In re Stock Exchanges Options Trading Antitrust

317 F.3d 134

In re: STOCK EXCHANGES OPTIONS TRADING ANTITRUST LITIGATION Lynn S. Miller, Individually and on behalf of all others similarly situated, Mark Steinberg, individually and on behalf of all others similarly situated, Ram Yariv, individually and on behalf of all others similarly situated, Alan Haenel, individually and on behalf of all others similarly situated, Yakov Prager, individually and on behalf of all others similarly situated, Thomas P. Lynch, individually and on behalf of all others similarly situated, Mary Chiu, individually and on behalf of all others similarly situated, Harry Binder, individually and on behalf of all others similarly situated, Estate of Wanda Graham, on behalf of itself and all others similarly situated, William Thedford, individually and on behalf of all others similarly situated, Consolidated-Plaintiffs-Appellants Robert Strougo, Esq., individually and on behalf of all others similarly situated, LSP Partners L.P., Alan Boryk, Edward Meisel, Bruce McCall, Jeffrey Broderick, Adam Edelstein, Barry Pinkowitz, Rachel Chuang, Alan Nussbaum, George Kinney, Ronald K. Drucker, Robert Dunn, Wilson N. Krahnke, Marc Seidband, John P. Abbamondi, Richard T. Devincent, I. Scott Edelstein, Lonnie B. Reiver, Ronnie A. Yarborough, Jason Silver, Elliot Braun, Plaintiffs-Appellants, v. American Stock Exchange, Inc., a New York not for profit Corp., Chicago Board Options Exchange, Inc., a Delaware not for profit Corp., Philadelphia Stock Exchange, Inc., A Delaware not for profit Corp., Pacific Exchange, Inc., a California Corporation., New York Stock Exchange, Inc., a New York not-for-profit corp., Wolverine Trading, L.P., Susquehanna Investment Group Inc., John Does 1-100, Spear, Leeds & Kellogg, L.P., a New York Limited Partnership., AMEX, CBOE, PHX, PCX, M.J.T. Securities LLC, Cole, Roesler Trading, L.P., Assets Mondial, LLC., Kodiak Capital Management, LLC., Chin Options LLC., Oppenheimer, Noonan, Weiss, L.P., Arbitrade LLC., Timber Hill L.L.C., Professional Edge Fund, L.P. Tague Securities Corp., Lakota Trading Inc., Refco Securities, Inc., Bridgeport Securities Group Co., Johnson Trading Corp., Group One Trading L.P., Beartooth Trading Inc., Cranmer & Cranmer, Inc., Goin & Co., L.L.C., Ags Specialist Partners, LETCO, Bearhunter LLC., Kalb, Voorhis & Co., LLC., Highland Securities Co., GHM, Inc., D.A. Davidson & Co., Inc., Charlton, Inc., Hull Trading Co. L.L.C., Binary Traders, Inc., Defendants-Appellees.

Docket No. 01-7371.

Docket No. 01-7580.

United States Court of Appeals, Second Circuit.

Argued: February 26, 2002.

Decided: January 9, 2003.

COPYRIGHT MATERIAL OMITTED

Arthur R. Miller, Cambridge, Massachusetts (Bruce E. Gerstein, Stephen H. Schwartz, Jeffrey M. Lax, Garwin Bronzaft Gerstein & Fisher, New York, New York, Andrew D. Friedman, Wechsler Harwood Halebian & Feffer, New York, New York, Bernard Persky, Barbara Hart, Goodkind Labaton Rudoff & Sucharow, New York, New York, Joseph C. Kohn, Steven M. Steingard, Kohn, Swift & Graf, Philadelphia, Pennsylvania, on the brief), for Consolidated-Plaintiffs-Appellants and Plaintiffs-Appellants.

Jay N. Fastow, New York, New York (Irving Scher, Adam P. Strochak, Weil, Gotshal & Manges, on the brief), for Defendant-Appellee New York Stock Exchange, Inc.

Skadden, Arps, Slate, Meagher & Flom, New York, New York (William P. Frank, Peter E. Greene, Shepard Goldfein, New York, New York, of counsel), Howrey Simon Arnold & White, Washington, D.C. (John W. Nields, Jr., Washington, D.C., of counsel), Willkie, Farr & Gallagher, New York, New York (William H. Rooney, Ian K. Hochman, New York, New York, of counsel), and Wilmer, Cutler & Pickering, Washington, D.C. (Bruce E. Coolidge, Washington, D.C., of counsel), filed a joint brief for, respectively, Defendants-Appellees American Stock Exchange, Inc., Chicago Board Options Exchange, Inc., Philadelphia Stock Exchange, Inc., and Pacific Exchange, Inc.

H. Peter Haveles, Jr., New York, New York (Douglas I. Koff, Adam Masin, Cadwalader, Wickersham & Taft, New York, New York, on the brief), for Defendant-Appellee Timber Hill L.L.C.

Dilworth Paxson, Philadelphia, Pennsylvania (James J. Rodgers, Philadelphia, Pennsylvania, of counsel), for Defendant-Appellee Tague Securities Corp., joined the brief of Defendant-Appellee Timber Hill L.L.C.

David Bohan, Chicago, Illinois (Michael D. Richman, Sachnoff & Weaver, Chicago, Illinois, Scott M. Hines, Michael J. Grudberg, Stillman & Friedman, New York, New York, on the brief) for Defendant-Appellee LETCO.

Piper Marbury Rudnick & Wolfe, New York, New York (Douglas A. Rappaport, New York, New York, Leonard L. Gordon, Washington, D.C., Christopher J. Barber, Nancy L. Hendrickson, Chicago, Illinois, of counsel) filed a brief for Defendant-Appellee D.A. Davidson & Co., Inc.

Fineman & Bach, Philadelphia, Pennsylvania (Steven R. Waxman, Philadelphia, Pennsylvania, of counsel), for Defendant-Appellee Binary Traders, Inc., joined the brief of Defendant-Appellee Timber Hill L.L.C.

Charles A. James, Assistant Attorney General, Washington, D.C. (John M. Nannes, Deputy Assistant Attorney General, Catherine G. O'Sullivan, David Seidman, Attorneys, United States Department of Justice, Washington, D.C., of counsel), filed a brief for Amicus Curiae United States in support of Appellants.

Daniel J. Popeo, Washington, D.C. (Richard A. Samp, Washington, D.C., of counsel), filed a brief for Amicus Curiae Washington Legal Foundation in support of Defendants-Appellees.

Before: KEARSE and JACOBS, Circuit Judges, and JONES, District Judge^*.

KEARSE, Circuit Judge.

Plaintiffs in these class action suits, which were consolidated for pretrial purposes in the United States District Court for the Southern District of New York, appeal from a judgment of that court, Richard Conway Casey, Judge, dismissing their claims that the conduct of defendants American Stock Exchange, Inc. ("AMEX"), et al., in restricting stock-exchange listings of certain securities for options trading violated § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 (2000) ("Sherman Act"). The district court granted summary judgment in favor of defendants, ruling that the Sherman Act, insofar as it might have applicability to the listing and trading of options on securities exchanges regulated by the Securities and Exchange Commission ("SEC" or "Commission"), has been impliedly repealed by the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (2000) ("Exchange Act"). Plaintiffs also appeal from a post-judgment order of the district court, ruling that the implied repeal of the Sherman Act with respect to plaintiffs' claims deprived the court of subject matter jurisdiction to entertain motions, made under Fed. R.Civ.P. 23(e) prior to the court's ruling on the motions for summary judgment, for judicial approval of settlement agreements entered into between plaintiffs and certain of the defendants. On appeal, plaintiffs contend principally that the district court erred (a) in holding that the Sherman Act's application to restrictions on options listing and trading is impliedly repealed by the Exchange Act, and (b) in ruling that the court lacked jurisdiction to approve the proposed settlements of these class actions. For the reasons that follow, we affirm the dismissal of the antitrust claims, but we vacate the postjudgment order and remand for further proceedings with respect to the settlement agreements.

I. BACKGROUND

The present litigation involves the trading of equity options on various stock exchanges. The facts material to the district court rulings that are the subject of this appeal are not in dispute.

A. The Complaints, the Motions To Dismiss, and the History of SEC Regulation of Options Trading

Plaintiffs are persons who purchased equity options after December 31, 1994. Defendants are AMEX, the Chicago Board Options Exchange, Inc. ("CBOE"), the New York Stock Exchange, Inc. ("NYSE"), the Pacific Stock Exchange, Inc. ("Pacific Exchange"), the Philadelphia Stock Exchange, Inc. ("Philadelphia Exchange") (collectively "the Exchanges"), and members of the Exchanges that acted as market makers and specialists in options trading (the "market maker defendants"). In early 1999, various plaintiffs commenced more than 20 class actions alleging that defendants had conspired to restrict the listing and trading of particular options to one stock exchange at a time, thereby restraining trade in such options in violation of § 1 of the Sherman Act.

The Judicial Panel on Multidistrict Litigation transferred the actions to the Southern District of New York for consolidated pretrial proceedings. A consolidated complaint was filed, alleging antitrust violations as described above and seeking monetary and injunctive relief. In January 2000, the Exchanges, joined by the market maker defendants, moved pursuant to Fed.R.Civ.P. 12(b)(6) for dismissal of the consolidated complaint on the ground, inter alia, that Congress had impliedly repealed the antitrust laws with respect to the listing and trading of options by empowering the SEC to regulate those matters.

The history of the SEC's regulation of options trading on securities exchanges is undisputed and is set forth in detail in the Opinion and Order of the district court dated February 14, 2001, which dismissed the antitrust claims, see In re Stock Exchanges Options Trading Antitrust Litigation, 99 Civ. 962, 2001 WL 128325 (S.D.N.Y. Feb.15, 2001) ("District Court Opinion" or "February 14 Opinion"). The course of that regulation is summarized here.

The trading of options on national exchanges began in 1973 when CBOE became registered as a national exchange; such trading was regulated in Rule 9b-1, promulgated by the Commission under the Exchange Act, see SEC Rule 9b-1, 17 C.F.R. § 240.9b-1. When other exchanges proposed to list options for trading, the SEC commenced a study of the practice, including the question of whether the trading of options on a given class of...