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Case: 1:04-cv-06756 Document #: 445 Filed: 08/03/12 Page 1 of 10 PageID #:4653

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION



U.S. FUTURES EXCHANGE LLC and
U.S. EXCHANGE HOLDINGS, INC.,

Plaintiffs,

v.

BOARD OF TRADE OF THE CITY OF
CHICAGO and CHICAGO MERCANTILE
EXCHANGE INC.,

Defendants.

No. 04 C 6756

Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I.

BACKGROUND

The facts of this case have been laid out in detail in previous orders and are incorporated

by reference herein. On February 14, 2007, in an effort to move the case forward in the face of a

complex and costly discovery impasse, I granted Defendants leave to move for partial summary

judgment. Defendants represented to the court that, based on the substantial discovery that had

already been taken, they could knock out several of Plaintiffs’ theories of liability, which would

narrow the scope of the case and help resolve outstanding discovery issues. Specifically,

Defendants proposed that we proceed under the assumption that they had in fact engaged in all

alleged anti-competitive conduct so that the available evidence on causation and injury could be

isolated and tested. Defendants believed they could conclusively prove that much of the alleged

anticompetitive conduct they are accused of engaging in could not possibly have caused antitrust

injury. I agreed to this course of action and granted Defendants leave to test three of Plaintiffs’

theories of liability: 1) Defendants obstructed the regulatory approval process in order to

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hamstring USFE’s launch; 2) Defendants erected barriers to USFE’s entry by preventing it from

securing competitive clearing services; and 3) Defendants interfered with Plaintiffs’ customer

relationships through a campaign of threats and misinformation. 1

II.

STANDARD OF REVIEW

Summary judgment is proper only if “the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56 (a). A genuine issue of material fact exists if “the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986). In determining whether there is a genuine issue of fact, the Court “must construe the

facts and draw all reasonable inferences in the light most favorable to the nonmoving party.”

Foley v. City of Lafayette, Ind., 359 F.3d 925, 928 (7th Cir. 2004). The party seeking summary

judgment has the burden of establishing the lack of any genuine issue of material fact. See

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). However, that burden does not necessarily

require the moving party to put forth evidence negating the non-moving party’s claims; summary

judgment is proper against a non-moving party “who fails to make a showing sufficient to

establish the existence of an element essential to that party's case, and on which that party will

bear the burden of proof at trial.” Id. at 322.

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A fourth theory of liability, predatory pricing, was dealt with in a separate set of

briefings. I granted summary judgment to Defendants on this theory on July 2, 2010.

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III.

ANALYSIS

A.

Antitrust Injury

Before examining the individual theories of liability, I begin by addressing Defendants’

attempted knock-out-punch claim that Plaintiffs have not suffered antitrust injury. In order to

have standing to bring an antitrust suit, a plaintiff must establish that its claimed injuries are “of

the type the antitrust laws were intended to prevent and reflect the anticompetitive effect of either

the violation or of anticompetitive acts made possible by the violation.” Tri-Gen v. Int’l Union of

Operating Eng’rs, Local 150, 433 F.3d 1024, 1031 (7th Cir.2006) (internal quotations omitted)

(quoting Brunswick Corp. V. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In other

words, Plaintiffs must establish that Defendants’ actions caused market injury (i.e. injury to

consumers) by reducing output or raising prices, not just injury to themselves. See U.S. Gypsum

Co. v. Indiana Gas Co., Inc., 350 F.3d 623, 626-27 (7th Cir. 2003); Chicago Professional Sports

Limited Partnership v. National Basketball Ass’n, 961 F.2d 667, 670 (7th Cir. 1992).

Defendants argue that Plaintiff cannot show antitrust injury because since USFE’s

opening, “trading is up and fees are down” in the U.S. Treasury futures market. It does not take a

world renowned economist to spot the glaring logical error in this statement. The relevant

consideration in determining whether Plaintiff has antitrust standing is not the current general

state of the U.S. Treasury futures market. It is the much more complicated counterfactual

comparison between the U.S. Treasury futures market as it exists today and the market that

would have existed had Defendants’ alleged anticompetitive conduct never taken place.

Even without Dr. Hausman’s declaration Defendants cannot prevail on the antitrust injury

question at this stage. Basic economic principles concerning the downward pressure on price

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created by competition are so well established that, in the context of this partial summary

judgment exercise, this issue is effectively off the table. This case is distinguishable from

Stamatakis Industries, Inc. V. King, 965 F.2d 469 (7th Cir. 1992). The alleged injury here is not

decreased competitor market share but inability to enter the market, in any meaningful sense, due

to Defendants’ anticompetitive actions. Defendants’ motion for summary judgment for inability

to show antitrust injury is denied.

B.

Obstruction of Regulatory Approval

Plaintiffs’ first theory of antitrust liability is that Defendants engaged in a bad faith

misinformation campaign in order to “prevent, hamper, and delay” USFE from obtaining CFTC

approval to launch its exchange. According to Plaintiffs, Defendants made knowingly false

statements to the CFTC and Congress and engaged in other dilatory tactics in order to remove

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USFE’s DCM application from the CFTC’s 60-day “fast-track” application procedure and spread

doubt in the market about its ultimate approval.

Defendants make three arguments in response. First, Plaintiffs cannot prove injury

because, despite any alleged delays in CFTC approval, USFE opened on February 8, 2004, just

one week after its earliest possible opening date under the terms of the Eurex-CBOT alliance.

Second, Plaintiffs cannot prove causation because there is no evidence in the record attributing

the CFTC’s decision to remove USFE’s application from the fast track to anything Defendants

2

Defendants statements to Congress do not themselves give rise to liability because

Congress played no direct role in approving USFE’s DCM application. Plaintiffs point to them
as evidence that Defendants’ comments to the CFTC were made with intent to preserve CBOT’s
monopoly position in the U.S. Treasury futures market.

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did. Third, even if Plaintiffs could establish causation and injury, Defendants’ actions are

shielded by the Noerr–Pennington doctrine.

I am unpersuaded by the first two arguments. Defendants’ injury argument

mischaracterizes Plaintiffs’ claim–the alleged injury is not the one-week delay in opening, it is

the uncertainty and loss of forward momentum created within the market once the CFTC

announced that it needed to take a harder look at USFE’s application. More discovery would be

needed on this issue before I could grant summary judgment. Nor do I find the causation

argument compelling. The CFTC press release announcing the cancellation of the December 17,

2003 hearing on USFE’s application due to “scheduling conflicts” of certain “market

participants” at least raises a genuine issue of material fact over causation in light of the

December 9, 2003 letters sent by the CBOT and CME CEOs requesting a delay.

I am, however, persuaded that Defendants’ actions constituted protected lobbying activity

under the Noerr-Pennington doctrine. The Noerr-Pennington doctrine extends absolute

immunity under the antitrust laws to “businesses and other associations when they join together

to petition legislative bodies, administrative agencies, or courts for action that may have

anticompetitive effects.” Mercatus Group, LLC v. Lake Forest Hospital, 641 F.3d 834, 841 (7th

Cir. 2011). The doctrine addresses a tension between the First Amendment and the Sherman Act

that frequently arises when businesses engage in protected political activity to protect a

controlling position in their market. The immunity is extended “in part because the original

purposes of the Sherman Act did not include regulating political activity and in part because it is

questionable whether the First Amendment allows such regulations.” Premier Elec. Co. v. Nat’l

Elec. Contractors Ass’n, Inc., 814 F.2d 358, 371 (7th Cir. 1987).

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Noerr-Pennington immunity is not absolute. The “sham” exception allows the antitrust

laws to reach otherwise protected First Amendment activity in two contexts: (1) sham lawsuits;

and (2) fraudulent misrepresentations. Mercatus, 641 F.3d at 842. The fraudulent

misrepresentation exception, which is at issue in this case, “does not apply at all outside of

adjudicative proceedings.” Id. at 844 (emphasis added). In other words, parties protected by

Noerr-Pennington who knowingly lie to legislative bodies, or administrative bodies acting in

legislative capacities, in order to protect their monopoly status are shielded from antitrust

liability.

Noerr-Pennington immunity has existed since the 1960s, but since that time there has

been some disparate application of the rule due in part to confusion over where to draw the line

between adjudicative and legislative activity. In May 2011, the Seventh Circuit decided

Mercatus Group v. Lake Forest Hospital, which took a considerable step toward resolving this

confusion by compiling a list of indicative factors that higher courts have used to determine

whether a proceeding is adjudicative or legislative.

Plaintiffs allege that Defendants made statements to the CFTC that Defendants knew to

be false, and which materially delayed the approval of USFE’s DCM application. Plaintiffs

further argue that the sham exception applies here because the CFTC was acting in an

adjudicatory role during the DCM application approval process. At the very least, Plaintiffs

assert, further discovery is needed on this issue to determine 1) the full extent of Defendants’

communications with the CFTC concerning USFE’s DCM application; and 2) the nature of the

CFTC proceedings to determine whether they were adjudicatory or legislative.

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I disagree. Based on the factors laid out in Mercatus it is manifest that, in weighing

USFE’s DCM application, the CFTC was acting in a legislative capacity. First, although the

CFTC has the power to act in both an adjudicatory and legislative capacity (unlike the city

council in Mercatus, which only had legislative authority), key hallmarks of CFTC adjudicatory

proceedings were missing here. There was no complaint filed with the Office of Proceedings to

commence proceedings. 17 C.F.R. § 10.21. The hearings were not assigned to an

Administrative Law Judge. 17 C.F.R. § 10.8. Second, the fact-finding process was highly

informal. Evidence and testimony were not taken on the record and no recognizable rules of

evidence applied. No testimony was given under oath or affirmation, under penalty of perjury.

Mercatus, 641 F.3d at 845.

Third, the fact-finding process was subject to considerable lobbying and other ex parte

influences. Plaintiffs admit that they met personally with individual Commissioners in

connection with their application, and that this was a standard part of the application process. In

addition, the CFTC solicited the opinions of the general public and federal policy-makers on

USFE’s application. Id. The relevance of such outside opinions to an adjudicatory proceeding is

doubtful, but it is precisely the type of diverse information gathering typical to legislative

proceedings.

Finally, I find that the CFTC’s decision of whether to approve the DCM application is

more a matter of discretionary authority than a decision guided by definite standards susceptible

to judicial review. While 7 U.S.C. §§ 7(b) and 7(d) lay out eight application factors and eighteen

core principles, respectively, for the CFTC to apply in considering DCM applications, these rules

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are extremely general in nature. The sheer numerosity of considerations points to a high level of

discretion and flexibility, and insusceptibility to meaningful judicial review. Id.

Given the above assessment, no amount of discovery into Defendants’ lobbying of the

CFTC can save Plaintiffs’ claims concerning Defendants’ obstruction of regulatory approval.

The CFTC was acting in a legislative capacity and the fraudulent misrepresentation prong of the

sham exception does not apply. Summary judgment on this theory is granted.

C.

Defendants Thwart USFE From Securing Competitive Clearing Services

Plaintiffs’ second theory of antitrust liability is that Defendants conspired to block USFE

from obtaining competitive clearing services. There are three parts to this theory: 1) Defendants

initially attempted to block USFE’s access to its most promising source for clearing services, the

Board of Trade Clearing Corporation (BOTCC); 2) once that failed, Defendants attempted to

cripple USFE’s ability to operate through the BOTCC by transferring open interest off the

BOTCC thereby denying USFE access to crucial liquidity; and 3) Defendants precluded USFE

from obtaining clearing services through CME by structuring the new “Common Clearing Link”

(CCL) agreement between CBOT and CME in such a way as to create de facto exclusivity with

respect to U.S. Treasury futures trades.

Defendants argue that Plaintiffs cannot prevail under this theory because under the

Sherman Act, businesses have 1) independent discretion as to parties with which they will deal;

and 2) no affirmative obligation to extend a helping hand to new competitors. Both of these

points are true. The problem is that in making these arguments Defendants are violating their

own terms for this partial summary judgment exercise. In general, it is no defense to say that, in

the abstract, it was lawful for Defendants to terminate its relationship with the BOTCC, start a

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new relationship with CME, and transfer open interest off the BOTCC. Under Section Two of

the Sherman Act, otherwise lawful activity may be rendered unlawful if it is accompanied by a

“specific intent to accomplish the forbidden objective.” Aspen Skiing Co. v. Aspen Highlands

Skiing Corp., 472 U.S. 585, 602 (1985). It is certainly no defense here, where, for purposes of

this motion, we were to assume that Defendants had the requisite intent. Plaintiffs may be

entitled to some further discovery from Defendants before the issue of intent can be resolved.

The expert reports on causation and injury, the only relevant evidence for purposes of this

motion, are adequate to raise a genuine factual dispute over whether Defendants’ alleged

conspiracy to deny USFE access to clearing services was a “but for” cause of injury. Greater

Rockford Energy and Tech. Corp., 998 F.2d 391, 401 (7th Cir. 1993). Plaintiffs’ claims under

the second theory of liability survive.

D.

Customer Deterrence Through Threats and Intimidation

Plaintiffs’ final theory of liability is that Defendants deterred traders from trading on the

USFE exchange through a campaign of threats and intimidation. Defendants put forth two

arguments as to why they are entitled to summary judgment on this point: 1) Plaintiffs had

frequent contact with traders in the lead up to the launch, and in fact were successful in signing

up virtually every U.S. Treasury futures trader in the market; and 2) Plaintiffs have not been able

to produce a single trader who will back up the claim.

Defendants’ first argument gets us nowhere. Plaintiffs’ claim is not that they were

physically blocked from speaking with and even signing up traders, it is that traders who were

able and willing to use the new exchange decided against it in the face of threats from the CBOT.

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The fact that so many traders initially signed up to trade with USFE but ultimately decided

against it lends some plausibility to Plaintiffs’ claim.

Second, it is true that Plaintiffs have had considerable difficulty finding traders who will

support their claims. I have several times expressed my own view that, even if the allegations are

true, Plaintiffs are unlikely to secure trader testimony against Defendants given their dominant

position in the U.S. Treasury futures market. The perceived costs to any trader may simply be

too high, with no discernable benefit now that USFE has terminated all exchange operations.

However, it is still possible that evidence exists in Defendants’ own files. Plaintiffs have not had

a full opportunity to examine appropriate documents in Defendants’ possession, and until they

have this opportunity I am unwilling to grant summary judgment on this issue.

IV.

CONCLUSION

For the foregoing reasons, Defendants’ motion for partial summary judgment is granted

in part and denied in part. Both sides are to come prepared to the August 7th status with a

discovery plan for moving forward on the surviving theories: 1) Defendants conspired to prevent

Plaintiffs from obtaining effective clearing services; 2) Defendants interfered with USFE’s

relationships with traders.

ENTER:

DATE: August 3, 2012

James B. Zagel
United States District Judge

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