directors. The NYMEX board consists of a chairman, a vice-chairman, fifteen member directors, and five public directors. NYMEX is a New York not-for-profit corporation, located in the World Trade Center in New York City. Its activities are regulated by the Commodities Futures Trading Commission. The exchange is a market for the trading of futures and options contracts for energy resources and precious metals. The plaintiff is a member of NYMEX by virtue of her ownership of three seats on the exchange. Not wishing to continue her involvement in day-to-day trading and in order to obtain lease income from her seats, she has leased her seats to others. The plaintiff now seeks to challenge the legality of a NYMEX rule that requires a lessor to grant the lessee of a seat the right to vote as a member of the exchange, which results in the plaintiff -- having leased all of her seats -- having no vote.
The plaintiff, with full knowledge of the rule, chose to lease all of her seats to gain lease income. She could have chosen not to lease her last seat and to retain her right to vote, but she opted to obtain the income. Now, on the eve of an election, she seeks a preliminary injunction to allow her to reclaim her right to vote, while she retains the lease proceeds. For the reasons explained below, the Court denies the motion for a preliminary injunction.
The complaint alleges that NYMEX's practice and rule requiring the leasing of the right to vote associated with a seat whenever its trading privileges are leased is violative of Section one of the Sherman Act, 15 U.S.C. § 1. Section one of the Act provides in part that, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States. . . is declared to be illegal. . ." The complaint also invokes the protections of the New York Not-For-Profit Corporation Law.
If a member of the exchange leases the trading privileges of a seat, the lessee is entitled to vote. NYMEX represents, and the testimony at the preliminary injunction hearing established, that since the mid-1980's NYMEX Membership Rules have codified the custom and policy of the exchange that lessees must have a vote. Prior to a series of 1991 rule amendments relating to lessee voting, Rule 2.70(A) provided, and continues to provide, that "[A] Member may lease a membership to another Member or to a Member-elect pursuant to an agreement that must be approved by the Membership Committee. . . ." NYMEX Membership Rule 2.70(A). Prior to the 1991 amendments, NYMEX Rule 2.71 provided specific minimum conditions for any lease of a membership, including the condition that, "during the term of the lease, the lessee should be recognized as the Member for all purposes except that the lessor shall be entitled to receive the pro rata share of any distribution of the assets of the Exchange. . ." NYMEX Membership Rule 2.71(A)(v) (prior to April 22, 1991 amendment). The plaintiff concedes that NYMEX has had, from at least the mid-1980's, a custom and practice of requiring members to grant the right to vote to the lessee when they lease their seats. The plaintiff alleges however that the harm she has suffered stems from a more recent development of NYMEX policy.
Prior to the 1991 rule amendments, NYMEX members were not allowed to lease their sole or last seat, but were required to hold at least one seat even if they were not actually using it to trade, thus resulting in their retaining the right to vote. In 1991, the rules were amended to permit members to lease their sole seat. See NYMEX Rule 2.73. Rule 2.70(D) was also added in 1991 and provides that a member who leases his or her last or sole membership must lease the right to vote that is associated with that seat and therefore must give up the right.
The plaintiff has put this provision of Rule 2.70 at the center of this case. Rule 2.70(D) provides that "A member who, with respect to his last or sole membership, has leased to another his regular trading privileges shall not be entitled to. . . (iii) the right to vote that is set forth in the By-Laws of the Exchange. . . " NYMEX Rule 2.70(D)(iii). The heart of the plaintiff's complaint is that NYMEX Rule 2.70 unfairly and wrongfully deprives her of her right to vote as a member of the exchange and constitutes illegal anticompetitive conduct under the Sherman Act. She also alleges that the lessees should not be allowed to vote, because they do not possess an equity interest in the exchange.
The plaintiff admits that this is the first legal action that she has taken with respect to her complaints about NYMEX's leasing rules. Yet, she has been well-informed as to the nature and effect of those rules for a significant period of time. The defendants have submitted copies of leases executed by the plaintiff dated August 12, 1982, August 12, 1985, July 1, 1990, and February 1, 1993. Each of these lease agreements provides for the lessee to exercise all voting rights pertaining to the membership. Each lease provided substantial monthly fees to the plaintiff. During the time the plaintiff has been leasing her seats, the monthly lease fee that she has obtained per seat has risen from $ 500 per month to a maximum of $ 4,000 per month and the value of a NYMEX seat has risen from $ 25,000 to over $ 400,000.
On the evening of March 10, 1995, the Court held an evidentiary hearing on the plaintiff's motion for a preliminary injunction enjoining the March 21 election. To prevail on a motion for a preliminary injunction, the party requesting relief must show:
(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.
Blum v. Schlegel, 18 F.3d 1005, 1010 (2d Cir. 1994) (quoting Jackson Dairy v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979)).
The plaintiff, relying on cases such as SEC v. Management Dynamics, Inc., 515 F.2d 801 (2d Cir. 1975), argues that a showing of irreparable harm is not necessary in this case, because injunctive relief is available pursuant to statute. The plaintiff argues that she therefore need not satisfy the familiar standard that guides the exercise of the Court's equitable discretion in ruling on applications for preliminary injunctions. In this case, however, the statute that specifically provides for equitable relief is 15 U.S.C. § 26, which declares that:
Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, including sections 13, 14, 18, and 19 of this title, when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings, and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, a preliminary injunction may issue. . . .