members of the Chicago Mercantile Exchange

under the common law of the State of Illinois,

2. That plaintiff recover the amount of damages sus-

ined as the result of defendants, The Siegel Trading

Company, a corporation and Joseph E. Siegel, unlawful

acts, as aforesaid, together with punitive damages in an

amount not less than $500,000.00 and the costs of this suit.

3. For such other or further relief as the Court may

deem equitable or proper.

/8/ Harry H. Fortes

/8/ Fred J. Ginsburg

Harry H. Fortes and

Fred J. Ginsburg

Attorneys for Plaintiff

11 South LaSalle Street

Chicago, Illinois 60603

FRanklin 2.5133

EXHIBIT A

1. Submit bill by month

2. Offset $15,000 for membership + 6% interest from

date of purchase to date of bill

3. Set forth amount due & owing T.R.

4. Demand return of document dated 10-24-67

IN THE UNITED STATES DISTRICT COURT

* * (Caption No. 69-C-1030) * *

MOTION TO DISMISS

(Filed July 9, 1969)

Now comes defendants, The Siegel Trading Co., Inc.,

and Joseph EF. Siegel by Max & Herman Chill, their

attorneys, and move the Court to dismiss Count I, Count

ae ae aOR

eh Wile, Joba tA cara 4 oe 5 s/ ais diay ell geen

— 21 —

1. This action does not lie under Sec. 1 of the Sherman

Act, 15 U.S.C. See. 1 and Sections 4 and 16 of the Clayton

Act, 15 U.S.C. Sections 15, 26, for the reason that the

complaint does not state facts which constitute a con-

spiracy in restraint of trade, but merely puts in issue,

the question of who ‘was the true owner of the Chicago

Mercantile Exchange membership in question.

2. Plaintiff and these defendants are all citizens and

residents of the State of Illinois and hence there is no

diversity of citizenship in this cause.

<< Wherefore, defendants, The Siegel Trading Co., Inc.

and Joseph E. Siegel pray that this suit be dismissed

with costs most wrongfully sustained.

Max and Herman Chill

By /s/ Charles B. Bernstein

Attorneys for Defendants

IN THE UNITED STATES DISTRICT COURT

* * (Caption No. 69-C-1030) * *

MOTION TO DISMISS FOR LACK OF

JURISDICTION OVER THE

SUBJECT MATTER

(Filed July 10, 1969)

Defendants Chicago Mercantile Exchange, Everette B.

Harris, William Phelan and Leo Melamed move the

Court to dismiss this action on the ground that the Court

lacks jurisdiction because it appears on the face of the

complaint that the alleged claim does not arise under ,

Section 1 of the Act of July 2, 1890, commonly known

as the Sherman Act, 15 U.S.C. Sec. 1, as amended, and

that no recovery may be had under Sections 4 and 16

of the Act of October 15, 1914, commonly known as the

Clayton Act, 15 U.S.C. See. 15 and 26, as amended.

/s/ Lee A. Freeman

Lee A. Freeman, Attorney for

Chicago Mercantile Exchange,

Everette B. Harris,

William Phelan and

Leo Melamed

— 22 __

UNITED STATES DISTRICT COURT, NORTHERN

DISTRICT OF ILLINOIS EASTERN DIVISION

Name of Presiding Judge,

Cause No. 69C1030

Thomas Ricci vy. Chicago Mercantile Ex

Ruling on deft’s motion

plaintiff’s objes. thereto.

Motion of defendants to dismiss the complaint, is al-

lowed, and it is so ordered.

Honorable James B. Parsons

Nov. 25, 1969

ch. etal

to present Memo., Opinion and

/8/ Parsons, J

— 23

EXCERPTS FROM DEPOSITION

IN THE UNITED STATES DISTRICT COURT

* * (Caption—No. 69 C 1030) * *

The deposition of Thomas Ricci, called by the defendants

for examination purstant to notice and pursuant to the

Rules of Civil Procedure for the United States District

Court pertaining to the taking of depositions for the

purpose of discovery, taken before J ULIUS R. CARTER,

C.S.R., a notary public within and for the County of

Cook and State of Illinois, at Suite 3700, One North

LaSalle Street; Chicago, Illinois, on the 19th day of

June, A. D. 1969.

Appearances :

Messrs. Harry H. Fortes and

Fred J. Ginsburg,

for the plaintiff;

Mr. Lee A. Freeman,

for the defendants.

122° * @ (By Mr. Freeman :)

Q. Now, I put the question to you, Mr. Ricci, and

I ask you for an answer:

Did you at the time you made application for member-

ship in this Exchange represent to the Exchange

13 that it was your funds that were paying for the

membership?

A. This is the way it was: When I filled out the appli-

cation for membership, I put down on the application that

I received a loan from the Siegel Trading Company.

Q. Is that what you said you put down?

A. Yes, this is what I put down. When I was before

the membership committee they asked me if these were

my funds, and I told them no, they were. not.

They said, “Is it your money?” And I said, “No, I

received a loan from the Siegel Trading Company.”

They told me, they said, “You have to change your

answer that these are your funds. We don’t care where

you got the money, whether you got it from Siegel Trading

Company, whether you got it from your father, or where

— 24

you got it from. I want you to put ‘yes,’ that these are

your own funds.”

They drew a line through the “no,” and through the

part where it said, “These funds—” that I received a loan

from the Siegel Trading Company. The answer was

14 answered “Yes,” That these are my own funds. And

this is the way it was.

Q. How was the loan evidenced that you said you

received?

It was right there on the application.

What was the loan?

The loan was for the amount of membership.

How much was it?

$15,000.00.

Was that what memberships were selling for, then?

Yes, sir, it was.

POPOPOD

15 * 5 *

16 (By Mr. Freeman :)

Q. Did you at the Same time that you made appli-

cation also sign a slip authorizing transfer of membership

and give it to Joe Siegel?

No, sir,

Q. When did you sign such authorization?

A. I don’t know the day. It was in October of some-

thing, ’67, six months after I became a member, I believe.

Q. What were the circumstances of your signing that?

A. Mr. Winograd, who is the Secretary-treasurer of

Siegel Trading Trading Company, came to me and asked

me to sign it, because they didn’t have—he said—

Mr. Ginsburg: I object to your remarks.

* * *

17-18 * * #

19 * * * The Witness: I don’t remember his exact

words.

(By Mr. Freeman :)

Q. What is the substance of what Mr. Winograd—

I ee a ee OY ee ee

— 2 —

A. Well, they didn’t have any—that I didn’t sign any

note or anything before, and I don’t recall.

20. Q. Why don’t you recall? Well, you were saying—

A. I am very nervous at the moment, that is one

reason.

Q. I am sorry. Do you want a cup of coffee?

A. Yes, I think I would like a cup of coffee.

Q. Let’s take a recess, and we will get a cup of coffee.

I don’t want to make you nervous.

(Short recess. )

Q. During the recess, was your memory refreshed with

respect to what conversation, substance of the conversa-

tion you had with Mr. Winograd?

A. Yes.

Q. Tell us about it.

A. He said that— he asked me to sign it; I read it.

The reason he asked me to sign it was that he said that

the Siegel Trading Company didn’t have any protection

for the money that they loaned me for my membership

at the Mercantile Exchange. And I knew that I owed

Siegel $15,000.00 for the membership at the time, and I

signed it.

* = *

21-33 * * *

34 * * * Q. Do you know what the rules of the

Exchange are with respect to whether or not a broker

can be qualified by more than one clearing house?

A. He can—to my knowledge, he can only be qualified

by one clearing house.

- And that he has to have a release from the clearing

house that qualifies him before he can be qualified by

another house? :

A. Yes, sir.

Q. Then, when Siegel Trading Company was sus-

pended, did you get a release from Siegel Trading Com-

pany so that you could be qualified by Helfer?

A. Yes, sir, I was, and it was signed by Alvin

35 Winograd.

Q. Yes, of course, no question about it.

— 2% —

Did you ever get a release from Helfer after Siegel

became reinstated as a clearing member?

No, sir.

Q. Did you act as a broker for Siegel, the clearing

member, subsequent to the time of reinstatement?

A« You mean did I fill orders for Siegel Trading

Company? .

Q. Yes.

A. Yes, I filled orders for Siegel, I filled orders for—

36-60 * * *

61 * * (By Mr. Freeman :)

Q. Did you receive a transfer of membership, of

your father’s membership on or about March 4, 1969?

A. Yes, I did.

Q. And was that transfer of membership made simul-

taneously with the transfer of membership from you

through Siegel Trading Company to James F. Reich on

the same day?

From me!

Q. Yes. Execution of that authorization to transfer

62 what you said was evidence of an indebtedness. Let

me put it this way:

On March 4, did you receive a transfer of membership

from your father approved by the Exchange, and did you

at that time lose the membership that you had from Siegel

Trading?

A. Yes.

63-69 - * +

70 * * * Mr. Freeman: Now, Mr. Ricci, I under-

stand you.

Now, with respect to your commissions, whatever the

situation is, isn’t that a controversy between you and

Joseph Siegel, and only between you and Joseph Siegel?

A. The commissions?

Q. Yes.

A. I would say no because Mr. Siegel said that he did

not owe me any money.

—27

Q. And you said he owed you money?

A. Yes.

Q. Then, isn’t that a dispute between you and Joseph

Siegel?

71 A. Oh, it isa dispute between he and I, yes, it is.

Q. Did you ever ‘bring that to the Board for the

purpose of securing arbitration?

A. Of course.

Q. When?

Q. That is what you said before. Why did you with-

draw from the arbitration?

A. Like I said, it was a twofold agreement. I under.

stand that Mr. Siegel came up and finally said that he

owed me the $18,000.00. Therefore, we didn’t have to go

to arbitration.

* * *

12-79 * © ©

80 * * * Q Tell me this: Was there any interrup-

tion in your privilege of membership? Was there a

single day when you were not a member of the Exchange

during the period from January, 1969 to April, 1969?

A. No.

Q. So at all times you were a member of the Exchange,

and you have been a member of thé Exchange since May,

1967, whichever date it is?

A. Yes.

* * *

— 28 —

EXHIBITS TO DEFENDANTS’ DEPOSITION |

OF THOMAS RICCI |

EXHIBIT No. 7 .

February 24, 1969

Mr. Thomas C. Ricci

THE SIEGEL TRADIN G COMPANY

100 North LaSalle Street

Chicago, Illinois 60602

Dear Mr. Ricci:

cute and return to me as soon as possible. Please submit

the arbitration fee as set forth in Chicago Mercantile Ex-

change Rule 512 when you return the Arbitration Agree-

ment.

The Arbitration Committee has scheduled the matter for

Wednesday, March 5, 1969, at 2:15 P. M. in the Commit-

tee Room in the Exchange Building. You may be repre-

sented by counsel.

Sincerely yours,

Everette B. Harris

President

EBH:jh

Enc.

EXHIBIT No. 6

CHICAGO MERCANTILE EXCHANGE

ARBITRATION AGREEMENT

In re: The Siegel Trading Co. vy. Thomas C. Ricci

It is hereby mutually agreed between the parties whose

signatures are hereto attached that they will abide by the

— 99 _

rules of the Chicago Mercantile Exchange in the matter

which they are preparing to submit to the Chicago Mer-

cantile Exchange for arbitration.

/8/ J. C. Siegel

February 25, 1969

Mr. Thomas C. Ricci

THE SIEGEL TRADING COMPANY

100 North LaSalle Street

Chicago, Illinois 60602

I wrote to you o

that both parties had agreed to arbitration and

ingly, we

s in rejecting arbitra-

tion as a means of settling such dispute, my letter of

February 24, 1969, should be disregarded.

Further, if we do not hear from you to the contrary by

Friday, February 28, 1969, consider the arbitration can-

celled and the Exchange will proceed in accordance with

its rules.

Sincerely yours,

Everette B. Harris

President

EBH :jh

—30—

EXHIBIT No. 2

HARRY H. FORTES

Attorney at law

11 South LaSalle St.

Chicago, Illinois 60603

FR 2-5133

February 27, 1969

Michael Weinberg Jr., Secretary,

The Chicago Mercantile Exchange,

110 N. Franklin Street,

Chicago, Illinois.

In Re: Thomas Ricci

Dear Mr. Weinberg:

is a direct denegation of several of our rules,

There are also several other germane matters inciden-

tal to this situation. On behalf of Mr. Ricci I would appre-

ciate the opportunity of presenting an appeal to the Board

of Governors, as made and provided for in rule 500.

Sincerely yours,

/8/ Harry H. Fortes

Harry H. Fortes

HHF :ds

— 31 —

EXHIBIT No. 3

Telephone RAndolph 6-6490

CHICAGO MERCANTILE EXCHANGE

110 No. Franklin Street

Chicago 60606

Executive Offices

February 28, 1969

Mr. Harry Fortes

Attorney at Law .

11 South LaSalle Street

Chicago, Illinois 60603

Dear Mr. Fortes:

Mr. Michael Weinberg submitted to me a copy of your

letter to him dated February 27, wherein you state that

I directed Mr. Thomas Ricci to submit to arbitration and

you request appearance before the Board.

In this regard please be advised that the matter of arbi-

tration wa les i i

to arbitration, the Exchange notifi

arbitration hearing had been cancelled.

Accordingly, I do not feel it will be necessary for you to

appear before the Board in this regard,

Very truly yours,

Everette B. Harris

President °

ce: Mr, Thomas Ricci

Le»

ers, ee

In Tue

UNITED STATES COURT OF APPEALS

For Tue Szventru Crecorr

SEPTEMBER Term, 1970 — Janvary Session, 1971

No. 18222 ”

Tuomas Ricct,

Plaintiff-Appellant,

v. Appeal from the

Cuicaco MERCANTILE EXxcHANcE, an United States Dis-

Illinois not-for-profit corpora- trict Court for the

tion, Everertre B. Harris, f Northern District

WittiaM PHELAN, Leo MELAMeEp, of Illinois, Eastern

Tue Siece, Trapine Company, a Division.

corporation, and Josrepu E.

Srecz.,

Defendants-A ppellees. i

June 17, 1971

Before Hastings, Senior Circuit Judge, and Kiey and

Kerner, Circuit" Judges.

Hastines, Senior Circuit Judge. Plaintiff Ricci brought

this action under sections 4 and 16 of the Clayton Act,

Title 15, U.S.C.A. $§ 15* and 26,7 seeking injunctive relief

* Title 15, U.S.C.A. § 15 provides:

“$15. Suits by persons injured; amount of recovery

“Any person who shall be injured in his business

or property by reason of anything forbidden in the

- antitrust laws may sue therefor in any district court

of the United States in the district in which the defen-

dant resides or is found or has an agent, without

respect to the amount in controversy, and shall re-

, , ee ae hs

— 33 —

and treble damages. The complaint charged defendants

Chicago Mercantile Exchange, its president, Everette B.

Harris, its vice-president, William Phelan, its board

chairman, Leo Melamed, and Siegel Trading Company

(Footnote Continued)

cover threefold the damages by him sustained, and

the cost of suit, including a reasonable attorney’s

fee.”

* Title 15, U.S.C.A. $ 26 provides, inter alia:

“§ 26. Injunctive relief for private parties ; exception

“Any person * * ® shal] be entitled to sue for and

have injunctive relief, in any court of the United

States having jurisdiction over the parties, against

threatened loss or damage by a violation of the anti-

trust laws * * *”

* Title 15, U.S.C.A. § 1 provides, inter alia:

“$1. Trusts, ete., in restraint of trade illegal; ex-

ception of resale price agreements; penalty

“Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

commerce among the several States * * * is declared

to be illegal * * *”

* Siegel Trading Company will be referred to as “Siegel.”

Likewise, the Chicago Mercantile Exchange and its officers

will be referred to as the “Exchange” or the “Exchange

defendants.”

— 34—

Count I of appellant’s six-count complaint alleged, in

substance, that he purchased a membership in the Chicago

Mercantile Exchange and became duly qualified to trade

in commodities and commodity futures pursuant to the

rules of the Exchange and the Commodities Exchange

Authority. On February 11, 1969, Siegel induced the

Exchange and its officers to transfer appellant’s member-

ship to James F. Reich, without hearing or notice, utilizing

a previously revoked blank authorization to transfer

membership. Such action was allegedly in violation of the 4

rules and regulations of the Exchange and the Commodity

Exchange Act and was done in pursuance of an unlawful

conspiracy with the intent and for the purpose of restrain-

ing appellant from conducting his lawful *business.* As

a result of such transfer, appellant was excluded from

trading on the Exchange from February 11, 1969 until

March 4, 1969 when he purchased another membership

for $45,000.

Counts ITI and V of the complaint are directed against

the Exchange and the individual defendants and reallege

the allegations of Count I with respect to violation of

the Sherman Act. Counts II, TV and VI charge tortions

interference with advantageous commercial relationships

and, since all parties are residents of Illinois, will neces.

sarily fall for want of jurisdiction if the Sherman Act

allegations are not sustained.

The Exchange defendants claim that the trial court,

in ruling on the motions to dismiss, admitted evidence

other than that stated in the complaint and thereby con-

verted them into motions for summary judgment. See,

Fed. R.Civ. P. 12(b), 56. If this were true, it would allow

* Plaintiff also alleges that the conspirators attempted

to induce a “Clearing Member” of the Exchange to issue

an antedated release of its authorization of Ricci to trade

to Siegel and that the Exchange knowingly failed to en-

force its own rules relating to financial reporting. No

specific damage is assigned to these allegations.

— 35

this court to examine de

contend i

the court below was

considering only the allegations in the complaint when

@ it ruled on the motions to dismiss.

Since this is an appeal from an order granting Rule

12(b), Fed. R.Civ. P., motions to dismiss, we must accept

ng allegations of fact as true. Walker

Corp., 382 U.S. 172, 174-75 (1965):

Cir., 324 F. 2d 924° (1963).

Appellant first contends that, absent any justification

to be derived from the Chicago Mercantile Exchange’s

status as a board of trade and a designated “contract

market” under the Commodities Exchange Act, Title Uf

US.C.A. § 1 e¢ seq., the allegations of the complaint are

sufficient to allege a group boycott, a per se violation of

section 1 of the Sherman Act.

Relying on Scanlon vy. Anheuser Busch, Inc., 9 Cir.,

388 F. 2d 918 (1968), cert. denied, 391 U.S. 916 (1968)

and Ace Beer Distributors, Inc. vy. Kohn, Inc., 6 Cir., 318

F. 2d 283 (1963), cert. denied, 375 U.S. 999 (1963), the

Siegel defendants argue that the facts allegedly merely

amount to the substitution of one competitor for another

with no resulting public injury and are, therefore, not

within the purview of the antitrust acts.

Scanlon, supra, and Ace Beer, supra, are inapplicable

to the case at bar. Fach concerned the cancellation of

individual exclusive beer distributing contracts with the

immediate substitution of other distributors. The relevant

markets were competitive and the courts held that no

unreasonable restraint of trade resulted from the refusals

to deal since existing competition was not diminished

and the cancellation was not an unusual business pro-

cedure. See, Ace Beer, supra at 287.

— 36 —

Appellant has alleged his exclusion from the Chicago

Mercantile Exchange, a monopolistic market, was in

violation of its own rules and regulations. Such exclusion

is alleged to be a part of a conspiracy to intentionally

injure’ his business. In Gamoo, Inc. v. Providence Fruit

é Produce Bldg., 1 Cir., 194 F.2d 484 ( 1952), cert. denied,

344 U.S. 817 (1952), the court was confronted with the

exclusion of a trader from a produce building where the

sales of fresh fruits and vegetables occurred. The board

that managed the building refused to renew the trader’s

lease after its expiration. The court in finding violations

of sections 1 and 2 of the Sherman Act said:

“(T]he latent monopolist must justify the exclusitip

of a competitor from a market which he controls.

Where, as here, a business group understandably

susceptible to the temptations of exploiting its natural

advantage against competitors prohibits one previ-

ously acceptable from hawking his wares beside them

any longer at the very moment of his affiliation

with a potentially lower priced outsider, they may

be called upon for a necessary explanation. The

conjunction of power and motive to exclude with

an exclusion not immediately and patently justified

by reasonable business requirements establishes a

prima facie case of the purpose to monopolize.” Jd.

at 488,

Accepting, as we must, appellant’s allegations as to the

reasons and manner in which he was excluded, there is

no justification for the actions of the Exchange and the

individual defendants. The transfer of his membership

in violation of the rules of the Exchange and pursuant

to a conspiracy to intentionally injure his business would

constitute a group boycott, per se actionable under the

Sherman Act.

The absence of an allegation of public injury is not

fatal to the maintenance of an action where a per se

violation is alleged. Radiant Burners, Inc. vy. Peoples Gas,

— 37—

Light and Coke Co., 364 U.S. 656 (1961); Klor’s, Inc. v.

Broadway-Hale Stores, Inc., 359 US. 207 (1959) ; Switzer

Brothers v. Locklin, 7 Cir., 297 F. 2d 39 (1961).

Likewise, where the defendants enjoy the power to

deny potential competitors access to the market, the

absence of competitive change in the relevant market

is not fatal to the cause of action. Gamco, Inc., supra

at 487.

In view of the foregoing, we conclude that, absent any

justification from the Exchange’s status as a board of

trade and a designated “contract market,” the complaint

is sufficient to allege a group boycott, a per se Violation

of section 1 of the Sherman Act.

Relying primarily on Silver y. New York Stock Er-

change, 373 U.S. 341 (1963), appellant asserts that no

justification can be derived either from the Commodities

Exchange Act or from the Exchange’s status as a board

he claims a cause of action under section 1 of the Sherman

Act has been stated.

In Silver, Supra, member firms of the New York Stock

Exchange were ordered by the Exchange to terminate pri-

vate telephone and tickertape connections to Silver’s over-

the-counter brokerage firms. The Court, observing that

the concerted cut-off by the Exchange and its members had

deprived Silver of an asset important to his ability to com-

pete as a broker-dealer, said that such conduct would have

n @ per se violation of the Sherman Act “absent any

— 38 —

justification derived from the policy of another statute or

otherwise.” Jd. at 348-49. However, because of the existence

of the mandate of self-regulation present in the Securities

Exchange Act, the Court sought to “reconcile pursuit of

the antitrust aim of eliminating restraints on competition

with the effective operation of a public policy contemplat-

ing that securities exchanges will engage in self-regulation

which may well have anticompetitive effects in general

and in specific applications.” Id. at 349.

The Court concluded that under the circumstances of the

case, it did not have to complete the accommodation be-

tween the acts since the Exchange did not reach the thresh-

old of justification under the statute and had plainly ex-

ceeded the scope of its authority to engage in self-regula-

tion by not informing Silver of the charges underlying the

decision to terminate the connections and by not providing

an appropriate opportunity to explain or refute such

charges despite prompt and repeated requests therefor.

Id. at 361, 365.

Appellant here contends that the Exchange was not

justified in excluding him from trading because nothing

in the statutory scheme allows the Exchange to discipline

brokers by excluding them from trading. Even if there

were such statutory authorization, here he was afforded

neither hearing nor notice and, thus, he claims the Ex-

change did not reach the threshold of justification. As-

suming these contentions to be true, they do not dispose

of this case.

The Chicago Mercantile Exchange is a “contract

market” designated by the Secretary of Agriculture to

conduct future trading in commodities pursuant to the

Commodity Exchange Act, as amended, Title 7, U.S.C.A.

§ 1, et seg. As a condition of such designation, it must

fulfill certain. statutory requirements including the enact-

ment and enforcement of bylaws, rules and regulations

— 39 —_

which relate to “trading requirements™ and which provide

“minimum financial standards and related reporting re-

quirements” for members of such markets.

Failure to enforce these bylaws, rules and regulations

may result in suspension or revocation of the contract

market designation® as well as cease and desist proceedings

with attendant misdemeanor penalties for failure to com-

* Title 7, U.S.C.A. § 7a provides, inter alia:

“§ 7a. Duties of contract markets

Each contract market shall—

ees

“(8) enforce all bylaws, rules, regulations, and

resolutions, made or issued by it or by the governing

board thereof or any committee, which relate * * *

to other trading requirements, and which have not

been disapproved by the Secretary of Agriculture

eee

"Title 7, U.S.C.A. § 7a provides, inter alia:

“§ 7a. Duties of contract markets

Each contract market shall—

sees

“(9) enforce all bylaws, rules, regulations, and

resolutions made or issued by it or by the governing

board thereof or by any committee, which provide

minimum financial standards and related reporting

requirements for * * * members of such contract

market * * *.”

* Title 7, U.S.C.A. § 7b provides:

™ Suspension or revocation of designation as

‘contract market’ .

“The failure or refusal of any board of trade to

comply with any of the provisions of this chapter,

or any of the rules, regulations, or orders of the

Secretary of Agriculture or the commission there-

under, shall be cause for suspending for a period not

to exceed six months or revoking the designation of

such board of trade as a ‘contract market’ in ac-

cordance with the procedure and subject to the judi-

cial review provided in section 8 of this title.”

— 49 —

ply.* Anyone who acts Singly or in concert with another

to bring about a violation of rules and regulations issued

* Title 7, U.S.C.A. § 13a provides, inter alia:

“$ 13a. Nonenforcement of rules of government or :

other violations, cease and desist orders —

against contract markets; punishment; |

misdemeanor; separate offenses

“If any contract market is not enforcing or has 7

officer, agent, or employee of any contract market q

otherwise is violating or has violated any of the -

upon notice and hearing and subject to appeal as in |

that such contract market, director, officer, agent, or q

employee shall cease and desist from such violation, |

[and upon failure or refusal to comply] shall be |

guilty of a misdemeanor and, upon conviction thereof, 4

shall be fined not less than $500 nor more than $10,000 7

or imprisoned for not less than six months nor more §

than one year, or both. * * *” :

* Title 7, U.S.C.A. § 13e(a) provides:

“§ 13e¢. Responsibility as principal; * * * |

“(a) Any person who commits, or who willfully

aids, abets, counsels, commands, induces, or procures

the commission of, a violation of any of the provisions §

of this chapter, * * * or who acts in combination |

or concert with any other person in any such violation, |

or who willfully causes an act to be done or omitted

which if directly performed or omitted by him or

another would be a violation of this chapter * * *

may be held responsible in administrative proceedings

under this chapter for such violation as a principal.”

— 41 —

The facts alleged by appellant to support his antitrust

charge are either violations or induced violations of Ex-

change rules, promulgated pursuant to the Act, which re-

late to “trading requirements” and financial reporting re-

quirements." As such, they could have been examined by

the Commodity Exchange Commission or the Secretary of

Agriculture.”

Thus, we are not confronted with the problem in Silver

wherein there was “nothing built into the regulatory

scheme which performs the antitrust function of insuring

that an exchange i

as to do injury t

as furthering le

Rather, the amage suit

in the ins problem of conflict or

the agency’s regulatory

Id. at 358.

Chief Judge Swygert, in his concurring opinion to Thill

ecurities Corp. v. New York Stock Exchange, 7 Cir., 433

F.2d 264 (1970), cert. denied, 39 U.S.L.W. 3424 (U.S. Mar.

30, 1971), suggested that the district court, on remand, con-

sider this problem of coextensiveness of coverage by de-

* The Commission has jurisdiction over alleged viola-

tions by the Exchange and its officers, It is composed

of the Secretary of Agriculture, the Secretary of Com-

merce and the Attorney General or their respective desig-

hees. The Secretary of Agriculture may decide to exclude

members of contract markets from trading.

— 42

Exchange Commision 4

judge the New York |

petitive antirebate rule. E

ssue depended, in part, |

wing factors: (1) the |

policy in fulfilling its duty |

regulation; (2) the ability of 7

sary to make |

Act work; and (4) the possibility

the Sherman Act without subject- +

damage suits. Jd. at 277. i

Applying these criteria to the instant case, we think it 3

ocation of the doctrin 3

F. 2d , (Sli

(en banc), observed:

“Tt is a fair synthesis of the cases [of the Supreme F

Court and of the D.C. Cireuit over the last 25 years] |

that a statute providing for licensing or other regula- 4

tion is presumed to permit consideration of antitrust 4

principles, with the harmonizing approach [applied to 3

conflicts between antitrust policies and the agency’s =

other regulatory objectives] * * * unless a contrary |

intent appears expressly or by necessary implication.” =

(Quotation appears in Hale vy. F.C.C., D.C. Cir., 425

F. 2d 556, 561 (1970) (concurring opinion) ).

Appellant could have applied for the institution of pro-

ings against the defendants before the Commission

and/or the Secretary of Agriculture on the facts alleged

— 43 —

in this case." He could have thereafter petitioned for

i n in any proceedings initiated pursuant to his

; eed the allegedly anticompetitive trans-

; @ fer of membership were in violation of Exchange rules,

@ the Commission could have prevented it.

Moreover, the questions here involved are precisely the

@ ones that the Commission and the Secretary are to resolve

t in fulfilling their watchdog function over the Exchange

@ and its members." The allowance of a private treble

@ Tite 17, CFR. §§ 0.3 and 0.53 provide that “any

_ -@ interested person having any information of any violation

“Title 17, C.F.R. §§ 0.8, 0.58.

“In Pan American World Airways, Inc. v. United

“Limitation of routes and divisions of territories

and the relation of common carriers to air carriers

are basic in this regulatory scheme. The acts charged

in this civil suit as antitrust violations are precise

ingredients of the Board’s authority in granting,

qualifying, or denying certificates to air carriers, in

modifying, suspending, or revoking them, and in

allowing or disallowing affiliations between common

carriers and air carriers.”

Although the overall regulatory scheme’in the instant

— 44 —

damage antitrust suit in this case prior to the attempted

institution of actions before the Commission or the Secre. —

the agency fulfill its regulatory function of insuring that 3

contract markets enforce their own rules and bylaws.

Additionally, there is a potential repugnance between a 4

decision of the Commodity Exchange Commission and the +

discretion to refuse to report “minor violations” of the 7

Act for prosecution “whenever it appears that the public %

damages that are essentially punitive in nature’ could 4

conflict with a decision by the Commission in the “public §

** (Continued) 4

Co. v. Cunard 88. Co., 284 U.S. 474 (1932) with California *

v. F.P.C., 369 U.S. 482 (1962); United States v. Borden 4

Co., 308 U.S. 188 (1939), for ample illustration of Chief Zz

Judge Swygert’s observation in Thill, supra at 277, that 4

cases on primary jurisdiction provide no clear resolution /

to the issue. .

* Title 7, U.S.C.A. § 13e(b) provides:

“§ 13e. * * * minor violations a

(b) Nothing in this chapter shall be construed as *

requiring the Secretary of Agriculture or the com- |

mission to report minor violations of this chapter

for prosecution, whenever it appears that the public

interest does not require such action.”

‘As was said in Commissioner of Internal Revenue

v. Obear-Nester Glass Co., 7 Cir., 217 F.2d 56, 61 (1954),

seems to be punishment which will deter the

violator and others from future illegal acts.”

— 45 —

interest” that the punitive steps allowable under the Act

should not be taken.**

We hold, therefore, that before a private treble damage

action for antitrust violations may be brought against

these defendants charging yiolation of the rules promul-

gated as a condition to a contract market designation,

the Commodity Exchange Commission and/or the Secre-

tary of Agriculture must have the first opportunity to se-

cure the fulfillment of the statutory duties imposed upon

exchanges and their members. The correct remedy in such

such time as the Commodity Exchange Commission and/or

the Secretary of Agriculture may act upon it.

REVERSED AND Remanpep Wirn Directions

Keaner, Circuit Judge, concurring in part and dissenting

in part. While I agree that the complaint states a@ cause

of action under the antitrust laws, I do not believe that a

remand of this case to the Commission is proper.

Appellant alleges, inter alia, that the defendant, Chicago

Mercantile Exchange, knowingly conspired with defen-

We express no opinion on

The complicated issues of reconciliation of the Commodi.

ties Exchange Act and the Sherman Act that would be

Presented will require the benefit of brief and argument

before any determination could be attempted.

* Carnation Co. vy. Pacific Westbound Conference, 383

U.S. 213, 229-993 (1966); Pan American World Airways,

Ine. v. United States, supra at 313, n. 19.

— 46 —

dant, Siegel Trading Company, to prevent him from con- 3

tinuing as a member of the Exchange and, therefore, from .

transacting his business. Other allegations in the com. a

trust claim is the proving of a transference of his member- a

ship by the Exchange to James E. Reich. Since this trans- -

ference allegedly would violate Exchange rules, and there- a

by the Commodity Exchange Act, if not pursuant to a @

valid authorization, the majority reasons that Ricci must

first proceed before either the Secretary of Agriculture |

or the Commisgion. ;

It may be that Ricci could have proceeded before the -

Commission. However, it does not follow that Ricci must 4

proceed before the Commission. The doctrine of primary |

jurisdiction does not require courts to stay their hand in |

all controversies which involve factual disputes arguably ‘

within the jurisdiction of an administrative agency. Rather *

the doctrine holds “that in cases raising issues of fact not |

within the conventional experience of judges or cases re- |

quiring the exercise of administrative discretion, agencies 7

created by Congress for regulating the subject matter —

should not be passed over.” Far East Conference v. United =

States, 342 U.S. 570, 574 (1952). The underlying factual |

questions in the case at bar involve neither unconventional |

facts nor administrative discretion: Whether Ricci exe- }

cuted a valid authorization binding on him at the time of

transfer is a question which a district

to assess as a commission

Thill Securities Corp. v. New York Stock Exchange, 433

F. 2d 264 (7th Cir. 1970), cert. denied 39 U.S. L.W. 3424,

* The Commission does have discretion to refrain from

reporting minor violations of its cease and desist orders

for prosecution. See discussion imfra.

—47 —

heavily relied upon in the majority opinion, presents a

much stronger case for the invocation of primary jurisdic-

tion; yet, two of the judges do not mention the doctrine

and the third merely suggests the applicability of the

doctrine to the district court.

In Thill, a licensed securities dealer brought a class

action against the New York Stock Exchange charging an

unreasonable restraint of trade and an unlawful monopoly

of the securities market in violation of the Sherman Anti-

trust Act* and the Clayton Act.’ The suit was founded

on the Exchange’s “anti-rebate rule” which prohibits a

member from sharing a commission with a@ non-member

even though the non-member originally received the cus-

tomer’s order. The Exchange contended that the “anti-

rebate rule” was within the scope of its authorized self-

regulatory powers and that the Securities and Exchange

Commission was exercising its statutory power of review

which explicitly includes the fixing of reasonable rates of

commission.‘ Surely, primary jurisdiction was a more

appropriate disposition in Thill than it is here. Thill was

(1) a direct antitrust attack on an exchange rule (2) which

involved unconventional facts and (3) statutorily declared

administrative discretion.

tion and public hearings on rate structure matter inelud-

ing economic access to the Exchange market by non-mem-

ber broker-dealers,” (Supra, at 278.) Despite this aspect,

While Judge Pell dissented from that part of the majority

opmion in Thill which remanded plaintiff’s direct challenge

of the “anti-rebate rule” to the district court, he did not

*Sherman Antitrust Act $§1-2, 15 U.S.C. §4§1-2 ( 1964).

*Clayton Act $4, 15 U.S.C. $15 (1964).

*15 U.S.C. $78(s) (b) (9).

— a

that “the ‘fixing of reasonable rates of commission . . . and

other charges’ as provided for by $19(b) (9) of the Securi.

ties Exchange Act of 1934 (15 U.S.C. §78(s) (b) (9))

necessarily includes as an ancillary power the prohibition

case at bar.

The criteria enumerated by Chief Judge Swygert in his

concurring opinion would dictate a remand to the district |

court in this case.

(1) The SEC’s power to weigh antitrust policy in ful.

filling its duty of review of Exchange self-regula. |

tion.

I assume the majority opinion intends the Commission |

(Secretaries of Agriculture and Commerce and the Attor.

ney General) to fully decide the issues in this case. Per.

haps the very incongruence of these Officials deciding diffi.

cult antitrust questions is enough to suggest that Congress .

did not legislate such a result. However, the resolution |

* Evidently, Judge Pell believed the New York Stock

change is exempt from suits which are direct chal-

lenges to its rules. Since Judge Pell concurred in that

part of Judge Gampbell’s opinion which remanded the

remaining issues to the district court, he must have con.

cluded that Primary jurisdiction was inappropriate.

*I merely observe that antitrust law is not within the

peculiar province of the Secretaries of Agriculture and

—

of this question need not rest on such grounds. Congress

has strictly limited the jurisdiction of the Secretary of

Agriculture and the Commission to violations “of the pro-

visions of this chapter.” (See e.g., Title 7, U.S.C. $13a.)

This chapter means the “Commodity Exchange Act” (Title

7, U.S.C. $1) and not the “Sherman Act,” which is found

at 15 U.S.C. $1.

(2) The ability of an aggrieved party to initiate SEC

review.

Inc. v. United

States, 371 U.S. 296, 83 S. Ct. 476, 9 L. Ed. 24 325 (1963) ;

California v. F.P.C., 369 U.S. 482, 82 S. Ct. 901, 8 L. Ed.

2d 54 (1962).” (Concurring opinion of Chief Judge

Swygert at p. 277.)

*Title 17, C.F.R. $0.8, 0.58,

— 50 —

ship to the matters involved in the proceeding; (b) the ‘

nature of the material he intends to present in evidence; ’

(d) any other reason he should be allowed to intervene, *

These factors indicate that both the Commission and !

the Secretary of Agriculture possess the power to exclude |

claimants based on the nature of their claims. Since insti. }

tution of proceedings is permitted only when there is rea. E

son to believe there has been a violation,’ Ricci might be §

prevented from asserting his antitrust action before th’

Commission. Ricci would then return to the district court ”

on his antitrust claim, needlessly multiplying the number |

of tribunals involved in these proceedings. Of course, |

this question could be answered, as it was in Thill, bys |

remand to the district court for the taking of evidence. 4

(3) The extent that SEC expertise would be useful in’

resolving the question of whether the anti-rebate }

rule was necessary to make the Securities Exchang |

Act work.”

Seemingly, the relevance of this factor is extremely }

limited in this case. Ricci has alleged and must prove facts 4

which show an unlawful conspiracy between the Exchang

and Siegel Trading Company. A good faith but erroneous §

decision by the Exchange would not be a violation of the}

Sherman Act. The power to decide membership require.

ments implies the power.to make good faith but erroneous fr

decisions. Such power is needed to make the Exchange®

Act work. Silver vy. N.Y.S.E., 373 U.S. 341, 357. Since a

Ricci did not allege that a good faith decision by the Ex.3

* Title 17, C.F.R. $0.3, 0.53. Thus, Ricci may be limited:

to proof of a Rules violation. i

** This assumes that the Secretary and/or the Commis.’

sion have the power to consider antitrust claims. Since!

the question of primary jurisdiction was neither briefed!

nor argued orally, we are somewhat inhibited in our

analysis.

|; on

ni change to transfer his membership was a violation of the

@ antitrust laws, the question under (3) is whether it is neces-

“sary to make the Act work for the Exchange to possess

‘power to determine its membership if these determinations

are motivated by otherwise unlawful intent. This is tradi-

tional “rule of reason” inquiry which the Court in Silver

“@ described as “flexible enough to permit the Exchange suffi-

cient breathing space... .” (Supra at 360.) Whether the

Exchange should be insulated from this type of antitrust

“@ liability will be considered in the following section. All

@ that remains to be mentioned here is that a district court

1 @@ would have greater expertise and experience in this regard

¢ @ than the Commission. Judge Campbell so held in Thill:

It is in this area of public protection, that the SEC

claim their expertise. On the other hand, it should

na be remembered that the courts of the United States

a have over the years become the repository of antitrust

oth expertise. (433 F. 2d at 273.)

Whatever the validity of this holding with regard to the

| “anti-rebate rule,” it is doubtless true here where the

@ technical complexities do not approach those present in

i Thill.

q (4) The possibility of achieving the aims of the Sher-

man Act without subjecting exchanges to treble

damage suits.

I would think that the aims of the Sherman Act could

only be achieved by enforcing that Act against Exchanges

which make unlawful transfers of membership for anti-

| competitive reasons. Perhaps the nature of the action in

@ Thil presents a more difficult question ; however, I am able

@ ‘o think of no legitimate public policy goals which are ad-

vanced by insulating this Exchange from antitrust liability

given the conduct alleged in the complaint. The majority

opinion indicates none. Yet, the opinion intimates that

because of a “potential repugnance between a decision of

the Commodity Exchange Commission and the award of

treble damages in an antitrust action” (infra at p. 11), the

aims of the Sherman Act should be subordinated to the

aims of the Commodity Exchange Act. This “potential

repugnance” stems from Commission discretion to refuse

to report minor violations of its cease and desist orders." -

Apparently the majority would permit the Commission,

which dves not have jurisdiction to consider the question -

of damages, to foreclose private suits if such foreclosure :

were deemed in the public interest.

—52—

lation to guide the Commission in making its “public inter. e

est” determination. United States v. Philadelphia National 5

Bank, supra; California v. Federal Power Com’n, 369 U.S. 3

that the Commission has ever considered, or desires to 4

true either of the FPC or the Comptroller of the Currency. 4

United States v. Philadelphia National Bank, supra; Cali. 4

do not possess the kind of power the majority would con. *

fer on the Commodity Exchange Commission.

Moreover, there is no “potential repugnance” between

the Commodity Exchange Act and the Sherman Act. All :

Congress has done by granting the Commission the afore. *

not create inconsistencies and then purport to reconcile

them. .

For the foregoi & reasons, I believe the proper dispo-

sition of this case is a remand to the district for further

proceedings.

“7 U.S.C. $18(b).

@ THomas Ricct,

— 53 —

ORDER

For the Seventh Circuit

Chicago, Illinois 60604

TvuEspay, OoropER 5, 1971

Before

Hon. Lutruer M. Swycerr, Chief Judge

Hon. Roczr J. Kurzy, Circuit Judge

Hon. Txomas E. Farcumnp, Circuit Judge

Hon. Water J. Cummines, Circuit Judge

Hon. Orto Kerner, Circuit Judg

Hon. Wusur F. Pew, Jr., Circuit Judge

Hon. Joun Pavt Stevens, Circuit Judge

Hon. Roserr A. Sprecuer, Circuit Judge

. Appeal from the

Plaintiff-Appellant, |“ H2.- 8 States Dis-

No. 18222

‘: trict Court for the

% ‘ Northern District

@ Cucaco =Mercantrr Excuangz,

of Illinois, Eastern

et al., Division.

Defendants-Appellees.

On consideration of the petition for rehearing and sug-

' gestion that it be heard en banc filed in the above-entitled

& petition for rehearing, and a majority of the active

members having voted to deny a rehearing en banc,

IT IS ORDERED that the petition for rehearing and

the petition for rehearing en banc be, and the same are

hereby denied.

_ Stevens voted to grant the petition for rehearing

en banc,

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.