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AMERICAN AGRIC. MOVEMENT, INC. v. BOARD OF TRADE O

July 8, 1991

THE AMERICAN AGRICULTURE MOVEMENT, INC., et al., Plaintiffs,
v.
THE BOARD OF TRADE OF THE CITY OF CHICAGO, et al., Defendants


George M. Marovich, United States District Judge.


The opinion of the court was delivered by: MAROVICH

GEORGE M. MAROVICH, UNITED STATES DISTRICT JUDGE

 Plaintiff American Agriculture Movement, Inc. ("AAM") is a national organization which represents and advocates the interests of American farmers. The other named plaintiffs are individual members of AAM and a corporation wholly-owned by another individual AAM member. Plaintiffs sued the Chicago Board of Trade ("CBOT"), twenty-one individual members of the Board of Directors of the CBOT ("Directors"), and five individual members of the Business Conduct Committee of the CBOT ("Committeemen") under the Commodity Exchange Act ("CEA"), 7 U.S.C. § 1 et seq., the Sherman Antitrust Act ("Sherman Act"), 15 U.S.C. § 1 et seq., and state common law. This court dismissed plaintiffs' CEA claim for lack of statutory standing on April 23, 1990. Before the court is defendants' motion for summary judgment with respect to the Sherman Act and common law claims. For the following reasons, defendants' motion for summary judgment is granted.

 STATUTORY AND REGULATORY SCHEME

 The CEA is a comprehensive federal statute which regulates the trading of agricultural and other commodities on exchanges. Its predecessor, the Grain Futures Act, was first enacted in 1922. One of Congress' fundamental purposes in enacting the CEA was to ensure fair practice and honest dealings on commodity exchanges as well as to protect those who could be injured by unreasonable fluctuations in commodity prices. Tamari v. Bache & Co. S.A.L., 730 F.2d 1103, 1106 (7th Cir. 1984).

 The CEA establishes the five-member Commodity Futures Trading Commission ("CFTC"). 7 U.S.C. § 4a(a)(1). The CEA authorizes the CFTC "to promulgate such rules and regulations as in the judgment of [the CFTC] are reasonably necessary to effectuate any of the provisions or accomplish any of the purposes of [the CEA]." 7 U.S.C. § 12a(5) (emphasis added). The CEA also authorizes the CFTC to designate any board of trade as a "contract market" if that board of trade complies with certain statutory requirements. 7 U.S.C. § 7. One of these statutory requirements is that "the governing board [of the board of trade] [must] provide[] for the prevention of manipulation of prices and the cornering of any commodity by the dealers or operators upon such board [of trade]." 7 U.S.C. § 7(d); cf. 17 C.F.R. § 1.51(a)(1) (contract market "shall" monitor market activity "for indications of possible congestion or other market situations conducive to possible price distortions"). The CEA also requires a designated contract market to enforce any bylaws, rules, regulations, or resolutions which it promulgates. 7 U.S.C. § 7a(8). Furthermore, the CEA expressly provides as follows:

 
The [CFTC] shall specify the terms and conditions under which a contract market may, in an emergency as defined by the [CFTC], make a rule effective on a temporary basis without prior [CFTC] approval . . . In the event of such an emergency, as defined by the [CFTC], requiring immediate action, the contract market by a two-thirds vote of its governing board may immediately make effective a temporary rule dealing with such emergency if the contract market notifies the [CFTC] of such action with a complete explanation of the emergency involved.

 7 U.S.C. § 7a(12) (emphasis added).

 The CFTC has promulgated a regulation which defines an "emergency" as, inter alia :

 
any . . . occurrence or circumstance which, in the opinion of the governing board of the contract market, requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or liquidation of or delivery pursuant to, any contract for the future delivery of a commodity or any commodity option on such contract market. Occurrences and circumstances which a governing board of a contract market may deem emergencies include, but are not limited to:
 
. . . .
 
(B) Any actual, attempted, or threatened corner, squeeze, congestion, or undue concentration of positions.

 17 C.F.R. § 1.41(a)(4)(ii)(B) (emphasis added). The CFTC has specifically authorized a contract market to respond to such an "emergency" by issuing an order directing contract liquidation. 17 C.F.R. § 1.41(f)(3)(v).

 Prior to 1982, there was no express private right of action for violations of the CEA. Nevertheless, prior to 1974, various lower courts had implied a private right of action under the CEA. In 1974, Congress amended the CEA but did not restrict or prohibit the private right of action thereunder which the various lower courts had implied. Because of this Congressional inaction, the Supreme Court held in 1982 that there was indeed a private right of action under the CEA. Merrill Lynch, Pierce, Fenner & Smith v. Curran, Inc., 456 U.S. 353, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (1982). Eight months after the Court decided Curran, Congress enacted the Futures Trading Act of 1982 which amended the CEA to, inter alia, add § 25 which is captioned "Private Rights of Action". The current version of the CEA expressly grants private parties a right of action against a contract market such as the CBOT which "in enforcing any . . . bylaw, rule, regulation, or resolution violates [the CEA] or any [CFTC] rule, regulation, or order." 7 U.S.C. § 25(b)(1)(C). The CEA also grants private parties a right of action against "any individual who, in the capacity as an officer, director, . . . [or] committee member" "wilfully aids, abets, counsels, induces, or procures" such a violation by a contract market. 7 U.S.C. § 25(b)(3). There are, however, important restrictions on these express private rights of action which do not apply to actions brought against other defendants. Two of these restrictions are relevant in this case. First, only "a person who engaged in any transaction on or subject to the rules of [a] contract market" may assert such a right of recovery. 7 U.S.C. § 25(b)(1)(C), (b)(3). Second, no one can recover against a contract market or a director, officer, or committee member of a contract market unless the putative defendant "acted in bad faith in failing to take action or in taking such action as was taken . . ." 7 U.S.C. § 25(b)(4). *fn1" This court has already held that plaintiffs do not satisfy the first restriction and therefore cannot recover against defendants under the CEA. The American Agriculture Movement v. Board of Trade, 1990 U.S. Dist. LEXIS 4970 (1990).

 BACKGROUND

 Summary judgment is appropriate if "the pleadings, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. . . ." Fed.R.Civ.P. 56(c). The undisputed material facts in this case are summarized below.

 The CFTC has designated the CBOT as a contract market under the CEA. Pursuant to the request of the Committeemen, on July 11, 1989, the Directors, by a sixteen to one vote, *fn2" adopted a resolution ("the Resolution") to address an emergency which the Committeemen and Directors believed existed regarding the July 1989 soybean futures contract traded at the CBOT. The emergency consisted of a threat to "fair and orderly trading in the liquidation of, and delivery pursuant to, the July 1989 soybean futures contract" caused by Ferruzzi Finanziara S.p.A.'s control of almost 60% of the long open interest in July soybean futures and more than 60% of cash soybeans in deliverable locations. *fn3" In an effort to deal with this stated emergency, the Resolution ordered, inter alia : (1) that any person or entity who owned or controlled a gross long or gross short position in the July 1989 soybean futures contract in excess of three million bushels must reduce his or its position "by at least 20% per trading day", and (2) that no person or entity could own or control a gross long or gross short position in the July 1989 soybean futures contract in excess of three million bushels as of the close of trading on Tuesday, July 18, 1989 and in excess of one million bushels as of the close of trading on Thursday, July 20, 1989. The Resolution expressly stated that its provisions were applicable "to all positions, whether hedge or speculative". Since the CBOT had, at the time, an internal rule requiring public disclosure of emergency orders, it was required, pursuant to 7 U.S.C. § 7a(8), to disclose the Resolution to the public. The CBOT did so on July 12, 1989.

 The CFTC subsequently investigated the events which led to the Resolution and, on September 7, 1989, issued its determination that the market situation addressed by the Resolution had constituted an "emergency" as that term is defined by the CFTC. The CFTC was aware of the fact that five Directors and two Committeemen were affiliated with firms that held gross short positions in July 1989 soybeans and determined that none of the participating CBOT Directors and Committeemen traded "for the purpose of profiting personally or through an affiliated firm from advance knowledge of the July 11 order." The CFTC further concluded that the CBOT "followed required and reasonable procedures in its decision making process, had a reasonable basis for its action, and did not act in bad faith."

 After the CFTC issued this determination, the Senate Agriculture Committee asked the United States General Accounting Office ("GAO") to conduct its own examination of the events which led to the Resolution. In an April 9, 1990 report, the GAO agreed with the CFTC's conclusion that the CBOT and the directors had acted in good faith without ...


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