Brief for Respondent — Ricci v. Chicago Mercantile Exchange

Supreme Court brief1973

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TABLE OF CONTENTS

OPINIONS BELOW 1

JURTBDECTION nnnnanannoceccoceeceencnennncvenencoerevarevesbeneeeneenee sense z

STATUTES, RULES AND REGULATIONS IN-

VOLVED } 2

QUESTIONS PRESENTED .........W.. 2-22. ---nneeeee 3

STATEMENT - | 4

SUMMARY OF ARGUMENT WW 6

ARGUMENT:

The Commodity Exchange Commission Has Pri-

mary Jurisdiction Of The Instant Case _.............. 9

A. Pursuant To The Silver Case, The Com-

modity Exchange Act (CEA), And The

Rules Of The Secretary Of Agriculture

And The Commodity Exchange Commission

(CEC) And The Chicago Mercantile Ex-

change (CME), The CEC Should Be Given

An Opportunity To Weigh Antitrust Policy

In This Matter Before It Is Heard In The

Courts 9

B. Plaintiff Failed To Avail Himself Of The

Regulatory Machinery Of The CEA And The

CME

Il.

Answer To Plaintiff’s Arguments

A. “Fundamental” Antitrust Policy Is Amelio-

rated By The Flexibility And Dynamism Of

The Antitrust Laws

B. Immunity From The Antitrust Laws Does

Not Have To Be Expressly Stated In The

Regulatory Statute To Be Effective

C. The CEC Is Given The Power To Consider

The Public Interest And Thus Can Deter-

mine Whether The Antitrust Laws Apply In

This Case

D. Courts Will Defer Antitrust Questions To

Administrative Agencies Without The Ne-

cessity Of Specific Statutory Provisions _.....

E. The CEA Is Sufficiently Pervasive To Con-

fer Primary Jurisdiction Upon The CEC ....

F. The Question Of Whether Defendants’ Ac-

‘tions Were Arguably Lawful Is Not Reached

Ie A, ID ccissiinistecassiunecdinihin snc

G@. The CEC Has The Power To Hear The

Case

1. Plaintiff Can File A Complaint With

The CEC

2. The CEC’s Inability To Award Dam-

ages Does Not Deprive It Of Primary

en SERRE Snee CiePe RRR ip a

Iil.

Answer To The Government’s Arguments _—.....

A. The Regulatory Scheme Of The CEA Is

Sufficiently Pervasive

B. Antitrust Immunity Arises From The CEA

And The Silver Case

iii

C. The CEC Has The Power To Grant Effec-

tive Relief "

D. The CEC Has The Expertise Sufficient For

The Application Of Primary Jurisdiction ......

E. The CEC Has A Procedure Sufficient To

Se TN NMI ltbicicnintesstasabtslane Dereincacctntniraece

III, eicsnssisenlinrneinnisiNtiLaevininentstiniaeetlitntonscnannitnations

ADDENDUM

CrraTions *

Cases:

Allied Air Freight, Inc. v. Pan American World

Airways, Inc., 393 F. 2d 441 (2d Cir., 1968),

cert. denied, 393 U.S. 846 (1968) 27, 30

Apex Hosiery Co. v. Leader, 310 U.S. 469, 491-

493 (1940)

Breen Air Freight, Ltd. v. Air Cargo, Inc., 1971

Trade Cas. 73,775, 91,273 (S.D. N.Y., 1971) ..

Brown v. Coates, 253 F. 2d 36, 39 (D.C. Cir.

1958) ies

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

RU Sip eins cosilceicailisSiiigitaioitnaiacealinen agence

Carey v. Westinghouse Electric Corp., 375 U.S. 261

(1964)

Carnation Co. v. Pacific Westbound Conference, 383

U.S. 213 (1966)

Crain v. Blue Grass Stockyards Co., 399 F. 2d 868

(6th Cir., 1968)

Denver Petroleum Corp. v. Shell Oil Co., 306 F.

Supp. 289 (D. Colo., 1969) mi

sieaniliineeisinen 22, 28, 31

Denver Union Stockyard Co. v. Denver Livestock

Commission Co., 404 F. 2d 1055 (10th Cir., 1968),

cert. denied, 394 U.S. 1014 (1969) - =

Far East Conference v. United States, 342 U.S.

570, 574-575 (1952) 9, 34

Federal Maritime Bd. v. Isbrandtsen Co., 356 U.S.

481, 498-499 (1958) lon 10, 34

General Am. Tank Car Corp. v. El Dorado Termi-

nal Co., 308 U.S. 422, 433 (1940) 29

Hunt v. Crumboch, 325 U.S. 821, 826 (1945) 19

J.I. Case Co. v. Borak, 377 U.S. 426 (1064) 3... 34

Cir., 1967), cert. denied, 389 U.S. 954 (1967) ..... 21

(1965) 34

Marnell v. United Parcel Servite of Am., Inc., 260

F. Supp. 391, 412 (N.D. Rg RD eistecccecciss 28

Maryland & Va. Milk Producers Ass'n. v. United

States, 362 U.S. 458 (1960) 21, 3

McKeon Construction v. McClatchy Newspapers,

1970 Trade Cas. 173,212 (N.D. Cal., ee a 26

Noerr Motor Freight, Inc. v. Eastern R.R. Presi-

dents Conference, 155 F. Supp. 768 (E.D. Pa.

1957), rev'd, 365 U.S. 127 (1961) 19

Norfolk Monument Co. v. Woodlawn Memorial

Gardens, Inc., 404 F. 2d 1008, 1012 n.3 (4th Cir.,

1968) 10

Northern Natural Gas Co. v. Federal Power

Comm’n, 399 F. 2d 953 (D.C. a, i ........... 10

Pan American World Airways, Inc. v. United

States, 371 U.S. 296, 311-312 ee pt Ee 29

Parmelee Transp. Co. v. Keeshin, 292 F. 2d 794,

804 (7th Cir., 1961), cert. denied, 368 U.S. 944

(1961) 19

Seatrain Lines, Inc. v. Federal Maritime Comm’n,

1972 Trade Reg. Rep. 173,898 (D.C. Cir., 1972) .. 22

Silver v. New York Stock Exchange, 373 U.S. 341

(1963) 3, 5, 6, 11, 19, 21, 23, 33

I sacar lanieeesiigsiomasieasohaissiasaneiniesinencsiaenantinnts esaniblsiniipaesanchoiads 11

352 ccaemanee a. 11, 12

357 ek 12, 35

358 _ 6

i 15, 23

362-363 33

Smith v. Evening News Ass’n., 371 U.S. 195

(1962) 34

States Marine Lines, Inc. v. Federal Maritime

Comm’n, 376 F. 2d 230 (D.C. Cir., 1967) _............. 18

Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204

ne I OM is a 19

Thill Securities Corp. v. New York Stock Exchange,

433 F’. 2d 264 (7th Cir., 1970), cert. denied, 401

I I CRUE Siicirsrecniccesocrtiecrn 3, 5, 6, 20, 21

Thompson v. Texas M. Ry., 328 U.S. 134 (1946) ..... 29

Trans World Airlines, Inc. v. Hughes, 214 F. Supp.

106 (S.D. N.Y., 1963), aff’d, 332 F. 2d 602, 608

(2d Cir., 1964), petition for cert. dismissed, 380

U.S. 249 (1965) 30

United States v. E.I. DuPont DeNemours & Co.,

351 U.S. 377, 386 (1956) 23

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

321, 352 (1963) 26

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

348 (1959) 23, B

United States v. Western Pac. R.R., 352 U.S. 59,

63-64, 64-65 (1956) 9, 34

Vaca v. Sipes, 386 U.S. 171, 176-188 (1967) ........... 34

Statutes:

Capper-Volstead Cooperative Marketing Associa-

tions Act, 7 U.S.C. $§291, 292 20-21

Clayton Act, §4, 15 U.S.C. §15 2, 4, la

Commodity Exchange Act, §§1-17b, 7 U.S.C. §§1-

17b—

1-17b 2, 3, 5, la

6 2, 7, 14, 24, 1a

6d >

6e Se &

7 2, 13, 14, 24, 32, 3a

7a(1) 2, 13, 24, 6a

7a(2) 2, 7, 13, 14, 6a

7a(8) 2, 7, 14, 24, 6a

7a(9) sidbiekcacgcaiine 2, 14, 7a

7b 2, 32, Te

8 2, 12, 32, 8a

Sa) ....... 2, 7, 12, 13, 14, 16, 18, 24, 30, 33, 34, 35, 8a

_ EOS SEE ABR es ap Me OED OE 2, 24, 32, 10a

12a 2, #

12a(1) 12a

| yao ee A ed ge Eons oe 12a

12a(7) 2, 12a

SE svtiiichsinciss 2, 7, 12, 13, 14, 16, 18, 24, 30, 33, 34, 15a

13b 2, 13a

13e(b) 2, 7, 18, 20, 30, 33, 34, 15a

Packers and Stockyards Act, 7 U.S.C. §225 ............ 21

Robinson-Patman Price Discrimination Act, 15

U.S.C. $§13, 13a, 13b, 21a 20-21

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

78hh-1 11, 12, B

Sherman Act, $1, 15 U.S.C. §1

Regulations and Rules:

Regulations of the Secretary of Agriculture—

$0.3, 17 C.F.R. $0.3 2, 8, 20, 28, 15a

§0.8, 17 C.F.R. $0.8 2, 8, 20, 17a

§0.53, 17 C.F.R. §0.53 2, 8, 20, 28, 17a

§0.58, 17 C.F.R. §0.58 2, 8, 20, 18a

$1.7, 17 C.F.R. §1.7 2, 32, 19a

eee ee 2, 32, 19a

§1.41, 17 C.F.R. §1.41 2, 32, 20a

Rules of Chicago Mercantile Exchange—

Rule 307 .3, 4

ce HE ORI ea 3, 4

313 3, 4

322 3, 4

324 3, 4

cet EE a Re ORE RE 3, 7, 16, 27

Miscellaneous :

H.R. Rep. No. 1383, 73d Cong., 2d Sess. 15 (1934) . 11

Davis, Administrative Law Text (3d ed., 1972)—

$19.01 at 374 _._ 34

eee Oe 25

$19.06 19

Comment, Trade Association Exclusionary Prac-

tices: An Affirmative Role for the Rule of Rea-

son, 66 Colum. L. Rev. 1486, 1492 ERE

In THe

Supreme Court of the United States

OctosEr Term, 1971

No. 71-858

THOMAS RICCI,

Petitioner,

vs.

CHICAGO MERCANTILE EXCHANGE, an Illinois not-for-profit

corporation, EVERETTE B. HARRIS, WILLIAM PHELAN,

LEO MELAMED, THE SIEGEL TRADING CO., INC., a cor-

poration, and JOSEPH E. SIEGEL,

Respondents.

On Writ Of Certiorari To The United States Court

Of Appeals For The Seventh Circuit

BRIEF FOR THE RESPONDENTS,

THE SIEGEL TRADING CO., INC., a corporation,

and JOSEPH E. SIEGEL

OPINIONS BELOW.

The decision of the United States District Court for

the Northern District of Ilinois, Civil Action No. 69 C

1030 (1970) (unpublished), the opinion of the United

States Court of Appeals for the Seventh Cireuit, 447

F. 2d 713 (7th Cir., 1971), and the order of the Court

of Appeals, sitting en banc, denying the Petition for Re-

hearing on the Issue of Primary Jurisdiction (unpub-

lished), appear in Petitioner’s Appendix.

JURISDICTION.

These Respondents do not question the jurisdiction as

set forth in Petitioner’s brief.

STATUTES, REGULATIONS AND

RULES INVOLVED.

The statutes involved in this case are:

Clayton Act, § 4, 15 U.S.C. § 15, which is reprinted

in the Addendum attached to this brief;

Commodity Exchange Aet, §§ 1-17b, 7 U.S.C. §§ 1-17,

particularly §§ 6, 6d, 6e, 7, 7a(1), 7a(2), 7a(8), 7a(9),

7b, 8, 8(a), 9, 12a, 13a, 13b, and 13c(b), the pertinent

provisions of which are reprinted in the Addendum at-

tached to this brief;

Sherman Act, § 1, 15 U.S.C. § 1, a pertinent part of

which is reprinted in the Addendum attached to this

brief.

The regulations involved in this case are:

Regulations of the Secretary of Agriculture, §§ 0.3, 08,

0.53, 0.58, 1.7, 1.8, and 1.41, 17 C.F.R. §§ 0.3, 0.8, 0.53,

0.58, 1.7, 1.8 and 1.41, pertinent parts of which are re

printed in the Addendum attached to this brief.

Po nee

The Rules involved in this case are the following Rules

of the Chicago Mercantile Exchange:

Rule 500, which is reprinted in the Argument of this

brief; and Rules 307, 311, 313, 322 and 324, which are

reprinted in Petitioner’s Appendix, pp. 8-10.

QUESTIONS PRESENTED.

The questions presented are as follows:

1, Whether, having found that a complaint properly

alleges group boycott, a per se violation of Section 1 of

the Sherman Act, 15 U.S.C. 41, by a commodities ex-

change, its officers and a member, the Court of Appeals

erred in ordering that the proceedings be stayed until

such time as the Commodity Exchange Commission and/

or the Secretary of Agriculture may act upon it.

2. Whether the Commodity Exchange Act and the

doctrines of Silver v. New York Stock Exchange and

Thill Securities Corp. v. New York Stock Exchange

confer upon the Commodity Exchange Commission and/

or the Secretary of Agriculture power to exercise pri-

mary jurisdiction and grant a partial exemption 4rom

the antitrust laws to commodity exchanges and the mem-

bers thereof when exchange rules and actions provide

for hearing upon. the alleged wrongful transfer of an ex-

change membership. :

wild

STATEMENT.

This action was brought by Plaintiff-Petitioner, Thomas

Ricci (hereinafter referred to as “Plaintiff”) for treble

damages under Section 4 of the Clayton Act, 15 U.S.C.

§15. The Defendants are the Chicago Mercantile Exchange

(hereinafter referred to as “CME”) ; three of its officers,

Everette B. Harris, William Phelan, and Leo Melamed;

and one of its members, Joseph E. Siegel, and The Siegel

Trading Co., Inc., (hereinafter collectively referred to as

“Siegel”’).

The case arises on the motion of the defendants to dis.

miss the complaint for failure to state a cause of action

and for lack of jurisdiction.

Plaintiff’s complaint, in the first ten paragraphs, al-

leged the jurisdiction and venue for bringing the action

in the federal court, then described the parties to the

action, then cited Rules 307, 311, 313, 322 and 324 of the

CME and further alleged:

He purchased a membership on the CME on or about

May 1, 1967, and thereafter engaged in business as a

broker and trader of commodity futures on the CME.

(A. 10). On or about February 11, 1969, the CME “wil-

fully, unlawfully, knowingly and fhaliciously confederated,

combined, conspired and agreed with Siegel” to prevent

plaintiff from continuing as a member of the CME.

(A. 11). On or about February 11, 1969, plaintiff was

informed by the CME that Siegel claimed ownership of

his membership. (A. 11). Plaintiff notified the CME that

Siegel was indebted to him in the amount of approxi-

mately $18,175.00 for floor brokerage fees and that plain-

tiff owed Siegel $15,000.00 for a loan to purchase the

a aR

membership. (A. 11). Defendant Phelan requested plain-

tiff to present his claim to the membership to the CME

by virtue of Exhibit A which is attached to the complaint.

(A. 11-12, 20). Siegel induced the CME to violate its

rules to deprive plaintiff of his membership and to deny

him trading privileges. (A. 12). The individual defend-

ants and Siegel caused the CME to transfer plaintiff’s

membership to a third party and until plaintiff was able

to purchase another membership on March 4, 1969, he

was unable to trade and thus was damaged in his busi-

ness and property. (A. 13).

The District Court allowed the motions of the defend.

ants to dismiss the complaint on November 25, 1969.

The Court of Appeals on June 17, 1971, unanimously

concluded that “absent any justification from the Ex-

change’s status as a designated ‘contract market’ [under

the Commodity Exchange Act, 7 U.S.C. §§1-17b], the

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

violation of Section 1 of the Sherman Act.” (A. 37).

Then the Court of Appeals (Kerner, J., dissenting),

relying on Silver v. New York Stock Exchange, 373 U.S.

341 (1963), and Thill Securities Corp. v. New York Stock

Exchange, 433 F. 2d 264 (7th Cir., 1970), cért. denied,

401 U.S. 994 (1971), reversed the judgment and re-

manded the action to the District Court with directions

to stay the proceedings until such time as the Commodity

Exchange Commission and/or the Secretary of Agricul-

ture may act upon it. (A. 45).

On October 5, 1971, the Court of Appeals, sitting en

banc, denied plaintiff’s petition for rehearing. (A. 53).

This Court granted plaintiff’s Petition for Writ of

Certiorari to the Court of Appeals on February 28, 1972.

ic.

SUMMARY OF ARGUMENT.

The pleadings in this case present the proper situs.

tion for the exercise of primary jurisdiction by the

Secretary of Agriculture and/or the Commodity Ex.

change Commission (hereinafter collectively referred to

as the CEC) for study of the case in relation to the

Commodity Exchange Act (CEA), rules and regulations

of the CEC and Chicago Mercantile Exchange (CME),

and the application of the antitrust laws to these statutes

and rules. Silver v. New York Stock Exchange, 373 US.

341 (1963), established the doctrine that a securities ex-

change is exempt under certain circumstances from the

antitrust laws upon taking what otherwise would be anti-

competitive action. The exemption is dependent upon a

self-regulatory “scheme which performs the antitrust

function of insuring that the exchange will not in some

cases apply its rules so as to do injury to competition

which cannot be justified as furthering legitimate self.

regulative ends.” Jd. at 358. The Silver doctrine was am-

plified by Thill Securities Corp. v. New York Stock Ex-

change, 433 F. 2d 264 (7th Cir., 1970), cert. denied, 401

U.S. 994. (1971), which brought into play the role of

the administrative agency in supervising the enforcement

of exchange rules. Thill indicated that whether primary

jurisdiction would lie depended in part upon the follow-

ing factors: (1) The agency’s power to weigh antitrust

policy in fulfilling its duty of review of exchange self:

regulation; (2) the ability of an aggrieved party to in-

itiate agency review under the regulatory act; (3) the”

extent agency expertise would be useful in resolving the

question of whether the exchange rule was necessary to

make the regulatory act work; and (4) the possibility of

achieving the aims of the Sherman Act without subjecting

exchanges to treble damage suits.

In a general way, the CEA and the CEC establish an

analogous regulatory scheme to that of the securities in-

dustry. The exchange action in the instant case meets

the requirements of Silver for exemption. Plaintiff failed

to allege that the CME rules did not provide for notice

and hearing. Actually, plaintiff could have availed him-

self of the CME’s arbitration procedure under CME Rule

500. He did not allege that he attempted to pursue this

remedy.

The case also falls within the guidelines of Thill. The

CEC has the power to weigh antitrust policy pursuant to

section 13¢(b) of the CEA, which provides that the CEC

may refrain from reporting minor violations of the CEA

for prosecution -whenever it appears that the public in-

terest does not require it. Since the antitrust laws were

passed to protect the public and not to foster private

rights, the words “public interest” in section 13¢(b) can

he interpreted:to mean “antitrust policy”. Violations of the

CEA which the CEC could refrain from reporting would

inelude nonenforcement by the CME of its rules pur-

suant to sections 8(a) and 13a of the CEA by: (1) tam-

pering with the membership of a member required to

enforce bylaws relating to trading requirements pursuant

to section 7a(8); and (2) failing to keep records: of its

meetings and those of its committees, clearly describing

all matters discussed, pursuant to section 7a(2).

sical

The second requirement of Thill is fulfilled by the

Rules of the CEC. 17 C.F.R. §§ 0.3 and 0.53 allow any

interested person having information of a violation to

file an application requesting the institution of proceed.

ings before the Secretary or the CEC. Sections 0.8 and

0.58 allow the Secretary and CEC to permit any person

to intervene in a proceeding. The CEC possesses greater

familiarity with the CEA and the rules of the CEC and

CME than the courts. Furthermore, it is helpful to the

courts if the agency interprets its own regulatory stat.

ute and then passes on its point of view to the courts.

The fourth guideline of Thill dovetails with the first. The

first embraces the agency’s authority under the statute

and general rules of the doctrine of primary jurisdiction.

The fourth takes agency policy and the consequences

thereof into account. Because exchanges tread a tight-

rope over an abyss of antitrust liability, Silver stated

that it is desirable for the exchanges to receive protec-

tion from the antitrust laws under the umbrella of the

regulatory agency if the exchange makes a reasonable

effort at self-regulation. If there were no antitrust im-

munity, the exchanges, which are vital to the nation’s

economy, would be unable to operate.

THE COMMODITY EXCHANGE COMMISSION HAS PRI.

MARY JURISDICTION OF THE INSTANT CASE.

A. Pursuant to the Silver Case, the Commodity Exchange

Act (CEA), and the Rules of the Secretary of Agricul-

ture and the Commodity Exchange Commission (CEC)

and the Chicago Mercantile Exchange (CME), the

CEC Should Be Given an Opportunity to Weigh Anti-

trust Policy in This Matter Before It Is Heard in the

Courts.

The doctrine of primary jurisdiction applies when a

claim is originally cognizable in the courts, and comes

into play whenever enforcement of the claim requires the

resolution of issues which, under a regulatory scheme,

have been placed within the special competence of an

administrative body; in such a case, the judicial process

is suspended pending referral of such issues to the ad-

ministrative body for its views. United States v. Western

Pac. R.R., 352 U.S. 59, 63-64 (1956).

The doctrine arose out of judicial recognition of the

need for orderly and sensible coordination of the work

of agency and court and judicial realization that a court

should not act upon subject matter that is peculiarly with-

in the agency’s specialized field without taking into ac

count what the agency has to offer. Far East Conference

v. United States, 342 U.S. 570, 574-575 (1952). The doc

trine serves as a vara to a ia way, if litigation

should e its — a more |i ormed and

| Precige prin dhs 99 by ‘es a vile of scope and

}

;

a OR

meaning of the regulatory statute as applied to those

particular circumstances. Federal Maritime Bd. v. Is.

brandtsen Co., 356 U.S. 481, 498-499 (1958).

One of the most important practical effects of the

application of the doctrine is that in some cases, an

implied exemption of a regulated industry from the anti-

trust laws can arise. Under some regulatory schemes,

the agency is not strictly bound by the dictates of the

antitrust laws, but can and does approve actions which

violate antitrust policies where other economic, social

and political considerations are found to be of overriding

importance, provided that the agency takes into consid-

eration the antitrust question. Northern Natural Gas Co.

v. Federal Power Comm’n, 399 F. 2d 953 (D.C. Cir,

1968). These other considerations are given particular

weight in the stock exchange, tobacco warehouse and

trade association cases. These cases are viewed not as

an exception to the general rule that an agreement in

restraint of trade is a per se violation of the antitrust

laws, but as distinguishable because the presumed pur-

pose of the group action, generally with some degree of

state control, is not to eliminate or exclude competition

but, instead, to improve public service. Norfolk Monv

ment Co. v. Woodlawn Memorial Gardens, Inc., 404 F.

2d 1008, 1012 n.3 (4th Cir., 1968).

The traditional primary jurisdiction cases have in-

volved transportation cases which were referred to the

Interstate Commerce Commission (IOC), the oldest regu-

latory agency and one with ive and detailed an-

thority over an i governed by a legislative scheme |

whose policy ig to control competition rather than to

foster it. ion of ‘whether primary jurisdiction

intl

applies becomes more difficult when a court is confronted

with a less-established regulatory scheme and regulatory

agency, such as the Commodity Exchange Act (CEA)

and the Secretary of Agriculture and/or the Commodity

Exchange Commission, hereinafter collectively referred to

as the CEC. In Silver v. New York Stock Exchange, 373

U.S. 341 (1963), this Court set forth the standards and

methodology for determining when a securities exchange

and its members, operating under a legislative and regu-

latory scheme, would be exempt from antitrust liability.

In Silver, plaintiff was a broker who was not a mem-

ber of the Exchange. Without notice to plaintiff and

without giving plaintiff an opportunity for a hearing,

the Exchange ordered its members to cut off their wire

connections with plaintiff, which greatly damaged plain-

tiff’s business. Plaintiff brought an action for treble

damages under the Sherman and Clayton Acts. The Ex-

change posed the defense that the Securities Exchange

Act created a duty of exchange self-regulation so per-

vasive as to constitute an implied repealer of the anti-

trust laws, thereby exempting the Exchange from anti-

trust liability.

This Court traced the history of the “federally man-

dated duty of self-policing by exchanges,” Jd. at 352, to

H.R. Rep. No. 1383, 73d Cong., 2d Sess. 15 (1934), a re-

port which led to the enactment of the Securities Ex-

change Act of 1934: “‘The great exchanges of this coun-

try upon which millions of dollars of securities are sold

affected with a public interest in the same degree

iS other great utility.”” Jd. at 350.

te pattern of governmental entry, however, was

/no means one of total displacement of the ex-

= a

changes’ traditional process of self-regulation. The

intention was rather, as Mr. Justice Douglas said,

while Chairman of the S.E.C., one of ‘letting the

exchanges take the leadership with Government play.

ing a residual role. . . .’ Thus the Senate Commit.

tee Report stressed that ‘the initiative and responsi-

bility for promulgating regulations pertaining to the

administration of their ordinary affairs remain with

the exchanges themselves. It is only where they fail

adequately to provide protection to investors that

the Commission is authorized to step in and compel

them to do so’.” Id. at 352.

This Court went’on to set forth the method by which

the question of whether the regulatory scheme impliedly

created an exemption from the antitrust laws could be

answered: “. . . an analysis which reconciles the opers-

tion of both statutory schemes with one another rather

than holding one completely ousted.” Jd. at 357, and added

the caveat: “Repeal is to be regarded as implied only if

necessary to make the Securities Exchange Act work.”

Id. at 357.

An analysis of the Securities Exchange Act reveals that

the Securities Exchange Commission had the power to

disapprove exchange rules, but did not have jurisdic

tion to review particular instances of. enforcement of ex-

change rules. On the contrary, the CEA, sections 8(a)

and 13a, provide:

8(a). The commission is authorized to suspend for

a period not to exceed six months or to revoke the

designation of any board of trade as a “contract

| market” upon a showing that such board of trade

is not enforcing or has not enforced its rules of gov:

ernment made a condition of its designation as set

| | forth in section |7 of thi title or that such board '

trade, or any director, officer, agent, or employee

thereof, otherwise is violating or has violated any

of the provisions of this chapter or any of the rules,

regulations, or orders of the Secretary of ———

ture or the commission thereunder... .

13a. If any contract market is not enforcing or has

not enforced its rules of government made a con-

dition of its designation as set forth in section 7

of this title or if any contract market, director, of-

ficer, agent, or employee of any contract market

otherwise is violating or has violated any of the

provisions of this chapter or any of the rules, regu-

lations or orders of the Secretary of Agriculture or

Ee the commission thereunder, the commission may,

x upon notice and hearing and subject to appeal as

+ in other cases provided for . .. make and enter an

‘order directing that such contract market, director,

officer, agent, or employee shall cease and desist from

such violation. .. .

Section 7 referred to in sections 8(a) and 13a pro-

vides that a board of trade can be designated a contract

market within the meaning of the CEA:

(f) When. the governing board provides for mak-

ing effective the final orders or decisions entered

pursuant to the provisions of section 9. . . and the

orders issued pursuant to section 7a... .

Section 7a provides that each contract market shall—

(1) Promptly furnish the Secretary of Agriculture

copies of all bylaws, rules, regulations, and

resolutions made or issued by it or by the gov-

erning board thereof or any.committee, and of

eer all changes and proposed changes therein;

(2) Keep all books, records, minutes, and journals

| of proceedings of such contract market, and its

| governing board, committees, subsidiaries and

snuillliian

affiliates in a manner that will clearly describe

all matters discussed . .. and reveal any action

taken in such matters and allow inspection . . .

by [the Government].

Enforce all bylaws, rules, regulations, and rego.

lutions made or issued by it or by the govern.

ing board thereof or any committee, which

relate to terms and conditions in contracts of

sale to be executed on or subject to the rules

of such contract market or relate to other trad.

ing requirements. . . .

Enforce all bylaws, rules, regulations, and reso.

lutions made or issued by it or by the govern.

ing board thereof or any committee, which pro-

vide minimum financial standards and related

reporting requirements for futures commission

merchants who are members of such contract

market, and which have been approved by the

Secretary of Agriculture.

Section 7a(8) refers to enforcement of rules relating

to trading requirements. One requirement for trading on

& designated contract market is that one must be a mem-

ber thereof. Commodity Exchange Act, 46. Thus failure

of an exchange to follow its membership rules is a vio-

lation of section 7a(8).

The CME also is alleged to have engaged in a con-

spiracy, i.e. a secret meeting, to deprive Plaintiff of his

membership. This would be a violation of section 7a(2),

and thus through section 7(f) brings the CME within

the purview of sections 8(a) and 13a.

In each of these instances, punitive action is

tionary with the CEC. | -

It is interesting to nate that sections 8(a), 13a, 7(f),

7a(2), and 7a(8), all were enacted in 1968, after the

rendition of Silver. Prior to 1968, the CEC had no juris-

diction over the enforcement, non-enforcement or mis-

enforcement of the CME’s rules. It is clear that the

1968 amendments close the Silver loophole and confer

upon the CEC jurisdiction over the CME’s enforcement

of CME rules.

Despite its interpretation of the Securities Exchange

Act, the Stlver Court was sympathetic to the position of

the Exchange, stating at 360-361:

“(T]he absence of power in the Commission to re-

view particular exchange exercises of self-regulation

does create problems for the Exchange. The entire

public policy of self-regulation, beginning with the

idea that the Exchange may set up barriers to mem-

bership, contemplates that the Exchange will engage

in restraints of trade which might well be unreason-

able absent sanction by the Securities Exchange Act.

Without the oversight of the Commission to elabo-

rate from time to time on the propriety of various

acts of self-regulation, the Exchange is left without

guidance and without warning as to what regulative

action would be viewed as excessive by an antitrust

court possessing power to proceed... . But, under

the aegis of the rule of reason, traditional antitrust

concepts are flexible enough to permit the Exchange

sufficient breathing space within which to carry out

the mandate of the Securities Exchange Act... .

Although . . . the statutory scheme of that Act is not

sufficiently pervasive to create a total exemption

from the antitrust laws .. . particular instances of

exchange self-regulation which fall within the scope

and purposes of the Securities henry ge Act may

Fan Olhal a

be regarded as justified in| answer assertion

| of an antitrust claim.” | |

i | a

This court in Silver, over the dissent of Justices Harlan

and Stewart, who agreed with the Exchange’s position of

almost total antitrust immunity, held that the Exchange's

Act of self-regulation was unjustified because its rules

did not provide for notice and hearing and it did not in

fact gave Silver notice or an opportunity for a hearing,

Such is not the case here.

B. Plaintiff Failed to Avail Himself of the Regulatory

Machinery of the CEA and the CME.

In an attempt to avoid the rule of Silver and to evade

the thrust of sections 8(a) and 13a of the CEA, plaintiff

alleged that his membership was transferred without no-

tice or hearing. Yet no claim is made that the CEC was

not enforcing sections 8(a) and 13a.

Indeed, the CME initiated hearing procedures by virtue

of Exhibit A attached to the complaint. (A. 11-12, 20).

Plaintiff failed to allege that he did pursue these hearing

procedures. Furthermore, CME Rule No. 500 requires

arbitration of disputes between Exchange meinbers aris-

ing out of or related to Exchange transactions:

ARBITRATION

500. WHAT DISPUTES ARBITRATED.—It is de-

clared to be contrary to the objects and policy of

the Exchange that members should engage in

litigation over disputes arising out of or related

to Exchange transactions. When any such dispute

occurs, either between members, or between a

member and a non-member, it shall be reported

within a reasonable time to the President by the

party claiming to be aggrieved, and the Presi-

I ent shall submit to the parties thereto, for

| | eir signatures, a form of agreement submit-

. | | |

1"!

ae,

ting such dispute to general arbitration. If a

member refuses to arbitrate and if the matter

involves or directly relates to a transaction or

transactions upon the Exchange, the President

shall determine whether or not the matter shall

be arbitrated and he shall notify the parties in

writing. A member receiving notice from the

President that he is required to arbitrate shall

have ten days in which to file an appeal with

the Board. The appeal shall be in writing and

shall state the member’s reasons for refusing to

arbitrate. The Board shall, after hearing, re-

verse or affirm the ruling of the President. Any

member who, without appealing, refuses to

abide by the ruling of the President or refuses

to abide by the ruling of the Board after ap-

peal shall be guilty of a major offense. After

the parties have signed the agreement for ar-

bitration the President shall refer the dispute to

the Committee on Arbitration.

Plaintiff neither alleged the lack of existence of this

rule nor that he was denied a hearing under this rule.

It would appear that the existence of this rule and

plaintiff’s failure to pursue the hearing procedures would

place the CME and Siegel outside the ambit of the anti-

trust laws and that the dispute would be subject to CEC

jurisdiction under the doctrine of Silver and the provi-

sions of the CEA.

Thus, despite plaintiff’s contention (Brief for Plain-

tiff, p. 19), this case does not involve the question of

whether the CME violated its own rules. The question

is whether, under the provisions of the CEA, the CME

established a set of rules suffigient to provide plaintiff

i a hearing aa whether hq availed himself $f said

bee

rules. See States Marine Lines, Inc. v. Federal Maritime

Comm'n, 376 F. 2d 230 (D.C. Cir., 1967).

Not only does the CEC have the power to oversee the

enforcement of exchange rules under sections 8(a) and

13a, but it was given the following power by section

13e(b) of the CEA: :

13ce(b). Nothing in this chapter shall be construed

as requiring the Secretary of Agriculture or the

commission to report minor violations of this chap-

ter for prosecution, whenever it appears that the

public interest does not require such action.

. Since the antitrust laws were enacted with the primary

objective of protecting the public interest and not for

the enforcement of private rights, Aper H ostery Co. v.

Leader, 310 U.S. 469, 491-493 (1940), it is clear that

the CEC’s discretion to take public interest into account

constitutes a mandate to take antitrust principles into

account and to submerge them in the proper circum-

stances. To deny the CEC its discretion to keep within

its bosom the violation alleged here would serve to de-

stroy the statutory scheme of the CEA, spearheaded by

sections 8(a), 13a, and 13c(b), which all were estab-

lished by Congress in 1968, after the Silver case and

‘most of the leading cases dealing with primary juris-

diction had been decided.

ANSWEE TO PLAINTIFF'S ARGUMENTS.

A. “Fundamental” Antitrust Policy Is Ameliorated by the

Flexibility and Dynamism of the Antitrust Laws. |

Contcededly, rule is firmly established that repeal

of the antitrust laws by implication from a regulatory

we f

pe ee

statute will be strongly disfavored. However, the anti-

trust laws were not meant to be a panacea for all wrongs.

Parmelee Transp. Co. v. Keeshin, 292 F. 2d 794, 804

(7th Cir., 1961), cert. denied, 368 U.S. 944 (1961), and

do not purport to afford remedies for all torts commit-

ted by or against persons engaged in interstate com-

merce. Hunt v. Crumboch, 325 U.S. 821, 826 (1945). It

is a living, dynamic law to be adjusted to times and to

new situations. Noerr Motor Freight, Inc. v. Eastern

R.R. Presidents Conference, 155 F. Supp. 768, 812 (E.D.

Pa., 1957), rev’d, 365 U.S. 127 (1961). It has been suf-

‘ficiently demonstrated that Silver v. New York Stock

Exchange, 373 U.S. 341 (1963), held that such an ex-

emption exists for securities exchanges pursuant to the

Securities Exchange Act under the proper circumstances.

The reasoning applied in Silver can be applied here to

the CME, CEC and CEA.

B. Immunity From the Antitrust Laws Does Not Have To

Be Expressly Stated in the Regulatory Statute To Be

Effective.

Plaintiff seeks to deprive the defendants of antitrust

immunity by illustrating that the CEA does not express-

ly grant immunity. However, this approach is fallacious.

An analysis of the primary jurisdiction cases from their

beginning in Texas Pac. Ry. v. Abilene Cotton Oil Oe.’

204 U.S. 426 (1907), establishes that the “principal cri-

terion in deciding whether the doctrine is applicable

usually is not legislative intent but usually is judicial

appraisal of need or lack of need for resort to admin-

istrative judgment.” \Davis, ApmrnisTrative Law Text,

§ 19.06 (3d ed., 1972). Primary jurisdiction is’ an evolv-

ing, expanding concept which is not a slave to the anti-

iar re | |

tf | | : \

} |

—— 2)...

C. The CEC Is Given the Power to Consider the Public

Interest and Thus Can Determine Whether the Anti.

trust Laws Apply in This Case.

The application by the Court below of the four re.

quirements for primary jurisdiction set forth in Thill

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

2d 264 (7th Cir., 1970), cert. denied, 401 U.S. 994 (1971),

rebuts plaintiff’s contention that the antitrust laws over.

ride the CEC’s concept of the public interest. (Brief of

Plaintiff, p. 22). Firstly, the CEC has power to weigh

antitrust policy under its enforcement powers. Under

the statutory scheme, all exchanges and members there.

of must register with and report to it. Thus the CEC

has a deep interest in actions of the Exchanges and mem-

bers thereof which may affect the membership of one

of the members. Secondly, the aggrieved party may in-

itiate CEC review, 17 C.F .R. §§ 0.3, 0.8, or may apply to

intervene, §§ 0.53 and 0.58. Thirdly, the CEC’s expertise

is necessary. It controls the exchanges and their mem-

bers and presumably has greater knowledge of the CEA

and its own rules and policy than the courts. Fourthly,

the Court of Appeals has clearly demonstrated that the

CEC’s discretion not to report minor violations of the

Act would be inconsistent with an antitrust award of

treble damages. The CEC can better vindicate the public

interest by utilizing the discretion granted to it by sec-

tion 13¢(b) than can the courts by strictly applying a

statute which carries with it a treble damage penalty.

Punitive damages are not favored in the law, Brown ¥.

Coates, 253 F. 2d 36, 39 (D.C. Cir., 1958), and thus the

express policy of the CEA shomd not be ignored.

Plaintiff's discussion of the history of the Capper.

Vol perative Marketing Associations Act and the

Robinson-P tman Price Discrimination Act sheds no light

' | |

| |

on the situation at hand. The Capper-Volstead Act deals

with agricultural producers, who by their nature form as-

sociations, which, without an exemption, might encroach

upon the antitrust laws. See Maryland & Va. Milk Pro-

ducers Ass'n. v. United States, 362 U.S. 458 ( 1960). The

Robinson-Patman Act deals directly with antitrust prob-

lems.

D. Courts Will Defer Antitrust Questions to Administra-

tive Agenvies Without the Necessity of Specific Statu-

tory Provisions.

Plaintiff contends (Brief of Plaintiff, p. 17) that the

lower federal courts have refused to defer to adminis-

trative agencies for antitrust determinations in the ab-

sence of specific congressional authority. However, this

usion ignores Silver v. New York Stock Exchange,

mus 341 (1963); Thill Securities Corp. v. New York

Stock Exchange, 433 F. 2d 264 (7th Cir., 1970), cert.

denied, 401 U.S. 994 (1971), and Kaplan v. Lehman Broth-

ers, 371 F. 2d 409 (7th Cir., 1967), cert. denied, 389 U.S.

954 (1967). All of these cases recognized the exemption

of the securities exchanges from the antitrust laws not-

withstanding the silence of the Securities Exchange Act

on the subject.

. Plaintiff’s citation of Denver Union Stockyard Co. v.

Denver Livestock Commission Co., 404 F. 2d 1055 (10th

Cir, 1968), cert. denied, 394 U.S. 1014 (1969), is inap-

posite because the court held that the Packers and Stock-

yards Act, 7 U.S.C. §225, specifically states that nothing

therein shall create an exemption from the Sherman |or

yton Acts. The fact that stockyards and comm ity

a are both under the authority of the Secre

i | MeL i

—~§29.......

of Agriculture does not make the Packers and Stock.

yards Act of 192%:and the CEA analogous. Furthermore,

the court, in Denver Union Stockyard, stated that there

is no fixed formula for the application of the doctrine

of primary jurisdiction. Jd. at 1056.

Crain v. Blue Grass Stockyards Co., 399 F. 2d 968

(6th Cir., 1968), cited by plaintiff, also turned on a con-

struction of the Packers and Stockyards Act.

In Seatrain Lines, Inc. v. Federal Maritime Comm’n,

1972 Trade Reg. Rep. 173,898 (D.C.. Cir., 1972), the

court merely held that a simple sale of assets by one

carrier to another is not subject to the jurisdiction

of the Federal Maritime Commission (FMC). The case

turned on the provisions and legislative history of the

Shipping Act, which cannot be said to be analogous to

the CEA. Furthermore, the court noted that no record

was developed by the FMC detailing its weighing of the

antitrust and industry considerations, and that in fifty

years, the FMC had not attempted to exercise jurisdic.

tion over this type of matter, which indicated to the

court that even the FMC held the view that the FMC

did not have jurisdiction.

Though implied in plaintiff’s brief (pp. 17-19), Breen

Atr Freight, Lid. v. Air Cargo, Inc., 1971 Trade Cas.

173,775 (S.D. N.Y., 1971), does not set forth the prop-

osition that a court will not recognize primary juris-

diction for antitrust determinations in the absence of

specific congressional authority. On the contrary, the

court stated at p. 91,273: “While an express finding of

immunity from the anti-trust laws may not be necessary

to confer immumity, the record does not support blanket

approval... .” (Emphasis added.) The case turned on the

a aD

OE AS SOREN D Bane STR? FV one! PMs ae? 2 Pome thy oh PMS ld) ARR MD

—23—

scope of Civil Aeronautics Board (CAB) regulation and

the facts of the case.

E. The CEA Is Sufficiently Pervasive to Confer Primary

Jurisdiction Upon the CEC.

As our society and the apparatus of government be-

come more complex, so the doctrine of primary jurisdic-

tion evolves beyond its original restrictiveness. This

evolution was recognized by this Court in Silver v. New

York Stock Exchange, 373 U.S. 341 (1963). In analyzing

the Securities Exchange Act, a statute somewhat analo-

gous to the CEA, this Court stated:

“Although, as we have seen, the statutory scheme

of that Act is not sufficiently pervasive to create a

total exemption from the antitrust laws, .. . it is

also true that particular 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.” Id. at 360-361.

On a parallel plain, it has been stated that the Sherman

Act is couched in broad terms, and is adaptable to the

changing types of commercial production and distribu-

tion which have evolved since its passage. United States

v. E. I. DuPont DeNemours ¢ Co., 351 U.S. 377, 386

(1956).

Since most of the primary jurisdiction cases have in-

volved problems of regulatory agencies vis-a-vis routes

and rates, necessarily the law on the subject has been

considered and discussed in that limited context. See

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

348 (1959). However, when the doctrine is applied to a

Tegulatory agency which is not of the nature of the ICC

—24—

er the CAB, the language describing the relationship of

the doctrine to those latter bodies should’ not restrict

the application of the doctrine to another type of regula.

tory agency, such as the CEC.

The Secretary of Agriculture and the CEC have as

complete and pervasive authority to regulate the opera-

tion of their industry as the other agencies. The Seere.

tary of Agriculture has the power to authorize and des-

ignate a board of trade as a contract market (7 U.S.C.

§7); to receive all bylaws, rules, regulations and resolu-

tions of a contract market (7 U.S.C. §7a(1)); to suspend

-@ contract market for not enforcing its own rules (7

U.S.C. $8(a)); to register traders on a contract market .

and to order certain traders to desist from trading ona

contract market (7 U.S.C. §§9, 12a). Thus the Secretary

of Agriculture has the power to control who shall en-

gage in the commodity trading business and has juris

diction over any violation by a contract market of its

own membership rules by virtue of sections 6, 7a(8),

8(a), and 13a.

The difference in the regulatory schemes between the

CEA and a more established regulatory act such as the

Interstate Commerce Act is one of kind, not one of degree

as plaintiff contends. The CEA regulates the various

aspects of the framework of the industry, e.g. the ex-

changes, the member firms, the individual traders. It

requires registration and reports for each type of party

engaged in the industry. Competition is regulated. The

CEC’s authority to control its industry and to determine

who will compete in its industry as an exchange and as

& trader is just as complete as the IOC's. Obviously,

the prices of the commodities are not regulated, but this

is because the raison d’etre of the commodities industry

eG PEN Ne te Se 37)

YAO OT

he Saab wee

OES Se A

Pts.

ee eS a eae

—25—

is to determine prices by competitive bidding in an or-

derly way. This necessary “orderly way” is established

and sustained by the pervasive regulation of the CEA.

See, Comment, Trade Association Exclusionary Prac-

tices: An Affirmative Role for the Rule of Reason, 66

Corum. L. Rev., 1486, 1492 (1966).

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

(1962), cited by plaintiff, does not even deal with the

“pervasive regulatory scheme” question. This Court

found that a specific provision of the Clayton Act ex-

pressly provided that the Federal Power Commission

(FPC) cannot enforce the antitrust laws and that thus

the FPC, in a prior administrative ruling, had usurped

its powers. ()

Maryland ¢ Va. Milk Producers Ass’n. v. United

States, 362 U.S. 458 (1960), also did not touch the “per-

vasiveness” issue. In this case, an agriculture coopera-

tive was given a statutory antitrust exemption to make

agreements to process, handle and market agricultural

produce for its producer members, subject to the approval

of the Secretary of Agriculture. This Court held that

this statute did not thereby grant an antitrust exemp-

tion to and confer upon the Secretary of Agriculture

jurisdiction over a monopolistic agreement between such

& cooperative and another entity involved in another step

in the chain of distribution of the preduce.

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

(1959), also was cite by plaintiff to support his con-

states that California v. Federal Power Comm’n is out of line with

the cases in the development of the doctrine of primary jurisdiction

and will probably also be out of line with future cases.

—26—

tention that a pervasive regulatory scheme is necessary

for the invocation of primary jurisdiction. This case in.

volved a Government suit for divestiture after an ex.

change of television stations which the Federal Communi.

cations Commission (FOC) had approved. This Court

studied the legislative history of the Communications

Act and found that the legislative history specifically

stated that the FCC had no authority to pass on anti-

trust violations as such. McKeon Construction v. Mc.

Clatchy Newspapers, 1970 Trade Cas. 173,212 (N.D. Cal,

1969), merely followed R.C.A.

In United States v. Philadelphia Nat’l Bank, 374 US.

321, 352 (1963), this Court found that the legislative

history of the Bank Merger Act specifically stated that

the “Act would not affect in any way the applicability

of the antitrust laws to bank acquisitions.” This Court

also observed that banking regulatidn is less complete

than public utility regulation. However, banking regulation

is not analogous to regulation of the commodities industry.

Each bank is a separate unit, doing business independent-

ly. On the contrary, the vitality of the commodities in-

dustry is closely tied to the exchanges, the limitations of

their memberships, and the relationships of the members

thereof to each. other.

F. The Question of Whether Defendant’s Actions Were

Arguably Lawful Is Not Reached in This Case.

Plaintiff contends that the defendant’s conduct must

be “arguably lawful” under the regulatory statute for

primary jurisdiction to attach. However, plaintiff fails

to set forth the doctrine correctly and then cites cases

which do not even support his position.

—27—

The arguably lawful doctrine merely provides that if

a regulatory agency approved the action of a party, that

can interpose said agency approval as a defense in

a subsequent judicial antitrust action. The doctrine only

applies when there has been a prior hearing before an

agency and subsequently the defendant is subjected to

an antitrust suit. However, merely because there never

was a prior administrative determination does not mean

the defendant has no defense to the antitrust suit and

that primary jurisdiction cannot attach. Since there has

been no prior administrative hearing in the instant ac-

tion, defendants never have been able to obtain a deter-

mination that their actions were lawful.

Plaintiff’s statement that the court below did not

fnd that the defendants’ conduct was arguably lawful

begs the question. The court held that the complaint

states a cause of action under the antitrust laws pre-

scinding from the CEA and the doctrine of primary juris-

diction but that whether the complaint, taking those

two factors into account, states a cause of action, is a

question that the court below held should be answered

by the Secretary of Agriculture and/or the CEC.

In Carnation Co. v. Pacific Westbound Conference, 383

US. 213 (1966), this Court merely stated that agree-

ments previously approved by the FMC are, by statute,

exempt from the antitrust laws, but agreements not ap-

proved are not exempt. In the instant case, because

plaintiff failed to follow CME Rule 500, defendants

never had an opportunity to determine if their actions

were legal.

The citation of Allied Air Freight, Inc. v. Pan Amert-

can World Airways, Inc., 393 F. 2d 441 (2d Cir., 1968),

—28—

cert. denied, 393 U.S. 846 (1968), also is inapposite. De.

fendants entered into a monopolistic agreement which

had not been filed with or approved by the CAB. The

court held that defendants therefore could not argue

that the agreement was arguably lawful and the court

refused to grant primary jurisdiction to the CAB.

Marnell v. United Parcel Service of Am., Inc., 260 F.

Supp. 391 (N.D. Cal. 1966), is directly in support of

defendants’ position. The very reason the Court of Ap

peals below remanded this case to the Secretary of Agri-

culture is because “the conduct in question might be

exempt from the antitrust laws by the regulatory agency

under some express or plainly implied provision of the

regulatory act.” Id. at 412. In Marnell, the court held

that defendants did not receive permission from the state

commerce commission to commit the monopolistic acts

they committed, and that the state commerce commission

and the IOC had no jurisdiction over those types of acts.

In Breen Air Freight, Ltd. v. Air Cargo, Inc., 1971

Trade Cas. 73,775 (S.D. N.Y., 1971), the court held that

the CAB did not have jurisdiction to decide the question

involved.

G. The CEC Has the Power to Hear the Case.

1. Plaintiff can file a complaint with the CEC.

2. The CEO's inability to award damages does not de.

prive it of primary jurisdiction.

Plaintiff’s contention that he is without right to appear

before the administrative agency is without merit when

considered in the light of 17 C.F.R. $§$0.3 and 0.53, which

provide that “any interested person having any informa-

tion of any violation of the act . . - May file... an ap

—29—

plication requesting the institution” of proceedings before

the Secretary or the Commission. To term the Commis-

sion as impotent because it has the discretion to exclude

him is a contradiction in terms. If the Commission ex-

eludes him improperly, plaintiff can always appeal. Plain-

tiff’s argument is similar to an argument that a court

has no jurisdiction over a party’s case since it might hold

against the party.

It is clearly established that an agency’s lack of power

to award damages does not prevent the application of the

doctrine of primary jurisdiction. If that were the case,

the doctrine never would have taken root and developed.

Pan American World Airways, Inc. v. United States, 371

US. 296, 311-312 (1963), recognized that the

“(Civil Aeronautics] Board has no power to award

damages or to bring criminal prosecutions. Nor does

it, as already noted, have jurisdiction over every

antitrust violation by air carriers. But where the

problem lies within the purview of the Board, as do

questions of division of territories, the allocation of

routes, and the affiliation of common carriers with

air carriers, Congress must have intended to give it

authority that was ample to deal with the evil at

hand.” (Emphasis added.)

In General Am. Tank Car Corp. v. El Dorado Terminal

Co., 308 .U.S. 422, 433 (1940), a suit for breach of con-

tract was referred to the IOC, which had no jurisdiction

to grant damages. This Court said: -

“When it appeared in the course of the litigation

that an administrative problem, committed to the

Commission, was involved, the court should have

stayed its hand pending the Commission’s determina-

tion of the lawfulness and reasonableness of the prac-

tices under the terms of the act.”

See also Thompson v. Texas M. Ry., 328 U.S. 134 (1946).

—30—

It is implicit in the cases cited by plaintiff that the

courts first grappled with the dispositive question of

whether there was partial antitrust immunity and de.

cided this question in the negative. Then the courts went

on to say that since the agency had no power to grant

the damages to which the courts found the plaintiff was

entitled, primary jurisdiction did not lie. On the other

hand, if there be partial antitrust immunity, as there is

in this case, the plaintiff is not entitled to treble damages

and the question of the agency’s power to award them is

not reached.

For example, in Allied Air Freight, Inc. v. Pan. Amer.

tcan World Airways, Inc., 393 F. 2d 441 (2d Cir., 1968),

cert. demted, 393 U.S. 846 (1968), cited by plaintiff, the

court held that plaintiff did not have to exhaust his ad-

ministrative remedies before an administrative agency

which had no power to grant the relief sought, since the

alleged anticompetitive agreement did not have CAB ap

proval and thus was not exempt from the antitrust laws.

On the contrary, in the instant matter, the CEC has

jurisdiction over the parties, plaintiff has an oppor-

tunity to have a CEC hearing, and the activity is poten-

tially exempt from the antitrust laws under sections 8(a),

13a, and 13e(b) of the CEA and the doctrine of the Silver

case.

Trans World Airlines, Inc. v. Hughes, 214 F. Supp. 106

(S.D. N.Y., 1963), aff'd, 332 F. 2d 602 (2d Cir., 1964),

petition for cert. dismissed, 380 U.S. 249 (1965), dealt

with a statute that declares it unlawful without CAB

approval for anyone engaged in a phase of aeronautics to

acquire control of an air carrier, and that with such CAB

approval the acquisition is exempt from the antitrust

—

~~ ‘

ee ee ) iin: Me ee « Y

—31—

laws. Defendant-.was a manufacturer of aircraft. Pur-

suant to CAB approval, it acquired control of TWA. Sub-

sequently defendant committed antitrust violations by

economically coercing TWA to purchase only defendant’s

aircraft. The court held that these acts were not the

types of acts over which the CAB had primary jurisdic-

tion; that the CAB only had jurisdiction over the acqui-

sition itself, “rather than the broad range of activities

into which the controller may enter thereafter.” 332 F.

2d at 608. After the acquisition, the CAB retains jurisdic-

tion over the air carrier, but not over the company that

owns controlling stock in the air carrier. The court’s

statement that the Board is unable to grant damages is

8 non sequitur and dicta. Under the proper set of facts,

as in the instant case, this inability should not preclude

primary jurisdiction.

In Breen Air Freight, Ltd. v. Air Cargo, Inc., 1971

Trade Cas. 173,775 (S.D. N.Y., 1971), defendant was

a freight forwarding company owned by seventeen cer-

tified air carriers. Defendant had hired plaintiffs to

handle its freight and then discharged plaintiffs and

hired its own subsidiary. Defendant had been established

with CAB approval, but its subsidiary had not. The

court held at 91,273:

“While an express finding of immunity from the anti-

trust laws may not be necessary to confer immunity,

the record does not support blanket approval or

continued surveillance of the activities of Air Cargo,

Inc. itself acting on its own—to be distinguished

from broader, over-all scrutiny of such conceded

areas of traditional C. A. B. expertise as tariffs.”

The court followed the reasoning of TWA. Denver Pe-

troleum Corp. v. Shell Oil Co., 306 F. Supp. 289 (D.

Colo., 1969), did not involve the agency power to award

- we

damages, but merely found that under the Mineral Lands

Leasing Act the agency had no power to exempt crude

oil pipelines from the obligations under the Act.

Ii.

ANSWER TO THE GOVERNMENT'S ARGUMENTS.

A. The Regulatory Scheme of the CEA Is Sufficiently

Pervasive.

B. Antitrust Immunity Arises from the CEA and th

Silver Case.

C. The CEC Has the Power to Grant Effective Relief,

D. The CEC Has the Expertise Sufficient for the Appi.

cation of Primary Jurisdiction.

E. The CEC Has a Procedure Sufficient to Hear This Case.

The Government attempts to establish that the CEA’s

regulatory scheme is not pervasive by comparing the Act

to the shipping, transportation and aeronautics cases.

(Brief of Government, p. 22). Merely because the regu-

latory schemes in the latter cases are more detailed does

not mean that they are more pervasive. The commodities

industry is regulated to the extent necessary to regulate

the industry and to protect the public. Contrary to the

contention of the Government (Brief of Government, p.

24), entry into the industry is controlled by statute and

rules. Commission merchants, brokers, and floor traders,

7 U.S.C. {§6e and 12a, 17 CFR. §§1.7 and 1.8; and

exchanges, 7 U.S.C. §7 and 17 CFR. $1.41, must register

with the Secretary and are subject to revocation of reg-

istration for violation of the rules. 7 U.S.C. §§ 7b, 8, and 9.

ee ee ee

—33—

The immunity from the antitrust laws arises both from

the statute, 7 U.S.C. §§8(a), 13a, and 13c(b) and from

the case law. Silver v. New York Stock Exchange, 373

US. 341 (1963). (See discussion, pp. 11-16, supra.)

The power of the Secretary and/or CEC to grant effec-

tive relief against conduct which violates antitrust pol-

icies is discussed at pp. 28-32, supra.

The Government’s citation of the proposed bill to con-

fer jurisdiction of the Secretary over a person who has

restrained trade in connection with the sale of any com-

modity (Brief of Government, p. 24, n.12) is inapposite.

In the instant case, the alleged restraint was not on

the sale of a commodity future. As in the Silver case,

where the restraint was not on the trading of a par-

ticular security, the restraint was on plaintiff’s busi-

ness. The regulatory scheme of the CEA, coupled with

the reasoning of Silver, clearly places the restraint on

plaintiff’s business within the jurisdiction of the CEC.

The issue of the relationship of 7 U.S.C. §$13e(b) to the

antitrust laws is discussed at p. 18, supra.

Clearly the CEC has greater familiarity and experience

with the provisions of the CEA, the rules of CEC, the

rules of the CME, and the procedures in the industry

than the courts and would be helpful to the court’s ulti-

mate decision. In Silver, this court stated at 362-363:

“Provision of such a hearing will, moreover, con-

tribute to the effective functioning of the antitrust

court, which would be severely impeded in providing

the review of exchange action which we deem es.

sential if the exchange could obscure rather than

iltomi the circumstances under which it has act-

ed. Hence the affording of procedural safeguards not

only will substantively encourage the lessening of

anticompetitive behavior outlawed by the Sherman

Act but will allow the antitrust court to perform its

function effectively.”

Whether or not the agency happens to be an expert,

a court normally should not act upon subject matter

that is peculiarly within the agency’s specialized field

without taking into account what the agency has to of.

fer, for otherwise parties who are subject to the agency's

continuous regulation may become victims of uncoordi-

nated and conflicting requirements. Far East Conference

v. United States, 342 U.S. 570, 574-575 (1952); Dams,

ApministraTIvE Law Text, §19.01 at 374 (3d ed. 1972).

Particularly with regard to a statute such as the CEA,

which is not often the subject of litigation, and sections

8(a), 13a, and 13c(b), which were added in 1968 and about

which there is a paucity of legislative history, it would be

helpful to the court if the CEC could express its opinions

on their scope and meaning. Federal Maritime Bad. v.

Isbrandtsen Co., 356 U.S. 481, 498-499 (1958).

By citing Far East Conference v. United States, 342

US. 570, 574, and United States v. Western Pac. R.R., 352

U.S. 59, 64-65 (1956), the Government tries to limit the ap-

plication of the doctrine of primary jurisdiction to trans-

portation cases. Local Union No. 189 v. Jewel Tea Co,

381 U.S. 676 (1965); Vaca v. Sipes, 386 U.S. 171, 176-188

(1967); Carey v. Westinghouse Electric Corp., 375 US.

261 (1964); and Smith v. Evening News Ass’n., 371 US.

195 (1962), were controlled by a statute which expressly

precluded primary jurisdiction. J. J. Case Co. v. Borak,

377 U.S. 426 (1964), hinged on an interpretation of the

Securities Exchange Act in a stockholder’s derivative suit

and is not in point.

—35—

Contrary to the Government’s position, the denial of

primary jurisdiction could interfere with the regulatory

scheme since the CEC has jurisdiction over the enforce-

ment of the CME’s rules by virtue of 7 U.S.C. §§8(a) and .

13a. These sections expressly grant the CEC power which

this Court correctly observed in Silver that the SEC

lacked: “(J]urisdiction to review particular instances of

enforcement of exchange rules.” 373 U.S. at 357.

The Government contends that the CEC is obliged

only to oversee enforcement of exchange rules relating

to “trading requirements” and that plaintiff’s cause of

action does not relate to trading requirements.

However, as the Court of Appeals below stated, “Mem-

bership in a contract market is a prerequisite to lawful

trading in commodities futures. Title 7, U.S.C.A. §6.

Therefore, Rule 307, allegedly violated in the transfer

of appellant’s membership, and Rule 322, allegedly vio-

lated in the attempt to cancel appellant’s authorization

to trade, both relate to ‘trading requirements.’” (A. 41).

—36—

CONCLUSION.

For the foregoing reasons, Respondents, The Siegel

Trading Co., Inc., and Joseph E. Siegel, respectfully pray

that the judgment of the Court of Appeals remanding

this action to the District Court with directions to stay

the proceedings until such time as the Commodity Ex.

change Commission and/or the Secretary of Agriculture

may act upon it be affirmed.

Respectfully submitted,

Max CHILL

Herman CHILL

CxHarLes B. BERNSTEIN

100 W. Monroe Street

Chicago, Illinois 60603

Financial 6-1935

Attorneys for Respondents,

The Siegel Trading Co.

Inc., and Joseph E. Siegel

Max & Herman CHILL

Of Counsel

—la—

ADDENDUM

CLAYTON ACT, §4, 15 U.S.C. §15

§15. Suits by persons injured; amount of recovery

Any person who shall be injured in his business or prop-

erty 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 defendant resides or is found

or has an agent, without respect to the amount in contro-

versy, and shall recover threefold the damages by him

sustained, and the cost of suit, including a reasonable at-

torney’s fee. Oct. 15, 1914, c. 323, § 4, 38 Stat. 731.

COMMODITY EXCHANGE ACT, 7 U.S.C. §§1-17b,

provides tnter alta as follows:

§6. Prohibition against dealings in commodity futures;

exceptions

It shall be unlawful for any person to deliver for trans-

mission through the mails or in interstate commerce by

telegraph, telephone, wireless, or other means of communi-

cation any offer to make or execute, or any confirmation

of the execution of, or any quotation or report of the price

of, any contract of sale of commodity for future delivery

on or subject to the rules of any board of trade in the

United States, or for any person to make or execute such

contract of sale, which is or may be used for (a) hedging

any transaction in interstate commerce in commodity or

the products or by-products thereof, or (b) determining

the price basis of any such transaction in interstate com-

merce, or (c) delivering commodity sold, shipped, or re-

ceived in interstate commerce for the fulfillment thereof,

except, in any of the foregoing cases, where such contract

is made by or through a member of a board of trade which

has been designated by the Secretary of Agriculture as

a “contract market,” as hereinafter provided in this chap.

ter, and if such contract is evidenced by a record in writing

which shows the date, the parties to such contract and

their addresses, the property covered and its price, and

the terms of delivery; Provided, That each board member

shall keep such record for a period of three years from

the date thereof, or for a longer period if the Secretary of

Agriculture shall so direct, which record shall at all times

be open to the inspection of any representative of the

United States Department of Agriculture or the United

States Department of Justice. (Sept. 21, 1922, ch. 369, § 4

42 Stat. 999; June 15, 1936, ch. 545, §§ 2, 4, 49 Stat. 1491,

1492.)

§6d. Futures commission merchants, dealing by unregis.

tered merchants prohibited; moneys and securities of

customers, care and use

It shall be unlawful for any person to engage as futures

commission merchant in soliciting orders or accepting or-

ders for the purchase or sale of any commodity for future

delivery, or involving any contracts of sale of any con-

modity for future delivery, on or subject to the rules of

any contract market unless—

(1) such person shall have registered, under this

chapter, with the Secretary of Agriculture as such

futures commission merchant and such registration

shall not have expired nor been suspended nor revoked;

and

Et:

(2) such person shall, whether a member or non-

member of a contract market, treat and deal with all

money, securities, and property received by such per-

son to margin, guarantee, or secure the trades or con-

tracts of any customer of such person, or accruing to

such customer as the result of such trades or contracts,

as belonging to such customer. * * * * (Sept. 21, 1922,

ch. 369, § 4d, as added June 15, 1936, ch. 545, § 5, 49

Stat. 1494, and amended Feb. 19, 1968, Pub. L. 90-258,

§ 6, 82 Stat. 27.)

§6e. Floor brokers; dealings by unregistered broker pro-

hibited

It shall be unlawful for any person to act as floor broker

in executing any orders for the purchase or sale of any

commodity for future delivery, or involving any contracts

of sale of any commodity for future delivery, on or subject

to the rules of any contract market unless such person shall

have registered, under this chapter, with the Secretary of

Agriculture as such floor broker and such registration

shall not have expired nor been suspended nor revoked.

(Sept. 21, 1922, ch. 369, § 4e, as added June 15, 1936, ch. 545,

§ 5, 49 Stat. 1945.)

§7. Designation of board of trade as “contract market”;

conditions and requirements

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 com-

plies with and carries out the following conditions and

requirements :

—

(a) When located at a terminal market where any cash

commodity of the kind specified in the contracts of sale of

commodity for future delivery to be executed on such boar

is sold in sufficient volumes and under such conditions a;

fairly to reflect the general value of the commodity and

the differences in value between the various grades of such

commodity, and where there is available to such board of

trade, official inspection service approved by the Secretary

of Agriculture for the purpose: Provided, That any board

of trade not so located shall be designated as a “contract

market” if such board of trade provides for the delivery

of commodities on such contracts at a delivery point or

points and upon terms and conditions approved by the

Secretary of Agriculture.

—_4g—

(b) When the governing board thereof provides for the

making and filing by the board or any member thereof, as

the Secretary of Agriculture may direct, of reports in ac.

cordance with the rules and regulations, and in such man-

ner and form and at such times as may be prescribed by

the Secretary of Agriculture, showing the details and terms

of all transactions entered into by the board, or the mem.

bers thereof, either in cash transactions or transactions

for future delivery consummated on or subject to the rules

of a board of trade, or transactions for future delivery, and

when such governing board provides, in accordance with

such rules and regulations, for the keeping of a record by

the board or the members-of the board of trade, as the

Secretary of Agriculture may direct, showing the details

and terms of all cash and future transactions entered into

by them, consummated on or subject to the rules of a board

of trade, such record to be in permanent form, showing

the parties to all such transactions, including the persons

for whom made, any assignments or transfers thereof, with

the parties thereto, and the manner in which said tram

APRS Levee

LR tags 9

APE SSS NR ORCS Pe ta AGN ATI RY” SUE CA as

—a—

actions are fulfilled, discharged, or terminated. Such ree-

ord shall be required to be kept for a period of three years

from the date thereof, or for a longer period if the Secre-

tary of Agriculture shall so direct, and shall at all times

be open to the inspection of any representative of the

United States Department of Agriculture or United States

Department of Justice.

prevention of dissemination by the board or any member

thereof of false or misleading or knowingly inaccurate re-

ports concerning crop or market information or conditions

that affect or tend to affect the price of commodity in inter-

state commerce.

(d) When the governing board thereof provides for the

prevention of manipulation of prices and the cornering of

any commodity by the dealers or operators upon such

board.

(e) When the governing board thereof does not exclude

from membership in and all privileges on such board of

trade any duly authorized representative of any lawfully

formed and conducted cooperative association of producers

having adequate financial responsibility which is engaged

in any cash commodity business, if such association has

complied, and agrees to comply, with such terms and con-

ditions as are or may be imposed lawfully on other mem-

bers of such board: Provided, That no rule of a contract

market shall forbid or be construed to forbid the return

on & patronage basis by such cooperative association to

its bona fide members of moneys collected in excess of the

expense of conducting the business of such association.

(f) When the governing board provides for making ef-

fective the final orders or decisions entered pursuant to

—ba—

the provisions of section 9 of this title, and the order

issued pursuant to the provisions of section 7a of this tj

and for compliance in all other respects with the require.

ments applicable to such board of trade under this chapter,

(Sept. 21, 1922, ch. 369, § 5, 42 Stat. 1000; June 15, 193%,

ch. 545, §§ 2, 6, 49 Stat. 1491, 1497; Feb. 19, 1968, Pub. L

90-258, §§ 10, 11, 82 Stat. 29.)

87a. Duties of contract markets

Each contract market shall—

By-laws, rules, etc.; furnishing copies to Secretary

(1) Promptly furnish the Secretary of Agriculture

copies of all bylaws, rules, regulations, and resolutions

made or issued by it or by the governing board thereof or

any committee, and of all changes and proposed changes

therein ;

Access for inspection of books and records

(2) Allow inspection at all times by any authorized

representative of the United States Department of Agri-

culture or United States Department of Justice of the

books, records, and all minutes and journals of proceed.

ings of such contract market, its governing board and all

committees, and of all subsidiaries and affiliates of such

contract market, which books, records, minutes, and jour-

nals of proceedings shall be kept for a period of three years

from the date thereof, or for a longer period if the Seere.

tary of Agriculture shall so direct ;

e* * * @

Enforcement of bylaws, etc., relating to trading requirements

(8) Enforce all bylaws, rules, regulations, and resolu-

tions, made or issued by it or by the governing board there-

TRE its t's 0 yi ahiad

a, (a

of or any committee, which relate to terms and conditions

in contracts of sale to be executed on or subject to the rules

of such contract market or relate to other trading require-

ments, and which have not been disapproved by the Secre-

tary of Agriculture pursuant to paragraph (7) of section

12a of this title; and revoke and not enforce any such by-

law, rule, regulation, or resolution, made, issued, or pro-

posed by it or by the governing board thereof or any com-

mittee, which has been so disapproved; and

Enforcement of bylaws, etc., providing minimum financial

standards and related reporting requirements

(9) Enforce all bylaws, rules, regulations, and resolu-

tions made or issued by it or by the governing board there-

of or by any committee, which provide minimum financial

standards and related reporting requirements for futures

commission merchants who are members of such contract

market, and which have been approved by the Secretary of

Agriculture. (Sept. 21, 1922, ch. 369, § 5a, as added June

15, 1936, ch. 545, § 7, 49 Stat. 1497, and amended Feb. 19,

1968, Pub. L. 90-258, § 12, 82 Stat. 29.)

§7>. 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 thereunder, shall be-cause for suspend-

ing for a period not to exceed six months or revoking the

designation of such board of trade as a “contract market”

in accordance with the procedure and subject to the judicial

review provided in section 8 of this title. (Sept. 21, 1922,

ch. 369, § 5b, as added June 15, 1936, ch. 545, § 7, 49 Stat.

1498, and amended Feb. 19, 1968, Pub. L. 90-258, § 13, 82

Stat. 30.)

—8a—

§8. Application for designation as “contract market” ; sus.

pension or revocation of designation; hearing; review

by court of appeals

Any board of trade desiring to be designated a “contract

market” shall make application to the Secretary of Agri.

culture for such designation and accompany the same with

a showing that it complies with the conditions of section 7

of ‘this title, and with a sufficient assurance that it will con.

tinue to comply with the requirements of such section 7

In the event of a refusal to designate as a “contract mar.

ket” any board of trade that has made application there.

for, such board of trade shall be afforded an opportunity

for a hearing before the commission, with the right to ap

peal an adverse decision after such hearing to the court

of appeals as provided for in other cases in paragraph (a)

of this section.

(a) The commission is authorized to suspend for a pe.

riod not to exceed six months or to revoke the designation

of any board of trade as a “contract market” upon a show.

ing that such board of trade is not enforcing or has not en-

forced its rules of government made a condition of its

designation as set forth in section 7 of this title or that

such board of trade, or any director, officer, agent, or em.

ployee thereof, otherwise is violating or has violated any

of the provisions of this chapter or any of the rules, regula-

tions, or orders of the Secretary of Agriculture or the com.

mission thereunder. Such suspension or revocation shall

only be after a notice to the officers of the board of trade

affected and upon a hearing: Provided, That such suspen-

sion or revocation shall be final and conclusive, unless

within fifteen days after such suspension or revocation by

the commission such board of trade appeals to the court

=o vr “sas F

MO Met eb

—9a—

of appeals for the circuit in which it has its principal place

of business, by filing with the clerk of such court a written

petition praying that the order of the commission be set

aside or modified in the manner stated in the petition, to-

gether with a bond in such sum as the court may deter-

mine, conditioned that such board of trade will pay the

costs of the proceedings if the court so directs. The clerk

of the court in which such a petition is filed shall imme-

iatply cause a copy thereof to be delivered to the Secretary

0 iculture, who shall thereupon notify the other mem-

bers of the commission and file in the court the record in

such proceedings, as provided in section 2112 of Title 28.

The testimony and evidence taken or submitted before the

commission, duly filed as aforesaid as a part of the record,

shall be considered by the court of appeals as the evidénce

in the case. The proceedings in such cases in the court of

appeals shall be made a preferred cause and shall be ex-

pedited in every way. Such a court may affirm or set aside

the order of the commission or may direct it to modify

its order. No such order of the commission shall be modi-

fied or set aside by the court of appeals unless it is shown

by the board of trade that the order is unsupported by the

weight of the evidence or was issued without due notice

and a reasonable opportunity having been afforded to such

board of trade for a hearing, or infringes the Constitution

of the United States, or is beyond the jurisdiction of the

commission. (Sept. 21, 1922, ch. 369, § 6(a), 42 Stat. 1001;

June 25, 1948, ch. 646, § 32(a), 62 Stat. ‘991; May 24, 1949,

ch. 139, § 127, 63 Stat. 107; Aug. 28, 1958, Pub. L. 85-791,

§7(a), 72 Stat. 944; Feb. 19, 1968, Pub. L. 90-258, §§ 14, 15,

82 Stat. 30.) is

—10a—

§9. Exclusion of persons from privilege of “contract my.

kets”; procedure for exclusion; review by court

appeals

If the Secretary of Agriculture has reason to believe

that any person (other than a contract market) is manipu-

lating or attempting to manipulate or has manipulated or

attempted to manipulate the market price of any con.

modity, in interstate commerce, or for future delivery o

or subject to the rules of any contract market, or has will.

fully made any false or misleading statement of a material

fact in any registration application or any report filed with

the Secretary of Agriculture under this chapter, or will.

fully omitted to state in any such application or report

any material fact which is required to be stated therein

or otherwise is violating or has violated any of the pro-

visions of this chapter or of the rules, regulations, or orders

of the Secretary of Agriculture or the commission there.

under, he may serve upon such person a complaint stating

his charges in that respect, which complaint shall have at-

tached or shall contain therein a notice of hearing, specify.

ing a day and place not less than three days after the serv-

ice thereof, requiring such person to show cause why an

order should not be made prohibiting him from trading on

or subject to the rules of any contract market, and direct-

ing that all contract markets refuse all trading privileges

to such person, until further notice of the Secretary of

Agriculture, and to show cause why the registration of

such person, if registered as futures commission merchant

or as floor broker hereunder, should not be suspended or

revoked. Said hearing may be held in Washington, District

of Columbia, or elsewhere, before the Secretary of Agri-

culture, or before a referee designated by the Secretary

of Agriculture, which referee shall cause all evidence to

be reduced to writing and forthwith transmit the same to

—lla—

the Secretary of Agriculture. Upon evidence received, the

Secretary of Agriculture may prohibit such person from

trading on or subject to the rules of any contract market

and require all contract markets to refuse such person all

trading privileges thereon for such period as may be speci-

fied in the order, and, if such person is registered as futures

commission merchant or as floor broker hereunder, may

suspend, for a period not to exceed six months, or revoke,

the registration of such person. Notice of such order shall

be sent forthwith by registered mail or by certified mail

or delivered to the offending person and to the governing

boards of said contract markets. After the issuance of the

order by the Secretary of Agriculture, the person against

whom it is issued may obtain a review of such order or

such other equitable relief as to the court may seem just

by filing in the United States court of appeals of the cir-

cuit in which the petitioner is doing business a written

petition praying that the order of the Secretary of Agri-

culture be set aside. A copy of such petition shall be forth-

with transmitted by the clerk of the court to the Secretary

of Agriculture and thereupon the Secretary of Agriculture

shall file in the court the record theretofore made, as pro-

vided in section 2112 of Title 28. Upon the filing of the

petition the court shall have jurisdiction to affirm, to set

aside, or modify the order of the Secretary of Agriculture,

and the findings of the Secretary of Agriculture as to the

facts, if supported by the weight of evidence, shall in like

manner be conclusive. (Sept. 21, 1922, ch. 369, § 6(b), 42

Stat. 1001; June 15, 1936, ch. 545, § 8(a)—(d), (h)—(j),

49 Stat. 1498, 1499; June 25, 1948, ch. 646, § 32(a), 62 Stat.

91; May 24, 1949, ch. 139, § 127, 63 Stat. 107 ; Aug. 28, 1958,

Pub. L. 85-791, § 7(b), 72 Stat. 944; June 11, 1960, Pub. L.

96-507, § 1(2), 74 Stat. 200; Feb. 19, 1968, Pub. L. 90-258,

§ 16, 82 Stat. 30.)

al its

§12a. Registration of commission merchants and brokers;

fees; rules and regulations; publication of harmfu

acts

The Secretary of Agriculture is authorized—

(1) to register futures commission merchants and floor

brokers upon application in accordance with rules and reg.

ulations and in form and manner to be prescribed by the

Secretary of Agriculture; and

(2) to refuse to register any person— * * * *

(7) to disapprove any bylaw, rule, regulation, or reso.

lution made, issued or proposed by a contract market or by

the governing board thereof or any committee which re.

lates to terms and conditions in contracts of sale to be

executed on or subject to the rules of such contract market

or relates to other trading requirements, when he finds

that such bylaw, rule, regulation, or resolution violates or

will violate any of the provisions of this chapter, or any of

the rules, regulations, or orders of the Secretary of Agri-

culture or the commission thereunder. (Sept. 21, 1922, ch

369, § 8a, as added June 15, 1936, ch. 545, § 10, 49 Stat

1500, and amended Aug. 5, 1955, ch. 574, 69 Stat. 535; Feb.

19, 1968, Pub. L. 90-258, §§ 20-23, 82 Stat. 32, 33.)

§13a. Nonenforcement of rules of government or. other

Violations, cease and desist orders against contract

markets; punishment; misdemeanor; separate of-

fenses

If any contract market is not enforcing or has not er-

forced its rules of government made a condition of its

designation as set forth in section 7 of this title, or if any

contract market, or any director, officer, agent, or employee

of any contract market otherwise is violating or has vio-

—13a—

' Iated any of the provisions of this chapter or any of the

' yules, regulations, or orders of the Secretary of Agricul-

ture or the commission thereunder, the commission may,

> ypon notice and hearing and subject to appeal as in other

a cases provided for in paragraph (a) of section 8 of this

title, make and enter an order directing that such contract

- market, director, officer, agent, or employee shall cease and

: desist from such violation, and if such contract market,

director, officer, agent, or employee thereafter and after

the lapse of the period allowed for appeal of such order

or after the affirmance of such order, shall fail or refuse

to obey or comply with such order, such contract market,

director, officer, agent, or employee shall be guilty of

a misdemeanor and, upon conviction thereof, shall be fined

not less than $500 nor more than $10,000 or imprisoned for

not less than six months nor more than one year, or both.

Each day during which such failure or refusal to obey

such order continues shall be deemed a separate offense.

(Sept. 21, 1922, ch. 369, § 6b, as added June 15, 1936, ch. 545,

§ 9, 49 Stat. 1500, and amended Feb. 19, 1968, Pub. L. 90-

258, § 18, 82 Stat. 31.)

§13b. Manipulations or other violations; cease and desist

orders against persons other than contract markets;

punishment; misdemeanor or felony; separate of-

fenses

If any person (other than a contract market) is manipu-

lating or attempting to manipulate or has manipulated or

attempted to manipulate the market price of any commod-

ity, in interstate commerce, or for future delivery on or

subject to the rules of any contract market, or otherwise

is violating or has violated any of the provisions of this

chapter or of the rules, regulations, or orders of the Secre-

tary of Agriculture or the commission thereunder, the Sec-

—l4a—

retary may, upon notice and hearing, and subject to appeal

as in other cases provided for in section 9 of this title, make

and enter an order directing that such person shall ceag

and desist therefrom and, if such person thereafter anj

after the lapse of the period allowed for appeal of sue)

order or after the affirmance of such order, shall fail o

refuse to obey or comply with such order, such person shall

be guilty of a misdemeanor and, upon conviction thereof,

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

imprisoned for not less than six months nor more than one

year, or both, except that if such failure or refusal to obey

or comply with such order involves any offense within

paragraph (a) or (b) of section 13 of this title, such person

shall be guilty of a felony and, upon conviction thereof,

shall be subject to the penalties of said paragraph (a) or

(b): Provided, That any such cease and desist order

against any respondent in any case of manipulation of, or

attempt to manipulate, the price of any commodity shall

be issued only in conjunction with an order issued against

such respondent under section 9 of this title. Each day

during which such failure or refusal to obey or comply

with such order continues shall be deemed a separate of.

fense.

(Sept. 21, 1922, ch. 369, § 6(c), as added Feb. 19, 1968, Pub.

L. 90-258, § 17, 82 Stat. 31.)

§13c. Responsibility as principal; minor violations

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

abets, counsels, commands, induces, or procures the com.

mission of, a violation of any of the provisions of this chap-

ter, or any of the rules, regulations, or orders issued pur-

suant to this chapter, or who acts in combination or con-

cert with any other person in any such violation, or who

willfully causes an act to be done or omitted which if direct-

—i5a—

. ly performed or omitted by him or another would be a vio-

; lation of the provisions of this chapter or any of such

' rules, regulations, or orders may be held responsible in

' gdministrative proceedings under this chapter for such

» violation as a principal.

(b) Nothing in this chapter shall be construed as re-

quiring the Secretary of Agriculture or the commission to

report minor violations of this chapter for prosecution,

whenever it appears that the public interest does not re-

quire such action.

(Sept. 21, 1922, ch. 369, § 13, as added Feb. 19, 1968, Pub. L.

90.258, § 26, 82 Stat. 34.)

TITLE 17 C.F R.

Part 0O—Rules of Practice

Subpart A—Rules Applicable to Proceedings Before the

Secretary of Agriculture

Rules Applicable to Disciplinary Proceedings

$0.3 Institution of proceedings.

(a) Application to institute proceeding. Any interested

person having any information of any violation of the act, :

or of any of the regulations promulgated thereunder, by

any person (other than a contract market) may file with

the Act Administrator an application requesting the in-

stitution of such proceeding as is authorized under the act.

Such application shall be in writing, signed by or on behalf

of the applicant, and shall include a short and simple state-

ment of the facts constituting the alleged violation and the

name and address of the applicant and the name and ad-

dress of the person against whom the applicant complains.

—l6a—

(b) Status of applicant. The person filing an api.

cation as described in paragraph (a) of this section shi

have no legal status in the proceeding which may be inst,

tuted as a result of the application, except where the ap.

plicant may be permitted to intervene therein, in the mp.

ner provided in this subpart, or may be called as a Witness

and the applicant’s identity shall not be divulged by a

employee of the Department, except with the applicant’

prior consent or upon court order.

matters complained of in the application described in pars.

graph (a) of this section, or after investigation made

his own motion, the Secretary “has reason to believe that

any person (other than a contract market) is violating or

has violated any of the provisions of the act, or any of the

rules and regulations made pursuant to its requirements

or has manipulated or is attempting to manipulate th

market price of any commodity, in interstate commerce.

or for future delivery on or subject to the rules of am

board of trade,” he will institute a proceeding: Provided,

That in any case, except one of wilfulness or one in which

the public health, interest or safety otherwise requires,

prior to the institution of a proceeding for the suspension

or revocation of a registration or license, facts or condi-

tions which may warrant such action shall be called, in

writing, to the attention of the person complained against,

and such person shall be accorded opportunity to demon.

strate or achieve compliance with all lawful requirements

Proceedings will be instituted only upon complaints issued

* Words in quotation marks from sec. 6(b), 42 Stat. 1001, #

amended ; 7 U.S.C. 15.

—17a—

i: by the Secretary and will not be instituted upon pleadings

+ filed by private persons.

: $0.8 Intervention.

At any time after the institution of a proceeding, and

: before it has been submitted to the Secretary for final con-

| + sideration, the Secretary or the referee may, upon petition

Se in writing and for good cause shown, permit any person to

> intervene therein. The petition shall state with preciseness

4 and particularity: (a) The petitioner’s relationship to the

* matters involved in the proceeding, (b) the nature of the

* material he intends to present in evidence, (c) the nature

é of the argument he intends to make, (d) any other reason

* that he should be allowed to intervene.

_ Subpart B—Rules Applicable to Proceedings Before the

- Commodity Exchange Commission

Rules Applicable to Disciplinary Proceedings

§0.53 Institution of proceedings.

(a) Application to institute proceedings. Any inter-

; ested person having any information of any violation of

the act, or of any of the orders or regulations promulgated

_ thereunder, by any board of trade or by any director, of-

fieer, agent, or employee thereof may file with the Act

Administrator an application requesting the institution of

such proceeding as is authorized under the act. Such ap-

plication shall be in writing, signed by or on behalf of the

applicant, and shall include a short and simple statement

of the facts constituting the alleged violation and the name

and address of the applicant and the name and address of

the person against whom the applicant complains.

—18a—

(b) Status of applicant. The person filing an applies.

tion as described in paragraph (a) of this section shal

have no legal status in the proceeding which may be insti.

tuted as a result of the application, except where the ap.

plicarit may be permitted to intervene therein, in the map.

ner provided in this subpart, or may be called as a Witness,

and the applicant’s identity shall not be divulged by an

employee of the Department, except with the applicant's

prior consent or upon court order.

matters complained of in the application described in pars

graph (a) of this section, or after investigation made m

its own motion, the Commission has reason to believe that

any “board of trade or any director, officer, agent, or em.

ployee thereof has violated or is violating any of the pr

visions of the act, or of any of the regulations promi.

gated thereunder, the Commission will institute an appro.

priate proceeding: Provided, That in any case, except on

of willfullness or one in which the public health, interest

or safety otherwise requires, prior to the institution of

& proceeding for the suspension or revocation of any desig.

nation of a contract market, facts or conditions which may

warrant such action shall be called to the attention of the

market in writing and such market shall be accorded op

portunity to demonstrate or achieve compliance with al

lawful requirements. Proceedings will be instituted only

upon complaints issued by the Commission and will not

be instituted upon pleadings filed by private persons.

§0.58 Intervention.

At any time after the institution of a proceeding, and

before it has been submitted to the Commission for final

—19a—

consideration, the Commission or the referee may, upon

petition in writing and for good cause shown, permit any

person to intervene therein. The petition shall state with

preciseness and particularity : (a) The petitioner’s relation-

ship to the matters involved in the proceeding, (b) the

nature of the material he intends to present in evidence,

other reason that he should be allowed to intervene.

Part 1—General Regulations Under the Commodity Ex-

change Act

Registration of Futures Commission

Merchants and Floor Brokers

| ‘§L7 Registration required of futures commission mer-

chants.

No person shall engage as futures commission merchant

- in the solicitation or acceptance of orders for the purchase

or sale of any commodity for future delivery, or involving

any contracts of sale of any commodity for future delivery,

+ on or subject to the rules of any contract market, unless

_ the Secretary of Agriculture has registered such person as

- futures commission merchant under the Commodity Ex-

change Act and such registration has not expired and is

- not under suspension or revocation.

[36 F.R. 22810, Dee. 1, 1971]

_ §18 Registration required of floor brokers.

_ No person shall act as floor broker in executing any

_ orders for the purchase or sale of any commodity for future

| delivery, or involving any contracts of sale of any commod-

, ity for future delivery, on or subject to the rules of any

contract market unless such person shall have been register-

—$——

—220a—

ed as floor broker under the Commodity Exchange Aet by

the Secretary of Agriculture and such registration shal

not have expired, been suspended, or been revoked.

(33 F.R. 14454, Sept. 26, 1968]

Miscellaneous

§1.41 Contract market rules, regulations; filing of copie

Each contract market shall promptly furnish to the Com.

modity Exchange Authority copies of all bylaws, rule

regulations, and resolutions made or issued by it or by the

governing board thereof, or by any committee or clearing

organization thereof, and of all changes and _ proposed

changes therein, and shall notify the Commodity Exchange

Authority promptly of all changes in its membership. Thre

copies of all such material shall be furnished to the Act

Administrator, Commodity Exchange Authority, U.S. kk

partment of Agriculture, Washington, D.C. 20250, and on

copy shall be furnished to the director of the regional offic

of the Commodity Exchange Authority having local juris

_ diction with respect to such contract market.

(See. 8a, as amended by secs. 20-23, 82 Stat. 32, 33; 7 U.S.C.

12a, 1964 ed., Supp. IV 1969) (35 FR. 11018, July 9, 1970)

SHERMAN ACT, 81, 15 U.S.C, §1

§1. Trusts, etc., in restraint of trade illegal; exception of

resale price agreements; penalty

Every contract, combination in the form of trust or other.

wise, or conspiracy, in restraint of trade or commer

among the several States, or with foreign nations, is de

clared to be illegal: * * * *

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.