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MANDELBAUM v. NEW YORK MERCANTILE EXCH.

August 1, 1995

EDWARD MANDELBAUM and COOPERATIVE TRADING SERVICES, INCORPORATED, Plaintiffs, against NEW YORK MERCANTILE EXCHANGE, R. PATRICK THOMPSON, RONALD G. OPPENHEIMER, JAMES MORRISSEY, STUART SMITH, and DOES 1 THROUGH 10 INCLUSIVE, Defendants.


The opinion of the court was delivered by: ALLEN G. SCHWARTZ

 BACKGROUND

 Plaintiff Edward Mandelbaum is a former member of the New York Mercantile Exchange ("NYMEX"). Complaint, PP 3, 14 and 85. He sold his NYMEX seat in April 1993. Complaint P 85. Mandelbaum is also the owner of co-plaintiff Cooperative Trading Services, Incorporated ("CTS"), Complaint PP 4 and 5, which was a floor brokerage company engaged in trading on NYMEX until early 1993.

 NYMEX is the largest commodities exchange in New York and the third largest in the United States, providing a contract market for energy and metals futures and options. Complaint, PP 6 and 7. NYMEX is the principal forum on which petroleum products are traded in the world. Defendants Thompson, Oppenheimer, Morrissey and Smith are officers and employees of NYMEX, and are actively involved in its day-to-day operations [PP 9-12].

 NYMEX and the individual defendants have a quasi-governmental role in the regulation of trading on NYMEX. As such, they conduct investigations, and they institute and prosecute disciplinary proceedings to punish wrongdoing by NYMEX members, pursuant to a regulatory structure created by Congress in the Commodity Exchange Act and overseen by the Commodity Futures Trading Commission [Complaint P 7, see also § 8c of the Commodity Exchange Act ("CEA")]. Under that structure, Congress delegated disciplinary responsibilities to NYMEX as a self-regulatory organization, and to its officials (such as the individual defendants) who perform those duties on behalf of NYMEX. Id.

 Plaintiffs contend that NYMEX and the individual defendants abused their regulatory authority in furtherance of an alleged conspiracy to coerce Mandelbaum to sell his NYMEX seat. Complaint, PP 21, 178, 187. More precisely plaintiffs allege that defendants initiated an improper disciplinary proceeding against Mandelbaum, harassed and threatened Mandelbaum with other disciplinary proceedings, and instituted an allegedly baseless disciplinary proceeding against CTS' "main executing broker", Peter Walshak. Complaint, P21.

 Plaintiffs claim that NYMEX improperly imposed a summary $ 5,000 fine upon Mandelbaum to discipline him for conduct in the crude oil trading ring on October 21, 1998 Complaint, PP 22, 23, 26 and 31-34. Mandelbaum successfully appealed that fine to the CFTC, which vacated the fine in 1992. Complaint, PP 65, 66, 76. Thus, plaintiffs acknowledge in the Complaint that:

 
Mandelbaum was finally afforded due process and as a result of same, he was exonerated on all the fabricated and serious allegations against him.

 During the Mandelbaum disciplinary proceeding, plaintiffs contend, Mr. Smith allegedly signed false affidavits, Complaint PP 49, 63, which he and Mr. Oppenheimer allegedly mailed to the CFTC, Complaint PP 46, 63. In addition, Mr. Morrissey (who is the Director of the Trade Practices Unit in NYMEX's Compliance Department) supposedly harassed Mandelbaum with interviews and threats of other disciplinary actions with respect to Mandelbaum's trading activities, Complaint P 100; and Mr. Thompson (NYMEX's President) is alleged to have threatened to "bury [Mandelbaum] with legal costs" and to appeal the CFTC decision to the United States Court of Appeals for the Second Circuit. Complaint P99. As noted, however, the CFTC exonerated Mandelbaum, Complaint PP 65, 66, 76; no further disciplinary proceedings were brought against plaintiff, Complaint P 100;, and NYMEX did not seek a further appeal.

 Plaintiffs contend that NYMEX further brought its disciplinary machinery to bear against them by instituting and prosecuting a disciplinary proceeding against Walshak in 1991 and 1992 with respect to Walshak's trading in the crude oil ring on September 17, 1991, Complaint, PP 122 et seq..1 The Walshak disciplinary proceeding resulted in a conviction of Walshak, after a full hearing before his peers, for "engaging in an act of bad faith" and "conduct inconsistent with just and equitable principle [sic] of trade." Complaint PP 148-49.

 Plaintiffs' other factual allegations and claims arise out of or are corollaries to the disciplinary proceedings against Mandelbaum and Walshak.

 Plaintiffs claim that Mandelbaum was harmed by the foregoing conduct, inasmuch as it allegedly compelled him to sell his NYMEX seat in April 1993. Complaint, PP 21, 150 and 184. In addition, plaintiffs contend that CTS was forced to close down its trading operation [P 175]. As a result, plaintiffs seek $ 20 million (trebled to $ 60 million) in damages [pp. 80-84].

 Procedural History of this Action

 Plaintiffs filed the Complaint in this action on December 3, 1993, alleging that NYMEX and the four NYMEX staff official, and certain other unnamed NYMEX staff members, engaged in wrongdoing in connection with the disciplinary actions prosecuted against plaintiffs. The Complaint asserts claims under RICO, the Commodity Exchange Act, and common law. Defendants move to dismiss the complaint on various grounds, including that defendants are absolutely immune from liability for their roles in initiating, prosecuting, and adjudicating the disciplinary proceedings relating to plaintiffs. Plaintiff moves to amend the Complaint, seeking inter alia to add factual allegations based upon the convictions, by the CFTC, of defendant McGoldrick and others for major NYMEX regulatory violations. See Affidavit of Edward Mandelbaum, P 19; Plaintiff's Mem. of Law in Support of Motion to Amend the Complaint, at 3-4.

 For the reasons set forth below, defendants' motion to dismiss the Complaint is granted, and plaintiff's motion to ...


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