United States District Court, Northern District of Illinois, E.D
August 2, 1973
HOWARD J. ZUCKERMAN ET AL., PLAINTIFFS,
RALPH H. YOUNT ET AL., DEFENDANTS.
The opinion of the court was delivered by: McLAREN, District Judge.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on defendants' motion for
summary judgment pursuant to Fed.R.Civ.P. 56. The motion is
The complaint alleges, inter alia, that Blackman, Ray &
Zuckerman, Inc., wholly owned by Howard J. Zuckerman, Stuart N.
Blackman and Joseph Ray, was formed for the purpose of conducting
business as a broker-dealer in securities in interstate commerce.
It is further alleged that plaintiffs introduced themselves to
potential customers in various cities and on information it is
alleged that some of these potential customers had previously
done business with or were customers of defendants Morton
Weinress, Leo Meiselman, David Y. Williams, and James C. Dougall,
Jr. It is alleged that the defendants conspired to (1) restrain
plaintiffs from securing said business by inducing the Midwest
Stock Exchange ("Exchange") to postpone, delay and deny
plaintiffs' membership on the Exchange and (2) prevent Stuart
Blackman from functioning as a specialist on the Exchange.
It is also alleged that in furtherance of the conspiracy, the
defendants caused false, derogatory and defamatory information
concerning the plaintiffs to be brought to the attention of the
Board of Governors, the Executive Committee and the Admissions
Committee of the Exchange. As a result thereof, plaintiffs
allegedly were prevented from obtaining full membership on the
Exchange although they met all membership requirements. The
Exchange is charged with furtherance of the conspiracy by its
refusal to admit the plaintiffs to membership.
The action allegedly arises under Sections 1 and 2 of the
Sherman Antitrust Act, 15 U.S.C. § 1 and 2, and jurisdiction
allegedly exists pursuant to Section 4 of the Clayton Act,
15 U.S.C. § 15.
In support of their motion for summary judgment, defendants
contend that (1) the plaintiffs have suffered no injury in their
business or property as required by § 4 of the Clayton Act, since
the Exchange offered to admit Mr. Blackman to membership subject
to a six-month probationary period; (2) the alleged behavior of
the defendants does not constitute a violation of the federal
antitrust laws since they acted pursuant to the Exchange's
statutorily imposed duty of self-regulation and that, pro
tanto, there is an implied waiver of the antitrust laws; and (3)
in the alternative, the alleged behavior of the defendants does
not constitute a violation of the antitrust laws under the rule
of reason which is applicable here inasmuch as fair procedures
were adhered to.
In light of this Court's disposition of the motion, only a
brief statement of the facts is necessary. After Blackman's
application was rejected by the Exchange's Executive
Committee,*fn1 counsel for the Exchange gave Blackman notice of
the information upon which the Executive Committee acted and
informed him that he would be granted a hearing. It was charged
that Blackman, while employed by Weinress & Co., (1) made several
unnecessary and exaggerated requests to bid up for his own
account a certain stock in which he was a co-specialist, in
violation of Rule 9 of Article XXIV of the Midwest Rules; (2)
failed to maintain an orderly market in the same common stock by
reason of large spreads between bid and ask quotations and large
gaps between successive sales;*fn2 (3) used "strong and
offensive profanity" on the floor of the Exchange. It was also
stated that "[t]he general opinion of members of the Committee on
Floor Procedures is that during the period you [Blackman] were
active on the Floor of the Exchange, you displayed a gross
disregard for Exchange Rules, professional ethics and
The Exchange's Executive Committee held a hearing on Blackman's
application at which time witnesses with information adverse to
Blackman were heard first. Blackman was given the opportunity to
cross-examine these witnesses and present his own case.
Blackman's counsel was not permitted to participate in the
cross-examination, although counsel was allowed to be present to
advise Blackman throughout the proceeding. The Exchange
stipulated that the Executive Committee's decision on the
application would be made solely on the basis of the evidence
presented at the hearing.
The Executive Committee decided that the evidence was not
sufficient to deny membership to Blackman. The minutes of the
Executive Committee meeting of March 2, 1971 state, inter alia,
"[t]he Committee finds that because of the serious
questions that have been raised as to the knowledge
and experience as well as the character and integrity
of Mr. Blackman, he should be admitted to membership
subject to a six month probationary period during
which he would be under the active supervision of a
member of the Floor Procedure Committee."
During the probationary period Blackman was to be able to operate
without limitations, "except as may be found appropriate by the
Floor Procedure Committee as a result of conduct on the Floor
subsequent to his joining the Exchange. . . ."
When notified of the Executive Committee's action, Blackman
considered it adverse and requested review by the Exchange's
Board of Governors. The Board of Governors reviewed and
unanimously affirmed the Executive Committee's action at its
meeting of March 16, 1971. Blackman declined to accept this
probationary membership and filed this suit.
Defendants contend that they are entitled to summary judgment
since it is undisputed that the Exchange offered to admit Mr.
Blackman to membership subject to a six-month probationary
period, and consequently injury which Blackman incurred, if any,
resulted from his refusal to accept this offer. This contention
rests on § 4 of the Clayton Act, 15 U.S.C. § 15, which requires
that the plaintiff in a private antitrust action sustain injury
in his business or property as a result of the alleged antitrust
A party moving for summary judgment has the burden of showing
the absence of a genuine issue of material fact and supporting
affidavits and other materials are to be viewed in the light most
favorable to the opposing party. Adickes v. S.H. Kress & Co.,
398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); First
National Bank of Cincinnati v. Pepper, 454 F.2d 626, 629 (2d Cir.
1972). Furthermore, inferences which may be drawn from the
underlying facts must be considered in the light most favorable
to the party opposing the motion, United States v. Diebold, Inc.,
369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed. 2d 176 (1962); Pitts v.
Shell Oil Co., 463 F.2d 331, 335 (5th Cir. 1972), and summary
judgment should not be granted where contradictory inferences may
be drawn. United States v. Perry, 431 F.2d 1020, 1022 (9th Cir.
Even though it is undisputed here that Blackman was offered
probationary membership, summary judgment in defendants' favor is
inappropriate since that underlying fact is subject to
contradictory inferences with respect to possible injury.
Defendants point out that Blackman, under the terms of the
probationary membership, would have been given trading rights
equal to those of other members. They also argue that every
Exchange member is subject to supervision and discipline and that
the restrictions that Blackman would have been subject to during
the probationary period differed little from those of ordinary
membership. By placing emphasis upon the relative scope of
Blackman's powers and restrictions during the probationary
period, defendants would have this Court conclude that no injury
was suffered by him.
However, in the securities industry, where confidence in those
with whom a person deals is critical, one who is granted only
probationary status may find that status an obstacle to
attracting business. Thus, in the area of ability to attract
customers, it is conceivable that restriction to probationary
membership might cause plaintiff the injury contemplated by § 4
of the Clayton Act.*fn3
Commencing business would have involved risking considerable
capital and Blackman is not required to maximize the damage that
could be expected to result from the allegedly unlawful behavior.
Cf. Fontana Aviation, Inc. v. Beech Aircraft Corp.,
432 F.2d 1080, 1087 (7th Cir. 1970), cert. denied, 401 U.S. 923, 91 S.Ct.
872, 27 L.Ed.2d 826 (1971). The affidavits and other materials
before the Court indicate that plaintiffs had the requisite
"intention and preparedness" to engage in business as
broker-dealers in securities. See N.W. Controls, Inc. v. Outboard
Marine Corp., 333 F. Supp. 493, 506-507 (D.Del. 1971) and cases
To conclude that plaintiffs incurred no injury within the
meaning of § 4 of the Clayton Act, this Court would be required
to draw impermissible inferences in favor of defendants and
against the plaintiffs. In short, defendants have not sustained
their burden of demonstrating that there is no genuine issue on
the fact of damage.
Defendants also argue in support of their motion for summary
judgment that there has been an implied repeal of the antitrust
laws, or in the alternative, that absent such a repeal, there has
been no violation of the antitrust laws since the Exchange
accorded Mr. Blackman procedural due process.
Defendants rely upon Silver v. New York Stock Exchange,
373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). That case is not
dispositive of the issues here, however; the Supreme Court found
it unnecessary to reach the instant problem because fair
procedures — the "threshold of justification" for implied repeal
of the antitrust laws — were not followed. Silver, supra at
365-366, 83 S.Ct. 1246. Silver does, however, provide some
As in Silver, the acts alleged here would appear to
constitute a per se violation of § 1 of the Sherman Act were
they to have been committed in a context in which federal
regulation was non-existent. Furthermore, control over membership
is one of the responsibilities imposed on a stock exchange as
part of its duty of self-regulation under § 6(b) of the
Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78f(b).
In order to qualify for registration, the rules of an exchange
must be "just and adequate to insure fair dealing and to protect
investors", § 6(d) of the 1934 Act, 15 U.S.C. § 78f(d).
Consequently, this Court must reconcile the objectives of the
1934 Act with those of the antitrust laws. Silver, supra at
357, 83 S. Ct. 1246.
Silver made clear that the 1934 Act contains no express
exemption from the antitrust laws; that exemptions, if any, are
only by implication; and that such implied exemptions are not
favored. As stated at 357, 83 S.Ct. at 1257:
"Repeal is to be regarded as implied only if
necessary to make the Securities Exchange Act work,
and even then only to the minimum extent necessary."
The Court also emphasized that under the 1934 Act, the Securities
Exchange Commission does not have jurisdiction to review the
application of exchange rules in circumstances such as exist
here. With this in mind, it was noted at 358-360, 83 S.Ct. at
"[t]here is 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. . . . Some form of review of exchange
self-policing, whether by administrative agency or by
the courts, is therefore not at all incompatible with
the fulfillment of the aims of the Securities
Exchange Act. . . . Since the antitrust laws serve,
among other things, to protect competitive freedom,
i.e., the freedom of individual business units to
compete unhindered by the group action of others, it
follows that the antitrust laws are peculiarly
appropriate as a check upon anticompetitive acts of
exchanges which conflict with their duty to keep
their operations and those of their members honest
and viable. Applicability of the antitrust laws,
therefore, rests on the need for vindication of their
positive aim of insuring competitive freedom. Denial
of their applicability would defeat the congressional
policy reflected in the antitrust laws without
serving the policy of the Securities Exchange Act. .
In light of the fact that the antitrust laws are to be
impliedly repealed only to the minimum extent necessary to make
the 1934 Act work, this Court rejects defendants' contention
that, based on the present record, there has been an implied
repeal of the antitrust laws in this case. Blackman was charged
with violation of certain Exchange rules. It appears that if the
implied repeal of the antitrust laws is to be kept to the
minimum, there must first be an inquiry as to whether the rules
that were allegedly violated are essential enough to the
operation of the 1934 Act that the anticompetitive impact that
may result from their enforcement must be tolerated. In short, a
preliminary question is whether the charges, if true, would
justify anticompetitive restrictions on membership
in light of the purposes of the 1934 Act.*fn4
This determination as to whether the particular rules are
necessary to the operation of the 1934 Act appears to present a
question of fact. Thill Securities Corp. v. New York Stock
Exchange, 433 F.2d 264, 273 (7th Cir. 1970), cert. denied,
401 U.S. 994, 91 S.Ct. 1232, 28 L.Ed.2d 532 (1971).*fn5
There being no showing of an implied repeal of the antitrust
laws, the Court turns to defendants' contention that because they
accorded Blackman procedural due process, there is no violation
of the antitrust laws. Plaintiffs do not challenge the procedure
whereby their application was acted upon and it appears that such
procedure is adequate under the circumstances. Cf. Crimmins v.
American Stock Exchange, 346 F. Supp. 1256 (S.D.N.Y. 1972).
Silver teaches, however, that the granting of procedural due
process does not remove the Exchange's action from scrutiny by an
antitrust court: procedural due process is merely the threshold
justification for exemption from the antitrust laws and having
failed to grant fair procedures in Silver, the action of the
New York Stock Exchange was treated as a per se violation of
the Sherman Act.
Treating procedural due process as only a threshold question
follows from the Court's recognition that (1) rules may be
applied in particular circumstances so as to achieve
anticompetitive results that cannot be justified by reference to
the purposes of the 1934 Act, and (2) no mechanism exists for
review by the Securities Exchange Commission or any other body.
The Supreme Court expected that a fair hearing itself would
"help in effectuating antitrust policies by discouraging
anticompetitive applications of exchange rules . . ." since
unsupportable charges would be less likely and hearings would be
conducted with an awareness of potential antitrust liability.
Silver, supra, 373 U.S. at 362, 83 S. Ct. 1246, 1259, 10
Defendants argue that "[t]he result of nonliability under the
antitrust laws obtains even if a court might disagree with a
particular decision reached by a self-regulatory body." This
Court agrees that if the self-regulatory scheme of the 1934 Act
is to remain operable, antitrust courts must not substitute their
judgment for that of a particular exchange. The Supreme Court in
Silver did not reach this question, but Justice Goldberg seemed
to suggest, at 366, 83 S.Ct. at 1261, that a choice would have to
be made between various standards of review, including
arbitrariness, good faith or reasonableness. The Antitrust
Division of the Justice Department has taken the position with
respect to disciplinary proceedings that as long as an exchange
acts in good faith and follows fair procedures "antitrust
liability would not turn upon whether an exchange had reached
what a court subsequently determines to be the `right' decision."
Statement of the Department of Justice, Hearings on the
Securities Industry Before the Subcommittee on Commerce and
Finance of the House Committee on Interstate and Foreign
Commerce, 92d Cong., 2d Sess., Serial No. 92-37e, pt. 6, at 3155
(1972). At the minimum this would seem to require that there be a
foundation in the record for the action taken.
It is so ordered.