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National Super Spuds Inc. v. New York Mercantile Exchange

decided: January 17, 1979.

NATIONAL SUPER SPUDS, INC., ET AL., PLAINTIFFS,
v.
NEW YORK MERCANTILE EXCHANGE, ET AL., DEFENDANTS; COMMODITY FUTURES TRADING COMMISSION AND HOWARD BODENHAMER, APPELLANTS, V. NEW YORK MERCANTILE EXCHANGE, DEFENDANT-APPELLEE; IN RE: COMMODITY FUTURES TRADING COMMISSION, PETITIONER.



Appeal from and petition for mandamus to vacate an order of the District Court for the Southern District of New York, Lloyd F. MacMahon, Judge, directing an employee of Commodity Futures Trading Commission to answer questions propounded on deposition despite the Commission's claim of governmental privilege. Appeal dismissed for want of appellate jurisdiction; petition for mandamus denied.

Before Friendly, Mulligan and Gurfein, Circuit Judges.

Author: Friendly

Commodity Futures Trading Commission (CFTC or the Commission) and Howard Bodenhamer, Assistant Regional Administrator for Market Surveillance and Analysis in its Eastern Regional Office in New York City, appeal from and, in the alternative, petition for mandamus to vacate an order of the District Court for the Southern District of New York, which directed Bodenhamer to answer certain questions propounded on deposition despite the Commission's claim of governmental privilege.

The class action in which this controversy arose is one of a number of actions now pending in the same court arising out of a default on the May 1976 Maine Potato futures contract that was traded on the New York Mercantile Exchange (the Exchange). Members of plaintiff class had held long positions which they liquidated at prices allegedly depressed by the large short interest that had accumulated. Their complaint, which has been amended and consolidated with three other actions, named as defendants a number of traders, their brokers and also the Exchange. Count VI of the First Amended Consolidated Class Action Complaint, to which the Exchange was the sole defendant, alleged that CFTC had personnel on the floor of the Exchange; that through them and by mail-o-grams CFTC had advised the Exchange of the large short position in the May contract and, in the mail-o-grams, that the short sellers were "required by law to avoid causing artificial prices"; that officers of the Exchange assured CFTC that the short positions would be covered and that, contrary to the Commodity Act, CFTC rules, and its own by-laws and rules, the Exchange had failed to report and concealed violations of the Commodity Act, CFTC rules, and its own by-laws and rules by short sellers and exchange members, had failed to direct that liquidating orders be entered on or before the conclusion of trading with respect to accounts of members which the Exchange knew or should have known would default if not liquidated, but failed and neglected to perform its duties as a contract market with respect to the contract, and failed and neglected to exercise due care to halt manipulative practices with respect to the contract.*fn1 Before the class action certification the district court had issued an order directing that various cases be coordinated for pretrial discovery proceedings and appointed a special master to conduct these. His rulings were to be subject to review by the district court.

The Exchange sought to depose Mr. Bodenhamer, Dr. Mark Powers, the Commission's Chief Economist during the period in question and now a vice-president of a securities firm which is a defendant in this action, and Thomas Russo, then Director of the Division of Trading and Markets and now in private law practice. Subpoenas had been served on Mr. Bodenhamer and Dr. Powers on behalf of three other defendants; Mr. Russo agreed to testify voluntarily. The obvious purpose of the Exchange in seeking to take these depositions was to obtain evidence that responsible personnel of the Commission, who knew or had access to the same information as the Exchange, had found nothing seriously amiss.*fn2 Mr. Bodenhamer gave extensive testimony as to what he had observed but, on the advice of Commission counsel, declined to answer certain questions concerning his contemporaneous opinions and views, on the basis of governmental privilege.

After some months the Exchange moved before the special master to compel responses to these questions. CFTC lodged a formal claim of governmental privilege. The special master declined to make a general ruling but stated he would deal with CFTC's objection on a question-by-question basis. In the course of doing this he distinguished between questions asking for opinions and views that Mr. Bodenhamer communicated to other staff members, which the witness would not be required to answer, and questions asking only the witness' own opinion and views, which he was required to answer. Commission counsel instructed Mr. Bodenhamer not to answer questions of the latter sort pending consideration by the district judge. At the conclusion of this deposition, 27 questions some of them repetitive remained unanswered.

The Exchange then moved the district judge for an order confirming the rulings of the special master and "directing present and former officials of the Commodity Futures Trading Commission ("CFTC') who were responsible for monitoring trading in the May 1976 Maine Potato Futures Contract (the "May contract') to respond to deposition questions as to their respective contemporaneous views, opinions, observations, analyses and conclusions with respect to trading in the May Contract . . . ." While the motion was pending, the Commission considered the specific questions that its counsel had instructed Mr. Bodenhamer not to answer, and determined that governmental privilege should be invoked.*fn3 The district judge made an endorsement sustaining the rulings of the special master and directed the witnesses involved to respond, but indicated he would consider the CFTC's objections at the trial. After an unsuccessful motion for reconsideration or, in the alternative, for a stay pending appeal, the Commission appealed and sought mandamus, and a panel of this court granted a stay.

The non-appealability of the ruling directing Mr. Bodenhamer to answer would appear, at first blush, to have been largely settled, so far as this court is concerned, by Kaufman v. Edelstein, 539 F.2d 811, 813-14 (2 Cir. 1976).*fn4 We there said:

One would have supposed it to be beyond argument that, despite Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546-47 (69 S. Ct. 1221, 1226, 93 L. Ed. 1528) (1949), "An order compelling testimony . . . in an ordinary civil or criminal action is neither a final order (under § 1291) nor an interlocutory order granting an injunction (under § 1292(a)(1)) and it is not appealable. This is the oft-cited rule of Alexander v. United States, (201 U.S. 117, 26 S. Ct. 356, 50 L. Ed. 686 (1906)).' 9 Moore, Federal Practice P 110.13(2) at 153-54 (Ward ed. 1975). The remedy of the party witness wishing to appeal is to refuse to answer and subject himself to criminal contempt; that of the non-party witness is to refuse to answer and subject himself to civil or criminal contempt. Id. at P 110.13(4) at 165-66. We have applied this rule in many cases of non-party witnesses, in one of which, United States v. Fried, 386 F.2d 691, 694 (2 Cir. 1967), we specifically rejected a contrary view expressed in Covey Oil Co. v. Continental Oil Co., 340 F.2d 993, 996-97 (10 Cir.), Cert. denied, 380 U.S. 964 (85 S. Ct. 1110, 14 L. Ed. 2d 155) (1965) as four other circuits have done, Ryan v. CIR, 517 F.2d 13, 18-20 (7 Cir.), Cert. denied, 423 U.S. 892 (96 S. Ct. 190, 46 L. Ed. 2d 124) (1975); Gialde v. Time, Inc., 480 F.2d 1295, 1300-01 (8 Cir. 1973); United States v. Anderson, 150 U.S.App.D.C. 336, 464 F.2d 1390 (1972); Borden Co. v. Sylk, 410 F.2d 843, 846 (3 Cir. 1969). The doctrine has since been reaffirmed by a unanimous Court in United States v. Ryan, 402 U.S. 530 (91 S. Ct. 1580, 29 L. Ed. 2d 85) (1971), and was again recognized in United States v. Nixon, 418 U.S. 683, 690-92 (94 S. Ct. 3090, 41 L. Ed. 2d 1039) (1974), although the Court, for reasons stated in its opinion which are wholly inapplicable here, made an exception where the subpoena was directed to the President of the United States.

The reasons for the Alexander rule are well stated in 9 Moore, Supra, at 153-56, and need not be repeated here. See also 15 Wright, Miller & Cooper, Federal Practice and Procedure § 3914 at 567-68, 576-77 (1976). Subsequent to the Kaufman decision the Supreme Court has again quoted with approval from Mr. Justice Frankfurter's opinion in Cobbledick v. United States, 309 U.S. 323, 60 S. Ct. 540, 84 L. Ed. 783 (1940), which, on the basis of Alexander, held that an order denying a motion to quash a Subpoena duces tecum to appear before a grand jury was not appealable. Coopers & Lybrand v. Livesay, 437 U.S. 463, 467 n. 8, 98 S. Ct. 2454, 2457 n. 8, 57 L. Ed. 2d 351, 357 n. 8 (1978); see also Abney v. United States, 431 U.S. 651, 658, 97 S. Ct. 2034, 52 L. Ed. 2d 651 (1977).

As against this the Commission, in addition to citing United States v. Nixon, supra, 418 U.S. at 690-92, 94 S. Ct. 3090, with which we dealt in Kaufman v. Edelstein, supra, urges that we follow the Fifth Circuit in dispensing with the contempt requirement where the government, whether state or federal, asserts governmental or "executive" privilege in cases where it is not a party. See Cates v. LTV Aerospace Corp., 480 F.2d 620, 622 (5 Cir. 1973); Carr v. Monroe Manufacturing Co., 431 F.2d 384, 387 (5 Cir. 1970), Cert. denied sub nom. Aldridge v. Carr, 400 U.S. 1000, 91 S. Ct. 456, 27 L. Ed. 2d 451 (1971); Overby v. United States Fidelity and Guaranty Co., 224 F.2d 158, 162 (5 Cir. 1955). We see no basis for constructing such an exception to Alexander broad enough to include this case even if we had power to do so.*fn5 The principal consideration urged upon us for doing this is that a government agency may not be able to persuade an employee, still less a former employee, to submit to a citation of civil contempt.*fn6 Because of this, CFTC argues its case resembles Perlman v. United States, 247 U.S. 7, 38 S. Ct. 417, 62 L. Ed. 950 (1918).

Perlman was an unusual case. The papers and models there at issue were exhibits alleged to belong to Perlman which a company partly owned by him had submitted in a patent infringement suit brought by it; as a condition to allowing the company to dismiss without prejudice, the district court directed that the exhibits should be impounded and deposited with the clerk of the court, to be opened only by order of the court on notice to each of the parties to the infringement suit. Later, on motion of the United States Attorney on notice to the attorneys for the two corporations but not to Perlman, the court had issued an order directing the clerk to produce the exhibits before a grand jury, which was investigating a charge that Perlman had perjured himself in the patent trial, see Perlman Rim Corp. v. Firestone Tire & Rubber Co., 244 F. 304 (S.D.N.Y.1917); that the United States Attorney should have access to the exhibits at all reasonable times; and that if an indictment should be found, the United States Attorney should have such temporary custody of the exhibits as might be proper. Perlman then moved, in what in effect was a proceeding independent of the discontinued patent suit, although entitled therein in the district court, see 247 U.S. at 12, 38 S. Ct. 417, 244 F. at 304, for an order restraining the United States Attorney from using the exhibits or presenting them to the grand jury. When Perlman appealed the denial of the requested relief to the Supreme Court in what by then had become styled as the independent proceeding that it should have been, the United States moved to dismiss on two grounds, namely, 247 U.S. at 12, 38 S. Ct. at 419:

1. Appellant had no interest in the subject matter of and is not a party to the equity suit out of which the appeal arises;

2. The order of the District Court if considered as a part of the criminal proceeding is not final, but merely interlocutory, and ...


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