Amicus Curiae Brief — Ricci v. Chicago Mercantile Exchange

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CITATIONS

Arenson v. Board of Trade of the City of

Chicago (N.D. Ill., No. 71 C 855) ........ 4

Arenson v. Chicago Mercantile Exchange

(N.D. Ill, No. 71 C 854) 2. 4

California v. Federal Power Commission,

I ile I reciinjessccinsncncrsanseiinitinpimaniianonsnmnnee

Denver Union Stockyard Co. v. Denver

Live Stock Commission Co., 404 F.2d

1055, certiorari denied, 394 U.S. 1014 -. 9

Georgia v. Pennsylvania R., 324 U.S. 439.. 9

Pan American World Airways v. United

States, 371 U.S. 296 ..............-..0.--.0cc0-eo-e-- 9

Silver v. New York Stock Exchange, 373

OB Ee 10

United States v. Board of Trade of City of

Chicago (N.D. Ill., No. 71 C 2875) ...... 4

United States v. Philadelphia National

Bank, 874 U.S. 821 ..:......0..00-:cceccceeceesseoeee 5

United States v. Radio Corp. of America,

NII WPT evsitiniinecetccnnnssecttansionncnennsnenscin

United States v. Western Pacific R., 352

U.S. 59

Texas & Pacific R. Co. v. Abilene Cotton

Oil Co., 204 U.S. 426

Thill Securities Corp. v. New York Stock

Exchange, 433 F.2d 264, certiorari de-

nied, 401 U.S. 994

Statutes and regulations:

Commodity Exchange Act, 7 U.S.C. §1 e

3, 5,7

Section 6f(a)

Section 7(d)

Section 12a(7) ..

17 C.F.R. §$§ 0.50-0.96

17 C.F.R. §§ 1.20-1.39

Miscellaneous:

U.S. Department of Agriculture, Release-

No. 4297-71, December 29, 1971

co CO «0200 =) CO CO CO =1 CO

Jn the Supreme Court of the United States

OCTOBER TERM, 1971

No. 71-858

THOMAS RICCI, PETITIONER

Vv.

CHICAGO MERCANTILE EXCHANGE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES AS

AMICUS CURIAE IN SUPPORT OF THE PETITION

FOR A WRIT OF CERTIORARI

STATEMENT

ity Exchange Commission or the

Secretary of Agriculture.

Petitioner brought this suit against the Chicago

_ Mercantile Exchange, three of its officers, Siegel Trad-

(1)

ing Co., a member firm of the Exchange, and the

president of Siegel Trading (all respondents herein)

to recover damages petitioner allegedly suffered from

cancellation of his membership and trading privileges

in the Exchange. .The complaint alleged that respond-

ents had violated Section 1 of the Sherman Act* by

conspiring to prevent petitioner from maintaining his

membership in the Exchange and had transferred his

membership in violation of the rules of the Exchange

(App. 5-20).2 Specifically, it alleged that Siegel in-

duced the Exchange to transfer petitioner’s member-

ship to a third party by use of a blank authorization

to transfer membership that petitioner had executed

but subsequently had revoked.* The transfer allegedly

took place without notice and hearing, and without

consideration of petitioner’s claim, known to the Ex-

change, that a debt he owed to Siegel was more than

offset by a debt owed by Siegel to petitioner. As a

result, petitioner alleged, he was unable to conduct

his business until he purchased a new membership in

the Exchange.

1The complaint also alleged tortious interference with ad-

vantageous commercial relationships in violation of state law.

2“App.” refers to the appendix in the court of appeals. ,

* Exchange Rule 307 states that a membership can be trans-

ferred or sold only when the member signs an authorization

to transfer. If the transfer of petitioner’s membership was

invalid, then he was also improperly denied trading privileges

on the Exchange in violation of Rule 822. Paragraph 10 of the

complaint sets forth the rules of the Exchange involved here

(App. 7-9). The rules have been recently renumbered, but

there do not appear to have been any substantial changes.

The district court dismissed the complaint for fail-

ure to state a cause of action under Section 1 of the

Sherman Act (Pet. App. 4a). The court of appeals

reversed, holding that “absent any justification from

the Exchange’s status as a board of trade and a des-

ignated ‘contract market,’ the complaint is sufficient

to allege a group boycott, a per se Violation of sec-

tion 1 of the Sherman Act.” (Pet. App. 10a).

The court held, however, with one dissent, that

under the doctrine of primary jurisdiction the anti-

trust proceedings should be Stayed until the Com-

modity Exchange Commission or the Secretary of

Agriculture passed on the validity of the defendants’

conduct under the rules of the Exchange and the

Commodity Exchange Act, 7 U.S.C. 1, et seg. (Pet.

App. 10a-18a). The majority found that the facts

alleged in the complaint in support of the antitrust

charge also constituted violations of Exchange rules

which could be investigated by the Commission or the

Secretary of Agriculture (Pet. App. 14a).

The dissent noted that although the Commission

and the Secretary could determine whether there had

been violations of the Exchange rules, they had no

jurisdiction to decide antitrust issues. It also stated

that the district court was just as competent as they

were to resolve the factual question involved in the

antitrust complaint (Pet. App. 18a-25a).

; INTEREST OF THE UNITED STATES

', This case raises an important question concerning

“the proper scope of the doctrine of primary jurisdic-

Mion in antitrust cases. Because of its responsibility

4

for the enforcement of the antitrust laws, the United

States is interested in maintaining the proper divi-

sion of responsibility between regulatory agencies and

the federal courts in the antitrust area.

The issue presented here is important with respect

to the application of the antitrust laws both to com-

modities trading and to other industries subject to

less than comprehensive regulation by administrative

agencies. In 1971, there were almost 12 million com-

modity futures transactions involving an estimated

$123.7 billion. These transactions form an essential

part of the nation’s distribution system of agricul-

tural products. Moreover, there are a number of cases

pending in the lower federal courts, including one

filed by the United States, in which antitrust claims

have been raised concerning practices in the commodi-

ties trading industry.

DISCUSSION

The antitrust laws are the primary vehicle for pro-

moting a free market economy and regulating prac-

tices which restrain competition. Congress also has

enacted numerous statutes granting varying degrees

of authority to administrative agencies to regulate

certain practices in the public interest, When an anti-

“U.S. Department of Agriculture, Release No, 4297-71,

December 29, 1971. ,

‘* These cases include United States v. Board of Trade of

City of. Chicago (N.D. Ill., No. 71 C 2875); Arenson v. Chicago

Mercantile Exchange (N.D. Ill., No. 71 C 854); Arenson Vv.

Board of Trade of the City of Chicago (N.D. Il, No. 71 C

855). ST rate: Miiten er i‘, : Hass :

5

trust suit challenges activities which are subject to

the regulatory authority of an agency, the question

often arises whether the district court or the agency

has primary jurisdiction over the issues involved.

Under principles established by this Court, the district

courts should defer to regulatory agencies in antitrust

cases only where Congress has given the agency. such

comprehensive. regulatory authority, including either

the power to grant exemptions.from the antitrust

laws or the power to remedy antitrust violations, that

it:may be deemed to that extent to have supplanted

the normal operation of the antitrust laws.

- The decision below is at variance with these prin-

ciples. The court below held that the Commodity Ex-

change Commission and the Secretary of Agriculture

must be given an opportunity to determine whether

the facts alleged in petitioner’s complaint established

violations of the Commodity Exchange Act or the

rules of the Chicago Mercantile Exchange, before the

district court could consider petitioner’s antitrust

contentions. This holding failed to focus on the criti-

cal question—whether the Act provides a sufficiently

comprehensive regulatory scheme to warrant applica-

tion of the doctrine of primary jurisdiction.

1, The doctrine of primary jurisdiction “requires

judicial abstention in cases where, protection of the

integrity of a regulatory scheme dictates preliminary

resort to the agency which administers the scheme”

(United States v. Philadelphia National Bank, 374

U.S. 321, 353). The doctrine originated in railroad

. rate cases, where an initial judicial determination of

__ the reasonableness of a particular rate would have '

6

interfered with the statutory scheme under which the

Interstate Commerce Commission had been given spe-

cific authority to determine the question. Texas &

Pacific R. Co. v. Abilene Cotton Oil Co., 204 U.S. 426;

see, also, United States v. Western Pacific R., 352

U.S. 59. In the antitrust field, however, the doctrine

has been applied only where there is a comprehensive

regulatory scheme under which the administrative

agency is authorized to decide the issues involved in

the antitrust suit and application of the antitrust

laws might frustrate Congress’ intent to substitute

pervasive agency regulation for the operation of free

market forces. See United States v. Philadelphia Na-

tional Bank, 374 U.S. 321, 351-354; United States v.

Radio Corp. of America, 358 U.S. 334, 346-350. The

application of the doctrine of primary jurisdiction in

antitrust cases is thus limited “lest the antitrust

policy whose enforcement Congress in this situation

has entrusted to the courts is in practical effect taken

over by * * * [the regulatory] agencies” (California

v. Federal Power Commission, 369 U.S. 482, 490).

These decisions also show that, contrary to the

thinking of the court of appeals in this case, the doc-

trine is not to be applied merely because the facts

involved in an antitrust suit also relate to issues that

are subject to a regulatory agency’s jurisdiction. The

critical question is not whether the agency has juris-

diction to deal. with some of the problems posed by

the facts in the antitrust case, but whether the

agency’s regulatory authority is so’ comprehensive

that permitting the district court to decide the anti-

trust case would create a serious possibility of con-

7

flict with the proper exercise of the agency’s function

in administering the regulatory scheme that Congress

directed it to apply.

2. There is neither a sufficiently comprehensive

regulatory scheme involved in this case nor a suffi-

cient possibility of conflict between that scheme and

the antitrust suit to justify the staying of the dis-

trict court proceeding until the agencies involved

have had the opportunity to consider the matter. The

statute involved, the Commodities Exchange Act, does

not provide a pervasive regulatory scheme for the

commodities trading business but rather was designed

narrowly to deal with specific evils. In enacting that

statute, Congress noted the large volume and economic

importance of commodity transactions and found that

such transactions are susceptible to speculation, ma-

nipulation, and control, with sudden or unreasonable

fluctuations in the prices of commodities,on boards of

trade frequently occurring as a result. 7 U.S.C. 5.

Accordingly, Congress decided to provide limited regu-

lation to protect the national interest in commodity

transactions (ibid.). See Chicago Board of Trade v.

Olsen, 262 U.S. 1.

To qualify under the Act to engage in the trading

' of commodity futures, a board of trade must register

as a “contract market” with the Secretary of Agri-

culture, must file required reports with the Secretary

and must provide rules “for the prevention of manip-

ulation of prices and the cornering of any commodity

. by the dealers or operators” on the market. 7 U.S.C.

27(d). The Secretary has authority to disapprove a

_ { fule adopted by a board of trade, but such authority is

limited to instances where the rule violates the Com-

modity Exchange Act or any rule, regulation or order

promulgated thereunder. 7 U.S.C, 12a(7). The Act

specifically prohibits certain types of practices, deemed .

adverse to the public interest. 7 U.S.C. 6b, 6c. In

addition, commodity brokers.are required to register

with the Secretary and to maintain minimum capital.

requirements; the Secretary can suspend or revoke

the registration of a broker who violates the Act or

any rules of the Secretary.. 7 U.S.C. 6£(2).. 5.

The Act also creates the Commodity. Exchange Com-

mission, : which consists of the Secretary of Agricul-.

ture, the Secretary of Commerce, and the Attorney

General (or their representatives). 7:U.S.C, 2. The

Commission is authorized to administer. and enforce

certain of the standards, embodied in the Act (see,

e.g., 17 C.F.R. 1.20-1.39), and may. conduct. discipli-.

nary proceedings for violations of the Act.or of rules

and regulations promulgated thereunder. 17 C.F.R.

0.50-0.96.

The scheme that Congress provided in the Com-

modities Exchange Act is not the kind of comprehen-

sive regulatory system that would make it appropri-

ate for the courts in antitrust .cases to defer to the

expert judgment of.either the Commission .or the Sec-

retary of Agriculture. Neither the Commission nor

the Secretary has any general authority to proceed

against unfair methods of competition or otherwise

to grant relief against. antitrust. violations; ‘they have

no authority: to determine who can do business in the

commodities markets, the prices to be charged, or the

establishment of new markets.. Their. jurisdiction ‘is.

limited to dealing with the precise trading practices

specified in the Act; that is the only area:in which

they have experience or expertise. In contrast, “the

courts of the United States have over the years be-

come the repository of antitrust expertise” (T hill Se-

curities Corp. v. New’ York Stock ‘Exchange, 433 F.

2d 264, 273 (C.A. 7), certiorari denied, 401:U.S. 994,

The only issues either the Commission or the Secre-

tary could decide in this case is whether respondents

violated the Act or the rules of the Exchange; by

definition, that is the only issue over which the Com-

mission has jurisdiction. The issues in the antitrust

case, however, are much broader; the complaint al-

leges that respondents conspired to deprive petitioner

of a membership and trading privileges. Neither the

Secretary nor the Commission has authority to decide

that issue, or to grant efféctive relief against it. Cf.

Pan American World Airways v. United States, 371

US. 296.

The present case is, therefore, similar to Georgia

v. Pennsylvania R. Co., 324 U.S. 439, where the

Court held that a complaint charging a conspiracy

among railroads to fix rates alleged a violation of the

antitrust laws cognizable in the federal courts with-

out the need for prior resort to’ the Interstate Com-

meree Commission. The. Court reasoned ‘that even

* Compare Denver Union Stockyard Co. v. Denver Live Stock

Commission Co., 404 F. 2d 1055 (C.A. 10), certiorari denied,

894 U.S. 1014, where the court held that the Secretary of

_Agricuiture did not have primary jurisdiction under. the

#ackers and Stockyards Act to consider an antitrust complaint

Pe, monopolization of the stockyard business in Denver

§ & merger of two stockyard firms. ;

10

though the Commission had primary jurisdiction to

determine the reasonableness of rates, it had no au-

thority to immunize or prohibit combinations of com-

petitors fixing rates.

The present case is unlike Silver v. New York

Stock Exchange, 373 U.S. 341, which involved the

question whether the regulatory scheme of the Securi-

ties Exchange Act of 1934 created an exemption from

the antitrust laws for certain actions taken by a stock

exchange.” Here the regulation of futures trading on

the commodity markets is focused so specifically on

the mechanics of such trading that. there is no basis

for implying an antitrust exemption for that business.

Moreover, Silver makes it clear that it is for the

courts rather than an administrative agency to make

any necessary reconciliation between the regulatory

scheme and the antitrust laws and to determine the

extent, if any, of implied repeal of those laws. The

decision below therefore cannot be justified on the

In Silver, this Court considered whether the duty of self-

regulation imposed upon a stock exchange by the Securities

Exchange’ Act implied an exemption from the antitrust laws

with respect to the arbitrary denial by a stock exchange of

direct wire telephone connections between its members and

two non-member broker-dealers to whose business such con-

nections were essential. The Court held that “[rJepeal [of

the antitrust laws] is to be regarded as implied only if neces-

sary to make the Securities Exchange Act work, and even then

only to the minimum extent necessary.” 373 U.S. at 357.

Applying this test, the Court ruled that “particlular instances

of exchange self-regulation which fall within the ‘scope and

purposes of the Securities Exchange Act may be regarded as

justified in answer to the assertion of an antitrust claim,”

but that the arbitrary act of self-regulation involved was not

so justified. 373 U.S. at 861.

11

ground that the Secretary or the Commission should

determine in the first instance the scope of any pos-

sible antitrust immunity.

CONCLUSION

For the foregoing reasons, it’ is respectfully sub-

mitted that the petition for a writ of certiorari should

be granted.

ERWIN N. GRISWOLD,

Solicitor General.

WALKER B. CoMEGys,

Acting Assistant Attorney General.

Howakrb E. SHapPiRo,

BARRY GROSSMAN,

SEYMourR H. DUSSMAN,

Attorneys.

FEBRUARY 1972.

W 8. s. covernuenr prurins orrice; 1972