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March 13, 1978


The opinion of the court was delivered by: LASKER


On November 23, 1977, the New York Coffee and Sugar Exchange, Inc. ("Exchange"), a commodities futures trading market, exercised its emergency powers by ordering the reduction of all holdings in coffee futures contracts. *fn1" / This action was taken amid reports that some coffee producing nations were attempting to drive coffee prices up. The Commodities Futures Trading Commission ("Commission") and the Exchange both believed that a small group of coffee traders held an unusually large number of contracts for the future delivery (to them) of coffee (Affidavit of John M. Schobel, Jr., Vice-President of the Exchange, at PP7-9). The Exchange resolution, issued by the Board of Managers pursuant to its emergency powers (see Exchange By-Law 132), announced that all those who, like plaintiffs, *fn2" / directly or indirectly owned or controlled coffee futures contracts would have to liquidate their positions on a phased schedule (see P(2)(a)(i), Exchange resolution).

 On the same day, the Commission invoked its emergency powers, 7 U.S.C. § 12a(9) (Supp. IV 1974), and issued an order substantively identical to the Exchange's. That is, the Commission's order, though addressed to the Exchange, rather than to members and traders, commanded the Exchange to "direct and enforce" a reduction program identical to the one contained in the Exchange's resolution. In fact, the Commission's order provided that the Exchange would be in compliance if it proceeded in accordance with its own, November 23rd resolution.

 On December 1, 1977, the day before the first of the three scheduled liquidations was to have been completed, Compania and Excaho filed a complaint seeking declaratory and injunctive relief against both defendants on the grounds that they had violated the Fifth Amendment to the United States Constitution, as well as the Administrative Procedure Act, 5 U.S.C.§§ 551-59 and the Commodities Exchange Act as amended, 7 U.S.C. §§ 1-22 (Supp. IV 1974). Against the Exchange, it was further alleged that it had violated its own By-Law 132. Upon the filing of the complaint, plaintiffs moved for a temporary restraining order, preventing the defendants from enforcing the December 2nd liquidation phase. The motion was denied (see Transcript, December 2, 1977). Subsequently, both defendants moved to dismiss the complaint. The Commission took the position that the court lacked jurisdiction to consider the Commission's order, issuance of which was contended to have been an act of unreviewable discretion. The Exchange argued that, as to it, the complaint failed to state a claim for relief because, absent allegations of bad faith (no such allegations were made here) the emergency action taken by the Board of Managers was fully countenanced by By-Law 132. The Exchange also asserted that since the Board' action was, absent the bad faith claims, unassailable and, independently of the Commission's order, sufficient to accomplish the contested liquidation, it was unnecessary to pass on the question of Commission review. That is, the Exchange urged that a finding that it was authorized to command liquidation, that it had done so, and that it had done so according to the rules (properly) had the practical and legal effect of making the Commission's action superfluous.

 * * *

 The specific allegations against the Exchange are that it declared an emergency without notice, hearing, or specific findings of fact and that the remedy it imposed was arbitrarily severe. *fn3" / The allegations amount to a claim that the Exchange violated both the due process clause of the Fifth Amendment and By-Law 132. *fn4"

 Of course, the Exchange cannot be charged with deprivation of due process unless its announcement of and remedial prescription for an emergency amounted to governmental action. In their legal memoranda in opposition to the motions to dismiss, plaintiffs contend that such a finding is indicated by (1) the pervasive regulation of the Exchange by the Commission *fn5" / and (2) the alleged fact that the Commission participated in, perhaps instigated or coerced, the promulgation of the Exchange order. *fn6"

 It should be noted that the plaintiffs have submitted no evidence of coercion. On the other hand, both the Schobel affidavit and representations made at oral argument specify that the Exchange issued its order voluntarily, if not independently. Except to contradict the charge of coercion, there is no need to decide whether the Exchange's emergency actions were governmental action, for we find that the plaintiffs consented to the emergency procedures that were used in this case and have accordingly waived whatever due process rights they may have as against the Exchange.

 Exchange By-Law 132 specifically empowers the Board to take emergency action in the face of

 "[any] occurrence or circumstance which, in the opinion of the Board of Managers, requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of or delivery pursuant to, any contract for the future delivery of a commodity on this Exchange."

 The Exchange contends, plaintiffs concede, and we find that trading on the Exchange, by members and non-members alike, is explicitly subject to the By-Laws and Rules of the Exchange (see Exchange Coffee Contract 'C' Trade Rule 25; and see, Exchange By-Law 51(3) together with By-Law 104). Plaintiffs do not conend that they were unaware of By-Law 132 or their agreement to abide by it. Neither do they contend that they misunderstood the By-Law's terms, or its effect. See, D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 186, 31 L. Ed. 2d 124, 92 S. Ct. 775 (1972). Both Compania and Excaho are sophisticated corporations which trade coffee contracts on a "worldwide basis" (PP3, 4, 9, Complaint; PP2, 3, Diamond Affidavit). Compare, Fuentes v. Shevin, 407 U.S. 67, 32 L. Ed. 2d 556, 92 S. Ct. 1983 (1972). Both corporations have traded on the Exchange for years (P11, Diamond Affidavit).

 Rather than challenge the intelligence or voluntariness of their waiver, plaintiffs argue that agreement to be bound by By-Law 132 is not an agreement to waive "their due process rights to have the Exchange establish by an appropriate factual record that an emergency in fact exists." (Plaintiffs' Supplementary Memorandum at 12) (emphasis added). These rights are, however, precisely what is waived by subscription to By-Law 132. The power to declare an emergency is vested in the discretion of the Board. The Board is authorized by a subscribing member to act on the basis of opinion, without formal findings of fact or the compilation of a factual record. *fn7" / Furthermore, an obligation of the Board to hold pre-declaration hearings upon notice would be incompatible with the authorization of the By-Law, which conceives the declaration of emergency as a response to a situation which is believed to require immediate action. Once an emergency is declared the Board may respond in any way it thinks (in good faith) "necessary and appropriate" to the situation; its responses are subject only to the restriction that they be approved by a two thirds vote of the Board. In light of the Board's discretionary power to fashion remedies, the charge that the liquidation order was "arbitrary" or too "severe" (see P30, Complaint) fails to state a claim. *fn8"

 The discretion of the Board to declare and meet an emergency is, as is apparent from the above discussion, not subject to due process limitations: the power is without limit except that the Board must act in good faith. Daniel v. Board of Trade, 164 F.2d 815, 818-19 (7th Cir. 1947), cited with approval in Lagorio v. Board of Trade, 529 F.2d 1290, 1291 (7th Cir.), cert. denied, 426 U.S. 950, 49 L. Ed. 2d 1187, 96 S. Ct. 3171 (1976); Crowley v. Commodity Exchange, 141 F.2d 182, 184 (2d Cir. 1944); and see, Cargill, Inc. v. Board of Trade, 164 F.2d 820, 823 (7th Cir. 1947). There is here no allegation that the Board acted in bad faith tantamount to fraud. *fn9" / Absent such an allegation, the authorization contained in By-Law 132 is fully effective and it supports the actions that were taken in this case.

 For the reasons stated, the Exchange's motion to dismiss is granted. This disposition makes it unnecessary to determine whether, as the Commission alleges, the court lacks jurisdiction over it because its actions are not reviewable as a matter of law. We recognize that at argument on the motions counsel for the Commission and for the plaintiffs requested that we determine the issue of reviewability even though the matter might not be necessary for disposition of the case at hand. However, on reflection and further review of the file we are persuaded that this case is not a vehicle for ...

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