American Agriculture Movement, Incorporated v. The Board Of Trade Of The City Of Chicago

The American Agriculture Movement, a national organization representing the interests of farmers, along with several of its soybean-farmer members (collectively "AAM"), brought this suit against the Chicago Board of Trade and 26 of its officers and employees (collectively "CBOT") under the Commodity Exchange Act (CEA), the Sherman Anti-trust Act and state common law. The district court granted the CBOT's motion to dismiss the CEA count on the ground that the AAM lacked statutory standing. American Agric. Movement, Inc. v. Board of Trade, 1990 WL 71025, 1990 U.S.Dist. LEXIS 4970 (N.D.Ill. April 23, 1990) [AAM I ]. The court subsequently granted the CBOT's motion for summary judgment on the remaining counts, reasoning that the CEA preempted the AAM's common law claims, and had impliedly repealed the Sherman Act under the circumstances of this case. American Agric. Movement, Inc. v. Board of Trade, 770 F.Supp. 407 (N.D.Ill.1991) [AAM II ]. The AAM appeals both decisions. We affirm as to the CEA and common law counts, but reverse the court's entry of summary judgment on the antitrust count, and remand for further proceedings.

The CEA governs the trading of commodity futures contracts, and grants to the Commodity Futures Trading Commission (CFTC or Commission) the authority, in large measure, to implement the regulatory regime established therein. The Commission, pursuant to that authority, see CEA § 5, 7 U.S.C. § 7, has designated the CBOT as a "contract market" on which investors may trade various commodity futures contracts. See generally Chicago Mercantile Exch. v. SEC, 883 F.2d 537, 542-43 (7th Cir.1989) (discussing futures contract trading), cert. denied, 496 U.S. 936, 110 S.Ct. 3214, 110 L.Ed.2d 662 (1990); Leist v. Simplot, 638 F.2d 283, 286-87 (2d Cir.1980) (same), aff'd sub nom. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982); William F. Sharpe & Gordon J. Alexander, Investments, ch. 5, at 594-628 (4th ed. 1990) (same). The CBOT's status as a contract market imposes upon it a duty of self-regulation, subject to the Commission's oversight. As part of its duties, the CBOT must enact and enforce rules to ensure fair and orderly trading, including rules designed to prevent price manipulation, cornering and other market disturbances. CEA § 5(d), 7 U.S.C. § 7(d). In performing this particular self-regulatory function, the CBOT is required to monitor "market activity for indications of possible congestion or other market situations conducive to possible price distortion." 17 C.F.R. § 1.51(a)(1).

This case involves an emergency action taken by the CBOT in response to what it claims was the threat of such a distortion. In the summer of 1989, Ferruzzi Finanziaria, S.p.A., and others (Ferruzzi Group or Ferruzzi) attempted to execute a "squeeze" in the July 1989 soybean futures market. The CBOT's Business Conduct Committee (Committee), the body charged with monitoring the soybean futures markets, determined that the Ferruzzi Group held an unusually large, and dangerous, market position; it controlled nearly 60 percent of the long open interests in the futures market, as well as over 60 percent of the cash soybeans in deliverable locations. Moreover, Ferruzzi's futures position was more than four times larger than the deliverable soybean stocks available to other cash market participants. If Ferruzzi did not substantially liquidate its position prior to the delivery date of the July 1989 contracts, the stability of the soybean futures and cash markets could have been seriously compromised.

In late June and early July, the Committee repeatedly urged the Ferruzzi Group to reduce in an orderly manner its outstanding open futures position. Ferruzzi stonewalled and declared that it would maintain its position, and in response the Committee, on July 10, recommended that the CBOT's governing board (Board) take emergency action. The following day, the Board, by a 16 to 1 vote, issued an "Emergency Resolution" (Resolution) pursuant to its self-regulatory powers. See CEA § 5a(12), 7 U.S.C. § 7a(12). The Resolution declared a market emergency, and ordered any person or group controlling gross long or short positions in excess of three million bushels to liquidate their positions by at least 20 percent daily. In addition, it ordered that no person or group could own contracts in excess of three million bushels on July 18, or in excess of one million bushels on July 20, the last trading day for July 1989 contracts. The Board, pursuant to CBOT Rule 180.00, immediately made the Resolution public, and, pursuant to CEA § 5a(12), informed the Commission of its action.

Not surprisingly, publication of the Resolution led to a price decline in the July 1989 futures market, a decline that worked to the benefit of open shorts and the detriment of open longs. The AAM alleges that the Resolution also caused a proportionate decline in the cash market--an allegation over which there is some dispute, see Letter from Wendy L. Gramm [CFTC Chairperson] to Senator Patrick Leahy, at 28-30 (Aug. 25, 1989) (hereinafter "Gramm Letter"), but which we must accept at this juncture as true--to the detriment of farmers, who sell soybeans in that market. The AAM further alleges that the CBOT was motivated by something other than a desire to prevent distortions in the soybean futures market; it accuses the Committee and the Board of bad faith in recommending and adopting the Resolution. Although no member of either body held individual short positions in the futures market, two participating Committee members, and several Board members who voted in favor of the Resolution, were affiliated with firms that did. Moreover, according to the AAM, some of those firms needed, or had clients that needed, cash soybeans, and hence benefitted from a reduction in price in the cash market. The Resolution, the allegations continue, was the product of a conspiracy among the individual defendants, the firms with which some of the defendants were affiliated, and those firms' clients, to depress prices in both the cash and futures markets.

After receiving notice of the CBOT's adoption of the Resolution, the Commission took no formal action; it neither overturned nor approved the Resolution. Commission staff members did, however, conduct an informal investigation, and concluded that the Board acted reasonably and in good faith. Shortly thereafter, the AAM filed suit against the CBOT, five Committee members, and twenty-one Board members for recommending, adopting and publishing the Resolution, seeking redress under § 5 of the CEA, the Sherman Act, and state common law.

Section 5 of the CEA, 7 U.S.C. § 7, authorizes the Commission to designate as a "contract market" any futures exchange that satisfies several enumerated conditions. The condition most relevant here requires a market's governing board to provide for "the prevention of manipulation of prices and the cornering of any commodity by the dealers or operators upon such boards." Id. § 7(d). The AAM contends that the CBOT, in adopting and publishing the Resolution, violated its duty to prevent price manipulation in the July 1989 soybean futures market, and further that § 5 grants it an implied private right of action to remedy the harm it suffered as a result of that violation. On the CBOT's motion to dismiss, the district court ruled that the AAM was foreclosed from seeking a private remedy under the CEA because it had not engaged in futures transactions on the CBOT. AAM I, slip op. at 8-9. The Commission, as amicus, urges us to affirm.

We accept for the sake of argument AAM's allegation that the CBOT violated its duty (if indeed one exists) under CEA § 5(d), and consider only the district court's ruling on the implied remedy issue. To support its position, the AAM relies upon Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982), which held that the CEA granted futures investors an implied private right of action against futures exchanges that fail, in violation of CEA § 5a(8), 7 U.S.C. § 7a(8), to enforce their own rules against price manipulation. Congress did not expressly provide for a private remedy against such violations when it enacted the CEA in 1922, or when it substantially revised the statute over 50 years later with the Commodity Futures Trading Commission Act of 1974 (the 1974 Act). Prior to 1974, however, federal courts interpreting the CEA had "routinely and consistently" implied private remedies of the variety pursued by the Curran plaintiffs. Id. at 379, 102 S.Ct. at 1839-40. The Court reasoned that Congress' silence in the 1974 Act on the issue of private remedies demonstrated its intent to preserve those particular implied remedies. Id. at 381-82, 102 S.Ct. at 1840-41. Put another way, in light of the case law backdrop of the 1974 Act, if Congress had intended to foreclose such private remedies, it would have told the courts to stop implying them. See Bosco v. Serhant, 836 F.2d 271, 275-76 (7th Cir.1987).

The AAM contends that Curran governs this case, for prior to 1974 the courts had recognized implied remedies under the CEA of the sort it seeks here. We put to one side our doubts regarding the AAM's assessment of the pre-1974 case law. Even assuming that its assessment is correct, and consequently that the 1974 Act granted nontraders an implied private right of action against an exchange for violating CEA § 5(d), Congress extinguished it by enacting CEA § 22 as part of a subsequent overhaul of the commodity futures trading laws. See Futures Trading Act of 1982, Pub.L. 97-444, § 235, 96 Stat. 2294, 2322-24 (Jan. 11, 1983) (codified at 7 U.S.C. § 25 (1988)).

Section 22 represents Congress' first attempt to explicitly enumerate the private rights of action available to redress violations of the CEA or internal commodity exchange rules. Section 22(a), not at issue here, lists among other things the private remedies available against persons other than contract markets. 7 U.S.C. § 25(a). Section 22(b) creates private remedies against contract markets and their officials, but only on behalf of individuals "who engaged in ... transaction[s] on or subject to the rules of" a contract market. Id. § 25(b)(1)-(3).1 Subsection 22(b)(5) provides that the private rights of action against the exchanges enumerated in § 22(b) "shall be the exclusive remedy ... available to any person who sustains a loss as a result of" a violation of the CEA or an exchange rule by a contract market or one of its officers or employees. Id. § 25(b)(5) (emphasis supplied). By "any person," we must presume that Congress meant any person, including those who did not engage in futures transactions. By its terms, then, § 22(b) creates the exclusive remedies available to those injured by violations of the CEA, and makes those remedies available only to persons injured in the course of trading on a contract market. It therefore forecloses all other remedies, including any on behalf of non-traders. To the extent (if any) that pre-1974 courts had implied private remedies against exchanges in favor of non-traders, Congress directed them to stop doing so in § 22(b). See Bosco, 836 F.2d at 275-76.

The legislative history of the Future Trading Act of 1982 confirms this conclusion. Congress enacted that statute in the wake of Curran, which left unresolved the extent to which courts would recognize implied remedies under the CEA, and which virtually invited Congress to take action. See Curran, 456 U.S. at 394-95, 102 S.Ct. at 1847-48. ("As has been the case with the Rule 10b-5 action, unless and until Congress acts, the federal courts must fill in the interstices of the implied cause of action under the CEA.") (footnote omitted). The legislative history demonstrates that Congress intended to respond to Curran and resolve questions the Court left open. See 128 Cong.Rec. H9964 (daily ed. Dec. 16, 1982) (statement of Rep. de la Garza); id. at H7490 (daily ed. Sept. 23, 1982) (statement of Rep. Glickman). In particular, it manifests Congress' desire "to avoid suits for speculative damages to assets that are affected by fluctuations in prices on the commodity market but which are not the subject of transactions on such market," H.R.Rep. No. 565, Part I, 97th Cong., 2d Sess. 57 (1982), reprinted in 1982 U.S.C.C.A.N. 3871, 3906--precisely the type of suit brought by the AAM.

We therefore hold that the district court properly dismissed the CEA count. Even if the statute, at one time, granted non-traders an implied private right action to remedy a contract market's violation of § 5, but see Sam Wong & Son, Inc. v. New York Mercantile Exch., 735 F.2d 653, 667-69 & nn. 24, 26 (2d Cir.1984) (casting doubt upon proposition), Congress' enactment of CEA § 22 in the Futures Trading Act of 1982 eliminated it.

We proceed to the counts brought for common law breach of fiduciary duty and negligence. The AAM lays out those counts rather sparsely in its complaint; it even neglected to specify which state's law was applicable. The district court did not touch upon these matters, and instead ruled that the common law counts were preempted by the CEA. AAM II, 770 F.Supp. at 415-16. The Commission, as amicus, appeared to challenge the district court's ruling in its brief, but shifted gears at oral argument, asking that we affirm, albeit on more narrow grounds.

We first outline some general principles. The supremacy clause grants Congress the power to preempt state law, U.S. Const. art. VI, cl. 2, and in determining whether a federal statute has done so, our ultimate task is to ascertain the intent of Congress. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 2898-99, 77 L.Ed.2d 490 (1983). There appear to be three variants of federal preemption, one express and two implied. Express preemption naturally requires that a statute expressly define the scope of its preemptive effect. Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Comm'n, 461 U.S. 190, 203, 103 S.Ct. 1713, 1721-22, 75 L.Ed.2d 752 (1983). The second variant, field preemption, occurs where Congress manifests an intent to exclusively occupy an entire field of regulation; one can infer that intent, for example, from a federal regulatory scheme that is "so pervasive as to make reasonable the inference that [it] left no room for the States to supplement it." Fidelity Fed. Sav. & Loan Ass'n v. De la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) (internal quotation omitted). The third variant, conflict preemption, occurs either where it is impossible to comply with both federal and state law, Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217-18, 10 L.Ed.2d 248 (1963), or where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" as manifested in the language, structure and underlying goals of the federal statute at issue. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). Only if a statute is devoid of explicit preemptive language may we resort to either variant of implied preemption. Cipollone v. Liggett Group, Inc., --- U.S. ----, ----, 112 S.Ct. 2608, 2618, 120 L.Ed.2d 407 (1992) (plurality); id., --- U.S. at ----, 112 S.Ct. at 2625 (Blackmun, J., concurring).2

No one suggests that the CEA expressly preempts state law, or that it is impossible to comply with both state and federal law, so we need only address whether the statute erects field preemption or the second type of conflict preemption. The statutory text is not dispositive on these questions. The CBOT contends that conflict preemption bars the AAM's common law claims because permitting state claims on behalf of non-traders would undermine the purposes behind CEA § 22(b). That provision, as discussed above, limits the availability of private rights of action against exchanges (and their officers and employees) under the CEA to those who have engaged in futures trading. The supposed conflict arises because " 'Congress cannot have intended to place such a restriction on lawsuits against contract markets ... but at the same time leave them subject to liability under a common law theory.' " Def.'s Br. at 39 (quoting AAM II, 770 F.Supp. at 416). This argument rests upon a less than careful reading of the statute. Section 22(b), by its terms, provides that "[t]he rights of action authorized by this subsection shall be the exclusive remedy under this chapter available to any person who sustains a loss" as a result of an exchange's action. 7 U.S.C. § 25(b) (emphasis added). Were the emphasized qualifier left out, the CBOT might well have a point. Its presence, however, indicates that the exclusivity provision extends only to private actions seeking redress under the CEA, and does not curtail actions brought under other federal laws or state law. Consequently, any argument for preemption must rest upon a source other than § 22(b).

Two other CEA provisions are helpful, but only to a limited extent. The first provides that "[n]othing in this section shall supersede or limit the jurisdiction conferred on courts of the United States or any State." 7 U.S.C. § 2 (emphasis added). The cases, see, e.g., Kerr v. First Commodity Corp., 735 F.2d 281, 288 (8th Cir.1984); Taylor v. Bear Stearns & Co., 572 F.Supp. 667, 673 (N.D.Ga.1983); Patry v. Rosenthal & Co., 534 F.Supp. 545, 548-49 (D.Kan.1982), have read this provision as a "savings clause" designed to preserve in the futures trading context at least some state law causes of actions, an assessment with which we agree. The savings clause resolves one of the two questions we posed above; it tells us that Congress did not intend to preempt the field of futures trading. See International Paper Co. v. Ouellette, 479 U.S. 481, 492, 107 S.Ct. 805, 811-12, 93 L.Ed.2d 883 (1987); Michigan Canners & Freezers Ass'n v. Agric. Mktg. and Bargaining Bd., 467 U.S. 461, 471-74, 104 S.Ct. 2518, 2524-26, 81 L.Ed.2d 399 (1984).

Nonetheless, the clause leaves open the possibility of conflict preemption. We therefore turn to another clause contained in the same section of the CEA, one which coexists somewhat uneasily with the savings clause. That clause provides that "the Commission shall have exclusive jurisdiction ... with respect to accounts, agreements ..., and transactions involving contracts of sale of a commodity for future delivery, traded or executed on a contract market...." 7 U.S.C. § 2 (emphasis added). Standing alone, this would appear to grant exclusive authority to the Commission over cases involving futures contracts, and to completely preempt state law as a result. However, it cannot do so if the savings clause is to retain any meaning, which of course it must. Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 613, 93 S.Ct. 2469, 2475, 37 L.Ed.2d 207 (1973). Giving full effect to both clauses compels the conclusion that Congress intended to preempt some, but not all, state laws that bear upon the various aspects of commodity futures trading.

Because the CEA's text provides no clue as to how this line should be drawn, we must take our guidance from the goals and policies underlying the statute. International Paper, 479 U.S. at 493, 107 S.Ct. at 812. That same consideration directs our attention to the statute's structure and legislative history. See California Fed. Sav. and Loan Ass'n v. Guerra, 479 U.S. 272, 286-88, 107 S.Ct. 683, 692-93, 93 L.Ed.2d 613 (1987); Michigan Canners, 467 U.S. at 471-74, 104 S.Ct. at 2524-26.3 As others have observed, the CEA establishes "a comprehensive regulatory structure to oversee the volatile and esoteric futures trading complex." H.R.Rep. No. 975, 93d Cong., 2d Sess. 1 (hereinafter "House Report") (quoted in Curran, 456 U.S. at 356, 102 S.Ct. at 1828). Congress originally enacted the CEA over 60 years ago, but the statute in its modern, more robust form was born primarily of the 1974 Act. See Curran, 456 U.S. at 360-67, 102 S.Ct. at 1830-34 (discussing history of CEA). The 1974 Act broadened the CEA's coverage, increased penalties for the violation of its provisions, and, most important, created the Commission as an independent federal regulatory agency, granting it broad powers to administer and enforce the CEA.

The circumstances surrounding passage of the 1974 Act shed a great deal of light upon the preemptive scope of the CEA. It appears that a confluence of events in the early 1970s--including a drastic surge in commodities trading, rapidly rising food costs, and a highly publicized and costly futures trading scandal--led Congress to modernize and fortify the CEA and fill some fairly significant regulatory gaps. See Kevin T. Van Wart, Preemption and the Commodity Exchange Act, 58 Chi.-Kent L.Rev. 657, 672-76 (1982); Philip F. Johnson, The Commodity Futures Trading Commission Act: Preemption as Public Policy, 29 Vand.L.Rev. 1, 2-5 (1976). The Act's proponents were concerned that the states, in light of these circumstances, might step in to regulate the futures markets themselves. This, they feared, might have subjected the national futures trading apparatus to conflicting regulatory demands. See, e.g., Commodity Futures Trading Commission Act: Hearings Before the Senate Committee on Agriculture & Forestry, 93d Cong., 2d Sess. 685 (1974) (hereinafter "Senate Hearings") (statement of Sen. Clark) ("different State laws would just lead to total chaos"). The solution, the House Committee on Agriculture believed, was to put "all exchanges and all persons in the industry under the same set of rules and regulations for the protection of all concerned." House Report at 76; see also Graham Purcell & Abelardo Lopez Valdez, The Commodity Futures Trading Commission Act of 1974: Regulatory Legislation for Commodity Futures Trading in a Market-Oriented Economy, 21 S.D.L.Rev. 555, 573-74 (1976). The Senate Committee on Agriculture and Forestry apparently concurred, as indicated by its deletion of a CEA provision which appeared to preserve the states' authority over futures trading. See Van Wart, supra, at 687-88; see also 120 Cong.Rec. 30,464 (Sept. 9, 1974) (statements of Sens. Curtis and Talmadge).

Accordingly, permitting the AAM to bring its state law claims against the CBOT would frustrate Congress' intent to bring the markets under a uniform set of regulations. This conclusion might appear at first blush to run against the grain of a number of cases holding that the CEA does not preempt common law negligence, fraud and breach of fiduciary duty suits brought by futures investors against their brokers. See, e.g., Kerr, 735 F.2d at 288; Kotz v. Bache Halsey Stuart, Inc., 685 F.2d 1204, 1207-08 (9th Cir.1982); Sall v. G.H. Miller & Co., 612 F.Supp. 1499, 1504 (D.Colo.1985); Poplar Grove Planting & Ref. Co., Inc. v. Bache Halsey Stuart Inc., 465 F.Supp. 585, 592 (M.D.La.1979); see generally Eliot J. Katz, Annotation, Commodities Broker's State-Law Duties to Customers, 55 A.L.R.4th 394, 416-24 (1987) (discussing case law). However, these cases are distinguishable from the case before us on one critical ground: they have little or no bearing upon the actual operation of the commodity futures markets. Only in the context of market regulation does the need arise for uniform legal rules. As Congress recognized in enacting the 1974 Act, a contract market could not operate efficiently, and perhaps not at all, if varying and potentially contradictory legal standards governed its duties to investors (or farmers). See Paine, Webber, Jackson & Curtis, Inc. v. Conaway, 515 F.Supp. 202, 204-07 (N.D.Ala.1981) (CEA preempts state law voiding futures transactions in which actual delivery of the commodity is not intended), disapproved on other grounds, Messer v. E.F. Hutton & Co., 847 F.2d 673 (11th Cir.1988); Van Wart, supra, at 677-79. In contrast, there is no need for uniformity when it comes to the rules that govern principal-agent relationships between brokers and investors. For example, the possibility that different states would impose dissimilar fiduciary duties upon brokers might affect those private relationships, but would not appreciably hamper the efficient operation of the futures market.

In sum, the structure and history of the CEA indicate that the propriety of conflict preemption depends upon the particular context in which a plaintiff seeks to bring a state law action. When application of state law would directly affect trading on or the operation of a futures market, it would stand "as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," Hines, 312 U.S. at 67, 61 S.Ct. at 404, and hence is preempted. When, in contrast, the application of state law would affect only the relationship between brokers and investors or other individuals involved in the market, preemption is not mandated. See Bernstein v. Lind-Waldock & Co., 738 F.2d 179, 184-85 (7th Cir.1984) (dispute between seat owner and clearing member of an exchange not governed by the CEA). This distinction was recognized during hearings on the 1974 Act, see Senate Hearings at 663-64, and has been relied upon by at least one court. See Poplar Grove, 465 F.Supp. at 592. Accordingly, the AAM's state law claims against the CBOT for implementing the emergency Resolution are preempted by the CEA because they are intimately tied to the operation of a contract market.

Having so held, we acknowledge that most courts have drawn the line between preempted and surviving claims in a slightly different manner. Specifically, they appear to have distinguished state laws which by their terms purport to regulate the futures markets from state laws of general application, such as common law negligence, fraud or breach of fiduciary duty, which do not. See, e.g., Kotz, 685 F.2d at 1207-08; Sall, 612 F.Supp. at 1504-05; Taylor, 572 F.Supp. at 674; Patry, 534 F.Supp. at 549; see also Purcell & Valdez, supra, at 575. Such a regime preempts only the former, and hence, as applied to the case before us, would appear to let stand the AAM's counts for negligence and breach of fiduciary duty.

While recognizing the advantages of bright-line rules, see generally Antonin Scalia, The Rule of Law as a Law of Rules, 56 U.Chi.L.Rev. 1175 (1989), we respectfully decline to follow the approach adopted by those courts, for in our view it elevates form over substance. The distinction drawn here, we suggest, more closely tracks both the intent of Congress in the 1974 Act, and the policies underlying the CEA as a whole. The reason is plain: a law of general application, when applied in a manner that would govern or supervise the operation of or trading on a contract market, raises the same unwelcome specter of non-uniformity as does a law that, by its terms, purports to govern or supervise the same. The crucial inquiry, we reiterate, is the context in which a law is applied. State laws specifically directed towards the futures markets naturally operate in an arena preempted by the CEA. Laws of general application of course operate in a variety of arenas, and are preempted only when plaintiffs attempt to use them in a manner that would, in effect, regulate the futures markets.

Finally, we turn to the AAM's allegation that the CBOT, by adopting and publishing the Resolution, illegally restrained trade in violation of the Sherman Act. To briefly review ground already covered, the Resolution ordered the Ferruzzi Group to substantially liquidate its open long positions in the July 1989