Thomas Ricci v. Chicago Mercantile Exchange, an Illinois Not-For-Profit Corporation

HASTINGS, Senior Circuit Judge.

Plaintiff Ricci brought this action under sections 4 and 16 of the Clayton Act, Title 15, U.S.C.A. §§ 15 1 and 26,2 seeking injunctive relief and treble damages. The complaint charged defendants Chicago Mercantile Exchange, its president, Everette B. Harris, its vice-president, William Phelan, its board chairman, Leo Melamed, and Siegel Trading Company and its president, Joseph Siegel with violations of section 1 of the Sherman Act, Title 15, U.S.C.A. § 1 3 and tortious interference with commercial relationships. Siegel Trading Company and Siegel4 moved to dismiss the complaint for failure to state a claim upon which relief could be granted and for want of jurisdiction. In a separate motion to dismiss, the Exchange defendants argued the complaint failed to state a cause of action under section 1 of the Sherman Act. From an order granting defendants’ motions to dismiss, plaintiff appeals.

Count I of appellant’s six-count complaint alleged, in substance, that he purchased a membership in the Chicago Mercantile Exchange and became duly qualified to trade in commodities and commodity futures pursuant to the rules of the Exchange and the Commodities Exchange Authority. On February 11, 1969, Siegel induced the Exchange and its officers to transfer appellant’s membership to James F. Reich, without hearing or notice, utilizing a previously revoked blank authorization to transfer membership. Such action was allegedly in violation of the rules and regulations of the Exchange and the Commodity Exchange Act and was done in pursuance of an unlawful conspiracy with the intent and for the purpose of restraining appellant from conducting his lawful *715business.5 As a result of such transfer, appellant was excluded from trading on the Exchange from February 11, 1969 until March 4, 1969 when he purchased another membership for $45,000.

Counts III and V of the complaint are directed against the Exchange and the individual defendants and reallege the allegations of Count I with respect to Violation of the Sherman Act. Counts II, IV and VI charge tortious interference with advantageous commercial relationships and, since all parties are residents of Illinois, will necessarily fall for want of jurisdiction if the Sherman Act allegations are not sustained.

The Exchange defendants claim that the trial court, in ruling on the motions to dismiss, admitted evidence other than that stated in the complaint and thereby converted them into motions for summary judgment. See, Fed.R.Civ.P. 12(b), 56. If this were true, it would allow this court to examine deposition testimony which appellees contend entirely disposes of the case. The short answer is that the transcript of the hearing on the motion to take depositions demonstrates that the court below was considering only the allegations in the complaint when it ruled on the motions to dismiss.

Since this is an appeal from an order granting Rule 12(b), Fed.R.Civ. P., motions to dismiss, we must accept appellant’s foregoing allegations of fact as true. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 174-175, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); Duzynski v. Nosal, 7 Cir., 324 F.2d 924 (1963).

I

Appellant first contends that, absent any justification to be derived from the Chicago Mercantile Exchange’s status as a board of trade and a designated “contract market” under the Commodities Exchange Act, Title 7, U.S.C.A. § 1 et seq., the allegations of the complaint are sufficient to allege a group boycott, a per se violation of section 1 of the Sherman Act.

Relying on Scanlon v. Anheuser Busch, Inc., 9 Cir., 388 F.2d 918 (1968), cert. denied, 391 U.S. 916, 88 S.Ct. 1810, 20 L.Ed.2d 654 (1968) and Ace Beer Distributors, Inc. v. Kohn, Inc., 6 Cir., 318 F.2d 283 (1963), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1963), the Siegel defendants argue that the facts alleged merely amount to the substitution of one competitor for another with no resulting public injury and are, therefore, not within the purview of the antitrust acts.

Scanlon, supra, and Ace Beer, supra, are inapplicable to the case at bar. Each concerned the cancellation of individual exclusive beer distributing contracts with the immediate substitution of other distributors. The relevant markets were competitive and the courts held that no unreasonable restraint of trade resulted from the refusals to deal since existing competition was not diminished and the cancellation was not an unusual business procedure. See, Ace Beer, supra at 287.

Appellant has alleged his exclusion from the Chicago Mercantile Exchange, a monopolistic market, was in violation of its own rules and regulations. Such exclusion is alleged to be a part of a conspiracy to intentionally injure his business. In Gamco, Inc. v. Providence Fruit & Produce Bldg., 1 Cir., 194 F.2d 484 (1952), cert. denied, 344 U.S. 817, 73 S.Ct. 11, 97 L.Ed. 636 (1952), the court was confronted with the exclusion of a trader from a produce building where the sales of fresh fruits and vegetables occurred. The board that managed the building refused to renew the trader’s lease after its expiration. The court in *716finding violations of sections 1 and 2 of the Sherman Act said:

“[T]he latent monopolist must justify the exclusion of a competitor from a market which he controls. Where, as here, a business group understandably susceptible to the temptations of exploiting its natural advantage against competitors prohibits one previously acceptable from hawking his wares beside them any longer at the very moment of his affiliation with a potentially lower priced outsider, they may be called upon for a necessary explanation. The conjunction of power and motive to exclude with an exclusion not immediately and patently justified by reasonable business requirements establishes a prima facie case of the purpose to monopolize.” Id. at 488.

Accepting, as we must, appellant’s allegations as to the reasons and manner in which he was excluded, there is no justification for the actions of the Exchange and the individual defendants. The transfer of his membership in violation of the rules of the Exchange and pursuant to a conspiracy to intentionally injure his business would constitute a group boycott, per se actionable under the Sherman Act.

The absence of an allegation of public injury is not fatal to the maintenance of an action where a per se violation is alleged. Radiant Burners, Inc. v. Peoples Gas, Light and Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); Switzer Brothers v. Locklin, 7 Cir., 297 F.2d 39 (1961).

Likewise, where the defendants enjoy the power to deny potential competitors access to the market, the absence of competitive change in the relevant market is not fatal to the cause of action. Gamco, Inc., supra 194 F.2d at 487.

Finally, this is not a case, as appellees contend, where appellant has used traditional antitrust language to transform an essentially state cause of action into a federal antitrust claim. Compare, Norville v. Globe Oil & Refining Co., 7 Cir., 303 F.2d 281 (1962); Parmelee Transportation Company v. Keeshin, 7 Cir., 292 F.2d 794 (1961).

In view of the foregoing, we conclude that, absent any justification from the Exchange’s status as a board of trade and a designated “contract market,” the complaint is sufficient to allege a group boycott, a per se violation of section 1 of the Sherman Act.

II

Relying primarily on Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), appellant asserts that no justification can be derived either from the Commodities Exchange Act or from the Exchange’s status as a board of trade for the actions herein alleged. Consequently, he claims a cause of action under section 1 of the Sherman Act has been stated.

In Silver, supra, member firms of the New York Stock Exchange were ordered by the Exchange to terminate private telephone and tickertape connections to Silver’s over-the-counter brokerage firms. The Court, observing that the concerted cut-off by the Exchange and its members had deprived Silver of an asset important to his ability to compete as a broker-dealer, said that such conduct would have been a per se violation of the Sherman Act “absent any justification derived from the policy of another statute or otherwise.” Id. at 348-349, 83 S.Ct. at 1252. However, because of the existence of the mandate of self-regulation present in the Securities Exchange Act, the Court sought to “reconcile pursuit of the antitrust aim of eliminating restraints on competition with the effective operation of a public policy contemplating that securities exchanges will engage in self-regulation which may well have anticompetitive effects in general and in specific applications.” Id. at 349, 83 S.Ct. at 1252.

The Court concluded that under the circumstances of the case, it did not *717have to complete the accommodation between the acts since the Exchange did not reach the threshold of justification under the statute and had plainly exceeded the scope of its authority to engage in self-regulation by not informing Silver of the charges underlying the decision to terminate the connections and by not providing an appropriate opportunity to explain or refute such charges despite prompt and repeated requests therefor. Id. at 361, 365, 83 S.Ct. at 1259, 1261.

Appellant here contends that the Exchange was not justified in excluding him from trading because nothing in the statutory scheme allows the Exchange to discipline brokers by excluding them from trading. Even if there were such statutory authorization, here he was afforded neither hearing nor notice and, thus, he claims the Exchange did not reach the threshold of justification. Assuming these contentions to be true, they do not dispose of this case.

The Chicago Mercantile Exchange is a “contract market” designated by the Secretary of Agriculture to conduct future trading in commodities pursuant to the Commodity Exchange Act, as amended, Title 7, U.S.C.A. § 1, et seq. As a condition of such designation, it must fulfill certain statutory requirements including the enactment and enforcement of bylaws, rules and regulations which relate to “trading requirements”6 and which provide “minimum financial standards and related reporting requirements” 7 for members of such markets.

Failure to enforce these bylaws, rules and regulations may result in suspension or revocation of the contract market designation 8 as well as cease and desist proceedings with attendant misdemeanor penalties for failure to comply.9 Anyone who acts singly or in concert with another to bring about a violation of rules and regulations issued pursuant to the Act is liable as a principal for such vio*718lations and may be subjected to loss of trading privileges on contract markets, as well as cease and desist proceedings with attendant penalties.10

The facts alleged by appellant to support his antitrust charge are either violations or induced violations of Exchange rules, promulgated pursuant to the Act, which relate to “trading requirements” and financial reporting requirements.11 As such, they could have been examined by the Commodity Exchange Commission or the Secretary of Agriculture.12

Thus, we are not confronted with the problem in Silver wherein there was “nothing built into the regulatory scheme which performs the antitrust function of insuring that an exchange 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.” Id. at 358, 83 S.Ct. at 1256. Rather, the maintenance of a private treble-damage suit in the instant case presents the “problem of conflict or coextensiveness of coverage with the agency’s regulatory power” not considered in Silver. Id. at 358, 83 S.Ct. at 1255.

Chief Judge Swygert, in his concurring opinion to Thill Securities Corp. v. New York Stock Exchange, 7 Cir., 433 F.2d 264 (1970), cert. denied, 401 U.S. 994, 91 S.Ct. 1232, 28 L.Ed.2d 532 (U.S. Mar. 30, 1971), suggested that the district court, on remand, consider this problem of coextensiveness of coverage by determining whether the Securities Exchange Commission possessed primary jurisdiction to judge the New York Stock Exchange’s allegedly anticompetitive an-tirebate rule. Id. at 276. The resolution of this issue depended, in part, on the consideration of the following factors; (1) the SEC’s power to weigh antitrust policy in fulfilling its duty of review of Exchange self-regulation;. (2) the ability of an aggrieved party to initiate SEC review; (3) the extent that SEC expertise would be useful in resolving the question of whether the antire-bate rule was necessary to make the Securities Exchange Act work; and (4) the possibility of achieving the aims of the Sherman Act without subjecting exchanges to treble damage suits. Id. at 277.

Applying these criteria to the instant case, we think it appropriate for the invocation of the doctrine of primary jurisdiction. There exists no express or implied exemption in the Commodity Exchange Act that would prevent the Secretary of Agriculture or the Commodity Exchange Commission from taking into account antitrust principles in their deliberations pursuant to the Act. Judge Leventhal, concurring in Cities of Statesville v. AEC, D.C.Cir., 441 F.2d 962 *719(Slip opinion No. 21,706, Dec. 5, 1969) (en banc), observed:

“It is a fair synthesis of the cases [of the Supreme Court and of the D.C. Circuit over the last 25 years] that a statute providing for licensing or other regulation is presumed to permit consideration of antitrust principles, with the harmonizing approach [applied to conflicts between antitrust policies and the agency’s other regulatory objectives] * * * unless a contrary intent appears expressly or by necessary implication.” (Quotation appears in Hale v. F. C. C., 138 U.S.App.D.C. 125, 425 F.2d 556, 561 (1970) (concurring opinion)).

Appellant could have applied for the institution of proceedings against the defendants before the Commission and/or the Secretary of Agriculture on the facts alleged in this case.13 He could have thereafter petitioned for intervention in any proceedings initiated pursuant to his application.14 If indeed the allegedly anticompetitive transfer of membership were in violation of Exchange rules, the Commission could have prevented it.

Moreover, the questions here involved are precisely the ones that the Commission and the Secretary are to resolve in fulfilling their watchdog function over the Exchange and its members.15 The allowance of a private treble damage antitrust suit in this case prior to the attempted institution of actions before the Commission or the Secretary would discourage “interested persons” from helping the agency fulfill its regulatory function of insuring that contract markets enforce their own rules and bylaws.

Additionally, there is a potential repugnance between a decision of the Commodity Exchange Commission and the award of treble damages in an antitrust action. The 1968 amendments to the Commodity Exchange Act provide the Commission and the Secretary of Agriculture with the discretion to refuse to report “minor violations” of the Act for prosecution “whenever it appears that the public interest does not require such action.” 16 The award of damages that *720are essentially punitive in nature17 could conflict with a decision by the Commission in the “public interest” that the punitive steps allowable under the Act should not be taken.18

We hold, therefore, that before a private treble damage action for antitrust violations may be brought against these defendants charging violation of the rules promulgated as a condition to a contract market designation, the Commodity Exchange Commission and/or the Secretary of Agriculture must have the first opportunity to secure the fulfillment of the statutory duties imposed upon exchanges and their members. The correct remedy in such a case where there is the possibility of a judicial remedy that cannot be granted by the administrative agency is to remand the case to the district court with directions to stay the proceedings until the agency has acted.19

Accordingly, we reverse and remand this action to the district court with directions to stay the proceedings until such time as the Commodity Exchange Commission and/or the Secretary of Agriculture may act upon it.

Reversed and remanded with directions.

. Title 15, U.S.C.A. § 15 provides:

Ҥ 15. Suits by persons injured; amount of recovery

“Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”

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

Ҥ 26. Injunctive relief for private parties ; exception

“Any person * * * shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws * *

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

Ҥ 1. Trusts, etc., in restraint of trade illegal; exception of resale price agreements; penalty

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States * * * is declared to be illegal * *

. Siegel Trading Company will be referred to as “Siegel.” Likewise, the Chicago Mercantile Exchange and its officers will be referred to as the “Exchange” or the “Exchange defendants.”

. Plaintiff also alleges that the conspirators attempted to induce a “Clearing Member” of the Exchange to issue an antedated release of its authorization of Ricci to trade to Siegel and that the Exchange knowingly failed to enforce its own rules relating to financial reporting. No specific damage is assigned to these allegations.

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

“§ 7a. Duties of contract markets Each contract market shall—

“(8) enforce all bylaws, rules, regulations, and resolutions, made or issued by it or by the governing board thereof or any committee, which relate * * * to other trading requirements, and which have not been disapproved by the Secretary of Agriculture * *

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

“§ 7a. Duties of contract markets Each contract market shall—

“(9) enforce all bylaws, rules, regulations, and resolutions made or issued by it or by the governing board thereof or by any committee, which provide minimum financial standards and related reporting requirements for * * * members of such contract market * *

. Title 7, U.S.C.A. § 7b provides :

“§ 7b. 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 suspending 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.”

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

Ҥ 13a. Nonenforcement of rules of government or other violations, cease and desist orders against contract markets; punishment; misdemeanor; separate offenses

“If any contract market is not enforcing or has not enforced 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 violated any of the provisions of this chapter * * * the commission may, upon notice and hearing and subject to appeal as in other 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 upon failure or refusal to comply] 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. * * * ”

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

Ҥ 13c. Responsibility as principal;

“ (a) Any person who commits, or who willfully aids, abets, counsels, commands, induces, or procures the commission of, a violation of any of the provisions of this chapter, * * * or who acts in combination or concert with any other person in any such violation, or who willfully causes an act to be done or omitted which if directly performed or omitted by him or another would be a violation of the provisions of this chapter * * * may be held responsible in administrative proceedings under this chapter for such violation as a principal.”

. Membership 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 violated in the attempt to cancel appellant’s authorization to trade, both relate to “trading requirements.” The other alleged violation was the failure to enforce financial reporting rules.

. The Commission has jurisdiction over alleged violations by the Exchange and its officers. It is composed of the Secretary of Agriculture, the Secretary of Commerce and the Attorney General or their respective designees. The Secretary of Agriculture may decide to exclude members of contract markets from trading.

. Title 17, C.F.R. §§ 0.3 and 0.53 provide that “any interested person having any information of any violation of the act” may file an application requesting the institution of proceedings before the Secretary or the Commission, respectively.

. Title 17, C.F.R. §§ 0.8, 0.58.

. In Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963), the Court dismissed an antitrust action against defendant carriers who had allegedly agreed not to parallel each other’s routes. The Civil Aeronautics Board was vested with broad jurisdiction over the air carrier. The Court reasoned at 305, 83 S.Ct. at 482:

“Limitation of routes and divisions of territories and the relation of common carriers to air carriers are basic in this regulatory scheme. The acts charged in this civil suit as antitrust violations are precise ingredients of the Board’s authority in granting, qualifying, or denying certificates to air carriers, in modifying, suspending, or revoking them, and in allowing or disallowing affiliations between common carriers. and air carriers.”

Although the overall regulatory scheme in the instant case is less pervasive than the scheme in Pm American, the specific allegations relate directly to the Commission’s and the Secretary’s power to designate contract markets and allow the trading in futures by individuals. Such power is no less basic to the regulatory scheme than it was in Pan American. Also, compare Far East Conference v. United States, 342 U.S. 570, 72 S.Ct. 492, 96 L.Ed. 576 (1952) ; United States Nav. Co. v. Cunard S.S. Co., 284 U.S. 474, 52 S.Ct. 247, 76 L.Ed. 408 (1932) with California v. F. P. C., 369 U.S. 482, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962) ; United States v. Borden Co., 308 U.S. 188, 60 S.Ct. 182, 84 L.Ed. 181 (1939), for ample illustration of Chief Judge Swygert’s observation in Thill, supra 433 F.2d at 277, that cases on primary jurisdiction provide no clear resolution to the issue.

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

Ҥ 13c. * * * minor violations

(b) Nothing in this chapter shall be construed as requiring 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 require such action.”

. As was said in Commissioner of Internal Revenue v. Obear-Nester Glass Co., 7 Cir., 217 F.2d 56, 61 (1954), “We might further say that the principal purpose of treble damages seems to be punishment which will deter the violator and others from future illegal acts.”

. We express no opinion on any antitrust immunity that might result from action or inaction taken by the Commission or the Secretary of Agriculture in this case. The complicated issues of reconciliation of the Commodities Exchange Act and the Sherman Act that would be presented will require the benefit of brief and argument before any determination could be attempted.

. Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 222-223, 86 S.Ct. 781, 15 L.Ed.2d 709 (1966) ; Pan American World Airways, Inc. v. United States, supra 371 U.S. at 313, n. 19, 83 S.Ct. 476.