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Rosee v. Board of Trade of City of Chicago

January 2, 1963


Author: Grubb

Before SCHNACKENBERG and CASTLE, Circuit Judges, and GRUBB, District Judge.

GRUBB, District Judge.

This is an appeal from an order of the district court dismissing the amended complaint herein for want of jurisdiction under the Civil Rights Statutes, 28 U.S.C.A. § 1343, and 42 U.S.C.A. § 1983, and the Commodity Exchange Act, 7 U.S.C.A., §§ 1 to 17.

Appellant, Bernhard Rosee, a trader member of the Chicago Board of Trade, cleared his transactions through the firm of Baggot and Morrison. In June 1960, Rosee and Baggot and Morrison disputed the status of Rosee's account, and a claim against Rosee for $13,654.41 was received by the Board of Directors. At Rosee's request, the dispute went to the Arbitration Committee of the Board which rendered an award against Rosee who then appealed to the Board's Committee of Appeals. This committee affirmed the award. Rosee refused to abide thereby and was suspended from membership pursuant to the rules of the Board.

Rosee then filed suit in the Superior Court of Cook County, seeking reinstatement to membership in the Board. After denial of a request for a temporary mandatory injunction compelling his reinstatement, Rosee took a voluntary nonsuit in the state action and thereafter commenced the instant case. He alleges, as he did in the state action, that he was denied a fair hearing in the Board proceedings which ultimately resulted in the suspension of his membership. On motion of the defendants-appellees, the district court held that the amended complaint did not plead sufficient facts to establish federal jurisdiction.

Rosee contends that he has been deprived of a valuable property, membership in the Board of Trade, without due process of law, and that he has been denied the equal protection of the laws. The acts complained of - the allegedly arbitrary and discriminatory proceedings before the Board - are claimed to have been performed under color of state law in that the Board actions were pursuant to legislation providing for the incorporation of the Board and for authorization of said Board to make rules and regulations for its government. Additional state action allegedly infringing Rosee's constitutional rights is claimed to lie in the past refusal of the courts of Illinois in other cases to review the validity of proceedings conducted pursuant to the rules of the Board resulting in suspension of membership.

Although incorporated under a special act of the Illinois legislature in 1859, the Chicago Board of Trade is a voluntary association of individuals endowed with the ordinary powers and privileges of a private corporation. Thomson v. Thomson, 293 Ill. 584, 127 N.E. 882 (1920); 273 U.S. 638, 47 S. Ct. 90, 71 L. Ed. 816, dismissing writ of error to the Illinois Supreme Court.

Pursuant to its legislative charter, the Board is authorized to make rules and regulations proper and necessary for its government and the management of its business. The corporation is further empowered to admit to or to expel from membership such persons as it sees fit, in the manner to be prescribed by its rules, regulations, and by-laws. It may constitute and appoint committees of reference and arbitration for the settlement of such disputes as are voluntarily submitted by its members.

The Board proceedings involving Rosee are founded on the agreement of the parties as members of the Board to exercise the right of voluntary submission of a dispute to arbitration. In the performance of the proceedings pursuant to legislative grant and its own rules, the Board was not authorized, nor did it in fact exercise a governmental or public function. It acted in the affairs of its own government and internal business as a private corporation and exercised "the inherent and implied power, which is a necessary and inseparable incident of its existence." Thomson v. Thomson, supra, at 590, 127 N.E. at 884.

The nature of the proceedings affecting Rosee's account and membership status differs from the activities which have been determined to constitute state action or action under color of state law. In Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673, 50 S. Ct. 451, 74 L. Ed. 1107 (1930), the activities of a state tax commission were in issue; in Barsky v. Board of Regents, 347 U.S. 442, 74 S. Ct. 650, 98 L. Ed. 829 (1954), those of a state teacher licensing board. Truax v. Raich, 239 U.S. 33, 36 S. Ct. 7, 60 L. Ed. 131 (1915), involved threatened enforcement by state officers of an allegedly unconstitutional state law. Shelley v. Kraemer, 334 U.S. 1, 68 S. Ct. 836, 92 L. Ed. 1161 (1948), and Barrows v. Jackson, 346 U.S. 249, 73 S. Ct. 1031, 97 L. Ed. 1586 (1953), were concerned with enforcement of infringement of constitutional rights by state judicial systems.

Actions arising under the Railway Labor Act, 45 U.S.C.A. § 153, must be distinguished. Unlike the instant action, these cases are not concerned with rights arising under private agreements. These actions involve the determination of federally created contractual rights as between common carriers and their employees. The federal courts have jurisdiction under proper circumstances to review the validity of the determinations of these rights by agencies created pursuant to federal legislative mandate, whose proceedings thereby partake of a "public" character. Edwards v. Capital Airlines, Inc., 84 U.S.App.D.C. 346, 176 F.2d 755, 760 (1949), cert. denied 338 U.S. 885, 70 S. Ct. 186, 94 L. Ed. 543; Arnold v. United Air Lines, Inc., 296 F.2d 191 (7th Cir.1961).

Considerations as to the governmental or private character of conduct allegedly infringing the complainant's constitutional rights are stated in Baldwin v. Morgan, 287 F.2d 750 (5th Cir.1961), a railway terminal segregation case. The challenged activity was by a terminal, pursuant to state law and state public service commission order. In determining the liability of the terminal, the court notes that it is a public utility, doing something the state deems useful for the public necessity or convenience. The court continues at page 755:

"* * * When in the execution of that public function it is the instrument by which state policy is to be, and is, effectuated, activity which might otherwise be deemed private may become state action within the Fourteenth Amendment. And whether it is state policy is to be determined by the nature of the activity in terms of the governmental nature of the function * * *."

The activities of the Board of Trade, in light of the definition set forth in Baldwin v. Morgan, supra, do not fall within the category of governmental action. The Board is not a public utility; it has not been established that the Board performs something which the state deems useful for the public necessity or convenience in the settlement of disputes between its members and in disciplinary actions concerning its membership. These activities, pursued in accordance with its rules and regulations, are private in nature. The ...

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